Legislature(2015 - 2016)BARNES 124
04/06/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB46 | |
| HB47 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 46 | TELECONFERENCED | |
| += | HB 47 | TELECONFERENCED | |
| += | HB 120 | TELECONFERENCED | |
HB 47-PERS CONTRIBUTIONS BY MUNICIPALITIES
3:29:15 PM
CHAIR OLSON announced that the final order of business would be
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." [Before the committee was CSHB 47(CRA)]
3:29:35 PM
REPRESENTATIVE NEAL FOSTER, Alaska State Legislature, introduced
himself and his staff, Paul LaBolle.
3:29:46 PM
PAUL LABOLLE, Staff, Representative Neal Foster, Alaska State
Legislature, stated that HB 47, Section 1 would reset the 2008
Public Employees Retirement System (PERS) floor to 2012 for
communities that have lost more than 25 percent of their
population and are paying less than they would have in fiscal
year (FY) 2008. It specifically excluded Atka, which was the
only community whose population dropped by more than 25 percent,
but whose salaries are above the 2008 floor. He said that
Section 2 of the bill would change the interest rate on
delinquent payments from 1.5 times the actuarial assumed rate of
return or 8 percent to simply the actuarial rate of return or 8
percent for communities that make payments to the PERS system
under the "2008 floor" and not under current salaries. He
indicated that if they pay under current salaries, the
obligation will be unchanged on delinquent payments. He said
Section 3 would provide a retroactive clause that goes back to
2009.
3:31:27 PM
REPRESENTATIVE LEDOUX asked whether the fiscal note was a zero
fiscal note.
MR. LABOLLE explained that the fiscal note [Retirement and
Benefits dated 4/3/15] was indeterminate due to the actuarial
loss versus a real loss and an estimate of annual loss and
assumed rate of returns. He referred to page 2 of the fiscal
note that provides an estimate of the yearly loss. The estimate
starts in fiscal year (FY) 16 at $131,000 and fall each year FY
21, $85,000. He pointed out that the estimate leaves out the
biggest part of the fiscal note, which is the retroactivity
clause. He referred members to page 2 of the letter from the
actuarial, [David H. Slishinshy, ASA], which indicates $999,000
for FY 16, for a total of $1.13 million in FY 16. He said that
the remainder of the years are unchanged since the retroactivity
clause would be closed out by then. In response to
Representative LeDoux he clarified that the FY 21 ongoing cost
is $85,000.
3:33:25 PM
REPRESENTATIVE COLVER requested a review/summary of the
actuarial letter.
3:33:53 PM
MIKE BARNHILL, Policy Analyst, Office of the Director, Office of
Management & Budget (OMB), Office of the Governor, deferred to
the Chief Financial Officer for the Division of Retirement &
Benefits to explain the fiscal note.
3:34:13 PM
KEVIN WORLEY, Chief Financial Officer, Central Office, Division
of Retirement & Benefits, Department of Administration (DOA),
referred to page 2 of the fiscal note, stating that one line was
for ongoing and the other for retroactive figures.
3:34:29 PM
MR. WORLEY explained that retroactive represents revenue from
2008-2015 that the PERS retirement system would not have
collected as a result in the change in salary. For example, the
department will waive difference between the salaries and the
actual payroll for the City of Galena.
MR. BARNHILL explained that the way that works is that the
actuarial has already treated them as actuarial losses for those
years and has built in the losses for those years into the
actuarial rate setting for FY 08, FY 09, FY 10, FY 11, FY 12, FY
13, and FY 14. He characterized it as "water under the bridge"
since it was figured into the unfunded liability so going
forward it's already built into the rate setting the actuary has
done. The state has been paying for that through additional
state assistance contributions to the extent that the state had
a net actuarial loss with the sum total of all the actuarial
losses in a particular year.
3:36:02 PM
REPRESENTATIVE HUGHES asked whether the $999,000 was the "water
under the bridge."
