Legislature(2023 - 2024)SENATE FINANCE 532

01/24/2024 01:30 PM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 127 TAXATION: VEHICLE RENTALS, SUBPOENAS TELECONFERENCED
Heard & Held
-- Testimony <Time Limit May Be Set> --
+ Bills Previously Heard/Scheduled: TELECONFERENCED
+= SB 88 RETIREMENT SYSTEMS; DEFINED BENEFIT OPT. TELECONFERENCED
Moved CSSB 88(FIN) Out of Committee
                 SENATE FINANCE COMMITTEE                                                                                       
                     January 24, 2024                                                                                           
                         1:33 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:33:34 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Olson  called the Senate Finance  Committee meeting                                                                    
to order at 1:33 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Donny Olson, Co-Chair                                                                                                   
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Jesse Kiehl                                                                                                             
Senator Kelly Merrick                                                                                                           
Senator David Wilson                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator Matt  Claman, Sponsor; Carly Dennis,  Staff, Senator                                                                    
Matt Claman;  Fadil Limani, Deputy  Commissioner, Department                                                                    
of  Revenue; Ajai  Desai, Director,  Division of  Retirement                                                                    
and  Benefits, Department  of Administration;  Kevin Worley,                                                                    
Chief   Financial  Officer,   Division  of   Retirement  and                                                                    
Benefits,  Department of  Administration;  Kathy Lea,  Chief                                                                    
Pension  Officer,  Division   of  Retirement  and  Benefits,                                                                    
Department  of  Administration;  Ken Alper,  Staff,  Senator                                                                    
Donny Olson;  Senator Cathy  Giessel, Sponsor;  Senator Bill                                                                    
Wielechowski.                                                                                                                   
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Greg  Joubert,  Midnight   Sun  Vehicle  Rental,  Anchorage;                                                                    
Benjamin  Palmer,  Enterprise  Holdings,  California;  David                                                                    
Kershner, Buck Global LLC, Florida.                                                                                             
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 88     RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.                                                                              
                                                                                                                                
          CSSB 88(FIN)  REPORTED out  of COMMITTEE  with one                                                                    
          "do   not   pass"    recommendation,   three   "no                                                                    
          recommendations",    and     three    "do    pass"                                                                    
          recommendations;  and with  two  new fiscal  notes                                                                    
          from   the    Senate   Finance   Committee/Various                                                                    
          Departments and the Department of Administration.                                                                     
                                                                                                                                
SB 127    TAXATION: VEHICLE RENTALS, SUBPOENAS                                                                                  
                                                                                                                                
          SB  127  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.                                                                                                
                                                                                                                                
SENATE BILL NO. 127                                                                                                           
                                                                                                                                
     "An Act  relating to vehicle rental  taxes; relating to                                                                    
     the issuance  of subpoenas related to  tax records; and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
1:34:36 PM                                                                                                                    
                                                                                                                                
SENATOR MATT CLAMAN, SPONSOR,  introduced himself. He stated                                                                    
that  the  bill  was  introduced   at  the  request  of  the                                                                    
Department  of Revenue  (DOR). He  read  from the  Sectional                                                                    
Analysis (copy on file):                                                                                                        
                                                                                                                                
     Senate  Bill  127   requires  vehicle  rental  platform                                                                    
     companies, such  as Turo and Getaround,  to collect the                                                                    
     existing state vehicle rental tax  and remit the tax to                                                                    
     the  Department of  Revenue on  behalf  of the  vehicle                                                                    
     owners.  Additionally,  Senate  Bill  127  revises  the                                                                    
     subpoena  provisions  that   relate  to  Department  of                                                                    
     Revenue tax collections.                                                                                                   
                                                                                                                                
     Under current  law, there is uncertainty  about whether                                                                    
     the vehicle rental platform  companies owe the existing                                                                    
     excise tax or  whether only the vehicle  owner owes the                                                                    
     excise tax. At least one  prior lawsuit did not resolve                                                                    
     this question.  Senate Bill  127 resolves  the question                                                                    
     by requiring  the vehicle rental platform  companies to                                                                    
     collect  the excise  tax from  the  vehicle renter  and                                                                    
     remit the  excise tax to  the Department of  Revenue on                                                                    
     behalf of the vehicle owner.                                                                                               
                                                                                                                                
