Legislature(2021 - 2022)SENATE FINANCE 532

03/11/2021 09:00 AM Senate FINANCE

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Audio Topic
09:01:58 AM Start
09:04:16 AM SB55
01:02:05 PM Follow Up: Executive Order 119 - Reorganization of Department of Health and Social Services
01:18:52 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Invited & Public Testimony --
<Time Limit May Be Set>
+ Follow up: Executive Order 119 - Reorganization TELECONFERENCED
of DH&SS:
- Department of Health & Social Services
- Department of Law
<Above Item Rescheduled from 3/9/21>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                      March 11, 2021                                                                                            
                         9:01 a.m.                                                                                              
9:01:58 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Bishop called the Senate Finance Committee meeting                                                                     
to order at 9:01 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Click Bishop, Co-Chair                                                                                                  
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Natasha von Imhof                                                                                                       
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Neil Steininger, Director, Office of Management and Budget,                                                                     
Office of the Governor.                                                                                                         
PRESENT VIA TELECONFERENCE                                                                                                    
Mike Barnhill,  Deputy Commissioner, Department  of Revenue,                                                                    
Juneau;  Stacie  Kraly,  Chief Assistant  Attorney  General,                                                                    
Department of Law, Civil  Division; Adam Crum, Commissioner,                                                                    
Department of Health and Social Services, Wasilla.                                                                              
SB 55     EMPLOYER CONTRIBUTIONS TO PERS                                                                                        
          SB 55 was HEARD and HELD in committee for further                                                                     
FOLLOW UP: EXECUTIVE ORDER 119 - REORGANIZATION OF                                                                              
DEPARTMENT OF HEALTH AND SOCIAL SERVICES                                                                                        
     DEPARTMENT OF LAW                                                                                                          
SENATE BILL NO. 55                                                                                                            
     "An  Act  relating  to employer  contributions  to  the                                                                    
     Public  Employees'  Retirement  System of  Alaska;  and                                                                    
     providing for an effective date."                                                                                          
9:04:16 AM                                                                                                                    
NEIL STEININGER, DIRECTOR, OFFICE  OF MANAGEMENT AND BUDGET,                                                                    
OFFICE OF  THE GOVERNOR, discussed the  presentation, "State                                                                    
of Alaska,  Office of  Management and  Budget, SB55Employer                                                                     
Contributions to  PERS, Senate Finance Committee,  March 11,                                                                    
2021" (copy on file). He  looked at slide 2, "SB55  Employer                                                                    
Contributions to PERS":                                                                                                         
     ?  Removes cap  on  Public  Employee Retirement  System                                                                    
     (PERS)  payroll  contributions  made by  the  State  of                                                                    
     Alaska as an employer                                                                                                      
     ?  Continues to  fully fund  state's obligation  to the                                                                    
     PERS system                                                                                                                
     ? Applies only to the  State of Alaska, does not impact                                                                    
     other PERS employers                                                                                                       
    ? Does not impact Teachers Retirement System (TRS)                                                                          
     ? Does not change retiree benefits                                                                                         
     ? Does not reduce contributions to PERS                                                                                    
     ? Allows for full cost  share with federal programs and                                                                    
     other  sources used  to  fund  state programs,  thereby                                                                    
     reducing general fund expenditures  by $25.7 million in                                                                    
Senator  Olson  wondered  why the  other  Public  Employees'                                                                    
Retirement System (PERS) employers  were not included in the                                                                    
Mr. Steininger  replied that other  PERS employers,  such as                                                                    
municipalities, did not have access to those federal funds.                                                                     
Senator  Olson  queried the  reason  for  not including  the                                                                    
teachers retirement system (TRS).                                                                                               
Mr. Steininger replied that most  of those employees did not                                                                    
have a  significant federal cost  share, so there was  not a                                                                    
significant cost savings to the TRS employees.                                                                                  
Senator  Olson wondered  whether  the  other PERS  employers                                                                    
were in favor of the move.                                                                                                      
Mr. Steininger  replied that, initially,  the municipalities                                                                    
had  concerns about  the applicability  of  the change,  but                                                                    
