Legislature(2017 - 2018)BARNES 124

02/28/2017 08:00 AM COMMUNITY & REGIONAL AFFAIRS

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Audio Topic
08:00:58 AM Start
08:01:48 AM HB47
08:58:54 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 47 MUNICIPAL PERS CONTRIBUTIONS/INTEREST TELECONFERENCED
Heard & Held
-- Public Testimony --
**Streamed live on AKL.tv**
          HB 47-MUNICIPAL PERS CONTRIBUTIONS/INTEREST                                                                       
                                                                                                                                
8:01:48 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH announced  that the only order  of business would                                                               
be HOUSE  BILL NO. 47,  "An Act requiring  certain municipalities                                                               
with a population that decreased  by more than 25 percent between                                                               
2000 and 2010 that participate  in the defined benefit retirement                                                               
plan  of the  Public Employees'  Retirement System  of Alaska  to                                                               
contribute to the system an  amount calculated by applying a rate                                                               
of  22 percent  of the  total of  all base  salaries paid  by the                                                               
municipality  to employees  of  the municipality  who are  active                                                               
members of  the system during  a payroll period;  authorizing the                                                               
administrator  of  the defined  benefit  retirement  plan of  the                                                               
Public Employees' Retirement System of  Alaska to reduce the rate                                                               
of   interest  payable   by  certain   municipalities  that   are                                                               
delinquent  in transmitting  employee and  employer contributions                                                               
to the retirement plan; and providing for an effective date."                                                                   
                                                                                                                                
8:02:41 AM                                                                                                                    
                                                                                                                                
PAUL  LABOLLE, Staff,  Representative Neal  Foster, Alaska  State                                                               
Legislature, presented HB 47 on  behalf of Representative Foster,                                                               
prime sponsor.   He paraphrased  the sponsor  statement [included                                                               
in  the  committee  packet],  which  read  as  follows  [original                                                               
punctuation provided, with some formatting changes]:                                                                            
                                                                                                                                
                                                                                                                                
     HB  47 seeks  to correct  an unintended  consequence of                                                                    
     the PERS "salary floor" established  in Senate Bill 125                                                                    
     of the 25th Legislature.                                                                                                   
                                                                                                                                
     Senate  Bill  125  changed  the   PERS  system  from  a                                                                    
     multiple  employer  plan to  a  cost  share plan.    It                                                                    
     transferred the  individual liability  of the  160 PERS                                                                    
     employers  and   consolidated  it   so  that   all  the                                                                    
     employers share in that liability.                                                                                         
                                                                                                                                
     Senate Bill 125 also  created what is commonly referred                                                                    
     to as the  2008 salary floor.   This requires employers                                                                    
     contribute  22% of  annual  salaries or  22%  of FY  08                                                                    
     salaries,  whichever   is  greater.    The   floor  was                                                                    
     instituted  to  ensure that  the  system  could not  be                                                                    
     "gamed" by  discouraging employers from  replacing PERS                                                                    
     employees  with contract  hires  to  reduce their  base                                                                    
     contribution to the system.                                                                                                
                                                                                                                                
     Some  municipalities have  found  themselves under  the                                                                    
     2008  floor through  no fault  of their  own.   A large                                                                    
     change  in population  results in  a reduced  tax base,                                                                    
     which  affects the  services a  city can  provide.   As                                                                    
     that  financial  reality  drives a  city  to  downsize,                                                                    
     current law  exacerbates this problem by  keeping their                                                                    
     PERS  contribution  at  the  2008  level.    This  bill                                                                    
     targets  the communities  whose population  has dropped                                                                    
     by more than 25% since the previous census.                                                                                
                                                                                                                                
     HB 47 will address this issue in two ways:                                                                                 
                                                                                                                                
     1. Establish  a new  floor of  FY 2012  for communities                                                                    
     whose  population decreased  by more  than 25%  between                                                                    
     2000 and 2010.                                                                                                             
                                                                                                                                
     2. Allows  the PERS administrator to  negotiate penalty                                                                    
     interest rates on delinquent payments.                                                                                     
                                                                                                                                
     HB  47  does not  intend  to  repeat the  "2008  floor"                                                                    
     debate   but  to   correct   one   of  the   unintended                                                                    
     consequences caused  by the arbitrary line  that debate                                                                    
     created.                                                                                                                   
                                                                                                                                
     I urge your support of this legislation.                                                                                   
                                                                                                                                
8:04:48 AM                                                                                                                    
                                                                                                                                
MR.  LABOLLE stated  that from  a fiscal  point of  view, as  the                                                               
[amount owed  in] payments continues to  increase and communities                                                               
are  unable to  pay, and  because the  communities cannot,  under                                                               
state law,  declare bankruptcy and cannot  dissolve without first                                                               
resolving  their debts,  these communities  "turn off  the lights                                                               
and leave the keys  in the door," and as a  result the state must                                                               
pay  the  entirety of  the  Public  Employees' Retirement  System                                                               
(PERS) obligation, not just its own portion of it.                                                                              
                                                                                                                                
MR. LABOLLE named  the following communities cited in  HB 47 that                                                               
have lost population:   Anderson, St. George,  Atka, Pelican, and                                                               
Galena.  Of  the five, Pelican and Galena are  the only ones that                                                               
would be  affected by the proposed  legislation, because Anderson                                                               
and St.  George no  longer have  any PERS  employees and  Atka is                                                               
presently above the 2008 salary floor in its gross salaries.                                                                    
                                                                                                                                
