04/08/2014 09:00 AM STATE AFFAIRS
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ALASKA STATE LEGISLATURE SENATE STATE AFFAIRS STANDING COMMITTEE April 8, 2014 9:06 a.m. MEMBERS PRESENT Senator Fred Dyson, Chair Senator Cathy Giessel, Vice Chair Senator John Coghill Senator Bill Wielechowski MEMBERS ABSENT Senator Bert Stedman COMMITTEE CALENDAR CONFIRMATION HEARINGS Alaska Public Defender Agency Quinlan Steiner - Public Defender - CONFIRMATION ADVANCED Office of Administrative Hearings Kathleen Frederick - Chief Administrative Law Judge - CONFIRMATION ADVANCED HOUSE BILL NO. 217 "An Act establishing November 14 each year as Dr. Walter Soboleff Day." - MOVED HB 217 OUT OF COMMITTEE SENATE BILL NO. 30 "An Act relating to new defined benefit tiers in the public employees' retirement system 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 and the teachers' retirement system; and providing for an effective date." - HEARD & HELD COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 310(STA) AM "An Act relating to the selection and duties of delegates to a convention of the states." - MOVED CSHB 310(STA) AM OUT OF COMMITTEE PREVIOUS COMMITTEE ACTION BILL: HB 217 SHORT TITLE: DR. WALTER SOBOLEFF DAY SPONSOR(s): REPRESENTATIVE(s) KREISS-TOMKINS, P.WILSON, MUNOZ, KERTTULA 01/21/14 (H) PREFILE RELEASED 1/10/14
01/21/14 (H) READ THE FIRST TIME - REFERRALS
01/21/14 (H) STA 02/20/14 (H) STA AT 8:00 AM CAPITOL 106 02/20/14 (H) Moved Out of Committee 02/20/14 (H) MINUTE(STA) 02/21/14 (H) STA RPT 5DP 02/21/14 (H) DP: GATTIS, KELLER, KREISS-TOMKINS, HUGHES, LYNN 03/27/14 (H) TRANSMITTED TO (S) 03/27/14 (H) VERSION: HB 217 03/28/14 (S) READ THE FIRST TIME - REFERRALS 03/28/14 (S) STA 04/08/14 (S) STA AT 9:00 AM BUTROVICH 205 BILL: SB 30 SHORT TITLE: TEACHERS & PUB EMPLOYEE RETIREMENT PLANS SPONSOR(s): SENATOR(s) EGAN
01/22/13 (S) READ THE FIRST TIME - REFERRALS
01/22/13 (S) STA, FIN 03/27/14 (S) STA AT 9:00 AM BUTROVICH 205 03/27/14 (S) Heard & Held 03/27/14 (S) MINUTE(STA) 04/01/14 (S) STA AT 9:00 AM BUTROVICH 205 04/01/14 (S) Heard & Held 04/01/14 (S) MINUTE(STA) 04/08/14 (S) STA AT 9:00 AM BUTROVICH 205 BILL: HB 310 SHORT TITLE: U.S. CONSTITUTIONAL CONVENTION DELEGATES SPONSOR(s): REPRESENTATIVE(s) T.WILSON 02/17/14 (H) READ THE FIRST TIME - REFERRALS 02/17/14 (H) STA 03/13/14 (H) STA AT 8:00 AM CAPITOL 106 03/13/14 (H) Heard & Held 03/13/14 (H) MINUTE(STA) 03/18/14 (H) STA RPT CS(STA) NT 5DP 03/18/14 (H) DP: GATTIS, KELLER, ISAACSON, HUGHES, LYNN 03/18/14 (H) STA AT 8:00 AM CAPITOL 106 03/18/14 (H) Moved CSHB 310(STA) Out of Committee 03/18/14 (H) MINUTE(STA) 04/04/14 (H) TRANSMITTED TO (S) 04/04/14 (H) VERSION: CSHB 310(STA) AM 04/07/14 (S) READ THE FIRST TIME - REFERRALS 04/07/14 (S) STA 04/08/14 (S) STA AT 9:00 AM BUTROVICH 205 WITNESS REGISTER SASHA IVAN SOBOLEFF, representing himself Juneau, Alaska POSITION STATEMENT: Testified in support of HB 217. WALTER SOBOLEFF JR., representing himself Juneau, Alaska POSITION STATEMENT: Testified in support of HB 217. KIMBERLY STRONG, Alaska Native Sisterhood Juneau, Alaska POSITION STATEMENT: Testified in support of HB 217. SUSETTNA KING, representing herself Juneau, Alaska POSITION STATEMENT: Testified in support of HB 217. PAULETTE MARINO Alaska Native Sisterhood Anchorage, Alaska POSITION STATEMENT: QUINLAN STEINER, Director Public Defender Agency Anchorage, Alaska POSITION STATEMENT: Testified as nominee to the position of Public Defender for the State of Alaska. KATHLEEN FREDERICK Chief Administrative Law Judge Office of Administrative Hearings Palmer, Alaska POSITION STATEMENT: Testified as nominee to the position of Chief Administrative Law Judge for the Office of Administrative Hearings. MIKE BARNHILL, Deputy Director Department of Administration Juneau, Alaska POSITION STATEMENT: Testified in opposition to SB 30. REPRESENTATIVE TAMMIE WILSON Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Sponsor of HB 310. MIKE COONS, Regional Director Citizen Initiatives Palmer, Alaska POSITION STATEMENT: Expressed concerns about the current form of HB 310. ACTION NARRATIVE 9:06:59 AM CHAIR FRED DYSON called the Senate State Affairs Standing Committee meeting to order at 9:06 a.m. Present at the call to order were Senators Giessel, Coghill, Wielechowski, and Chair Dyson. [NOTE: The call to order occurred prior to the start of the recording.] HB 217-DR. WALTER SOBOLEFF DAY CHAIR DYSON announced the consideration of HB 217. 