they were supportive of the change.                                                                                             
Mr.  Steininger   highlighted  slide   3,  "SB55Background:                                                                     
Alaska's Retirement Obligations":                                                                                               
    ? Alaska has four public employee retirement tiers                                                                          
     ? Total annual obligation based on a blended                                                                               
     contribution rate                                                                                                          
     ? Current cost of obligation split between "Employer                                                                       
     Obligation" and "On-Behalf                                                                                                 
          o Employer contributions (22 percent) on employee                                                                     
          salaries mixed fund sources                                                                                           
          o On-behalf payments for Municipalities and other                                                                     
          PERS employers 100 percent UGF                                                                                        
          o On-behalf payment for State of Alaska as an                                                                         
          employer 100 percent UGF                                                                                              
     ? This bill addresses the on-behalf payment for State                                                                      
     of Alaska as an employer                                                                                                   
9:10:56 AM                                                                                                                    
Co-Chair Stedman queried the history of the concept.                                                                            
Mr. Steininger replied  that over the last  couple of years,                                                                    
from  FY 15  there  was  a large  deposit  into the  pension                                                                    
systems. He remarked that  the deposit significantly reduced                                                                    
the ongoing  liability. He  noted that  there was  an upward                                                                    
trend to  the payment, with  a current $300  million payment                                                                    
for  the retirement.  He stated  that there  had been  ideas                                                                    
about addressing the issue.                                                                                                     
Co-Chair  Stedman recalled  a presentation  in the  previous                                                                    
week that  the unfunded liability payments  were intended to                                                                    
conclude at the end of century.                                                                                                 
Mr.  Steininger   agreed,  and  stated  that   the  unfunded                                                                    
liability for  the Tiers  1 through  3 retirement  plan were                                                                    
scheduled to end payments at the end of the century.                                                                            
Co-Chair Bishop wondered whether  there was federal guidance                                                                    
to use federal money.                                                                                                           
Mr. Steininger replied that there  was work with the federal                                                                    
groups that dealt  with cost allocations to  the state about                                                                    
9:16:53 AM                                                                                                                    
Senator  Wilson surmised  that the  federal  groups were  on                                                                    
Mr.  Steininger replied  that there  were discussions  about                                                                    
allocation  of   cost  to  determine  the   allowability  of                                                                    
application full actuarial right.                                                                                               
Senator Wilson queried any downsides  to the state's federal                                                                    
Mr. Steininger replied that he  had not heard any misgivings                                                                    
about the proposal.                                                                                                             
9:20:21 AM                                                                                                                    
Senator  Wielechowski  surmised  that the  proposal  took  a                                                                    
portion of federal  money for another department  and use it                                                                    
for retirement.                                                                                                                 
Mr. Steininger replied in the affirmative.                                                                                      
Senator   Wielechowski   surmised   that  there   were   not                                                                    
additional federal dollars.                                                                                                     
Mr.  Steininger replied  that it  depended  on the  specific                                                                    
federal program.                                                                                                                
Senator  Wielechowski remarked  that  the  portion of  money                                                                    
intended  for  a  project  would  not  be  taken  from  that                                                                    
project,  rather  there  was  a loophole  to  take  in  more                                                                    
federal dollars and not reduce the services.                                                                                    
Mr. Steininger replied in the affirmative.                                                                                      
Co-Chair Bishop wondered whether  money would be reduced for                                                                    
a specific project.                                                                                                             
Mr. Steininger  replied that the  full money would  still be                                                                    
