Legislature(2007 - 2008)SENATE FINANCE 532

05/02/2007 01:30 PM Senate FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 125 PERS /TRS CONTRIBUT'NS;UNFUNDED LIABILITY TELECONFERENCED
Moved CSSB 125(FIN) Out of Committee
+= SB 124 ALASKA WORKFORCE INVESTMENT BD ALLOCATION TELECONFERENCED
Heard & Held
+= SB 104 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
                                                                                                                                
     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 fifth hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Stedman specified that  this legislation, referred to as                                                               
the "cost share  bill", pertained to the retirement  funds of the                                                               
majority of municipalities in the State.                                                                                        
                                                                                                                                
Co-Chair  Stedman advised  that  a new  committee substitute  had                                                               
been  developed. The  intent is  that this  forthcoming committee                                                               
substitute,  which  incorporated  the  issues  discussed  by  the                                                               
Committee, would be reported from Committee.                                                                                    
                                                                                                                                
2:27:45 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman moved  to adopt  committee substitute,  Version                                                               
25-GS1074\O, and  it's accompanying  fiscal notes as  the working                                                               
documentation.                                                                                                                  
                                                                                                                                
Co-Chair  Stedman pointed  out that  Members'  bill packets  also                                                               
contained  a   "side-by-side  comparison"  titled   "Analysis  of                                                               
Changes  CSSB 125  vs.  SB  125" [copy  on  file] which  compared                                                               
language  differences  between  Version   "O"  and  the  original                                                               
version of  the bill.  A five page  spreadsheet titled  "CSSB 125                                                               
Rate Backup:  Impact on 22%  Employer Rates of Hold  Harmless and                                                               
Recoup provisions" [copy on file] had also been distributed.                                                                    
                                                                                                                                
2:28:47 PM                                                                                                                    
                                                                                                                                
MILES BAKER, Staff  to Co-Chair Stedman, directed  his remarks to                                                               
the  "Analysis  of Changes  CSSB  125  vs. SB  125"  side-by-side                                                               
comparison.  Sections of  Version "O"  that mirrored  language in                                                               
the   previously  adopted   committee  substitute,   Version  25-                                                               
GS1074\K,  would  not be  discussed  as  those changes  had  been                                                               
addressed  during the  overview of  that committee  substitute on                                                               
April 28, 2007.                                                                                                                 
                                                                                                                                
Mr.  Baker  announced  that  the   first  change  that  would  be                                                               
addressed was  the addition of a  new section, Sec. 4,  on page 3                                                               
beginning on  line 5. This  section addressed  concerns regarding                                                               
how  the 22  percent  Public Employees  Retirement System  (PERS)                                                               
employer contribution rate would  be allocated. It clarified that                                                               
employers must  allocate three percent  of the 22 percent  to the                                                               
Health  Reimbursement Arrangement  (HRA). Part  of the  confusion                                                               
was that  HRAs were specified  in a different State  Statute than                                                               
the Statute pertaining to the contribution rate.                                                                                
                                                                                                                                
2:31:24 PM                                                                                                                    
                                                                                                                                
Mr. Baker identified the next change  as being in Sec. 19, page 9                                                               
line  14.  While Sec.  4  addressed  the HRA  allocation  concern                                                               
regarding PERS, this change would  similarly clarify the Teachers                                                               
Retirement System (TRS) employer  contribution rate allocation to                                                               
the HRA account.                                                                                                                
                                                                                                                                
2:32:42 PM                                                                                                                    
                                                                                                                                
Mr. Baker announced  that the most substantial  change in Version                                                               
"O" is in Sec. 21, page 9,  line 20. He referred the Committee to                                                               
the aforementioned  five page spreadsheet. Sec.  21 addressed the                                                               
concern that  the hold harmless  provisions in the  previous bill                                                               
versions  only  applied  to  PERS  employers.  This  section  was                                                               
revised to include TRS employers who employed PERS members.                                                                     
                                                                                                                                
Mr.  Baker  continued.  Sec. 21(a)  established  the  appropriate                                                               
contribution  rate  for  FY  2008 (FY  08).  This  enabled  those                                                               
employers  "who had  paid excess  into the  system over  the last                                                               
three years to recoup that excess amount".                                                                                      
                                                                                                                                
Mr. Baker  specified that Sec.  21(b) would specify  the employer                                                               
contribution rates for FY 09 through FY 12.                                                                                     
                                                                                                                                
