Legislature(2013 - 2014)BUTROVICH 205
03/12/2013 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB46 | |
| SB48 | |
| SB44 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 46 | TELECONFERENCED | |
| *+ | SB 48 | TELECONFERENCED | |
| += | SB 44 | TELECONFERENCED | |
SB 48-PERS CONTRIBUTIONS BY MUNICIPALITIES
9:19:49 AM
CHAIR DYSON announced the consideration of SB 48.
DAVID SCOTT, staff to Senator Donny Olson, sponsor of SB 48,
introduced SB 48 on behalf of the sponsor. He said this
legislation seeks to provide relief to communities hardest hit
by the "2008 salary floor" that was contained in SB 125 during
the 25th Legislature. The mechanics of the bill are that if a
community has lost more that 25 percent of its population
between the two censuses - 2000 and 2010, they can count their
current PERS employees in order to calculate the 22 percent that
they owe to the PERS system. The bill also allows those who lost
over 25 percent to retroactively eliminate delinquency fines and
lower the percentage rate of 12 percent to around 4 percent.
He related that the three communities most affected are Pelican,
Galena, and Atka. He opined that without action taken, the PERS
system will not see the money it is owed from these communities.
Galena, for example, owes more than $400,000 at 12 percent
interest and is unable to pay.
SENATOR WIELECHOWSKI asked how SB 125 worked.
MR. SCOTT explained that there were 160 PERS employers across
the state at the time. Their liabilities were combined and each
was required to pay a 22 percent contribution from their 2008
floor.
9:23:46 AM
SENATOR WIELECHOWSKI asked how the three communities got into
the situation they're in.
MR. SCOTT knew that the Air Force left Galena, a lot of
employees and employers left, and the PERS number went below the
2008 floor.
SENATOR WIELECHOWSKI asked the rationale for the 2008 floor.
MR. SCOTT said the idea was to keep communities from "gaming the
system" and not paying their fair share into the new
consolidated PERS system.
9:25:16 AM
SENATOR DYSON asked for more information about SB 125.
SENATOR STEDMAN recalled testimony regarding the concern that
communities would game the system. A main impetus for pooling
the communities was the accuracy of the payments. Pooling seemed
to be the easiest solution. There was concern that communities
would close the current plan and shift the responsibility to the
state.
He said the bill did have some inadvertent effects, such as
communities that lose population being unable to pay. Other
issues have surfaced over time, such as exposure to the state.
Currently, there is residual discussion about returning to a
defined benefit plan.
CHAIR DYSON asked if the Department of Administration was
represented in the meeting.
9:28:14 AM
JIM PUCKETT, Director, Division of Retirement and Benefits,
Department of Administration, introduced Deputy Director Kathy
Lea.
CHAIR DYSON inquired about the administration's position.
MR. PUCKETT replied that the administration has no position on
the bill.
CHAIR DYSON asked why a community that is struggling financially
shouldn't be able to carry on public services in the most
economical way, such as contracting for services.
MR. PUCKETT opined that they should be able to do so, as long as
they continue to meet their present obligations.
CHAIR DYSON asked if those obligations consist of continuing to
contribute to the PERS fund in order to access retirement
benefits for their employees.
MR. PUCKETT agreed; they voluntarily entered into an agreement
and are obligated to pay the funds necessary to meet the
retirement benefits of their employees.
SENATOR STEDMAN said he wasn't familiar with the communities'
specific situations, but if populations continue to decline he
wondered if the "last man standing" will have to pay the bill.
MR. PUCKETT replied the community has to pay or it will fall on
all other payers in the state.
CHAIR DYSON said he could understand the problem in communities
such as Galena who fall into situations through no fault of
their own. However, he said he disagrees with the way that
Kalskag solved its financial problems. He asked how to justify
the different situations.
MR. PUCKETT said he had no suggestions.
SENATOR STEDMAN pointed out that this is the first time that
policy makers have grappled with this issue. He suggested the
situation could be the same in Fairbanks if the military moves
out.
9:33:07 AM
SENATOR WIELECHOWSKI asked what the administration intends to do
with Galena if this legislation were not to pass.
MR. PUCKETT said the administration didn't have another method
or solution in mind.
SENATOR WIELECHOWSKI asked if the bill is appropriate or if
there was a better way to go.
MR. PUCKETT said the bill is an attempt to open the discussion
in order to address the problem. He noted, at this time, the
administration is taking no stance.
CHAIR DYSON said his understanding is that a community cannot
get away from its contractual responsibilities unless there is a
bankruptcy. He noted that when the responsibilities were
aggregated communities were precluded from going bankrupt
MR. PUCKETT stated that the state has already assumed the lion's
share of the financial responsibility for retirement benefits.
This bill will add yet another financial responsibility to the
state. He reiterated that the administration takes no position
on the bill, but considers it the beginning of the conversation.
9:36:50 AM
SENATOR COGHILL asked if any communities to date in Alaska have
gone bankrupt.
MR. PUCKETT said not to his knowledge.
CHAIR DYSON noted that Elfin Cove has the status of no longer
being a recognized community, which is similar to bankruptcy. He
expressed a desire to know more about the dissolution process.
MR. PUCKETT did not know about the dissolution process.
CHAIR DYSON said the question goes beyond whether a community is
viable or not; it's whether the community has chosen to dissolve
itself or not.
SENATOR COGHILL said dissolving a community is one issue;
putting a legal barrier to debt is another. He explained he was
referring to not being able to service the debt, but wanting to
remain a community, such as the situation Galena is in. He
thought the PERS law did not excuse a community from that debt
and it would shift to other payers.