     Senate Bill  127 was introduced  at the request  of the                                                                    
     Department  of  Revenue.  The Department  informed  our                                                                    
     office  that  vehicle  owners owe  the  vehicle  rental                                                                    
     excise tax under  existing law, but the  law requires a                                                                    
     new  section   to  specify  that  the   vehicle  rental                                                                    
     platform companies  are responsible for  collecting and                                                                    
     remitting  the  excise tax  on  behalf  of the  vehicle                                                                    
     owners.                                                                                                                    
                                                                                                                                
     Senate Bill  127 is not  meant to affect  Alaskans that                                                                    
     use other  means to advertise  their rental  cars, such                                                                    
     as Craigslist  and Facebook Marketplace,  because those                                                                    
     websites do  not collect any  funds from the  renter or                                                                    
     coordinate  details about  the  rental. Vehicle  owners                                                                    
     who  use  websites  such  as  Craigslist  and  Facebook                                                                    
     Marketplace  to   advertise  their  vehicles   owe  the                                                                    
     existing excise tax on such  rentals, and websites such                                                                    
     as Craigslist  and Facebook Marketplace would  not have                                                                    
     a  duty to  collect the  excise tax  under the  current                                                                    
     structure of those websites                                                                                                
                                                                                                                                
1:37:42 PM                                                                                                                    
                                                                                                                                
CARLY DENNIS, STAFF, SENATOR MATT CLAMAN, explained the                                                                         
Sectional Analysis (copy on file):                                                                                              
                                                                                                                                
     Section 1                                                                                                                  
     AS  43.05.040. Inspection  of records  or premises  and                                                                    
     issuance of subpoenas.                                                                                                     
     Amends   AS   43.05.040(c)  by   removing   unnecessary                                                                    
     language   regarding  the   issuance  of   out-of-state                                                                    
     subpoenas related to tax records.                                                                                          
     Section 2                                                                                                                  
     AS 43.52.050.  Liability for payment of  vehicle rental                                                                    
     taxes.                                                                                                                     
     Amends  AS 43.52.050(a)  by adding  language clarifying                                                                    
     that  vehicle  rental   platform  companies  and  other                                                                    
     companies  that  arrange  vehicle  rentals  and  leases                                                                    
     shall  collect the  existing state  vehicle rental  tax                                                                    
     and remit  the tax to  the Department of  Revenue. Adds                                                                    
     language requiring vehicle  rental platforms collecting                                                                    
     the vehicle rental tax to pay the tax quarterly.                                                                           
                                                                                                                                
     Section 3                                                                                                                  
     AS 43.52.050.  Liability for payment of  vehicle rental                                                                    
     taxes.                                                                                                                     
     Amends AS 43.52.050 by:                                                                                                    
     •  Creating a  new subsection  (c) requiring  a vehicle                                                                    
     rental  platform that  arranged or  executed more  than                                                                    
     200  transactions   in  the  state  in   the  preceding                                                                    
     calendar year to collect and  pay to the department the                                                                    
     taxes imposed under AS 43.52.010  43.52.099;                                                                               
     •  Creating  a new  subsection  (d)  clarifying that  a                                                                    
     vehicle  rental  platform  company is  not  liable  for                                                                    
     failing to  collect or  pay the  vehicle rental  tax if                                                                    
     they  were  provided  with  incorrect  or  insufficient                                                                    
     information.  The  company   must  demonstrate  that  a                                                                    
     reasonable  effort was  made to  obtain the  correct or                                                                    
     sufficient information from the person; and                                                                                
     • Adding  a new  section (e) defining  "motor vehicle,"                                                                    
     "vehicle   rental   platform,"  and   "vehicle   rental                                                                    
     platform company."                                                                                                         
                                                                                                                                
     Section 4                                                                                                                  
     Uncodified law  assessment and collection limitation                                                                       
     The Department  of Revenue shall  have six  months from                                                                    
     the effective  date of this  Act to assess  and collect                                                                    
     the vehicle  rental taxes that were  imposed before the                                                                    
     effective date  of this Act  on a  transaction arranged                                                                    
     or executed  through a vehicle rental  platform. If the                                                                    
     tax  is not  assessed and  collected before  six months                                                                    
     after the  effective date of this  Act, proceedings may                                                                    
     not  be  instituted  in court  for  the  assessment  or                                                                    
     collection of the tax.                                                                                                     
                                                                                                                                