9:07:51 AM SASHA IVAN SOBOLEFF, representing himself, said that as Dr. Soboleff's son his task was to polish the cross and clean the church, oftentimes while his friends played baseball across the street. He related that in the summer he would spend time with his father in Tenakee and one time John D. Rockefeller and family stopped by for a visit. It was clear that the man that he knew as Dad did many things and touched many lives. At the age of 20 he was seeking education to better the people he touched. He concluded that it's an honor to have the opportunity to speak in support of setting aside November 14 as Dr. Walter Soboleff Day. 9:13:43 AM WALTER SOBOLEFF JR., representing himself, said he couldn't add anything to what his brother, Sasha, said in support of setting aside November 14 as Dr. Walter Soboleff Day. 9:14:19 AM KIMBERLY STRONG, Alaska Native Sisterhood Committee Woman, said she served at ANB and ANS Grand Camp a number of years under the tutelage of Dr. Soboleff. He performed the marriage ceremony for her mother and father and led the community of Klukwan in Christianity. He was more than a Presbyterian minister; he was a leader in Alaska. His heart was very much with the people he served. She said she had the privilege to visit him in Tenakee when she was running for public office. He invited her in and gave her advice, just as he did to her opponent a little later. He wasn't a person to choose sides; he encouraged everyone to do the best they could and improve their community. The hours of dedication he gave to the state are countless. She asked the committee to support setting aside November 14 as Dr. Walter Soboleff Day. 9:18:36 AM SUSETTNA KING, representing herself, said she is originally from Angoon, Alaska. Her parents were friends with Dr. Soboleff and his wife, and he always had time to talk to the kids. During one visit he asked if any of the kids wanted to offer the prayer before dinner. She said a very fast prayer and after dinner Mrs. Soboleff said it was a good thing she volunteered because everyone would still be praying if her husband had offered the prayer. She related a story about telling him she didn't enter a Fourth of July race because she had always won in the past. When he asked her what she would have done if someone had beat her, she told him she probably would have come back the next year to try and beat them. He told her it's always good to let others win so they feel good about themselves. She didn't understand that advice until years later. MS. KING said she last interacted with Dr. Soboleff when she had a leadership role at the ANB/ANS Convention in Ketchikan. They discussed what she'd learned and he told her that she was there for a reason; it wasn't by mistake. In every interaction he made people feel better and want to do better, she said. 9:24:24 AM PAULETTE MARINO, member, Alaska Native Sisterhood and past president of ANS Sitka Camp 4, said that honoring Dr. Soboleff sends a message to Juneau, Southeast, the nation, and the world. This recognition will lift a spiritual leader who has guided many people on many different paths. Young children and elders will see November 14 as a time to celebrate their communion with their heavenly father, their families, their people, and the human race. It will also provide an opportunity for introspection, to stand straighter, to make good decisions, to be kind, and to challenge oneself intellectually. She concluded that it's an honor to speak in support of setting aside November 14 as Dr. Walter Soboleff Day. CHAIR DYSON related his interactions with Dr. Soboleff. SENATOR COGHILL thanked the family and the others who offered encouraging testimony. 9:34:40 AM SENATOR GIESSEL moved to report HB 217, labeled 28-LS0932\U, from committee with individual recommendations and attached fiscal note(s). CHAIR DYSON announced that, without objection, HB 217 is reported out of the Senate State Affairs Standing Committee. 9:35:03 AM CHAIR DYSON at ease. ^CONFIRMATION HEARINGS CONFIRMATION HEARINGS Alaska Public Defender Agency Office of Administrative Hearings 9:36:49 AM CHAIR DYSON announced the next order of business will be confirmation hearings. He asked Mr. Steiner why he wants to continue to serve as the public defender for the State of Alaska. QUINLAN STEINER, Appointee, Public Defender Agency, said that he's the director of the agency and if he's confirmed this will be his third four-year appointment. His entire legal career has been spent working for the Public Defender Agency and in public service. The work is rewarding; one motivation is working to ensure the fairness and credibility of the criminal justice system. Working on behalf of indigent defendants is compelling and needs to be attended to on a daily basis. He offered to answer specific questions. 