Legislature(1995 - 1996)

04/01/1995 10:05 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HSTA - 04/01/95                                                               
 HB 270 - EARLY RETIREMENT INCENTIVES                                        
 ANNALEE MCCONNELL, Director, Office of Management and Budget,                 
 presented HB 270 on behalf of Governor Tony Knowles, stating the              
 bill will provide management tools to address Alaska's fiscal gap             
 and to allow downsizing of government.  There are significant                 
 differences between this and previous retirement incentive programs           
 (RIPs):  It is not an across-the-board cut, the time in which                 
 savings must be demonstrated has been narrowed to three years, and            
 it allows local options.  Operational plans, including calculations           
 to prove monetary savings, would have to be approved by her office.           
 Number 152                                                                    
 MS. MCCONNELL said school districts are a good example of                     
 significant savings because higher paid teachers could be replaced            
 with new hires.  The Department of Corrections could replace prison           
 guards at half the present cost, and other agencies who provide               
 24-hour care could see significant savings as well.  She said it              
 was true that long-term savings might not occur as the new hires              
 later reached a higher pay scale, but savings could be realized now           
 and in the short-term.                                                        
 Number 212                                                                    
 MS. MCCONNELL continued HB 270 would help Alaska avoid the chaos of           
 radical downsizing, such as what happened in 1986.  Another new               
 aspect of this RIP is the provision for separation incentives which           
 allows lump sum payments to employees who would not qualify for               
 early retirement.                                                             
 Number 280                                                                    
 CHAIR JAMES requested testifiers to limit their testimonies to two            
 minutes, unless they are speaking on behalf of a group of five or             
 more testifiers.                                                              
 Number 322                                                                    
 CRAIG PERSSON said via teleconference, HB 270 would allow long-term           
 state employees to be replaced with entry-level employees, and                
 would have a positive effect on Alaska's economy because retired              
 employees would stay in the state and their jobs would be filled by           
 other qualified Alaskans.                                                     
 Number 359                                                                    
 ELWIN LEACH, via teleconference, pointed out HB 270 would save                
 money on health care costs by replacing older employees with                  
 younger, healthier ones.  It would also place more Alaskans in                
 Number 390                                                                    
 LUCY HOPE spoke via teleconference on behalf of 20 people who were            
 present in the Wasilla Legislative Information Office, plus another           
 16 who had signed a list.  She explained new teachers could be                
 hired at half the salary of retiring ones, and this is a better               
 choice than increasing class size, laying off teachers, or                    
 eliminating programs to save money.                                           
 Number 441                                                                    
 FRANK SMITH pointed out via teleconference, the North Slope Borough           
 can save a great deal of money with this bill, and this is                    
 important since the oil income is decreasing.                                 
 Number 465                                                                    
 JUDY MURPHY stated, via teleconference, the bill is very                      
 cost-effective, and it offers choices of participation.  She added            
 she is at the top of her salary schedule, as are others, and she              
 could be replaced with a less expensive teacher.                              
 Number 494                                                                    
 ELDON BROTHEN mentioned via teleconference, HB 270 would allow                
 school districts to save money at a time when drastic budget                  
 reductions and cuts are required without harming employees' or                
 kids' programs.                                                               
 Number 523                                                                    
 JAMES CHAMBERS, via teleconference, urged passage of HB 270,                  
 pointing out it provides options for school districts and local               
 governments and would eliminate economic uncertainty.  Without the            
 bill, layoffs would be required which would harm employees.                   
 Number 565                                                                    
 ALICIA NEWMAN noted via teleconference, HB 270 would allow local              
 school districts and departments time to reorganize or restructure            
 to be in line with available revenue.                                         
 Number 573                                                                    
 SANDRA STRAUB remarked via teleconference that state employees who            
 make large amounts of money are also accruing large amounts of                
 interest and increasing the financial liability of the state.                 
 Number 585                                                                    
 PETE VELSKO said via teleconference, he believed HB 270 should be             
 open to all eligible employees because it would increase savings by           
 replacing senior employees with new ones.                                     
 Number 596                                                                    
 VAL KOEBERLEIN thanked Representative James via teleconference for            
 the opportunity to speak on this issue, which is very important to            
 the city of Homer and could save the city $370,000 in three years.            