     Section 5                                                                                                                  
     Effective Date                                                                                                             
     This Act takes effect immediately.                                                                                         
                                                                                                                                
1:39:17 PM                                                                                                                    
                                                                                                                                
FADIL LIMANI, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,                                                                       
discussed the presentation on SB 127 (copy on file). He                                                                         
looked at slide 3, "SB 127 Objective":                                                                                          
                                                                                                                                
        The  intent  of  this legislation  is  to  move  the                                                                    
     responsibility  for collecting  and remitting  tax from                                                                    
     the individual  owners to  the vehicle  rental platform                                                                    
     company  if  the  lease  or   rental  was  arranged  or                                                                    
     executed through a platform.                                                                                               
       The proposed legislation does not impose a new tax.                                                                      
       The  legislation provides  for a  streamlined process                                                                    
     for the  Department of Revenue in  collecting the peer-                                                                    
     to-peer rental tax.                                                                                                        
       AS 43.52.010: "There is  imposed an excise tax on the                                                                    
     charge for the  lease or rental of  a passenger vehicle                                                                    
     in this state  if the lease or rental  of the passenger                                                                    
     vehicle  does not  exceed a  period  of 90  consecutive                                                                    
     days."                                                                                                                     
       AS 43.52.050:  taxes "shall be collected  and paid to                                                                    
     the department  by the person  who provides  the leased                                                                    
     or rented vehicle."                                                                                                        
                                                                                                                                
Mr. Limani addressed slide 4, "Bottom Line":                                                                                    
                                                                                                                                
     The tax burden already exists  AS 43.52.010                                                                                
     •This  bill compels  the  vehicle  rental platforms  to                                                                    
     collect and remit the tax on behalf of vehicle owners                                                                      
                                                                                                                                
Mr. Limani pointed to slide 5, "SB 127- Background":                                                                            
                                                                                                                                
         Alaska  levies  an  excise tax  on  fees and  costs                                                                    
     charged  for the  lease  or rental  of  a passenger  or                                                                    
     recreational vehicle  if the  lease or rental  does not                                                                    
     exceed a period of 90 consecutive days.                                                                                    
       The  person working for the  rental/lease agency that                                                                    
     provides the leased or rental  vehicle collects the tax                                                                    
     from  the individual  renting or  leasing the  vehicle.                                                                    
     The rental/lease agency  in turn remits the  tax to the                                                                    
     Department of Revenue's Tax Division.                                                                                      
       For passenger vehicles, the  rate is 10% of the total                                                                    
     fees   and   costs   for  renting   or   leasing.   For                                                                    
     recreational  vehicles, the  rate  is 3%  of the  total                                                                    
     fees and costs for renting or leasing.                                                                                     
       Vehicle  rental/lease agencies  file tax  returns and                                                                    
     remit taxes quarterly                                                                                                      
                                                                                                                                
Mr. Limani discussed slide 6, "SB 127 Legislative History":                                                                     
                                                                                                                                
        2003    The Legislature  enacted the  vehicle rental                                                                    
     tax on Aug. 20, 2003.  The tax became effective Jan. 1,                                                                    
     2004.                                                                                                                      
        2004     The  Legislature  exempted  the  rental  of                                                                    
     taxicabs  by taxicab  drivers from  the vehicle  rental                                                                    
     tax.                                                                                                                       
        2006    The Legislature  exempted  trucks rented  by                                                                    
     individuals  for  moving   personal  property  and  for                                                                    
     vehicles  provided to  customers by  automobile dealers                                                                    
     as replacement transportation  during warranty, recall,                                                                    
     or service contract repairs.                                                                                               
        2013   The   Legislature  excluded  motorcycles  and                                                                    
     motor-driven  cycles as  defined by  AS 28.90.990  from                                                                    
     the tax.                                                                                                                   
        2020   -  The   municipality  of   Anchorage  passed                                                                    
     ordinance AO  No. 2020-55 to  establish the  duties and                                                                    
     responsibilities of a  rental vehicle hosting platform;                                                                    
     and  to establish  the  rules  and responsibilities  of                                                                    
     rental agencies  who use a hosting  platform to conduct                                                                    
     motor vehicle rental transactions.                                                                                         
                                                                                                                                
