Legislature(2005 - 2006)SENATE FINANCE 532

03/17/2005 09:00 AM FINANCE

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Agency Order To Be Announced
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+ Bills Previously Heard/Scheduled TELECONFERENCED
                     SENATE FINANCE COMMITTEE                                                                                 
                          March 17, 2005                                                                                      
                             9:15 a.m.                                                                                        
CALL TO ORDER                                                                                                               
Co-Chair Green convened the meeting at approximately 9:15:21 AM.                                                              
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Also   Attending:   JOELLEN   HANRAHAN,    Director,   Division   of                                                          
Administrative  Services,   Department  of  Community  and  Economic                                                            
Development; MARC  ANTRIM, Commissioner, Department  of Corrections;                                                            
TRACI CARPENTER, Staff to Senator Lyda Green                                                                                    
Attending   via  Teleconference:   There   were  no  teleconference                                                           
SUMMARY INFORMATION                                                                                                         
SB 46-APPROP: CAPITAL BUDGET                                                                                                    
The  Committee  heard  budget  overviews   from  the  Department  of                                                            
Commerce, Community  and Economic Development and  the Department of                                                            
Corrections. The bill was held in Committee.                                                                                    
SB 141-PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                       
The Committee  heard from the bill's  sponsor and the bill  was held                                                            
in Committee.                                                                                                                   
     SENATE BILL NO. 46                                                                                                         
     "An Act making capital appropriations and appropriations to                                                                
      capitalize funds; and providing for an effective date."                                                                   
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Department of Commerce, Community and Economic Development                                                                    
     Manufacturing Extension Program                                                                                            
          $800,000 BLic Rcpts                                                                                                   
          $800,000 Fed Rcpts                                                                                                    
     Reference No.: 40242                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     The Federal Manufacturing  Extension Program (MEP) will support                                                            
     Alaska's  small and medium sized  manufacturers throughout  the                                                            
     state by  providing them access to knowledgeable  manufacturing                                                            
     and  business specialists  throughout  the United States.  This                                                            
     program contributes  to the Department's mission of promoting a                                                            
     healthy economy  by developing the business skills  of Alaska's                                                            
     small manufacturing companies.                                                                                             
JOHANA  HANRAHAN, Director,  Division  of  Administrative  Services,                                                            
Department   of  Commerce,  Community   and  Economic  Development,                                                             
informed the Committee  that this request has been removed from this                                                            
legislation,  and  is  being  advanced   in the  Supplemental   bill                                                            
     Alaska Visitors Statistics Program                                                                                         
     $750,000 Gen Fund                                                                                                          
     Reference No.: 40078                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005-06/30/2010                                                                             
     One-Time Project                                                                                                           
     Continuation of the  Alaska Visitors Statistics Program (AVSP).                                                            
     This  Program   continues  the  comprehensive  collection   and                                                            
     presentation of information  on Alaska's visitors. This program                                                            
     contributes to the  Department's mission of promoting a healthy                                                            
     economy by assisting  the visitor industry in marketing Alaska.                                                            
Ms.  Hanrahan   stated   that  this  continuing   program   provides                                                            
demographic, characteristic,  and expenditure patterns  and opinions                                                            
of travelers to the State.  The information is used to gauge impacts                                                            
to visitor infrastructures  and facilities, to determine investments                                                            
in visitor  attractions and services  and the effect on State  lands                                                            
and other natural  resources, and  to develop the tourism-marketing                                                             
Senator Bunde  commented that this  program must be "a great  asset"                                                            
to commercial  enterprises in the visitor industry.  Due to the fact                                                            
that  the State  is  shifting to  a  policy of  user  pay, he  asked                                                            
whether an estimate  on the project's rate of return  to the general                                                            
fund has been developed.                                                                                                        
Ms. Hanrahan responded  that data that has been gathered  pertaining                                                            
to the  increase in the  number of visitors  and revenues  resulting                                                            
from  promoted   venues   might  address   the  question.   Specific                                                            
information would be provided.                                                                                                  
Senator Bunde stated that  the State must seek more support from the                                                            
     Tourism Promotion                                                                                                          
     $530,000 Gen Fund                                                                                                          
     Reference No.: 40495                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005-06/30/2010                                                                             
     One-Time Project                                                                                                           
     Various  tourism  marketing projects  to promote  and  increase                                                            
     tourism   in   Alaska.   This  request   contributes   to   the                                                            
     Department's   mission  of  promoting  a  healthy   economy  by                                                            
     assisting the tourism  industry and those businesses benefiting                                                            
     from the tourism industry.                                                                                                 
Ms.  Hanrahan   stated  that   this  project   has  five   different                                                            
components: to  augment national cable network television  marketing                                                            
by increasing  the number  of weeks  of advertising;  to expand  the                                                            
number of national  cable networks  being utilized; to increase  the                                                            
State's online  advertising presence on key trip-planning  websites;                                                            
and to enhance the TravelAlaska.com  website specifically to include                                                            
an  online  forum  on the  site.  Research  has  indicated  that  an                                                            
increasing number  of travelers are using Internet  websites to plan                                                            
and research travel options.                                                                                                    
Senator Bunde  reiterated that the  return to the State should  be a                                                            
consideration as "creating jobs is not enough".                                                                                 
Senator Hoffman  asked regarding the justification  for requesting a                                                            
one-year  rather than an  on-going marketing  program; specifically                                                             
whether the one-year request  is being proposed to address a lull in                                                            
the number of visitors to the State.                                                                                            
Ms. Hanrahan  responded that this  is considered to be a  multi-year                                                            
project, as the request  would provide funds for more than one year.                                                            
The project would boost tourism.                                                                                                
Senator Hoffman inquired  to the amount of the request that would be                                                            
expended in FY 06.                                                                                                              
Ms. Hanrahan replied that this information would be provided.                                                                   
Co-Chair Green asked that  the total FY 06 tourism category funding,                                                            
to  include all  fund  sources in  both  the operating  and  capital                                                            
budgets, be provided.                                                                                                           
Ms. Hanrahan stated that this information would be compiled.                                                                    
Ms.  Hanrahan  continued   that  the  request  would   also  promote                                                            
independent  visitor  traffic on  the  Alaska Highway  by  providing                                                            
funds to  pre-qualified journalists  to experience  and write  about                                                            
it. Independent  travel on the Alaska Highway has  been experiencing                                                            
limited growth.  The fifth area that  would be addressed  with these                                                            
funds would be to further  sales and training missions to promote an                                                            
Alaska/Asian relationship.                                                                                                      
     Organization Grants                                                                                                        
     $700,000 Gen Fund                                                                                                          
     Reference No.: 40056                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Grants  to unincorporated  communities  to defray  the cost  of                                                            
     incorporation.   Each   unorganized   city   or  borough   that                                                            
     incorporates   after  December  31,  1985  is  entitled  to  an                                                            
     organization  grant  under  AS  29.050.180  -.200.  This  grant                                                            
     contributes to the  Department's mission of promoting a healthy                                                            
     economy  and strong  communities  by assisting  communities  in                                                            
     achieving maximum self-government.                                                                                         
Ms.  Hanrahan  stated that  this  request  would provide  grants  to                                                            
assist local governments  in transitioning to a borough. Potentially                                                            
the Prince  William Sound  area, the City  of Delta Junction/Delta-                                                             
Greely area,  the Anchor  Point area, and  others might soon  become                                                            
organized boroughs.                                                                                                             
Co-Chair Green  asked whether this  could be characterized  "as just                                                            
an anticipation."                                                                                                               
Ms. Hanrahan  responded that some  of the petitions have  been filed                                                            
and  others  are anticipated.  According  to  Title  29 guidelines,                                                             
communities  that organize  are entitled  to  receive State  funding                                                            
assistance for three years  after organization. This funding request                                                            
would fund the first of three years.                                                                                            
Senator   Olson  asked   for  further  information   regarding   the                                                            
assistance that must be provided to organizing communities.                                                                     
Ms. Hanrahan  responded that  a newly organized  borough or  unified                                                            
municipality  would receive  $300,000 its  first year, $200,000  the                                                            
second year, and $100,000 the third year.                                                                                       
Senator Olson understood  therefore that $600,000 would be provided.                                                            
Co-Chair  Green commented  this  is the  amount specified  in  State                                                            
Ms. Hanrahan concurred.                                                                                                         
     Community Development Grants                                                                                               
          $14,050,000 Fed Rcpts                                                                                                 
          $   488,000 Gen Fund                                                                                                  
     Reference No.: 38943                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     On-Going Project                                                                                                           
     Multiple  federally-funded   programs,  enabling   Commerce  to                                                            
     provide grants to  communities and non-profit organizations for                                                            
     community   development.  This   program  contributes   to  the                                                            
     Department's mission  of promoting a healthy economy and strong                                                            
     communities by providing  economic growth in the communities it                                                            
Ms. Hanrahan  informed that  this program  assists communities  with                                                            
developing flood  plains and erosion management programs;  grants to                                                            
assist small  communities  expand and diversify  their economy;  and                                                            
programs  that  allow Rural  communities  to  construct  or  remodel                                                            
multi-use facilities.  Communities  contribute a match ranging  from                                                            
ten to 25 percent of the  cost of such projects. In FY 05 and FY 06,                                                            
48 unmapped communities  in the Lower Kuskokwim and  Bering Straits,                                                            
Copper  Valley,  and  Southeast  areas  would  receive  accelerated                                                             
infrastructure  development grants that would allow  them to develop                                                            
profile maps.  The request would also  provide funds to the  State's                                                            
Bulk Fuel Bridge  Loan program and  funds to mitigate the  impact of                                                            
the  Fort Greely  Missile  Defense  development's  construction  and                                                            
     Community Block Grants                                                                                                     
          $6,045,000 Fed Rcpts                                                                                                  
          $   70,000 Gen Fund                                                                                                   
     Reference No.: 38946                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     On-Going Project                                                                                                           
     Multiple  federally-funded   programs,  enabling   Commerce  to                                                            
     provide  grants  to communities  and non-profits  that  provide                                                            
     services   and/or  benefit   the  low-   to  moderate-   income                                                            
     individuals.  This  program  contributes  to  the Department's                                                             
     mission of  promoting a healthy economy and strong  communities                                                            
     by providing economic growth in the communities it serves.                                                                 
Ms.  Hanrahan stated  that  this long-term  on-going  program  would                                                            
provide funds  to the Rural Alaska Community Action  Program (RACAP)                                                            
for such things  as training and educational drug  and alcohol abuse                                                            
programs as  well as nutrition grant  programs. Homeless  assistance                                                            
grants,  emergency shelter  grants, and funds  to municipalities  to                                                            
assist planning  and infrastructure  development are also  provided.                                                            
The federal funds require a small State match.                                                                                  
     Energy Projects                                                                                                            
          $250,000 Bond Funds                                                                                                   
          $20,000,000 Fed Rcpts                                                                                                 
          $500,000 I/A Rcpts                                                                                                    
     Reference No.: 38950                                                                                                       
     Category: Development                                                                                                      
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     On-Going Project                                                                                                           
     Multiple   federally  funded  energy  programs   of  Bulk  Fuel                                                            
     Upgrades,  Rural Power Systems  Upgrades, Alternate  Energy and                                                            
     Energy  Efficiency projects.  This program  contributes  to the                                                            
     Department's mission  of promoting a healthy economy and strong                                                            