used for  the project or  department, but the cost  would be                                                                    
reflected  higher,   because  it  would  reflect   the  true                                                                    
actuarial retirement obligation to  the employees working on                                                                    
the roads.                                                                                                                      
9:25:05 AM                                                                                                                    
Senator Wilson  wondered whether  the proposal  would affect                                                                    
all federal grant programs.                                                                                                     
Mr. Steininger replied in the affirmative.                                                                                      
Senator Olson wondered whether there  were other states that                                                                    
had a similar plan.                                                                                                             
Mr. Steininger replied that every  state was unique in their                                                                    
handling of the obligations. He  deferred to Mr. Barnhill to                                                                    
discuss the states' handling of their unfunded liabilities.                                                                     
Senator  Olson surmised  that no  other state  had the  same                                                                    
type of system in place.                                                                                                        
Co-Chair Bishop stated that the  committee may want to see a                                                                    
spreadsheet  on  hypothetical  projects with  the  potential                                                                    
Senator von Imhof requested an  examination of the state and                                                                    
federal  match,   with  a  determination  of   the  possible                                                                    
changing metrics over time.                                                                                                     
9:30:07 AM                                                                                                                    
Senator  Wielechowski  wondered  whether the  percentage  of                                                                    
payroll could increase.                                                                                                         
Mr.  Steininger replied  that the  30.11 percent  of payroll                                                                    
was  calculated   by  the  state's  actuarial   firm,  which                                                                    
determined that  the actuarial  liability was  30.11 percent                                                                    
in FY 22.                                                                                                                       
Senator  Wilson queried  the number  of federal  grants that                                                                    
were up for renegotiation in the upcoming year.                                                                                 
Mr. Steininger agreed to provide that information.                                                                              
Senator  Wilson  wanted to  know  how  soon there  could  be                                                                    
actual data and outcomes to the committee.                                                                                      
Mr.  Steininger replied  that each  year  over the  upcoming                                                                    
years would begin  to show the actual costs,  and their fund                                                                    
9:33:24 AM                                                                                                                    
Mr. Steininger  pointed to slide  4, "SB55  State  of Alaska                                                                    
as  an Employer  Retirement  Obligation   Current Law."  The                                                                    
slide showed how the obligation  was paid under current law.                                                                    
He  noted  that  employer  contribution was  22  percent  of                                                                    
Mr. Steininger addressed slide 5,  "SB55  State of Alaska as                                                                    
an Employer Retirement Obligation Proposed Law":                                                                                
     Savings will grow over time:                                                                                               
     ?Some programs show savings in year one                                                                                    
     ?Some cost allocations require 1 to 3 years to adjust                                                                      
     -dependent on negotiation of federal cost allocation                                                                       
Mr.  Steininger noted  that the  total  amount budgeted  was                                                                    
greater  than under  current law.  He stated  that actuaries                                                                    
could not predict future factors.                                                                                               
Senator Wielechowski  asked whether there was  a reason that                                                                    
it was not  written in a way to have  the federal government                                                                    
pick  up   the  cost  for  local,   municipal,  and  borough                                                                    
Mr. Steininger  replied that  it would  only be  possible if                                                                    
the  local communities  were  receiving significant  federal                                                                    
Senator  Wielechowski felt  that  Fairbanks, Anchorage,  and                                                                    
Juneau received significant federal  funds. He wondered what                                                                    
was considered "significant."                                                                                                   
Mr.  Steininger  replied that  the  additional  cost on  the                                                                    
local  communities would  be greater  than  what they  could                                                                    
federally claim on their retirement contribution.                                                                               
9:40:02 AM                                                                                                                    
Mr.  Steininger discussed  slide  6, "SB  55: FY2022  Budget                                                                    
