04/05/2005 05:40 PM House EDU
| Audio | Topic |
|---|---|
| Start | |
| HB161 | |
| HB92 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON EDUCATION
April 5, 2005
5:40 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Chair
Representative Carl Gatto
Representative Bob Lynn
Representative Bill Thomas
Representative Peggy Wilson
Representative Les Gara
Representative Woodie Salmon
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Paul Seaton
Representative Les Gara
COMMITTEE CALENDAR
HOUSE BILL NO. 161
"An Act relating to reemployment of and benefits for retired
teachers and public employees and to teachers or employees who
participated in retirement incentive programs and are
subsequently reemployed as a commissioner; repealing secs. 5, 7,
and 9, ch. 58, SLA 2001; providing for an effective date by
amending the delayed effective date for secs. 3, 5, 9, and 12,
ch. 57, SLA 2001, and repealing sec. 13, ch. 58, SLA 2001, which
is the delayed effective date for secs. 5, 7, and 9, ch. 58, SLA
2001; and providing for an effective date."
- MOVED CSHB 161(EDU) OUT OF COMMITTEE
HOUSE BILL NO. 92
"An Act relating to the purchase of interests in corporations,
including limited liability companies, by the University of
Alaska."
- HEARD AND HELD
HOUSE BILL NO. 173
"An Act relating to school funding and adjusting the district
cost factors; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 161
SHORT TITLE: REEMPLOYMENT OF RETIREES
SPONSOR(S): REPRESENTATIVE(S) ELKINS
02/18/05 (H) READ THE FIRST TIME - REFERRALS
02/18/05 (H) EDU, HES, STA
04/05/05 (H) EDU AT 11:00 AM CAPITOL 106
BILL: HB 92
SHORT TITLE: UNIVERSITY OF ALASKA AND CORPORATIONS
SPONSOR(S): REPRESENTATIVE(S) KELLY
01/21/05 (H) READ THE FIRST TIME - REFERRALS
01/21/05 (H) EDU, HES
04/05/05 (H) EDU AT 11:00 AM CAPITOL 106
WITNESS REGISTER
JIM VAN HORN, Staff
to Representative Jim Elkins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 161 on behalf of the sponsor,
Representative Elkins.
REPRESENTATIVE JIM ELKINS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 161.
REX SHATTUCK, Staff
to Representative Neuman
House Special Committee on Education
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During hearing of HB 161, answered
questions.
MIKE TIBBLES, Deputy Commissioner
Office of the Commissioner
Department of Administration
Juneau, Alaska
POSITION STATEMENT: During hearing of HB 161, answered
questions.
ROBERT MCHATTIE
Fairbanks, Alaska
POSITION STATEMENT: Expressed concerns with HB 161.
LEO JOHN KERRIN
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 161.
KERRY JARRELL
Bering Strait School District
Unalakleet, Alaska
POSITION STATEMENT: Testified in support of HB 161.
CHRIS CHRISTENSEN, Deputy Administrative Director
Administrative Staff
Office of the Administrative Director
Alaska Court System
Anchorage, Alaska
POSITION STATEMENT: During hearing of HB 161, expressed the
desire to continue the retire-rehire program.
BARBARA HUFF TUCKNESS, Director
Governmental and Legislative Affairs
Teamsters 959
Anchorage, Alaska
POSITION STATEMENT: Testified in support of CSHB 161, Version
G.
CARL ROSE, Executive Director
Association of Alaska School Boards (AASB)
Juneau, Alaska
POSITION STATEMENT: Testified in support of CSHB 161, Version
G.
REPRESENTATIVE MIKE KELLY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 92.
MARY GREEN, Associate General Council
University of Alaska - Fairbanks
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 92, answered
questions.
CRAIG DORMAN, Vice President
of Research and Academic Affairs
University of Alaska - Fairbanks
Fairbanks, Alaska
POSITION STATEMENT: Discussed the intent and need for HB 92.
ACTION NARRATIVE
CHAIR MARK NEUMAN called the House Special Committee on
Education meeting to order at 5:40:12 PM. Representatives
Wilson, Gatto, Lynn, Thomas, and Salmon were present at the call
to order. Representative Gara arrived as the meeting was in
progress.
HB 161-REEMPLOYMENT OF RETIREES
CHAIR NEUMAN announced that the first order of business would be
HOUSE BILL NO. 161, "An Act relating to reemployment of and
benefits for retired teachers and public employees and to
teachers or employees who participated in retirement incentive
programs and are subsequently reemployed as a commissioner;
repealing secs. 5, 7, and 9, ch. 58, SLA 2001; providing for an
effective date by amending the delayed effective date for secs.
3, 5, 9, and 12, ch. 57, SLA 2001, and repealing sec. 13, ch.
58, SLA 2001, which is the delayed effective date for secs. 5,
7, and 9, ch. 58, SLA 2001; and providing for an effective
date."
5:41:02 PM
REPRESENTATIVE THOMAS moved to adopt CSHB 161, Version 24-
LS0645\G, Craver, 4/5/05, as the working document.
REPRESENTATIVE NEUMAN objected for discussion purposes.
