Legislature(2017 - 2018)HOUSE FINANCE 519
04/19/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB97 | |
| HB150 | |
| HB167 | |
| HB90 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 74 | TELECONFERENCED | |
| + | SB 34 | TELECONFERENCED | |
| + | SB 97 | TELECONFERENCED | |
| + | HB 150 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 90 | TELECONFERENCED | |
| += | HB 167 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 19, 2017
1:38 p.m.
1:38:10 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:38 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Senator Anna MacKinnon, Sponsor; Laura Cramer, Staff,
Senator Anna MacKinnon; Deven Mitchell, Executive Director,
Alaska Municipal Bond Bank Authority, Department of
Revenue; Kendra Kloster, Staff, Representative Chris Tuck;
Courtney Enright, Staff, Representative Gabrielle LeDoux;
Crystal Koeneman, staff to Representative Sam Kito; Sara
Chambers, Acting Director, Alcohol and Marijuana Control
Office, Department of Commerce, Community and Economic
Development; Representative Sam Kito.
PRESENT VIA TELECONFERENCE
Bob Doehl, Deputy Commissioner, Department of Military and
Veterans Affairs; John James, Colonel, Department of
Military and Veterans Affairs; Mark Richards, Executive
Director, Resident Hunters or Alaska, Fairbanks; Al Brett,
Self, Fairbanks; Angela Birt, Chief Investigator,
Corporations, Businesses and Professional Licensing,
Department of Commerce, Anchorage.
SUMMARY
HB 90 OCC. LICENSING FEES; INVESTIGATION COSTS
CSHB 90 (FIN) was REPORTED OUT of Committee with
a "do pass" recommendation and with a previously
published fiscal impact note: FN1 (CED).
HB 150 PAY, ALLOWANCES, BENEFITS FOR MILITIA MEM
HB 150 was HEARD and HELD in committee for
further consideration.
HB 167 STATE AGENCY PERFORMANCE AUDITS
HB 167 was REPORTED OUT of Committee with an
"amend" recommendation and with one new zero
fiscal note by the Legislature.
SB 97 PENSION OBLIGATION BONDS
SB 97 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the day.
SENATE BILL NO. 97
"An Act relating to pension obligation bonds."
1:39:24 PM
SENATOR ANNA MACKINNON, SPONSOR, explained that the bill
took the current statutory $5 billion pension bonding
authority and reduced the amount to $2.5 billion. In
addition, the legislation required the administration to
submit a proposal to the Legislative Budget and Audit
Committee (LBA) within 45 days of issuing any pension
obligation bonds (POBs). She noted that the procedure was
the same as any RPL (request per legislature). She pointed
out that the process included the legislature in the
process and allowed for time to respond if necessary. She
believed the administration supported the legislation. She
recounted that in the prior year when the administration
proposed the POB plan, her constituents requested the bill
and questioned whether any amount of the authorization
should be spent on POBs due to the inherent risks. She
thought that the administration had proposed a very
conservative approach to POB's. She detailed that unlike
other cities or states, the administration's plan "did not
take all of the benefits upfront." Other states that had
defaults with POB's "took all of the benefits when they
were most at risk." The state's approach deferred the
smaller payments until the end of the loan proposition. She
reiterated that the administration's approach was
conservative. She informed the committee that if the state
had issued POB's in 2007 the results would have been
positive. Had the Walker administration issued POB's last
year positive gains were also anticipated. She qualified
that the "positive influences" needed 20 to 30 years to
come to fruition which prompted her to introduce SB 97. She
believed that the legislation did not tie the hands of the
administration, invited engagement with the legislature,
and added a layer of transparency to the process. She
offered to review the sectional analysis.
1:43:16 PM
LAURA CRAMER, STAFF, SENATOR ANNA MACKINNON, read the
sectional analysis:
*Section 1: Requires a subsidiary created under the
Alaska Housing Finance Corporation to submit a
proposal to the Legislative Budget and Audit (LB&A)
Committee prior to borrowing money and issuing bonds
for the purpose of financing or facilitating financing
of a governmental employer's share of unfunded accrued
actuarial liability of retirement systems
*Section 2: Creates a new subsection outlining the
process for submitting a proposal to the LB&A
Committee
*Section 3: Requires the State Bond Committee to
submit a proposal to the LB&A Committee prior to
issuance and sales of bonds for the purpose of
financing or facilitating financing of a governmental
employer's share of unfunded accrued actuarial
liability of retirement systems, including the costs
of issuance and administration
*Section 4: Creates a new subsection outlining the
process for submitting a proposal to the LB&A
Committee
*Section 5: Amends the pension obligation bond limit
from $5,000,000,000 to $2,500,000,000
*Section 6: Requires the Pension Obligation Bond
Corporation to submit a proposal to the LB&A Committee
prior to issuance and sales of bonds for the purpose
of financing or facilitating financing of a
governmental employer's share of unfunded accrued
actuarial liability of retirement systems, including
the costs of issuance and administration
*Section 7: Creates a new subsection outlining the
process for submitting a proposal to the LB&A
Committee
*Section 8: Requires the Alaska Municipal Bond Bank
Authority to submit a proposal to the LB&A Committee
prior to issuance of bonds, notes, commercial paper,
or other obligations for the purpose of assisting
employers to prepay all or a portion of their share of
unfunded accrued actuarial liabilities of retirement
systems in an effort to reduce their costs
*Section 9: Requires a subsidiary created under the
Alaska Municipal Bond Bank Authority to submit a
proposal to the LB&A Committee prior to borrowing
money and issuing bonds for the purpose of financing
or facilitating financing of a governmental employer's
share of unfunded accrued actuarial liability of
retirement systems
*Section 10: Creates a new subsection outlining the
process for submitting a proposal to the LB&A
Committee
*Section 11: Conforming language for the powers of a
subsidiary corporation created under the Alaska
Municipal Bond Bank Authority
*Section 13: Conforming language for the issuance of
bonds and notes by the Alaska Municipal Bond Bank
Authority
1:45:06 PM
Vice-Chair Gara recalled that in 2007 he was supportive of
investing in POB's. He noted the unpredictable nature of
the stock market. He wondered why the current investment
climate with rising interest rates was a good time to
invest in POB's. Senator MacKinnon explained that in 2007
the state was facing a $10 billion to $12 billion pension
liability of which, the $5 billion figure was roughly 50
percent of the liability but did not factor in the unfunded
liability for healthcare costs. When the legislature issued
a cap of $5 billion it was less than 50 percent yet still
considered a significant amount. Currently, the state's
unfunded liability was $6.1 billion. The $2.5 billion
number was less of a ratio but still reduced the liability
and was close to the amount the administration deemed
reasonable to sell in the market at one time. The unfunded
liability was only as accurate as the performance of the
assumptions of the rate of the return. She clarified that
the $$6.1 billion figure was as reliable as the credit
rating agencies reports that contained the numbers and were
based on assumptions that the state's actuaries calculated.
