Legislature(2021 - 2022)ADAMS 519
05/05/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB70 | |
| HB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 70 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 55 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
May 5, 2021
1:33 p.m.
1:33:31 PM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
Representative Sara Rasmussen
ALSO PRESENT
Rob Carpenter, Deputy Commissioner, Department of
Transportation and Public Facilities; Dom Pannone,
Administrative Services Director, Department of
Transportation and Public Facilities, Office of Management
and Budget, Office of the Governor.
PRESENT VIA TELECONFERENCE
James Marks, Program Development, Department of
Transportation and Public Facilities; John Binder, Deputy
Commissioner, Department of Transportation and Public
Facilities; David Kershner, Principal and Consulting
Actuary, Buck Global.
SUMMARY
HB 55 PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
HB 55 was HEARD and HELD in committee for further
consideration.
HB 70 APPROP: CAP; REAPPROP; SUPP; AMEND
HB 70 was HEARD and HELD in committee for further
consideration.
Co-Chair Merrick reviewed the meeting agenda.
HOUSE BILL NO. 70
"An Act making appropriations, including capital
appropriations, reappropriations, and other
appropriations; making supplemental appropriations;
making appropriations to capitalize funds; and
providing for an effective date."
1:34:11 PM
ROB CARPENTER, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES, introduced a
PowerPoint presentation titled "Alaska Department of
Transportation and Public Facilities: House Finance
Committee Capital Program and FY2022 Request Overview,"
dated May 5, 2021 (copy on file). He addressed a brief
presentation outline on slide 2.
Mr. Carpenter moved to slide 3 and reviewed the Department
of Transportation and Public Facilities (DOT) capital
budget funding summary. He highlighted that there was a
total capital request of $1.12 billion, with approximately
$950 million of federal receipts, $19 million in
Unrestricted General Funds (UGF), $1 million in Designated
General Funds (DGF), and other state funds totaling $144.7
million. He pointed out the funding sources listed to the
left including sources that comprised 'other' funds
including highway working capital funds that funded the
state equipment fleet, international airport funds,
statutory designed program receipts, Alaska Housing Finance
Corporation (AHFC) bonds, and a small portion of UGF.
1:37:05 PM
DOM PANNONE, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF TRANSPORTATION AND PUBLIC FACILITIES, OFFICE OF
MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, addressed
state capital appropriations on slide 4. He reviewed
programmatic and recurring requests on the left of the
slide. Items included mental health coordinated
transportation and vehicles, the Alaska Marine Highway
System (AMHS) vessel overhaul, the state equipment fleet,
federal-aid highway match credits, and federal program
match. He elaborated on each of the items. He noted that
the AMHS overhaul was a capital investment to keep the
ships running and improve short-side infrastructure. He
discussed the department's use of the highway equipment
working capital fund, through which it paid a rate on
depreciating assets and received credits. He discussed the
federal highway match credits, through which the department
used the authority to request match credits for earnings
from a capital project for items such as selling a right-
of-way. He would address the federal program match on slide
5. He moved to the right of slide 4 and reviewed single,
one-time items including a computerized maintenance
management system and weigh station scale repairs. He noted
that there was a significant list of needs to extend the
life of several weigh stations.
1:40:43 PM
Vice-Chair Ortiz looked at the programmatic/recurring
annual requests on slide 4. He asked if the figures were
constant or changed annually.
Mr. Pannone answered that the figures varied occasionally.
He used the example of the current year's request of $15
million, with prior year's requests of $18.5 million and
$14.9 million. He continued that the state equipment fleet
had been steady, with the current year's appropriation at
$15 million, and an increase of $7 million proposed for FY
22 as the replacement list had grown. He stated that the
amount varied but hovered around the amounts listed.
Representative LeBon looked at the weigh station scale
repairs item on slide 4. He asked about the relationship
between weigh station repairs and federal highway dollars.
Mr. Pannone replied that there were requirements for the
state to ensure the integrity of its assets, which was the
reason that measurement standards and commercial vehicle
compliance was housed in DOT. He continued that there was a
specific set of funding that could be in jeopardy if the
state wasn't protecting its assets from overweight vehicles
or certifying that the roads were used without damage.
Representative LeBon pointed out that the purpose of the
weigh stations was not to harass truckers but to maintain
and protect roads to qualify for federal highway dollars.
1:43:53 PM
Representative Thompson believed there were portable,
temporary weigh scales around the state to put in areas
temporarily. He asked if the portable scales were included
in the funding request.
Mr. Pannone answered that the scales were permanent and not
temporary. The fixed weigh station scales were in seven
locations.
