Legislature(2005 - 2006)CAPITOL 106
04/12/2005 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Human Rights Commission | |
| HB215 | |
| HB238 | |
| SB87 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 238 | TELECONFERENCED | |
| + | HB 215 | TELECONFERENCED | |
| += | SB 87 | TELECONFERENCED | |
| + | HB 167 | TELECONFERENCED | |
| + | HB 160 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 12, 2005
8:03 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Carl Gatto, Vice Chair
Representative Jim Elkins
Representative Bob Lynn
Representative Jay Ramras
Representative Berta Gardner
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CONFIRMATION HEARING(S)
State Commission for Human Rights
M. Chris Hayes - Fairbanks
Lester Charles Lunceford - Whittier
Barbara J. "Tamie" Miller - Wasilla
Randall H. Eledge - Anchorage
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 215
"An Act relating to the investment responsibilities of the
Alaska Permanent Fund Corporation; relating to regulations
proposed and adopted by the Board of Trustees of the Alaska
Permanent Fund Corporation and providing procedures for the
adoption of regulations by the board; and providing for an
effective date."
- MOVED HB 215 OUT OF COMMITTEE
HOUSE BILL NO. 238
"An Act relating to contribution rates for employers and members
in the defined benefit plans of the teachers' retirement system
and the public employees' retirement system and to the ad-hoc
post-retirement pension adjustment in the teachers' retirement
system; requiring insurance plans provided to members of the
teachers' retirement system, the judicial retirement system, the
public employees' retirement system, and the former elected
public officials retirement system to provide a list of
preferred drugs; relating to defined contribution plans for
members of the teachers' retirement system and the public
employees' retirement system; and providing for an effective
date."
- HEARD AND HELD
SENATE BILL NO. 87
"An Act relating to motor vehicle safety belt violations."
- MOVED HCS SB 87(STA) OUT OF COMMITTEE
HOUSE BILL NO. 167
"An Act relating to providing a death certificate for a deceased
veteran without cost."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 160
"An Act limiting the use of money of the state and its political
subdivisions to affect an election."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 215
SHORT TITLE: PERM FUND CORP. INVESTMENTS/REGULATIONS
SPONSOR(s): REPRESENTATIVE(s) ROKEBERG BY REQUEST
03/09/05 (H) READ THE FIRST TIME - REFERRALS
03/09/05 (H) STA, FIN
04/12/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 238
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT
SPONSOR(s): STATE AFFAIRS
03/30/05 (H) READ THE FIRST TIME - REFERRALS
03/30/05 (H) STA, FIN
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
03/31/05 (H) Heard & Held
03/31/05 (H) MINUTE(STA)
04/02/05 (H) STA AT 10:00 AM CAPITOL 106
04/02/05 (H) Heard & Held
04/02/05 (H) MINUTE(STA)
04/05/05 (H) STA AT 8:00 AM CAPITOL 106
04/05/05 (H) Heard & Held
04/05/05 (H) MINUTE(STA)
04/07/05 (H) STA AT 8:00 AM CAPITOL 106
04/07/05 (H) Scheduled But Not Heard
04/09/05 (H) STA AT 9:30 AM CAPITOL 106
04/09/05 (H) Heard & Held
04/09/05 (H) MINUTE(STA)
04/12/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: SB 87
SHORT TITLE: SEAT BELT VIOLATION AS PRIMARY OFFENSE
SPONSOR(s): SENATOR(s) BUNDE
02/02/05 (S) READ THE FIRST TIME - REFERRALS
02/02/05 (S) STA, JUD
02/17/05 (S) STA AT 3:30 PM BELTZ 211
02/17/05 (S) Moved SB 87 Out of Committee
02/17/05 (S) MINUTE(STA)
02/18/05 (S) STA RPT 2DP 2NR
02/18/05 (S) NR: THERRIAULT, HUGGINS
02/18/05 (S) DP: ELTON, WAGONER
03/01/05 (S) JUD AT 8:30 AM BUTROVICH 205
03/01/05 (S) Moved SB 87 Out of Committee
03/01/05 (S) MINUTE(JUD)
03/02/05 (S) JUD RPT 3DP 2NR
03/02/05 (S) DP: SEEKINS, FRENCH, GUESS
03/02/05 (S) NR: THERRIAULT, HUGGINS
03/03/05 (S) TRANSMITTED TO (H)
03/03/05 (S) VERSION: SB 87
03/04/05 (H) READ THE FIRST TIME - REFERRALS
03/04/05 (H) STA, JUD
03/19/05 (H) STA AT 9:30 AM CAPITOL 106
03/19/05 (H) Heard & Held
03/19/05 (H) MINUTE(STA)
04/12/05 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
M. CHRIS HAYES
Fairbanks, Alaska
POSITION STATEMENT: Testified as appointee to the Human Rights
Commission.
LESTER CHARLES LUNCEFORD
Whittier, Alaska
POSITION STATEMENT: Testified as appointee to the Human Rights
Commission.
BARBARA J. "TAMIE" MILLER
Wasilla, Alaska
POSITION STATEMENT: Testified as appointee to the Human Rights
Commission.
RANDALL H. ELEDGE
Anchorage, Alaska
POSITION STATEMENT: Testified as appointee to the Human Rights
Commission.
MICHAEL J. BURNS, Executive Director
Alaska Permanent Fund Corporation
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Presented HB 215 on behalf of the
department.