 He suggested extending the eligibility period.  He was speaking for           
 nine other testifiers.                                                        
 Number 618                                                                    
 BILL MONROE spoke via teleconference on behalf of 15 other people             
 who could not attend.  This RIP could save the school district                
 $400,000 in a three-year period.  This money is desperately needed;           
 even if the district is fully funded, they are facing severe cuts.            
 Number 648                                                                    
 LEE FOSTER, via teleconference, said HB 270 is a cost effective               
 bill, but he would like to address the overriding social issues.              
 Delta Junction could lose half its teaching staff and other state             
 offices as a result of the military cutback.  Retiring senior                 
 employees could ease the financial stress and uncertainty by being            
 replaced with younger employees.                                              
 Number 664                                                                    
 MIKE SARVER said via teleconference, HB 270 would provide real                
 incentive for teachers to retire.  Approximately 49 percent of the            
 teaching staff will be nonretained as a result of the Army leaving            
 Fort Greely.  This bill would allow teachers at the top of the pay            
 scale to retire.                                                              
 Number 685                                                                    
 ROD CLIFT testified via teleconference, there are 11 employees in             
 his school district who would choose to retire if HB 270 passes.              
 Number 706                                                                    
 DUANE GRIGG said via teleconference he has watched the school's               
 programs decline over the years, and would like to maintain the               
 existing programs.  They are almost at the point of desperation and           
 he feels HB 270 offers a solution.                                            
 TAPE 95-40, SIDE B                                                            
 Number 000                                                                    
 RUTH ANN RUST said via teleconference her school district would               
 save an average of $15,000 per retiree by replacing them with                 
 highly qualified, but beginning teachers.  She stressed HB 270                
 would not be a reward for burned out educators or a giveaway                  
 Number 074                                                                    
 SUSAN VINCENTE declared via teleconference, HB 270 is one of the              
 better RIPs that has been offered.  She likes the flexibility and             
 the local discretion, and feels the bill would allow salary cuts              
 without cutting services.                                                     
 Number 105                                                                    
 TOM CHURCH stated via teleconference he had taught in Cordova for             
 over 28 years.  Approximately 18 teachers there would qualify for             
 the RIP program this year.  It is a win-win situation.  However, he           
 would recommend extending the eligibility period for school                   
 employees to match the one for university and state employees.                
 Number 132                                                                    
 ROSE MARY BUSHON spoke via teleconference as an educator and as a             
 parent.  Her concern was maintaining the present teacher-pupil                
 ratio, which has reached the absolute maximum.  The RIP is the only           
 way to do this while meeting required budget cuts.  There is no               
 other responsible choice.                                                     
 Number 163                                                                    
 TRINA RICHARDSON mentioned via teleconference her school district             
 is planning next year to charge each student a $30 fee just to walk           
 through the door.  That is how critical their situation is.  The              
 RIP would give them a way to deal with their economic problems.               
 Many teachers are already at the top of the salary scale but have             
 less than the currently required number of years for retirement.              
 Number 198                                                                    
 CAROL MITCHELL said via teleconference, approximately 40 educators            
 in Ketchikan are eligible for retirement.  Including a benefit                
 package, they could save between $67,000 and $85,000 per teacher              
 over the next three years by retiring experienced teachers and                
 hiring new ones.  This bill would force teachers to seriously                 
 consider retirement.                                                          
 Number 241                                                                    
 LEW BRANTLEY said via teleconference he could not understand how              
 anyone would fail to see what a savings HB 270 offers.  He added              
 the lower income employees would also earn lower benefits.                    
 Number 260                                                                    
 MIKE WARD said via teleconference most of his comments have already           
 been covered by other testifiers.  However, he added Fish and Game            
 could save money by replacing long-term employees who are covered             
 under the Peace Officer Retirement System with lower-paid employees           
 who would no longer receive that benefit.                                     
 REPRESENTATIVE BRIAN PORTER asked Mr. Ward what classification was            
 changed out of the PERS retirement.                                           
 MR. WARD replied Fish and Game employees were formerly covered                
 under the Peace Officer Retirement System, and it was changed about           
 ten years ago.  Employees then were "grandfathered in" but                    
 replacements would not be covered.                                            
 REPRESENTATIVE PORTER asked if this pertained to Fish and Game as             
 opposed to Fish and Wildlife.                                                 
 MR. WARD said that was correct.                                               
 Number 292                                                                    
 CORKY MCCORKLE stated via teleconference, the City of Kodiak                  
 administration is in favor of HB 270 and SB 136, but he did not               
 understand the difference in effective dates for municipal                    
 employees versus state employees.  He suggested an amendment to               
 make everyone eligible at the earlier date.                                   