Co-Chair Merrick asked for some examples of what might
qualify for the Mental Health Coordinated Transportation
Vehicles Grant.
Mr. Pannone replied thought there was a community
transportation transit agency in Juneau and knew there was
one in Anchorage. He deferred the question to a colleague.
JAMES MARKS, PROGRAM DEVELOPMENT, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES (via teleconference),
agreed with the remarks by Mr. Pannone. He explained that
the Alaska Mental Health Trust Authority (AMHTA) was part
of the rural transit agency for granting out for people
with disabilities across the state. He would need to follow
up with a more comprehensive list.
1:45:46 PM
Mr. Carpenter addressed federal programs and state match on
slide 5. He mentioned the Federal Highway Administration
(FHWA) funding, which funded road construction,
reconstruction, design and engineering. There was a 10
percent state match for a total of $71.2 million for
surface transportation program. The Airport Capital
Improvement Program (ACIP) had $269 million in federal
receipts with a 6.25 percent match of approximately $14.7
million. The funding was guided by the Airport Capital
Improvement Plan. He mentioned that the state was federally
required to provide a document called the Statewide
Transportation Improvement Program (STIP), which showed
planning for all the state's federal highway construction.
Mr. Marks provided a primer on the STIP on slide 6. The
STIP was a four-year plan required by federal regulations
that listed out all the federally funded and regionally
significant surface transportation projects within the
state. The STIP had to be fiscally constrained and was
required to be developed with a public process. The STIP
was approved by FHWA or the Federal Transit Administration
(FTA). He explained that a failure to comply with federal
regulations and requirements would jeopardize federal
funding for transportation infrastructure in Alaska.
1:48:58 PM
Mr. Marks advanced to slide 7 and reviewed a handful of
illustrations showing the STIP process. He read from
prepared remarks. He highlighted a box entitled 'Needs'
Sources' that showed how project needs were identified and
where the needs came from, including sources such as
performance data, condition data, local needs, and military
and defense needs. He spoke to the yellow box entitled
'Needs Evaluation and Management," which showed a process
flow chart. The department utilized a needs database that
was routinely evaluated and was intended to be a
comprehensive list notwithstanding funding availability.
Mr. Marks continued to speak to slide 7. The red box showed
a flow chart depicting the process of the call for
projects, which was fed by the needs list and happened
periodically every one to two years. When the need for more
projects was identified, project scoring and public comment
was engaged. He discussed the public comment process. He
discussed the project selection process by which other
regional entities and partners were solicited for input.
Project packages were formed and evaluated. He cited that
the Project Evaluation Board (PEB) scored, ranked, and
prioritized projects. The PEB process was a public meeting
open to participation from the public, and the department
hoped to host future events virtually. The PEB process
submitted scoring to the commissioner's office. He noted
that the icon depicting little yellow people indicated
times at which the department actively engaged with the
public for input on the STIP.
Mr. Marks addressed the STIP Cycle illustrated by the flow
chart in the blue box. The STIP cycle was a four-year
program that was updated every two years. He discussed the
activities of the department including establishing
parameters, soliciting regional input, and balanced the
projects' fiscal considerations before putting the STIP out
for public notice. The process was federally required,
highly public, and usually took about 45 days. Public
notice comments were directed to those close to the
project. After public notice, the department engaged in
getting the approval of the FHWA and the FTA, after which
the department would publish its fully approved and
executed STIP.
1:54:40 PM
Mr. Marks continued reading from a prepared statement
related to the STIP process. He reminded that the blue box
showed a single STIP cycle that typically took 2 years. He
noted that sometimes updates were needed due to
contingencies. He discussed changes to the STIP in two
categories: minor changes that could be an administrative
modification, and larger changes including adding,
deleting, or changing the scope of work required a STIP
amendment that required the full STIP process including
federal approval. Developing a STIP could take up to two
years and amending a STIP could take up to 220 days.
Co-Chair Merrick noted that Representative Carpenter had
joined the meeting.
Vice-Chair Ortiz looked at needs' sources on the upper left
of the slide and asked for a brief description of condition
and performance data.
Mr. Marks replied explained that the department monitored
and measured all its condition and performance of
facilities and assets, which was required federally. Some
of the performance measures could include monitoring
vehicle miles travelled or data on average daily traffic.
Condition data could include an actual condition of an
asset such as rutting or cracking. The data were published
on the federal score card not only the asset, but any
correlated assets.
1:57:38 PM
Vice-Chair Ortiz looked at the STIP cycle on slide 7 and
observed that it required commissioner approval. He asked
if the commissioner could modify the STIP as much as
desired after the entire process.