Mr. Limani pointed to slide 7, "SB 127 - Legal Framework":                                                                      
                                                                                                                                
       AS 43.52.010: "There is  imposed an excise tax on the                                                                    
     charge for the  lease or rental of  a passenger vehicle                                                                    
     in this state  if the lease or rental  of the passenger                                                                    
     vehicle  does not  exceed a  period  of 90  consecutive                                                                    
     days."                                                                                                                     
       AS 43.52.050:  taxes "shall be collected  and paid to                                                                    
     the department  by the person  who provides  the leased                                                                    
     or rented vehicle."                                                                                                        
       AS  44.23.020(b)(2): "The attorney  general shall?(2)                                                                    
     bring, prosecute,  and defend all necessary  and proper                                                                    
     actions in the name of  the state for the collection of                                                                    
     revenue."                                                                                                                  
        AS 44.25.020(1)  & (2):  "The Department  of Revenue                                                                    
     shall  (1)  enforce the  tax  laws  of the  state;  (2)                                                                    
     collect,  account for,  have  custody  of, invest,  and                                                                    
     manage all  state funds and  all revenues of  the state                                                                    
    [with certain exceptions like the permanent fund]."                                                                         
       Dick Fischer Development No.  2 Inc. v. DOA, superior                                                                    
     court case: Neither a commissioner  nor any other state                                                                    
     official  has  the  authority   to  deprive  the  state                                                                    
    treasury of public monies unless authorized by law.                                                                         
                                                                                                                                
Mr. Limani displayed slide 8, "SB 127 - New IRS Regulation                                                                      
on 1099-K":                                                                                                                     
                                                                                                                                
       As part of the American  Rescue Plan Act of 2021, the                                                                    
     threshold   for  reporting   on  third   party  network                                                                    
     transaction   (Form  1099-K)   was  reduced   to  $600,                                                                    
     regardless of the number of transactions.                                                                                  
       On  November 2023,  the IRS  announced delay  in form                                                                    
     1099-K reporting threshold  for third party transaction                                                                    
     platforms.                                                                                                                 
       Phase-in to implementation                                                                                               
       For Tax Year 2024, threshold of $5,000                                                                                   
       For Tax Year 2025, threshold of $600                                                                                     
        In  recent  years   including  Tax  Year  2023,  the                                                                    
     threshold   for  reporting   on  third   party  network                                                                    
     transactions (Form  1099-K) when payments  totaled more                                                                    
     than $20,000 and more than 200 transactions.                                                                               
                                                                                                                                
1:44:58 PM                                                                                                                    
                                                                                                                                
Senator  Wilson  asked  for a  definition  of  "third  party                                                                    
transactions."                                                                                                                  
                                                                                                                                
Mr.  Limani  replied  that  if   anyone  participated  in  a                                                                    
transaction that was  in excess of $600, prior  to 2012, the                                                                    
IRS  required that  there  was an  issuance  of a  1099-Misc                                                                    
form.  He stated  that after  2012,  the IRS  imposed a  new                                                                    
regulation that  required a 1099-K form  submission if there                                                                    
was participation in  sales for a consumption of  goods in a                                                                    
network  transaction  for  more  than  200  transactions  or                                                                    
$20,000. He  explained that, recently,  the IRS  reverted to                                                                    
the  $600   provision  with  a  phased   implementation.  He                                                                    
remarked that  currently the IRS  does not have  the ability                                                                    
to  access data  on the  network.  He shared  that once  the                                                                    
regulations  were  enacted, DOR  would  have  access to  the                                                                    
platform participants,  so taxes  would need to  be assessed                                                                    
and collected.                                                                                                                  
                                                                                                                                
Senator  Bishop queried  the  estimates  of the  uncollected                                                                    
revenues, and the reason for the proposal.                                                                                      
                                                                                                                                
Mr. Limani replied that there  were no exact numbers related                                                                    
to  the  fiscal  impact,  but  felt that  it  would  have  a                                                                    
positive revenue impact to the state.                                                                                           
                                                                                                                                