8:06:17 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEAL  FOSTER, Alaska  State Legislature,  as prime                                                               
sponsor  of HB  47,  stated that  one of  the  concerns was  that                                                               
municipalities  would contract  out for  their employees  so that                                                               
the  employees  were  not  actually  on  their  rolls,  thus  the                                                               
communities were not responsible for  having to contribute to the                                                               
retirement  system.   He indicated  a  floor was  set to  prevent                                                               
municipalities from  gaming the system,  which was a  good thing;                                                               
however,  it was  not foreseen  that communities  such as  Galena                                                               
would have a  military base leave its small community  and end up                                                               
having  to  substantially reduce  the  number  of people  on  the                                                               
employee  rolls.   When  that happened,  he  said, Galena's  bill                                                               
began  adding  up,  because  the municipality  is  liable  for  a                                                               
minimum amount of payment into  the retirement system, and yet it                                                               
has  significantly lower  personnel on  its employee  rolls.   He                                                               
echoed Mr.  Labolle's caution  that the  community may  just shut                                                               
down and [leave the state with  the full payment obligation].  He                                                               
said HB  47 provides the  opportunity to continue to  allow those                                                               
affected by this  issue to continue to operate  as a municipality                                                               
and be  able to pay at  least a minimal rate  rather than walking                                                               
away without paying anything.                                                                                                   
                                                                                                                                
8:08:35 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked how much  the state is "on the hook                                                               
for."                                                                                                                           
                                                                                                                                
MR.  LABOLLE  answered that  to  know  the  amount in  total,  an                                                               
actuarial study needs to be done,  and a study will at some point                                                               
be  completed and  the  results  will be  added  to the  proposed                                                               
legislation before  it is heard  by the House  Finance Committee.                                                               
In regard  to the  difference in cost  going forward,  he advised                                                               
that for  the two affected  communities:   Take the FY  08 floor,                                                               
subtract the FY  12 floor, and multiply that by  22 percent - the                                                               
contribution rate  - and that  equals the  "worst-case scenario,"                                                               
which is  about $186,000.   He explained that neither  Galena nor                                                               
Pelican  are at  that worst-case  scenario,  at FY  12; they  are                                                               
paying above that.  He said,  "What those ... gross salaries will                                                               
be in  the future  is indeterminate,  so we  don't know  what the                                                               
total cost will be, but that's as bad as it gets."                                                                              
                                                                                                                                
REPRESENTATIVE  RAUSCHER,  in  reference  to  the  aforementioned                                                               
municipalities, asked, "How bad off are they?"                                                                                  
                                                                                                                                
MR.  LABOLLE  responded  that  he is  not  well  acquainted  with                                                               
Pelican, but it  is a small fishing town that  has been dwindling                                                               
over the years.  He  added that although the proposed legislation                                                               
would certainly  help Pelican,  it may  not be  enough help.   He                                                               
said Galena  is doing  quite well,  having begun  biomass heating                                                               
and  doing  quite  a  bit   within  the  community  to  be  self-                                                               
sufficient; however, it  still has a looming, crushing  debt.  In                                                               
response  to  a  follow-up  question,  he  renamed  the  list  of                                                               
communities.                                                                                                                    
                                                                                                                                
8:12:34 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH  noted that the  list of communities  affected is                                                               
found on "the second page of your first fiscal note."                                                                           
                                                                                                                                
8:12:52 AM                                                                                                                    
                                                                                                                                
MR. LABOLLE,  in response to Representative  Rauscher, reiterated                                                               
the  reasons why  Anderson, St.  George,  and Atka  would not  be                                                               
affected by the  proposed legislation.  He stated that  in FY 12,                                                               
gross salaries for  Galena were $755,000 and were  up to $913,000                                                               
for FY 16 gross salaries.   Pelican's gross salaries were down to                                                               
$105,000 and  are now up to  $135,000.  He concluded,  "So, those                                                               
employees' salaries are growing."                                                                                               
                                                                                                                                
8:14:08 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER  asked   if  the   affected  communities                                                               
increased  their  contribution  to  PERS in  the  face  of  their                                                               
reduced employee  counts or  "did they  just let  it ride  at the                                                               
same rate?"   He explained  he was trying  to figure out  why the                                                               
increasing delinquencies occurred.                                                                                              
                                                                                                                                
MR.  LABOLLE  answered  that Galena  maintained  its  22  percent                                                               
payment on  current gross  salaries rather  than paying  the 2008                                                               
floor, which he confirmed would have been more money.                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER  concluded then  that Galena  had "adhered                                                               
... to one of the requirements and not the other."                                                                              
                                                                                                                                
MR. LABOLLE answered  that is correct.  In response  to a follow-                                                               
up  question,  he said  whether  or  not  Galena should  be  held                                                               
culpable for that choice is the policy call of the committee.                                                                   
                                                                                                                                
REPRESENTATIVE SADDLER said he knows  that the U.S. Department of                                                               
Defense (DoD)  offers economic readjustment funds  to communities                                                               
that are  affected by  base closures.   He asked  if the  City of                                                               
Galena obtained  any benefit from  DoD for  economic readjustment                                                               
after the air station was closed.                                                                                               
                                                                                                                                