Mr. Marks replied in the negative. He clarified that in
practice the commissioner would approve what had already
been approved and public noticed. Any changes after federal
approval would require going back to the public.
Vice-Chair Ortiz asked what the arrow showing
administrative modification meant (shown to the left of the
commissioner's approval box under the STIP cycle).
Mr. Marks answered that administrative modifications were
changes that small in nature, such as a shifting a project
schedule or a change order. Additions or changes to
projects or phases would have to go through an amendment
and the full public involvement process.
Vice-Chair Ortiz asked if it was common for a project to
stay on the STIP for longer than four years. He asked if it
was not uncommon for projects to remain on the STIP for six
to eight years.
Mr. Marks answered in the affirmative. He explained that
project delivery ranged from three to seven (or more)
years. The longer view items remained on the STIP.
2:00:44 PM
Representative LeBon referenced an intersection in
Fairbanks that connected his district with Representative
Thompson's district. He believed there needed an overpass
for safety and efficiency reasons. He asked if safety and
efficiency factored into the department's decisions. He
thought the intersection being proposed was unique and
cheaper than other designs. He thought traffic was
increasing in the area.
Mr. Carpenter asked Mr. Marks to talk about how projects
were scored.
Mr. Marks asked for clarification.
Representative LeBon was not sure whether his question
about a specific project was fair. He was concerned about
an intersection in Fairbanks and thought an overpass would
be prudent for safety.
Mr. Marks responded that there were a number of criteria
including safety, project cost, economic benefit as well as
other factors. He did not know how the particular project
was scored and he could follow up with information.
Representative LeBon referenced the needs sources and asked
about military and defense needs. He noted that the
intersection he mentioned was at the entrance to Fort
Wainwright, and reiterated his expectation of increased
traffic in the area.
Co-Chair Merrick asked if it would be fair to say that
legislators had no say in which projects were on the STIP
and the order in which the projects were listed.
Mr. Marks did not believe it was necessarily true to say
legislators had no say in which projects were on the STIP.
He explained that it was a public process, and the
department was engaged with all parties including the
legislature. He noted that there were staff dedicated to
working with the legislature, and the department actively
solicited input. He shared that he and Mr. Carpenter had
discussed ways to improve the collaboration.
2:05:49 PM
Mr. Carpenter emphasized the public portion of the process.
He referenced the layout showing a group of people on slide
7 reflecting public participation and solicitation of
comments.
Co-Chair Merrick was trying to illustrate that legislators
did not create the list and there was a public process.
Representative Wool assumed that not every DOT project was
on the STIP.
Mr. Carpenter clarified that virtually all of the DOT
projects were included on the STIP. He noted that almost
all of the department's capital program ran through the
federal program. He cited that every phase of projects from
design to construction ran through the STIP.
Mr. Pannone elaborated that some small projects could be
paid for out of DOT's maintenance and operating budget. He
reiterated that federal dollars, which was almost all of
the department's surface transportation program, came from
the STIP.
Mr. Marks added that there were a number of projects and
programs in the STIP. He used the example of the statewide
regional maintenance project was comprised of a whole host
of smaller projects during the year.
2:08:54 PM
Representative Wool referenced public input in the STIP
process. He acknowledged that the department took public
input into account. He referenced a roundabout project that
had been done near Chena Hot Springs that had received
public opposition but had been constructed anyway. He noted
that a previous legislator had de-funded the item in the
budget. He thought the only supporters were from DOT. He
wondered how effective public input was when there was a
divergence of opinion.
Mr. Carpenter appreciated Representative Wool's points. He
noted that decisions often came down to safety, which could
outweigh public input. He cited that the department
encouraged public input and often changed or amended
routes. He offered to provide more detail on the
roundabouts.
Representative Wool asked for detail on socioeconomic needs
included in the STIP needs' sources box on slide 7.
Mr. Marks answered that the items were identified
internally or through collaboration with local official
partners which identified projects of economic importance
or things that might boost the economy such as improving
congestion in particular freight corridors.
Representative Wool recalled a proposition for a road
improvement in Fairbanks which had caused a great deal of
uproar, and he believed the department had listened to the
public input.
Co-Chair Merrick considered ongoing programs in the STIP.
She asked if the Glenn Highway fell into the category.
Mr. Marks answered in the negative. He explained that the
Glenn Highway and other large highways would be distinct
projects in the STIP in which work was done on one chunk at
a time.