LAURA ACHEE, Research and Communications Liaison
Alaska Permanent Fund Corporation
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions on behalf of the
department during the hearing of HB 215.
KATHERINE SHOWS, Staff
to Representative Paul Seaton
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided clarification during the hearing
on HB 238, on behalf of Representative Seaton, sponsor.
MR. BRAD LAWSON
Mercer Human Resource Consulting
Seattle, Washington
POSITION STATEMENT: Reviewed the projected values for health
reimbursement accounts prepared by Mercer Resource Consulting,
on behalf of the Division of Retirement & Benefits, during the
hearing on HB 238.
MELANIE MILLHORN, Director
Health Benefits Section
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Offered closing remarks on behalf of the
division during the hearing on HB 238.
SENATOR CON BUNDE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of SB 87.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 8:03 a.m. Representatives Gatto,
Elkins, Lynn, and Seaton were present at the call to order.
Representatives Ramras, Gardner, and Gruenberg arrived as the
meeting was in progress.
^CONFIRMATION HEARING(S)
^Human Rights Commission
CHAIR SEATON announced the first order of business, the
confirmation hearings for appointees to the Human Rights
Commission.
8:04:47 AM
[Due to technical difficulties, the portion of Ms. Hayes'
testimony from 8:04:22 to 8:05:40 has been taken from Gavel to
Gavel.]
M. CHRIS HAYES - Fairbanks, Alaska
M. CHRIS HAYES, appointee to the Human Rights Commission, told
the committee that she has lived in Alaska virtually her whole
life and loves the state. She said she wants to ensure that
people are guaranteed human rights and are not discriminated
against. She said many cities have established their own human
rights commissions that work in concert with the state's Human
Rights Commission. Ms. Hayes stated her belief that she would
offer a needed perspective to the commission, because she is a
fair-minded person.
8:05:56 AM
CHAIR SEATON noted that Ms. Hayes is a current member of the
U.S. Commission on Civil Rights.
8:06:04 AM
MS. HAYES said she is a member of the "area regional council of
the area regional committee." She said the group meets only
about twice a year, but is active when funding is available.
She listed some of the issues that the group addressed.
8:07:07 AM
MS. HAYES, in response to a question from Representative Gatto,
said "COGIC" - an acronym written on her resume - stands for
Church of God in Christ. She offered details regarding COGIC,
including that its members believe that everyone has the right
to believe what they want.
8:07:41 AM
REPRESENTATIVE LYNN noted that Ms. Hayes had said the civil
rights group dealt with the issue of exit exams, and he asked
her how that relates to civil rights.
8:07:59 AM
MS. HAYES replied that it's an issue of discrimination. She
explained, "It's not so much the exam, but the consequences of
not passing it."
8:08:46 AM
REPRESENTATIVE GATTO asked, "Is it discrimination if everyone is
subject to the same rules?"
8:09:01 AM
MS. HAYES answered, "If it's the law and the rule? No, it
wouldn't be discrimination unless it goes against the basic
human rights." She said there have been laws in the past that
have been discriminatory in nature. She said issues are dealt
with on a case-by-case basis. In response to a follow-up
question from Representative Gatto, she explained that the
previously mentioned exit exam was questioned by some Native
Alaskan groups who felt that the resources for learning in
preparation for the test were not being made available.
8:10:45 AM
REPRESENTATIVE GARDNER moved to forward the confirmation of M.
Chris Hayes [to the joint session of the House and Senate for
confirmation]. There being no objection, the confirmation was
advanced from the House State Affairs Standing Committee.
LESTER CHARLES LUNCEFORD - Whittier, Alaska
8:11:41 AM
LESTER CHARLES LUNCEFORD, appointee to the Human Rights
Commission, said he has served two years on the commission and
has been reappointed by the governor for a second term. He
reviewed that his background has been that of a career police
officer. He was the former chief of police for the City of
Whittier and is currently the mayor for that city, but his
paying job is as a real estate manager for the Alaska Railroad
Corporation. He stated that he has a wide variety of interests
and experience and thinks his law enforcement background would
be useful on the commission. He entertained questions from the
committee.
8:13:34 AM
MR. LUNCEFORD, in response to a question from Representative
Gatto, listed the top three discriminatory acts as: sexual
[harassment], age discrimination, and race discrimination.
8:14:18 AM
REPRESENTATIVE GARDNER moved to forward the confirmation of
Lester Charles Lunceford to the joint session of the House and
Senate for confirmation. There being no objection, the
confirmation was advanced from the House State Affairs Standing
Committee.
BARBARA J. "TAMIE" MILLER - Wasilla, Alaska
8:14:45 AM
BARBARA J. "TAMIE" MILLER, appointee to the Human Rights
Commission, told the committee that she has been a resident of
Alaska for 44 years. She said she is a retired teacher whose
work in the classroom afforded her the opportunity to ensure
that all her students were treated equally. Ms. Miller said she
looks for ways to enhance her community. In response to a
question from Chair Seaton, she said she has not previously
served on the commission, but served on [the National Education
Association, Alaska branch (NEA-Alaska)] for 18 years - 12 of
those years as its president.
8:16:25 AM
CHAIR SEATON noted that Ms. Miller's application form is
included in the committee packet.
8:16:54 AM
MS. MILLER, in response to a question from Representative
Gardner regarding Ms. Miller's NRECA certification, explained
that NRECA stands for "National Rural Electric Cooperative
Association."
