Legislature(2007 - 2008)SENATE FINANCE 532
03/21/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB97 | |
| SB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 97 | TELECONFERENCED | |
| += | SB 125 | TELECONFERENCED | |
| += | SB 123 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
March 21, 2007
9:05 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:05:48 AM.
PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Kim Elton
Senator Donny Olson
Senator Joe Thomas
Senator Fred Dyson
Senator Charlie Huggins
Also Attending: SENATOR GARY STEVENS; TIM LAMKIN, Staff to
Senator Gary Stevens; BENJAMIN BROWN, Vice Chair, Alaska State
Council on the Arts; SHANA CRONDAHL, Alaska Municipal League;
Attending via Teleconference: From Kenai: LARRY SEMMENS,
Finance Director, City of Kenai and Member, Alaska Retirement
Management Board; From offnet locations: SAUNDERS MCNEIL, Chair,
Alaska State Council on the Arts; MICHEAL LAMB, Chief Financial
Officer, Fairbanks North Star Borough, and Co-chair,
Revenue/Finance Subcommittee, Alaska Municipal League.
SUMMARY INFORMATION
SB 97-ALASKA NATIVE ART IDENTIFICATION SEALS
The Committee heard from the sponsor and the Alaska State
Council on the Arts. The bill was reported from Committee.
SB 125-PERS CONTRIBUTIONS; UNFUNDED LIABILITY
The Committee heard from the Alaska Retirement Board,
municipality officials and the Alaska Municipal League. The bill
was held in Committee.
9:06:49 AM
SENATE BILL NO. 97
"An Act relating to identification seals for certain
articles created or crafted in the state by Alaska Native
persons; relating to the Alaska State Council on the Arts;
and making certain identification seal violations unfair
trade practices."
This was the first hearing for this bill in the Senate Finance
Committee.
9:07:23 AM
SENATOR GARY STEVENS, Sponsor of the bill, introduced Mr.
Lamkin.
9:07:36 AM
TIM LAMKIN, Staff to Senator Gary Stevens, presented a slideshow
to "personalize" the issue, while reading his testimony into the
record as follows.
It is with great pride that Senator Stevens and myself
offer SB 97 on behalf of the Alaska State Council on the
Arts. Despite its existence of for decades, I venture to
say that many people in our great state don't recognize
this emblem right here. It's known simply as the Silver
Hand.
It's a marketing tool that's used to represent a piece of
art as being authentically made by an Alaskan Native in
Alaska. It's origins date back to at least the 1930s when
market demand for authentic Alaskan Native arts and crafts
was clearly increasing. Since that time there's been an
ongoing effort to bring credibility to the program
currently embodied by the Silver Hand and to honor Alaska
Native artists wishing to sell their wares.
Unfortunately, that effort has been repeatedly thwarted by
fraud. A new line of thinking has emerged that with some
success that puts focus on the artist instead of the art.
Senate Bill 97 embraces those efforts made by the Arts
Council to simply clean house. There's no motivation here
other than to strengthen and modernize the statutes
relating to the Silver Hand permitting and to help
rejuvenate a program that's poised to reblossom.
Personally, I have 16 years of experience in the private
sector of the summer tourism business where I receive daily
requests for authentic Native art and thus I believe that
SB 97 and the efforts of the State Arts Council will help
make the Silver Hand emblem more readily recognizable and
sought for by the buying public.
9:10:16 AM
Senator Gary Stevens noted the slideshow contains photographs of
well known Alaska Native artists as well as some of their
creations.
9:11:46 AM
Co-Chair Hoffman asked how this bill would clarify existing
language.
9:12:04 AM
Mr. Lamkin replied that "generally speaking", the changes would
"make the language modern".