MR.  LABOLLE deferred  to representatives  from Galena  to answer                                                               
the question.   He did offer  his awareness that "they  did leave                                                               
behind  a significant  amount of  fuel for  the city,"  which has                                                               
been using that  as a bridge while working on  its biomass energy                                                               
source.   In  response to  a follow-up  question, he  offered his                                                               
understanding  that the  military  had pulled  out  of Galena  in                                                               
2008.                                                                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER  questioned whether HB  47 would be  a fix                                                               
for  only   a  couple  of   specific  situations  and   if  other                                                               
communities  might  experience  such   a  "large  reduction"  [in                                                               
population].   He said  he wants to  ensure the  legislature sets                                                               
the  right policy  for  the  future rather  than  just fixing  an                                                               
individual situation that potentially  could be fixed by "working                                                               
a deal  or special  appropriation or a  special assessment."   He                                                               
said, "I don't  know whether this is an  appropriate situation to                                                               
be  making  ongoing  future  policy."    He  cautioned  that  one                                                               
solution  that might  work for  Galena may  not work  for another                                                               
community.                                                                                                                      
                                                                                                                                
MR. LABOLLE proffered  that the way the 2008 law  was passed tied                                                               
the hands  of the administration and  did not allow a  deal to be                                                               
made.   The administration has  to collect  the '08 floor  or the                                                               
gross  salaries, whichever  is greater  - it  has no  negotiating                                                               
option in statute - and  delinquent payments must be assessed the                                                               
statutory 12  percent interest rate  - the administration  has no                                                               
option on that.                                                                                                                 
                                                                                                                                
REPRESENTATIVE SADDLER said  he had not gone  through the statute                                                               
to figure out what 12 percent is,  but surmised it is a good deal                                                               
higher  in the  current  market.   He asked  whether  there is  a                                                               
section in  [the proposed  bill] that  might reset  that interest                                                               
rate.                                                                                                                           
                                                                                                                                
MR.  BOLE answered  that there  is no  provision under  HB 47  to                                                               
reset  the interest  rate, but  there is  a provision  that would                                                               
allow  the  PERS  administrator   to  "negotiate  the  delinquent                                                               
interest rate for affected communities."   He said the 12 percent                                                               
interest rate is  "not set by the  number 12," but is  set by the                                                               
expected actuarial  return, which  is 8 percent,  then one  and a                                                               
half times that, which is 12.                                                                                                   
                                                                                                                                
8:18:44 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DRUMMOND  said she  feels like  she has  seen this                                                               
bill at least twice in the last  four years.  She stated that the                                                               
aforementioned  communities had  paid "all  of the  PERS supports                                                               
for employees that  they had when they had them."   She asked for                                                               
confirmation that HB 47 would  assist those communities that have                                                               
lost employees and, thus, fallen below  the floor that was set in                                                               
2008, and those  communities paid the contributions  for the PERS                                                               
employees  at  the  time  they actually  had  the  employees  and                                                               
continue to pay  for any PERS employees they do  have; "it's just                                                               
that the  floor was  set artificially high  and they  have fallen                                                               
below in some cases."                                                                                                           
                                                                                                                                
MR. LABOLLE confirmed that is correct.                                                                                          
                                                                                                                                
8:19:48 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  clarified that communities pay  only part                                                               
of the PERS obligation, while the State of Alaska pays the rest.                                                                
                                                                                                                                
MR. LABOLLE clarified that the  communities have paid their gross                                                               
salary requirement of 22 percent;  however, they paid it on their                                                               
current employees and not on the 2008 floor.                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked  if the State of Alaska  had paid in                                                               
excess of that 22 percent.                                                                                                      
                                                                                                                                
MR. LABOLLE deferred to the administration.                                                                                     
                                                                                                                                
8:20:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WESTLAKE  said HB 47 looks  like a good bill.   He                                                               
observed, "You're locking down the  floor; you're going from 2000                                                               
to 2010 on  that."  He asked,  "Is there a reason  we're going to                                                               
an  off year,  a  2012 level,  as we're  talking  about the  PERS                                                               
rather than the chronological lock ... that we have on here?"                                                                   
                                                                                                                                
MR. LABOLLE answered  that 2012 is the "bottoming  out point" for                                                               
both  the  affected communities;  it's  the  point at  which  the                                                               
salaries  of those  communities stopped  going down  and "started                                                               
going back up."                                                                                                                 
                                                                                                                                
8:21:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TALERICO asked if "the  bill that we would submit"                                                               
to Galena "would be about  50 percent of their current employees'                                                               
salary level."                                                                                                                  
                                                                                                                                
MR.  LABOLLE  answered that  [Galena's]  gross  salaries were  at                                                               
approximately $1.5 million in FY  08 and now are at approximately                                                               
$900,000.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  TALERICO asked  for  clarification that  "they're                                                               
still  well above  the 22  percent because  of that  floor that's                                                               
structured there."                                                                                                              
                                                                                                                                
MR. LABOLLE answered that [Galena] is  below the FY 08 floor, but                                                               
above the FY 12 floor.                                                                                                          
                                                                                                                                