8:17:13 AM
REPRESENTATIVE GRUENBERG asked Ms. Miller if she or anyone she
knows has ever been party to an adjudication before the Human
Rights Commission or any other local human rights commission
because of a discrimination issue.
8:17:40 AM
MS. MILLER responded that she doesn't believe so. She explained
that if there were any issues during her time serving with [NEA-
Alaska], they were probably handled by staff.
8:17:48 AM
REPRESENTATIVE GARDNER asked Ms. Miller if she has any
experience directly related to civil rights.
8:18:02 AM
MS. MILLER reiterated that, as a teacher, she practiced her firm
belief that every student deserves to be treated equally.
8:18:30 AM
CHAIR SEATON remarked that it's nice to see such diversity of
candidates, because that's probably what is needed on the Human
Rights Commission.
8:19:06 AM
REPRESENTATIVE GARDNER moved to forward the confirmation of
Barbara J. "Tamie" Miller to the joint session of the House and
Senate for confirmation. There being no objection, the
confirmation was advanced from the House State Affairs Standing
Committee.
RANDALL H. ELEDGE - Anchorage, Alaska
8:19:35 AM
RANDALL H. ELEDGE, appointee to the Human Rights Commission,
noted that he is a 23-year resident of Alaska who will bring his
business experience to the commission. He expressed his desire
to serve on the commission to "give back to the state some of
what it's given to me and my family."
8:20:33 AM
CHAIR SEATON noted that Mr. Eledge had sat on the board of
directors for the Susitna Girl Scouts.
8:20:38 AM
REPRESENTATIVE GRUENBERG reiterated his question regarding
experience with discrimination issues before the Human Rights
Commission or any other related commission.
8:21:07 AM
MR. ELEDGE said he remembers some names that were brought
forward, but they were not personal acquaintances. In response
to further questions from Representative Gruenberg, he offered
definitions for some of the acronyms found in his resume.
8:22:12 AM
REPRESENTATIVE GARDNER moved to forward the confirmation of
Randall H. Eledge to the joint session of the House and Senate
for confirmation. There being no objection, the confirmation
was advanced from the House State Affairs Standing Committee.
The committee took an at-ease from 8:23:10 AM to 8:24:38 AM.
8:25:01 AM
CHAIR SEATON discussed the schedule for the remainder of the
meeting.
The committee took an at-ease from 8:25:44 AM to 8:27:44 AM.
HB 215-PERM FUND CORP. INVESTMENTS/REGULATIONS
CHAIR SEATON announced that the next order of business was HOUSE
BILL NO. 215, "An Act relating to the investment
responsibilities of the Alaska Permanent Fund Corporation;
relating to regulations proposed and adopted by the Board of
Trustees of the Alaska Permanent Fund Corporation and providing
procedures for the adoption of regulations by the board; and
providing for an effective date."
8:28:44 AM
MICHAEL J. BURNS, Executive Director, Alaska Permanent Fund
Corporation, Department of Revenue, presented HB 215 on behalf
of the department. He said the bill would change the [legal]
list of permissible investments for the permanent fund currently
found in statute to "the prudent-investor rule." He noted that
currently, 45 of the 50 states' pension funds, including
Alaska's, use the [prudent-investor] rule. He said Alaska's
Public Employees' Retirement System (PERS) and Teachers'
Retirement System (TRS) have no statutory guideline, but use the
[prudent-investor] rule. He said when the fund was originally
created, it was 100 percent in fixed income, which made sense at
the time. Over time, investments have been liberalized, and the
fund's performance has reacted positively to that. Today, he
emphasized, the statutory list is actually impeding progress,
"causing us to take higher risks for lower returns."
MR. BURNS directed attention to page 4 of a handout from the
Alaska Permanent Fund, included in the committee packet, which
is entitled, "Reducing Risk, Increasing Return." On page 4 is a
graph called, "Efficient Frontier." He noted that the lower
blue line shows the expected returns of various asset mixes, and
the blue square shows "were we are today." He added that that's
where the trustees made their asset allocation, in [March 2004].
He explained that the vertical axis shows "expected historical
returns" and the horizontal axis shows "increase in risk" from
left to right. He continued as follows:
So, if you go directly above the blue box to the
purple box [showing standard deviation], that's the
efficient frontier without a statutory list; that is
the return that we could get today for exactly the
same risk we are taking. Or conversely, if you look
to the left at the green box [showing expected
return], we could get the same return we're getting
today for that much less risk. So, the statutory list
is putting us in a position where we are taking more
risk for less return.
8:32:30 AM
MR. BURNS, in response to a question from Representative
Gardner, explained that the numbers 1-10 along the blue and red
lines stand for different asset mixes that the trustees would
look at. He added, "We landed on number 8, and that's probably
55 percent equities [and] ... 35 percent bonds." He indicated
that he was also referring to page 5 of the handout. He said,
"That's how the efficient frontier is - the different mixes of
assets are those points along there, and we've highlighted the
square one, because that's the one we decided on a year ago."
He added, "Those are driven by the historical returns of the
various asset categories."
8:33:26 AM
REPRESENTATIVE GARDNER responded that she didn't see "on the
chart where 8 is." She indicated that what she could not see is
what is corresponding to the current target or goal.