9:12:24 AM
BENJAMIN BROWN, Vice Chair, Alaska State Council on the Arts,
testified that he collaborated with Saunders McNeil, staff of
the Council and whose portfolio of activities includes the
Silver Hand program. Current statutory language refers to
"Alaskan art and handicrafts". The inclusion of handicraft was
determined to be "inaccurate", as it represents a "lesser form
of creativity than art". The products being created by Alaskan
Native artists deserve to be referred to as art or artwork. This
bill clarifies those references.
9:13:40 AM
Senator Elton asked whether an "exceptional" non-Native artist
who produces traditional Native style artwork and who has been
adopted into a tribe could qualify for the Silver Hand program.
9:14:16 AM
Mr. Brown replied that unless that artist were a tribal member
of a tribe recognized by the federal government or was granted
special tribal recognition through an act of the Legislature,
that person would not qualify for participation in the Silver
Hand program. Such legislative action has not occurred but this
bill accommodates possible future practices. The non-Native
artist could take advantage of other marketing opportunities,
including the Made in Alaska program.
9:15:16 AM
Co-Chair Hoffman noted language in the bill which references a
list of federally recognized tribes and asked if the Committee
had this list.
Mr. Brown indicated he would provide a copy of the list of
federally recognized tribes.
9:15:52 AM
Senator Thomas asked about the deletion of existing statutory
language noted on page 3, line 13 of the bill and asked the
reasoning.
9:16:18 AM
Mr. Brown answered that the original statute had been written to
allow Silver Hand seals to be issued by an agent of the Alaska
State Council on the Arts. The use of agents has never occurred
and because of the possibility of fraud, the Council recommended
the removal of this provision.
9:16:52 AM
Senator Thomas asked how artists residing in remote areas of the
state participate in the program.
9:17:02 AM
Mr. Brown explained how residents of all communities other than
Anchorage, which houses the Council, would contact the Council
office. Seals are mailed to participating artists.
9:17:36 AM
Senator Olson deemed it a "stretch" to have to authenticate art
and asked the necessity of the program.
9:17:50 AM
Senator Gary Stevens replied that the program "makes it clear"
that Alaska Native art is authentic. Otherwise, items
manufactured elsewhere, such as Taiwan, could be "passed off" as
Alaskan Native.
Senator Olson asked whether the fraud or "fear of fraud" was so
significant as to threaten the artists' livelihood.
Senator Gary Stevens surmised it was. A consumer would have no
other method to determine if an ivory polar bear was carved in
Alaska or in the Orient. The problem exists.
9:18:38 AM
Senator Olson asked the assessment of this program by artists
themselves.
Senator Gary Stevens responded that the Alaska State Council on
the Arts has overseen this program for many years. The Council
reviewed the language of existing statute and identified
shortcomings. Although he was not an Alaskan Native artist, he
as well as many present share a concern about these arts.
9:19:35 AM
Mr. Lamkin emphasized that this bill was offered on behalf of
the Council. The issue is the protection of Alaskan Native
artists as well as consumers.
9:19:57 AM
Mr. Brown declared that many items sold in shops located on
South Franklin Street in Juneau and at other tourism shopping
localities could be conceived to be created by Alaskan Natives
if not identified otherwise. A large group of Alaskan Native
artists conceived the Silver Hand program. The current chair of
the Alaska State Council on the Arts is himself an Alaskan
Native and an artist.
9:20:47 AM
Senator Olson asked about the input from artists. He cited the
adage, "Don't protect me from myself", surmising that artists
could interpret this program as needless or a hindrance.
9:21:24 AM
Senator Gary Stevens reiterated the credentials of the Council
chairperson.
9:21:59 AM
Co-Chair Stedman noted the inclusion of substantial supporting
documentation for this legislation.
9:22:11 AM
SAUNDERS MCNEIL, Chair, Alaska State Council on the Arts,
testified via teleconference from an offnet location that Native
Alaskan artists support the Silver Hand program, especially
those who subscribe to the program. The Council polled artists
on this matter and received "overwhelming support" from "across
the state." Many of those who responded to the questionnaire
also took the opportunity to renew their seal permits.
