Legislature(2015 - 2016)HOUSE FINANCE 519

04/06/2016 08:30 AM FINANCE



* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 4/7/16 at 7:30 a.m. --
+ HB 47 PERS CONTRIBUTIONS BY MUNICIPALITIES TELECONFERENCED
Moved CSHB 47(FIN) Out of Committee
+= SB 124 EXTEND SUNSET ON AK COMMISSION ON AGING TELECONFERENCED
Moved SB 124 Out of Committee
+ HB 241 NONRESIDENT SURCHARGE COMMERCIAL FISHING TELECONFERENCED
<Bill Hearing Canceled>
+ HCR 4 US COUNTERMAND CONVENTION DELEGATES TELECONFERENCED
Moved CSHCR 4(STA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+ HB 188 PERSON W/DISABILITY SAVINGS ACCOUNTS TELECONFERENCED
Heard & Held
HOUSE BILL NO. 47                                                                                                             
                                                                                                                                
     "An Act  requiring each municipality with  a population                                                                    
     that  decreased by  more than  25 percent  between 2000                                                                    
     and  2010  that  participates 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;  reducing the                                                                    
     rate  of  interest payable  by  a  municipality with  a                                                                    
     population  that  decreased  by more  than  25  percent                                                                    
     between   2000  and   2010   that   is  delinquent   in                                                                    
     transmitting  employee  and employer  contributions  to                                                                    
     the  defined  benefit  retirement plan  of  the  Public                                                                    
     Employees'   Retirement   System  of   Alaska;   giving                                                                    
     retrospective effect  to the substantive  provisions of                                                                    
     the Act; and providing for an effective date."                                                                             
                                                                                                                                
9:16:41 AM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute for HB 47 (FIN),  Work Draft (29-LS0285\I). There                                                                    
being NO OBJECTION, it was so ordered.                                                                                          
                                                                                                                                
Co-Chair  Thompson  queried  the changes  in  the  committee                                                                    
substitute.                                                                                                                     
                                                                                                                                
BRODIE  ANDERSON,  STAFF,   REPRESENTATIVE  STEVE  THOMPSON,                                                                    
relayed the changes to the bill.  He stated that there was a                                                                    
title  change to  conform  to the  changes  made within  the                                                                    
bill. He  shared that the  bill added  a new Section  1, and                                                                    
the sponsor  will explain the  new section. He  relayed that                                                                    
the CS  deleted the old  Section 3, which had  a retroactive                                                                    
clause. He  stated that the  CS added  a new Section  4, and                                                                    
the sponsor was prepared to explain that new section.                                                                           
                                                                                                                                
REPRESENTATIVE  NEIL FOSTER,  SPONSOR,  indicated his  staff                                                                    
would be presenting the bill.                                                                                                   
                                                                                                                                
PAUL  LABOLLE, STAFF,  REPRESENTATIVE NEIL  FOSTER, reviewed                                                                    
the bill.  He looked at  Section 1,  page 1, line  12, which                                                                    
was  the   new  subsection  under  39.35.610   allowing  the                                                                    
administrator to  determine the  rate of  assessed interest.                                                                    
He stated that  Section 2 was the old Section  1. He relayed                                                                    
that Section 3 added a  reference to the new subsection that                                                                    
was created in  Section 4. He shared that  Section 4 allowed                                                                    
for  the  administrator   of  Public  Employees'  Retirement                                                                    
System (PERS)  to assess an  interest rate at a  lower value                                                                    
than otherwise dictated in the  section, if the employer was                                                                    
a municipality  who had lost  more than 25 percent  of their                                                                    
population between the 2000 and 2010 census.                                                                                    
                                                                                                                                
Representative  Munoz  queried  the  issue  of  a  community                                                                    
regaining  its population.  Mr.  Labolle  responded that  it                                                                    
would have to be done through additional legislation.                                                                           
                                                                                                                                
9:20:36 AM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  asked  about   the  migration  from  rural                                                                    
communities. Representative Foster  responded that, overall,                                                                    
there were some small migration  numbers from rural to urban                                                                    
areas. He remarked that Galena  had a major migration out of                                                                    
the area, because of the relocation of the military base.                                                                       
                                                                                                                                