 Number 331                                                                    
 NORMA DUDIAK, via teleconference, noted she and her husband are               
 both Fish and Game employees, and they endorse HB 270.  They do not           
 want to see employees laid off and she asked for an unbiased                  
 cost-savings analysis of the bill.  She was concerned the                     
 requirements of the bill are so complicated it would require hiring           
 more people to administer it.  She requested the legislature not to           
 stall on this bill, to be sure it comes up for a vote this year.              
 Number 352                                                                    
 JUDY SHIFFLER stated via teleconference HB 270 makes a lot of                 
 economic sense in these times of budgetary concerns.  She spoke to            
 another concern:  The future employability of our children.                   
 Younger teachers would be better trained than the older teachers to           
 supply students with up-to-date computer skills and knowledge.                
 Number 389                                                                    
 BRENDA MARTIN pointed out via teleconference the last RIP bill                
 saved Fairbanks $1,554,000.  Replacing a retiring teacher with a              
 new one saves $15,000.  Two retiring teachers save $30,000, which             
 is the cost of hiring a new teacher.  She asked the legislators not           
 to play partisan politics with this bill, but to pass it quickly              
 out of committee.                                                             
 Number 402                                                                    
 KELLY BROWN spoke via teleconference on behalf of the 8,000 ASEA              
 members.  HB 270 would avoid layoffs, reduce the number and cost of           
 state employees, and would be a win-win situation.                            
 Number 435                                                                    
 HAL SMALLEY spoke via teleconference as a city councilman and a 25            
 year Alaskan teacher, stating the city of Kenai could save half a             
 million dollars with HB 270.  He suggested extending the program              
 from July 1995 to July 1998.  Without a RIP, local governments will           
 be forced to layoff less expensive employees at the bottom of the             
 seniority scale and keep expensive employees, which also increases            
 medical costs.  He spoke on behalf of 16 other testifiers.                    
 Number 476                                                                    
 BOB RUTMAN said via teleconference, HB 270 would help with Alaska's           
 financial crisis and reduce financial problems in his school                  
 Number 488                                                                    
 DALE JUDGE asked via teleconference, whether a person could combine           
 years worked under the public employees retirement system with                
 those worked in the teachers retirement system to be eligible under           
 the RIP.                                                                      
 Number 498                                                                    
 BOB STALNAKER, Director of the Division of Retirement and Benefits,           
 Department of Administration, replied no, service could not be                
 combined under the retirement systems to meet minimum eligibility.            
 A person who had worked under both systems would still have to be             
 of an age to meet eligibility requirements.                                   
 Number 507                                                                    
 MARILYN NIGRO said via teleconference, she had been at the top of             
 her teacher salary schedule since the 1980s, and a beginning                  
 teacher would make approximately half her salary.  As they face a             
 crisis and need to make drastic cuts in their budget, retirement              
 should be encouraged for those at the top of the salary schedule.             
 Number 520                                                                    
 TED DELEON said via teleconference, he agreed with previous                   
 testifiers, but did not understand why there were different windows           
 and felt they should be the same for municipalities, state                    
 employees, and the university.  He added most of the funds will not           
 come from the state but from the retirement fund, and it does not             
 belong to the legislature or the state; it belongs to the                     
 Number 538                                                                    
 PAM DARNALL noted via teleconference, the Fairbanks North Star                
 Borough has worked hard to keep class size down, and she feared               
 class size would rise unless they can lower some costs.  HB 270               
 would also open jobs for our new local teachers who would otherwise           
 have to leave the state to seek employment.                                   
 Number 551                                                                    
 TERRY MARQUETTE, via teleconference, supported HB 270.  As a high             
 school building manager, he has seen a lot of valuable programs for           
 kids lost because of budget cuts.  This bill would save programs.             