She reminded the committee that the legislature contributed
$3 billion in FY 15 in order to reduce the debt load.
Co-Chair Foster noted Representative Pruitt had joined the
meeting.
Vice-Chair Gara commented that he understood the risk and
ascertained that in hind sight, he wished the state issued
the POB's in 2007. He asked why POB"s were authorized in
the past but never issued. Senator MacKinnon confirmed that
POB's were issued in 2007 but no proposal was ever issued
until the current governor believed that the market was
"timed right." She related that the public opposed the bond
issue because of the risk and the proposal was "met with
resistance."
1:50:22 PM
Representative Grenn cited the sponsor statement and read
the following:
Credit rating agencies continue to monitor our
activities and the policy measures we pass to improve
our financial foundation.
Representative Grenn inquired whether lowering the bonding
authority contributed to improving the state's fiscal
foundation or was a "prudent" change to protect our credit
rating. Senator MacKinnon believed that lowering the
authority would be positively viewed by the market and the
agencies.
Representative Ortiz asked about any potential downsides of
the action. Senator MacKinnon responded that she did not
see any. She indicated that she always attempted to balance
both sides of the issue with any legislation. She
acknowledged that many thought POB's were too risky and
should be avoided. She agreed that the bonds required 30
years of returns to work and were risky. She thought the
legislation was a compromise and was a "nod" to the credit
rating agencies that sent the message that the state was
not relying on debt to solve the problem. She added that
utilizing debt might be a component but not the entire
approach. Representative Ortiz asked what the negatives
were of taking the liability down to zero. Senator
MacKinnon pondered whether the legislature could "sustain a
legislative override" for a governor's veto. She had
confidence that both legislative bodies endorsed a
reasonable approach to alert credit agencies that they took
the state's financial situation seriously by not totally
relying on debt to solve the problem. She mentioned the $3
billion pension liability payment as proof.
1:54:15 PM
Co-Chair Seaton mentioned the idea of taking the unfunded
liability to zero. He wondered at what point the state was
required to pay post-retirement pension adjustments the
state was required to pay to the retired employees. Senator
MacKinnon reported that when the state hit 100 percent [no
liability] the retirees could ask for additional benefits.
When the $3 billion payment was made in FY 15 the
legislature's goal was to achieve 80 percent funding of the
state's liability and was the point debt could be repaid
with "positive investment returns." She had voted with many
of her colleagues in favor of much of the money paying for
the Teaching Retirement System (TRS) instead of Public
Employees' Retirement System (PERS). She delineated that
the TRS debt was entirely the state's debt but PERS was
shared with the municipalities at a 60 percent to 40
percent split. The House and Senate came together to pay
the state's 100 percent debt and attempted to achieve an
overall 80 percent ratio. She cautioned against achieving a
90 percent ratio because if the state over-contributed than
retirees could ask for more. She believed in being
cognizant of how much the state could fund the liability.
She thought that the state's estimated unfunded liability
was understated due to the current rate of return. Co-Chair
Seaton recapped that Senator MacKinnon discussed that the
state owned 100 percent of the TRS liability and only 60
percent of the PERS. He queried whether the state would be
better off funding its 100 percent liability versus the
PERS system. He indicated that if the state funded PERS at
100 percent liability, the state would pay the
municipalities' retirement reimbursement and end up paying
for their debt. He asked whether she objected directing
POB's to the TRS system.
1:58:47 PM
Senator MacKinnon responded that the bill was in the
committee's possession and she would trust the judgement of
the committee. She detailed that when the state established
the 22 and 12 percent ceilings on municipal contributions
the numbers were a compromise. The municipalities asked the
state of Alaska to help fund the liabilities. The state
chose to help by extending the years on the debt and
thereby lowering the payments. She did not think the state
should turn away from the municipalities struggle with
meeting the payment obligations and avoid burdening the
local communities further by not providing more than 60
percent. She advocated working together in the best
financial interest of all and not exclude helping the
municipalities. She hoped that the administration would
talk with the legislature regarding the municipalities when
considering POB's. She remembered that the legislature
directed the administration to deposit much of the $3
billion to TRS but still wanted to make a deposit into the
PERS system to help local communities and the state. She
remarked that the cap set at 22 percent meant that the
state was paying the portion above 22 percent.
