Legislature(2015 - 2016)CAPITOL 106
03/22/2016 08:00 AM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB299 | |
| HB275 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 299 | TELECONFERENCED | |
| *+ | HB 275 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 299-PERS PARTICIPATION: CONTRACTORS
8:19:22 AM
CHAIR LYNN announced that the first order of business would be
HOUSE BILL NO. 299, "An Act excluding certain persons from
participating in the Public Employees' Retirement System of
Alaska."
8:19:44 AM
REPRESENTATIVE TAMMY WILSON, Alaska State Legislature, as prime
sponsor of HB 299, read the following sponsor statement
[original punctuation provided]:
HB 299, is being brought forward on behalf of the
501(C)3, nonprofit corporation volunteer fire
departments within the Fairbanks North Star Borough,
operating as "independent contractors". They are
currently under contract with the borough to provide
emergency response services. Each nonprofit fire
department has both full time paid employees and
trained volunteers as emergency responders. Each of
these organizations provides benefit plans for all
members. Dolan vs King County was a lawsuit between
the County and independent non-profit organizations
which provided indigent legal services to the county.
Over a period of thirty years, King County asserted
increasing budgetary and day to day authority over the
formerly independent non-profit organizations. In
doing so, it asserted more control over the groups
that provided the services. Employees of the
organizations sued the County for the state employee
benefits. They argued that the County's funding and
control over their "independent" organizations
essentially made them state employees for the purposes
of participating in the Public Employees Retirement
System (PERS) and under pertinent statutes and common
law principles, the Supreme Court agreed that
employees of the organizations were "employees" under
state law, and, as such, were entitled to be enrolled
in the PERS. HB 299 would clearly define who is
eligible for the Public Employees' Retirement System
of Alaska and give added protection to municipalities
against such liability. In times of such fiscal strife
this legislation would encourage the exploration and
utilization of cost effective measures for services
and promote independent organizations and business.
This bill emphasizes the need, however, to maintain
the proprieties of the independent relationship when
contracting for the provision of essential public
service.
REPRESENTATIVE WILSON noted during her reading of the sponsor
statement that the benefit plans provided by the fire
departments of the Fairbanks North Star Borough (FNSB) to their
members include both health and retirement benefits.
8:22:11 AM
REPRESENTATIVE WILSON directed the committee members' attention
to the letter from Kathie Wasserman, Executive Director, Alaska
Municipal League (AML), and Attachment C of the Alaska Municipal
League's Resolution #2016-08, both in the committee packet.
She explained that within FNSB are fire service areas with mil
rates to cover the services. She offered that the mil rates
vary from area to area, and some areas have no fire protection
service because they are unwilling to pay the extra cost.
REPRESENTATIVE WILSON purported that HB 299 would give the
residents a choice of the level of fire protection service for
which they are willing to pay as opposed to the municipality
making that determination through the budgetary process. She
read Attachment C, which read as follows [original punctuation
provided]:
1.c. The risk of significant costs if government
contractors were treated as employees qualified for
inclusion in PERS or TRS.
3.a. Municipalities, particularly smaller
municipalities in Alaska, often contract for
government services; and
3.b. A municipality contracting for governmental
services may, in order to ensure that public services
are provided in a manner acceptable to the community,
exercise more control over the contractor than what is
normally seen in a purely contractual basis;
REPRESENTATIVE WILSON added that the main service areas in
Fairbanks are the fire service areas and the road service areas.
She alleged that FNSB has made it clear that it would like to
take over the fire service areas and combine them into one
service area. Ms. Wilson expressed her belief that fire
protection services would not be better with this change but
would just cost more. She voiced her support of smaller fire
service areas with local control; however, she conceded that the
buildings and equipment are owned by FNSB, not by the fire
service areas. She stated her preference that FNSB give the
buildings and equipment to the fire service areas.
8:25:29 AM
REPRESENTATIVE WILSON continued reading Attachment C of the
Alaska Municipal League's Resolution #2016-08, under number 3,
which read as follows [original punctuation provided]:
c. The Supreme Court of the State of Washington ruled
in 2012 that employees of several private non-profit
public defender agencies that provided services to
King County by contract, were employees of the King
County for purposes of the Washington PERS, resulting
in a $31 million PERS liability for King County; and
d. The Washington State Legislature subsequently
modified the Washington State PERS statute to clarify
that a governmental contractor is not an employer for
purposes of the Washington State Retirement System,
and that employees of governmental contractors are not
eligible for state retirement system membership.
e. The Washington legislation also clarifies that the
determination of whether an employee/employer
relationship exists under the Washington State PERS is
limited solely to the relationship between the
government contractor employee and the retirement
system employer, and not the relationship between a
government contractor and retirement system employer.
f. The unexpected and unplanned addition of employees
entitled to potentially years of retroactive service
credit in a governmental retirement plan like PERS,
may adversely impact not only the particular employer,
but all the participants in the system.
g. The intent in establishing Alaska's PERS was not to
provide a retirement system to employees of government
contractors.