Senator Merrick  wondered whether there was  a concern about                                                                    
the network host companies passing  on the tax obligation to                                                                    
those renting out the vehicles.                                                                                                 
                                                                                                                                
Mr. Limani  replied that  the tax  was not  new, so  the tax                                                                    
responsibility would be collected by the platform.                                                                              
                                                                                                                                
Senator  Merrick asked  whether  a  rideshare company  would                                                                    
halt business in Alaska due to the tax enforcement.                                                                             
                                                                                                                                
Mr. Limani replied that he did not know.                                                                                        
                                                                                                                                
1:50:23 PM                                                                                                                    
                                                                                                                                
Senator Wilson felt  that there would be  an impact, because                                                                    
of the add-in rate.                                                                                                             
                                                                                                                                
Co-Chair Olson felt that the  question was better suited for                                                                    
the sponsor of the bill.                                                                                                        
                                                                                                                                
Mr. Limani deferred to the sponsor.                                                                                             
                                                                                                                                
Mr. Limani pointed to slide 9, "SB 127 - Fiscal Impacts":                                                                       
                                                                                                                                
       The  Department of Revenue  has collected  an average                                                                    
     of $10.7 million per year  in vehicle rental taxes over                                                                    
     the past four years.                                                                                                       
        The proposed  legislation  would capture  unreported                                                                    
     vehicle rentals  that are arranged or  executed through                                                                    
     a vehicle rental platform and,  therefore, would have a                                                                    
     positive effect on revenue.                                                                                                
        The Department  of Revenue  currently does  not have                                                                    
     enough  data  on  peer-to-peer  rental  information  in                                                                    
     Alaska to provide an estimative revenue impact.                                                                            
         Currently    the   Department   of    Revenue   has                                                                    
     approximately  $470K  in   delinquent  accounts  spread                                                                    
     across 25 taxpayers.                                                                                                       
                                                                                                                                
Senator Wilson  queried the department's current  efforts to                                                                    
taxpayers.                                                                                                                      
                                                                                                                                
Mr.  Limani  replied  that  DOR had  not  taken  any  active                                                                    
action.                                                                                                                         
                                                                                                                                
Senator Wilson wondered whether  the department had intended                                                                    
to forgive the tax.                                                                                                             
                                                                                                                                
Mr. Limani replied that DOR  had the statutory obligation to                                                                    
collect the tax.                                                                                                                
                                                                                                                                
Senator Kiehl  wondered whether  the bill  was a  more cost-                                                                    
efficient way to collect the tax.                                                                                               
                                                                                                                                
Mr. Limani replied that it provided more efficiency in DOR.                                                                     
                                                                                                                                
Senator Kiehl  wondered who  would have  the burden  of tax,                                                                    
and whether a person who rents  out a car would have the tax                                                                    
obligation.                                                                                                                     
                                                                                                                                
Mr.  Limani replied  that he  believed that  the legislation                                                                    
would make it easier on individual vehicle owners.                                                                              
                                                                                                                                
1:55:38 PM                                                                                                                    
                                                                                                                                
Senator  Merrick wondered  whether there  were other  states                                                                    
that collected tax in the manner outlined in the bill.                                                                          
                                                                                                                                
Mr. Limani replied in the affirmative.                                                                                          
                                                                                                                                
Co-Chair Hoffman  wondered whether  there were  other states                                                                    
that  had a  different tax  structure than  proposed in  the                                                                    
bill.                                                                                                                           
                                                                                                                                
Mr. Limani  replied that there were  different structures in                                                                    
different states across the country.                                                                                            
                                                                                                                                
Co-Chair Hoffman queried an  underlying reason for different                                                                    
structures or rates.                                                                                                            
                                                                                                                                
Mr. Limani  replied that that  he could not speak  for other                                                                    
states for their  reasonings. He stated that  the 10 percent                                                                    
was already in statute, so there was no change to the rate.                                                                     
                                                                                                                                
1:57:40 PM                                                                                                                    
                                                                                                                                
GREG JOUBERT,  MIDNIGHT SUN  VEHICLE RENTAL,  ANCHORAGE (via                                                                    
teleconference), testified in support of the legislation.                                                                       
                                                                                                                                