8:33:36 AM
LAURA ACHEE, Research and Communications Liaison, Alaska
Permanent Fund Corporation, Department of Revenue, in response
to a question from Representative Gardner, explained:
We don't have all of the possible portfolios; so, the
triangles that you're looking at that are numbered -
we don't have those in your packet. What we do have
are the main points - the blue box, the green box, the
brown box, the purple box - and those are on page 5.
And, unfortunately, they're not labeled so clearly
that you can immediately spot them, but they match up
in color. ... For instance, the brown box is labeled,
"expected return equals 8.5 percent," and so, if you
look on page 5, there's a column [with a matching
title] ..., and ... that shows you the asset
allocation that corresponds to that point.
8:34:23 AM
CHAIR SEATON said what is being considered in HB 215 is changing
the philosophy from having the legislature dictating what the
basket of investments will be to requiring the prudent-investor
rule to be used for the management of the permanent fund.
8:34:46 AM
MR. BURNS, in response to a question from Representative Gatto,
said there is an existing definition of the prudent-investor
rule.
8:34:59 AM
MS. ACHEE said the idea of the "prudent man rule" has existed
for a long time, and the prudent-investor rule was defined in
the early 90s.
8:35:33 AM
MR. BURNS pointed out that one of the important concepts of the
prudent-investor rule is that "you don't have to be right, but
you have to ... document ... your thought process ...." He said
he thinks that's what the board meetings are about, and that's
why there are investors and advisors. He stated, "The fund is
governed today by the prudent-investor rule and further governed
by the statutory limitations; so, we do operate as prudent
investors today."
8:36:04 AM
REPRESENTATIVE GATTO gave opposite examples of what two
different investors may call "prudent." He asked, "Isn't that
kind of a self concept?"
8:36:32 AM
MR. BURNS replied that both of Representative Gatto's examples
would defy [the term] prudent investor, because they lack
diversity, which is necessary. He stated, "A very important
thing today is lack of correlation." He explained that
portfolios were previously constructed whereby a great deal of
thought was given to each particular asset. Today, he
continued, the same thought is given to the asset, but also to
how it interacts within the whole portfolio. He said it's
important to have things that don't correlate, but rather
respond to different things. He added, "A lot of those
[uncorrelated] assets that we're talking about are really not
available to us today, and that's, I think, one of the things
that's impeding our performance, or holding us back."
8:37:39 AM
REPRESENTATIVE RAMRAS asked if it would follow the prudent-
investor rule to borrow money on $400 million at standard bond
rates and then pay it back with permanent fund earnings. He
said, "I'm thinking about the Amerada Hess [Corporation]-type of
approach that the House is contemplating. Does that follow the
prudent-investor rule?"
8:38:43 AM
MR. BURNS responded as follows:
We would actually not be making that investment. I
think from just the financial mathematics, any time
you can borrow tax exempt and invest taxable ..., or
use it in a taxable fashion, I think that makes ... a
great deal of sense. The Amerada Hess [Corporation] -
that's not a decision that the trustees would make, so
it doesn't fall under the prudent-investor [rule];
that's not an investment that they would be making, or
the leverage is a decision that they would not be
making .... They would continue to invest the Amerada
Hess [Corporation] dollars just as they did the rest
of the fund.
8:39:58 AM
CHAIR SEATON, in response to further comments from
Representative Ramras, asked that the discussion be focused on
the issue at hand.
8:40:23 AM
REPRESENTATIVE GARDNER asked Mr. Burns if he knows of anyone who
is or may be opposed to the change proposed in HB 215.
8:40:33 AM
MR. BURNS said the permanent fund has historically been
supported in changes to its asset mix by the legislature. He
said the only reluctance he has heard from some people is that
perhaps this [change] should be taken more incrementally. He
said, "I think with the asset types that we're talking about -
that doesn't really work." He offered an example as follows:
We have a commitment today under the basket clause of,
I believe, $600 million to private equity. We have a
commitment today of ... about $240 million to private
equity of that commitment of $600 million. Actually
outstanding, that people have drawn down, is $2.6
million. So, there's a real execution risk in trying
to incrementally do this in a process that's
incremental already .... We're looking at - today -
our commitment to private equity. And to get to the
point where we want to be, we need to commit more than
we want to get to, just because it takes so long. And
some of them, you have returns starting to come back
before the money is actually drawn down. So, you need
to commit beyond what you want. If you have statutory
limitation, that's a real problem.
MR. BURNS offered an example regarding the University of Alaska
foundation.
8:42:54 AM
REPRESENTATIVE ELKINS moved to report HB 215 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 215 was reported out of the
House State Affairs Standing Committee.
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT
8:44:31 AM
CHAIR SEATON announced that the next order of business was HOUSE
BILL NO. 238, "An Act relating to contribution rates for
employers and members in the defined benefit plans of the
teachers' retirement system and the public employees' retirement
system and to the ad-hoc post-retirement pension adjustment in
the teachers' retirement system; requiring insurance plans
provided to members of the teachers' retirement system, the
judicial retirement system, the public employees' retirement
system, and the former elected public officials retirement
system to provide a list of preferred drugs; relating to defined
contribution plans for members of the teachers' retirement
system and the public employees' retirement system; and
providing for an effective date."
[Before the committee as a work draft was committee substitute
(CS) for HB 238, Version 24-LS0761\L, Craver, 4/8/05.]
8:44:42 AM
CHAIR SEATON directed attention to a series of 15 tables showing
the "Projected Values for Health Reimbursement Accounts," which
were added to the committee packet to replace an inaccurate set
of tables previously in the packet.