Mr.  Labolle agreed  that the  military  base was  relocated                                                                    
from Galena. He stressed  that the legislation was specified                                                                    
to those  communities who lost  population from the  2000 to                                                                    
2010 census. Therefore, future population  loss would not be                                                                    
affected by the confines of  the legislation. He pointed out                                                                    
that the census affected  Galena, Pelican, Atka, St. George,                                                                    
and Anderson. He explained that  St. George and Anderson did                                                                    
not have  any PERS employees,  so they were not  affected by                                                                    
the legislation.  He deferred to  the department  to explain                                                                    
why Pelican and Atka were not affected by the legislation.                                                                      
                                                                                                                                
Representative  Guttenberg noted  that  the bill's  language                                                                    
was permissive,  and not required.  He wondered if  that was                                                                    
the intent  of the legislation.  Mr. Labolle replied  in the                                                                    
affirmative. He  furthered that the  intent of the  bill was                                                                    
to allow for  negotiation. The original version  of the bill                                                                    
had   a  retroactive   effective  date,   and  changed   the                                                                    
delinquency  rate in  statute for  affected communities.  It                                                                    
was determined that there should  be negotiation between the                                                                    
administrator of the program and the affected employer.                                                                         
                                                                                                                                
Representative  Guttenberg  wondered  how  the  2020  census                                                                    
would  affect  Anderson  and the  legislation.  Mr.  Labolle                                                                    
replied that  the legislation was  a "floor not  a ceiling."                                                                    
He explained  that the current  payments were 22  percent of                                                                    
the  current  salaries or  22  percent  of the  2008  floor,                                                                    
whichever is greater. He explained  that a growing community                                                                    
with growing employees, the community  would pay the greater                                                                    
of the  floor. Furthermore, Anderson  would not need  to pay                                                                    
the 22 percent of current employee salaries.                                                                                    
                                                                                                                                
9:25:28 AM                                                                                                                    
                                                                                                                                
Representative Gara looked at page  2 of the bill, and noted                                                                    
the two possible calculations for  how much the municipality                                                                    
should  pay  for  the  PERS employees:  the  greater  of  22                                                                    
percent of  the number of  current employees; or  the number                                                                    
of  employees  in   2008.  He  remarked  that   he  did  not                                                                    
understand  why the  2008 year  was  specified. He  surmised                                                                    
that  if the  number of  current employees  was larger  than                                                                    
what  was  in the  new  section,  then  the payment  was  22                                                                    
percent  of the  number  of current  employees. Mr.  Labolle                                                                    
responded in the affirmative. He  explained that there was a                                                                    
bill  in 2008,  which  took the  failing  PERS systems,  and                                                                    
pooled them  into one state  system. He remarked  that there                                                                    
was a concern  that employers could lay  off employees, hire                                                                    
contract employees,  and therefore  only pay the  22 percent                                                                    
of  the current  employees.  Thereby  leaving the  remaining                                                                    
outstanding liability  on the state.  The floor  was created                                                                    
to prevent that possibility.                                                                                                    
                                                                                                                                
Representative  Kawasaki asked  for Mr.  Labolle to  explain                                                                    
the  retroactivity.   Mr.  Labolle   thought  Representative                                                                    
Kawasaki was looking at a previous version of the bill.                                                                         
                                                                                                                                
Representative   Kawasaki    asked   if   there    was   not                                                                    
retroactivity.  Mr.  Labolle  confirmed that  there  was  no                                                                    
retroactivity in the bill.                                                                                                      
                                                                                                                                
Co-Chair Thompson OPENED public testimony.                                                                                      
                                                                                                                                
9:28:35 AM                                                                                                                    
                                                                                                                                
SHANDA   HUNTINGTON,    CITY   OF   GALENA,    GALENA   (via                                                                    
teleconference), spoke in favor of  the policy of imposing a                                                                    
floor. She remarked  that HB 47 did not  change PERS policy.                                                                    
She provided  some history. Galena declined  its activity in                                                                    
recent years,  and city services plummeted.  She pointed out                                                                    
that  there  were  17  employees  in  2012.  The  difference                                                                    
between   the   two   floors   was   significant.   Galena's                                                                    
contribution  was  significantly  high.  She  provided  some                                                                    
statistical  information regarding  PERS contributions  paid                                                                    
by Galena. She added that HB 47 was not a loophole.                                                                             
                                                                                                                                