     communities by providing  economic growth in the communities it                                                            
Ms. Hanrahan  explained that  this mostly  federally funded  program                                                            
would fund  a wide variety  of energy programs  including bulk  fuel                                                            
upgrades,  rural  power system  upgrade  programs,  and alternative                                                             
energy and energy efficiency projects.                                                                                          
Senator Bunde declared that he was "not looking forward to the day"                                                             
when these federal funds might dissipate and the onus might be to                                                               
replace them with general funds.                                                                                                
     Language Section: Electrical Emergencies                                                                                   
     $330,000 Rural Elec                                                                                                        
     Reference No.: 32590                                                                                                       
     Category: Health/Human Services                                                                                            
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30-2010                                                                           
     On-Going Project                                                                                                           
     To provide technical  support when an electric utility has lost                                                            
     the ability to generate  or transmit power to its customers and                                                            
     the condition  is a threat to life, health, and/or  property in                                                            
     the   rural  community.   This  program   contributes   to  the                                                            
     Department's mission  of promoting a healthy economy and strong                                                            
     communities by providing  economic growth in the communities it                                                            
Ms. Hanrahan read the project description.                                                                                      
     Language Section: NPR-A Impact Grant Program                                                                               
     $29,517,700 NPR Fund                                                                                                       
     Reference No.: 38948                                                                                                       
     Category: Development                                                                                                      
     Location: Barrow                                                                                                           
     Election District: Arctic                                                                                                  
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     On-Going Project                                                                                                           
     Grants  to  communities  for public  facilities  and  services.                                                            
     Priority  is given to  those communities  directly or  severely                                                            
     impacted  by the leases and development  of oil and  gas within                                                            
     the  National Petroleum  Reserve. This  program contributes  to                                                            
     the Development's  mission of  promoting a healthy economy  and                                                            
     strong  communities   by  providing  economic   growth  in  the                                                            
     communities it serves.                                                                                                     
Ms. Hanrahan reviewed the project description.                                                                                  
Co-Chair Green asked that a list of the projects affected by this                                                               
request be provided.                                                                                                            
Ms. Hanrahan agreed to provide the information.                                                                                 
Co-Chair  Wilken  requested  that  this  project  be assigned  to  a                                                            
subcommittee  that  he  might  chair,  for  further   analyzing  and                                                            
Co-Chair Green agreed.                                                                                                          
Senator Stedman, Senator  Dyson, and Senator Olson asked to serve on                                                            
the subcommittee.                                                                                                               
Co-Chair  Green   announced  that  Co-Chair  Wilken   would  be  the                                                            
subcommittee chair.                                                                                                             
     Kodiak Launch Site Infrastructure                                                                                          
     $36,000,000 Fed Rcpts                                                                                                      
     Reference No.: 40008                                                                                                       
     Category: Development                                                                                                      
     Location: Kodiak                                                                                                           
     Election District: Kodiak                                                                                                  
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Kodiak   launch  site  infrastructure   to  support   the  U.S.                                                            
     Department  of Defense's Missile Defense Program.  This program                                                            
     contributes to the  Department's mission of promoting a healthy                                                            
     economy and strong  communities by providing economic growth in                                                            
     the communities it serves.                                                                                                 
Ms. Hanrahan  stated  this request  would be  federally funded.  The                                                            
intent  is  to  bring  the  Kodiak  launch   site  to  meet  federal                                                            
Department of Defense requirements.                                                                                             
     Protection and Education of Investors                                                                                      
     $300,000 Stat Desig                                                                                                        
     Reference No.: 40505                                                                                                       
     Category: Education                                                                                                        
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     Protection  and education of consumers/investors  in accordance                                                            
     with a national  securities settlement with 10  of the nation's                                                            
     top  investment   firms.  This   project  contributes   to  the                                                            
     Department's mission  of promoting a healthy economy and strong                                                            
     communities   by  educating  the  public  in  sound   financial                                                            
Ms. Hanrahan  noted that this request  is being withdrawn  as it has                                                            
been determined  that rather than  this money being directed  to the                                                            
State, the State  could recommend entities within  the State that it                                                            
could be directed to.                                                                                                           
Senator Bunde  suggested that the money be directed  to the PERS and                                                            
TRS retirement  programs so that the systems could  have an informed                                                            
group  of investors  in  regards  to  such things  as  the  proposed                                                            
Defined Contribution Retirement program.                                                                                        
Co-Chair Green thanked Senator Bunde for the suggestion.                                                                        
9:37:14 AM                                                                                                                    
     Morris Thompson Cultural and Visitors Center                                                                               
     $250,000 Gen Fund                                                                                                          
     Reference No.: 40500                                                                                                       
     Category: Development                                                                                                      
     Location: Fairbanks Areawide                                                                                               
     Election District: Fairbanks Areawide                                                                                      
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Grant for the Morris Thompson Cultural and Visitors Center.                                                                
Ms.  Hanrahan  stated   that  this  Center  would  provide   visitor                                                            
information   services,   visitor   trip  planning,   environmental                                                             
education,  and exhibits.  The total  estimated cost  of the  Center                                                            
would  be  $26  million:  $15  million  of  federal  funds  and  the                                                            
remaining funds to be from the State and private contributors.                                                                  
Co-Chair Green asked when the project might be completed.                                                                       
Ms. Hanrahan  replied that the conceptual  design phase is  reaching                                                            
completion.  Requests  for  bids have  not  been  let. In  order  to                                                            
complete  the  construction  project by  the  spring of  2006,  $4.5                                                            
million  must  be raised  in  2005.  The final  completion  date  is                                                            
Co-Chair  Green  asked  whether  this is  the  only  budget  request                                                            
associated with the Morris Thompson Cultural Center.                                                                            
Ms. Hanrahan replied  that this is the only request  being furthered                                                            
by the Department.  Further research  regarding the project's  total                                                            
funding would be conducted.                                                                                                     
Co-Chair Green commented that this item might be revisited.                                                                     
9:39:46 AM                                                                                                                    
     City of Valdez - Harborview Demolition                                                                                     
     $1,000,000 Gen Fund                                                                                                        
     Reference No.: 40517                                                                                                       
     Category: Development                                                                                                      
     Location: Valdez                                                                                                           
     Election District: Richardson/Glenn Highways                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Demolition of Harborview building.                                                                                         
Ms. Hanrahan  stated that the land  on which this building  sits was                                                            
transferred  to  the  City  of Valdez.  Since  there  is  no  viable                                                            
economic use of the building,  which was closed in 1997, the City is                                                            
requesting  funds to demolish and  remediate the site. The  building                                                            
does contain hazardous materials.                                                                                               
Co-Chair  Green asked  whether the  City of Valdez  would be  liable                                                            
were any hazardous materials found.                                                                                             
Ms. Hanrahan asked for  clarification whether the question pertained                                                            
to liability during demolition.                                                                                                 
Co-Chair Green  expressed that the  liability question pertained  to                                                            
both during  and after demolition.  In other words, would  the State                                                            
would have other obligation other than providing funds.                                                                         
Ms. Hanrahan stated that further information would be provided.                                                                 
Co-Chair Wilken asked the  funding history attached to this project,                                                            
as this  is the seventh  request to demolish  this building  that he                                                            
has heard in as many years as a Member of this Committee.                                                                       
Ms. Hanrahan stated that the information would be provided.                                                                     
9:41:53 AM                                                                                                                    
     Tongass Coast Aquarium, Inc.                                                                                               
     $100,000 Bond Funds                                                                                                        
     Reference No.: 40497                                                                                                       
     Category: Development                                                                                                      
     Location: Ketchikan Gateway Borough                                                                                        
     Election District: Ketchikan                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     A  grant  for the  Tongass  Coast  Aquarium,  which  will be  a                                                            
     regional  facility providing  education, research and  exhibits                                                            
     focusing  on the  coastal and  marine ecosystems  of  Southeast                                                            
     Alaska.  This project contributes  to the Department's  mission                                                            
     of  promoting  a healthy  economy  and  strong  communities  by                                                            
     providing educational opportunities and economic development                                                               
     in Southeast Alaska.                                                                                                       
Ms. Hanrahan read the project  description and stated that the funds                                                            
would assist in constructing a 28,000 square foot aquarium.                                                                     
Co-Chair  Green  asked that  the  funding  history, to  include  the                                                            
State's  total obligation;  the amount  the federal  government  has                                                            
provided; and  other revenue sources,  of this project be  provided.                                                            
Ms. Hanrahan informed  that this project is currently  in the design                                                            
phase. No formal bids have  of yet been requested. The total cost is                                                            
projected to be $27 million.  The total funding request to the State                                                            
might range between one and four million dollars.                                                                               
Co-Chair Green  asked for clarification  purposes, the amount  being                                                            
requested this year.                                                                                                            
Ms. Hanrahan stated that the FY 06 request is for $100,000.                                                                     
     Alaska Native Heritage Center                                                                                              
     $500,000 Gen Fund                                                                                                          
     Reference No.: 40498                                                                                                       
     Category: Development                                                                                                      
     Location: Anchorage Areawide                                                                                               
     Election District: Anchorage Areawide                                                                                      
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Grant to the Alaskan  Native Heritage Center for the repair and                                                            
     construction  of  Alaskan Native  village  exhibit sites.  This                                                            
     request contributes  to the Department's mission of promoting a                                                            
     healthy  economy  and  strong  communities   by  assisting  the                                                            
     tourism  industry  and  those businesses  benefiting  from  the                                                            
     tourism industry.                                                                                                          
Ms. Hanrahan  noted  that this is  the only  Native educational  and                                                            
cultural  center in  the State that  showcases the  cultures  of the                                                            
State's native  people "to the public  and to school children".  The                                                            
Center is a premier tourist  destination and, in partnership with an                                                            
international  and  Alaskan  tour  operators,  hosts  approximately                                                             
100,000 visitors annually.  It provides in excess of 100 jobs and is                                                            
a marketing outlet for Rural handicrafts and cultural items.                                                                    
Co-Chair Green asked whether  this project could be supported by its                                                            
revenues, private donations, and other resources.                                                                               
Ms.  Hanrahan   expressed   that   this  request   would  fund   the                                                            
construction of one village  site and a playground within that site.                                                            
The overall  plan  is to  construct five  village  sites that  would                                                            
represent the dwellings of each of the State's five regions.                                                                    
Co-Chair Green  pointed out that the  request states that  the funds                                                            
would be for  the repair and construction  of exhibit sites.  Ticket                                                            
sales  and other income  processing  venues should  provide for  the                                                            
cost of  repairs, as the  project should  be self-sustaining  rather                                                            
than continuing to request State funding.                                                                                       
Ms. Hanrahan stated that further information would be provided.                                                                 
     Lower Kuskokwim School  District - The People's Learning Center                                                            