2:00:03 PM                                                                                                                    
                                                                                                                                
BENJAMIN  PALMER,   ENTERPRISE  HOLDINGS,   CALIFORNIA  (via                                                                    
teleconference), spoke in support of the bill.                                                                                  
                                                                                                                                
SB  127  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:01:12 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:03:39 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SENATE BILL NO. 88                                                                                                            
                                                                                                                                
     "An Act  relating to  the Public  Employees' Retirement                                                                    
     System of  Alaska and the teachers'  retirement system;                                                                    
     providing  certain employees  an opportunity  to choose                                                                    
     between  the defined  benefit and  defined contribution                                                                    
     plans  of the  Public Employees'  Retirement System  of                                                                    
     Alaska  and   the  teachers'  retirement   system;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
2:04:46 PM                                                                                                                    
                                                                                                                                
AJAI DESAI,  DIRECTOR, DIVISION OF RETIREMENT  AND BENEFITS,                                                                    
DEPARTMENT OF ADMINISTRATION, (DOA) introduced himself.                                                                         
                                                                                                                                
2:04:57 PM                                                                                                                    
                                                                                                                                
KEVIN   WORLEY,  CHIEF   FINANCIAL   OFFICER,  DIVISION   OF                                                                    
RETIREMENT  AND  BENEFITS,   DEPARTMENT  OF  ADMINISTRATION,                                                                    
introduced himself.                                                                                                             
                                                                                                                                
2:05:10 PM                                                                                                                    
                                                                                                                                
KATHY  LEA, CHIEF  PENSION OFFICER,  DIVISION OF  RETIREMENT                                                                    
AND  BENEFITS,  DEPARTMENT   OF  ADMINISTRATION,  introduced                                                                    
herself.                                                                                                                        
                                                                                                                                
Co-Chair  Olson remarked  that the  fiscal notes  were quite                                                                    
large, which have caused some questions and concerns.                                                                           
                                                                                                                                
Co-Chair Stedman asked about the  fiscal note, and felt that                                                                    
there needed to  be detail about how  the unfunded liability                                                                    
percentage related to the municipalities.                                                                                       
                                                                                                                                
Mr. Desai deferred to Mr. Kershner.                                                                                             
                                                                                                                                
2:08:43 PM                                                                                                                    
                                                                                                                                
DAVID    KERSHNER,   BUCK    GLOBAL   LLC,    FLORIDA   (via                                                                    
teleconference),  explained  the  details of  the  actuarial                                                                    
analysis.                                                                                                                       
                                                                                                                                
2:18:55 PM                                                                                                                    
                                                                                                                                
Co-Chair  Olson acknowledged  SENATOR BILL  WIELECHOWSKI, in                                                                    
the gallery.                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked how the  bill affected  the unfunded                                                                    
liability.                                                                                                                      
                                                                                                                                
2:20:18 PM                                                                                                                    
                                                                                                                                
Mr.  Kershner replied  that the  current unfunded  liability                                                                    
would not be affected by SB 88.                                                                                                 
                                                                                                                                
Co-Chair Olson wanted to know  that the state would not have                                                                    
another unfunded liability.                                                                                                     
                                                                                                                                
Mr. Kershner  replied that the  state received a  benefit by                                                                    
shifting  the  risk from  the  state  to the  employees.  He                                                                    
stated that the bill would take on some of that risk.                                                                           
                                                                                                                                
Co-Chair Stedman looked at the  fiscal note from May 11, and                                                                    
remarked that there  may be an opening  for the municipality                                                                    
to shift the responsibility to the state.                                                                                       
                                                                                                                                
2:26:32 PM                                                                                                                    
                                                                                                                                
Senator Merrick  queried how much of  the unfunded liability                                                                    
was the result of the medical portion of the plan.                                                                              
                                                                                                                                
Mr. Kershner replied that both  PERS and TRS were overfunded                                                                    
in the  health care  portion. He shared  that the  issue was                                                                    
that the overfunding  of the health care trust  could not be                                                                    
used for pensions due to legal reasons.                                                                                         
                                                                                                                                
Senator  Wilson wondered  whether the  actuarial assessments                                                                    
took into account the new tier outlined in SB 88.                                                                               
                                                                                                                                
Mr.   Kershner  replied   "no",  and   explained  that   the                                                                    
contributions were at the actuarial  rate at no less than 12                                                                    
percent,   which   included   3    percent   for   the   HRA                                                                    
contributions.                                                                                                                  
                                                                                                                                
