Legislature(2021 - 2022)ADAMS 519
05/13/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB90 | |
| SB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 90 | TELECONFERENCED | |
| + | HB 75 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | SB 55 | TELECONFERENCED | |
SENATE BILL NO. 55
"An Act relating to employer contributions to the
Public Employees' Retirement System of Alaska; and
providing for an effective date."
4:11:19 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, thanked the committee for hearing
the bill. He introduced the PowerPoint presentation: "SB 55
- Employer Contributions to PERS." began with slide 2
titled HB75 Employer Contributions to PERS:
Removes cap on Public Employee Retirement System
(PERS) payroll contributions made by the State of
Alaska as an employer.
? Continues to fully fund the state's obligation to
the PERS system.
Applies only to the State of Alaska, does not impact
other PERS employers.
? Does not impact Teachers Retirement System (TRS).
? Does not change retiree or active employee benefits.
? No change to employee contributions.
? Does not reduce employer contributions to PERS.
? Allows for full cost share with federal programs and
other sources used to fund state programs, thereby
reducing general fund expenditures by $25.7 million in
FY22.
4:13:17 PM
Mr. Steininger provided a background of Alaska's retirement
obligations on slide 3 titled HB75 Background: Alaska's
Retirement Obligations:
? The PERS unfunded liability was estimated to be $4.6
billion in FY20.
? Current annual cost to pay down the unfunded
liability is split between employer contributions and
the state assistance payment, or "on-behalf" payment:
O Employer contributions (22%) on employee
salaries mixed fund sources.
O On-behalf payments for Municipalities and other
PERS employers 100% UGF.
O On-behalf payment for State of Alaska as an
employer 100% UGF.
? This bill addresses the on-behalf payment for State
of Alaska as an employer.
4:14:37 PM
Mr. Steininger continued to slide 4: "State of Alaska PERS
On-Behalf Payments:"
In 2008, the legislature established a uniform rate
for payroll contributions for all PERS employers 22%.
The State of Alaska is required to pay the difference
between capped employer payroll contributions and the
full actuarial liability (30.11% in FY22).
Called the state assistance or "on-behalf" payment.
For FY22, the total on-behalf payment to PERS is
$193.5m (UGF).
$95.7m of that amount is made by the state on behalf
of itself.
The remaining $97.8m is made on behalf of 153 other
active PERS employers.
He explained that the other active Public Employees'
Retirement System (PERS) employers were municipalities and
school districts throughout the state.
4:15:57 PM
Mr. Steininger reviewed slide 5 titled HB 75 State of
Alaska as an Employer Retirement Obligation Current Law.
He explained that currently the state payroll contribution
was 22 percent of payroll totaling $246.3 million. The
state made the $95.8 million on-behalf payment with
unrestricted general funds (UGF). The slide showed the
breakdown in types of funding; Undesignated General Funds
(UGF), Designated General Fund (DGF), Other, and Federal
Receipts. He noted that the total retirement obligation was
$342.2 million, which $202 million or 59 percent was
comprised of UGF. He examined slide 6 titled "HB 75 State
of Alaska as an Employer Retirement Obligation Proposed
Law." He elucidated that by uncapping the 22 percent and
allowing the full 30.11 percent to be charged to state
payroll, the state still paid the full contribution, but
the state could apply the 30.11 percent to the other fund
sources. Consequently, eliminating the commiserate
increases in UGF that was apparent on the prior slide. He
pointed out that under the proposed law the total UGF was
$176.4 million or roughly 50 percent of the total $349.8
million cost, which was a net reduction of $25.7 million in
UGF costs to meet the same obligation. He qualified that
the $25.7 million was only the savings realized in the
first year. Savings would grow over time because as
indirect charges were charged to federal programs the state
had to provide justifications for the costs. The different
programs were on different schedules for providing the
information to the federal agencies on the way the state
charged indirect costs to the programs. He added that some
federal agencies would allow the change in the first year
and some would take up to three years to implement the
changes due to the way the state interacted with the
federal agencies to justify the programs costs. Some
programs capped the amount charged to the grants and
savings could not be realized in those cases. He relayed
that OMB analyzed various federal programs that the state
charged for payroll and found that the state could offset
the costs with UGF to ensure the programs were not harmed
and still realized the $25.7 million in savings. Over the
next several years as state agencies renegotiated the cost
allocation agreements with federal partners, the savings
number will increase in the outyears.
4:19:47 PM
Representative Josephson wanted to make sure that if an
agency received $100 million in federal matching funds, the
service would not be diminished because whatever the
service was would become part of the PERS liability. Mr.
Steininger replied that it was something that OMB worked on
in the production of the fiscal note. He explained that if
the fixed grant amount, such as the $100 million example,
could not be adjusted for changes in costs such as for PERS
than the state would not be able to collect additional
money from the federal grant. He furthered that as OMB
calculated the fiscal note, it identified federal programs
that had a fixed dollar value to ensure that OMB was not
hampering the ability to perform the work under the grant.