 Number 558                                                                    
 MARGARET SAMPSON said via teleconference she has been at the top of           
 the salary scale for several years.  HB 270 would allow such                  
 teachers to be replaced with new and highly qualified university              
 graduates at a much lower salary.                                             
 Number 579                                                                    
 REPRESENTATIVE CAREN ROBINSON asked for an explanation of the                 
 "window" question several people had raised.                                  
 MS. MCCONNELL responded the reason there were different window                
 periods and start dates for state and local governments and school            
 districts was the enormous administrative requirement to be sure              
 everything gets processed properly for the employees.  If it hit              
 all at once, the system could break down.  She suggested the                  
 Administration could canvas the local governments and school                  
 districts to get a sense of how many employees would be taking                
 advantage of the program and what timing would work best for them.            
 This would allow them to do some workload planning and possibly               
 accommodate different dates.                                                  
 Number 609                                                                    
 CHAIR JAMES read statements for the record:                                   
 The Anchorage Council of Education had called in support of HB 270            
 as written.                                                                   
 Creekside Park School in Anchorage had FAXed a list of names in               
 support of HB 270.                                                            
 Two individuals had called in support of the bill, and many other             
 supporting FAXes had arrived.                                                 
 Number 626                                                                    
 VERNON MARSHALL, Executive Director of the National Education                 
 Association of Alaska, thanked the Governor for submitting the bill           
 and thanked Chair James for scheduling it for hearing.  He asked              
 for a good nonpartisan effort to pass HB 270, and said the bill is            
 actuarily sound.  It would not create a "brain drain" and it would            
 reduce class sizes.                                                           
 Number 656                                                                    
 GARY BADER, Administrative Services Director for the Juneau School            
 District, said he likes the fact that HB 270 is not a mandate but             
 permits local school districts to decide.  He believes it would               
 save his school district a minimum of $1.8 million over five years,           
 by retiring an estimated 30 teachers.                                         
 Number 691                                                                    
 BRUCE LUDWIG, Business Manager of the Alaska Public Employees                 
 Association and Secretary/Treasurer of the state AFL/CIO, noted HB
 270 would stimulate Alaska's economy.  Money invested in PERS and             
 SBS is invested outside the state.  When a person retires, that               
 money comes back into the state in the form of a pension or an                
 annuity, is spent in the community, and creates 1.8 other jobs.               
 Number 707                                                                    
 JEFF BUSH remarked that the Juneau School District needs tools to             
 deal with financial problems, and HB 270 would provide those tools.           
 TAPE 95-41, SIDE A                                                            
 Number 000                                                                    
 JAMES TEDFORD observed most school districts are in a financial               
 crisis.  He urged the committee to move HB 270 so a RIP could be in           
 place before the end of this school year.                                     
 Number 024                                                                    
 HERB HOLEMAN said he spoke for many other state employees who                 
 support HB 270.  He works for the Department of Administration, is            
 a range 21M, and his position could easily be filled by a range 17A           
 which would be one-half to two-thirds of his salary.                          
 Number 056                                                                    
 CHAIR JAMES noted Representative Kim Elton was present in the                 
 Number 067                                                                    
 PHYLLIS OLSTA spoke on behalf of employees of the Alaska Marine               
 Highway ferry system.  HB 270 would allow retirement of employees             
 hired under the old contract of 1986; newer employees are under a             
 new contract with more spartan benefits.  Hiring new employees                
 would stimulate the Alaska economy and "get rid of the people who             
 are just coasting along waiting for something to happen."                     
 Number 106                                                                    
 DR. GLEN MASSAY, Director of Mat-Su College, stated via                       
 teleconference the estimated savings for Mat-Su College would be              
 $150,000 if HB 270 passed, allowing them to retire four or five               
 positions.  This would be a great help.                                       
 Number 114                                                                    
 MARY ANN CASEY said via teleconference, HB 270 would eliminate                
 uncertainty and help Aniak School District.                                   