REPRESENTATIVE WILSON emphasized that the proposed legislation
would not eliminate anyone from PERS, as the FNSB fire
department employees and volunteers receive benefits under the
fire department's benefit plan.
8:27:58 AM
The committee took a brief at-ease at 8:28 a.m.
8:28:12 AM
MITCH FLYNN, Fire Chief, Steese Volunteer Fire Department
(SVFD), stated that the Steese Volunteer Fire Department (SVFD)
is a 501(c)(3) organization that contracts independently with
FNSB to provide fire services and emergency medical services
(EMS) to a pre-defined service area. He said that in recent
years FNSB has notified SVFD concerning problems with the
contract that could pose a financial liability to the fire and
EMS service area's tax-paying residents. He said FNSB has made
changes to the contract to reduce the liability threat; however,
SVFD is concerned that there still exists a liability threat
related to the possibility of current or past employees suing
for PERS benefits because of the way the contracts were
administered.
MR. FLYNN stated his belief that HB 299 would eliminate the
threat to PERS and prevent employees currently not in PERS from
receiving PERS benefits. He asserted that it is not the intent
of the bill to interfere with the contracts or remove employees
currently eligible to receive benefits from PERS. He cited
examples of fire departments providing contractual services to
FNSB and rightfully being in the PERS system, and he stated that
they should remain so. He maintained that SVFD has its own
retirement system and was never expected to participate in the
state PERS system. He reiterated his support for protecting
PERS for those legally entitled to it.
8:31:34 AM
REPRESENTATIVE VAZQUEZ asked Mr. Flynn how many volunteers he
supervises.
MR. FLYNN responded that he supervises approximately 28
volunteers and 10 paid employees.
REPRESENTATIVE VAZQUEZ asked if the ten employees are eligible
for PERS.
MR. FLYNN answered that SVFD has its own retirement system and
is not in PERS. He said the benefits consisted of an IRA 401(k)
plan, full medical benefits, accidental death and dismemberment
benefits, catastrophic incidence benefits, and Workers'
Compensation Insurance.
REPRESENTATIVE VAZQUEZ asked for confirmation that Mr. Flynn's
interest in the proposed legislation is to ensure that
independent contractors would not be included in PERS.
MR. FLYNN responded that his testimony is that his current and
past employees are not a legal threat to PERS as they have their
own benefit plan.
8:33:39 AM
REPRESENTATIVE TALERICO asked if the SVFD contract with FNSB
addresses the use of FNSB facilities.
MR. FLYNN confirmed that FNSB owns the equipment and the
building, and the contract allows SVFD the use of them. Other
fire departments own or rent equipment and buildings according
to how contracts were set up 30 years ago.
8:34:51 AM
REPRESENTATIVE STUTES asked the sponsor if there is any
opposition to HB 299.
REPRESENTATIVE WILSON responded that the University Fire
Department (UFD) expressed concern, but she added that for UFD,
the fire services contract is between the university and FNSB;
therefore, the employees would remain in PERS.
8:35:56 AM
KATHIE WASSERMAN, Executive Director, Alaska Municipal League
(AML), stated that PERS has been AML's most important issue
recently and cited Senate Bill 125 and House Bill 385 as
examples of legislation increasing liability for municipalities.
She said that due to concern about changes to PERS and taking on
more debt, AML supports HB 299.
8:37:23 AM
REPRESENTATIVE VAZQUEZ asked in what way PERS has become one of
the major issues for AML.
MS. WASSERMAN answered that municipalities are incurring
increasing amounts of debt due to PERS liability and the smaller
communities cannot afford it. She also mentioned that she has
heard rumors that the municipality percentage of the PERS
liability, currently at 22 percent, may be increased.
REPRESENTATIVE VAZQUEZ asked why AML specifically supports HB
299.
MS. WASSERMAN responded that municipalities cannot afford a
court decision like the Dolan v. King County decision against
King County, which added another group of people - the
independent contractor - to the retirement benefit pool.
8:39:46 AM
REPRESENTATIVE TALERICO asked if Ms. Wasserman agreed that the
large number of contract workers all over Alaska increases
concern for the municipalities that these workers could suddenly
qualify for benefits.
MS. WASSERMAN answered, "Exactly."
REPRESENTATIVE TALERICO reiterated that the PERS liability is
always a big concern for the smaller municipalities.