9:23:10 AM
Senator Elton ascertained that the provision of Section 4 would
allow the Council to collect a fee from participants of the
Silver Hand program. He asked the amount of the fee and whether
it would impose an impediment to the ability for the artists to
earn a livelihood.
9:23:39 AM
Mr. Lamkin reported that the $20 fee is paid bi-annually, so the
cost of participation is $10 per year. The funds are utilized to
cover the expense of the stickers. He perceived that this amount
would not be cost prohibitive.
9:24:22 AM
Co-Chair Stedman deduced that no further testimony was
forthcoming.
9:24:29 AM
Co-Chair Stedman, noting the zero fiscal note, asked if the
enactment of this legislation would incur any additional cost to
the Arts Council.
9:24:56 AM
Mr. Brown relayed the Council's goal to utilize the nominal
amount of funding it receives from the Legislature, the National
Council on the Arts and other sources to promote Alaskan art.
Council staff prepared the fiscal note as an "honest prediction"
of the financial implication. The Council would not submit a
supplemental appropriation request to implement the changes.
9:25:52 AM
Co-Chair Stedman discerned that the Committee would not expect
any additional funding requests pertaining to this legislation.
Mr. Brown affirmed.
9:26:10 AM
Co-Chair Hoffman offered a motion to report the bill, 25-
LS0405\M, from Committee with individual recommendations and
accompanying fiscal note.
There was no objection and SB 97 was REPORTED from Committee
with zero fiscal note #1 from the Department of Education and
Early Development.
AT EASE 9:26:36 AM / 9:31:29 AM
9:31:39 AM
SENATE BILL NO. 125
"An Act relating to the accounting and payment of
contributions under the defined benefit plan of the Public
Employees' Retirement System of Alaska, to calculations of
contributions under that defined benefit plan, and to
participation in, and termination of and amendments to
participation in, that defined benefit plan; making
conforming amendments; and providing for an effective
date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Stedman announced that this legislation would not
report from Committee at this hearing. He directed attention to
a letter addressed to Charlene Morrison of the Division of
Retirement and Benefits from Buck Consultants dated March 19,
2007, and to a memorandum dated March 21, 2007 from Melanie
Millhorn of the Division of Retirement and Benefits addressed to
the Committee [copies on file]. These documents provide
responses to some of the questions posed at previous hearings
9:33:04 AM
LARRY SEMMENS, Finance Director, City of Kenai and Member,
Alaska Retirement Management (ARM) Board, testified via
teleconference from Kenai, reading his testimony into the record
as follows.
First, thank you for working so diligently to craft a
solution to the pension system challenges. I believe this
is some of the most important work that the legislature can
do and I am glad it is a priority for this Administration
and the Senate Finance Committee.
First, a few words from by ARMB seat.
Recent ARMB resolutions support direct contributions to TRS
to reduce the employer rate, and we support changing the
PERS to a cost share plan.
Last year the ARMB made recommendations in our long term
solution that the State pay a large share of the past
service rate, that employers that contributed in excess
amounts be protected and that accounts be established to
facilitate budgeting. Last session, HB 375 contained these
concepts and passed the House but not the Senate. HB 179
currently includes much of the same language as HB 375. SB
125 includes many of these concepts.
The ARMB also recommended that significant cash
contributions be made to pay down the growing unfunded
liability.
In September 2006 the ARMB set the FY 08 PERS rate at
39.76% and the TRS rate at 54.03% as recommended by Buck
Consultants for a closed system. This was also based on the
understanding that Governor Murkowski was going to
recommend that the incoming Governor budget for the
required $505 million to cover the increase and an
additional $500 million to pay down the unfunded liability.
Governor Palin included funding in her budget to cover the
full cost of the rate increases.
9:35:13 AM
Mr. Semmens continued as follows.
The ARMB adopted modifications of the actuarial assumptions
per the recommendations of Buck Consultants contained in
their experience study. The new assumptions, along with
changes to actuarial method and the amortization method,
will increase the unfunded liability. The presentation
projected the FY 08 rates would have been 46.64% for PERS
and 59.56% for TRS.