     $1,000,000 Gen Fund                                                                                                        
     Reference No.: 40502                                                                                                       
     Category: Development                                                                                                      
     Location: Bethel                                                                                                           
     Election District: Bethel                                                                                                  
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Grant   to  the  Lower  Kuskokwim   School  District   for  the                                                            
     construction  of the Yuut Elitinaurviat, The  People's Learning                                                            
     Center.  This project contributes  to the Department's  mission                                                            
     of  promoting  a healthy  economy  and  strong  communities  by                                                            
     providing educational opportunities in the community.                                                                      
Ms.  Hanrahan read  the project  description  and  noted that  three                                                            
million  of the total  eight million  dollar project  cost has  been                                                            
raised.  Additional  funding  has  been requested  from  the  Alaska                                                            
Native Education  Grant Program, the  Bureau of Indian Affairs,  and                                                            
from Alaska Congressman Ted Stevens' office.                                                                                    
9:47:06 AM                                                                                                                    
     City of Unalaska - Boat Harbor                                                                                             
     $2,000,000 Bond Funds                                                                                                      
     Reference No.: 40501                                                                                                       
     Category: Development                                                                                                      
     Location: Unalaska                                                                                                         
     Election District: Bristol Bay/Aleutians                                                                                   
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Grant  to the  City of  Unalaska for  a boat  harbor at  Little                                                            
     South  America in  Unalaska.  This project  contributes to  the                                                            
     Department's mission  of promoting a healthy economy and strong                                                            
     communities   by   providing   infrastructure   necessary   for                                                            
     commercial enterprises and the community of Unalaska.                                                                      
Ms. Hanrahan stated that  this request would address "a serious lack                                                            
of moorage"  in Unalaska.  The  breakwater construction  would  cost                                                            
approximately   $11  million.   While  the   City  of  Unalaska   is                                                            
responsible  for the inner harbor  improvements, this request  would                                                            
assist to support the total $17 million project cost.                                                                           
Senator Stedman  asked whether additional  funding requests,  beyond                                                            
this two million dollar request, might be forthcoming.                                                                          
Co-Chair Green asked the Department to provide this information.                                                                
Senator Stedman  also asked  whether moorage  fees and other  income                                                            
venues established  by the City would  sufficiently provide  for on-                                                            
going  maintenance and  replacement  reserves for  the project  upon                                                            
completion. The  concern is that this harbor might  be in a state of                                                            
disrepair in 30 years as  has been the experience with other harbors                                                            
in the State.                                                                                                                   
Senator Bunde asked that  information be provided about the plans to                                                            
fund  the on-going  operating  and maintenance  costs  of the  Lower                                                            
Kuskokwim School District - The People's Learning Center                                                                        
Senator Olson  asked whether the Unalaska boat harbor  is located at                                                            
the staging  area site for the response  to the December  2004 wreak                                                            
of the tanker, the Selendang Ayu.                                                                                               
Ms. Hanrahan would clarify that information.                                                                                    
     City of Cordova - Cordova Center                                                                                           
     $1,000,000 Gen Fund                                                                                                        
     Reference No.: 40503                                                                                                       
     Category: Development                                                                                                      
     Location: Cordova                                                                                                          
     Election District: Cordova/Southeast Islands                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Grant  to  the  City  of Cordova  for  the  construction  of  a                                                            
     Community  Center in Cordova.  This Request contributes  to the                                                            
     Department's mission  or promoting a healthy economy and strong                                                            
     communities   by   providing   infrastructure   necessary   for                                                            
     commercial enterprises and the community of Cordova.                                                                       
Ms. Hanrahan  stated that  this request would  provide for  a 32,000                                                            
square  foot  community   center  that  would  provide  conference,                                                             
convention,  theater   and  training  spaces;  oil  spill   response                                                            
training;  an  incident  and  emergency  command  and communication                                                             
center;  as well as  space for a  joint State  and federal  visitors                                                            
facility. A public  library for the elementary school  might also be                                                            
Senator  Bunde asked  that  information  be provided  regarding  the                                                            
funding source  for the center's operations  and maintenance  needs.                                                            
Ms. Hanrahan  stated that  this concludes  the Department's  capital                                                            
project requests.                                                                                                               
Co-Chair Wilken  understood that the Department might  be requesting                                                            
funds for a film project.                                                                                                       
Ms. Hanrahan  responded  that  no request  in that  regard is  being                                                            
AT EASE: 9:51:53 AM / 10:04:59 AM                                                                                           
Department of Corrections                                                                                                     
     Institution Closed Circuit TV System Recording                                                                             
     $2,500,000 Bond Funds                                                                                                      
     Reference No.: 40267                                                                                                       
     Category: Public Protection                                                                                                
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2010                                                                           
     One-Time Project                                                                                                           
     Project will provide digital video recording systems within 11                                                             
     Correctional Facilities statewide.                                                                                         
MARC ANTRIM,  Commissioner, Department  of Corrections, stated  that                                                            
this  request  would  provide  for  closed  circuit  television  and                                                            
digital video recording  systems through which to monitor prisoners.                                                            
The first phase of the  project would be the installation of cameras                                                            
and the  second phase  would be  the installation  of the  recording                                                            
equipment.  This project would  expand the  current system  to allow                                                            
the monitoring  of living  areas in  addition to  doorway and  other                                                            
traffic  areas.  In  addition  to  reducing  incidents  of  prisoner                                                            
violence and property damage,  the system would allow the Department                                                            
to comply with federal laws enacted in 2003.                                                                                    
     Deferred Maintenance, Repair, and Renovations                                                                              
     $8,000,000 Bond Funds                                                                                                      
     Reference No.: 36788                                                                                                       
     Category: Public Protection                                                                                                
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 60/30/2011                                                                           
     On-Going Project                                                                                                           
     Essential repair and renovation of electrical, mechanical,                                                                 
     roofing, fire/life  safety, security, structural, food service,                                                            
     pavements  and  site  drainage   systems  at  all correctional                                                             
     facilities.  This work  is required to  enable continued  safe,                                                            
     secure  and efficient  operation of  the 24-hour incarceration                                                             
Commissioner  Antrim  stated that  this  request would  address  the                                                            
extensive list  of deferred maintenance needs of the  117 facilities                                                            
maintained  by the  Department.  The  majority of  these  facilities                                                            
exceed twenty  years of age; ten percent are at least  30 years old;                                                            
and another ten  percent exceed 40 years of age. A  list of needs is                                                            
included in the packet.                                                                                                         
     Statewide Equipment Replacement                                                                                            
     $450,000 Bond Funds                                                                                                        
     Reference No.: 30815                                                                                                       
     Category: Public Protection                                                                                                
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2011                                                                           
     On-Going Project                                                                                                           
     Replace   essential  security,   life  safety,  food   service,                                                            
     laundry, medical,  records storage and maintenance equipment at                                                            
     all correctional  institutions.  This equipment is required  to                                                            
     provide  continued   support  of  the  officers  and  staff  in                                                            
     confining  incarcerated   offenders  and  in  maintaining  safe                                                            
     operation of the institutions.                                                                                             
Commissioner  Antrim stated that these  funds would provide  for the                                                            
replacement  of many critical items,  including such things  as snow                                                            
removal equipment,  grounds equipment such as lawnmowers,  and fixed                                                            
kitchen items  such as stoves, steam  kettles, and microwave  ovens.                                                            
Maintenance needs  for such items has been deferred  for many years.                                                            
     Community  Jails  Life,  Safety and  Security  Renovations  and                                                            
     Miscellaneous Equipment                                                                                                    
     $100,000 Bond Funds                                                                                                        
     Reference No.: 30818                                                                                                       
     Category: Public Protection                                                                                                
     Location: Statewide                                                                                                        
     Election District: Statewide                                                                                               
     Estimated Project Dates: 07/01/2005 - 06/30/2011                                                                           
     On-Going Project                                                                                                           
     This project  funds essential  safety and security renovations                                                             
     and  equipment at  fourteen  (14) local  governmental  contract                                                            
     jails.  These  jails  require  repairs   and  modifications  to                                                            
     continue their operation.                                                                                                  
Commissioner Antrim noted  that this request would provide necessary                                                            
upgrades  at 14 community  jails that, while  operated by the  local                                                            
community police  departments, are under contract  to the State. The                                                            
upgrades would  be akin to the upgrades  that would be occurring  at                                                            
the State's jail facilities.                                                                                                    
Co-Chair  Green announced  that  this  concludes the  Department  of                                                            
Commerce, Community  and Economic Development and  the Department of                                                            
Corrections capital project requests.                                                                                           
The bill was HELD in Committee.                                                                                                 
     SENATE BILL NO. 141                                                                                                        
     "An Act  repealing the termination  date of certain  provisions                                                            
     that  require  the reporting  of  social security  numbers  and                                                            
     automated  data matching with financial institutions  for child                                                            
     support  enforcement  purposes;  relating  to  social  security                                                            
     numbers  on applications for  commercial fishing licenses;  and                                                            
     providing for an effective date."                                                                                          
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair  Green  noted  that  the  sponsor's  March  16,  2005  bill                                                            
presentation has received positive reviews.                                                                                     
Senator Stedman, the bill's  sponsor, informed the Committee that he                                                            
would  be addressing  the information  included  in the "Retirement                                                             
Security Act  SB 141" handout dated  March 17, 2005 [copy  on file].                                                            
Co-Chair Wilken  asked for further  information regarding  the graph                                                            
titled  "What went  wrong?" that  was included  on page  ten of  the                                                            
March  16, 2005  SB 141  handout [copy  on file];  specifically  the                                                            
relevance to that  graph of the language in the "Actuarial  Value of                                                            
Assets"  paragraph  that   read,  "Prior  to  2002,  Mercer  used  a                                                            
'corridor  method'.  Beginning in  2002 they  switched  to a  5-year                                                            
'smoothing method'".                                                                                                            
     Page 10                                                                                                                    
     [March 16, 2005 SB 141 Handout]                                                                                            
     What went wrong?                                                                                                           
     [Line  graph showing Combined  PERS & TRS Actuarial  Valuations                                                            
     (2003):  Accrued  Liabilities,   Actuarial  Value  Assets,  and                                                            
     Market Value Assets for the years 1994 through 2003. The data                                                              
     for 2003 is as follows.                                                                                                    
          Accrued  Liabilities:      $16,397,262                                                                                
          Actuarial  Value Assets*    11,439,566                                                                                
          Market Value Assets:        10,994,074                                                                                
          *Asset  Market  Value is  adjusted  by the  actuary in  an                                                            
          effort  to  bring more  order  and predictability  to  the                                                            
          employer  contribution rate and to smooth out year to year                                                            
          market   fluctuations.  Prior  to  2002,   Mercer  used  a                                                            
          "corridor  method". Beginning  in 2002 they switched  to a                                                            
          5-year "smoothing method".]                                                                                           
     We Have Been Understating Our Liabilities For the Past Several                                                             
Senator  Stedman  responded  that the  page  ten graph  details  the                                                            
portfolio  valuations  beginning  with the  year 1994.  The  State's                                                            