2:14:13 PM
Mr. Marks moved to slide 8 titled "STIP: Federal Limitation
Over Time." He reviewed the slide with prepared remarks. He
noted that federal funding was either portioned via a
formula or allocated to the department. He continued that
FHWA placed a limitation on programming. He noted that the
department was currently in federal FY 21, so the numbers
could change before the year was complete. He pointed out
that the projections for FY 21 appeared larger, chiefly due
to the off-funding signified by the grey bars on the chart,
and represented preparation of Coronavirus Response and
Relief Supplemental Appropriations Act (CRRSAA) funding
that could be available for the capital program.
Mr. Marks turned to slide 9 titled "STIP: Federal
Obligations by Year." He explained that an obligation
occurred when the department executed a federal aid
agreement with the FHWA for a specific phase of a project
in the STIP. He pointed out the bars representing different
regions and noted that the bar graph did not evenly line up
with the graph on the previous slide, because of two
factors - the lifespan of funds, and project delivery life
cycle. The life cycle could take from three to seven years
to design and construct the project. He pointed out the FY
13 through FY 15 showed higher amounts due to projects
developed under American Recovery and Reinvestment Act
(ARRA) coming into the construction phase of work.
Mr. Marks pointed out that AMHS was represented by the
yellow bar and the distribution might appear
disproportionately low, due to confounders in the data. He
discussed account variation that allowed for flexibility in
funds management. He cited accounting conversions in
certain years, as well as a significant overlap in regional
efforts that could also confound the data. He cited $90
million in funding obligated the previous year for the
Ketchikan Gateway Borough under the south coast region. He
noted that a large portion of total AMHS funding was found
in the operating budget and what was seen on the graph was
only federal capital obligations. Obligations were
currently underway for the year, and the graph broke out
CRRSAA funds.
2:18:15 PM
Representative LeBon looked at the colored bars showing two
shades of blue for northern areas and statewide areas. He
wondered if DOT viewed the Dalton Highway as a statewide
highway or a northern region highway.
Mr. Marks replied that the Dalton Highway fell under
northern region projects.
Representative LeBon suggested that the Dalton Highway
benefitted the entire state, and the northern region should
not be solely responsible for funding the project.
Mr. Carpenter agreed with the comment related to the
statewide significance of the Dalton Highway. He thought
that the Legislative Finance Division considered the impact
of projects versus its geographic classifications. He noted
the statewide bar covered programs in the STIP that were
truly statewide geographical programs.
Representative Wool believed in the geographic distribution
of assets. He mentioned the Port of Anchorage, which many
people called the Port of Alaska because of the large
distribution of goods.
2:21:00 PM
JOHN BINDER, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES (via teleconference),
turned to slide 10 titled "Airport Project Evaluation Board
(APEB)." He discussed the ACIP, which mirrored the STIP in
many ways. He explained that there were differences in how
the Federal Aviation Administration (FAA) handled things
compared to the FHWA. The FAA did not require public
approval or public notice of the spending plan but engaged
with the public during project development. Needs were
developed in close involvement with stakeholders, then
evaluated by APEB. He mentioned the Statewide Division of
Aviation, and the ACIP, which scored projects based on
specific criteria. The criteria were related closely with
the FAA's nationally required criteria. There were needs
varying from the FAA standard in different states. The
projects were prioritized on a statewide basis, and then
fit into the FAA's national priority ranking. The ACIP
development was a five-year rolling plan that included
scored projects from the APEB. The department tried to hold
projects harmless once within two years of project
construction. The department was able to insert projects in
the event of an emergency or natural disaster.
2:24:53 PM
Mr. Binder addressed slide 11 titled "Airport Improvement
Program (AIP) for DOT & PF Airports in FFY 2020." He
pondered the question of how funds got to Alaska and
informed that Alaska was its own FAA region, which
benefitted the state tremendously. The funding amounts were
formula-driven with consideration of several factors
including numbers of passengers and cargo. There were
approximately 25 airports in Alaska that were designated as
"primary" based on the number of passengers. The state
apportionment was based on the size of land mass and the
population. Due to the lack of infrastructure in Alaska,
Congress established the Alaska supplemental, which was a
special additional federal appropriation for projects
selected by the FAA. After nationwide allocation, the FAA
had a remaining pot of discretionary funds for projects
ranked in priority. In addition, funds unused by other
states that were not able to use their entitlement were
rolled into the discretionary fund.
Representative Edgmon shared that his district experienced
high airport traffic volumes in the summer. He asked how
the department estimated airport traffic.
Mr. Binder answered that the FAA based the funds on
reported passengers from the prior year. Some airlines were
good about reporting the figures to the FAA, while others
were not. The numbers were rolled into the formulas for the
following year.