Representative Pruitt questioned the role of LBA in the
bill. He noted that ultimately the administration could
make its own decisions regarding RPL's. He asked whether
the sponsor considered granting LBA the ability to
ultimately veto an issuance of POB's. Senator MacKinnon
responded that last year the administration had responded
to concerns raised by the House and Senate Finance
Committees regarding the proposed POB plan. She revealed
that any issues raised against POB's could cause "the
buyers to increase the cost of debt through risk." "The
minute the legislature starts talking in a negative way the
administration had to include the documentation in the bond
packets." She concluded that LBA was the appropriate place
to decide on the issuance because if the administration
decided to proceed regardless, all that was needed to stop
the process was for the legislature to write a letter and
the credit rating would increase. She relayed that the
Senate Finance Committee had written a letter without prior
knowledge of the consequences. She felt that the
administration was sensitive to the issue and the reaction
of the legislature. In addition, the state's debt manager
was required to relay any issues to the purchaser of the
bonds. Representative Pruitt acknowledged that the
administration had consulted with the legislature over
whether to proceed with the POB's. He surmised that Senator
MacKinnon was comfortable with LBA's role due to the
increased costs of bonding signaled by any resistance from
the legislature. Senator MacKinnon replied in the
affirmative. She discerned that even a dialog raising
concerns about POB's in the LBA committee process could
trigger a rate increase based on borrower's discomfort. She
felt comfortable with the language but deferred to the
committee.
2:07:20 PM
Representative Guttenberg reminded members to refer to
Mayor Navarre's comments on the debt liability and its
origins in previous testimony. [Mayor Mike Navarre, Kenai
Peninsula Borough, Presentation to the House Finance
Committee on March 28, 2017] He surmised that last year
when the governor announced the POB issuance and received
strong opposition resulting in his decision not to proceed
indicated that the "process did work." He thought that the
LBA provision in the bill in favor or against held
"significant" sway over whether to proceed or not. He felt
that the state already had a system that appeared to work.
He wondered why the process needed to change. Senator
MacKinnon relayed that the debt to bonding authority ratio
was presently a significantly larger portion of potential
indebtedness that carried great risk. The bill offered a
similar ratio as the situation in 2007. She qualified that
the state was underestimating the liability but did not
think the ratio should be above 50 percent especially
without approval of the legislature. She revealed that the
administration was supportive of the lower authority. She
maintained that SB 97 was a positive move for the states
bond rating and offered a positive ratio. She believed that
the LBA provisions created a formal process to include the
legislature in the decision. Representative Guttenberg was
wondering what the state was trying to fix. He reiterated
his belief that the system worked last fall. He suggested
that merely not using the $5 billion authority was an asset
and had a value. He felt that the authority and its best
use was "a tool in the state's coffer." He believed that
the administration's acceptance of the lower bonding
authority was its "standard answer" for "making do" with
less.
2:13:58 PM
Representative Thompson was sensitive to the issues
regarding the local contribution. He spoke to his
experience as the previous mayor of Fairbanks. He recapped
that when he was mayor the city had requested its PERS
balance from the state actuarial. He reported that the city
was told it had an excess of $35 million and three years
later the state claimed the city owed $130 million. He
noted that the 22 percent cap was imposed in response to
the situation. Senator MacKinnon replied that the bill did
not alter the contribution rate. She countered that credit
rating agencies were aware that Alaska could utilize its
unissued debt and further indebt the state. The situation
jeopardized the state's bond rating. She commented that the
by reducing the bonding authority the legislation put the
state in the right direction. She advocated taking the
state's pension obligation "very seriously." She spoke to
the current fiscal crisis and funding the $2.8 billion
budget deficit as a priority and considered the $6.1
billion pension obligation and future indebtedness as a
"background issue" that needed to be addressed.
Representative Pruitt referenced the discussion regarding
the credit rating. He wondered whether lowering the bonding
authority thereby lowered "the potential opportunity for
debt" and the ratio.
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, replied that he
agreed with Senator MacKinnon that an outstanding
authorization impacted credit. He relayed that in the
current situation, the authority was for a liability the
state already had "and was a little different." He
recounted that last fall the $2.3 billion to $3.3 billion
POB's issuance proposal received ratings in line with
current ratings except for Standard and Poor's decrease of
a "notch" from AA+ to AA flat. He likened predicting the
credit rating agencies was similar "to reading tea leaves."
He understood the legislature's point of view. He offered
that as an "issuer of debt" he perceived that "greater
flexibility resulted in better execution" of debt but
recognized the need for a balanced approach. He concluded
that "at the end of the day he could not think of any
objection to reducing the current authorization."
Representative Guttenberg clarified that bonds were
prohibited from any other type of use besides pension
obligations. Mr. Mitchell responded in the affirmative. He
qualified that when the initial authorization was
established the legislation included a "couple" of
different types of authorization based on the financial
situation at the time that would not be utilized in the
"current construct of the retirement system." He noted that
one provision granted the municipalities use of the bond
bank to cover the unfunded liability. He revealed that the
option was not viable because the bonding would only
benefit the state and not the municipality. He informed the
committee that the current PERS actuarially assumed
contribution rate was over 26 percent, the municipalities
paid 22 percent and the state paid the remainder. He added
that funding the debt service was based on a commitment by
the legislature and the administration; no collateral or
taxing pledge was committed to the debt service. The
state's commitment to the debt service was a "lesser
pledge" than what was typical in "other instances."
Representative Guttenberg asked whether the POB credit
rating "stood alone or was built into the state's credit
rating as a whole." Mr. Mitchell answered that the POB
credit rating relied on the state's credit rating and was
one notch under the state's overall credit rating. He
elucidated that the legislation required a credit rating of
at least AA minus. Representative Guttenberg clarified that
the $3 billion payment was a cash infusion and not a bond
issue. Mr. Mitchell responded that he was correct.