actuarial consultant,  Mercer Actuarial Services (Mercer),  utilized                                                            
"a smoothing  mechanism"  during the  first years  reflected on  the                                                            
graph. This methodology  amortized the portfolio's  gains and losses                                                            
over a five-year  period, going forward. This assisted  in smoothing                                                            
out the employer contribution  rate so that it would "not swing with                                                            
the gyrations  of the financial  markets".  However, as a result  of                                                            
the "extended" capital  market upswing in the late 1990s, "the value                                                            
of the portfolio [increased]  up above targeted growth rates quite a                                                            
bit," as  reflected by the  Market Value Assets  line on the  graph.                                                            
Continuing utilization  of the smoothing method would  have produced                                                            
"a  substantially  larger  over-funding   of  the  plan,  assets  to                                                            
liabilities"  and, the Actuary was  concerned that the Boards  might                                                            
decrease "the  employer contribution rate to unsustainable  levels,"                                                            
with  the possibly  of reducing  it to  as low  as zero.  Therefore,                                                            
Mercer  changed  the  method  for  calculating   the  gains  to  the                                                            
"corridor  method", which  established a "band"  with a maximum  20-                                                            
percent  deviance  from the  market  value. The  band "artificially                                                             
lowered the  assets for the calculation  of how far they  were over-                                                            
funded" as depicted  by the line titled Actuarial  Value Assets. The                                                            
corridor method  was utilized for  several years during the  "equity                                                            
expansion or bull market" of the late 1990s.                                                                                    
Senator  Stedman  stated  "that  one of  the  items  of correction"                                                             
recommended  by a 2001 audit  was that the  smoothing method  with a                                                            
five-year amortization  schedule, be reinstituted. This is the point                                                            
in time reflected  on the graph where  the Accrued Liabilities  line                                                            
and the Market  and Actuarial Value  lines "substantially  deviating                                                            
away from each other".                                                                                                          
Senator Stedman  stated that  in order to  make that transition  "it                                                            
was necessary  to bring the assets  to market value". This  endeavor                                                            
is depicted  by the intersection of  the Actuarial Value  Assets and                                                            
Market Value Assets lines on the graph in the year 2002.                                                                        
Senator Stedman  voiced that, moving  forward to the year  2003, the                                                            
Market  Value  Assets  reflect   a value   of  $10,994,074  and  the                                                            
Actuarial Value  Assets had a value of $11,439,566.  "The difference                                                            
between  those two  numbers is  just the five-percent  smoothing  or                                                            
five-percent amortization of that loss going forward".                                                                          
Senator  Stedman  communicated  that  this year  the  numbers  would                                                            
reflect  "a gain"  as the portfolio  performed  above the  projected                                                            
8.25 percent  target. That  gain would be  spread out over  the next                                                            
five years.  The Legislature "as policy  makers" should review  both                                                            
values, "recognizing  that  the Actuarial Value  is just a  value to                                                            
sooth  the contributions".  Particular  attention  must  be paid  to                                                            
Market Values,  as that would reflect the portfolio's  actual value.                                                            
10:17:10 AM                                                                                                                   
     Page 14                                                                                                                    
     [March 16, 2005 SB 141 Handout]                                                                                            
     What went wrong?                                                                                                           
     [Bar graph showing Factors Contributing to PERS Employer Rate                                                              
     Increase* (% of Cumulative 1998 to 2003 Rate Increase                                                                      
     Attributed to Each Factor) as follows:                                                                                     
          Actuarial Loss (Increased Employer Rate)                                                                              
                Assumption Changes        -34.19%                                                                               
                Investment Experience     -11.62%**                                                                             
                Health Experience         -11.28%                                                                               
                Demographic Experience     -8.89%                                                                               
                Asset Valuation Method     -4.42%**                                                                             
                Contri Shortfall Due to                                                                                         
                  2 Year Calculated  Rate  -3.37%                                                                               
                102% Funding Ratio                                                                                              
                  Adjustments              -2.02%                                                                               
                Ad hoc PRPA                -1.56%                                                                               
                System Benefit Changes     -0.64%                                                                               
          Actuarial Gain (Decreased Employer Rate)                                                                              
                Salary Experience           6.47%                                                                               
                Past Service Amortization                                                                                       
                  Change                   15.52%                                                                               
          *PERS Employer Rate increased 18.3% from 7.36% in 1998 to                                                             
          25.63% in 2003                                                                                                        
          **Total Asset Side Impact of 16.04%                                                                                   
      A Combination of Factors Created Our Present Situation                                                                    
Senator Stedman  informed that, as depicted on the  page 14 chart in                                                            
the March 16th  handout, changing  from the smoothing method  to the                                                            
corridor  method  and  then  back to  the  smoothing  method  placed                                                            
"downward pressure on the  Employer Contribution Rate"; amounting to                                                            
15.5  percent  of  a total  18.3  percent  change  in  the  Employer                                                            
Contribution  Rate between  the  years 1998  and 2003.  "That was  a                                                            
positive. It lowered the contribution requirement down".                                                                        
Co-Chair Wilken  understood that had the smoothing  methodology been                                                            
the  sole methodology   utilized since  1994,  the  Actuarial  Value                                                            
Assets line might have  tracked similarly to the Market Value Assets                                                            
line  on page  ten's graph.  He asked  therefore  whether the  State                                                            
would  have  the five  billion  dollar  shortfall  today,  "had  the                                                            
decision been  made to stay with the  smoothing method and  resisted                                                            
the temptation  to lower the Employer Contribution  Rates because of                                                            
the robust capital market".                                                                                                     
Senator Stedman  replied that the  lines would have tracked  "pretty                                                            
close". However,  had the Corridor Method not been  implemented, the                                                            
Public Employees  Retirement System  (PERS) and Teachers  Retirement                                                            
System (TRS) Boards  "would have been under more pressure  to lower"                                                            
the Employer  Contribution  Rate,  as it  is doubtful  that, at  the                                                            
time, the Boards  "realized that their  value of the assets  were so                                                            
under-valued;  that liabilities  they were  looking at were  not the                                                            
actual liabilities",  as he believed  there was some miscalculation                                                             
in the liabilities  which "led to a false impression  that they were                                                            
at an  artificially  low level…if  the liabilities  would have  been                                                            
more accurately  calculated  back in  the mid to  late 90s it  would                                                            
have tracked almost on  top of the market value of the portfolio and                                                            
there would have certainly been no pressure to lower rates".                                                                    
Co-Chair Wilken acknowledged  the explanation. Continuing, he voiced                                                            
that the  State "depends a  lot on our Actuary".  To that point,  he                                                            
asked how much they are paid for their service.                                                                                 
Senator Stedman  provided some "rough  numbers"; approximately  four                                                            
million dollars has been  paid to the Actuary between the years 1997                                                            
to 2005.  The highest  amount, $717,000,  was paid  was in the  year                                                            
2000. The targeted  rate is $500,000  a year. The forecast  for 2005                                                            
is  $425,000.  The "complex  mathematical  modeling  work"  that  is                                                            
conducted  is extensive and  it is "unfortunate  that it was  not as                                                            
accurate" as he would have  liked to have seen it in the late 1990s.                                                            
Senator  Bunde, while  acknowledging,  "that this  is a complicated                                                             
field", voiced  concern that were  the answers not to one's  liking,                                                            
"we just  change them  to a different  calculation  until we  get an                                                            
answer  that we like".  He recalled,  "being told  by the experts  …                                                            
that  the  fund  was   basically  over-capitalized.   That  we  were                                                            
contributing too  much". Based on that advice, the  Legislature made                                                            
a decision  within the past  ten years to  reduce its contribution,                                                             
separate   from  the  pressure   applied   to  further  reduce   the                                                            
contribution rate. He asked  for confirmation that the Legislature's                                                            
action was based on "information that we were over-capitalized".                                                                
Senator  Stedman understood  that  some withdrawals  had been  made;                                                            
however, this would have to be further reviewed.                                                                                
Senator Bunde recalled the action occurring around 1994.                                                                        
Senator Stedman  acknowledged that something had occurred,  but that                                                            
his research  has focused on recent  years' activities. He  affirmed                                                            
that the  action of  removing assets  from a plan  when it is  over-                                                            
funded would "exaggerate"  the problem were the day to come when the                                                            
plan was under-funded.                                                                                                          
Senator  Bunde  communicated  that  he  was  furthering  this  point                                                            
because people  are saying, "that  the State screwed up,  why should                                                            
we have  to increase our  contribution". He  declared that  that the                                                            
idea  that  "the  Legislature  reduced  their  contributions  in  an                                                            
attempt  to artificially   show they  were  cutting the  budget"  is                                                            
unfounded.  The Legislative action  taken was in response  to advice                                                            
from the PERS/TRS Boards  who acted on the advice of the actuarials.                                                            
Senator  Stedman  clarified  that in  the  late 1990s,  both  Boards                                                            
lowered the  employer contribution  rate below what was recommended                                                             
by the actuary.  That action placed  "more negative pressure  on the                                                            
system". Efforts  to rectify this are being furthered  in this bill.                                                            
Co-Chair Green  understood that "some of that changing  and lowering                                                            
of rates was done without Legislative permission".                                                                              
Senator Bunde believed this was the case with the latest change.                                                                
Senator Stedman  calculated  that a $160  to $190 million  decrement                                                            
had resulted from  the lowering of the Employer Contribution  Rates.                                                            
While  this is a  lot of money,  it is  not, in  the context  of the                                                            
overall five billion dollar shortfall.                                                                                          
     Page 8                                                                                                                     
     [March 16, 2005 SB 141 Handout]                                                                                            
     What is the [status] of Alaska's system?                                                                                   
     [Line graph showing Historical PERS & TRS Funding Ratios for                                                               
     each year from 1975 through 2003. The PERS ratio is 72.8                                                                   
     percent and the TRS ratio is 64.3 percent for 2003. Other                                                                  
     information reads:                                                                                                         
          1975 System Population                                                                                                
                Active:                   19,998                                                                                
                Retire:                    1,734                                                                                
          2004 System Population                                                                                                
                Active:                   43,300                                                                                
                Retire:                   28,279                                                                                
                Terminated (Vested)        6,689                                                                                
                Terminated (Non-Vested) 14,606]                                                                                 
Senator Hoffman  noted that  the 70-percent  PERS funding ratio  for                                                            
2003, as depicted  on the graph on page eight of the  March 16, 2005                                                            
presentation,  is approximately the  same level as the 1980  funding                                                            
ratio. Given the  fact that economists and President  George W. Bush                                                            
proclaim  that  the  economy  is  turning  around  and  markets  are                                                            
rebounding, and,  in light of the fact that page seven  of the March                                                            
16th  report indicates  that  2006 would  have a  positive flow,  he                                                            
anticipated  that the  2003 level  would be the  lowest point  going                                                            
forward. He  asked whether the sponsor  would agree. Continuing,  he                                                            
asked  whether,   in  addition  to  the  changes  in   the  Employer                                                            
Contribution Rates,  there had been "any major changes"  in the late                                                            
1970s or early  1980s that would have  influenced the rebounding  of                                                            
the Funds  or was it simply  the growth of  State government  at the                                                            
time. While he is not arguing  against making management changes, he                                                            
opined that the system has worked well.                                                                                         
     Page 7                                                                                                                     
     [March 16, 2005 SB 141 presentation]                                                                                       
     What is the [status] of Alaska's system?                                                                                   
     [Drawing  of fuel  barrel  labeled with  data  specific to  the                                                            
     Alaska  system based  on 2003 Actuarial  Valuation. The  barrel                                                            
     lists  $11.4 billion  Net System  Assets (Combined  PERS  & TRS                                                            
     Actuarial  Asset Values)  and  $16.4 billion  Assets Needed  to                                                            
     Meet Accrued  Liabilities, with  a difference of $5.0  billion.                                                            
     Pipes attached to the barrel are labeled as follows.                                                                       
          Employer Contributions: $162.1 million                                                                                
          Member Contributions: $167.9 million                                                                                  
          Investment Results: $373.1 million                                                                                    
          Admin & Investment Expenses: -$32.6 million                                                                           