Representative Edgmon referenced RAVN Air and thought the
FAA should have good numbers. He stated that a small place
like Bristol Bay could get upwards of $100,000 people per
year. He thought it would be interesting to get a better
sense of the airport reports. He mentioned airport and
cargo volume in Bethel and Nome. He asked if it was
possible to get the information.
2:29:32 PM
Mr. Binder answered that the department could pull up the
reported data from previous years. The department would
work with the air carriers for passenger estimates for the
present and future.
Representative Edgmon asked if the information went to the
Department of Labor and Workforce Development for
statistical purposes, or if the information only went to
DOT.
Mr. Binder replied that the number was reported to the
United States Department of Transportation's T100 data,
which tracked passenger and cargo volumes at airports
nationwide.
Co-Chair Merrick looked at cargo entitlements at the top of
slide 11. She asked about the landed weight for the
Anchorage International Airport.
Mr. Binder would follow up with the information.
Co-Chair Merrick was curious about the number because she
believed the Anchorage airport was one of the top cargo
airports in the world.
Mr. Binder moved to slide 12 and addressed the Alaska
International Airport System (AIAS) capital funding based
on FY 20. He noted that AIAS was an enterprise fund system,
were self-sustaining (per statute), and did not use any
state dollars. He continued that AIAS generated about $40
million in ACIP funding each year. He pointed out that the
amount was a little low in FY 20 due to no large projects
at the time. He reiterated that the funds could be rolled
over to future years. He pointed out the close to $40
million in anticipated funds for FY 21, which were broken
down into amounts for discretionary funds and entitlements.
He noted that the FAA authorization bill, typically passed
on a three-year or five-year basis, covered most of the
ACIP, but Congress would typically insert aviation funds
into other bills, which was called supplemental funding.
2:33:08 PM
Representative LeBon asked about the formula for dividing
money between the Fairbanks International Airport and the
Anchorage International Airport. He considered the FY 20
amounts and acknowledged that Anchorage had greater numbers
and more activity, but observed that in FY 21 the spread
between the airports was huge. He asked if Fairbanks had
been overlooked. He did not think it made sense. He did not
see any supplemental funds for the Fairbanks airport.
Mr. Binder clarified that the funds went to the owner and
operator of the airports, and both Anchorage and Fairbanks
international airports were owned by an international
airport system. The funds went as a whole to the system, to
be allocated each year based on capital needs. He noted
that Fairbanks had a large runway rehabilitation project
that had recently started, which was reflected by the
larger chunk from FY 20. The capital needs on both airports
were funded in large part by ACIP dollars, and the rest was
funded by the carriers operating in each airport.
Mr. Binder advanced to slide 13 and reviewed the rural
system capital funding FFY 2016 through FFY 2020. He
commented that FY 20 funds were significantly higher as
unused international funds had rolled over to the rural
system. In addition, there were approximately 7 local
airports in the state that also had a very low capital
year. Typically, rural airports had a 6.25 percent match
for federal dollars. Due to Coronavirus Aid, Relief, and
Economic Security (CARES) Act and American Rescue Plan Act
(ARPA) funding for FY 20, there was no required state match
for federal funds.
Co-Chair Merrick asked if Mr. Binder had defined what a
rural airport was.
Mr. Binder answered that he had not, and stated the term
was used freely. He explained that DOT considered the
Anchorage and Fairbanks were part of the international
system, and the rural airports were everything else. The
international system was the owner of the two airports, and
DOT owned the rest.
Representative Wool asked if the other municipally owned
airports such as Palmer, Wasilla, and Juneau were in a
category or if the airports were in their own group.
Mr. Binder answered that most locally sponsored airports
compared to rural airports, except Juneau which was close
to the size of the Fairbanks airport. He explained that for
specific capital projects, the municipally owned airports
worked directly with the FAA. He noted that DOT included
the airports in its planning.
2:38:23 PM
Mr. Binder moved to slide 14, "Major Rural System AIP
Construction Projects Expected to be Funded in FFY 2021 &
2022," which gave an example of some of the project
construction for the current and following year. He noted
that typically FAA dollars were not freed up until late
spring or summer which meant most projects went to
construction the year following the grant. The FAA broke
down projects into four main categories: safety, payment
rehab, rural access, and buildings. He offered to follow up
after the meeting with greater detail.
Vice-Chair Ortiz asked where the Ketchikan airport fell
into the category in relationship to other airports. He
thought the airport was managed by the borough but owned by
the state.
Mr. Binder answered that the Ketchikan airport was
considered one of the rural airports and was owned by the
state with an operating agreement in place with the
borough. All the revenue generated covered the cost of
operations, which usually ended up a little short. A small
part of the south coast region's budget was allocated to
Ketchikan. He thought that since the FAA broke out the
CRRSA and ARPA funds specific to airports, Ketchikan was
receiving the full allocation of federal funding through
DOT.