Impact." He pointed out that the  bill did save money to UGF                                                                    
spending, but  shifted costs from the  language section into                                                                    
agency budgets.                                                                                                                 
Co-Chair Stedman  wondered whether the historic  costs could                                                                    
be restated for an accurate comparison.                                                                                         
Co-Chair  Bishop  queried a  handicap  of  the total  budget                                                                    
impact going backwards.                                                                                                         
Mr.  Steininger felt  that  there would  be  work to  ensure                                                                    
prevention any miscommunication.                                                                                                
Mr. Steininger looked  at Handout A in  the members' packets                                                                    
(copy on file).  He noted that it was  a representation with                                                                    
more detail that  went to some earlier  statements about the                                                                    
implementation timing.                                                                                                          
9:47:28 AM                                                                                                                    
Senator Hoffman queried the breakdown  of the actual revenue                                                                    
Mr. Steininger pointed to Handout  B in the members' packets                                                                    
(copy on file).                                                                                                                 
Co-Chair Bishop noted a $26 million savings.                                                                                    
Mr. Steininger agreed.                                                                                                          
Senator  Hoffman   wondered  whether   item  1105   was  the                                                                    
Permanent Fund.                                                                                                                 
Mr. Steininger  replied that the  number paid  for employees                                                                    
in  the   Permanent  Fund  Division,   and  others   in  the                                                                    
Department   of   Law.   He  agreed   to   provide   further                                                                    
9:51:37 AM                                                                                                                    
Senator   Wielechowski   wondered    whether   the   federal                                                                    
government expressed concern about the 22 percent rate.                                                                         
Mr. Steininger  stated that the  rate was  established prior                                                                    
to  his time  as a  state employee,  so he  deferred to  Mr.                                                                    
9:52:14 AM                                                                                                                    
MIKE BARNHILL,  DEPUTY COMMISSIONER, DEPARTMENT  OF REVENUE,                                                                    
JUNEAU (via  teleconference), stated  that he was  not aware                                                                    
of  any   objections  by  the  federal   government  to  the                                                                    
percentage rate.                                                                                                                
9:52:49 AM                                                                                                                    
Mr.   Steininger  addressed   slide   7,  "Historical   PERS                                                                    
Contribution Rates."                                                                                                            
Co-Chair Stedman  remarked that  it was important  to reduce                                                                    
the contribution after the larger influx.                                                                                       
Co-Chair Bishop OPENED public testimony.                                                                                        
Mr. Barnhill stated that he  was not going to provide public                                                                    
testimony, but would be available for historical comment.                                                                       
Co-Chair Bishop CLOSED public testimony.                                                                                        
SB  55  was   HEARD  and  HELD  in   committee  for  further                                                                    
9:57:26 AM                                                                                                                    
1:01:30 PM                                                                                                                    
^FOLLOW  UP:   EXECUTIVE  ORDER  119  -   REORGANIZATION  OF                                                                  
DEPARTMENT OF HEALTH AND SOCIAL SERVICES                                                                                      
1:02:05 PM                                                                                                                    
Co-Chair Bishop stated that  Governor Dunleavy had withdrawn                                                                    
Executive Order  119. He remarked  that the order  had broad                                                                    
support, but  had some action items  that needing addressing                                                                    
over the upcoming months.                                                                                                       
1:02:52 PM                                                                                                                    
STACIE KRALY,  CHIEF ASSISTANT ATTORNEY  GENERAL, DEPARTMENT                                                                    
OF LAW,  CIVIL DIVISION (via teleconference),  discussed the                                                                    
withdrawal  of EO  119. She  shared that  efforts that  were                                                                    
undertaken by  the administration  to prepare  the executive                                                                    
order  and present  to the  legislature were  done with  the                                                                    
clear  understanding  of  the scope  and  parameters  of  an                                                                    