9:38:38 AM CHAIR DYSON said he's enjoyed working with him and if he sees any barriers in the process that make it difficult to accomplish his mission and indigent people from getting justice, the committee would like to know. SENATOR COGHILL expressed appreciation for Mr. Steiner's work. 9:40:09 AM CHAIR DYSON asked Ms. Frederick to tell the committee about herself and why she wants to serve as Chief Administrative Law Judge. 9:40:45 AM KATHLEEN FREDERICK, Appointee, Chief Administrative Law Judge, Office of Administrative Hearings, said she applied for the position because it is a good fit with her background and experience. She related that she's been an attorney for 30 years and has handled a wide range of civil matters. She was attracted to the position because she enjoys the challenge of mastering new areas of law. She noted that she has also litigated cases for over 20 years before administrative agencies and in state and federal courts so she's familiar with the adjudicative process. On behalf of clients she has drafted and reviewed legislation and while she was a commissioner with the Alaska Public Offices Commission (APOC) she became familiar with rewriting statutes. She is familiar with the executive branch ethics and has experience with the adjudicative side of administrative proceedings. MS. FREDERICK said she's had management and supervisory experience and has held various board positions in years past. There's a mediation component of this position and she's been involved in mediation for about 15 years, initially as an attorney. She received a mediation certificate from Pepperdine University and was a contract mediator for the Alaska Court System for three years. She said she's also raised two children as a single mother and managed a busy law practice, which means she's had to hone her time-management skills. With regard to personal characteristics, she said she's hard working and takes pride in her work. Finally, she said she is attracted to the position because it appears to be challenging. It is an honor to be appointed by Governor Parnell. 9:44:41 AM CHAIR DYSON asked her to let him know if she sees things that are within the committee's purview that can help the process. He expressed hope that she'd get satisfaction from the job and go home some days knowing that the world's a little better because she did her job. He thanked her for being willing to serve. CHAIR DYSON stated that in accordance with AS 39.05.080 and AS 46.64.010, the Senate State Affairs Committee reviewed the following and recommends the appointments be forwarded to a joint session for consideration. This does not reflect an intent of the members to vote for or against the confirmation of the individual during any further sessions. There was no objection and the names were forwarded. SB 30-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS 9:46:00 AM CHAIR DYSON announced the consideration of [SB 30]. 9:46:15 AM MIKE BARNHILL, Deputy Commissioner, Department of Administration, noted that this morning he submitted responses to questions the committee had previously. He asked the chair how he would like to proceed. CHAIR DYSON asked him to reiterate the questions that were asked and summarize the answers. MR. BARNHILL reviewed the following committee questions and his written answers: 1. What is the long-term expectation of growth in the defined benefit plans? A. The Alaska Retirement Management (ARM) Board has adopted the investment earnings assumption of 8 percent per year. 1.b. What will the defined benefit plans look like if the State received an average of 4 percent, 6 percent, and 8 percent return on its investments? A. The assumption is that the returns are long-term. At the, The FY2012 actuarial valuations assume an 8 percent rate of return and show an unfunded liability of $11.9 billion. That valuation will be updated at the end of April when the ARM Board considers the FY2013 actuarial valuations. The expectation is that the unfunded liability will remain about the same. If the assumed rate of return is decreased to 4 percent, which some consider a "riskless rate of return," the unfunded liability would immediately double to roughly $24 billion. If the assumed rate of return is 6 percent, the unfunded liability would be about $18 billion MR. BARNHILL explained that the assumed rate of return assumption has the greatest impact of any of the many actuarial assumptions that are used to calculate the actuarial valuation every year. 9:49:54 AM 2. What is the most current breakdown of costs between healthcare and other pension costs for Alaska's retired public employees? A. For both the PERS and TRS retirement systems, the pension unfunded liability is 69.4 percent and healthcare liability is 30.6 percent. The FY2013 comprehensive annual financial (CAF) report shows that for PERS the pension benefits were just over $599 million and the health benefits were just over $370 million. For TRS the pension benefits were just over $380 million and the health benefits were just about $121 million. 