          Benefits & Refunds Paid: -$778.3 million                                                                              
     PERS & TRS Have A Combined $5.0 Billion Unfunded Liability                                                                 
Senator Hoffman  observed that the graph on page seven  of the March                                                            
16,  2005 presentation  appears  to  be inverted,  as  the  barrel's                                                            
contents should reflect  the State's Net System Assets as two-thirds                                                            
full rather  than being depicted  as one-third  full. The graph,  as                                                            
presented "over-exaggerates" the situation.                                                                                     
Senator  Stedman  responded "it  would  be extremely  difficult"  to                                                            
replicate the funding ratio  trends of the late 1970s to early 1980s                                                            
due "the magnitude" of  today's experiences; specifically the number                                                            
of employees,  the number of retirees, and "escalating"  health care                                                            
costs  issues.  "From  1982  through 1990,  a  real  strong  capital                                                            
market" assisted  in increasing  the values;  and in the late  1970s                                                            
and early 1980s, the State  experienced a huge [economic] expansion.                                                            
10:30:04 AM                                                                                                                   
Senator Stedman  shared that  the Actuary  would be providing  their                                                            
most recent funding  ratio report soon, and it is  expected that the                                                            
funding  ratios would  decrease even  though  last year's  portfolio                                                            
performed above the projected  8.25 percent target. He reminded that                                                            
the smoothing  method calculations  would amortize those  gains over                                                            
the next five years, and  therefore, even thought the funding ratios                                                            
might  reflect that  the Systems  are "in  worse  shape" …"the  real                                                            
affect" is that "we are  in a little bit better shape than we were a                                                            
year ago". "From this point  going forward" the situation is hopeful                                                            
that  another  decline   in  the  financial  market   would  not  be                                                            
experienced  for at  least another  two  or three  years. While  the                                                            
portfolio  should move  toward being  fully funded,  this would  not                                                            
occur "near  as fast" as it did in  the late 1970s and early  1980s.                                                            
Senator Stedman  concurred  that the barrel  depicted on page  seven                                                            
could have  been presented in the  reverse. This would be  corrected                                                            
in  the  presentation   going  forward.  The  $16.4  billion   total                                                            
liabilities  and the $11.4  billion in net  assets were prominently                                                             
displayed on page  seven in order to clarify "what  is full and what                                                            
is empty".  He  agreed with  Senator Hoffman  that  even though  the                                                            
State has  a five  billion dollar  under-funding  issue, "it  is not                                                            
anywhere near  the point where we  have a cash flow problem  meeting                                                            
our obligations"  … "There is no reason  for any of the retirees  or                                                            
current  participants to  expect that  their benefit  levels are  in                                                            
jeopardy. That's not the issue".                                                                                                
Senator  Stedman  emphasized  that  one purposes  of  SB  141 is  to                                                            
restructure   the  PERS,   TRS,  and  ASPIB   Boards.  One   of  the                                                            
reconstituted  Board's tasks  would be to  determine how to  address                                                            
the  five  billion  dollar  under-funding  situation.  "One  of  the                                                            
solutions is  just to ignore it; another  one is to pay it  off; and                                                            
the  other one  is some  combination"  of the  two.  A multitude  of                                                            
options are available,  but "the overriding factor  that squeezes us                                                            
on that under-funding"  is employer contribution levels "relative to                                                            
the  rest  of  their  salaries  …  "It  squeezes  the  schools"  and                                                            
municipalities  "to direct more money into current  cash flow and to                                                            
benefits".  "It directs current cash  flow today into benefits  that                                                            
were accumulated"  in many  cases over ten  years ago. The  issue of                                                            
alleviating the pressure on cash flow must be addressed.                                                                        
Senator  Hoffman proclaimed  that  this bill  would provide  "major"                                                            
alterations  in the system,  specifically the  change in the  Funds'                                                            
management structure. He  voiced concern regarding the "magnitude of                                                            
the changes"  being proposed  considering that  Alaska is in  better                                                            
shape than  other states.  Changes to the  systems could be  pursued                                                            
after  the  initial focus  of  changing  the  management  structure.                                                            
Changing the whole process  might jeopardize "the financial security                                                            
and  ability to  draw employees  back  into State  services".  These                                                            
things should be taken into consideration.                                                                                      
10:35:28 AM                                                                                                                   
Senator  Bunde  voiced that  there  is public  perception  that  the                                                            
Legislature "is trying  to sneak this through too quickly". However,                                                            
he  attested that  the  discussion  about  changing from  a  Defined                                                            
Benefit Plan  (DBP) to a  Defined Contribution  Plan (DCP)  has been                                                            
occurring for at least ten years.                                                                                               
Senator Bunde  noted that  in 1975, there  were approximately  2,000                                                            
active  employees supporting  approximately  1,700  retirees in  the                                                            
Retirement  System; today,  there  are approximately  43,300  active                                                            
employees and 28,000 retirees.  "The ratio is diminishing". He asked                                                            
whether the  trend line  might someday project  one active  employee                                                            
per retiree.                                                                                                                    
Senator  Stedman responded  that the  answer is  yes. In 1975  there                                                            
were 1,700 retirees, today  there are 28,000 retirees, and there are                                                            
another 20,000  individuals "who have some claim on  the system were                                                            
they come  back in and work  a few more  years" and retire.  This is                                                            
one of the challenges in  determining whether the trends of the late                                                            
1970s and early  1980s could be replicated. "There  is a substantial                                                            
waiting difference  today concerning our retirees  and the cash flow                                                            
demands it places  on the system." This is why, he  agreed "with the                                                            
conclusion  drawn by  the Actuary  that you're not  going to  invest                                                            
your way out of this situation at all".                                                                                         
10:38:21 AM                                                                                                                   
Senator Bunde  responded that were  everyone who had a claim  on the                                                            
Retirement  System "to realize  that claim,  we would actually  have                                                            
one retiree  for every worker making  contributions to the  System".                                                            
That does not sound sustainable.                                                                                                
Senator  Stedman affirmed  that  there are  numerous  Tier 1  former                                                            
State workers  who worked for the State in the 1970s  and 1980s, who                                                            
could be  rehired and retire  from the System  with lifetime  health                                                            
benefits.   This  could   amount  to  $100   million  in   potential                                                            
liabilities  to  the State.  Were  20,000  former State  workers  to                                                            
resume working for the  State and then retire from the System, there                                                            
would be more  retirees than active  employees. This scenario  would                                                            
occur anyway  over the  next 20 to  30 years  as more people  retire                                                            
from the System. Even though  the State's Retirement System is being                                                            
challenged  today,  it is  in a  better  situation that  many  other                                                            
states that  did not pre-fund  their retirement  systems. The  State                                                            
"should  be congratulated"  for  having  the foresight  to  pre-fund                                                            
health  care  in  its  retirement  system.   This  has  assisted  in                                                            
addressing  the situation Senator  Bunde has alluded to where  there                                                            
is a one employee to one retiree ratio.                                                                                         
Senator Olson asked how the ratio might appear in ten years.                                                                    
Senator Stedman  responded that this information would  be provided,                                                            
as projections have been calculated for the next 25 years.                                                                      
Senator Olson asked for  further information regarding how the price                                                            
of North Slope  crude oil affected the funding status  of the System                                                            
as it relates to the trends  of the PERS/TRS funding ratios depicted                                                            
on page eight's chart.                                                                                                          
Senator Stedman responded  that the two largest impacts on the trend                                                            
lines  are the  value placed  on the  Systems' liabilities  and  the                                                            
value of  the assets  in the  portfolio. The  upward trend  occurred                                                            
during  robust economic  times  even thought  there  were "times  of                                                            
fluctuating oil prices".  Aside from the impact that oil prices have                                                            
on the  economy, the retirement  portfolio  is not aligned  with oil                                                            
Senator  Olson applauded  Senator Stedman's  efforts to address  the                                                            
$5.5  billion  liability,  and  stated  that any  delay  would  only                                                            
acerbate the problem.                                                                                                           
Co-Chair Green added that  "the natural inclination is for people to                                                            
turn to the  State for assistance  to backfill and to make  good on"                                                            
future increases.  There is a point  at which the State"  might lose                                                            
all  incentive"  to continue  to  fund that  shortfall.  This  would                                                            
result in a drop-off  in employment, as entities could  not continue                                                            
to  employ people  when  the employer  contribution  rate  increases                                                            
upwards of 50-percent  of the salary just to pay for  benefits. This                                                            
is  why  developing  a  solution  to  the  issue  has  become  "very                                                            
Senator  Stedman turned  the Committee's  attention  to the  handout                                                            
dated  March  17, 2005.  He  noted  that  with any  major  piece  of                                                            
legislation, substantial modifications would be expected.                                                                       
     Page 3                                                                                                                     
     March 17, 2005 handout                                                                                                     
     SB 141 Walk-through                                                                                                        
     Our analysis looked at both components of the problem                                                                      
     With the goal of developing solutions                                                                                      
     Structural Component            Financial Component                                                                        
     To identify the systemic        To identify the causes of                                                                  
     Problems in PERS/TRS            our liability growth                                                                       
     1. How do we prevent this       1. How can we stabilize future                                                             
     from happening again?           Employer contribution rates?                                                               
    2. How can we fix the           2. How can we provide near                                                                  
     system and bring it back        term financial relief to                                                                   
     Into balance?                   employers?                                                                                 
     3. How can we better            3. How do we develop a long                                                                
     predict and control costs       solution to funding the $5.0                                                               
     going forward?                  Billion gap?                                                                               
Senator Stedman  stated that the decision was made  not to develop a                                                            
financial  component to  fix the  five billion  dollar shortfall  in                                                            
this legislation.  It was  determined to be  more important  to deal                                                            
with the structural component  in terms "of how we got here and then                                                            
after that  deal with the  under-funding issue  because you  have to                                                            
stem  the  hemorrhage".  Efforts  to address  how  to  prevent  this                                                            
situation from  re-occurring would include working  with the State's                                                            
actuaries  and the boards  to justify the  values of the assets  and                                                            
the liabilities  to ensure that the most accurate  numbers are being                                                            
presented.  Efforts to  address fixing  the system  would involve  a                                                            
Board  restructuring  in  that  one  entity  would  be  involved  in                                                            
addressing  both  the  assets  and  liabilities  so  that  no  "buck                                                            
passing"  would occur. Efforts  to predict  and control costs  going                                                            
forward would be addressed as the bill progresses.                                                                              
Senator Stedman stated  that the financial side of the equation must                                                            
address  stabilizing   the  employer  contribution   rates,  and  if                                                            
possible  "lower them because  of the squeeze-out  affect it  has on                                                            
today's cash flow to pay  yesterday's benefits for the employees has                                                            
a lot  of  negative impacts  all  across the  State".  The issue  of                                                            
providing  near   term  financial  relief  to  employers   would  be                                                            
addressed after  this legislation  is implemented, as the  new Board                                                            
would  address  the  shortfall  issue  and present  recommendations                                                             
regarding how  to address them. That  would be an entirely  separate                                                            
10:46:22 AM                                                                                                                   
Senator Stedman  stressed that the five billion dollar  shortfall is                                                            
an obligation  under the Employers Defined Benefit  Plan. "It is not                                                            
the employees'  problem per  sec, they did  not create this  issue".                                                            
The Normal Cost  factor is the funding that an employee  contributes                                                            
today  for  benefits  accumulated   for  the  future.  There  is  an                                                            
abundance  of accumulated  Past Service benefits  that must  be paid                                                            
for today. This  is an area that the new Board would  be addressing.                                                            
The  question is  what  would be  a "reasonable"  employer/employee                                                             
contribution  split under  today's economic  conditions with  rising                                                            
health care trends. Currently  PERS employers pay 66-percent and the                                                            
employees  pay 34-percent.  The bill includes  a provision  that the                                                            
contribution  levels  be  reviewed  in order  to  determine  whether                                                            
modifications  to the splits would  be necessary. This issue  should                                                            
not be ignored.                                                                                                                 
     page 4                                                                                                                     
     March 17, 2005 handout                                                                                                     