executive order.  She remarked  that an executive  order was                                                                    
an organizational  change document  to the  Executive Branch                                                                    
under the  authority of the  governor; and that  there could                                                                    
not  be any  substantive changes  to state  law through  the                                                                    
executive order. She  remarked that, as a  result, there was                                                                    
not means  to amend  the executive order  during legislative                                                                    
review. She shared that the  Department of Law (LAW) and the                                                                    
Department of  Health and Social  Services (DHSS)  did their                                                                    
best  to meet  the  goals with  the  understanding of  those                                                                    
limitations.  She stressed  that there  was a  potential for                                                                    
mistakes and  errors. She shared that  Legislative Legal had                                                                    
submitted a  memorandum dated March 1,  2021, which outlined                                                                    
some  of the  concerns with  EO  119. She  pointed out  that                                                                    
while  LAW   might  agree  with  some   of  the  substantive                                                                    
conclusions outlined  by Legislative Legal, she  agreed that                                                                    
there  were substantive  errors  within the  drafting of  EO                                                                    
119.  She shared  that  after sharing  the  issues with  the                                                                    
governor,  it  was  determined   to  withdraw  EO  119.  She                                                                    
furthered  that  there  would be  a  reintroduction  of  the                                                                    
concept  at a  future date.  She shared  that the  action of                                                                    
withdrawal  had occurred  with other  executive orders.  She                                                                    
shared that  the conversation  with Legislative  Legal about                                                                    
EO 119  helped to specify  the vision  of DHSS, and  LAW was                                                                    
able  to  get   a  better  understanding  of   some  of  the                                                                    
substantive  concerns  in  the memorandum.  She  wanted  the                                                                    
transition  to be  a  smooth  as possible  if  and when  the                                                                    
eventual executive order was adopted.                                                                                           
Senator Hoffman  wondered whether  there would be  work with                                                                    
the legislature to include legislative  findings in the next                                                                    
executive order on the subject.                                                                                                 
Ms. Kraly  replied that the  legislative findings  that were                                                                    
included  in EO  119 existed  in current  statute, so  there                                                                    
were no  new additions.  She stated that,  providing context                                                                    
to the reorganizations  would be helpful to  outline some of                                                                    
the  concerns.   She  stated  that   additional  legislative                                                                    
findings  would  be  considered substantive  changes,  would                                                                    
require legislation, and therefore  would not be included in                                                                    
an executive order.                                                                                                             
Senator  Hoffman commented  that each  legislature may  have                                                                    
different view on a variety  of topics that may not coincide                                                                    
with a current legislature.                                                                                                     
Ms. Kraly remarked that an  executive order was strictly and                                                                    
organizational  endeavor. She  agreed  that the  legislative                                                                    
findings  that were  adopted  in  the past  may  not be  the                                                                    
purview of  the current  legislature. She stressed  that the                                                                    
legislative findings  could not be amended  in the executive                                                                    
order, but could be changed through legislation.                                                                                
1:09:09 PM                                                                                                                    
Senator Hoffman felt  that the committee should  look at the                                                                    
legislative  findings  which may  be  included  in a  future                                                                    
executive order before it becomes the draft.                                                                                    
Ms. Kraly agreed.                                                                                                               
Senator  Olson   stressed  that  the  legislature   must  be                                                                    
involved in  the process, and  wondered whether  there would                                                                    
be more  involvement with the legislature  with the upcoming                                                                    
executive order.                                                                                                                
Ms.  Kraly replied  that there  would  be continued  "robust                                                                    
engagement"  with  the  legislature and  other  stakeholders                                                                    
when moving forward with the process.                                                                                           
Senator Wielechowski  felt that  the executive  branch could                                                                    
put legislative findings into a  new section of law. He felt                                                                    