8:22:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER  expressed concern  that people  will see                                                               
the state bailing out these  communities from bankruptcy and will                                                               
get the  message that they will  "get a break" if  they don't pay                                                               
the state back and instead spend their money on something else.                                                                 
                                                                                                                                
MR. LABOLLE said he thinks  it is better to have [municipalities]                                                               
pay what they can  rather than have the state be  on the hook for                                                               
the entire amount.                                                                                                              
                                                                                                                                
8:24:44 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FOSTER indicated  that he  thinks [Representative                                                               
Rauscher  made] a  valid point.    He said  he thinks  this is  a                                                               
policy call  and "you take things  on a case-by-case basis."   He                                                               
opined that the situation where  a military base relocates is one                                                               
for which the state can make  an exception, but perhaps in a case                                                               
where a smaller  military unit moves out the decision  may not be                                                               
the same.  He said it is a subjective issue.                                                                                    
                                                                                                                                
8:25:40 AM                                                                                                                    
                                                                                                                                
MR. LABOLLE  pointed out that because  the metric of the  bill is                                                               
based on the 2000 and  2010 Censuses, the information has already                                                               
been  gathered  on the  aforementioned  communities  and all  the                                                               
details about each them are known.                                                                                              
                                                                                                                                
8:26:11 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER stated that  the legislature is encouraged                                                               
not to pass  legislation that benefits any one  person or entity.                                                               
He asked  if the sponsor  thinks that "the  narrow applicability"                                                               
of the proposed legislation is cause for concern.                                                                               
                                                                                                                                
MR. LABOLLE answered that "the  single entity is not specified in                                                               
legislation."   He said the  proposed legislation has to  do with                                                               
population loss, and it just so  happens that there are only five                                                               
communities with  such a high population  loss.  He said  the bar                                                               
was set high  on purpose, and when the bill  sponsor initiated HB
47, he did not know how many communities would be affected.                                                                     
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  Mr.  Labolle to  talk  about  the                                                               
circumstances  under which  the four  communities besides  Galena                                                               
experienced a large drop in population.                                                                                         
                                                                                                                                
MR. LABOLLE  deferred to Representative Talerico  for information                                                               
pertaining to  Anderson; he said  Pelican is a  fishing community                                                               
that has  lost people that have  moved elsewhere; and he  said he                                                               
could  not answer  the question  in  relation to  St. George  and                                                               
Atka.                                                                                                                           
                                                                                                                                
8:28:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TALERICO  offered that a change  in the management                                                               
plan  at the  Clear Airforce  Station and  a new  shift structure                                                               
resulted  in more  of  its active  members  living elsewhere  and                                                               
commuting to the base.                                                                                                          
                                                                                                                                
8:29:33 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
REPRESENTATIVE RAUSCHER  observed that  although there is  a zero                                                               
fiscal  note,  the  proposed legislation  would  cost  the  state                                                               
$1,014,000.                                                                                                                     
                                                                                                                                
MR.  LABOLLE   responded  that  the   fiscal  note   is  actually                                                               
indeterminate and there certainly will  be a cost associated with                                                               
HB 47.   He said  the actuarial  study he mentioned  before will,                                                               
when done,  give a guideline,  but will  not give an  exact cost.                                                               
He explained  that under  HB 47, the  unfunded liability  in PERS                                                               
will be increased slightly.   He said David Teal from Legislative                                                               
Finance  described  that increase  when  compared  to the  entire                                                               
system as "decimal dust."                                                                                                       
                                                                                                                                
8:31:36 AM                                                                                                                    
                                                                                                                                
KATHIE  WASSERMAN, Executive  Director,  Alaska Municipal  League                                                               
(AML), told  the committee  that she  had been  the mayor  of the                                                               
City of  Pelican for over  eight years,  and the reason  [for the                                                               
drop in population  there] was not just people  moving to Juneau,                                                               
but that the  main economic driver of Pelican for  about 80 years                                                               
was  a  cold   storage,  which  was  purchased   by  Kake  Tribal                                                               
Corporation, who  then went into  bankruptcy and left town.   She                                                               
said  that took  away the  majority of  jobs, and  many fishermen                                                               
went elsewhere to  sell their fish.  In terms  of whether Pelican                                                               
is a  viable community,  she said  that is  up in  the air.   She                                                               
pointed out that  many small communities such as  Pelican rely on                                                               
the certain decisions made by the legislature.                                                                                  
                                                                                                                                
MS. WASSERMAN stated that AML and  all 164 municipalities - or at                                                               
least all those with PERS employees  - have been working for many                                                               
years on this  issue.  She said  HB 47 morphed from  a study done                                                               
related  to termination  costs and  below-the-floor costs,  which                                                               
have taken a toll on most  municipalities by not allowing them to                                                               
be  flexible  with their  workforce,  because  if a  municipality                                                               
falls  below  the  2008  floor,  it  automatically  incurs  added                                                               
expenses.   She said,  "So, in  order to  trim ...  your employee                                                               
base,  you're going  to  look  at adding  money  to your  budget,                                                               
rather than  ... depleting your budget,  ... in some ways."   She                                                               
stated that  when "these  other communities"  that could  not pay                                                               
the  below-the-floor cost  began  incurring 12  percent, "we  saw                                                               
that amount  just skyrocket."  She  said at some point  the state                                                               
will not get that money, because  those cities do not make enough                                                               
in any year to be able to pay the amount they owe the state.                                                                    
                                                                                                                                