Senator Wilson  wondered whether a  90 percent funded  was a                                                                    
"funded pension plan."                                                                                                          
                                                                                                                                
Mr.  Kershner replied  that a  funded pension  plan was  100                                                                    
percent  funding, and  remarked that  there were  degrees of                                                                    
funding.                                                                                                                        
                                                                                                                                
Senator Wilson  queried the 90 percent  pension liability to                                                                    
the state of Alaska under SB 88.                                                                                                
                                                                                                                                
Mr. Kershner agreed to provide that information.                                                                                
                                                                                                                                
2:30:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman surmised  that there  would be  an updated                                                                    
actuarial analysis.                                                                                                             
                                                                                                                                
Mr.  Kershner replied  that  there had  been  a request  for                                                                    
alternative projections with different assumptions.                                                                             
                                                                                                                                
Co-Chair Olson  queried the expected completion  date of the                                                                    
analyses.                                                                                                                       
                                                                                                                                
Mr.  Kershner replied  that  the goal  was  to complete  the                                                                    
materials by the end of February.                                                                                               
                                                                                                                                
Co-Chair  Stedman wanted  to know  which  fiscal notes  were                                                                    
used in the bill.                                                                                                               
                                                                                                                                
2:33:53 PM                                                                                                                    
                                                                                                                                
KEN ALPER,  STAFF, SENATOR DONNY  OLSON, replied  that there                                                                    
were three current  fiscal notes. He stated  that one fiscal                                                                    
note was  conventional, and about the  implementation of the                                                                    
bill and  its impact to  the department. He stated  that the                                                                    
fiscal  note  may  be  slightly  different,  and  require  a                                                                    
replacement. He shared that the  other two were based on the                                                                    
Buck actuarial analysis.                                                                                                        
                                                                                                                                
Co-Chair  Olson wondered  how a  current and  updated fiscal                                                                    
note would be different.                                                                                                        
                                                                                                                                
Mr.  Alper  replied  that  new fiscal  notes  based  on  the                                                                    
actuarial analysis  would need to be  replaced, because they                                                                    
were dated from the year prior.                                                                                                 
                                                                                                                                
2:37:39 PM                                                                                                                    
                                                                                                                                
SENATOR CATHY GIESSEL, SPONSOR,  stated that Mr. Desai could                                                                    
speak in response to the fiscal notes.                                                                                          
                                                                                                                                
Mr. Desai stated that the  department was working to produce                                                                    
new fiscal notes with the latest information.                                                                                   
                                                                                                                                
Co-Chair Stedman  wondered whether the $1.6  billion was the                                                                    
cost of the bill.                                                                                                               
                                                                                                                                
Mr. Desai replied that the $1.6  billion was the cost of the                                                                    
administration of the program.                                                                                                  
                                                                                                                                
Co-Chair Stedman  was trying  to determine  the cost  of the                                                                    
bill. He  wondered when the  committee could expect  the new                                                                    
actuarial analysis.                                                                                                             
                                                                                                                                
Mr. Desai replied that a  new fiscal note would be verified,                                                                    
and stated that there would only be minor changes.                                                                              
                                                                                                                                
2:40:06 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman queried the total fiscal note cost.                                                                            
                                                                                                                                
Mr. Alper replied that the  fiscal note was the conventional                                                                    
fiscal note, which  would be the administrative  cost of the                                                                    
bill that would have  normal administrative costs. He stated                                                                    
that  the  remaining two  would  be  tied to  the  actuarial                                                                    
analysis, which  were potential costs of  additional payroll                                                                    
and pension contributions from the state.                                                                                       
                                                                                                                                
Co-Chair Stedman asked for a ballpark number.                                                                                   
                                                                                                                                
Mr. Alper replied  that the two fiscal notes  that were tied                                                                    
to  the Buck  analysis  totaled  approximately $1.2  billion                                                                    
over 17  years. He stated  that the  cost over six  years is                                                                    
$140  million,  which would  be  the  years covered  in  the                                                                    
fiscal note.  He explained  that most of  the money  was not                                                                    
additional costs  to the bill,  but rather was  assumed that                                                                    
the  retention would  improve  therefore  the state  payroll                                                                    
would increase.                                                                                                                 
                                                                                                                                