9:36:42 AM                                                                                                                    
                                                                                                                                
KATHIE  WASSERMAN,   ALASKA  MUNICIPAL   LEAGUE,  ANCHORAGE,                                                                    
indicated  that  the League  was  in  favor  of HB  47.  She                                                                    
relayed the  difficulty of conveying to  the legislature the                                                                    
challenges.  She spoke  to her  previous  experience as  the                                                                    
mayor of Pelican.                                                                                                               
                                                                                                                                
Co-Chair Thompson CLOSED public testimony.                                                                                      
                                                                                                                                
Representative Gara  asked about the penalties.  Mr. Labolle                                                                    
replied  that previous  versions of  the bill  had penalties                                                                    
and retroactivity.                                                                                                              
                                                                                                                                
Representative Munoz asked if  the past liabilities had been                                                                    
paid.  Mr.  Labolle  believed  the  amount  was  the  amount                                                                    
unpaid, but  deferred to the  administration for  the actual                                                                    
amount.                                                                                                                         
                                                                                                                                
Representative   Munoz   asked   for   an   explanation   of                                                                    
termination  study. Mr.  Labolle replied  that the  bill did                                                                    
not address termination studies.                                                                                                
                                                                                                                                
Representative Munoz noted that  a testifier had addressed a                                                                    
termination study.                                                                                                              
                                                                                                                                
Co-Chair Thompson  agreed to  provide that  information, but                                                                    
remarked that that it did not relate to the bill.                                                                               
                                                                                                                                
Representative  Munoz disagreed,  because  a community  must                                                                    
initiate   a  termination   study  when   an  employee   was                                                                    
terminated  because  the  employer   could  not  afford  the                                                                    
employee.  It  would  affect their  finances,  because  they                                                                    
needed  to  pay  toward  the  costs.  She  wanted  a  fuller                                                                    
understanding of the requirement of a termination study.                                                                        
                                                                                                                                
9:42:04 AM                                                                                                                    
                                                                                                                                
KATHY  LEA, CHIEF  PENSION OFFICER,  DIVISION OF  RETIREMENT                                                                    
AND  BENEFITS,  DEPARTMENT  OF ADMINISTRATION,  shared  that                                                                    
there were two  types of termination costs in  PERS. One was                                                                    
with PERS  since the inception  in 1961, which was  a common                                                                    
feature in multi-employer plans.  She stated that there were                                                                    
some plans  that required the  study. She remarked  that, if                                                                    
an    employer   eliminates    coverage    for   a    group,                                                                    
classification,  or department,  the employer  must pay  the                                                                    
cost that arises from the action.  The costs were based on a                                                                    
change  in  the  behavior  of   people  who  were  close  to                                                                    
retirement.  She stressed  that the  majority of  people who                                                                    
reach normal retirement  age, did not retire  at that point.                                                                    
She pointed  out that  only 16 percent  of people  retire at                                                                    
normal  retirement   age.  She   stated  that   most  retire                                                                    
approximately four  years after the normal  retirement date,                                                                    
which  was  how  the  plan was  funded.  She  remarked  that                                                                    
terminating  a group  changed that  behavior. Therefore  the                                                                    
person who was not currently  covered by PERS would draw the                                                                    
retirement at  the first eligible  date. At that  point, the                                                                    
fund was  not fully funded.  The employer must then  pay the                                                                    
difference  in   the  funding  from  the   point  at  normal                                                                    
retirement to  the point  the plan  anticipated it  would be                                                                    
funded  at 100.  Terminating employees  who were  not vested                                                                    
then become  100 percent  vested in  the PERS  benefits. She                                                                    
explained that  in 2005,  with the  creation of  the defined                                                                    
contribution  plans,  termination  costs  were  covered  and                                                                    
again in  2008 in SB  125. She explained  that as part  of a                                                                    
change  to  a cost  share  system,  there  was a  fear  that                                                                    
employers   would   remove   groups,   classifications,   or                                                                    
departments in order to lower  their contribution amount and                                                                    
leave the accrued liability for  the other PERS employers to                                                                    
pay.  She  stated that  SB  125  created  a second  type  of                                                                    
termination  cost, which  required that  the employer  pay a                                                                    
continuing contribution for the  employees that were removed                                                                    
from coverage  based on  the unfunded  liability percentage.                                                                    
The employee would  continue to pay every  payroll until the                                                                    
unfunded  liability   was  exhausted.  She  stated   that  a                                                                    
termination  study would  not trigger,  unless  there was  a                                                                    
removal of  a department,  classification, or group  when an                                                                    
employee was looking to reduce the number of employees.                                                                         
                                                                                                                                