MS. WASSERMAN stated:                                                                                                           
                                                                                                                                
     To say that  "well, we don't want to  set a precedent,"                                                                    
     and "these communities have got  to pay what they owe,"                                                                    
     remember:   this all came  about because we  have taken                                                                    
     on  the responsibility  to pay  22 percent  of the  ...                                                                    
     state  PERS retirement  system that  was mismanaged  by                                                                    
     the state.                                                                                                                 
                                                                                                                                
MS. WASSERMAN stated that  AML supports HB 47 as a  help to a few                                                               
small  communities.   She  indicated  that  AML would  work  with                                                               
communities to find  ways to manage their personnel  in a better,                                                               
more effective way.                                                                                                             
                                                                                                                                
8:35:47 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH  opened public testimony on  HB 47, acknowledging                                                               
that he had not done so prior to Ms. Wasserman's testimony.                                                                     
                                                                                                                                
8:36:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  offered an analogy  of someone who  has a                                                               
car loan  and cannot make payments  because of job loss  but then                                                               
starts  getting  late  fees  and  higher  interest  rates,  which                                                               
snowball.  He asked if  the analogy illustrates what is happening                                                               
with some municipalities.                                                                                                       
                                                                                                                                
MS. WASSERMAN answered  yes.  She indicated that  when this issue                                                               
first  came to  her attention,  Galena had  a bill  for $194,000.                                                               
Years later,  that community could be  facing a bill of  over one                                                               
million dollars.   She said, "At some point, you  just don't keep                                                               
tacking on thousands and thousands  and thousands of dollars [in]                                                               
interest, because  nobody's going  to win.   The state  ... can't                                                               
collect from very small communities."   She said Pelican does not                                                               
have the ability to pay 12  percent interest.  She added, "I mean                                                               
they didn't  even go out and  get something for this  bill."  She                                                               
reiterated  that  these  small  communities  have  taken  on  the                                                               
state's liability.  She concluded,  "So, at some point, it's just                                                               
not going to happen."                                                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER  suggested that  the analogy that  may fit                                                               
more  closely  is one  related  to  credit  card debt  with  high                                                               
interest  rates rather  than car  payments.   He  noted that  Ms.                                                               
Wasserman had  said this is not  a community obligation but  is a                                                               
state obligation.  He asked,  "Does a local municipality bear any                                                               
responsibility for  the retirement cost  for its employees  or is                                                               
that entirely a state cost?"                                                                                                    
                                                                                                                                
MS.   WASSERMAN   answered   that   municipalities   have   taken                                                               
responsibility  by  paying 22  percent  of  salary, and  a  great                                                               
portion of that  goes to the unfunded liability.   She emphasized                                                               
that municipalities  have not fought  and will not fight  that 22                                                               
percent.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  SADDLER asked  how much  the state  has taken  on                                                               
above the 22 percent threshold as  part of its "agreement to help                                                               
bear that cost for the poly subs."                                                                                              
                                                                                                                                
MS.  WASSERMAN  answered,  "This   year  I  think  the  actuarial                                                               
required rate  is 25 percent, so  25.1, so I think  year it's 3.1                                                               
percent."                                                                                                                       
                                                                                                                                
8:39:09 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER told Ms.  Wasserman that there are always                                                               
two sides to every story and he appreciated hearing her side.                                                                   
                                                                                                                                
8:39:44 AM                                                                                                                    
                                                                                                                                
JON KORTA,  Mayor, City of  Galena, emphasized the  importance of                                                               
HB 47  for communities such  as Galena that have  seen population                                                               
decreases  in  the last  decade.    He  related that  the  Galena                                                               
forward  operating location  (FOL)  was closed  by  the U.S.  Air                                                               
Force  on 10/1/10  as part  of the  Base Realignment  and Closure                                                               
(BRAC), but  the process had been  in motion for four  years.  He                                                               
said the  air force base  was the  main source of  employment for                                                               
residents  of  Galena, and  not  surprisingly,  the base  closure                                                               
resulted in a reduction of the  population.  He said in 2000, the                                                               
City  of Galena  had 675  residents; in  2010, the  community had                                                               
470, which  represented a 30 percent  decline.  He said  the City                                                               
of Galena was  again hit by hardship in the  spring of 2013, when                                                               
ice dammed the  Yukon River and inundated the city,  leading to a                                                               
federal disaster declaration.                                                                                                   
                                                                                                                                
MR. KORTA said the 2008 floor  established by current law did not                                                               
prevent a municipality from gaining  PERS by contracting out work                                                               
previously  performed by  municipal employees  in order  to avoid                                                               
making  ongoing  contributions to  PERS.    He said  the  current                                                               
minimum  contribution is  based  on the  level  of salaries  that                                                               
existed in  2008.  He  said, "This  purpose does not  account for                                                               
Galena's situation."   He  said it neither  intended nor  does it                                                               
contemplate  municipalities with  sharply declining  populations.                                                               
He said  HB 47 does  not change  the PERS policy,  but recognizes                                                               
nuance, because  the proposed  legislation would  recognize those                                                               
communities,  like Galena,  that  suffered a  minimum 25  percent                                                               
decline in  population between  2000 and  2010.   He said  to put                                                               
that  in perspective,  the 25  percent threshold  would represent                                                               
the loss  of 75,000  people from Anchorage  or 8,000  people from                                                               
Juneau.  He asked the committee  to consider what would happen if                                                               
the borough's  population declined by  30,000, while at  the same                                                               
time Fort Wainwright and Eielson Air  Force Base were closed.  He                                                               
said the demand for municipal  administrative and public services                                                               
would decline  sharply, and so  would the  municipality's ability                                                               
to  provide  these services  having  lost  the region's  economic                                                               
driver.                                                                                                                         
                                                                                                                                