     We considered the Administration's 2004 Tier Committee work                                                                
     during our analysis and in our solutions                                                                                   
     Tier Committee Data Reviewed:                                                                                              
        · Tier Alternative Recommendations                                                                                      
        · Employer survey                                                                                                       
        · Member focus group results                                                                                            
        · Benchmarking                                                                                                          
        · Benefit levels                                                                                                        
        · Demographic projections                                                                                               
        · Implications of Medicare changes                                                                                      
        · Trends, issues and alternative                                                                                        
        · Cost analysis and projections                                                                                         
10:49:04 AM                                                                                                                   
Senator Stedman  reminded  that a year earlier,  the Senate  Finance                                                            
Committee  had  requested   the  PERS/TRS  Boards   to  review  Tier                                                            
structures  and alternatives. The  Boards' Tier Review subcommittee                                                             
had conducted  a vast amount of work  as depicted on page  four. The                                                            
Boards  had   not,  however,   adopted  either   of  the  two   tier                                                            
alternatives that  had been recommended: one being  a combination of                                                            
DBP and DCP and the other a pure DCP.                                                                                           
Senator  Stedman  stated   that  upon  review  of  the  Tier  Review                                                            
subcommittee's  report,  the pure  DCP plan  was  furthered in  this                                                            
Senator  Bunde shared  that  "a surprising  number  of people"  have                                                            
communicated that it increasingly  difficult to hire talented people                                                            
to work for  the State. The concern  is that were benefits  changed,                                                            
it would further acerbate this situation.                                                                                       
Senator Stedman  responded that this  concern was reviewed  with the                                                            
determination  being  that this  might  or might  not  be a  factor,                                                            
determining  on  how the  benefit  package  was structured.  A  tier                                                            
structure  detrimental   to  retention  and  hiring  should  not  be                                                            
developed.  The contribution level  issue would be addressed  by the                                                            
Committee. "A blanket statement  that a defined contribution plan is                                                            
at a disadvantage  to defined benefits is just not  true. It depends                                                            
on the  structure  of both  plans". A  tier must  be developed  that                                                            
would  be comparable  to Tier  III. Were  both salary  and  benefits                                                            
levels reduced  to the point where  the State was "disadvantaged  in                                                            
the market  place"  then "the  organization  would be  hurt". It  is                                                            
necessary  that the  employer be  provided built-in  flexibility  so                                                            
that in the event that were to occur, they could respond.                                                                       
Senator Olson asked regarding  the stabilizing employer contribution                                                            
rate  component   identified  on   page  three;  specifically   what                                                            
assurances  would  be made  to protect  the  employee.  It would  be                                                            
unacceptable  to place this burden  on the employee when  it was the                                                            
result of poor investment strategy on the part of the Boards.                                                                   
Senator  Stedman  replied  that  in  his  opinion  "it  is  not  the                                                            
obligation  of  the  employee  to  fund  that  five  billion  dollar                                                            
shortfall,  it is an obligation of  the employer". "This  is part of                                                            
the  risk inherent  in  a Defined  Benefit  Plan".  Were  inadequate                                                            
contributions  made and were  there to be  an inadequate  investment                                                            
performance,  it remains the employers'  responsibility to  meet the                                                            
obligations.  "This is  an important  point:  the employee",  either                                                            
current or retired,  is not at risk of loosing their  benefits. Were                                                            
any employee  contribution  adjustment to be  made, it would  not be                                                            
utilized to address  the five billion dollar under-funded  liability                                                            
from the  past. These are  two separate issues:  the benefits  being                                                            
accumulated  today for today's service  as compared to the  benefits                                                            
that were accumulated in the past.                                                                                              
10:54:44 AM                                                                                                                   
     page 5                                                                                                                     
     March 17, 2005 handout                                                                                                     
     SB 141 Walk-through                                                                                                        
     Defined Benefit Plan            Defined Contribution Plan                                                              
     *Benefit level is fixed         *Contribution level is fixed                                                               
     *Benefit is based on a          *Benefit is based on the amount                                                            
     *Formula involving salary,      of money invested and earned in                                                            
     years of service, age, etc      employee's account                                                                         
     *Benefit is paid for life       *Benefit is paid until account                                                             
     and to qualified                runs out                                                                                   
     survivors                       *Future benefit payments are                                                               
     *Future benefit payments        driven by investment performance                                                           
     are NOT affected by the                                                                                                    
     plans funding level                                                                                                        
Senator Stedman explained  that this page compares a DBP to a DCP. A                                                            
DCP  would resemble  a  401(K)  plan whose  contributions  would  be                                                            
invested in pre-determined  investment portfolio options  from which                                                            
an employee could choose.                                                                                                       
     page 6                                                                                                                     
     March 17, 2005 handout                                                                                                     
     SB 141 Walk-through                                                                                                        
     Defined Benefit Plan            Defined Contribution Plan                                                              
     Advantages:                     Advantages:                                                                                
     *Pooling of longevity           *Portability                                                                               
     risk                            *Self-directed investing                                                                   
    *Guaranteed income stream       *Contribution equity among                                                                  
     *System favors longer-          employees                                                                                  
     service employees               *Predictability                                                                            
                                     *Stable costs                                                                              
                                     *Shifting of investment risk                                                               
                                     *No long-term administrative                                                               
     Challenges:                     Challenges:                                                                            
     *Employer bears                 *Workforce management                                                                      
     investment risk                 *Employee education                                                                        
     *Estimation of Liabilities      *Accurate retirement planning                                                              
     *Rising health costs                                                                                                       
     *Unpredictable or                                                                                                          
     uncontrollable costs                                                                                                       
Senator Stedman reviewed the advantages and disadvantages of each                                                               
10:59:58 AM                                                                                                                   
Senator Hoffman stated  that since one of DBP's listed challenges is                                                            
that the  employer bears  the investment risk,  it should be  listed                                                            
under the DCP's  challenges that the employee bears  that investment                                                            
Senator Stedman  agreed and  noted that this  was the intent  of the                                                            
"Shifting of investment  risk" under the Advantages component of the                                                            
DCP. The information  would be changed  to better reflect  that risk                                                            
     page 7                                                                                                                     
     March 17, 2005 handout                                                                                                     
     SB 141 Walk-through                                                                                                        
                     Current PERS    Current PERS         Senate Bill                                                           
                     Tier I/II &     Tier [III] &         141 DC Plan                                                           
                     TRS Tier 1      TRS Tier II                                                                                
                     DB Plan         DB Plan                       .                                                          
    PERS Employee 6.75% other       6.75% or 7.5%        8% all                                                                 
     Contribution    7.5% Police/    Police/Fire          members                                                               
     Rate            Fire            7.5% Police/Fire     voluntary                                                             
                     9.6% school     9.6% school          % up to                                                               
                     district        district             IRA limits                                                            
    TRS Employee    8.65            8.65%                8% all                                                                 
     Contribution                                         members                                                               
     Vesting         5 years PERS    5 years PERS         Immediate                                                             
                     8 year TRS      8 year TRS           for employee                                                          
                                                          Fully vested                                                          
                                                          in employer                                                           
                                                       after 5 years                                                            
     Retirement      55 normal-      60 normal-           Any age                                                               
     Age             50 early        55 early                                                                                   
                     30 years "all 30 years "all                                                                                
                     others"         others"                                                                                    
                     20 Police/Fire 20 Police/Fire                                                                              
                     20 Teachers     20 Teachers                                                                                
     PERS and TRS    2% up to 2.5% 2% up to 2.5%          11.5% per                                                             
     Benefit         multiplier      multiplier           year to DC                                                            
     Formula         per year DB     per year DB          account +                                                             
                     Multiplier x    Multiplier x         investment                                                            
                     years of        years of             earnings.                                                             
                     service         service              HRA account                                                           
                     x high 3 years x high 3 (TRS)        accumulated                                                           
                     avg salary      years or 5(PERS)     over working                                                          
                                     years avg salary     lifetime                                                              
Senator Stedman  pointed out that the third column's  heading should                                                            
correctly identify  Tier III rather than Tier II/III.  He noted that                                                            
page eight provides the  breakout details for the medical and normal                                                            
costs components for these components.                                                                                          
Senator  Stedman  referred the  Committee  to a  separate  five-page                                                            
March 17, 2005  handout titled "SB 141 Walkthrough"  [copy on file].                                                            
That  material includes  Section  numbers  and pages  numbers  which                                                            
correspond  to language  in the bill.  The "heart"  of the  proposed                                                            
benefit tier is the Defined Contribution Plan.                                                                                  
     SB 141 Walkthrough                                                                                                       
     Defined Contribution (DC) Plan Elements                                                                                  
     *Required Contributions                                                                                                  
        · Employee: 8.0% of compensation, deducted pre-tax by                                                                   
          employer. Sec.14.25.340(pg 13), Sec.39.35.730(pg 64).                                                                 
        · Employer: 3.5% of employee compensation. Sec.14.25.350(pg                                                             
          14), Sec.39.35.740(pg 70)                                                                                             
        · Total individual account contributions: 11.5%                                                                         
     *Optional Contributions                                                                                                  
        · A member may elect to contribute additional earning not                                                               
          to exceed the limits established by the Internal Revenue                                                              
          Code. Sec. 14.25.340(b)(pg 13), Sec. 39.35.730(c) (pg 69)                                                             
Senator Stedman reviewed  the components of the retirement benefits.                                                            
The  medical  benefits  component  would  be addressed  separately.                                                             
Outlining  the various  components in  this manner  would allow  for                                                            
them to be addressed during discussions with the Board.                                                                         
     *Vesting Sec. 14.25.390(pg 16), Sec. 39.35.790(pg 72)                                                                    
        · All members of the DC plan are immediately vested in                                                                  
           their own contribution and related earnings.                                                                         
        · Members are gradually vested in the employer                                                                          
          contributions and related earning on the following                                                                    
     = 25% after two years                                                                                                      
     = 50% after three years                                                                                                    
     = 75% after four years                                                                                                     
     = 100% after five years                                                                                                    
      *Rollovers Sec. 14.35.360(pg 14), Sec. 39.35.760(pg 70)                                                                 
        · Employees can take their individual account with them                                                                 
          when they leave employment.                                                                                           
        · Employees can "roll" in other qualified funds when they                                                               
          are hired.                                                                                                            
Senator Stedman  noted that were the  employee to terminate  service                                                            
at any time,  their employee contributions  would accompany  them at                                                            
full value. Were  the employee to leave State employment  after five                                                            
years,  they   would  be  entitled   to  100  percent  of   employer                                                            
contributions.  These employer  contributions  would be portable  in                                                            
that the employee  could roll them  into their individual  IRA or to                                                            
subsequent  employers' 401(k)  plans. The  portability component  is                                                            
beneficial  as the national  employment trend  is that people  would                                                            
"have multiple careers  during their working lifetime". The national                                                            
trend is  toward making retirement  plans portable  from one  job to                                                            