2:41:18 PM
Mr. Carpenter addressed federal program project allocations
on slide 15. He noted that the two largest projects were
appropriation with no allocations for the surface
transportation program and the ACIP covering all the FAA
funding. Prior to FY 18, the two major federal programs
were broken out into individual project allocations in the
capital budget. He addressed the pros and cons of the
method. The pros included that the method had provided the
legislature with additional clarity and allowed for the
Legislative Finance Division House district reporting to
give an understanding of the geographic balance and
significance of statewide projects. The cons included the
challenge to manage the individual allocations because of
project cost increases and slippage.
Representative Wool surmised that prior to FY 18 every
project would be listed in an appropriations bill. He saw
how the practice could be very political and asked if that
had been a challenge for the department.
Mr. Carpenter emphasized that the STIP process guided where
the funding went, so for the purpose of the legislature,
the individual project allocations were simply a guide as
to where the funds went. Other than the public process,
there was not really an opportunity to change items.
Representative Wool was not sure the process was a bad
thing.
Mr. Carpenter addressed slide 16 titled "Potential
Solution":
Working with the other body to address the two primary
challenges of:
?Project Cost Increases
?Project Slippage
Solution -Create Additional Allocations:
?Project Contingency
?Project Acceleration
Mr. Carpenter read slide 17, "New Allocations":
Project Contingency Allocation:
?Provides a federal authority "pot" when projects
incur cost over-runs.
Project Acceleration Allocation:
?Provides a federal authority "pot" for when
projects are delayed
?Allows for the advancement of a project in
the STIP that is ready that may not be
listed in the appropriation bill
HB 70 was HEARD and HELD in committee for further
consideration.
2:46:27 PM
AT EASE
2:57:03 PM
RECONVENED
HOUSE BILL NO. 55
"An Act relating to participation of certain peace
officers and firefighters in the defined benefit and
defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility
of peace officers and firefighters for medical,
disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska;
and providing for an effective date."
2:57:48 PM
AT EASE
2:58:12 PM
RECONVENED
DAVID KERSHNER, PRINCIPAL AND CONSULTING ACTUARY, BUCK
GLOBAL (via teleconference), shared that the firm was the
actuary for the Department of Administration Division of
Retirement and Benefits. He continued that Buck Global had
completed a cost-benefit analysis for the bill. He asked if
he should summarize the key elements of the bill and the
costs.
Co-Chair Merrick agreed.
Mr. Kershner explained that the bill would allow active
members of the Peace Officers and Firefighters an
opportunity to transfer to the Public Employees' Retirement
System (PERS) Defined Benefit (DB) Plan which currently
only covered employees hired prior to July 2006. The
Defined Contribution (DC) Plan covered those hired after
2006. The bill proposed that all future hires would enter
the DB plan. There was a separate schedule of benefit
provisions that would apply to the members covered by the
bill, as well as cost-sharing provisions. He relayed that
the Alaska Retirement Management (ARM) Board oversaw the
funding of the PERS system, and per statute all employers
contributed a fixed 22 percent of pay to the PERS system. A
portion went to the DC plan and the remainder of the 22
percent went to the DB plan. The cost sharing would not
change, but under the bill a new separate trust would be
established in the PERS system that would cover the
benefits provide for the members affected by HB 55. All the
assets contributed to the trust would be separately tracked
and dedicated for the members.
Mr. Kershner continued to describe the provisions of the
bill. He explained that currently PERS employer
contribution rate was fixed at 22 percent, and the
actuarial contribution was based on ARM board policy. The
excess of the contribution rate was the additional state
contribution rate. He cited that currently the members
covered under HB 55 had just under 10 percent of pay
contributed to the DC plan, and the remainder contributed
to the DB plan. Under HB 55, there would be 12 percent
going to the trust as well as the HRA accounts currently
set up, which left 12 percent to go towards the DB plan.
The portion of the employee contribution going toward the
DB benefit plan for members would decrease from 12.2
percent to 10 percent of pay. The difference would have to
be made up per ARM Board policy and was made up by
additional state contributions. The fiscal note included
the estimated increase for five years starting of about
$5.3 million in FY 23 and $28.4 million for the five years
after.
3:04:57 PM
Representative Thompson asked what the figure would be with
correctional officers included.
Mr. Kershner replied that he was not certain the
corrections officers were included in the group of peace
officers and firefighters in the bill.
Representative Josephson clarified that corrections
officers were covered as part of the group.