8:46:18 AM
KATHERINE SHOWS, Staff to Representative Paul Seaton, Alaska
State Legislature, on behalf of Representative Seaton, sponsor,
reminded the committee that the retirement for all the
categories about to be discussed is set at 30 years in HB 238.
8:46:38 AM
MR. BRAD LAWSON, Mercer Human Resource Consulting, referring to
the 15 tables, reviewed the contents page, which lists the types
of accounts, and read as follows:
1. PERS "other" early hire - 1% HRA
2. PERS "other" early hire - 2% HRA
3. PERS "other" late hire - 1% HRA
4. PERS "other" late hire - 2% HRA
5. PERS "other" with spouse late hire - 2% HRA
6. PERS police/fire early hire - 1% HRA
7. PERS police/fire early hire - 2% HRA
8. PERS police/fire late hire - 1% HRA
9. PERS police/fire late hire - 2% HRA
10. PERS police/fire with spouse late hire - 2% HRA
11. TRS early hire - 1% HRA
12. TRS early hire - 2% HRA
13. TRS late hire - 1% HRA
14. TRS late hire - 2% HRA
15. TRS late hire with spouse - 2% HRA
8:47:34 AM
CHAIR SEATON noted that the upper-left corner of each chart
shows the assumptions.
8:48:44 AM
MR. LAWSON selected the first chart to review the assumptions.
8:52:00 AM
REPRESENTATIVE GARDNER asked why the subsidy base is calculated
from 2003, when the hire date is 2005.
8:52:20 AM
MR. LAWSON explained as follows:
We have the premium rate, from which we subtract a
subsidy base that's established by the legislature,
and we arrive then at a retiree contribution. ...
The subsidy base that we established at 7/1/2003 was
equivalent to the claims cost. Each retiree then is
entitled to a portion of that subsidy base towards
their health care cost. ... So, the subsidy base
multiplied by the percentage determines the amount of
dollars that will go towards that retiree's health
care cost, ... with the retiree making up the balance
of the premium.
8:54:54 AM
MR. LAWSON, in response to Chair Seaton, said the subsidy base
represents the known or fixed responsibility of the system
toward the health care coverage.
8:55:04 AM
CHAIR SEATON said this is the point, during discussion of the
bill on a previous day, when the committee had to remove a
section regarding a 5 percent limit on premiums, because it is
not feasible to set that limit with fluctuating health care
costs and service. He indicated the result is that "the 5
percent is limiting the amount of escalation that the system is
paying over time."
8:55:39 AM
MR. LAWSON answered that's correct. He added, "And with the
retiree making up that remaining portion."
8:55:50 AM
MR. LAWSON continued with the first chart, reading the columns
from left to right.
8:59:53 AM
REPRESENTATIVE GRUENBERG asked if there is a column that totals
the amount of contributions over the 30 years.
9:00:10 AM
MR. LAWSON noted that that amount is shown in the column
entitled, "End of Year HRA Balance." He offered further
details.
9:01:21 AM
REPRESENTATIVE GRUENBERG said he wants to know if there are
totals listed before interest.
9:01:51 AM
MR. LAWSON indicated that the committee doesn't have that
listed, but, based on a spreadsheet he had open in front of him,
he said, "That is just a hair over $20,000." He continued with
his review. He noted that the pre-Medicare composite trend
factor represents an average of medical and prescription drugs.
9:03:17 AM
MR. LAWSON, in response to Representative Seaton, confirmed that
the pre-Medicare composite trend uses rounding of numbers. He
added, "And some of that also is an interplay of the
prescription drug assumptions, which is a higher ... starting
trend amount, and the medical inflation, which we have
decreasing at a slower rate, but starting at a lower point."
9:04:36 AM
REPRESENTATIVE GARDNER asked, "So, this number of $7,319 ... is
the subsidy base of $5,962, increased by roughly 12 percent per
year for the two years here?"
9:04:45 AM
MR. LAWSON answered that's correct, but he said that 11 percent
would perhaps be more accurate.
9:06:04 AM
MR. LAWSON noted that the subsidy base increases year to year,
but at a slower pace than the composite premium. He explained
that is because it is being limited to 5 percent, versus the 9-
11 percent seen in the premium growth. He pointed out that the
subsidy, beginning at age 55 through age 59, is zero. He
explained, "That is a result of the provision that the subsidy
will not begin until five years prior to Medicare eligibility.
During that five years ..., the retiree will then be responsible
for the entire premium amount, receiving zero subsidy." At age
60, the retiree is eligible for a subsidy. He offered further
details.
MR. LAWSON highlighted where the table shows that the retiree
would be required to make a contribution at age 55, the year
after retirement. The retiree would be responsible for the
entire premium and remain so for five years, until the system-
sponsored subsidy begins, at which point the retiree's
contribution would drop. He explained that that's the result of
subtracting the retiree subsidy from the composite premium
amount.
9:11:00 AM
MR. LAWSON, regarding the beginning year health reimbursement
account balance and the health care reimbursement "spend down,"
said the "HRA spend" amount in the first year [of retirement]
would equate to the entire premium amount for which the retiree
is responsible. He stated that after pulling that amount out,
one would expect a difference in the HRA balance; however, it is
important to remember that the money left will grow with
interest over the remainder of the year. The amount in the HRA
spend column reflects that interest. He offered further
details.