9:36:10 AM
Mr. Semmens:
Wrapping up my ARMB comments I am pleased to tell you that
the ARMB, with the help of excellent staff in the Treasury
Department led by Gary Bader, earned 11.7% for the year
ended June 30, 2006 and over 15% in calendar year 2006
putting the Alaska Retirement Systems in the top 18% of
public funds in the Callan database.
9:36:41 AM
Mr. Semmens, reading from his prepared statement, continued.
Now some comments from my finance director seat:
From a municipal point of view the two most important
components of the plan to address PERS are:
1. that the State accepts financial responsibility for a
significant portion of the past service cost currently
assigned to local governments. This is so that
municipalities can remain financially solvent without
draconian cuts to services or huge tax increases. Most
municipalities can handle a PERS rate in the low 20% range
even though this is a huge increase over historical rates.
2. that the rate is stable and predictable. Until recently,
for the past 20 years or so most employers, the State
included, have had low and quite stable PERS rates. So it
is no surprise that the last three years of 5% increases
and especially the 2008 rate increase have caused
widespread consternation. This is due both to the fiscal
impact of the rate increases and to the uncertainty of what
future rates will be.
9:37:46 AM
Mr. Semmens:
Now to address specific points in the bill:
The AML [Alaska Municipal League] is in favor of a cost
sharing plan, but the share is the critical thing. I don't
know if the AML would support a cost share if the State
doesn't pick up a large part of the rate. Note that the
State is the biggest winner if we were to go to a cost
share plan where everyone pays 39.76%. Imagine the irony if
that came to pass.
9:38:12 AM
Mr. Semmens:
The 65% share in the bill produces an employer rate of
31.86% after the impact of issuing $1.7 million [sic] in
Pension Obligation Bonds July 1. 2007. 32% is too high for
municipalities. The solution we need to find brings this
rate down to the low 20s.
Using the entire payroll of DB [defined benefits] and DCR
[defined contribution retirement] plan employees is a great
idea because it lowers the rate and eliminates the
temptation to discriminate in hiring.
9:38:43 AM
Mr. Semmens:
Employers will not like the provision that prevents opting
out of certain classes of employees. This is meant to
prevent an employer from taking advantage of the share
system. But I think there is a better tool to use.
Consideration should be given to establishing a baseline
salary amount that an employer would be required to pay
contributions on, even if actual salaries were less. For
example, the baseline could be the 2006 salary that
employers calculated their contributions on. If 2009
salaries were actually less than 2006 because the employer
contracted out, or perhaps sold, a part of its operation
the employer would have to calculate their contributions on
the 2006 baseline salary. This base could be adjusted for
inflation if necessary.
9:39:55 AM
Mr. Semmens offered a caveat that he has had a mission to
convince local government elected officials to voluntarily
withdraw from the retirement program. The cost is significant
and the contributions from public elected officials are minimal.
The City of Kenai has chosen to withdraw participation of
elected officials. The provision in this legislation would
prevent future municipal governing councils as a body from
opting out of the Public Employees Retirement System (PERS) and
would only allow individuals the option.
9:40:36 AM
Mr. Semmens continued reading his prepared statement as follows.
I think it is important to figure out how the plan
liabilities will be allocated to an employer that wants to
terminate membership in the plan. Since there are no
individual employer liabilities in a shared system a well
defined allocation method should be created.
Mr. Semmens asserted that the investment of entities that paid
in excess of their contributions must be protected.
9:41:02 AM
Mr. Semmens concluded his testimony as follows.