8:42:03 AM
REPRESENTATIVE KELLER related a story about a constituent
supplementing his income by teaching part time, who was required
to have health care insurance through his employer rather than
stay on his own plan, because of the Affordable Care Act.
MS. WASSERMAN responded that she was not aware of such a
scenario.
8:44:07 AM
REPRESENTATIVE VAZQUEZ asked for clarification of HB 299 as it
related to Mr. Flynn's testimony.
REPRESENTATIVE WILSON offered her understanding that Mr. Flynn's
testimony was that SVFD employees don't need to be in PERS since
they have their own benefits. She stated that the intent of the
proposed legislation was to be proactive in light of what could
happen as evidenced under Dolan v. King County, [WA. Sup. Ct.
Docket No. 82842-3 (Washington State Supreme Court, August 18,
2011)].
REPRESENTATIVE VAZQUEZ asked if an independent contractor
working for SVFD could decide to be part of the SVFD retirement
system.
REPRESENTATIVE WILSON replied that she thought not.
8:46:56 AM
DAN WAYNE, Attorney, Legislative Legal Counsel, Legislative
Legal and Research Services, Legislative Affairs Agency (LAA),
responded to the question from Representative Vazquez by
distinguishing between a private retirement plan, which comes
under federal jurisdiction, and a public retirement plan, which
could be changed by the state.
REPRESENTATIVE VAZQUEZ asked Mr. Wayne if an independent
contractor working for SVFD could sue to be included in the SVFD
retirement system.
8:48:39 AM
MR. WAYNE responded that a contract employee would be free to
sue and, just like Dolan, the court could determine whether the
person was an employee under common law or was, in fact, a
contractor. The issues considered would be the control of the
employer over the contractor's activities and the facts of their
relationship.
REPRESENTATIVE VAZQUEZ asked whether a local government, with
its own retirement system, would have the same vulnerability as
PERS under Dolan.
MR. WAYNE responded that if a local government had its own
retirement system instead of PERS, the state could not pass a
law without running the risk that the law could be preempted by
federal law.
8:51:03 AM
REPRESENTATIVE VAZQUEZ asked Ms. Wasserman what retirement
systems exist within the municipalities other than PERS.
MS. WASSERMAN responded that most municipal retirement systems
are under PERS, adding that it is costly to withdraw from the
PERS system. She offered that a few municipalities did not sign
up with PERS in the beginning, and she stated her belief that
most of those municipalities offer no retirement system. She
mentioned that she has recommended Nationwide and the
International City/County Management Association to
municipalities not covered under PERS.
8:52:15 AM
REPRESENTATIVE VAZQUEZ asked Mr. Wayne whether, even if HB 299
was passed, a municipality that factually controls all
activities of an independent contractor could still be ordered
by a court to award retirement benefits because of overreaching
by the local government. She suggested that the proposed
legislation would not prevail in every situation.
MR. WAYNE responded that HB 299 clarifies what is intended under
PERS but doesn't eliminate the common law principle. He offered
that an employer's degree of control over a worker is a critical
factor in settling the question of whether they are an employee.
8:53:56 AM
REPRESENTATIVE VAZQUEZ agreed that HB 299 should not cover
outright employment situations. She said that HB 299 clarifies
the issue, but she maintained that municipalities should be
aware that if they exert too much control over independent
contractors, then this statute would not help them [avoid being
sued for retirement benefits].
REPRESENTATIVE TALERICO asked how road service areas are
managed.
REPRESENTATIVE WILSON responded that there are over 100 road
service areas in FNSB, managed by local volunteer boards, and
road work is done by private contractors.
8:56:45 AM
REPRESENTATIVE WILSON asked Mr. Wayne if the proposed
legislation would affect legislative staff under contract with
the state.
MR. WAYNE responded that he did not believe so. He paraphrased
AS 24.10.060(f), which read, "An employee of the legislative
branch of state government who is employed under a personal
services contract is not entitled to membership in the public
employees' retirement system (SD 39.35) for employment under the
contract."
CHAIR LYNN closed public testimony on HB 299.
8:58:14 AM
REPRESENTATIVE STUTES voiced her support for HB 299 and noted
the impact that PERS can have on small communities.
REPRESENTATIVE SPOHNHOLZ stated that she also supported HB 299
and reiterated Representative Vazquez's concern about the
overreach and over-mandating of government in regard to private
contracts.
REPRESENTATIVE VAZQUEZ said that she strongly supports HB 299.
She cautioned that if a local government exerts too much control
over independent contractors, it then can become an employer.
9:00:45 AM
REPRESENTATIVE KELLER moved to report HB 299 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 299 was reported from the
House State Affairs Standing Committee.