 THOMAS BROCK said via teleconference, HB 270 would benefit Aniak              
 School District by providing cost savings and opportunities for new           
 Number 155                                                                    
 CHAIR JAMES called Annalee McConnell and Bob Stalnaker back to the            
 table to answer questions.                                                    
 Number 165                                                                    
 REPRESENTATIVE ROBINSON asked how proposals would be scrutinized,             
 and by whom, in keeping with HB 270.                                          
 Number 175                                                                    
 MS. MCCONNELL replied her office intends to very tightly scrutinize           
 the proposals because they need the cost savings.  They cannot                
 afford to be inaccurate on projections.  The downsizing pressures             
 have increased, and all commissioners are aware of the need for               
 significant savings.  Her office will review proposals both from a            
 budget analyst side and from a policy and organizational side to be           
 sure both are achievable.                                                     
 Number 224                                                                    
 REPRESENTATIVE ROBINSON inquired how the Administration would deal            
 with explaining who fits and who does not fit into the program.               
 MS. MCCONNELL answered the Cabinet has had many discussions about             
 this very issue.  First, they are acknowledging this will be a                
 difficult task, and managers will have to be prepared to justify              
 their criteria.  Expectations need to be reduced, and the public              
 needs to be aware this is not an across-the-board RIP.                        
 Number 285                                                                    
 REPRESENTATIVE PORTER asked if anyone from the Department of Law              
 had been asked to consider the legal issues of equal protection               
 regarding the selection process.                                              
 MS. MCCONNELL responded the question had been raised.  The bill has           
 specific language to make it clear there is no entitlement for                
 employees and there is no contractual right for employees.                    
 MR. STALNAKER added those questions had been dealt with in prior              
 Number 320                                                                    
 MS. MCCONNELL said they cannot guarantee no one will challenge it,            
 but the bill is carefully structured in Section 12 to minimize the            
 risk.  She added the affect on employee morale of not having a RIP            
 needs to be considered, when it is well known jobs are going to be            
 cut.  This is very disruptive.  A RIP reduces anxiety regarding the           
 future for the remaining work force.                                          
 Number 368                                                                    
 CHAIR JAMES said she sees a really big savings for the school                 
 districts in dollars, but she cannot accept the idea that a new               
 person is as good as an experienced one.  Experience is valuable.             
 She was also concerned about what happens to stability of the                 
 Teachers Retirement System (TRS) if people are suddenly dumped into           
 it ahead of schedule to collect their retirement.                             
 Number 390                                                                    
 MS. MCCONNELL responded to the first part of the question by                  
 agreeing new employees do not have the same experience as older               
 ones, but determination will be made at the local level regarding             
 how to deal with budget cuts.  A choice between cutting students'             
 services and increasing class size, versus hiring some less                   
 expensive teachers, is best made by each district.  The program is            
 Number 418                                                                    
 MR. STALNAKER addressed the question of TRS by saying the actuaries           
 were sound in the two previous RIP bills.  He added a teacher, even           
 if designated, would not be required to take advantage of the RIP.            
 In the previous program, of all those designated only about                   
 one-third elected to take the opportunity.  Regarding the actuarial           
 soundness of the systems and what happens if people are dumped into           
 the system early, he said this cost is factored into the overall              
 cost analysis and must be offset by savings.                                  
 Number 453                                                                    
 REPRESENTATIVE PORTER said he was concerned with employees who want           
 to take advantage of a RIP but are not eligible, from a legal                 
 standpoint.  In any event, those who do take advantage of a RIP are           
 covered by retirement until they die, and each one of those time              
 periods would be extended by three years.  The state, as the                  
 employer, would be responsible for back-funding and making this               
 actuarily sound.  A demonstrated cost savings is only required for            
 the first three years, but what about the last three years at the             
 other end?                                                                    
 Number 472                                                                    
 MS. MCCONNELL said the demonstration of cost savings is not limited           
 to just the first three years, but it must include them.                      
 REPRESENTATIVE PORTER asked if the cost savings must be                       
 demonstrated for the duration.                                                
 MR. STALNAKER said that was correct.  Each calculation is done on             
 an individual basis, and health insurance costs might even be                 
 factored in, in addition to an administrative fee.                            
 Number 501                                                                    
 CHAIR JAMES asked if there is an estimate of how many employees are           
 still working past retirement and have opted not to retire yet.               
 MR. STALNAKER replied the average age of retirement is generally              
 three years beyond eligible retirement age.                                   