9:13:14 AM
CHAIR SEATON observed:
In ... the last column and the third to the last
column we have ... [$42,751], and that actually shows
a retiree contribution of that amount, but it's
actually being spent from the HRA. Now that was an
employer contribution into the employer-funded HRA,
but it is still money that's available for health care
to the retiree. So, this is assuming that money will
make that payment. Is that correct?
9:13:50 AM
MR. LAWSON answered in the affirmative. He stated, "I believe
that the way the bill was written, the payment will come out of
the HRA until it's exhausted, but the retiree can also designate
... that balance to pay for other expenses, as well, such as [a]
deductible or if they have some other permissible expenses that
they wanted to get reimbursed for."
9:14:14 AM
CHAIR SEATON observed that the employee at year 32 on the table
will have to come up with approximately $13,500 in order to
supplement the HRA.
9:15:02 AM
MR. LAWSON responded that's correct, "as the remainder of the
premium contribution."
9:15:16 AM
CHAIR SEATON made some other observations based on the first
table. He indicated that the good thing about the table is that
it shows that there is a huge problem. He said the numbers are
"incredible to most of us." He offered further details. He
noted that the medical base is one-sixth of total salary, but by
the year before retirement, 40 percent of salary is eaten up in
medical costs. With an advance apology to Mr. Lawson, he said,
"Actuarials are kind of fortune tellers or soothsayers, and
they're projecting out these numbers, and they just become kind
of incredible to me." He said the committee is attempting to
create a system that "works within the numbers" and won't put an
employee at risk of losing all his/her medical [coverage]. He
stated, "We're assuming in the model that health care is really
only growing at 5 percent." However, if it grows at 10 percent,
an employee would be paying more in medical than his/her total
salary.
9:18:49 AM
MR. LAWSON responded that he thinks it's important to keep in
mind that "these are retired medical valuation trends" and,
according to actuarial guidelines and standards, those high
medical trends do need to decrease on a long-range projection.
He pointed out that using 5 percent rather than the standard 3.5
percent assumption used for inflation purposes adds an element
of conservatism.
CHAIR SEATON said he did not intend his previous comments to be
a challenge; he wants the committee to be aware that staying at
6 percent, rather than 5 percent, for example, would result in a
much greater discrepancy between the subsidy base and the
composite medical amount.
9:20:57 AM
CHAIR SEATON said, "You can see why my staff and I, and
everybody that's been trying to deal with these numbers, is
going kind of nuts trying to figure out what there is that can
work." He warned that the legislature must be careful not to
create a system that says a person has access to medical care,
but he/she doesn't have money for that access and is out of the
plan and then ineligible when he/she turns 65 because coverage
lapsed. He also warned against a system where people cannot
retire before age 65 without losing medical coverage. He stated
that medical coverage is the most important component and that
is the challenge of the committee in working on HB 238.
CHAIR SEATON directed attention to the next page, which shows
the PERS "other" early hire at 2 percent. He said it shows that
"the HRA actually pays for three years and there's only [a] one-
year gap in the coverage." He offered further details.
9:25:42 AM
MR. LAWSON said it's important to note that, under the current
system, the entire gross retiree premium cost would be paid for
by the system so that the retiree is incurring virtually no
premium sharing or contribution expenses under the current
program. He continued:
In this 2 percent scenario, we see that the total
state subsidy of $200,000 still remains constant. And
that represents just a little bit under 40 percent of
those entire costs. By the time you add the HRA
reimbursement in, the system has contributed or been
responsible for over 67 percent of the ... retiree
health costs, at this point. And so, looking at it
from a perspective of cost share ... that's actually a
fairly large percentage or a substantial subsidy or
contribution towards their health care costs,
particularly in relationship to looking at the current
marketplace and what other employers and government
agencies are doing.
9:27:01 AM
REPRESENTATIVE GATTO mentioned that his 21-year-old daughter
signed off his plan and is [covered by the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA)], at about $900 per
month.
9:27:38 AM
MR. LAWSON, in response to a question from Representative Gatto
regarding the price of insurance for someone if he/she were
self-paying, said there is a starting base of $7,318 for a group
rate. He surmised that on an individual basis, that amount
would probably be closer to $10,000-$11,000. He said there are
two issues: One, a self-paid plan would certainly be more
expensive; and two, it would be hard to find such a plan. He
said, "That is why access, without evidence of insurability is,
in itself, a benefit."
CHAIR SEATON observed that the individual, even continuing on
COBRA, is "apparently costing more."
MR. LAWSON said to keep in mind "that we may not be comparing
apples and apples in those two numbers."
9:32:49 AM
MR. LAWSON compared aspects of table 4, which shows PERS "other"
late hire, to table 5, which shows PERS "other" with spouse at 2
percent HRA. He said, "All else remaining constant, the total
premium amount is actually going to double for this individual"
[with covered spouse]. He said, "So, while their contributions
will double, their HRA balance ... remains constant. This
results in ... a substantial increase to the net retiree."
9:34:20 AM
CHAIR SEATON said there is a lot for the committee to consider.
He reviewed some previously stated considerations for the
committee to make.
9:36:41 AM
MELANIE MILLHORN, Director, Health Benefits Section, Division of
Retirement & Benefits, Department of Administration, stated that
she thinks Chair Seaton, through the tables and through his
testimony, has accurately depicted that medical costs are a
large issue and the balance needed by employers to provide the
coverage and the employees' need to have the coverage is the
issue before the committee.