Senator  Bishop wondered  whether the  payroll numbers  were                                                                    
filling the vacant positions in the budget.                                                                                     
                                                                                                                                
Mr. Alper replied  that there was a very  large vacancy rate                                                                    
and  it was  his expectation  that  there would  be a  lower                                                                    
vacancy rate after the passage of the bill.                                                                                     
                                                                                                                                
Senator Giessel  requested a  quantification of  the savings                                                                    
in recruitment.                                                                                                                 
                                                                                                                                
Mr. Desai agreed to provide that information.                                                                                   
                                                                                                                                
Co-Chair Stedman wondered when  the exact numbers related to                                                                    
the calculation of over or  under funding resulting from the                                                                    
passage of the bill.                                                                                                            
                                                                                                                                
Mr.  Desai replied  that those  numbers  should be  expected                                                                    
near the end of February.                                                                                                       
                                                                                                                                
Co-Chair  Olson stressed  that  he did  not  need a  precise                                                                    
number, but more of an approximation.                                                                                           
                                                                                                                                
Senator   Kiehl   applauded   the  division,   because   the                                                                    
implementation cost  seemed the  same as  the implementation                                                                    
of the current tier.                                                                                                            
                                                                                                                                
2:44:56 PM                                                                                                                    
                                                                                                                                
Mr.   Desai  explained   that  the   reason  for   the  cost                                                                    
differences, is due to the cost of the implementation.                                                                          
                                                                                                                                
Co-Chair Olson queried comments on the legislation.                                                                             
                                                                                                                                
Mr. Worley  replied that the fiscal  note for implementation                                                                    
included   the  actuarial   analyses  and   evaluations.  He                                                                    
explained the process  to make a final  determination of the                                                                    
cost of the bill.                                                                                                               
                                                                                                                                
2:49:55 PM                                                                                                                    
                                                                                                                                
Ms. Lea  stated that  she was able  to deliver  the benefits                                                                    
outlined in the legislation.                                                                                                    
                                                                                                                                
Co-Chair Stedman wondered how TRS  could be allowed into the                                                                    
supplemental benefits system.                                                                                                   
                                                                                                                                
Ms. Lea  replied that the  statutes needed to be  changed to                                                                    
accommodate that allowance.                                                                                                     
                                                                                                                                
Co-Chair  Stedman felt  that there  should  be a  discussion                                                                    
about that issue.                                                                                                               
                                                                                                                                
2:52:37 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:57:11 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
2:58:07 PM                                                                                                                    
                                                                                                                                
Senator Giessel commented  on some history of  the bill, and                                                                    
encouraged passage of the bill.                                                                                                 
                                                                                                                                
Senator Kiehl  MOVED to REPORT  SB 88 out of  committee with                                                                    
individual recommendations and attached fiscal notes.                                                                           
                                                                                                                                
3:04:25 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:08:17 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
3:09:05 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:11:17 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CSSB  88(FIN) REPORTED  out of  COMMITTEE with  one "do  not                                                                    
pass" recommendation, three  "no recommendations", and three                                                                    
"do  pass" recommendations;  and with  two new  fiscal notes                                                                    
from  the Senate  Finance Committee/Various  Departments and                                                                    
the Department of Administration.                                                                                               
                                                                                                                                
Co-Chair Olson discussed the following day's agenda.                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
3:11:36 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:11 p.m.                                                                                          

Document Name Date/Time Subjects
SB 127 Chamber of Progress AK SB 127_ Oppose Tax Mandate.pdf SFIN 1/24/2024 1:30:00 PM
SB 127
SB 127 Sectional Analysis v. U 1.22.2024.pdf SFIN 1/24/2024 1:30:00 PM
SB 127
SB 127 Testimony - Received as of 1.23.2024.pdf SFIN 1/24/2024 1:30:00 PM
SB 127
SB 127 DOR TAX 011924.pdf SFIN 1/24/2024 1:30:00 PM
SB 127
SB 127 DOR Presentation to SFIN 01.23.24.pdf SFIN 1/24/2024 1:30:00 PM
SB 127
SB 127 Opposition Technet.pdf SFIN 1/24/2024 1:30:00 PM
SB 127