He delineated that as departments identified fixed dollar
programs OMB adjusted the fiscal note down because the
federal receipts could not be collected. Currently, the
full amount of the costs was covered by UGF, so where the
costs could not be covered UGF was used. The bill was
necessary to capture additional federal revenues on grants
that could be increased as costs increased.
4:22:31 PM
Representative Josephson ascertained that there had been a
lost opportunity over the years and the bill was trying to
capture the opportunity and benefit from it. Mr. Steininger
agreed with the statement.
4:22:57 PM
Mr. Steininger continued to the spreadsheet on slide 7
titled HB75: FY 2022 Budget Impact. He explained that the
provisions shifted the $100 million cost from the language
section of the operating budget and moved it into the state
personal services line. It would appear as a $1 million
increase in all funds to state agency payroll. He conveyed
that it was not an actual increase, it was simply shifting
a cost from one part of the budget to another. The slide
depicted where the cost would apply in each agency. He
could provide further detail by budget component or
program. He provided a handout in the bill file that
provided more information regarding the offsets [titled
HB75 FY 2022 Budget Impact Handout A (copy on file)].
4:24:46 PM
Representative Josephson looked at slide 7 on the
Department of Commerce, Community and Economic Development
(DCCED) line. He inquired whether professional licensing
fees would increase. Mr. Steininger responded that it was
an area in which fees would have to be revisited and
possibly recalculated. It was one area that the department
looked at to determine if the current fee collections could
cover the related costs of the program without adjustment
to the fee or what amount could be accommodated over time.
He assured that the implementation of the change would not
result in excessive changes to fees.
4:26:14 PM
Mr. Steininger advanced to the graph on slide 8 titled
"Historical PERS Contribution Rates." The slide illustrated
the on-behalf payment or actuarial rate of the state's PERS
contribution. He elaborated that the on-behalf portion was
the difference between the blue line at 22 percent and the
orange line representing the actuarial rate. The bill was
trying to address the difference between the two lines. He
noted the variability in the rates and pointed out that at
its peak the actuarial rate was 38.4 percent compared to
the current 30.1 percent. The on-behalf payment rose and
fell with the actuarial rate each year. If SB 55 was
enacted, some of the variable amount would be moved into
the personal service line of the state agency operating
budget. He alerted the committee that in future years the
committee would encounter salary adjustment change records
to accommodate the variability. It would simply shift to
agency operations versus the language section of the
operating budget.
4:28:08 PM
Representative Wool asked about the on-behalf payment made
by the state. He wondered if the bill would alter anything
for the municipalities. Mr. Steininger answered in the
negative. He indicated that OMB limited the focus of the
bill to where there was a benefit to the state. He
clarified that there was a benefit to the state but not to
the municipalities. Representative Wool thanked Mr.
Steininger for the clarification.
4:29:28 PM
Co-Chair Merrick OPENED public testimony.
4:29:36 PM
Co-Chair Merrick CLOSED public testimony.
Co-Chair Merrick asked Mr. Steininger to address the fiscal
notes.
Mr. Steininger indicated that the Department of
Administration fiscal note [FN 5 (ADM)] was prepared by the
Division of Retirement and Benefits. He explained that
since the bill impacted the PERS system it was an actuarial
fiscal note. He pointed to the additional $200 thousand
cost. He noted that in the current system, the state
assistance payment was made in a lump sum at the beginning
of the fiscal year. Moving it to the personal services line
meant the payments would be made monthly with payroll. He
expounded that there was a little bit of an investment loss
by not having a lump sum payment applied at the beginning
of the year; thus, the pension system earned slightly less.
The $200,000 cost was significantly less than the state GF
savings.
4:30:55 PM
Mr. Steininger reported that fiscal note 4 [FN4 (State
Retirement Payments)] FN 4 was prepared by OMB. He
explained that it reflected the consolidation of many
budget transactions in every place where there was a state
employee in the budget. It was the aggregate of applying
the 8.11 percent to get to the 30.11 percent costs for PERS
contributions to state employee payroll. He noted the mix
of fund sources and the distribution of the roughly $100
million in costs in FY 2022.
4:31:44 PM
Mr. Steininger indicated that the fiscal note [FN 3 (State
Retirement Payments)] was prepared by OMB and reflected the
reduction to the language section of the operating budget
where the state assistance payment was made and was added
back in fiscal note 4.
4:32:14 PM
Co-Chair Merrick thanked Mr. Steininger for finding the
cost savings.
4:32:32 PM
AT EASE
4:32:56 PM
RECONVENNED
Representative Rasmussen MOVED to report SB 55 out of
Committee with individual recommendations and the
accompanying fiscal notes.
There being NO OBJECTION, it was so ordered.
SB 55 was REPORTED out of committee with a "do pass"
recommendation and with
Co-Chair Merrick reviewed the agenda for the following day.