5:42:03 PM
JIM VAN HORN, Staff to Representative Jim Elkins, Alaska State
Legislature, explained that HB 161 extends the sunset date for
legislation enacted by House Bill 242 of the Twenty-Second
Alaska State Legislature and Senate Bill 94 of the Twenty-Third
Alaska State Legislature. This legislation allows the rehire of
certain Public Employees' Retirement System (PERS) and Teachers'
Retirement System (TRS) employees who retired with a normal
retirement. These rehires can continue to receive normal
retirement benefits by waiving further participation in the
retirement systems. During the period of reemployment, no
contributions to PERS and TRS are required from the employee or
the employer. This legislation, he noted, is scheduled to
sunset on July 1, 2005.
MR. VAN HORN pointed out that the committee packet should
include a copy of an Alaskan legislative report entitled,
"Results of the Retiree Return Program" from the Division of
Retirement and Benefits dated February 10, 2005. That report
relates that as of November 30, 2004, there were a total of 211
retirees rehired under PERS and 124 under TRS, which amounts to
one-tenth of 1 percent of all PERS and TRS participants. Mr.
Van Horn then turned the committee's attention to page 4 of the
report and highlighted that on September 14, 2004, the attorney
general issued an opinion stating that once the current
legislation sunsets, reemployed retirees can no longer receive
retirement benefits while employed by a PERS or TRS employer.
Furthermore, if the retiree continues employment after the
sunset date, the retiree must make contributions to the
retirement systems and stop retirement benefits. The
aforementioned came as a complete surprise to many people, he
related. The general opinion was that after the sunset, the
legislature would review the program to determine whether it was
successful and should continue or not. Mr. Van Horn noted that
the original legislation was a component of a workforce
development initiative that the state and a number of other
employers undertook to address workforce shortages already being
experienced.
MR. VAN HORN highlighted an article in the committee packet from
the February edition of State News, which is published by the
Council of State Governments (CSG). The aforementioned article
illustrates that many other states are and will be suffering
from retiring Baby Boomers. In fact, a 2002 study relates that
30 percent of the workforce of many states will be retirement
eligible by 2006, which is compounded by an approaching worker
shortage. A Rockefeller Institute of Government study confirms
that nationally, 50 percent of government jobs are in
occupations requiring specialized training, education, or job
skills compared to 29 percent in the public sector. Mr. Van
Horn opined that it's obvious that the workforce shortage
problem will not go away, but will only intensify with time.
Therefore, HB 161 will provide Human Resource managers with an
excellent tool to retain workers for hard to fill positions and
thus the sponsor urges passage of this extension.
5:46:53 PM
REPRESENTATIVE JIM ELKINS, Alaska State Legislature, pointed out
that there are many rehires in the legislature. However, those
retirees working for the legislature are exempt from HB 161.
CHAIR NEUMAN recalled that one of the questions arising from the
original legislation addressing rehiring retirees was in regard
to mechanisms that help find new people to fill the positions of
retirees. This legislation seems to address this by proposing
three years to train people. He mentioned incentives for
municipalities and state government to start filling positions
rather than rehiring retirees long-term. He recalled that
another issue was in regard to having a certain amount of people
who should be paying into a system because the state has to
pickup the cost for any [employee] not paying into the system.
This legislation includes a provision on page 2, line 12, that
holds the state harmless on the aforementioned.
5:49:25 PM
REX SHATTUCK, Staff to Representative Neuman, House Special
Committee on Education, Alaska State Legislature, pointed out
that Version G has three sections that weren't in the original
legislation. Section 1(a) recognizes that this opportunity
needs to be available to hire retired individuals to work in
areas where there are [employee] shortfalls. Section 1(b)
relates that school districts and public employees must plan to
meet future workforce needs without relying on retired workers.
Therefore, it's the intent of the legislature that all
participation in the retiree reemployment provisions will end
July 1, 2009, unless extended by law. Section 1(c) encompasses
a hold harmless clause such that employers benefiting from this
proposal pay any increase in unfunded liabilities to the
retirement systems. Sections 3 and 4 provide for the
administrator to determine that reemployment of a retired [PERS
or TRS member] causing an increase in the unfunded liability of
the system to be paid by that particular subunit. Section 5
addresses the four-year extension and Section [6] requires that
[the administrator of TRS] report to the legislature annually on
the effect of HB 161.
5:52:37 PM
REPRESENTATIVE LES GARA inquired as to how hiring someone under
the teacher incentive program impacts TRS such that it increases
an unfunded liability to TRS.
REPRESENTATIVE GATTO explained that when someone is hired,
he/she pays into TRS, and therefore new employees are there to
help fund employees who are going to retire. However, if a
retired employee is rehired, the rehired retiree doesn't pay
into the retirement system and nor does the school district.
The system maintains the liability, although no new money is
received for it.
REPRESENTATIVE GARA said that he wasn't sure that the language
in Version G addresses the situation in the way it's intended.
5:54:38 PM
REPRESENTATIVE WILSON disagreed, and stated that the unfunded
liability percent is already known. Therefore, the [language in
HB 161] merely specifies that the employer, the school or the
state, has to pay for [the rehired retiree's] unfunded
liability.