Municipalities have either adopted their calendar year 2007
budgets or they are currently preparing their FY 08
budgets. Most of us have built our budget for PERS
contribution based on the Governor's budget. Governor
Palin's budget includes $78.5 million to pay the full cost
of the increase in the PERS rate from 2007 to 2008 for
political subdivisions. Kenai's rate for 2007 is 18.67%
including the 5% that the State provided. For FY 08, Kenai
will see a 5% effective increase even if the State pays the
full cost of the rate increase from 18.67% to 45.71%. Just
for information a 5% increase in the rate is equal to a
36.6% increase in the amount of our 2007 contribution (less
the State portion) or almost $300,000. For Kenai this is
significant. To increase from effectively 13.67% to the
31.86% in the bill is an increase in our contribution of
$1,055,264. While this is much better than having to pay
the contribution required at 45.71%, I hope it is clear
that a million dollar increase in a $10 million general
fund budget is going to be very difficult. And Kenai will
feel like we lost a bunch when compared to the Governor's
budget.
9:42:42 AM
Mr. Semmens concluded his testimony as follows.
I would like to suggest that for FY 08, the funding that is
in the Governor's budget be used to hold PERS employer
rates at the FY 07 levels. This will be a 5% increase for
most employers from the rate they paid from their own
resources in FY 07. If a final solution results in
municipal employer rate of less than 25%, most employers
will not see a large jump in the FY 09 rate. This is a
worthy goal and I hope you will consider doing this.
9:43:22 AM
Co-Chair Stedman asked if municipal government officials "at the
local level" recognize that for several years, employer
contribution rates had been significantly less than the 14
percent necessary to fully fund the retirement program and thus
the political subdivisions were paying lower rates.
9:43:51 AM
Mr. Semmens responded that City of Kenai officials understand
this. He had warned the city council at the time that
contribution rates were low ten years prior that the rates would
likely increase substantially in future years. Most
municipalities also acknowledge this.
9:44:29 AM
Co-Chair Stedman asked if, from the perspective of a municipal
finance officer, whether the witness deemed a contribution rate
of 20 to 23 percent a "burden" yet "bearable".
9:45:00 AM
Mr. Semmens shared his interpretation of the language of this
legislation as establishing a rate of at least 31.86 percent.
Utilizing his experience as a finance officer involved in the
Alaska Municipal League (AML), he deemed a rate of approximately
20 percent to be "reasonable, sustainable, predictable and
affordable" for municipalities. However rates in excess of 25
percent would cause a burden and would "drive" the budgetary
decisions of local governments. Municipalities would be "held
hostage" to the adopted rate at the expense of providing other
services demanded and deserved by the public. Local governments
do not have unlimited ability to increase taxes. He requested
recognition of this as well as recognition of the reduction in
the amount of funding allocated to local governments by the
State in recent years.
9:46:37 AM
Co-Chair Stedman thanked Mr. Semmens for his contributions to
resolving this issue.
9:46:49 AM
MICHEAL LAMB, Chief Financial Officer, Fairbanks North Star
Borough, and Co-chair, Revenue/Finance Subcommittee, Alaska
Municipal League, testified from an offnet location, reading a
prepared statement into the record as follows.
Thank you for the opportunity to comment on SB 125, and I
guess in reality, on the very dire and critical PERS issue
as a whole. Though I work with great diligence to never
offend, or burn bridges, given the significance of this
issue to PERS member employers, and the very real press of
time for legislative action this session, my comments today
are going to be purposely direct, and I am going to be as
transparent as I can be in conveying how the Borough and
other AML member employer's feel about what is going on
with PERS/TRS legislation. With that, my comments are as
follows:
1. I am happy to see that SB 125 recognizes that we really
do not have a single agent multiple employer system, and
that legislative language needs to move forward such that
our statutes reflect the reality that the State operates
PERS as a consolidated blended system.
2. Section 5 contains language that essentially says one
rate, which is the combined total of the normal and past
service cost rates that will be applied to both DB and DC
[defined contribution] salaries. I concur with this
provision, to do otherwise would at some point lead to
discriminatory hiring practices.