11:05:10 AM                                                                                                                   
     Investments of Accounts Sec. 14.25.400(pg 16), Sec.                                                                        
     39.35.800(pg 72)                                                                                                           
        · The Alaska Retirement Management Board will provide a                                                                 
          range of investment options.                                                                                          
        · Participants direct the investment of their funds.                                                                    
     Distribution of Accounts                                                                                                 
        · Employee may elect a distribution of funds upon                                                                       
          termination of employment, after 60 days. Sec.                                                                        
          14.25.410(pg 17) - Sec. 14.25.430(pg 19), Sec.                                                                        
          39.35.810(pg 73)-Sec. 39.35.810(b) (pg 73)                                                                            
        · Subject to IRC regulations.                                                                                           
        · May receive funds prior to 60 days for financial                                                                      
          hardship. Sec. 14.25.410(b) (pg 17), Sec. 39.35.810(b)                                                                
          (pg 73)                                                                                                               
Senator Stedman stated  that the investment options would be similar                                                            
to those  offered  in the Supplemental  Benefits  System (SBS).  The                                                            
employees  "would bear  the  risks and  the rewards".  The  employee                                                            
could remove their  funds from the system 60 days  after terminating                                                            
11:06:04 AM                                                                                                                   
Senator  Bunde  asked regarding  the  frequency  of  the  retirement                                                            
Senator Stedman stated  that this would be developed as the language                                                            
progresses.  However, the  list of available  options would  include                                                            
the mandatory  age 70.5 distribution.  "Most people would  take this                                                            
plan and roll it into their  IRAs upon separation of service" or the                                                            
employer  would have  "a whole range"  of options  through which  to                                                            
address monies left in the System.                                                                                              
Senator  Bunde shared  a constituent's  question  regarding  whether                                                            
there  was a  safety  net through  which  to  address  the needs  of                                                            
someone who upon retirement,  might have invested poorly or expended                                                            
all their funds.                                                                                                                
Senator Stedman  responded that the  investment options provided  by                                                            
the  Alaska  Retirement   Board  would  have  standard  selections.                                                             
However,  were someone  to retire,  the employer  would not be  held                                                            
responsible  at that  point forward.  The employer  would provide  a                                                            
multitude of investment information.                                                                                            
11:09:23 AM                                                                                                                   
     Medical Program Elements                                                                                                 
        · Required Contribution by Employer Sec. 14.25.480(pg 24),                                                            
          Sec. 39.35.870 (pg 80)                                                                                                
        · 3.75% of employee compensation.                                                                                       
        · Contribution is made to group health and life insurance                                                               
          trust fund to be used for employer share of retiree's                                                                 
          monthly medical premiums.                                                                                             
TRACI  CARPENTER,  Staff to  Co-Chair  Green, reviewed  the  medical                                                            
components  of  the  bill, which  she  attested  define  "where  the                                                            
concept  of retirement  really  comes"  into play  in  the DCP.  The                                                            
contribution rate  of the employer would be set at  3.75 percent, as                                                            
recommended  by Mercer. This  rate "is considerably  lower  than the                                                            
current nine percent".                                                                                                          
     Retirement Sec. 14.25.470 (pg 24), Sec. 39.35.870 (pg 80)                                                                
        · Retirement from the DC plan is required to obtain access                                                              
          to major medical insurance and the health reimbursement                                                               
          arrangement (HRA)                                                                                                     
        · Access means that an eligible person may not be denied                                                                
          insurance coverage except for failure to pay the required                                                             
        · A member is eligible to retire if they have reached:                                                                  
          = normal retirement age of 65 and has minimum of 10                                                                   
          years; or                                                                                                             
          = has 25 years of service for peace officer/firefighter;                                                              
          = has 30 years of service for all others; and                                                                         
          = has been an active member for at least a year prior to                                                              
11:13:43 AM                                                                                                                   
Ms.  Carpenter read  the retirement  components  and  stated that  a                                                            
person  must be:  employed for  a minimum  of one  year before  they                                                            
could  apply  for retirement  and  must  meet  the age  and  service                                                            
   Major Medical Insurance Sec. 14.25.480 (pg 24), Sec.                                                                       
   39.354.880(pg 80)                                                                                                            
     ·  A member who meets the  retirement provisions is eligible to                                                            
        enroll in the retiree major medical insurance plan.                                                                     
          = Insurance coverage includes the spouse and dependent                                                                
          children of the retiree.                                                                                              
     ·  The surviving  spouse of a retiree  who was enrolled  in the                                                            
        retiree major medical insurance plan is also eligible to                                                                
          = Insurance coverage includes the dependent children of                                                               
          the surviving spouse.                                                                                                 
     ·  Retirees who  meet the  required years  of service,  but who                                                            
        are less than Medicare age eligible (presently 65), must                                                                
        pay the full premium to receive coverage.                                                                               
     ·  Retirees who  are Medicare  age eligible  will pay only  the                                                            
        portion of monthly medical premiums depending on years of                                                               
          + 10-14 years = 30%                                                                                                   
          + 15-19 years = 25%                                                                                                   
          + 20-24 years = 20%                                                                                                   
          + 25-29 years = 15%                                                                                                   
          + 30+ years   = 10%                                                                                                   
     · Only one premium per retiree and family.                                                                                 
     ·  Different  premiums   developed  for  single  retirees   and                                                            
        retirees with spouse and/or children.                                                                                   
Ms. Carpenter reviewed the Major Medical Insurance component.                                                                   
     Health  Reimbursement Arrangement  (HRA) Sec. 39.30.300(pg  47)                                                          
     Required Contributions                                                                                                     
     = Employer  contributes  an annual amount  per employee  to the                                                            
     health insurance trust fund.                                                                                               
     =  Calculation   is  1%  of   average  annual  employer   group                                                            
     compensation, to a maximum of $500.                                                                                        
     =  Contribution  is recorded  in  both an  individual  employee                                                            
     record of account and an employer record.                                                                                  
     = Interest  is posted to individual records annually,  the rate                                                            
     determined by the ARMB.                                                                                                    
     = Contributions  and interest accumulate over  working lifetime                                                            
     of employees.                                                                                                              
     Employer Fund Sec. 39.30.350(pg 48)                                                                                        
     = The HRA Trust is an employer owned fund.                                                                                 
     = Individual  accounts of record are maintained  for five years                                                            
     if an employee terminates without retiring.                                                                                
     = Terminated  employee accounts  revert to the employer  unless                                                            
     the individual returns to work within the five-year period.                                                                
     = A person  who returns to work within the five-year  period is                                                            
     attributed  the account balance  recorded in their name  on the                                                            
     date of termination.                                                                                                       
     = Employers  may use surplus funds held in the  trust to credit                                                            
     individual employee  records with the annual contributions owed                                                            
     by the employer.                                                                                                           
     = Who is eligible? Sec. 39.30.390(pg 48)                                                                                   
          + Members who retire directly from the system plus their                                                              
     spouse and dependent children                                                                                              
          + Spouse and dependent children are still eligible if the                                                             
     retiree dies                                                                                                               
          + Dependent children are still eligible if both retiree                                                               
     and spouse die.                                                                                                            
     = Reimbursements made  for qualified medical expenses under (RC                                                            
     213(d), including  medical premium payments. Sec. 39.30.400 (pg                                                            
     = Total reimbursements  are limited to an individual's recorded                                                            
     = No set limits other than exhaustion of account balance.                                                                  
Ms. Carpenter  stated that the "HRA  is a new feature". The  idea is                                                            
to  have  a separate  fund  to  which  the  employer  contributes  a                                                            
specified  dollar  amount  for each  employee.  The  employer  group                                                            
compensation method  would "ensure equity" for each  employer as the                                                            
amount is based  on a groups' average  salary. The fund would  be an                                                            
employer  owned fund  in that  employees  do not  contribute to  it.                                                            
Funds that revert to the  Trust could be utilized by the employer to                                                            
prepay future contributions.                                                                                                    
[Note: Senator Bunde assumed chair of the meeting.]                                                                             
Senator Bunde  asked Senator Stedman  to, when appropriate  identify                                                            
the component of the bill  that would provide flexibility to address                                                            
such things as recruiting challenges.                                                                                           
Senator  Hoffman referenced  earlier  comment that  one of the  good                                                            
elements  of the  State's  current  medical program  is  that it  is                                                            
prepaid. To that point, he asked how this plan would compare.                                                                   
Senator  Stedman opined  that  an employee  would prefer  to have  a                                                            
defined  benefit plan  for health  care  in that  after a  specified                                                            
number of  years, medical  benefits "are provided  for life  with no                                                            
risk  sharing  of  the premium  cost  increases  into  the  future".                                                            
However, from an employer's  standpoint, this would not be preferred                                                            
due to  the risk  level associated  with it and  the difficulty  the                                                            
employer has in  calculating future years' levels  of liability. The                                                            
DCP being  proposed  would provide  that an  employee who  separates                                                            
from the State early would  be required to pay some portion of their                                                            
own health insurance premiums until they reach the age of 65.                                                                   
11:20:15 AM                                                                                                                   
Senator Stedman  stated, therefore, that the answer  to the question                                                            
would depend  on whether the employer  or the employee is  answering                                                            
it. There  is a trend  to move away  from DBP  "due to the  inherent                                                            
risk level for the employer".                                                                                                   
[Note: Co-Chair Green resumed chair.]                                                                                           
11:21:32 AM                                                                                                                   
Senator Stedman responded  to Senator Bunde's question regarding the                                                            
flexibility   that  could   be  provided   to  address  recruitment                                                             
difficulties by stating  that one of the disadvantages recognized by                                                            
employers  in  the  current system  is  that  the  fact that  it  is                                                            
embedded  in the  State's Constitution  does  not provide  a lot  of                                                            
flexibility  were adverse  conditions to arise.  Under the  new tier                                                            
proposal   there  would   be  flexibility   in  that  the   employer                                                            
contribution rate levels  could be discussed. Some adjustments could                                                            
be  made  to the  rates  being  proposed.  Were  the State  to  face                                                            
recruitment  or retention challenges  in the future, the  ability to                                                            
revisit the  rate would be provided.  "It is very difficult  to take                                                            
something away, but it is very easy to increase it".                                                                            
Senator Bunde  understood therefore  that "the current systems  that                                                            
are inscribed  in Constitution are  inflexible by definition".  This                                                            
new system  would  not be  embedded in  the Constitution  and  would                                                            
therefore have some flexibility.                                                                                                
     Changes to Existing Retirement System                                                                                    
     Consolidation of Boards                                                                                                  
        · Eliminates:                                                                                                           
          = Public Employees' Retirement System Board                                                                           
          = Teachers' Retirement System Board.                                                                                  
          = Alaska State Pension Investment Board.                                                                              
        · Creates new Alaska Retirement Management Board (ARM                                                                   
          Board) Sec. 37.10.210 (pg 36)                                                                                         
          = 9 trustees appointed by the Governor                                                                                
                + Commissioner of Administration                                                                                
                + Commissioner of Revenue                                                                                       
                + 3 Alaska residents who do not participate in the                                                              
                retirement system                                                                                               
          + 1 finance officer of a political subdivision                                                                        