CHAIR NEUMAN interjected that the provision on page 2, lines 12-
14, is what Representative Wilson is describing.
REPRESENTATIVE GARA surmised then that the money being referred
to is the money the [rehired retiree] is paying into the system
that would go to other employees, but is no longer.
5:57:23 PM
MR. SHATTUCK explained that in the same way a regular employee's
salary is added into the computation by the administrator, so is
a new employee's salary. Therefore, whatever liability is
incurred [by a rehired retiree] is the same as that of a
nonretired employee.
5:57:48 PM
MIKE TIBBLES, Deputy Commissioner, Office of the Commissioner,
Department of Administration, informed the committee that the
actuaries were asked to relate the impact of pulling out an
employee who is otherwise contributing to the past service rate.
He informed the committee that when an employee returns after
retiring, he/she is not paying the normal cost rate nor is
he/she accruing any additional benefits. Therefore, it's
appropriate not to pay the normal cost rate. However, there's
an unfunded liability that's assessed among all the PERS and TRS
employers and employees. When a certain amount is pulled out,
fewer members are contributing to the past service rate.
Therefore, the actuaries were asked to determine at what point
there is a cost to the system. He noted that PERS and TRS are
different because TRS has a higher unfunded liability status and
is a smaller group of individuals. The actuaries determined
that at the point 100 employees are pulled out of the system and
100 retirees are brought back, there is a .02 percent impact on
the base wage. Therefore, under the provision in Version G the
point at which there are 100 participants in TRS, the
administrator will calculate the employees' wage into the total
base wage and assess the .02 percent across all the employers.
The aforementioned will result in the collection of that portion
that would've otherwise been collected to pay off the past
service rate.
REPRESENTATIVE GARA turned attention to the language on page 2,
line 31, and asked to whom the term "administrator" refers.
MR. TIBBLES answered that it refers to the administrator of the
retirement system, which is the director of the Division of
Retirement and Benefits.
REPRESENTATIVE GARA commented that having the director of the
Division of Retirement and Benefits being the administrator is
comforting because he/she is more likely to make a correct
determination. He asked if the statutory language [on page 3,
lines 1-5] is sufficient for a mathematical calculation.
MR. TIBBLES replied yes, adding that in PERS now, the impact is
negligible and thus no dollar amount can be assigned.
Furthermore, the [retired] participants in PERS would have to
more than double before there would be an additional unfunded
liability to the system.
6:01:49 PM
ROBERT MCHATTIE informed the committee that he is a retired PERS
employee who is looking to protect PERS and those in PERS. When
one considers the [legislation] that would raise PERS and TRS
payments from employees, it seems unfair that a rehired retiree
will receive a relatively larger check than nonretired
employees. He then discussed situations in which an employee
one level down from his/her supervisor may be looking to retire
in the next five years and would like to move up, but the
retired supervisor returns. Furthermore, there are abuses such
as in the case of the Fairbanks Police Department against the
City of Fairbanks. Some PERS rehires in the Fairbanks Police
Department had thought that they had bargained for a second
retirement payment such that upon being rehired the employee
would receive his/her full pay, full retirement pay, as well as
additional retirement. Mr. McHattie noted that the city
narrowly won the case, although the individuals could take the
case to a higher court. If the individuals prevail, a precedent
could be established such that others being rehired by the state
would want a second retirement also. He informed the committee
that the Department of Administration had to obtain an
interpretation of the rules of this sunset in November.
Furthermore, until March 8th no rules had been established by
the department.
6:06:57 PM
CHAIR NEUMAN expressed hope that Mr. McHattie's concerns were
addressed with Version G, which specifies that rehired retirees
can only continue until July 1, 2009. Furthermore, Version G
requires that people must be trained to replace them.
6:07:34 PM
REPRESENTATIVE GATTO posed a situation in which an employee had
worked 25 years and was receiving a retirement check, was
rehired and worked three more years. In the situation with the
Fairbanks Police Department, was such an individual asking for a
twenty-eight year retirement check or a three-year retirement
check, he asked.
MR. MCHATTIE explained that the Fairbanks Police Department had
cut a special deal with the mayor in order to receive extra
medical payments. Because the city wasn't going to pay medical
benefits, the rehires viewed it as money that they were losing
and thus wanted it placed in a retirement fund. Mr. McHattie
further explained that the individuals from the Fairbanks Police
Department wanted to build toward another retirement on top of
the retirement that they were collecting. However, this seems
odd because police and troopers have argued for better
retirement and even broke away from some of the more general
unions because of the reported burnout at 20 years.
6:10:19 PM
MR. TIBBLES related his understanding that in the Fairbanks
situation there was a desire to move some of the individuals out
of PERS and into a separate retirement system. However, the
liability of each employer isn't "wiped clean" by moving an
employee out of one system and placing him/her into another
system. The $5 million liability exists and has to be paid. He
said that there are some specifics in the Fairbanks case that
can't be applied universally. However, there are some things
that aren't specific to Fairbanks, which he reviewed. He
explained that those who came in on a 242 waiver, who retired,
and were rehired were told that they could stay on the program
so long as they remained employed with the current employer.