3. Section 7, the 65/35 percent allocation of the unfunded
liability is a significant disappointment. It is a
disastrous proposition that sets rates at levels that
cannot be paid by school districts, the university system,
cities, or by boroughs. I am particularly disappointed that
the exhibits behind this proposition used labels such as
winners, losers, and heroes! The Borough's position and the
AML's position, and my position has been, and continues to
be, that given how the system has been administered, and
how one employer's actions affect another's liabilities and
how assets have every year for decades been blended and the
reallocated it is impossible to say what assets or
liabilities any member entity has, and therefore, what
their piece of the unfunded liability is, which drives
their past service cost rates. Labeling winners and losers
is nonproductive and divisive. Those who have been
advantages and disadvantages, is not determinable, period.
This section of the bill clearly does not align in any way
with the AML position of needing predictability, stability,
nor affordability. 65/35 is a call to fiscally incapacitate
member employers.
4. Then, after rates get set that can't be paid by member
employers, we get to section 9, a poison pill provision
that essentially says that even if a member employer has a
legitimate reason not to make a payment, or maybe simply
can not because they just don't have the money, the
Administrator of the plan will simply go and take funds
from any agency of the state or political subdivision that
has in its possession funds of the employer that couldn't
pay its bill. So we set a rate that will cripple employers
and then any life blood funding available can be summarily
taken with no due process? I understand the Administration
needs a tool to collect from employers that will not pay a
legitimate bill. This is the wrong tool. This is instead a
heavy handed tool that will only accelerate the bankrupting
of employers, the who will be left to pick up their piece
of the bar tab that they can no longer pay, in the end
it'll be the State.
5. Sections 10 through 15 deals with terminations. Scrutiny
needs to be given to language that allows for unlimited
termination cost charges, that can then be extracted from
an employer using the section 9 language. Scrutiny also
needs to be given to the section 15 language that says you
only have 90 days after receipt of notice to decide if you
want to add or terminate coverage of a department, group,
or other classification of employees. First off, 90 days in
a public process environment isn't even enough time to deal
with an issue as significant as what is contemplated in
this section. Secondly, who can predict what makes sense in
the future? Why would we want to preclude future changes
that may help the system? Though there will be an attrition
factor, is it the intent of this language that all existing
school board members, council members or assembly members
would have to stay in the system because they couldn't
elect out because a 90 day period was missed? This makes no
sense. If the administration is trying to fix an abuse,
then prevent the abuse, but don't preclude all changes,
both good and bad.
In summary, SB 125, and its companion HB 206, does not
introduce language to amend the statutes to reflect that we
do in-fact have a consolidated plan, and that we should use
both salary bases when setting rates. However, and quoting
from a recent AML letter: Any legislation which leaves
communities having to pay unaffordable rates for an
unfunded liability which was not of our making, and which
risks bankrupting communities, is not a concept we can
accept. This 65/35 proposal is just that kind of
legislation as it does not provide any component of
predictability, stability, or affordability.
Mr. Lamb then began to speak to other legislation relating to
the retirement system.
9:53:25 AM
Co-Chair Stedman interrupted to request that comments on other
legislation be deferred to a later date.
Co-Chair Stedman reposed the question to Mr. Lamb that he asked
of Mr. Semmens. Regardless of how the unfunded liability
situation was reached, Co-Chair Stedman asked the approximate
contribution rate that would be "reasonable" and "affordable"
for communities, recognizing the different financial strengths
of each political subdivision.
9:54:21 AM
Mr. Lamb responded that the ratio proposed by the AML in which
the State would assume 85 percent of the unfunded liability and
the remaining employers would assume the remaining 15 percent,
the contribution rate would be 18.27 percent "for all entities".
Some AML members present at the meeting, in which this
recommendation was adopted, determined that the State should be
responsible for the entire unfunded liability; others supported
a 90:10 ratio. Ultimately, the debate concluded that employers
likely "paid less than we should have in the past", although
employers paid 100 percent of the required contribution rate.