9:37:08 AM
MS. SHOWS, in response to a question from Chair Seaton,
suggested that the committee may want to consider the salary
levels as slightly inflated.
9:37:50 AM
CHAIR SEATON clarified that the average salary equals the
average salary in the system, not the average beginning salary.
He also asked that the committee remember that the 1 percent or
2 percent is a percentage of the system class salary, not of
individual salaries. He explained, "Because you can't have
discrimination between people that are getting paid more and
less under a federal health care reimbursement account."
9:39:01 AM
MS. MILLHORN said over 25 states have set their retirement age
at 65. She said the reason is that that's when benefits
commence and that's also the age at which those retirees would
be entitled to medical benefits.
[HB 238 was heard and held.]
The committee took an at-ease from 9:40:29 AM to 9:43:49 AM.
SB 87-SEAT BELT VIOLATION AS PRIMARY OFFENSE
9:43:52 AM
CHAIR SEATON announced that the last order of business was
SENATE BILL NO. 87, "An Act relating to motor vehicle safety
belt violations."
9:44:03 AM
SENATOR CON BUNDE, Alaska State Legislature, as sponsor of SB
87, apologized for his absence from the House State Affairs
Standing Committee's first hearing of SB 87. He asked the
committee to indulge him while he addressed a couple of issues
that "seemed to have been prominent in some of the discussions."
He indicated that he has heard from a countless amount of people
who have said that they don't mind a seatbelt law but don't want
a primary one. The other comment heard frequently is that
people say they always wear their seatbelts; they just don't
want someone telling them to wear it. He added, "Of course, if
they always wear their belt, they would not be subject to any
penalty under this law."
SENATOR BUNDE reminded the committee that there currently is a
primary seatbelt law for people under 16, and he observed that
"the libertarian streak of Alaska did not seem to be irritated
by that portion of a primary law." The other concern that he
said he's heard voiced is that the police will use [a primary
seatbelt law] as a trumped up excuse to make traffic stops. He
said police have told him that if they want to make a preemptive
stop, there are several issues that are far more visible than
whether a person is wearing a seatbelt or not. He listed some
of them.
9:46:29 AM
SENATOR BUNDE addressed the notion that "it's my right to not
wear a belt and suffer the consequences." He said he would
agree with that if not for the matter of the impact on the
insurance pool that drivers belong to that is affected by the
occurrence of accidents. He mentioned [the National Association
for Stock Car Auto Racing (NASCAR)] and said there are two
reasons NASCAR drivers are required to wear seatbelts: One is
for safety, and the other is that seatbelts keep the driver in
better control of the vehicle. He offered further details.
9:48:12 AM
SENATOR BUNDE said the state currently has a secondary seatbelt
law, because not having it would have cost the state a great
deal of money - federal funds. He stated that had the
legislature passed a primary seatbelt law last year, 7-8 Alaskan
lives would have been saved, according to statistics. He said a
father who lost his 19-year-old son asked him to use his story
during testimony. He said teenagers tend to think they are
"bullet-proof" and often don't wear a seatbelt. He stated that
with the adoption of a primary seatbelt law, the use of
seatbelts would go up approximately 10-12 percent. Senator
Bunde passed out a [photo of a vehicle accident] to illustrate
why seatbelt use is so important. He said people seem to accept
the notion that a smoke detector in a home is a wise idea, and
he mentioned carbon monoxide detectors.
9:51:14 AM
REPRESENTATIVE GARDNER asked Senator Bunde to expand on his
comment regarding federal funds.
9:51:31 AM
SENATOR BUNDE revealed that last year the state lost $4 million
in highway safety funds. He said there's a total of $18 million
available; the first year's allotment would be $4 million, then
$2 million for the next 4 years.
9:52:04 AM
REPRESENTATIVE GARDNER asked Senator Bunde if he anticipates
that a primary seatbelt law would reduce insurance rates.
9:52:25 AM
SENATOR BUNDE said he doesn't expect a reduction, but "if we can
have a decrease in the increase, I think that would be something
we should strive toward."
9:52:59 AM
REPRESENTATIVE GATTO offered his understanding that Senator
Bunde's remarks regarding the insurance rates and costs to
others has to do with the possibility that someone may not be
able to pay for hospital costs and those cost would be passed
on. He said, "There's a second side to this sword, and that is:
people in a seatbelt in a major accident could be horribly
injured and not killed. And the killed person has very little
cost, but the horribly injured person could have significant
costs. So, I cannot guarantee or even have an indication that
the use of a seatbelt will save you money." Regarding the 10-12
percent increase [in people who would wear seatbelts if there
were a primary seatbelt law], he asked if that percentage is
"from existing numbers or percentage points."
9:54:04 AM
SENATOR BUNDE responded that it's from existing numbers. He
recollected that currently there is about an 84 percent usage
rate and a statewide survey showed that 70-75 percent supported
a primary seatbelt law.
9:54:29 AM
REPRESENTATIVE GATTO asked if the $4 million in federal funds
were truly lost or reappropriated.
9:54:43 AM
SENATOR BUNDE said his knowledge is that the $4 million dollars
was not received for highway safety.