Although the window may close and no more participants can be
accepted into the program, it doesn't mean that individuals are
required to "unrip" when the window closes. After checking with
the Department of Law, it was determined not to be the case.
Mr. Tibbles acknowledged that this is of concern because there
are potential liability issues with employees who made life
decisions based on the fact that they were told they could
remain in the program and not be kicked off. He also expressed
concern that if these individual lose their retirement checks on
July 1 unless they separate from service, there will be huge
workforce issues with various occupations throughout the state.
CHAIR NEUMAN asked if Mr. Tibbles feels that Version G addresses
Mr. McHattie's concerns.
MR. TIBBLES answered that Version G definitely guarantees that
no additional liability will accrue to the retirement system.
He then returned to Mr. McHattie's concern regarding rehiring
individuals which may prevent someone else from moving up to
that position. He pointed out that the governor signed an
administrative order that would require agencies to recruit and
post vacancies for a certain number of days, and then
demonstrate why no one has the knowledge, skills, and ability to
fill the position. There will also be a test of fewer than five
qualified applicants that are available and interested in the
position. The administrative order requires that a workforce
plan be established if a retiree is rehired so that the
knowledge specific to that position can be transferred to
another employee. Mr. Tibbles opined that the combination of HB
161 and the administrative order put in place safeguards to meet
the original intent of having a management tool that's used only
when qualified individuals can't be found.
6:15:16 PM
REPRESENTATIVE WILSON asked if the administrative order would
cover municipal employees.
MR. TIBBLES answered that the administrative order will only
apply to state agencies. Therefore, municipalities won't be
bound by the administrative order.
6:15:58 PM
LEO JOHN KERRIN spoke in opposition to HB 161. He informed the
committee that he works for the Department of Natural Resources
(DNR) and as a 58-year old he has been working for three years
and supporting PERS with about 58 percent of his salary that he
will never see. However, he said that he didn't begrudge the
aforementioned because it's his decision to do so. Mr. Kerrin
said that one of the reasons he opposes HB 161 is because only a
select few can take advantage of the opportunity. If this
program is so great and necessary, he questioned why only the
highest paid PERS [positions] are being offered the 60 percent
pay raise. Furthermore, the Senate's [companion] legislation
makes exemptions for commissioners such that they wouldn't have
to pay the penalty as part of the early retirement agreement
under which some retired. Furthermore, Mr. Kerrin couldn't
believe the argument that the system will be a savings to the
state. He opined that it's really just a transfer from the
general fund to PERS and now there are discussions regarding the
insolvency of PERS and the need to increase payments to PERS.
Mr. Kerrin then pointed out that the proposal [in HB 161] acts
as an incentive to retire on time. He noted that just before
the sunset, there was a flood of PERS employees in DNR to retire
[so that they can] receive a 6 percent pay increase. In fact,
these people aren't cleaning out their desks and their e-mail
accounts aren't being closed. Moreover, decisions are sometimes
stopped because the boss will be returning in 30 days. Mr.
Kerrin stated that those who aren't offered this rehire option
are the ones who are forced to work continuously to support the
system. Mr. Kerrin then refuted the notion that there is a
workforce shortage, and questioned why a succession plan wasn't
implemented. Furthermore, those who an agency is unable to
replace can be hired back under a contract, which has been done
for years. With regard to the administrative order, he doubted
that it would change anything.
6:23:05 PM
KERRY JARRELL, Bering Strait School District, provided the
following testimony:
For many years, Alaskans have retired early ....
Alaska Association of School Administrators, as well
as most school districts, firmly believe that Alaska
is well-served by keeping such experienced
professionals in our state. School districts, both
large and small, have recently used the retire-rehire
option to fill needed vacancies. I'd like to make
four simple points. The first is this: The
legislation has been successful in assisting school
districts in filling important vacancies. In short,
it has worked; districts have been able to attract and
keep capable educators. While the number of persons
exercising the option has not been large, those
individuals have been important to the organizations
that have hired them. Our district learned years ago
that there is a wealth of talent and ability in
retirees. We sought motivated retirees from other
states to fill key positions in school administration,
special education, reading, curriculum development,
and other professional positions. Until this
legislation passed, we could not offer similar
positions to Alaska retirees. The practice seemed to
discriminate against our own people. The number of
persons who have been hired under this plan has [been]
relatively small ... one-tenth of 1 percent of the
workforce. And in or school district it's a little
less than 2 percent of our total workforce. However,
their contributions have been enormous. The second
point: ... Much has been said about the abuse of this
provision. We are unaware of what may have happened
elsewhere or in Fairbanks or even with the state, but
in our school district and with rural school
districts, which I have worked with closely, I haven't
seen any abuse. We rarely have multiple applicants
for any job, whether certified or classified. A
recent opening that we had for an electrician took us
three months to get one applicant. The applicant pool
for school principals is so thin that entire job fairs
can pass without a single applicant emerging. In
rural Alaska it's absolutely ludicrous to think that
there's a problem with people staying too long in
their jobs. Given current salary rates, our problem
is the inability to attract and retain qualified
personnel at all levels. If there's a question of
people staying in one job too long, we would be
agreeable to a limit on the total years that a job
could be filled or a limit on the total years that a
person could work under a waiver. Point three:
Participating employees in districts were initially
assured that the status of the employees in the
program would remain unchanged after the House Bill
242 sunset provision. Our school district made
staffing and budget decisions based on those
assurances. If the waiver option is revoked for those
employees, the impact on our budget, this upcoming
year alone, will be the equivalent of the lose of four
of five teaching positions. And for us, that's a huge
cost. Finally, the legislative report issued by the
Division of Retirement & Benefits in February 2005 ...
