Legislature(2013 - 2014)SENATE FINANCE 532
04/16/2014 01:30 PM Senate FINANCE
Audio | Topic |
---|---|
Start | |
HB379 | |
SB220 | |
HB308 | |
HB361 | |
HB160 | |
HB116 | |
SB48 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+= | HB 278 | TELECONFERENCED | |
+ | HB 385 | TELECONFERENCED | |
+ | TELECONFERENCED | ||
= | HB 379 | ||
= | SB 220 | ||
= | HB 308 | ||
= | HB 361 | ||
= | HB 160 | ||
= | SB 48 | ||
= | HB 116 | ||
SENATE BILL NO. 48 "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 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 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." 3:48:53 PM DAVID SCOTT, STAFF, SENATOR DONNIE OLSON, SB 48 seeks to provide relief to those communities that have faced hardship due to the PERS "salary floor" established in SB 125 of the 25th Legislature. He stated that SB 125 changed the PERS system from a 'multiple employer plan' to a 'cost share plan'. That is, SB 125 transferred the individual liability of the 160 PERS employers and consolidated that liability so that all the employers share in that liability. He announced that SB 125 also created what is commonly referred to as the 2008 salary floor. That is, every PERS employer will have a penalty imposed on them if their salary base is below that of 2008. This was instituted to ensure that the system could not be "gamed". This is to keep municipalities from hiring people on a contract basis and, therefore, allowing the base payments into the system from shrinking. Many municipalities, due to circumstances beyond their control, have found themselves under the 2008 floor for a number of years. Most of these are very small remote communities. Some of the affected communities are simply trying to lower their budgets by actively laying-off or not re-hiring due to attrition. Some communities lost employees due to a base closure or a regional clinic closure. To further make the point, there is currently one community that owes $420,000 at 12 percent interest. He stressed that SB 48 was introduced to help communities in this situation. He stated that SB 48 will address this issue in two ways: 1) Changes the "2008 floor" to 2012 for those communities that have lost 25 percent of their population between 2000 and 2010; and 2) Provides relief to those communities that are delinquent in transferring contribution if their population decreased by more than 25 percent between 2000 and 2010. He remarked that SB 48 does not intend to repeat the "2008 floor" debate, but rather provide relief to those communities affected by the arbitrary line that SB 125 created. Vice-Chair Fairclough handed the gavel to Co-Chair Meyer. 3:56:11 PM Senator Olson understood that the communities were facing a financial burden that they would never overcome. He queried the efforts of various communities who were attempting to remedy this financial problem. Mr. Scott replied that there were some communities that had lost 25 percent of their populations from 2000 to 2010, like Pelican. He stated that Pelican, Anderson, and Atka did not have any outstanding delinquent contributions. He stressed that the only two communities that had delinquent contributions were Galena and St. George, who had also lost populations by more that 25 percent between the two censuses. Co-Chair Meyer surmised that the bill asked the state to cover those communities' share of the PERS contribution. Mr. Scott replied that the legislation would forgive the delinquent contribution penalty and cover the cost of the contribution. He stressed that the bill to the PERS system would continue to grow from 12 percent on $690,000, which was up from the year prior at $420,000. Co-Chair Meyer wondered if there was any hope that the communities would be able to pay that amount. Mr. Scott replied that Galena had taken a loan interest loan through the bond bank to attempt to cover their community costs, while recovering from a flood. He felt that Galena would not be able to cover that cost, because the interest was making the debt grow rapidly. Senator Bishop stressed that Galena was under severe financial stress from various entities. Senator Olson agreed. 4:00:32 PM MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION, stated that the bill's fiscal note reflected a retroactive effect. He stated that the communities would see a benefit of a decreased rate of interest that had an impact on the system, which was detailed in the fiscal note. Vice-Chair Fairclough pointed out that the fiscal note from the Department of Administration (DOA) showed $180,000 in FY 14; $176,000 in FY 15; $167,000 in FY 16; $157,000 in FY 17; $148,000 in FY 18; $139,000 in FY 19. She felt that it appeared that the contribution by the state would decrease. She looked at the estimated supplemental FY 13 costs of $706,000. Mr. Barnhill replied that the supplemental cost reflected the impact of the retroactivity of the bill. He stressed that the costs were amounts that the state would not collect under existing law, if the bill were passed into law. Co-Chair Meyer wondered if the money would ever be collected. Mr. Barnhill responded that it was difficult to speculate the future for communities like Galena, but one could not rule out that perhaps Galena's fortune may turn positive at some point. Senator Olson stressed that Galena recently suffered a flood, and some people could not even move back into their homes. He pointed out that there was a significantly decrease in the general