Mr. Kershner was happy to provide further details or answer
questions.
Representative Josephson asked if the plan would be solvent
if Alaska had just become a state and the only DB plan was
for peace officers and firefighters.
Mr. Kershner answered in the affirmative. If the plan had
just started there would be no assets or liabilities, and
under the funding policy each year a percentage of pay
would be contributed that was equivalent to the cost of
benefits accruing under the plan. As long as the actuarial
calculations projected dozens of years into the future, and
if there were related to life expectation, length of
employment, and salary amounts. He acknowledged that in any
given year the assumptions would not be correct, but they
should be reasonably close to actual experience in the
long-term. He noted that every year there were deviations
from the assumptions, and if assets did not earn as much as
expected there were created losses to the plan and the
losses had to be funded over a period of time.
Mr. Kershner continued that if the plan started in the
present, and all of the experience matched assumptions for
the future, accrued benefits would be funded and the state
would never have any of the losses. The state would only be
funding the benefits accruing annually in the 8 to 9
percent range. He noted that the PERS DB plan was
significantly underfunded at present and the cost for the
DB plan was a makeup for the current costs in addition to
unfunded liabilities accumulated over time. He affirmed
that if the plan were to start today, the cost sharing and
contribution rates proposed in SB 55 would be enough to
cover the cost of the benefits if all future experience
matched the assumptions.
3:10:08 PM
Representative Josephson reiterated that if the plan was
starting fresh it would be solvent at inception and without
a negative history. He referenced HB 79 from the previous
legislature, which was related to the same topic and
"virtually identical." He recalled that Mr. Kershner had
determined that HB 79 was anticipated to be somewhere above
99 percent anticipated solvent.
Mr. Kershner answered that the HB 55 trust that would cover
the liabilities for the members as well as the assets being
transferred in, was expected to remain solvent for many
years. He addressed the $5.3 million cost increase for FY
23 that was due to the portion of the 22 percent employer
contribution currently going into the DB plan, and noted
that more would go to the new trust. The increase was not
because the HB 55 trust was not solvent or expected to
remain solvent, rather there was a shifting of the 22
percent between the various trusts was giving rise to cost
increases.
3:12:45 PM
Representative LeBon referenced HB 79 from the previous
legislature, which was related to the same topic. He
recalled that the fiscal note had totaled $18 million
through the five years ending 2027, and he thought the note
had jumped up to $28 million for the same period. He asked
about the unfunded liability for the PERS program, and
referenced an amendment proposed to transfer about $1
billion from the Permanent Fund to PERS to close the
unfunded liability. He asked what impact the action would
have had in the discussion about a DB program as proposed
by HB 55.
Mr. Kershner replied that if $1 billion were transferred
into the DB plan, the cost impact of HB 55 would likely be
similar to what Buck had determined for the bill because
the current additional state contribution would go down.
The plan would start from a lower funding point, and the
provision of HB 55 would enact the same cost increases
through a shifting of contributions. Under HB 55, the state
would contribute about $5.2 million less into the DB plan,
and the cost would be independent of the $1 billion. He
contemplated the scenario of putting $3 billion or $4
billion into the PERS system, which would likely wipe out
the initial state contribution entirely with no increase.
He acknowledged that a $1 billion contribution would help
the funding of the DB plan, but it would not eliminate
underfunding, and there would still be an additional state
contribution of a lower amount.
Mr. Kershner mentioned the analysis of HB 79 and noted that
the most recent analysis was in February 2020. The process
had started about a year earlier and was based on 2018 data
because it had been the most recent available data at the
time. The HB 55 analysis was based on 2020 data, and in the
two years the payroll for peace officers and firefighters
had increased about 11 percent in total for a larger pay
base resulting in larger dollar amounts than under HB 79.
3:17:09 PM
Representative LeBon stated that one of his motivations in
the discussion was two-fold. He believed that establishing
a new DB program meant the state needed to consider that
the current DB plan was still underfunded. He believed it
needed to be fixed. He stated that it would take 18 years
to close the current liability. He added that he may have
included Teachers' Retirement System (TRS) in the estimate.
He asked about fixing the liability and making room in the
budget for a new DB plan.
Co-Chair Merrick noted that Mr. Kershner had referenced an
11 percent increase in payroll. She asked if it was because
the state had hired more officers or increased pay for
existing officers.
Mr. Kershner answered that the increase was a combination
of both factors. There were more active members than in
2018, and the recent pay increases had been more than
expected.
3:19:41 PM
Representative Wool referenced Representative Josephson's
question about whether the plan from SB 55 would be solvent
if it was isolated on its own. He thought Mr. Kershner had
given the plan a high score.