shows the cost for classified employees to be minimal
and only slightly more for certified employees. We do
not expect the retirement system to absorb any loss
whatsoever from this program. Therefore, we would
gladly support a plan that would annually bill the
employer and employee for any costs associated with
it. HB 161 already requires the division to prepare a
report annually to the legislature on the cost of the
programs. The employers and employees benefiting from
the legislation should pay those costs, whatever they
are. We support the continuation of the retire-rehire
statute; it is one additional tool that schools have
to attract talented and experienced Alaskans who have
much to contribute. It's our hope that you will
support extending a responsible retire-rehire
provision indefinitely.
6:28:18 PM
CHRIS CHRISTENSEN, Deputy Administrative Director,
Administrative Staff, Office of the Administrative Director,
Alaska Court System, informed the committee that the retire-
rehire program has been very helpful to the court system, and
therefore the court system hopes that it will be extended. He
informed the committee that the court system has approximately
650 nonjudicial employees; of which only about 10 are
participating in the retire-rehire program. Although 10 doesn't
sound very significant, it is because of the nature of the
positions. Mr. Christensen related that this program has helped
address problems, such as the unique one-person job class. A
unique one-person job class creates a problem in providing
continuity of services to the public. Furthermore, there is no
one to assist or cover a vacant one-person job class.
Furthermore, for some supervisory positions no qualified
applicants have been received, which has meant keeping
supervisors on. He informed the committee that most of the
court system's employees are Ranges 6, 8, or 10, which leads to
much turnover. He informed the committee that the turnover rate
is about 50 percent after about five years, which he attributed
to low pay and steadily declining benefits. Turnover, he
opined, means that there are fewer qualified people to promote
into supervisory positions. For reasons of financial
responsibility, the Alaska Court System has, over the past 10
years, imposed a mandatory 30-day hiring freeze on every
position. Only the administrative director can waive the
aforementioned. Mr. Christensen specified that with the high
turnover rate and the mandatory 30-day hiring freeze, it's
particularly necessary that supervisors be well qualified and
able to manage the caseload and keep it moving, even with
vacancies. "In essence, the ... program has enabled the court
system to continue to function in an efficient manner because of
our ability to hire back experienced and knowledgeable employees
in the one-person classes and in certain rare cases in
supervisory positions, and we hope the legislature does continue
it," Mr. Christensen related.
6:31:14 PM
REPRESENTATIVE THOMAS inquired as to how folks are trained for
the one-person job class.
MR. CHRISTENSEN acknowledged that it's very difficult, and
pointed to the State Law Librarian position as probably the best
example. He pointed out that there are no law schools in Alaska
and the only law librarians are the few who work for the court
system. Therefore, there is no one in state to hire for the
position and thus a national search was done for the person
beneath the state law librarian in order to provide that person
a year's worth of training with the Alaska courts. However, the
problem is that in many states this number two position is often
paid more than Alaska pays its Chief Justice. In response to
Representative Gara, Mr. Christensen confirmed that since judges
have a separate retirement system from PERS and TRS, this
legislation wouldn't apply to them.
REPRESENTATIVE WILSON commented that she sees only one solution
to the problem, which she said would be to implement a fiscal
policy by which everyone's pay is increased.
6:33:05 PM
BARBARA HUFF TUCKNESS, Director, Governmental and Legislative
Affairs, Teamsters 959, related support for CSHB 161, Version G.
She also related that out of a little over 2,000 municipal
employees, 18 applied [for this program] [of which] 12 are
working within the Municipality of Anchorage. Through the
municipality's collective bargaining process, some provisions
were negotiated to establish some sideboards. Within the
Municipality of Anchorage, a position is required to be vacant
for over 30 days, the position is advertised, and the only
positions considered [for the retire-rehire program] are key
positions. For example, the flood plain coordinator at public
works is a key position.
CHAIR NEUMAN inquired as to how the flood plain coordinator
obtained the knowledge he has for his position.
MS. HUFF TUCKNESS said that the employee in the coordinator
position prior to the current individual [worked with the
current coordinator for about five years prior]. However, due
to budget cuts there have been fewer trainee positions
available. With regard to the legislation that passed last
year, the Municipality of Anchorage saved over $600,000.
Although she didn't know the municipality's position with regard
to the liability from such a program as that proposed, she
didn't see it as a problem. Therefore, she encouraged the
committee to listen to all the testimony to consider passing the
legislation.