population and school membership. He reiterated that it was very improbably that Galena would be able to afford to pay the debt. Vice-Chair Fairclough wondered how the issue of fairness to the state picking up the costs of one municipality on not that of another municipality. She remarked that the Municipal League had asked the legislature to eliminate the termination studies for other cities. She felt that there was a problem in determining what communities were considered "winners" and "losers." She felt that there were many communities across the state that were burdened by the 2008 salaries costs, in regards to contributions. Mr. Barnhill responded that he was not diminishing the substantial burdens that Galena and other communities were facing. He stressed that the issue was statewide for smaller communities' ability to sustain participation and TRS on an ongoing basis. 4:05:55 PM Vice-Chair Fairclough stressed that the issue of pension liability was a burden for everyone, which was why the governor had suggested a cash infusion. She stated that there were municipalities that had discussed the termination study. She felt empathy, but felt that solving the issue for one community may be at a disadvantage for a dozen other communities or the entire system. The state was transitioning from meeting its obligations to withdrawing reserves. She felt that the bill was an entire year's worth of conversation to determine the best method. She felt that it was reasonable to reduce the interest rate, when communities were struggling. She wondered how the state would react, if the city failed to make the payments. She specifically wondered if those employees would not be entitled for benefits. Mr. Barnhill replied that, to date, the process was to send notices of delinquency on a periodic basis. The statute provided DOA the authority to intercept municipal revenue sharing, but had never exercised that right. As the delinquency list continued to grow, the state's reticence to exercise that intercept needed to be examined. Senator Olson wondered if the employees would not receive their retirement benefits, if there were delinquent payments. Mr. Barnhill responded that the employees were still participants in the system, and were still entitled to their benefits. Senator Hoffman remarked that $420,000 for a community of 470 people, it would take approximately 12 or more years of revenue sharing to pay that debt. He stated that the community was probably utilizing the revenue sharing to keep their offices open. He stated that most of the communities of 100 to 500 people used their revenue sharing to keep their municipal office in operation. He furthered that, in 2010, there were 470 people in Galena, so a family of required to pay in excess of $3500 dollars. He stressed that Galena was greatly impacted, much more than other small communities in the state. 4:11:27 PM Co-Chair Meyer wondered if there were any PERS employees in Galena. Mr. Barnhill replied that there were PERS employees in Galena, and deferred to Mr. Scott for the exact number of employees. Mr. Scott stated that there were 17 PERS employees in Galena. Co-Chair Meyer queried the economic activity in Galena. Senator Hoffman responded that the current economic activity was focused on home repair. Co-Chair Meyer stated that the military base in Galena had closed, with no effort toward reopening. Mr. Scott announced that Galena had 17 current PERS employees, however the community's contribution to the state was for 36 employees, which was the 2008 floor. Vice-Chair Fairclough surmised that there would be 36 total employees that would be retired from the PERS system. Mr. Scott replied that the 36 employee contribution was considered the 2008 floor. Co-Chair Meyer stressed that it was an important issue, and felt that it would not be resolved in the current session. He hoped that Mr. Barnhill could assist in a solution during the interim. Mr. Barnhill replied that he was willing to explore solutions. Vice-Chair Fairclough wondered if the 25 percent loss in the census was an accurate measurement to assist all Alaskan communities. Mr. Barnhill replied that there was a census table that outlined population loss employer by employer. He stated that the table would show how many participating employers were added at the 25 percent level, 20 percent level, and so forth. Mr. Scott stated that he would provide the graph to the committee at a later date. Vice-Chair Fairclough whether the 25 percent threshold was better than the 20 percent threshold. Mr. Barnhill responded that he was not prepared to respond to the inquiry. Vice-Chair Fairclough asked if there was a different criteria that the Senate should study. Mr. Barnhill replied that there should be an examination of a prospect for a sustainable revenue base within the community that could support continued participation in the system over the next ten or twenty years. Senator Hoffman noticed that Mr. Barnhill had stated that there was an option of intercepting Galena's revenue checks. He wondered if the department would withhold that particular implementation of the law, until the legislature was able to address the issue the following year. Mr. Barnhill replied that the state needed to reexamine its reticence in utilizing the revenue intercept. He stressed that he would look some solutions that would avoid using the revenue intercept. SB 48 was HEARD and HELD in committee for further consideration.