that it  was a clear violation  of constitutional authority.                                                                    
He surmised that there would  be another executive order and                                                                    
not a new piece of legislation.                                                                                                 
Ms. Kraly replied that the  department was evaluating all of                                                                    
the   options  on   how  to   pursue  the   policy  of   the                                                                    
administration to  bifurcate DHSS into two  new departments.                                                                    
She shared  that they  may pursue a  new executive  order or                                                                    
Co-Chair Bishop  pointed out that there  were questions from                                                                    
the  legislature  and  the  governor  had  recognized  those                                                                    
concerns, resulting in LAW withdrawing EO 119.                                                                                  
Ms. Kraly agreed                                                                                                                
Senator  von Imhof  hoped the  committee  would examine  the                                                                    
question of  intent versus execution.  She pointed  out that                                                                    
the intent was  to bifurcate the "very  large" Department of                                                                    
Health  and Social  Services so  that Juvenile  Justice, the                                                                    
Pioneer Homes,  Alaska Psychiatric Institute (API),  and the                                                                    
Office of Children's Services (OCS)  could have the time and                                                                    
allocation needed  to properly  function. She  stressed that                                                                    
the  intent was  to improve  the divisions,  especially OCS.                                                                    
She shared that  she was the chair of the  Health and Social                                                                    
Services subcommittee, so she  understood the challenge. She                                                                    
remarked  that the  execution may  not  seem appropriate  or                                                                    
correct. She  hoped that  the intent of  EO 119  was honest,                                                                    
and felt that it was for the good of Alaska.                                                                                    
Co-Chair  Bishop  asked  for   any  comments  regarding  the                                                                    
questions from committee members.                                                                                               
1:15:18 PM                                                                                                                    
ADAM  CRUM, COMMISSIONER,  DEPARTMENT OF  HEALTH AND  SOCIAL                                                                    
SERVICES,  WASILLA (via  teleconference), restated  that the                                                                    
governor  had  withdrawn EO  119,  because  there were  some                                                                    
required technical  changes. He  reiterated that  the reform                                                                    
was necessary.  He stressed  that there  needed to  be trust                                                                    
from  the  legislature  in  order   for  the  reform  to  be                                                                    
successful.  He   shared  that  there  would   be  continued                                                                    
meetings  with groups  and stakeholders.  The  hope was  for                                                                    
full  transparency that  a technical  issue was  identified,                                                                    
and  hoped to  move forward  with the  bifurcation plan.  He                                                                    
agreed  that   there  should  be  a   partnership  with  the                                                                    
legislature  as  identification  of certain  items  come  to                                                                    
light.  He looked  forward to  the  continued engagement  to                                                                    
ensure that  the questions  were addressed  in the  new path                                                                    
Senator Wilson congratulated Commissioner  Crum on the birth                                                                    
of his child.                                                                                                                   
Co-Chair Bishop                                                                                                                 
1:18:52 PM                                                                                                                    
The meeting was adjourned at 1:18 p.m.                                                                                          

Document Name Date/Time Subjects
SB 55 Transmittal Letter.pdf SFIN 3/11/2021 9:00:00 AM
SL&C 2/22/2021 1:30:00 PM
SB 55
21.02.26 ANHB to Commissioner Crum re. DHSS Reorganization - Final.pdf HHSS 3/2/2021 3:00:00 PM
SFIN 3/11/2021 9:00:00 AM
EO 119
EO 119 DHSS Senate Finance Response - EO 119 - March 2.pdf SFIN 3/9/2021 9:00:00 AM
SFIN 3/11/2021 9:00:00 AM
EO 119
EO 119 Presentation - Senate Finance Committee - February 18 2021.pdf SFIN 3/11/2021 9:00:00 AM
EO 119
EO 119 Sectional Analysis.pdf HHSS 3/2/2021 3:00:00 PM
SFIN 3/11/2021 9:00:00 AM
EO 119
EO 119 FINAL Ltr to ANHB re_EO 119 and attachments 3.3.2021_.pdf SFIN 3/9/2021 9:00:00 AM
SFIN 3/11/2021 9:00:00 AM
EO 119
EO 119 LAW SEN FIN memo.final.3.1.21.pdf SFIN 3/9/2021 9:00:00 AM
SFIN 3/11/2021 9:00:00 AM
EO 119
EO 119 Transition Document 030321.pdf SFIN 3/9/2021 9:00:00 AM
SFIN 3/11/2021 9:00:00 AM
EO 119
SB55 FY22 Estimated Additional State Contribution PERS Handout D.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB55 FY2022 Fund Source Summary Handout B.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SFIN SB55 PERS 3.11.2021 Presentation.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB55 - Retirement Contribution Examples Handout C.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB55 FY2022 Budget Impact Handout A.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB55 PERS Contributions One Page Summary.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB55 - Sectional Analysis and Reference Statutes.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB 55 Attachment 2 - Allocation Summary Fund Group SB55 Impact.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB 55 Attachment 1 - PF Receipt SB55 Increments.pdf SFIN 3/11/2021 9:00:00 AM
SB 55
SB 55 OMB Response to 3.11.21 SB55 Hearing Questions.pdf SFIN 3/11/2021 9:00:00 AM
SB 55