6:36:45 PM
CARL ROSE, Executive Director, Association of Alaska School
Boards (AASB), said that he wanted to align his comments with
Kerry Jarrell. Mr. Rose emphasized that the request and support
of this bill is based on need. The ability to attract and
retain employees [in the school district] is very difficult. In
fact, the number of applicants for superintendents has decreased
over the last five years from about 70 applicants per search to
about 5-10 applicants. Mr. Rose stated that the ability of
school districts to attract employees is directly tied to
salary, which is tied to the base student allocation. The
ability to retain employees is tied to retirement benefits,
which is currently under discussion with the "Reform Act."
Therefore, to remove this option would be shortsighted, he
opined. "The travesty of this whole situation is rather than
being able to attract young people into our schools to seek a
career in education, we're going to people who have currently
retired to fill the gap while we try to train people to get into
these positions," he said. Mr. Rose concluded by reiterating
AASB's support of [Version G].
6:38:33 PM
CHAIR NEUMAN, upon determining there was no one else who wished
to testify, closed public testimony.
CHAIR NEUMAN removed his objection to the adoption of Version G
as the work draft.
REPRESENTATIVE WILSON expressed the desire to be sure that
municipalities are able to take advantage of this. She
questioned whether the language "public employers" on page 2,
line 1, would include municipalities.
REPRESENTATIVE WILSON moved that the committee adopt Conceptual
Amendment 1:
Page 2, line 1, following "for";
Insert "municipalities,"
CHAIR NEUMAN indicated the need for Conceptual Amendment 1 to
also do the following:
Page 2, line 3, following "that";
Insert "municipalities,"
6:41:36 PM
MR. TIBBLES said that the terminology "public employers" would
include the state and all the municipalities that are part of
PERS. He clarified that municipalities are included in the
intent language and any indebtedness would be collected from
them, but beyond that the municipalities would be free to
formulate their own sideboards similar to what they have done at
the state level.
REPRESENTATIVE WILSON withdrew her amendment.
REPRESENTATIVE THOMAS inquired as to what statute defines
"administrator" as the director of the Division of Retirement &
Benefits.
MR. TIBBLES specified that under AS 39.35.680 the administrator
is defined as a person appointed by the commissioner of the
Department of Administration under AS 39.35.050. The
commissioner appoints the director of the Division of Retirement
& Benefits.
6:43:54 PM
REPRESENTATIVE THOMAS moved to report CSHB 161, Version 24-
LS0645\G, Craver, 4/5/05, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 161(EDU) was reported from the House Special
Committee on Education.
HB 92-UNIVERSITY OF ALASKA AND CORPORATIONS
CHAIR NEUMAN announced that the next order of business would be
HOUSE BILL NO. 92 "An Act relating to the purchase of interests
in corporations, including limited liability companies, by the
University of Alaska."
The committee took an at-ease from 6:45 p.m. to 6:49 p.m.
6:49:16 PM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, sponsor,
said that HB 92 would affect the University of Alaska in a
"positive way." He explained that this legislation relates to
the purchase of interests in corporations, including limited
liability corporations (LLC), by the University of Alaska. The
University of Alaska has proven to be a valuable tool in
Alaska's economic development. In order to allow the university
to continue and expand its vital role, HB 92 proposes a much
needed change in Alaska's corporate liability laws intended to
protect the university from liability arising from the "piercing
of the corporate veil concept." He said:
The "piercing of the corporate veil" concept is a
judicial process whereby the court will disregard the
usual immunity of corporate entities from liability
for wrongful corporate activities perpetrating fraud.
The doctrine which holds that the corporate structure
with its attendant limited liability of stockholders
may be disregarded and personal liability imposed upon
stockholders, officers, and directors in the case of
fraud or other wrongful acts done in the name of the
corporation. Generally ... we believe this is a sound
policy intended to protect consumers from fraudulent
corporate abuses and encourage good corporate
citizenship. However, in the university context the
application of this theory has the unintended
consequence of discouraging university investment in
new corporate endeavors resulting from intellectual
property generated by faculty research ....
The university cannot support various types of
economic development initiatives or associate with
public groups through nonprofit corporations without
the fear of liability under the piercing of the
corporate veil theory. As described above, the
university could become liable for the tort
obligations of a corporate entity it may start up,
where the entity was not adequately capitalized or
insured. In one such immediate example, the
university rejected a 501(c)(3) nonprofit corporation
to lead the business enterprise institute because of
potential corporate veil liability. Likewise, the
university has not been supportive of efforts by
faculty members with intellectual property to start up
corporations, recognizing that if liability were
incurred by such a corporation, there would be a
substantial risk that such liability could pass on to
the university ....
Our intent with HB 92 is to specifically define a
university/corporate liability structure intended to
encourage new university investment in limited
liability and nonprofit corporations resulting from
research-generated intellectual property or companies
created and managed on university lands.
The University of Alaska is a valuable component to
Alaska's economic engine and this bill will go to
great lengths to expand its ability to increase
economic development in our state.
REPRESENTATIVE KELLY highlighted that the legislation sets forth
that the University Board of Regents would have oversight of the
act of the university being involved in a corporation.