2:25:52 PM
Vice-Chair Gara mentioned the provision that a bond
issuance was predicated on consent by LBA within 45 days.
He wondered whether the time lag would have "a potential or
material imperial" on the issuance. Mr. Mitchell answered
in the negative. He related that last year the state
engaged in 79 meetings with institutional investors in
order to sell the bonds and the day before the pricing and
commitment the state reneged on the sale. He revealed that
as a result the banking community would only purchase
future POB's from the state with some type of formal
approval from the legislature. He indicated that the LBA
provisions formalized the current "ad hoc process." He
determined that there was "a lack of clarity" on how to
obtain the appropriate approval from the legislature that
the bill provided.
Co-Chair Seaton asked Mr. Mitchell to explain the
difference between soft and hard obligations for unfunded
liability payments. Mr. Mitchell explained that the state
could choose not to fund the annual actuarially determined
funding requirements without "negative ramification." When
debt was issued making it a hard liability, missing
payments resulted in consequences such as rating downgrades
and lost access to the capital markets. He ascertained that
recently "an evolution of pension liability was underway"
and was elevated in the considerations of the credit rating
agencies. He detailed that a failure to pay POB liability
resulted in a similar rating downgrade as a debt service
payment. Co-Chair Seaton had expressed concerns about the
pension adjustments when the liability was paid at 105
percent. He wondered whether the state was statutorily or
contractually obligated to pay the post-retirement pension
obligations in addition to cost-of-living increases. Mr.
Mitchell deferred the question to the Division of
Retirement and Benefits. He thought that the payments only
applied to Tier 1 retirees.
2:31:09 PM
Co-Chair Seaton referenced the state's split obligations
between PRS and TRS. He questioned whether the state could
issue POB's to the percentage of liability where the
municipality would not need to pay its contribution at 22
percent. He wondered whether the 18 percent obligation
would apply or could POB's be structured in a way to
maintain the 22 percent split. Mr. Mitchell answered that
the 22 percent was statutorily set in SB 125 (Pers/Trs
Contribut'ns;Unfunded Liability) [CHAPTER 13 SLA 08 -
04/08/2008] and did not fluctuate. He learned last fall
that the way the actuarial math worked, any significant
cash payment into PERS over $500 million diminished the
percentage of payroll requirement in the short term. He
discovered that the 22 percent was a "hard payment
requirement" set in statute. Last year's $3.3 billion POB
transaction proposal would have funded TRS at 90 percent
and the portion that the state paid would have been
refinanced if the bonds were issued. Co-Chair Seaton asked
whether there was any downside to limiting the pension
liability to 85 percent through use of POB's. He wanted to
avoid any situation where the state was overfunded. Mr.
Mitchell responded that the administration was looking at
funding the liability at 90 percent. He observed that "if
the state was borrowing at one rate and expected to
reinvest at a higher rate than the larger the issue the
greater the potential benefit." He deduced that for TRS the
85 percent limit "could restrict the potential of an
issuance" but seemed satisfactory for PERS.
2:36:21 PM
Representative Guttenberg asked if the state reached 105
percent what the state's liability to increase benefits
was. Mr. Mitchell deferred the question to the Division of
Retirement and Benefits. Representative Guttenberg
referenced other state's lower credit rating and reported
that the states were still able to borrow money. He
wondered whether a credit rating could be disregarded and
money could be borrowed at a reasonable rate. Mr. Mitchell
answered that California had experienced a volatile and
tumultuous period with its credit rating. He commented that
borrowing depended on the type of credit and market
conditions that determined how expensive the credit rating
differential was. He observed that there was a lot of
anxiety with the market and rating agencies regarding
Alaska due to the budget situation.
Co-Chair Foster OPEND Public Testimony.
2:40:18 PM
Co-Chair Foster CLOSED Public Testimony.
SB 97 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 150
"An Act relating to pay, allowances, and benefits for
members of the organized militia."
2:41:06 PM
KENDRA KLOSTER, STAFF, REPRESENTATIVE CHRIS TUCK,
introduced the legislation. She explained that HB 150 was
an ongoing effort to modernize the state's Alaska Military
Code from 1955. She reminded the committee that the process
began last year with the Alaska Code of Military Justice.
She delineated that HB 150 would authorize the same pay,
allowance and benefits for the organized militia whether
they are called into state active duty by the Governor or
Adjutant General or called to service by the President.
Presently, the Alaska State Defense Force soldiers serving
during emergencies or disasters were paid as state
employees according to tasks performed under assigned
duties. She furthered that the type of accounting was
cumbersome and labor intensive. Soldiers were uncertain of
the amount of pay they would receive. The bill aligned with
the current armed forces pay schedule which paid by grade
and rank of the soldier instead of duties performed. She
indicated that the change was cost neutral.
Representative Kawasaki asked about whether the soldiers
were entitled to retirement benefits. Ms. Kloster answered
that the Alaska State Defense Force was a volunteer
organization and would only receive pay when in active
state duty. She elaborated that the force was different
than the National Guard members and she deferred further
answers to the Department of Military and Veterans Affairs
(DMVA). Representative Kawasaki clarified that he was
asking whether there was an impact on Public Employees'
Retirement System (PERS) from the bill. Ms. Kloster replied
in the negative. She reiterated that as volunteers the
force members only received pay when activated and were not
entitled to PERS.