MR. KORTA  said HB 47,  which would move  the floor from  2008 to                                                               
2012 for the communities that  have experienced these huge losses                                                               
does  not  provide  a  loophole allowing  Galena,  or  any  other                                                               
community with a  similar population loss between  2000 and 2010,                                                               
to "game the system  now or in the future."  He  said the City of                                                               
Galena's budgeted payroll for fiscal  year 2015 (FY 15) is "above                                                               
the   2012  amount   for  17   employees,"   though  the   city's                                                               
circumstances are not  a result of any choices that  it made.  He                                                               
said the  relationship between the  declining population  and the                                                               
declining  payroll  is clear:    Fewer  residents lead  to  fewer                                                               
public  employs, which  in turn  leads to  lower public  payroll.                                                               
Mr.  Korta stated  that  based on  the 2008  floor,  the City  of                                                               
Galena  is   required  to   pay  an  amount   "owed  by   a  city                                                               
substantially  larger  than  Galena."    Galena's  required  PERS                                                               
contribution approaches  half of the  city's entire payroll.   He                                                               
said the City  of Galena's FY 08 salary total  was $1,513,365 for                                                               
36  employees;   therefore,  the   city's  annual   minimum  PERS                                                               
contribution  is  $332,940.   He  said  in  FY  12, the  City  of                                                               
Galena's payroll was  $765,000 for 17 employees, and  that is the                                                               
year that HB 47 proposes to move  the floor for cities that saw a                                                               
decrease in population between 2000 and  2010.  He said under the                                                               
2008   floor,  the   City  of   Galena's   annual  minimum   PERS                                                               
contribution is  nearly half of  the city's entire  payroll cost.                                                               
He stated  that for the  City of  Galena, the difference  in PERS                                                               
contributions between the  2008 and 2012 floors is  $154,000.  He                                                               
indicated that  the difference would  continue to  increase going                                                               
forward.   Under statute, any  unpaid amount accrues  interest at                                                               
12 percent.                                                                                                                     
                                                                                                                                
MR.  KORTA stated,  "This ever-increasing  obligation adds  to an                                                               
already  stressed  situation."    He said  the  city's  financial                                                               
situation was so severe in FY  11 that it required a low-interest                                                               
loan  through  the Alaska  Municipal  Bond  Bank to  address  the                                                               
severe cash flow  crisis that was preventing the  city from being                                                               
able  to secure  fuel for  heat and  electricity.   He emphasized                                                               
that if  the city  cannot pay  its bills, "the  lights go  out in                                                               
Galena."   He opined that  the 2008 floor  was a "solid  piece of                                                               
legislation furthering its  own policy," but it  does not account                                                               
for cities  that have  suffered massive  population contractions.                                                               
The proposed  bill would further  the underlying policy  goals of                                                               
the regulatory structure and help  ensure that municipalities are                                                               
able to continue  contributing to PERS, while  recognizing that a                                                               
city "cannot  and should not have  to make the contribution  of a                                                               
city  that has  a significantly  larger population."   He  opined                                                               
that  recognizing  that  the  City  of Galena  is  not  the  same                                                               
community it  was before the  base closed  and 30 percent  of its                                                               
population moved away is good  policy that would help ensure that                                                               
the community continues  to contribute to PERS  while keeping its                                                               
lights on.   He  concluded, "Recognizing  the reality  of sharply                                                               
declining populations  is a  worthy amendment  and is  just plain                                                               
fair."                                                                                                                          
                                                                                                                                
8:46:11 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked if  the U.S. Department  of Defense                                                               
(DoD)  offered  the  City of  Galena  any  economic  readjustment                                                               
assistance   either  through   goods   or  services,   financing,                                                               
equipment, or cash.  He also  asked if the military facility that                                                               
had been in Galena was a "forward air station."                                                                                 
                                                                                                                                
MR. KORTA  reiterated that it  was an FOL.   He said that  he was                                                               
not  the   mayor  at   that  time,   but  the   most  significant                                                               
contribution  offered by  the air  force at  that time  was fuel,                                                               
which the  community was able to  utilize and still uses  to this                                                               
day to operate  a boarding school on  the base.  He  said the use                                                               
of  that fuel  has  allowed  the City  of  Galena  to "grow  that                                                               
program."   He related that  the city is transitioning  away from                                                               
diesel  fuel  and into  biomass.    In  response to  a  follow-up                                                               
question from Representative Saddler,  regarding the value of the                                                               
fuel, he deferred to the city manager.                                                                                          
                                                                                                                                
8:47:37 AM                                                                                                                    
                                                                                                                                
SHANDA  HUNTINGTON,   Manager,  City   of  Galena,   offered  her                                                               
recollection  that  the  City  of  Galena  received  1.9  million                                                               
gallons  of fuel  in 2009  to  support the  boarding home  school                                                               
program.   In  response to  a  follow-up question,  she said  she                                                               
thinks the  value placed on the  fuel at the time  was $1.92 [per                                                               
gallon].                                                                                                                        
                                                                                                                                