6:53:33 PM
REPRESENTATIVE GATTO offered a hypothetical scenario regarding
the invention of a device, and inquired as to who would own the
patent of the invention if the inventor was employed as a
researcher of the university.
REPRESENTATIVE KELLY deferred to others who are better suited to
answer.
REPRESENTATIVE THOMAS inquired how the university would generate
revenue to start-up or purchase companies.
REPRESENTATIVE KELLY deferred to others who are better suited to
answer.
REPRESENTATIVE GARA related his understanding that Section 1(c)
says that should the university purchase a corporation, it isn't
liable for any of the obligations of that corporation. He
offered a hypothetical situation in which the university
purchases a business that owes payroll and vendors. If the
university isn't responsible for prior [debt] obligations, who
pays the [debt incurred], he asked.
REPRESENTATIVE KELLY again deferred to the legal expertise
waiting online.
6:55:58 PM
MARY GREEN, Associate General Council, University of Alaska -
Fairbanks, in response to Representative Gatto's question, said
the ownership of patent rights depends upon whether the inventor
is a member of the United Academics Union, staff of the
university, or a member of the Alaska Community College
Federation of Teachers (ACCFT). A member of the United
Academics Union who developed an invention entirely on his/her
own would own the entire patent and its proceeds. However, if
the inventor was paid by the university to do the work or asked
specifically [by the university] to do the project, the
university would own all the proceeds. Ms. Green noted that
what is most common is university-supported research in which
there is some use of personnel or facilities of the university,
in which case the proceeds are split. She detailed the three-
way split. If the inventor isn't a member of the United
Academic Union, the federal patent law controls who owns the
matter whether the invention is university-sponsored or
independent work. Most of the inventions in which the
university would have an interest are university-supported in
which some aspect of university property or money is used in the
development of the invention. She then detailed the split that
would occur under such a situation.
REPRESENTATIVE GATTO asked if there are any situations in which
an inventor refuses to share the proceeds because he/she has
used a minimal amount of the university facilities and has done
the majority of the work.
MS. GREEN replied, "Very rarely."
REPRESENTATIVE GATTO surmised that there are "clearly" specific
protocols in place.
7:00:59 PM
REPRESENTATIVE WILSON asked how the university has managed
without the specifications in this legislation for so long.
MS. GREEN replied that the university has managed by being
"cautious" and refusing to participate in start-up corporations
with faculty members or with certain 501(c)(3) charitable
nonprofit corporations that requested university involvement and
investment.
REPRESENTATIVE WILSON inquired as to the opportunities that
would become available to the university through this
legislation.
MS. GREEN answered that primarily this will allow the university
to participate with faculty members in start-up companies. The
primary investment would be the university's share of the patent
royalties. In addition, it would allow university participation
with charitable organizations such as research groups composed
of other universities and the federal government that form 501
(c)(3) organizations. She opined that the university is not
going to be involved in investment in small corporations, such
as in Representative Gara's aforementioned example. She
highlighted that the university is in the business of education
and promoting public interest by participating in such ventures.
7:03:16 PM
REPRESENTATIVE THOMAS opined that start-up ventures cost money.
He alluded to the notion that start-up companies are risky
business and are based solely on an individual's idea. He asked
why the university should be able to pierce the corporate veil
while other entities cannot. He also asked if the university
has addressed the high costs of start-ups.
MS. GREEN reiterated that the university has not been involved
in start-up corporations, but this legislation would allow the
option of involvement in some small start-up proposals. She
related, "The money [the university] put in ... [it would] not
be getting out," and the university is concerned about the
piercing of the corporate veil coming back and exhausting the
university's assets as opposed to the money that was devoted to
the start-up.
REPRESENTATIVE THOMAS recalled discussions regarding the
potential liability for the state, which, after a compromise,
was eventually capped at $500 per day. However, this
legislation asks the legislature to waive the aforementioned
compromise that protects the state from liability. He inquired
as to where the university would get the money to invest.
MS. GREEN answered the university is not looking at any general
fund money. Instead, the university is looking at the value of
the university royalty interests, which would be the primary and
start-up corporations, and other funds. Other funds would be
income earned by the foundation, which helps support the
university, or from research grants.
REPRESENTATIVE THOMAS opined that the aforementioned investment
types should provide sufficient funding without the
legislature's additional help. He questioned why the university
should receive immunity while other Alaskan corporations try to
establish the same thing [and do not receive immunity].
MS. GREEN related her belief that the university is different.
She highlighted that there are two public policy issues involved
in the piercing of the corporate veil. The first issue regards
protection of the public from underfunded corporations and in
the university's case this is more unlikely to occur. Secondly,
through sponsorship of start-ups with university faculty members
or through public interest nonprofits, the university would be
able to meet the public interest. She opined that the general
population of corporations doesn't serve the public interest
like a university.
7:10:17 PM
CHAIR NEUMAN referred to Section 1(c), and inquired as to the
circumstances under which ["the president of the university
signs a written agreement on behalf of the university that
expressly states that the university is liable for the
obligations of the corporation and the obligations for which the
university is liable are identified in the written agreement."]
could or would happen.