                + 1 finance officer of a school district                                                                        
                + 1 PERS member (active or retired)                                                                             
                + 1 TRS member (active or retired)                                                                              
          = All trustees must have recognized competence in one or                                                              
          more fields of investment management, finance, banking,                                                               
          economics, accounting, pension administration, or                                                                     
          actuarial analysis                                                                                                    
          = Terms                                                                                                               
                + Staggered three years                                                                                         
                + Limited to three consecutive terms with a required                                                            
                     one-year break                                                                                             
Senator Stedman emphasized  that the three current boards, the PERS,                                                            
TRS, and  ASPIB Boards, would  be consolidated  into one Board,  the                                                            
Alaska  Retirement Management  (ARM)  Board, that  would consist  of                                                            
nine members.                                                                                                                   
11:25:21 AM                                                                                                                   
     Authority and Responsibility of ARM Board Sec. 37.10.220 (pg                                                             
     38), Sec. 39.30.155 (pg 46)                                                                                                
             · Manage the assets of the defined benefits trust                                                                  
                fund to meet pension liabilities.                                                                               
             · Annual actuarial valuation of system plans,                                                                      
                coordinating    with    the    retirement     system                                                            
             · Analysis of actuarial assumptions experience:                                                                    
                = Health costs assumptions annually.                                                                            
                = All other assumptions not less than every four                                                                
        · Audit of actuary not less than every four years.                                                                      
        · Rate setting:                                                                                                         
                = Employer contribution rates, including "normal                                                                
                     cost" and "past service cost".                                                                             
                = Employer contribution rates to the extent that the                                                            
                     normal cost rate increases so that 50 percent                                                              
                     would be higher than the current rates set in                                                              
                = Interest rates credited to individual employee                                                                
                = Interest rates credited to employee HRA account                                                               
        · Provide a range of investment options for all employee-                                                               
          directed accounts.                                                                                                    
Senator Stedman stated  that the goal is to manage the assets of the                                                            
DBP Trust  to meet pension  liabilities.  Both should be  considered                                                            
when decisions  are  being made.  Mismatching  these components  has                                                            
resulted  in   today's  situation.   The  specified  actuarial   and                                                            
assumption  reviews would assist in  keeping the system "on  track".                                                            
The rate setting components  for Normal Cost and Past service Costs,                                                            
which are two  separate items, must  be considered in rate  setting.                                                            
This  bill would  propose,  for  a discussion  starting  point,  the                                                            
Normal  Service Cost  being split  approximately  50/50 between  the                                                            
employer and the employee.  Currently that split is approximately 66                                                            
percent employer  and 34 percent employee.  This would increase  the                                                            
employee contribution.  After discussion,  the decision might  be to                                                            
not increase the employee percentage.                                                                                           
11:27:50 AM                                                                                                                   
     Other Duties of the former PERS and TRS Boards Transferred                                                               
     Sec. 39.35.005(pg 53)                                                                                                      
     · To the Commissioner of Administration:                                                                                   
        = Adoption of regulations governing the retirement                                                                      
        = Requests for a waiver of any adjustment made to the                                                                   
         retirement system accounts due to a change or error                                                                    
         in contributions or benefit computations.                                                                              
     · To the Office of Administrative Hearings: Sec. 109(pg 90)                                                                
        =Adjudication of appeals related to decisions of the                                                                    
         retirement system administrator.                                                                                       
        =Adjudication of appeals related to the denial of a                                                                     
         waiver for repayment of overpayments.                                                                                  
Senator Stedman  stated that due to  the fact that this legislation                                                             
would eliminate the PERS  and TRS Boards, other duties of the Boards                                                            
must be re-directed.                                                                                                            
11:30:49 AM                                                                                                                   
Senator Stedman  noted that as organized  labor groups weight  in on                                                            
the proposals, adjustments  to such things as the contribution rates                                                            
might need addressing.  He reiterated that a "clear distinction must                                                            
be  made" between  the  Normal Service  Cost  and the  Past  Service                                                            
Senator  Stedman  stated that  the  Committee  has been  provided  a                                                            
handout  titled "Alaska  Retirement  System Boards"  [copy on  file]                                                            
dated  March  17th,  2005  that  provides  comparisons  between  the                                                            
current systems and the proposed system.                                                                                        
Senator Stedman stated  that this concludes his remarks for the day.                                                            
The hope is  to provide the information  to the public "in  order to                                                            
facilitate  a  robust  discussion  of  the  pros and  cons"  of  the                                                            
proposal. Amendments  could be presented to further  the development                                                            
of "a new tier  proposal that is fair and comprehensive  not only to                                                            
the employees,  but to the State and to the citizens  of the State".                                                            
Senator  Hoffman asked  whether the  Past Service  Cost obligation,                                                             
which  "would   be  calculated  at   the  time  of  transition"   at                                                            
approximately $5.5 billion,  would have an interest rate attached to                                                            
it and whether a timeframe  had been established in which to address                                                            
that obligation.                                                                                                                
Senator Stedman responded  that the Past Service Cost's $5.5 billion                                                            
unfunded  liability "would  not change  with the  creation of  a new                                                            
tier" and would  remain with the structure associated  with Tiers I,                                                            
II and  III. Existing employees  would continue  under the  terms of                                                            
the  existing tiers  with  the exception  being that  new  employees                                                            
would be  provided the  option of  transferring to  the new  tier if                                                            
they so desired. New employees would be subject to the new tier.                                                                
11:33:49 AM                                                                                                                   
Senator Hoffman  commented  that, at some  point, the employer  must                                                            
address the  Past Service Cost obligation.  Therefore, he  asked how                                                            
that obligation would be addressed.                                                                                             
Senator Stedman,  expressing that Senator Hoffman  is making a "good                                                            
point",   stated   that   the  proposed   50/50   employer/employee                                                             
contribution  spilt would  only apply  to the  Normal Service  Cost.                                                            
"The  Past Service  Cost is  a separate  entity not  related to  any                                                            
50/50 split". He understood  that there would be no legal obligation                                                            
on the part  of current and retired  employees "to go back  and help                                                            
the State  with the Past  Service Cost. That  is a liability  of the                                                            
State". The  50/50 split  pertaining to the  Normal Service  Cost is                                                            
included  "to recognize  that there  has been large  changes  in the                                                            
cost of health  care and benefits over the last couple  of decades".                                                            
It was  considered "prudent"  for  the State to  include this  ratio                                                            
split as a point of discussion.  The question is whether the current                                                            
66/34 employer/employee  contribution  "split is fair" or  should it                                                            
be changed  to the proposed  50/50 split or  some point in  between.                                                            
The five billion  dollar under-funding liability does  relate to the                                                            
Past Service Cost.                                                                                                              
Senator Hoffman  acknowledged that the liability does  relate to the                                                            
Past Service  Cost, but stated that  "at some point" that  liability                                                            
must be paid off.  In that regard, he asked whether  a plan has been                                                            
developed  under the  current three  tiers whereby  that  obligation                                                            
would be paid off or whether  "that's the life of the retirement and                                                            
once  those  people retire  then  its  magically  paid off  at  that                                                            
Senator Stedman responded  that the Committee could issue a decision                                                            
that the  debt would  never  be paid off;  that some  portion  of it                                                            
would  be paid; or  that it  could be dealt  with in  ten, 15  or 20                                                            
years. This  discussion should be  addressed after the new  Board is                                                            
established and had an  opportunity to review the situation and make                                                            
Senator Hoffman understood  therefore that the employer contribution                                                            
rate components  included in this legislation are  applicable to the                                                            
Normal  Cost Rate. The  Board would  address the  Past Service  Cost                                                            
rates. The  State would continue  to be obligated  to fund  the Past                                                            
Service Cost  liability. "That bill  is going to come due  someday".                                                            
Senator  Stedman replied  that the  Past Service  Cost debt was  not                                                            
addressed  in this bill  "due to  the complexity  of the issue".  "A                                                            
clear distinction" between  the Normal Cost Rate issues and the Past                                                            
Service Cost  rate issues must be  defined as, it would be  easy for                                                            
people  to incorrectly  assume that  an employee  payment  structure                                                            
would be implemented in order to address the debt.                                                                              
11:38:39 AM                                                                                                                   
Senator Stedman opined  that separating these issues would allow for                                                            
an  orderly  analysis  of  the  five  billion   dollar  debt  to  be                                                            
Senator  Hoffman stated  that the  five billion  dollar debt  is the                                                            
reason  "we  are  here".  Making  "this  monumental  change  without                                                            
addressing  the  reason  why "we  are  here is  not  fulfilling  our                                                            
Senator Stedman  expressed that the five billion dollar  debt is the                                                            
result of  systemic problems  in the system.  The systemic  problems                                                            
must  be identified  and fixed  before  the resulting  five  billion                                                            
dollar  debt issue  could  be  addressed.  Were money  allocated  to                                                            
address  the debt  without  fixing whatever  created  the debt,  the                                                            
situation might "reoccur in the future".                                                                                        
11:40:48 AM                                                                                                                   
Senator  Stedman  stressed that  this  "is why  this  is a  two-step                                                            
process". It is  hopeful that this legislation would  be adopted and                                                            
then the five billion dollar debt could be addressed.                                                                           
Ms.  Carpenter noted  that  this legislation  would  not change  the                                                            
manner  in which  the employer  contribution  rates are calculated.                                                             
Currently the  Actuary calculates  the unfunded liability,  which is                                                            
the  Past Service  Rate.  It  is amortized  over  25 years  with  an                                                            
approximate  four-percent  interest  rate,  which  the  employer  is                                                            
required  to  pay.  The  FY  06  Employer  Contribution   rates  are                                                            
projected to  be 25.62 percent for  PERS and 38.85 percent  for TRS.                                                            
These escalating employer  contribution rate levels for benefits are                                                            
"the big problem" that employers are facing each year.                                                                          
Co-Chair Green  asked whether a continual  increase in the  rates is                                                            
Ms. Carpenter  responded that, for the next 25 years,  the PERS rate                                                            
is projected  to increase  to the 30-percent  range and TRS  rate is                                                            
projected to increase to approximately 50-percent.                                                                              
Co-Chair Green  concluded therefore,  that not doing anything  would                                                            
contribute  to the continuance of  the problem. Changing  the system                                                            
would at  least stop the  trend established  by the current  system.                                                            
Something must change in the system to address the problem.                                                                     
Senator Olson  found it "inconceivable  that the idea of  not paying                                                            
for the liability would even be on the radar screen".                                                                           
Senator Stedman responded  that, in his opinion, "it is not a viable                                                            
option". A variety of options  could be presented, to include paying                                                            
the debt  if the State had  the money or "to  ignore it and  let the                                                            
plan run". Neither of those  options is acceptable. The answer might                                                            
be somewhere  in the  middle. Some  plan must  be developed  through                                                            
which to alleviate  the burden placed  on the employers.  Otherwise,                                                            
its continuance  would be detrimental  to the economy of  the State.                                                            
"It shifts  too  much cash  flow into  employee  benefits that  were                                                            
11:44:52 AM                                                                                                                   
Senator Stedman  concluded that the  solution would be somewhere  in                                                            
the middle. Ignoring  the problem "is not the solution  and we don't                                                            
have the  ability to  write a check  and fund  it". Even were  money                                                            
available,  the root of  the problem must  be addressed.  Mechanisms                                                            
could then be developed through which to address the debt.                                                                      
Senator Olson declared that efforts must be taken "to insure that                                                               
the employee does not come out on the short side".                                                                              
The bill was HELD in Committee.                                                                                                 
Co-Chair Green adjourned the meeting at 11:45 AM.                                                                               

Document Name Date/Time Subjects