8:48:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER expressed  appreciation for the testimony                                                               
given by the mayor of the City of Galena.                                                                                       
                                                                                                                                
8:48:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WESTLAKE asked if the  fuel was a federal or state                                                               
asset at the time.                                                                                                              
                                                                                                                                
MR. KORTA said he assumes that it was a federal asset.                                                                          
                                                                                                                                
8:49:20 AM                                                                                                                    
                                                                                                                                
MS.  HUNTINGTON   began  to  paraphrase  her   written  testimony                                                               
[included  in  the  committee  packet],  which  read  as  follows                                                               
[original punctuation provided, with some formatting changes]:                                                                  
                                                                                                                                
     My  name  [is] Shanda  Huntington  and  I am  the  city                                                                    
     manager for Galena, Alaska. Before  serving as the city                                                                    
     manager, I served as the city  clerk for 6 years. I was                                                                    
     also  born in  Galena,  grew up  there,  and raised  my                                                                    
     children in Galena. I would  like to follow up on Mayor                                                                    
     Korta's   testimony   with  information   relating   to                                                                    
     Galena's population decline, the  base closure, and the                                                                    
     effects on city payroll and finances.                                                                                      
                                                                                                                                
     As  Mayor Korta  said,  the air  force base  officially                                                                    
     closed  in 2010,  following a  multi-year drawdown.  In                                                                    
     1990, before base  realignment, Galena's population was                                                                    
     847. Galena has  always been a small city  and the base                                                                    
     was the  driver of economic activity.  According to the                                                                    
     2000 census,  the number of  residents, which  does not                                                                    
     include all of  the Air Force personnel,  was 675. That                                                                    
     number had  dropped to  470 with  the 2010  census. 205                                                                    
     people may  not sound like  a lot, but it  represents a                                                                    
     30% decrease in the  City's resident population between                                                                    
     the two censuses. 30% of  residents moved away, but the                                                                    
     decline  in  the  city's  economic  activity  was  much                                                                    
     greater. Without  the base, the  decline in  demand for                                                                    
     city  services was  disproportionate to  the population                                                                    
     decrease.                                                                                                                  
                                                                                                                                
     For FY  2008, the  current floor year,  Galena's salary                                                                    
     total  was $1,513,365.19  for 36  employees. Therefore,                                                                    
     Galena's annual minimum  PERS contribution is $332,940.                                                                    
     In FY  2012, the  amended floor year,  Galena's payroll                                                                    
     was $765,776 for  17 employees. Between FY  2008 and FY                                                                    
     2012, Galena's payroll was cut  in half, reflecting the                                                                    
     decrease  in  population   and  in  economic  activity.                                                                    
     Galena's  current annual  minimum PERS  contribution of                                                                    
     $332,940 is  nearly half  of the  City's FY  2012 total                                                                    
     payroll  costs.  Allowing  a floor  year  of  2012  for                                                                    
     cities   that  experienced   a   drastic  decrease   in                                                                    
     population    changes     Galena's    annual    minimum                                                                    
     contribution to $168,940.                                                                                                  
                                                                                                                                
     For  Galena,  the   difference  in  PERS  contributions                                                                    
     between the  2008 floor and  FY 2012 actual  payroll is                                                                    
     $164,000. This  difference will continue  going forward                                                                    
     creating  an ever  increasing  obligation. By  statute,                                                                    
     any amount  unpaid accrues compounded interest  at 12%.                                                                    
     This  ever-increasing  obligation  adds to  an  already                                                                    
     stressed situation. The  City's financial situation was                                                                    
     so severe  in FY 2011  that it required a  low interest                                                                    
     loan  through the  Alaska Municipal  Bond Bank  to deal                                                                    
     with a severe  cash flow crisis that  was preventing us                                                                    
     from   being  able   to  secure   fuel  for   heat  and                                                                    
     electricity.  Simply  put,  if  Galena  can't  pay  its                                                                    
     bills, the lights go out in Galena.                                                                                        
                                                                                                                                
     Reasonably  adjusting  the   floor  year  for  severely                                                                    
     impacted cities does not mean  that the cities will pay                                                                    
     the  minimum  amount  only. Modifying  the  floor  year                                                                    
     changes  Galena's  minimum   annual  contribution  from                                                                    
     $332,940 to  $168,940; the  actual contribution  may be                                                                    
     higher.  For FY  2013, Galena  would in  fact pay  more                                                                    
     than that  amended minimum. For  FY 2013,  Galena added                                                                    
     one employee,  for a total payroll  of $895,784.53. For                                                                    
     FY 2013,  Galena's contribution  would have  been above                                                                    
     the 2012 floor by approximately $30,000.                                                                                   
                                                                                                                                
     HB  47  simply  recognizes   that  reality  of  drastic                                                                    
     population   decreases  experienced   by  some   Alaska                                                                    
     cities, using a clearly  defined metric: a 25% decrease                                                                    
     in population according the 2000 and 2010 censuses.                                                                        
                                                                                                                                