Mr. Lamb opined that a contribution rate of 18.27 percent "is a
rate that hurts". The Fairbanks North Star Borough, for 22
years, paid a rate of 4.17 percent on average. A rate of 20 to
22 percent would equate to a 500 percent rate increase. Five
percent of the Borough's salary base computes to approximately
$1 million and therefore a contribution rate increase to 20 to
22 percent would result in a cost to the Borough of $4 to $5
million. This would be "a horrendous pill to swallow" and would
become "unpalatable".
9:56:18 AM
Mr. Lamb asserted that the 85:15 ratio with an employer
contribution rate of 18.27 percent generated from FY 05 figures
and applied to FY 08, "was always understood and known that the
next year would come and because of the reasons Larry [Semmens]
explained, we knew the rates would go up slightly." Mr. Lamb had
expected a contribution rate between 19 percent and 21 percent,
which was "palatable".
Mr. Lamb warned that if rates over 21 percent were imposed "we
are all heading into a danger zone that we can't pay." Already,
the City of Fairbanks has been experiencing a "revolt" over
current tax rates. The Borough operates with a "tax cap" and is
unable to legally generate additional revenues.
Mr. Lamb asserted that rates above 22 percent would "be in the
break zone". Rates closer to 21 percent would garner more
community support.
9:58:15 AM
Co-Chair Hoffman asked how the Borough has addressed the
increased contribution rates in its FY 08 budget.
9:58:30 AM
Mr. Lamb replied that the Borough has accounted for a rate below
20 percent; it did not "build in a rate higher what we could
afford to pay and or that we believe we should pay" given that
the normal cost rate is 14.48 percent. It was recognized that
the Borough must share a portion of the unfunded liability
obligation and therefore budgeted for a rate slightly less than
20 percent. A nominal increase could be "absorbed" and would be
the decision of the mayor.
Mr. Lamb informed that Borough officials "have stripped about
everything out of the budget we could as a result of what is
going on in this community and the impact that the property
taxes are having." Therefore, funding requests submitted by
department directors for other services were not included in the
mayor's recommended budget. Decisions were already being made
concerning the following year's budget based on "this PERS
issue". An increased expense of $3 million annually diverted to
PERS would no longer be available for other items. Additionally,
the Borough is registered as a second class borough and
subsequently must also fund schools. The impact of increased
contribution rates for TRS is also a concern.
10:00:46 AM
Co-Chair Stedman clarified that the "split" would not "be
erasing any liability", but rather would provide that the State
would assume a portion of the debt. Just as potential loss of
goods and services offered by municipal governments could
result, as the State expends more general funds, the amount of
goods and services it provides could also decrease. These
services include road maintenance and other important functions.
10:01:25 AM
Mr. Lamb offered his assistance in resolving this issue.
Although all parties were somewhat "unhappy" all supported
finding a solution.
10:02:14 AM
SHANA CRONDAHL, Alaska Municipal League, testified in Juneau as
follows.
AML supports amending state statutes to reflect that PERS
has been managed as a consolidated plan. SB 125 makes the
changes to statutes necessary to accomplish that. Cost
sharing resolves some of the accounting issues currently
plaguing the system that will otherwise be very difficult
for PERS employers to come to agreement on.
AML also supports a uniform consolidated normal cost rate
and a provision to amortize the unfunded actuarial accrued
liability (UAAL).
While we understand that the governor's proposal to pay 65%
of the unfunded liability as of June 30, 2006 is just a
starting point for negotiations, we urge you to remember
that ultimately the amount the state pays for will come
down to just one thing: what communities can afford.
If the normal cost rate plus the amortization rate on the
unfunded actuarial accrued liability exceeds what
communities have the ability to pay, which we think it will
at the proposed rate of 65%, local governments will be
unable to provide for the basic needs of citizens, and the
state will be forced to step in.
I would also like to point out that 65% of the unfunded
liability as of June 30, 2006 is not actually 65% of the
total unfunded liability. The unfunded liability has
increased since June 30, 2006, and will continue to
increase.