MR. BARNHILL answered yes.
REPRESENTATIVE HUGHES recalled that it seemed like the City of
Galena's rate of $131,000 had been $150,000 or $160,000. She
asked for further clarification on why the ongoing figures were
only $131,000.
MR. BARNHILL referred to Appendix "A" on page 3 of fiscal note
analysis from the actuarial, which shows that the City of Galena
had gross salaries in FY 08 of $1.5 million and $765,000 for FY
12. He said that the figures represented 22 percent of $1.5
million, which was the bill the division sent to the City of
Galena since FY 08. However, what the City of Galena actually
paid was 22 percent of their current payroll, or something less
than 22 percent of $1.5 million. What has happened since FY 08
was that the city's salary base reset to a lower level and it
has been going up each year. Thus in FY 12 the amount was
$765,000 and in FY 14 it was over $866,000. The actuary is
predicting that in FY 16-18, the City of Galena's salary base
will continue to creep up and as creeps up to the FY 08 salary
level, it gets smaller each year, which is reflected in the
fiscal note.
3:38:24 PM
REPRESENTATIVE HUGHES asked whether the diminishment of revenue
sharing was taken into account in this analysis.
MR. BARNHILL was not sure he followed the question.
3:38:39 PM
REPRESENTATIVE HUGHES referred to the revenue sharing the state
gives back to local communities, which will be reduced each
year.
MR. BARNHILL related his understanding that she was asking
whether the actuarial took into account the resources available
to the City of Galena for its salary base to continue to go up
might be less. He surmised that the actuarial did not take that
into account, but just looked at the trend. He offered to
contact the actuarial and report to the committee.
3:39:20 PM
REPRESENTATIVE COLVER asked whether the bill resets the floor to
June 30, 2012 for municipalities who decreased by 25 percent in
the last two census reports.
MR. BARNHILL answered yes.
REPRESENTATIVE COLVER asked how this affects communities that
are close to that asked whether it would that take care of them
or just the City of Galena.
MR. BARNHILL answered these are communities impacted by the
bill. For instance, if a community loses population in the
future, this bill would not impact the community.
3:40:29 PM
REPRESENTATIVE COLVER related his understanding that this bill
would reset and write off bad debt that has accrued on the
higher payrolls at 22 percent of the imputed payrolls at the FY
2008 level. He further understood that ongoing costs are
reflected on page 2 of the fiscal analysis. He asked whether
the department's fiscal note was indeterminate. The fiscal
analysis shows $131,000 in FY 16 and $122,000 in FY 17.
MR. BARNHILL answered that some actuarial complexity exists. He
stated that the table on page 2 represents lost employer
contributions to the PERS [Public Employees Retirement System].
When the state doesn't collect the revenue from employers it
would normally collect, it is treated as an actuarial loss,
which is added to the existing unfunded liability and amortized
over a 25-year period. For example, the $131,000 in FY 16 would
be capitalized as additional unfunded liability, which would be
offset against all the other actuarial gains and losses for the
year. The remaining number, if positive goes against the prior
unfunded liability, and if negative, it is added to prior
unfunded liability and amortized. All things being equal, if
the actuarial loss to FY 16 was $131,000, the amount added to
state assistance - that the state pays on behalf of all
participating employers would be a fraction of $131,0000,
probably in the range of $25,000 to $30,000 per year in extra
state assistance.
3:42:43 PM
REPRESENTATIVE COLVER asked whether a large percentage of the
unfunded liability was due to generous retirement commitments a
few years ago that now are showing up as the true cost.
MR. BARNHILL answered that he could discuss this matter at
length; however, he summarized that the causation of the
unfunded liability was a product of investment losses that were
not contemplated and actual projections that were badly wrong.
CHAIR OLSON asked whether those were the mortality tables that
were used.