     The base  closure has been  very difficult  for Galena.                                                                    
     As  previously noted,  Galena required  a low  interest                                                                    
     loan through  the Alaska Municipal Bond  Bank to secure                                                                    
     fuel for heat  and electricity in FY 2011.  In the last                                                                    
     several  years, Galena's  finances have  stabilized and                                                                    
     there  are  even  indicators   of  recovery  after  the                                                                    
     catastrophic decline.  We cannot  say what  will happen                                                                    
     to Galena's  population long-term, but we  believe that                                                                    
     we've  turned  a  corner in  terms  of  population  and                                                                    
     finances.                                                                                                                  
                                                                                                                                
     The  City  of Galena  is  adjusting  to a  new  reality                                                                    
     following  the base  closure  and loss  of  30% of  the                                                                    
     population.  This  legislation  is  one  part  of  that                                                                    
     adjustment. I  became city  manager during  a difficult                                                                    
     period  for  the  City. Our  finances  have  stabilized                                                                    
     somewhat  over the  last several  years. Requiring  the                                                                    
     City of Galena to pay to  PERS a contribution owed by a                                                                    
     much  larger city  weakens  Galena,  and threatens  its                                                                    
     ability  to provide  any contribution  to PERS.  We are                                                                    
     cautiously  optimistic   that  the  City   will  become                                                                    
     stronger and  even grow over  time. If and  when Galena                                                                    
     becomes  the city  it was  in  2008, the  city will  be                                                                    
     required to make a  PERS contribution commensurate with                                                                    
     that size and payroll, and  will do so gladly, but it's                                                                    
     not  that  city  right  now   and  the  oversized  PERS                                                                    
     contribution inhibits it from becoming so.                                                                                 
                                                                                                                                
     Recognizing  the   reality  of   drastically  declining                                                                    
     populations  is  a  matter   of  simple  fairness.  The                                                                    
     amendment recognizes  this and ultimately  promotes the                                                                    
     goals  of  PERS:  ensuring that  Alaska  municipalities                                                                    
     continue to contribute their fair share to the system.                                                                     
                                                                                                                                
     I'd like to  thank the committee for  taking time today                                                                    
     so that I may explain  the importance of this amendment                                                                    
     for communities like Galena  that have seen significant                                                                    
     population decreases in the last decade.                                                                                   
                                                                                                                                
8:55:31 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked what  the population of  the school                                                               
is  and whether  the  trend is  that  it is  on  the increase  or                                                               
decline or holding steady.                                                                                                      
                                                                                                                                
MS.  HUNTINGTON  offered  her understanding  that  currently  the                                                               
population at  the boarding home  school is 225 students  and the                                                               
number is increasing.                                                                                                           
                                                                                                                                
REPRESENTATIVE  SADDLER  said he  appreciates  that  the City  of                                                               
Galena is looking to the future  and trying to build itself up as                                                               
an educational center.  He  remarked that by his calculation, the                                                               
aforementioned diesel price per gallon  would mean that the total                                                               
value of  the fuel was approximately  $3.6 million.  He  asked if                                                               
the value of  that was used solely  for the school or  if some of                                                               
it  was  used  to  help   out  with  the  municipal  government's                                                               
expenses.                                                                                                                       
                                                                                                                                
MS.  HUNTINGTON recollected  that  in 2008,  the  City of  Galena                                                               
transferred  300,000   gallons  to  its  power   plant,  but  was                                                               
penalized  for  three years  following  that,  and she  said  she                                                               
thinks the City of Galena learned  a hard lesson because of that.                                                               
She said right  now the fuel is  used solely for the  school.  In                                                               
response to  a follow-up  question, she  said she  believes there                                                               
are 385,000 [gallons remaining] in the tank.                                                                                    
                                                                                                                                
8:57:39 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH,  after ascertaining that  there was no  one else                                                               
who wished to testify, closed public testimony on HB 47.                                                                        
                                                                                                                                
8:57:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked  if the intent is to  pass the bill                                                               
out of committee today.                                                                                                         
                                                                                                                                
CO-CHAIR PARISH answered no, but possibly as soon as Thursday.                                                                  
                                                                                                                                
8:58:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  said special interest  legislation causes                                                               
him  concern because  it sets  a bad  overtone, and  HB 47  would                                                               
address only  those communities  that "happen  to fall  into this                                                               
trench."   He suggested  he may  speak with  the bill  sponsor to                                                               
consider  all  communities   in  the  future  that   see  such  a                                                               
significant  drop in  population from  Census to  Census, because                                                               
what happens in each ten-year period may result in the need to                                                                  
bring similar legislation back before the legislature.                                                                          
                                                                                                                                
[HB 47 was held over.]                                                                                                          

Document Name Date/Time Subjects
HB47 Sponsor Statement.pdf HCRA 2/28/2017 8:00:00 AM
HB 47
HB47 Supporting Documents amended statutes 2.17.17.pdf HCRA 2/28/2017 8:00:00 AM
HB 47
HB47 Supporting Documents effected employers 2.17.17.pdf HCRA 2/28/2017 8:00:00 AM
HB 47
Korta PERS 2017.pdf HCRA 2/28/2017 8:00:00 AM
Huntington PERS 2017.pdf HCRA 2/28/2017 8:00:00 AM
HB047-DOA-DRB-02-24-17 Fiscal Note.pdf HCRA 2/28/2017 8:00:00 AM
HB 47