Mr.  Baker also  communicated  that  the five-year  hold-harmless                                                               
provision  "would bring  some parity"  to  those employers  whose                                                               
contribution  rates had  been "substantially  below" 22  percent.                                                               
This parity  effort also considered  those entities who  had been                                                               
paying  substantially   more  than  22  percent   and  who  would                                                               
experience "a substantial savings in their general fund budget".                                                                
                                                                                                                                
Mr. Baker  directed attention  to the  five page  spreadsheet and                                                               
noted that  the information it  depicted, in  essence, "justifies                                                               
the percentages that  are in the bill". The first  two pages deal                                                               
with the PERS political subdivisions;  page 3 deals with entities                                                               
referred to as "PERS Other".  This would include entities such as                                                               
the  Alaska Municipal  League,  the  Southeast Regional  Resource                                                               
Center, and the Tlingit Housing  Regional Housing Authority. Page                                                               
4 depicts school districts and page 5 is a summary of the total.                                                                
                                                                                                                                
2:35:36 PM                                                                                                                    
                                                                                                                                
Mr. Baker communicated that  the spreadsheet contains information                                                               
on projected wage bases, entities'  FY 07 contribution rates, the                                                               
amount  paid  in FY  07  as  calculated  at  the FY  07  employer                                                               
contribution  rate  formula,  the  Alaska  Retirement  Management                                                               
Board (ARMB) recommended  rate for FY 08, and  the "gain/loss" on                                                               
that rate as affected by the 22 percent "fix".                                                                                  
                                                                                                                                
Mr. Baker, using the spreadsheet  as a tool, exampled the savings                                                               
that an entity such as  Fairbanks, whose prior contribution rates                                                               
were  significantly  above  the   proposed  22  percent  employer                                                               
contribution rate, would experience.                                                                                            
                                                                                                                                
Mr. Baker  also exampled  the affect of  the proposed  22 percent                                                               
rate on  entities whose FY  07 contribution  rate or FY  08 rate,                                                               
based on  the ARMB adopted rate,  was below 22 percent.  Any such                                                               
community with  a dollar  amount showing in  Column (9)  would be                                                               
subject to  the "hold-harmless"  credit provision. The  result of                                                               
that recalculation is depicted in Column (10).                                                                                  
                                                                                                                                
Mr. Baker next spoke to  columns (12) through (18). Any community                                                               
that had paid  an excess contribution amount in FY  05, FY 06, or                                                               
FY 07  would have an amount  reflected in Column (15).  The total                                                               
excess amount paid by communities  was $7,194,207. These entities                                                               
rates would be adjusted to allow  them to recoup their overage in                                                               
the fiscal year following the enactment of this legislation.                                                                    
                                                                                                                                
Mr. Baker  specified however  that some  of the  communities that                                                               
made excess  contributions had  also contributed  at a  rate less                                                               
than 22 percent. They would also  be subject to the hold harmless                                                               
provision. The  total affect of the  credit adjustments reflected                                                               
in the  bill on their  rate was  depicted in Columns  (19), (20),                                                               
and (21).                                                                                                                       
                                                                                                                                
AT EASE 2:39:26 PM / 2:39:38 PM                                                                                             
                                                                                                                                
Mr.  Baker continued  to address  the  calculations reflected  in                                                               
Columns  (19) through  (21). The  provisions  pertinent to  these                                                               
adjustments are included in Sec. 21 of the bill.                                                                                
                                                                                                                                
2:40:08 PM                                                                                                                    
                                                                                                                                
Mr. Baker  informed that the entities  depicted on page 3  of the                                                               
spreadsheet  were   not  addressed  in  the   previous  committee                                                               
substitute, as it had not  included provisions pertinent to "PERS                                                               
Other"  employers. The  format of  the information  on this  page                                                               
mirrored that of pages 1 and 2.                                                                                                 
                                                                                                                                
Mr.  Baker stated  that page  4 of  the spreadsheet  depicted the                                                               
affect  of  this  legislation  on  school  districts.  The  hold-                                                               
harmless provisions  would also  apply to  districts such  as the                                                               
Nenana School District, which had  previously paid a contribution                                                               
rate below 22 percent. The  total hold-harmless amount for school                                                               
districts was $1,102,187.                                                                                                       
                                                                                                                                
2:41:38 PM                                                                                                                    
                                                                                                                                
Mr. Baker referred Members to the  totals depicted on page 5. The                                                               
total  five  year annual  hold-harmless  amount  is specified  at                                                               
$5.15 million. He allowed that  slight adjustments to this amount                                                               
might occur as  payrolls fluctuated. The State  would be required                                                               
to contribute any  amount required beyond the  maximum 22 percent                                                               
employer contribution rate.                                                                                                     
                                                                                                                                
