04/19/2021 09:00 AM Senate FINANCE

SENATE BILL NO. 55                                                                                                            
                                                                                                                                
     "An Act relating to employer contributions to the                                                                          
     Public Employees' Retirement System of Alaska; and                                                                         
     providing for an effective date."                                                                                          
                                                                                                                                
9:37:39 AM                                                                                                                    
                                                                                                                                
Co-Chair Bishop recounted  that it was the  third hearing of                                                                    
SB  55, and  the  committee had  heard  public testimony  on                                                                    
March 11,  2021. He intended  to cover the fiscal  notes and                                                                    
look to the will of the committee.                                                                                              
                                                                                                                                
9:38:29 AM                                                                                                                    
                                                                                                                                
CAROLINE SCHULTZ,  POLICY ANALYST, OFFICE OF  MANAGEMENT AND                                                                    
BUDGET,  OFFICE  OF  THE  GOVERNOR,  spoke  to  SB  55.  She                                                                    
detailed  that  the bill  would  change  the way  the  state                                                                    
contributed  to  the  Public  Employees'  Retirement  System                                                                    
(PERS) system.  The bill would  allow the state to  make the                                                                    
contribution from  payroll, which  would spread  the funding                                                                    
across  multiple  fund sources,  rather  than  having it  be                                                                    
entirely  funded  entirely  by  Unrestricted  General  Funds                                                                    
(UGF) as  part of  the state's  on-behalf payment  or "state                                                                    
assistance payment."                                                                                                            
                                                                                                                                
Ms.  Schultz  addressed  a  new  fiscal  note  from  various                                                                    
departments, OMB  Component number  0. She pointed  out that                                                                    
the  fiscal  note  represented the  increase  to  all  state                                                                    
departments' payroll.  She pointed  out that the  total cost                                                                    
in FY  22 was  $103.4 million. The  fund source  line showed                                                                    
that the  increase was spread across  multiple fund sources,                                                                    
the  largest of  which was  UGF for  $70 million.  There was                                                                    
$11.6 million  in federal receipts,  $17.7 million  in other                                                                    
funds and $3.9 million in Designated General Funds (DGF).                                                                       
                                                                                                                                
Ms. Schultz addressed a new  fiscal note OMB Component 2866.                                                                    
The fiscal note showed the  decrease in the state assistance                                                                    
payment  by $95.8  million UGF.  The  fiscal note,  combined                                                                    
with the  previous note, provided the  overall fiscal impact                                                                    
of about $25.7 million in UGF savings.                                                                                          
                                                                                                                                
Ms. Schultz addressed a new  fiscal note from the Department                                                                    
of Administration  Centralized Administrative  Services, OMB                                                                    
Component  64. The  fiscal  note  represented the  actuarial                                                                    
cost to the PERS system fund caused by making the state on-                                                                     
behalf  payment  every  month through  payroll  rather  than                                                                    
having that  portion of the  payment occur at  the beginning                                                                    
of  the  fiscal  year.  Because the  funding  would  not  be                                                                    
earning money in the PERS  system throughout the year, there                                                                    
was a  small cost to  the PERS system in  foregone earnings.                                                                    
She noted that  the cost was estimated to be  $200,000 in FY                                                                    
23, increasing to  $1.3 million in the out  years. The costs                                                                    
would  ultimately  be  borne  by  spreading  out  the  state                                                                    
assistance  payments through  payroll.  She  pointed out  an                                                                    
attached  letter  from  the  state's  actuarial  consultant,                                                                    
which indicated  the opportunity cost of  making the payment                                                                    
later rather than earlier in the fiscal year.                                                                                   
                                                                                                                                
9:42:10 AM                                                                                                                    
                                                                                                                                
Senator  Hoffman   considered  the  fiscal  note   with  OMB                                                                    
Component  Number  0,  with  $103  million  under  personnel                                                                    
services, the  vast majority of  which was general  funds of                                                                    
$70 million.  He noted that  there was no  delineation under                                                                    
the  position count  over various  departments. He  asked if                                                                    
there were any positions involved with the $103 million.                                                                        
                                                                                                                                
Ms.  Schultz  stated  that  the   bill  would  not  add  any                                                                    
positions, and customary the line  in the positions count on                                                                    
the  fiscal   note  was  for  addition   or  subtraction  of                                                                    
positions. The legislation would  impact every PERS employee                                                                    
in state  government and would  impact payroll line  for the                                                                    
vast majority of state employees.                                                                                               
                                                                                                                                
Senator  Hoffman  asked  for the  total  position  count  of                                                                    
employees being affected.                                                                                                       
                                                                                                                                
Ms.   Schultz  stated   there   were  approximately   14,000                                                                    
employees that would be affected.                                                                                               
                                                                                                                                
Co-Chair Bishop looked at the  penultimate paragraph on page                                                                    
2 of  the fiscal note  and noted that the  calculations went                                                                    
through  2027.  He asked  about  the  cost that  started  at                                                                    
$200,000 and grew to $1.3 million in the out years.                                                                             
                                                                                                                                
Ms.  Schultz affirmed  the starting  cost  of $200,000.  She                                                                    
acknowledged  that the  amount would  slowly grow  over time                                                                    
given  the lost  earning value  of the  funds that  were not                                                                    
deposited at  the beginning of  the year. She  conveyed that                                                                    
the administration  saw the  lost earning  value as  a small                                                                    
cost when compared with the savings obtained from the bill.                                                                     
                                                                                                                                
Senator Wilson 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  two new  fiscal impact  notes from                                                                    
the Office of  the Governor, and one new  fiscal impact note                                                                    
from the Department of Administration.                                                                                          
                                                                                                                                
Co-Chair Bishop discussed the agenda for the following day.