MS. GREEN said, "I am not sure that I can predict that." She
related that she doesn't think that it will be invoked very
frequently.
CHAIR NEUMAN asked if HB 92 would provide additional revenue by
ownership of the corporations' intellectual property rights.
MS. GREEN answered:
We certainly hope so. We have some promising deals
that we might be able to go into, but it takes a lot
of work and a lot of effort to actually make those
things turn money. And so, it's not something that we
are absolutely counting on, but it is something that
we would like to see. As far as universities across
the country go, some are very successful in programs
like start-ups with their faculty members, others are
less so. And we don't know where we would fit.
CHAIR NEUMAN asked if the aforementioned work and effort would
be completed by the professor while he/she is a paid employee of
the university.
MS. GREEN related that is not the intent, but rather the
professor would work on the project on his/her time rather than
on university time.
CHAIR NEUMAN asked if there have been any circumstances in which
the university incurred a loss of revenue because it invested
substantial research money, but didn't own the intellectual
property rights to the research.
MS. GREEN relayed that she was unaware of any such circumstance.
However, there are some patents that are paying royalties. In
further response to Chair Neuman, Ms. Green answered that some
of the patents are owned by the professor(s) or the university,
while other patents are owned by both.
CHAIR NEUMAN asked whether some of the aforementioned patents
came about through research conducted while the professors were
employed at the university.
MS. GREEN echoed earlier testimony that the ownership of the
patent is dependent upon how the patent came about. For those
developed while working for the university, the university would
own at least part of [the patent]. If the research was
conducted independently, the ownership of the patent would not
be shared. In further response to Chair Neuman, Ms. Green
replied that in the scenario of a university employee inventing
something independently, the university would stand to lose
revenue. However, if the inventor was an employee who used
university time and resources, then the university should gain
shared patent rights and revenue.
REPRESENTATIVE GARA noted that he likes the university's
involvement in advanced technological developments. He returned
to his concern regarding subsection (c), and opined that
regardless of its intent it allows the university a blanket
ability to purchase corporations and "wipe out" previous
liabilities owed to the community. He asked why the university
wouldn't be subject to the same liability rules as any
shareholder would be under corporate law.
MS. GREEN related that currently the university is treated as
"an ordinary person" and as such the university has such a
conservative attitude toward its fiscal responsibility that it
wouldn't enter into these ventures. Therefore, in order to
protect the university's assets, there needs to be some piercing
of the corporate veil. In the example of a company with lots of
debt, Ms. Green opined that the Board of Regents wouldn't allow
the university to purchase it because they're responsible to the
public. She reiterated that the university cannot go into
start-up ventures, cooperatives, and charitable nonprofits
without protection because the university has assets upon which
Alaskans depend.
REPRESENTATIVE GARA said that he is somewhat comfortable with
the existing rules of corporate law, and thus he indicated that
the university should be treated the same with regard to
corporate status.
7:19:58 PM
REPRESENTATIVE THOMAS commented that investors usually divest
when a company changes its policy from a "conservative" to high
risk, so he questioned why the university would choose to make
such a change of position.
MS. GREEN replied it would not be a change in the university's
overall investment strategy. The university's intention is to
start small and help those who have "really good ideas" without
risking the assets of the entire university. Similar to other
corporate stockholders, what the university invests will be at
risk. However, the underlying assets of the university would
not be at risk, she clarified.
7:22:20 PM
CHAIR NEUMAN announced that due to the number of questions, HB
92 would be held. He said he would like to get the university
to answer the committee's questions in writing.
7:23:06 PM
CRAIG DORMAN, Vice President of Research and Academic Affairs,
University of Alaska - Fairbanks, highlighted AS 14.40.458,
subsection (a), which states the purpose of [HB 92] is to
advance the mission of the university pursuant to the policies
of the Board of Regents. He said the aforementioned section is
fundamental to the university's intentions, and details that
the purpose is not to invest heavily in corporations in order to
generate "a lot of money." This legislation supports federal
law with the intent of receiving federal funds, which is where
the vast majority of research funding is derived. He said the
intent of this legislation is to bring benefit to the state as
well as the university. He related his belief that it's
"effective and appropriate" to stimulate economic development
through the development of spin-off corporations and encourage
faculty in a much more intensive manner than it has been able to
in the past. Additionally, this legislation pertains to the
university's participation in nonprofit companies and
corporations, particularly 501 (c)(3) organizations. Currently
the university is involved with the Alaska Ocean Observing
System. In fact, the university is in the process of
establishing rules and governance processes whereby it becomes
part of the national federation of regional agencies and thus it
could accrue significant federal funding, he noted. Although
the university wants to be involved in such ventures, there is
concern with regard to the university being seen as a "deep
pocket." Therefore, the intent [of HB 92] is to avoid losing
the university's assets by allowing it to participate in start-
up ventures and charitable nonprofits.
[HB 92 was held over.]
ADJOURNMENT
7:28:15 PM
There being no further business before the committee, the House
Special Committee on Education meeting was adjourned at 7:28
p.m.
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