Mr. Kershner answered affirmatively.
Representative Wool thought because the state already had
an underfunded DB system, it was not possible to keep the
two plans separate entities. He asked if it was possible to
pay down the old system while maintaining the new system
proposed in the bill.
Mr. Kershner replied that based on the way the bill was
designed, the HB 55 members would be employees under the
PERS system and PERS employers contributed 22 percent of
pay, which was allocated to different trusts depending upon
the specific yearly calculations. He continued that if the
HB 55 plan was established separately from PERS, it could
turn out to be more or less expensive. He explained that
under HB 55, part of the 10 percent of the payroll for
peace officers and firefighters would being deposited into
the underfunded DB plan. Currently about 12.2 percent of
pay was deposited into the plan. The decrease from 12.2
percent to 10 percent was equivalent to about $5.2 million,
which was reflected in the increase in the fiscal note for
FY 23. The amounts would be a shifting of contributions
away from the unfunded liability in the DB plan, and the
amount would be made up through the additional state
contribution.
3:23:05 PM
Representative Wool asked about the conversations on
solvency and the efficacy of the plans. He recalled that if
the market returns dropped, there was a trigger and
employees would have to contribute more. He considered the
increased retention the groups would likely experience,
which was one of the purposes of the bill. He asked if it
was included in the analysis.
Mr. Kershner answered that there were two triggers within
HB 55 that meant if the HB 55 trust were to fall below a 90
percent funding level, the post-retirement pension
adjustment could be limited, or the current 8 percent
member contribution could be increased to ten percent. The
two provisions had not come into play because the HB 55
trust was not anticipated to fall below 90 percent funded;
however, if it did fall below, the two items could be
triggered. He asked for a repeat of the rest of the
question.
Representative Wool asked if increased retention of members
was included in the calculations.
Mr. Kershner answered in the affirmative. The current
active members were projected through retirement, all
current retired members through the retired years based on
life expectancy, and a certain percentage of the members
were expected to terminate employment every year. The
assumptions depended on age, service, gender, and other
factors. The withdrawal assumption rates were higher than
the corresponding rates in the DB plan due to the general
tendency to have more workforce mobility for those covered
by a DC plan compared to a DB plan. The lower turnover
assumptions were used for members expected to transfer into
the DB plan.
3:27:00 PM
Representative LeBon looked at the fiscal note (OMB
Component Number 2866) showing $5.3 million in FY 23 with
upward growth to $5.6 million, and $6.1 million in the
subsequent years. He was not surprised there was upward
growth in funding. He noted it dropped to $5.7 million in
FY 26 and FY 27 and thought the funding impact to the
proposed program had many unknowns. He felt there was a
sense of urgency to deal with the unfunded liability prior
to opening another DB program.
Representative Josephson was concerned about the
possibility of waiting another 20 years. He looked at the
amortization period out to pay off the unfunded liability
went out to 2041. He asked if the estimate was correct.
Mr. Kershner answered in the affirmative.
Representative Josephson shared that he was currently 56
years old and would be 77 when the unfunded liability was
retired. He thought the implication of adding the fiscal
note would result in an additional 6 months of payment.
3:29:34 PM
Mr. Kershner responded that all projections were based on
current funding status and expectations about the future,
which included assets growing about 7.4 percent per year.
He noted that in the current fiscal year assets had
returned much greater than 7.4 percent, but the previous
two or three years had been unfavorable to the plan. He
cautioned that projections could change significantly
depending upon the experience to the plan on the asset and
liability sides. There could be gains or losses on both the
returns and liabilities. He discussed the retirement
expectation and explained that if people retired earlier
than expected it would create a loss to the plan.
Similarly, if the plan population had greater or lesser
life expectancy than the standard calculation it could
cause a gain or loss to the plan.
Representative Josephson clarified that he was asking if
the bill did not add substantially to the 20-year journey
of paying down the unfunded liability.
Mr. Kershner answered that based on the current
calculations it was correct.
Representative LeBon surmised that it could become a very
short journey if the underfunded liability in the existing
plan was paid and thought it would help justify a new plan.
HB 55 was HEARD and HELD in committee for further
consideration.
Co-Chair Merrick reviewed the schedule for the following
morning.
ADJOURNMENT
3:33:18 PM
The meeting was adjourned at 3:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 70 HFIN DOT CAPITAL - 05.05.2021.pdf |
HFIN 5/5/2021 1:30:00 PM |
HB 70 |
| HB 55 Amendments 1-2 041121.pdf |
HFIN 5/5/2021 1:30:00 PM |
HB 55 |