SENATOR WIELECHOWSKI noted a document from legislative legal
that says that municipal bankruptcies are illegal in Alaska.
MR. PUCKETT said he was unaware of that opinion.
9:39:46 AM
GREG MOYER, Interim City Manager, City of Galina, testified in
support of SB 48. He related that he was hired to restructure
and save the community of Galena, which is reeling from the 2008
closure of the Galina Airbase. He provided background of the
community. He said when the Galina Air Base was realigned in
1994, the population was reduced by 20 percent to 650. With
closure of the Galina Airbase in 2008, the community lost the
military population, a strong economy, and s reliable employment
base. That same year, Galina was required to meet the salary
floor or be penalized 20 percent, plus interest. Galena tried to
pay using the Municipal Bond Bank Authority. The population is
now under 500. He said he has developed an austere FY13 budget,
with total PERS salaries of about $885,000. Unfortunately, that
is about $628,000 less than the state's June 2008 salary floor
of $1.5 million.
He emphasized that the community doesn't want to shirk its
responsibility, but it will never meet the salary floor that was
set in 2008. He said if it was a one-time debt the bond bank
would provide a solution, but this is an annual payment. There
is no escape.
He opined that SB 48 has less to do with the money due and more
with doing the right thing for communities that are required to
meet an unattainable salary floor. He urged the committee to
find a legislative fix for this issue. He emphasized that SB 48
does the right thing for Galena and a few other communities.
9:47:35 AM
CHAIR DYSON said he appreciates the situation and what Galena is
doing to address the problem, such as opening a boarding school.
MR. MOYER stated that the community has a boarding school with
220 kids from across the state.
CHAIR DYSON asked if the community has local taxes.
MR. MOYER said they have a sales tax, but no property tax.
9:49:16 AM
CLINT BEAN, Mayor, City of Pelican, echoed Mr. Moyer's
sentiments. He noted that he has submitted written testimony.
The difference between Pelican and Galena is that Pelican lost
its fish plant and half of its population since the 2008 floor.
He said Pelican has tried to apply solutions to their debt, but
to no avail. He noted that Pelican doesn't want to end up like
Elfin Cove - no longer a viable community - but it is headed
down the same road.
9:51:11 AM
SENATOR STEDMAN asked Mr. Bean to mention Pelican's tax
structure. He noted that there has been work toward getting the
turbine hydro plant back on line, the fuel dock upgraded, and
the fish processing plant improved in order to reverse the
course.
CHAIR DYSON asked how the community taxes itself.
MAYOR BEAN said Pelican has a property tax and a 4 percent sales
tax. The population has dropped from 127 in 2008 to 88
currently.
CHAIR DYSON noted that the committee received Mr. Bean's
testimony.
9:52:46 AM
KATHIE WASSERMAN, Alaska Municipal League, testified in support
of SB 48. She said, while this may not be the perfect solution,
it is a step in the right direction. The bill intends to reverse
the unintended consequences of SB 125, passed in 2008.
She explained what has happened in some smaller communities. All
municipalities continue to willingly pay 22 percent of past and
present PERS service obligations, but this requirement is
proving to be impossible for small communities. She spoke to
Pelican's difficulties. She shared her perspective as a Local
Boundary Commission member regarding the dissolution process
that some communities have gone through.
9:56:00 AM
SENATOR STEDMAN said he wanted to broaden the discussion and get
the population counts for communities in order to get a feel for
how many are close to the 25 percent population drop.
SENATOR GIESSEL directed attention to the information in the
packet that shows the debt that communities have. She noted
Noorvik has a debt of almost $128,000.
CHAIR DYSON requested information on the community dissolution
process.
MS. WASSERMAN said it is similar to the means of incorporation.
A municipality must file a petition, although there is often no
one left in the community that can fill out that petition. In
that case, it appears that the state requires them to hire a
consultant to prepare the petition, which she strongly disagrees
with.
CHAIR DYSON questioned how the state might set up a mechanism to
sort out which community is gaming the system and which is truly
in trouble.
MS. WASSERMAN stated that the government isn't good at looking
at things individually, but it would be fairly easy to determine
whether a community was trying to game the system. She stressed
that the three communities under discussion certainly aren't
trying to game the system.
10:00:30 AM
BROOKS CHANDLER, City Attorney, City of Galena, said the bill
creates an exception to the policy established in 2008. It is
limited through an equation based on loss in population. The
problem is that the system doesn't allow exceptions to the rule.
Galena hasn't tried to game the system. The legislation is a
practical cure to the one-size-fits-all policy. If implemented,
it does not expand beyond these three communities because the
population loss is limited to between 2000 and 2010. He
suggested expanding the reach of the bill to include other
communities should not be considered right now because the three
communities require immediate relief.
10:03:47 AM
CHAIR DYSON said he appreciated Mr. Chandler's efforts.
He asked Mr. Puckett how much of the PERS/TRS unfunded liability
is as a result of bad actuarial advice years back.
MR. PUCKETT said he has heard between $1 billion and $2 billion.
CHAIR DYSON stated he would hold the bill because he had more
questions. One question is to the administration about how long
it will take to get a plan together in order to determine if
passage of the bill will preclude some of the solutions the
administration would like to do. Perhaps passing the bill will
build a fire under the administration to help with some of the
policy decisions. He asked if the administration could give an
opinion by the next hearing in ten days on the best way to move
forward.
MR. PUCKETT said the administration has been working on this
issue, but doesn't have a clear proposal or solution at this
time.
CHAIR DYSON opined that the bill is a well-tailored solution. He
held SB 48 in committee.