Representative Grenn asked for examples of recent
emergencies. Ms. Kloster referred to pay tables in member's
packets [prepared by the Department of Military and
Veterans Affairs (copy on file).] She noted the table
listed the example of the Sockeye fire on page 2. She
elaborated that the table listed the pay scale comparisons
under the old system and the new system. The new system was
cost neutral due to the efficiencies in the accounting
required. Representative Grenn asked whether the Sockeye
fire was the most recent example.
2:46:37 PM
Ms. Kloster replied in the affirmative. She deferred the
question to the Department of Military and Veterans Affairs
(DMVA) for further detail.
Representative Pruitt referred to the 2015 Sockeye fire
example on the pay table document. He was trying to
determine why some members of the force were paid more and
others were paid less when compared to their previous
service. Ms. Kloster deferred the question to DMVA. She
added that a force member would be paid based on the
person's current position in grade and rank rather than
duty.
BOB DOEHL, DEPUTY COMMISSIONER, DEPARTMENT OF MILITARY AND
VETERANS AFFAIRS (via teleconference), answered that the
tables were looking at two different pay scales of two
different systems. He elucidated that the military system
used a straight system of rank. Currently, a National
Guardsman and a defense force volunteer working together
would be paid differently from different pay scales
depending on rank and duty. The challenge was when the
Alaska State Defense Force was activated the department
evaluated the duties on a given day or hour consistent with
the official position description system, hourly rates, and
the pay range. The difference was how the two systems
calculated doing the same job. Every disaster had different
requirements in terms of the type of individuals activated.
He concluded that he could not find a consistent pattern to
identify the system that paid higher.
2:51:03 PM
Representative Pruitt asked whether the force members were
in favor of the new pay system.
JOHN JAMES, COLONEL, DEPARTMENT OF MILITARY AND VETERANS
AFFAIRS (via teleconference), replied in the affirmative.
Co-Chair Foster OPENED and CLOSED public testimony.
Co-Chair Foster CLOSED public testimony.
HB 150 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 167
"An Act relating to performance reviews, audits, and
termination of executive and legislative branch
agencies, the University of Alaska, and the Alaska
Court System."
2:53:15 PM
Representative Wilson noted that 31 House members and 14
Senators had cosponsored the original legislation. She
requested further discussion before the bill reported out
of committee and thought the performance reviews had some
merit. She wanted clarification that the Department of
Health and Social Services (DHSS) performance reviews
identified $2 million savings.
COURTNEY ENRIGHT, STAFF, REPRESENTATIVE GABRIELLE LEDOUX,
deferred to Kris Curtis, Legislative Auditor, Alaska
Division of Legislative Audit to respond to the question
and noted that she was not available to testify.
Representative Wilson requested a subcommittee to examine
the issue further. She suggested that Ms. Curtis had
suggested ways to fix the problem, decrease the cost of the
reviews, and still result in the desired outcome. She
reminded the committee that the original legislation passed
with bipartisan support.
Co-Chair Foster asked for more input from other members
whether to report the bill out of committee or place it in
a subcommittee for further discussions.
2:56:59 PM
Co-Chair Seaton noted that the sponsor of the original
legislation, HB 30 (State Agency Performance Audits)
[CHAPTER 19 SLA 13 - 05/28/2013] Representative Mike
Chenault was on a subcommittee that recommended repealing
the legislation. At present, he felt that proceeding with
the program that was unfunded for the previous two sessions
and that the legislature had already decided was not worth
continuing was the correct course of action. He recounted
that the previous legislature left the program unfunded
predicated on the results that were not worth the half a
million dollar cost each year. He preferred to vote on the
bill. He suggested addressing a particular agency's
performance in question via specific legislation.
2:59:28 PM
Representative Tilton remembered that Kris Curtis
identified one challenge with the legislature implementing
the recommendations from the reviews. She recalled that Ms.
Curtis reported on one recommendation that would save
approximately $1 million in the DHSS budget. She relayed
her previous experience as a House Finance Committee
staffer handling the DHSS budget when she undertook an
internal review. She emphasized how helpful the performance
audit review would had been if available at the time in
enhanced understanding resulting in better outcomes and
better decisions. She mentioned the overwhelming support
for the original bill. She suggested examining the
completed reviews further over the interim to discover
further savings.
Representative Kawasaki reported having been a co-sponsor
of the original legislation. He commented that the way the
bill was presented and "envisioned" was different than the
actual outcome of the reviews that were completed. He noted
the necessity for the 3 full-time positions and $1 million
dollar cost to move forward with program. He supported
moving HB 167 out of committee.
Vice-Chair Gara reported that a provision in the original
bill tasked the audit with finding 10 percent or more of
efficiencies in an agencies budget. Next year, the bill
listed the University Of Alaska as the recipient of a
performance audit. He communicated that the University had
$50 million to $72 million in proposed cuts in the current
fiscal year alone. The legislature had already cut roughly
$600 million from agencies. He acknowledged that the DHSS
audit identified a $1 million cut to the DHSS budget but
was not scheduled to receive another review for ten years
and the DHSS budget was cut $200 million since passage of
the bill. The goal of the original bill was to begin
finding cuts. The legislature had already identified cuts
that totaled $3.4 billion in all departments. He did not
see the logic in continuing the reviews on the drawn out
schedule by each individual agency to identify 10 percent
in cuts. He concluded that the legislature was cutting all
department's budgets and the bill was unnecessary.
3:04:39 PM
Representative Pruitt voiced that Representative Wilson's
request was appropriate. He had found some very interesting
information in some of the audits from the past. He agreed
that in the current year it was appropriate to abstain from
an audit due to costs and with the exercise of removing
programs "from the books" if warranted. He believed that
the performance review program should be reformed. He
advocated for further consideration of the performance
audit program over the interim and felt that the program
was a useful tool that could bring value in the future. He
promoted modernizing the program instead of eliminating it.