Each year the unfunded liability is recomputed. With a set
date in SB 125 - June 30, 2006, upon which the state's
share will continue to be computed, we may end up in a
situation where all the other employers' liabilities will
continue to rise, while the state's share remains a fixed
amount.
Let's find a way to avoid this scenario, so we're not back
here at the table again next year. I commend you for your
efforts to address this very difficult issue.
Ms. Crondahl extended that although she could not provide
expertise in the technical aspects of this legislation, she
would be willing to assist in other ways.
10:04:43 AM
Co-Chair Stedman requested input from the AML on determining an
appropriate ratio of the unfunded liability for the State and
other employers to assume, as well as a plausible contribution
rate. He intended to achieve a long term solution to the issue
and required direct input from affected parties to accomplish
this.
10:05:25 AM
Ms. Crondahl noted that the previous witnesses had provided
information regarding the financial obligations their respective
communities could afford. The AML would collaborate with the
Committee to reach agreement on a solution that could be
accomplished by all parties.
10:05:51 AM
Senator Huggins asserted that some would consider the State's
assumption of a portion of the unfunded liability held by
municipalities as "revenue sharing".
10:06:08 AM
Ms. Crondahl disagreed. The unfunded liability is affecting the
services that local governments could fund, as was occurring
with State services. The unfunded liability "is a hole and
putting money into that hole" diminishes the amount of funding
available for services that municipalities still must provide.
While State assistance in "putting money into that hole" is
somewhat beneficial for municipal budgets, it does not provide
funding assistance for other essential services.
Ms. Crondahl reported that 94 second class governments do not
participate in PERS and would therefore receive no financial
benefit from this legislation. Although Commissioner Kreitzer
had testified in a previous hearing that a State assumption of
more than 65 percent of the unfunded liability would be unfair
to those employers that own a lesser debt, Ms. Crondahl
contended that some communities have no liability in the PERS
system and therefore any State contribution would be unfair.
Assisting some communities with "part of the liability" while
requiring other communities to contribute a rate higher than
their individual portion of the unfunded liability, would also
be unfair.
10:07:56 AM
Co-Chair Hoffman partially agreed but expressed that the issue
remains that the ARM Board set the rates regardless that the
statute governing how those rates are set contains "some flaws".
A "very large" variance exists between the highest individual
contribution rate of 185 percent for the City of Fairbanks with
the 29.76 percent or $10.4 million that the State would provide
under the provisions of this bill and the other political
subdivisions that would receive no State funding. The assets of
the State must "treat all citizens equally" to the greatest
extent possible. He requested the witness' recommendation on
reconciling this.
Ms. Crondahl relayed that the League had not taken a position on
this. However, "assisting with PERS/TRS" was not considered
revenue sharing. As with the State government, many communities
were "hurting" financially for different reasons. Without
revenue sharing provided to rural communities the local
governments "gradually close down" and a point is reached "where
there's no turning back."
10:09:36 AM
Co-Chair Stedman acknowledged that the fairness issue would be a
"struggle" for the Committee.
10:09:59 AM
Senator Elton commented on Ms. Crondahl's testimony, which
extended "beyond what the rate should be" and "what the division
on the payment should be". She had also pointed out that under
the provision of this bill the data utilized to determine the
portion of the unfunded liability that the State would assume
would be outdated. The calculation would be made to the
valuation as of June 30, 2006; however the unfunded liability
has increased since that date and continues to do so. By
"locking in" this date, the State would actually assume less
than 65 percent of the unfunded liability and other employers
would be assigned more than 35 percent. Senator Elton
recommended the Committee consider this matter.
10:11:30 AM
Co-Chair Stedman ascertained that no other testimony was
forthcoming at this time.
Co-Chair Stedman offered the Department of Administration an
opportunity to respond to the testimony received.
Representatives of the Department declined.
Co-Chair Stedman ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 10:12:59 AM
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