MR. BARNHILL answered it had more to do with health cost
projections in 1990s calculated 4.5 percent for FY 1999 but the
actual costs for FY 1999 was 20 percent. He acknowledged that
the mortality tables will be a big challenge since medical
science is doing amazing things to cure disease. He expected
that people will live longer. He said that in the most current
set of actuarial valuations, the actuarial has recommended some
additional conservative numbers in terms of mortality, which was
adopted by the Alaska Retirement Management Board last year.
Again, as the state moves forward in time, the state anticipates
the actuaries will bring an additional conservative
recommendations with respect to mortality projections.
3:44:54 PM
REPRESENTATIVE HUGHES related her understanding that the fiscal
note was indeterminate, but the actuarial has provided figures
on the fiscal note. She said the $131,000 would be amortized so
it would really be $20,000-25,000 cost to the state this year.
Further the $1 million that has was considered "water under
bridge." She asked whether it was a $150,000 cost to the state.
MR. BARNHILL said that was very nearly the amount. All things
being equal that's what it would be; however the state never
gets an 8 percent investment return. For example in FY 14, the
investment return was over 18 percent, which resulted in a net
actuarial gain. He was unsure what will happen in FY 16, since
the investment markets could return more than 8 percent and that
could offset the actuarial loss. He suggested that in viewing
the scale of investment returns, it will be very easy to wipe
out $131,000 in actuarial losses. He predicted that 8.2 percent
could completely wipe it out or 8.0105 percent. He cautioned to
take these figure with "a grain of salt."
3:47:10 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 47.
3:47:37 PM
REPRESENTATIVE COLVER said that if the state was going to expect
communities to be viable, given declining state assistance, that
it was very troubling they would be charged so much when they
had to reduce the budget. He said that something has to be
done, that cities need to be viable and continue to operate. He
agreed it was a difficult problem. He offered his belief that
this bill seems to be a reasonable solution, noting that the 8.2
percent return would result in no cost to the state.
3:49:09 PM
REPRESENTATIVE HUGHES commented that she cringed at thought of
increasing the unfunded liability, but in considering the small
amount per year or that if the state has a good year that the
$131,000 would be wiped out. She said she felt more comfortable
now that she better understands the fiscal note.
3:49:45 PM
REPRESENTATIVE LEDOUX suggested that if the legislature doesn't
do this some places may "turn off lights and give the keys
back." She suggested that just as bankers consider the terms of
the loan, and if collecting means driving the borrower into
bankruptcy and the bank gets nothing, this approach probably
makes sense fiscally to the state and the smaller communities.
3:50:24 PM
CHAIR OLSON thanked the sponsor for providing what appears to be
more accurate information than the committee has had in the
past.
3:50:36 PM
REPRESENTATIVE HUGHES reiterated that understanding the fiscal
note was valuable. Further, she offered her belief that this
was the fair and right thing for the communities.
3:51:08 PM
REPRESENTATIVE HUGHES moved to report the proposed committee
substitute, CSHB 47(CRA), out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 47(CRA) was reported from the House Labor and
Commerce Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB46 ver A.pdf |
HL&C 4/6/2015 3:15:00 PM |
HB 46 |
| HB46 Sponsor Statement.pdf |
HL&C 4/6/2015 3:15:00 PM |
HB 46 |
| HB46 Fiscal Note-DOLWD-WIB-04-02-15.pdf |
HL&C 4/6/2015 3:15:00 PM |
HB 46 |
| HB46 Fiscal Note-MVA-OOC-04-02-15.pdf |
HL&C 4/6/2015 3:15:00 PM |
HB 46 |
| HB46 Support Documents-Email-Russ Black-SFAC Director-3-25-15.pdf |
HL&C 4/6/2015 3:15:00 PM |
HB 46 |
| HB47(CRA) Fiscal Note-DOA-DRB-04-03-15 with Actuary Letter-3-31-15.pdf |
HL&C 4/6/2015 3:15:00 PM |
HB 47 |