 Number 518                                                                    
 CHAIR JAMES observed that private industry uses RIPs as a                     
 management tool to handle downsizing.  It is never intended to save           
 money, to her knowledge, and in fact it usually costs money.  If HB
 270 is a tool for downsizing, it should say so.  She agreed with              
 Representative Porter's concern that people will be treated                   
 CHAIR JAMES continued school districts will not be downsizing their           
 teaching staff, though it would be good to decrease the number of             
 administrators, and she might agree a RIP would benefit school                
 districts.  But she thinks something is wrong with the existing               
 system if we believe new hires are just as good as old ones at                
 twice the salary.  We need to address that problem at the same time           
 so we are not back in the same situation in another ten years,                
 needing to get rid of high paid people and hire lower paid ones.              
 Number 549                                                                    
 MS. MCCONNELL said that was a good point.  New labor contracts will           
 have provisions different from the old ones, in an effort to                  
 address some of these issues.  But even with revised salary                   
 schedules, a person in year one will not make the same amount as              
 someone who has worked in a job for 10 or 15 years because we hope            
 they do gain experience and skill as they go along.                           
 Number 567                                                                    
 REPRESENTATIVE PORTER said his questions were not aimed at trying             
 to make the bill not work, but at trying to make it work.  He asked           
 if he was correct in understanding the teachers' retirement system            
 was not a 20 year retirement.                                                 
 MR. STALNAKER replied the teachers' system was a 20 year system for           
 new hires.  The new hires' benefits are less costly, in both PERS             
 and TRS, and include a reduction in benefits.                                 
 REPRESENTATIVE PORTER asked if this means the new hires will be               
 less expensive throughout their whole careers.                                
 MR. STALNAKER responded the retirement system contribution rate is            
 the same for all employees, new or old, but the new hires will                
 accumulate less costs.                                                        
 Number 602                                                                    
 REPRESENTATIVE PORTER asked if costs of individual employees would            
 be compared with their replacements.                                          
 MR. STALNAKER said the Office of Management and Budget would do               
 that comparison for state employees and certify the cost savings to           
 his office.  For school districts, the calculations would be done             
 by the district and certify them to his office.  His office does              
 not plan to "police" or double check what numbers are used or how             
 the calculations are done.  He does not think it would be                     
 appropriate to do so.                                                         
 Number 623                                                                    
 REPRESENTATIVE PORTER asked if a significant difference was                   
 expected between state teachers and a specific district in the                
 savings projected.                                                            
 MR. STALNAKER replied he would not expect a significant difference.           
 Number 648                                                                    
 MS. MCCONNELL added there are two sets of calculations done.  In              
 the Office of Management and Budget, savings will be analyzed in              
 light of what an employee costs as well as what the replacement               
 will cost.  These figures are matched with Retirement and Benefits            
 to see the actual bottom line.  It is a split responsibility.                 
 Number 664                                                                    
 CHAIR JAMES mentioned the fiscal note and the cost of up-front                
 three year advance payments, noting there will also be a cost of              
 Number 687                                                                    
 MR. STALNAKER referred to the section of the bill allowing payments           
 to be made over a three year period, saying overall cost savings              
 must exceed the cost of those.  It would require no additional                
 funds.  The administrative costs are required within 30 days of the           
 contract, which pays for the administrative costs in the fiscal               
 MR. STALNAKER continued he anticipates approximately 14,500 people,           
 through both PERS and TRS, to be eligible.                                    
 TAPE 95-41, SIDE B                                                            
 Number 000                                                                    
 CHAIR JAMES asked how much of the cost would be coming from the               
 state as an employer.                                                         
 MR. STALNAKER replied it depends upon the participation, since the            
 employer pays 15 percent up-front.  If the employer chooses not to            
 participate, it costs them nothing.                                           
 Number 035                                                                    
 CHAIR JAMES appointed a subcommittee to consider HB 270:                      
 Representative Porter, Chair; and Representatives Ogan and                    
 Robinson, members.                                                            
 REPRESENTATIVE ROBINSON inquired what problem areas the                       
 subcommittee would be working on.                                             
 CHAIR JAMES replied the subcommittee would contact the departments            
 regarding that.                                                               
 REPRESENTATIVE ROBINSON asked when the bill would be back in front            
 of the whole committee.                                                       
 CHAIR JAMES said she would defer to the subcommittee on that                  
 REPRESENTATIVE ROBINSON asked what other committee referrals the              
 bill had.                                                                     
 CHAIR JAMES answered, Labor and Commerce and Finance.                         

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