Mr. Baker  reminded the Committee  that the City of  Soldotna had                                                               
contributed an  excess amount  of one million  dollars in  FY 05.                                                               
Even after re-calculating their FY  08 rate to zero, that overage                                                               
could not be  recouped in one year. Thus, they  were added to the                                                               
hold  harmless column  and their  rate would  be adjusted  over a                                                               
five-year period  as reflected on  page 5. As a  result, $255,246                                                               
was added to the $5.15 million hold-harmless amount for FY 08.                                                                  
                                                                                                                                
Mr. Baker  also noted that  "one-time FY  08 rebate costs  to the                                                               
State" of $7,194,207  would also be added for a  total FY 08 cost                                                               
of $12,579,579. The State's costs  for each of the following four                                                               
years  would be  $5,385,372. The  rebate expense  would not  be a                                                               
factor.                                                                                                                         
                                                                                                                                
Mr.  Baker  noted  that  this  expense was  a  component  of  the                                                               
Department of Administration's fiscal note.                                                                                     
                                                                                                                                
2:43:58 PM                                                                                                                    
                                                                                                                                
KEVIN BROOKS, Deputy  Commissioner, Department of Administration,                                                               
thanked Mr.  Baker for developing  the five-page  spreadsheet. It                                                               
was   helpful  to   the  Department   when  they   compiled  this                                                               
complicated fiscal note.                                                                                                        
                                                                                                                                
Mr.  Brooks  reminded the  Committee  that  Governor Sarah  Palin                                                               
based her  FY 08  operating budget  on the  employer contribution                                                               
rates  that   were  calculated  last   fall.  The   State's  PERS                                                               
contribution rate  at that time  was projected to be  44 percent.                                                               
The average PERS employer rate at the time was 39 percent.                                                                      
                                                                                                                                
Mr. Brooks specified that "the  increases for that rate increase"                                                               
have  since  been  "backed  out" of  the  operating  budget.  The                                                               
operating budget in  its current form specifies  22.5 percent for                                                               
the State's employer  contribution rate. This was  the current FY                                                               
07 rate.  That number was  the starting point for  developing the                                                               
Department's fiscal note.                                                                                                       
                                                                                                                                
2:45:40 PM                                                                                                                    
                                                                                                                                
Mr.  Brooks  also noted  that  the  FY  08 operating  budget,  as                                                               
presented   in   HB  95-APPROP:   OPERATING   BUDGET/LOANS/FUNDS,                                                               
included  a  $180 million  appropriation  for  PERS. That  number                                                               
should  be  subtracted  from  the   $193,113,200  FY  08  expense                                                               
depicted  in   the  April  30,   2007  fiscal  note.   Thus  "the                                                               
differential"  increase  is   $13,100,000.  $12,600,000  of  that                                                               
reflects the  $5.4 million  in hold harmless  money and  the $7.2                                                               
million rebate  provision. The $500,000 remaining  variance could                                                               
be the result of various changes in formulas.                                                                                   
                                                                                                                                
2:47:22 PM                                                                                                                    
                                                                                                                                
Mr.  Baker   attested  that  a   variance  in  the   numbers  was                                                               
inevitable,   "depending  on   which  numbers   were  run".   The                                                               
calculation  was   based  on  projected  salaries   for  all  the                                                               
employers  and  the  FY  05  valuations.  The  mechanics  of  the                                                               
calculation  would  attribute  to  the  seemingly  "half  million                                                               
dollar rounding error".                                                                                                         
                                                                                                                                
Co-Chair Stedman acknowledged the explanation.                                                                                  
                                                                                                                                
2:47:59 PM                                                                                                                    
                                                                                                                                
Mr. Brooks  noted that this  concluded his fiscal  note comments.                                                               
He was available to answer Committee questions.                                                                                 
                                                                                                                                
2:48:11 PM                                                                                                                    
                                                                                                                                
Senator  Olson  asked  whether  the  $180  million  the  Governor                                                               
included in the FY 08  operating budget should also be subtracted                                                               
from the $218,287,000 FY 09 expense depicted on the fiscal note.                                                                
                                                                                                                                
Mr.  Brooks clarified  that  the entire  amount  depicted on  the                                                               
fiscal note would  be required in the out-years.  As specified in                                                               
the  bill, the  State would  be obligated  to provide  any amount                                                               
beyond  the 22  percent  paid by  employers.  He understood  that                                                               
going forward that annual appropriation  would not be included in                                                               
the operating budget. Thus, $218,287,000  would be required in FY                                                               
09.  As the  result of  provisions in  the bill,  this amount  is                                                               
expected to decline in FY 2011.                                                                                                 
                                                                                                                                