3:08:12 PM
Representative Thompson believed that "it was always good
to review performance." However, the legislature had
reduced budgets and identified efficiencies. He wondered
about the workload and burden the program created for
legislative audit and the departments under review. He
favored the concept of a performance review but had mixed
feelings about whether or not to support the bill. He
suggested reviewing the program over the interim to
determine how to proceed.
Representative Guttenberg liked the performance audit as a
tool but surmised that the reviews worked only if the
department was "static." He did not see the value currently
because there had already been cuts resulting in a
significant amount of transition and reorganization in each
agency. He mentioned that missions and measures was an
established tool that offered agency analysis. He suggested
that additional audits could be funded in the future. Due
to the state's current fiscal condition, he wanted to
cancel the program. He mentioned that keeping the program
in statute but not funding it caused instability and
uncertainty for legislative audit. He supported moving the
bill out of committee.
3:12:27 PM
Representative Wilson wanted to understand the difference
in rescinding the program today versus waiting until next
year. She noted that Ms. Curtis provided a review with 12
suggestions. She thought that requiring board audits held
boards at higher standards than the agencies. She was
asking whether it was worth "taking the program off of the
books at present or waiting until next January and further
examine the issue. She thought the audits provided an
opportunity for agencies to determine whether its mission
was met. She reiterated her request to reexamine whether
the program, in total or in part, was beneficial.
Co-Chair Seaton reminded the committee that Ms. Curtis
testified her need to hire 3 manager positions to manage
contracts to continue with the reviews. The disruptions to
the department the audits caused were "significant"
especially due to budget cutting measures. He deduced that
altering the program required additional legislation. He
remarked that the legislature could require an agency audit
if a problem was identified and noted that audits and
performance reviews were different. He stressed that a
better way to proceed was to address a targeted problem and
not reform an unproductive system. He reiterated his desire
to report the bill out of committee.
Co-Chair Foster indicated that members had "good arguments"
on both sides of the issue. He believed that a vote was the
best course of action.
Vice-Chair Gara reported on the fiscal note FN 1(LEG) with
zero fiscal impact.
3:17:53 PM
Co-Chair Seaton MOVED to report HB 167 out of Committee
with individual recommendations and the accompanying fiscal
note.
Representative Wilson OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Ortiz, Foster,
Seaton
OPPOSED: Thompson, Tilton, Wilson, Pruitt
The MOTION PASSED (7/4).
HB 167 was REPORTED OUT of Committee with an "amend"
recommendation and with one new zero fiscal note by the
Legislature.
HOUSE BILL NO. 90
"An Act relating to occupational licensing fees;
relating to an occupational investigation surcharge;
and providing for an effective date."
3:19:27 PM
CRYSTAL KOENEMAN, STAFF TO REPRESENTATIVE SAM KITO,
recapped that the bill intended to spread the investigative
charges to all licensees and work similar to a surcharge,
reducing the high fee fluctuations that some board
experienced due to investigative costs and low number of
licensees.
Representative Wilson asked whether there were individuals
who were members of more than one board. Ms. Koeneman
answered in the affirmative. Representative Wilson asked
whether an individual on two boards paid each individual
licensing fee. Ms. Koeneman answered in the affirmative.
Representative Wilson wanted to ensure that the legislation
did not impact business licensing fees. Ms. Koeneman
responded in the affirmative and added that the bill only
impacted professional licensing fees.
3:22:36 PM
Co-Chair Foster OPENED Public Testimony.
3:22:46 PM
MARK RICHARDS, EXECUTIVE DIRECTOR, RESIDENT HUNTERS OR
ALASKA, FAIRBANKS (via teleconference), spoke in opposition
of HB 90. He spoke to the Big Game Commercial Services
Board regarding how guiding affected resident hunting
opportunities and the wildlife resources. He pointed out
that the board was in debt due to investigative costs that
were the second or third highest out of all boards. He
reported that the Board of Nursing had the highest
investigative costs. He pointed to the discrepancy in the
costs of investigations per member due to differences in
the number of licensees. Nurses had 20 thousand members and
its portion of fees related to investigations was $47
versus two thousand guide licensees each paying $316 of
their fee towards investigations. He stated that due to the
nature of the guiding service that involved "taking of a
public resource" the activity required a certain level of
enforcement presence. Ninety five percent of all guides
operated within the law, however the bad actors lead to
high investigatory costs. He elucidated that under the bill
the nurses would pay $300 thousand more in increased
licensing fees to help cover the investigative costs of the
Big Game Commercial Services Board. The guide board fees
would significantly decrease. He relayed that the guide
board's concern that the high cost of guide licensing fees
deterred illegal behavior. He emphasized that by removing
the burden of the high fee some guide's standards would
relax and lead to "bad behavior." He urged members to vote
in opposition of the bill or exempt the board from the
provisions in the bill.
3:26:26 PM
AL BRETT, SELF, FAIRBANKS (via teleconference), spoke in
opposition of HB 90. He communicated his unease with
allowing the division to adjust fees through regulation
versus statute. He shared that he was a registered Class A
guide and reported that the previous two times the fees
were raised was during the hunting season and was
inconvenient. He believed there was a problem with the
government controlling businesses and resources. He
suggested that investigations were a "civil process" where
grievances were best addressed in civil court. He opined
that it was unfair for the state to "intervene" in civil
issues "on boards related to occupations."
3:28:55 PM
Co-Chair Foster CLOSED Public Testimony.
Representative Ortiz asked how Ms. Koeneman would respond
to the first testifier. Ms. Koeneman deferred to the
Department of Commerce, Community and Economic Development
(DCCED) to answer the question.