9:46:50 AM                                                                                                                    
                                                                                                                                
Representative  Munoz wondered  if  the smaller  communities                                                                    
that  were discussed  paid the  termination  costs. Ms.  Lea                                                                    
replied that Galena did not have a termination study.                                                                           
                                                                                                                                
Representative  Wilson surmised  that  employees were  still                                                                    
paying for employees  that were no longer  employed. Ms. Lea                                                                    
replied that, in Galena's case,  they were paying the salary                                                                    
score from 2008.                                                                                                                
                                                                                                                                
Representative  Wilson  felt  that additional  boroughs  may                                                                    
face  a similar  issue as  Galena. Ms.  Lea stated  that any                                                                    
time an  employer removed  an entire  group, classification,                                                                    
or department there would be a termination study.                                                                               
                                                                                                                                
Representative Wilson surmised that  an employer would still                                                                    
pay  into  PERS  even  without   a  termination  study.  She                                                                    
stressed that the municipalities would  still have a cost to                                                                    
the  employee,  even  though  the   employee  would  not  be                                                                    
employed. Ms.  Lea agreed that the  municipality would still                                                                    
be subject to the 2008 salary floor.                                                                                            
                                                                                                                                
Vice-Chair Saddler reviewed the fiscal notes.                                                                                   
                                                                                                                                
Co-Chair  Neuman  MOVED  to  REPORT CSHB  47  (FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
                                                                                                                                
Co-Chair Neuman rescinded his action.                                                                                           
                                                                                                                                
Co-Chair  Thompson commented  that the  correct fiscal  note                                                                    
had not been read.                                                                                                              
                                                                                                                                
Vice-Chair Saddler reviewed the correct fiscal note.                                                                            
                                                                                                                                
Co-Chair  Neuman  MOVED  to  REPORT CSHB  47  (FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSHB  47 (FIN)  was REPORTED  out  of committee  with a  "do                                                                    
pass" recommendation and with one  new fiscal impact note by                                                                    
the Department of Administration.                                                                                               
                                                                                                                                
9:52:20 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:56:04 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
HB47 Sponsor Statement.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Summary of Changes ver A to ver N.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents amended statutes.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents Employers impacted by salary floor.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents effected employers.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents PERS Employer Salaries for FY08 - FY12 Affected Muniticaplities.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents PERS cities by 2010 population.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents PERS Employer Salaries for FY08 - FY12.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB47 Supporting Documents Total Active PERS employees.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB 47 NEW FN DCCED CRA 4-1-16.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB 188 NEW FN DHSS HCMS 4-1-16.pdf HFIN 4/6/2016 8:30:00 AM
HB 188
HB 47 CS WORKDRAFT FIN vI 4-5-16.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB 047 - Actuarial Analysis.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB 47 NEW FN PERS 4-5-16.pdf HFIN 4/6/2016 8:30:00 AM
HB 47
HB 188 NEW FN DHSS HCMS 4-6-16.pdf HFIN 4/6/2016 8:30:00 AM
HB 188
HB 188 NEW FN DOR T&T 4-6-16.pdf HFIN 4/6/2016 8:30:00 AM
HB 188
HCR 4 Article 5 HFIN.pdf HFIN 4/6/2016 8:30:00 AM
HCR 4