9:54:54 AM
REPRESENTATIVE GATTO referred to Senator Bunde's mention of
carbon monoxide detectors. He said not having one may risk a
person's life, but it also may risk the lives of other people in
the same facility. He said, "Not wearing a seatbelt will have
no effect on me as a passenger wearing a seatbelt." He recalled
that Senator Bunde mentioned "that if you can just stay in your
car and maybe steer that you might prevent something." He
added, "Although I think in these very tragic situations,
usually everybody's a passenger and nobody's a driver when we
suddenly turn upside-down or roll."
9:55:37 AM
SENATOR BUNDE said, "I see very little difference in the
libertarian attitude of Alaskans between requiring smoke
detectors or carbon monoxide detectors and requiring seatbelts."
9:56:01 AM
REPRESENTATIVE GRUENBERG moved to adopt the committee substitute
(CS) for SB 87, Version 24-LS0457\F, Luckhaupt, 4/11/05, as a
work draft. There being no objection, Version F was before the
committee.
9:56:55 AM
REPRESENTATIVE GRUENBERG reviewed the changes made to the bill
through Version F. He said in current law, to "operate" a
vehicle could mean to turn on the radio or the heater, without
the engine even being on. The language on page 1, line 7 of the
bill was changed to use the word "drive" rather than "operate".
Another term that was changed was "motor vehicle", because it
was too broad. He directed attention to the language added on
page 2, which read:
(5) operators or passengers of motorcycles,
motor-driven cycles, off-highway vehicles, electric
personal mobility vehicles, snowmobiles, and similar
vehicles not designed to be operated on a highway.
REPRESENTATIVE GRUENBERG emphasized that "not designed to be
operated on a highway" only refers to the off-highway vehicles.
He also pointed out that "we have limited this to highways." He
said highways are currently defined to include public roads.
SENATOR BUNDE said he is not aware of any enforcement problems
that the current law and definitions had created; however, he
stated his acceptance of the changes made in Version F.
9:59:57 AM
CHAIR SEATON asked again if there was any objection to adopting
Version F. [Although there was no response, Version F was
treated as adopted.]
10:00:12 AM
REPRESENTATIVE GARDNER, regarding Senator Bunde's previous
comparison of this bill to a past bill regarding carbon monoxide
(CO) detectors, asked, "How would you feel about allowing the
police department to inspect your home for a CO detector?"
10:01:02 AM
SENATOR BUNDE admitted that he was "having a little fun with
Representative Gatto." He said he thinks when there's an
accident the fire department "does indeed inspect." He added
that hotel units have inspections. He said, "I think by your
question you're assuming that the police are going to make this
a major enforcement issue, and I don't make that assumption."
10:01:32 AM
REPRESENTATIVE GARDNER said she recently had occasion to ask a
friend who's a member of the Anchorage Police Department if "it
would be something that ... traffic police would be looking
for," and [the officer] said yes. In fact, the police officer
told her that it is something they love to do; it's called
"fishing."
10:02:15 AM
SENATOR BUNDE said the police officer still has to prove
probable cause for the initial stop.
10:02:20 AM
REPRESENTATIVE GARDNER responded, "But they would have probable
cause if you weren't wearing a seatbelt."
10:02:37 AM
SENATOR BUNDE said the officer would have to prove that he/she
would likely have seen that [before the stop]. He mentioned the
"turnstile jumper laws" in New York. He said, "When they start
enforcing the small laws, a lot of major criminals got captured,
too."
10:03:05 AM
REPRESENTATIVE GATTO mentioned an amendment that would change
the fine from $15 to $100. He asked if that would be offered.
10:03:39 AM
REPRESENTATIVE GARDNER explained that that was an amendment she
had considered offering; however, some of the language in it she
thought would not be a legal solution. She also noted that the
fine for not wearing a seatbelt in Anchorage is already $200 and
she doesn't want to add an additional $100 state fine to that
amount.
10:04:12 AM
REPRESENTATIVE GRUENBERG said "operating" and "driving" only
apply to the driver, not the passenger.
10:04:44 AM
SENATOR BUNDE responded that that's not his understanding of
current law.
10:04:57 AM
CHAIR SEATON stated his understanding that current law provides
for both the operator and for children or passengers.
10:05:11 AM
REPRESENTATIVE RAMRAS moved to report CSSB 87, Version 24-
LS0457\F, Luckhaupt, 4/11/05 out of committee with individual
recommendations and the accompanying fiscal notes.
10:05:42 AM
REPRESENTATIVE GATTO objected.
10:05:56 AM
REPRESENTATIVE GRUENBERG, in response to a request for
clarification from Representative Gatto, explained that the
current bill repeals the provision of law that says a person
cannot have "a primary stop for the seatbelt," and thus would
adopt the primary stop. He offered further details.
10:07:12 AM
REPRESENTATIVE LYNN asked how an officer will know if someone is
wearing a seatbelt.
10:07:30 AM
SENATOR BUNDE said he's sure there are situations where the
seatbelt would not be highly visible; however, he said an
officer should be able to see a seatbelt in city traffic, where
a shoulder strap would be visible.
10:07:54 AM
REPRESENTATIVE RAMRAS, in response to Chair Seaton, expressed
his desire to maintain his previous motion.
10:09:07 AM
A roll call vote was taken. Representatives Lynn, Ramras,
Gruenberg, and Seaton voted in favor of HCS SB 87, Version 24-
LS0457\F, Luckhaupt, 4/1/05. Representatives Gatto, Elkins, and
Gardner voted against it. Therefore, HCS SB 87(STA) was
reported out of the House State Affairs Standing Committee by a
vote of 4-3.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
10:09:17 AM.
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