2:49:19 PM                                                                                                                    
                                                                                                                                
LARRY  SEMMENS, Finance  Director, City  of Kenai,  testified via                                                               
teleconference   from  an   offnet  location   and  thanked   the                                                               
Committee, the  Legislature, and the Administration  for the hard                                                               
work on this bill. He was  pleased with the results and supported                                                               
the bill being moved forward.                                                                                                   
                                                                                                                                
Mr.  Semmens informed  the Committee  that the  Alaska Retirement                                                               
Management Board  (ARMB) recently passed a  resolution specifying                                                               
that  if the  direction of  the  bill continued  "in its  present                                                               
form", they would "support lowering  the employer average rate to                                                               
32.51 percent".                                                                                                                 
                                                                                                                                
2:50:18 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman thanked Mr. Semmens  for the contribution he has                                                               
made in addressing this issue.                                                                                                  
                                                                                                                                
2:50:28 PM                                                                                                                    
                                                                                                                                
KATHY WASSERMAN,  Alaska Municipal  League (AML), spoke  in "full                                                               
support" of  the bill. She  also appreciated the  efforts exerted                                                               
to develop this bill; particularly  those of Commissioner Annette                                                               
Kreitzer   and   Melanie   Millhorn  with   the   Department   of                                                               
Administration;  Miles  Baker  with  Co-Chair  Stedman's  office;                                                               
Larry Semmens, Michael Lamb, and Co-Chair Stedman.                                                                              
                                                                                                                                
Ms.  Wasserman  expressed  that this  legislation  would  provide                                                               
"some closure  to a very,  very huge controversial issue"  to AML                                                               
members and others.                                                                                                             
                                                                                                                                
2:52:00 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman acknowledged  the  effort put  into this  bill;                                                               
however,  he exclaimed  there being  "no rhyme  or reason  to the                                                               
problems that people  are experiencing above the  22 percent, and                                                               
I  think  that that  goes  to  the  Chairman  when he  looked  at                                                               
resolving this problem. There still  is some inequities in what I                                                               
perceive  as assistance  to those  communities and  we are  still                                                               
contemplating a revenue  sharing bill that can try  to bring some                                                               
resemblance  of fairness  to the  other  communities that  aren't                                                               
participating in PERS".                                                                                                         
                                                                                                                                
Co-Chair  Hoffman asked  Ms. Wasserman  whether AML  continued to                                                               
support the development  of "a revenue sharing  program with some                                                               
resemblance of fairness  to offset the big  beneficiaries of this                                                               
legislation".                                                                                                                   
                                                                                                                                
Ms. Wasserman answered in the  affirmative. AML hoped there would                                                               
be "some  cash infusions" to  help those communities that  are in                                                               
need.                                                                                                                           
                                                                                                                                
2:53:40 PM                                                                                                                    
                                                                                                                                
Senator Elton voiced  appreciation for the work  conducted by Co-                                                               
Chair Stedman and his staff on this bill.                                                                                       
                                                                                                                                
Co-Chair Hoffman  repeated his earlier motion  to adopt committee                                                               
substitute, Version 25-GS1074\O as the working document.                                                                        
                                                                                                                                
There being no objection, Version "O" was ADOPTED.                                                                              
                                                                                                                                
Co-Chair Hoffman  moved to  report the  bill from  Committee with                                                               
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
Co-Chair  Stedman  repeated the  motion  and  specified that  the                                                               
spreadsheet would be included as part of the fiscal note.                                                                       
                                                                                                                                
There  being  no  objection,  CSSB  125(FIN)  was  REPORTED  from                                                               
Committee with  new $193,113,200 fiscal note  from the Department                                                               
of Administration, dated April 30, 2007.                                                                                        
                                                                                                                                
[NOTE: Co-Chair Stedman  ordered a four-page March  29, 2007 Buck                                                               
Consultants response  letter [copy  on file], addressed  to Kathy                                                               
Lea, Retirement  Benefits Manager, Department  of Administration,                                                               
regarding  an  unidentified  PERS   Analysis  Request  [copy  not                                                               
provided] to be attached to the Committee Report.]                                                                              
                                                                                                                                
Co-Chair  Stedman   thanked  the  Committee  for   the  attention                                                               
provided to  this bill. It was  a step forward in  addressing the                                                               
State's retirement system issue.                                                                                                
                                                                                                                                

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