SARA CHAMBERS, ACTING DIRECTOR, ALCOHOL AND MARIJUANA
CONTROL OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND
ECONOMIC DEVELOPMENT, responded that the fee setting
process was codified in statute and the bill did not alter
the fundamental principle that the division set fees "in
concert with the boards and the programs pay for their
expenses." The investigative process was transparent with
the exception of items that were necessary to remain
confidential. She expounded that the bill served as an
insurance policy for investigative costs. The state had
historically struggled with setting licensing fees in a
timely manner so licensees could budget to cover an
increased license fee expense. She deemed that the
volatility came from investigator's statutory
responsibility, in concert with a board to pursue
violations. The division lacked the resources to actively
seek out violations but had a responsibility to investigate
complaints. She related that the amount and level of
investigations were impossible to anticipate. Some of the
state's licensing programs had investigative fees of over
$100 thousand for a single investigation either for
violations or from challenges to a denied license.
3:33:08 PM
Representative Ortiz understood the concept of an insurance
pool and understood the volatility in costs. He was
specifically concerned with the testifier's scenario that
his board would be charged less and nurses more under the
bill. Ms. Chambers relayed that the division had done some
modeling and determined that nurses would pay $9 in
additional fees each licensing period. She detailed that
very few boards would have increased license fees of over
$50 every two years and boards with extremely high fees and
deficits such as the midwifery and guide boards would save
several hundred dollars. The state was looking "at a
greater savings" with nominal fee increases to larger
licensing programs that had investigative costs but had the
"economy of scale to spread the expense across its
membership."
Representative Kawasaki appreciated the bill. He asked how
the different boards would change their future fees with
the addition of the surcharge. Ms. Chambers indicated that
the division analyzed board's expenses and revenue and set
their fees accordingly. The investigative costs would be
deducted from the equation and allocated through the
surcharge. The remainder of the fees would be set based on
the current fee analysis model. The investigative fees
would be allocated separately.
Representative Thompson reported receiving feedback from
licensees that the investigators were not familiar with the
profession they were investigating. He commented that the
situation made the investigations longer. He wondered how
many investigators were on staff and if they were trained
in regards to what they investigated. Ms. Chambers stated
that the investigative process included board members,
which assured appropriate expertise. She indicated that
many licensing programs lacked boards. When investigating a
licensure program with a board, the division relied on
board member review by an advising board member before
proceeding with an investigation. Rarely, an area was so
specialized an investigation required expert witnesses to
speak to the specialty. The division requested the board's
consent before an expert witness was retained.
Representative Thompson was satisfied with her answer.
Representative Wilson was concerned with the person who
engaged in an activity without a license yet the board's
licensees had to pay for the investigation. She asked why
the state did not pass the investigatory costs on to the
offender instead of the board. Ms. Koeneman responded that
she had a good point. She explained that when the guiding
statutes were established the licensees wanted to protect
their industry through regulation of unlicensed activity
under their purview. She asserted that addressing
unlicensed activity was a larger policy call and board
members should engage in the discussion over relinquishing
their duty.
3:40:39 PM
Representative Wilson clarified that she did not want
boards to relinquish anything. She was suggesting that an
unlicensed individual caught engaging in the licensed
activity should be held responsible for the investigatory
costs and not the board.
REPRESENTATIVE SAM KITO, thought that the issue was "broad
and complicated." In attempting to address the unlicensed
practice issue he discovered that even if the activity was
covered under criminal statutes, the Department of Law
(DOL) investigations would still need to rely on the DCCED
investigators for their expertise. He voiced that
Representative Wilson's inquiry was a broader question that
he contemplated would need to be addressed as a second step
after the changes in HB 90 were implemented. He commented
that if costs were recovered from unlicensed violators he
wanted the revenue deposited into the general fund (GF). He
worried that an "adverse motivation" might arise within the
division to pursue unlicensed practice if the department
knew the money was dedicated to its licensing fund.
Representative Wilson referred to a chart in members packet
titled, "FY 2016 Professional Licensing Statistics" by the
Division of Corporations, Business and Professional
Licensing [copy on file]. She asked how much the bill would
save or increase the guide board licensing fees. Ms.
Koeneman responded that the big game guides currently paid
$316 per licensing period and would save $261 in their
licensing costs under the bill. Representative Wilson
stated that when boards were formed the costs to run them
were accessed and paid by the board. She declared that the
bill was a "big policy change." She understood what the
sponsor intended to accomplish but she felt that the
approach was penalizing the licensees who were not breaking
the law. Ms. Koeneman added that she had reviewed the FY
2016 investigative actions and discovered that 22 percent
was due to unlicensed activity and 88 percent of the
investigations were from licensees doing their job and
having some missteps. Representative Wilson replied that
the licensees should pay as well.
3:45:48 PM
Representative Kito added that spreading out all of the
investigatory costs including for unlicensed activity,
benefitted all boards and the public service. He offered
that the lower costs decreased the "barrier to entry" for
certain professions that had a small number of licensees.
Representative Thompson remembered that previously the
legislature passed laws requiring fees recovered from an
offender would cover the cost of the licensees' fees. Ms.
Chambers answered that if the legislation was passed it did
not pertain to Title 8, which contained licensing statutes.
Vice-Chair Gara was aware that a number of people with
business licenses were not tied to a board. He asked for
confirmation that the costs would not be spread to
individuals that were not regulated by a board. Ms.
Chambers indicated the state had 43 licensing programs but
only 22 operated under boards. However, all professional
licensees were required to pay into the proposed system.
She exemplified that construction contractors had
professional licensure but did not have a board and were
required to pay into the new system. Vice-Chair Gara asked
whether there was an error in the bill. He referred to
section 7 of the bill [page 4, line 8] that addressed an
investigation surcharge added to AS 08.01.065 and cited (a)
(2). He did not see (a) (2) in existing statute but deduced
that it was a reference to the new provision in the bill.
Ms. Koeneman responded in the affirmative.
3:49:38 PM
Representative Kito clarified that the bill included all of
the professions regulated under Title 8 that included those
with a board or exclusively a license. He used the example
of acupuncturists in the scenario of a professional license
without a board.
Representative Ortiz had some of the same concerns as
Representative Wilson. He clarified that unlicensed
activity comprised of 22 percent of investigations. Ms.
Koeneman responded in the affirmative. Representative Ortiz
asked if the position was that the passage of the bill
brought greater good for the law abiding licensees but did
not impact whether the "bad actors had a greater stake or
lesser stake in the issue." Ms. Koeneman agreed with his
statement.
Representative Wilson was concerned that under existing law
a mechanism did not exist to collect investigatory fees
unless a case was a criminal one. She reiterated her
previous concerns and still had a problem with the
legislation. She added that if no one was found guilty the
board still had to pay the investigative costs. Ms.
Koeneman relayed that currently there was a $5000 fine for
licensed activity in AS 08.01.102. However, the fine would
not cover the entire costs and was deposited into the
general fund.
Ms. Chambers interjected that even though a board and the
division was able to charge fines for unlicensed and
licensed violations, the finds did not cover any of the
investigatory expenses because the fees went into GF. She
addressed Representative Kito's remarks regarding
incentivizing the division to enforce unlicensed activity.
She did not think that increased fees for unlicensed
activity deterred negative behavior. She shared that all of
the boards were in favor of the legislation.
3:54:53 PM
Representative Guttenberg suggested that if the issue was
an easy one to fix it would have been dealt with years ago.
He wondered whether DOL assumed the cost of a criminal
licensing investigation. Ms. Koeneman deferred the question
to the division.
ANGELA BIRT, CHIEF INVESTIGATOR - CORPORATIONS, BUSINESSES
AND PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE,
ANCHORAGE (via teleconference), answered that a small
portion of the caseloads became criminal and were
prosecuted through the Office of Special Prosecutions and
Appeals without charges to the division. She furthered that
civil prosecutions through DOL and any Administrative
Hearings costs were part of the board's investigative
costs. Representative Guttenberg clarified his question by
restating it. Ms. Birt responded that typically a criminal
case began with DOL and the board was not charged for the
criminal component. She explained that at the conclusion of
the criminal case statute allowed board punishments. She
exemplified that the Big Game Commercial Services Board
could fine up to two times the criminal conviction. She
stated that she was less familiar of the route
Representative Guttenberg had described.
3:58:26 PM
Co-Chair Foster MOVED to ADOPT Amendment 1:
Page 1, line 11, following "chapter"
Insert "; the regulations may provide for a
reduction in the amount of the surcharge imposed
under this paragraph for a licensee who is required by
law to hold and maintain one license in order to
qualify for and maintain another license"
Representative Wilson OBJECTED for discussion.
Ms. Koeneman explained the amendment. She stated that
Amendment 1 allowed for the department to reduce a
surcharge imposed under the bill if a licensee was required
to hold and maintain another license in order to qualify
for a license. She exemplified that in order for a nurse to
hold an Advanced Practice Registered Nurse License it was
necessary to maintain a Registered Nurse license. She
reported that the situation affected 960 licensees out of
11 thousand registered nurses.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, it was so ordered.
4:00:21 PM
Vice-Chair Gara relayed that there was one fiscal impact
note in the amount of $3.4 thousand from DCCED FN 1 (CED)
for the implementation of regulations, postage, and
printing.
Co-Chair Seaton MOVED to report CSHB 90 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
Representative Wilson OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Guttenberg, Kawasaki, Ortiz, Thompson,
Seaton, Foster
OPPOSED: Tilton, Wilson, Grenn, Pruitt
The MOTION PASSED (7/4).
CSHB 90 (FIN) was REPORTED OUT of Committee with a "do
pass" recommendation and with a previously published fiscal
impact note: FN1 (CED).
4:04:36 PM
AT EASE
4:06:47 PM
RECONVENED
Co-Chair Foster reviewed the agenda for the following day.
He recessed the meeting to a call of the chair [Note: the
meeting never reconvened].
ADJOURNMENT
4:07:27 PM
The meeting was adjourned at 4:07 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| REAL ID Act - Transmittal Letter - Rep. Edgmon.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 74 |
| CS HB 74 (STA) Sectional Analysis.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 74 |
| SB97 Sponsor Statement 04.08.2017.pdf |
HFIN 4/19/2017 1:30:00 PM |
SB 97 |
| SB97 Sectional Analysis ver D 04.08.2017.pdf |
HFIN 4/19/2017 1:30:00 PM |
SB 97 |
| HB150 Additional Document - 2017 Military Pay Chart 3.14.17.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 150 |
| HB150 Additional Document-Sockeye Fire Spreadsheet from DMVA 3.14.17.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 150 |
| HB150 Sponsor Statement 3.14.17.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 150 |
| HB150 Supporting Document-Letter DMVA 3.14.17.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 150 |
| HB 74 HFIN DPS Regarding REAL ID -signed.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 74 |
| CSHB 74 House Finance REAL ID Presentation 4.19 FINAL v2.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 74 |
| HB 90 - Amendment #1.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 90 |
| HB 90 Testimony Letter.pdf |
HFIN 4/19/2017 1:30:00 PM |
HB 90 |