3. Please provide a graph with two trend lines, one being the smooth rate of return compared to a trend showing the fluctuations in Alaska's historic rates of return. A. In the first chart the blue line shows the fairly volatile rate of return across a period ranging from 1989 - 2014. The red line shows a rolling five-year annualized return. From the late 1980s through 2000 the returns trend from 16 percent down to 8 percent. In 2001 the line drops in response to the dotcom collapse and then trends up and down again for the 2009 recession. Over the last couple of years the five-year return has started back up towards the assumed rate of 8 percent. The next two charts show PERS TRS returns versus the S&P 500 over the same time period. The trend tracks fairly closely, primarily as a result of the pension funds' 60-70 percent investment in equities. Page 3 shows the 75 year chart on the S&P 500. The blue line shows the annual return and is the most volatile. The green line shows a five-year rolling return and the red line shows the ten-year rolling rate of return. 4. If the investment rates go down, would the system proposed in SB 30 provide lower risk for the state than the current defined contribution plan? A. The plan may not pencil out fiscally if the return is less than 8 percent. 5. If one tier of the defined benefit plan took a disproportionate amount from the retirement plan, how would this affect the other defined benefit tiers? A. The unfunded liability is computed as the cost to each of the defined benefit tiers. Thus, if PERS Tier I consumed a disproportionate amount of the resources, the system as a whole would reflect an unfunded liability. One way this could happen is if the mortality assumptions proved to be incorrect and Tier I retirees lived longer than projected. If an experience study by the actuary showed that people were living longer than expected, there would be an update to the mortality table and a corresponding unfunded liability for the system would be added to the valuation. Would the defined contribution tier be affected? A. No. 6. Will the unfunded liability decrease with more employees in the system? A. The unfunded liability is computed with respect to every employee so adding new employees will have no impact. A new tier of defined benefit employees may or may not meet or exceed actuarial assumptions but it won't impact the existing unfunded liability associated with the current members of the plan. 7. What number does the administration use to calculate investment returns? A. Eight percent. 8. Please provide a graph that shows the effect of SB 30 employee and employer contributions. A. The chart (with yellow bars) is modeled on the previous version of the bill, Senate Bill 121. The actuarial calculations are somewhat stale and both the model and calculations probably warrant updating. 9:57:56 AM SENATOR WIELECHOWSKI asked if the bill has a positive or negative fiscal note when using the actuary and ARM Board assumption of an 8 percent investment return. MR. BARNHILL replied the administration's fiscal note is indeterminate, primarily because it reflects the inherent uncertainty in any defined benefit plan. He credited the sponsor for going to great lengths to eliminate certain types of uncertainty, particularly with respect to healthcare costs, but continued to assert that it isn't possible to eliminate risk with respect to all of the assumptions. He cited the assumed 8 percent investment earnings, mortality assumptions, and inflation as examples. 10:00:02 AM SENATOR WIELECHOWSKI pointed out that fiscal notes are prepared all the time when all the variables aren't known. He cited the price of oil as an example. He asked if the fiscal impact to the state is positive or negative, using all the assumptions that the actuary and the ARM Board used. MR. BARNHILL conceded that the actuary letter indicates a short- term savings over "the first X years" under the assumptions that go into the bill. SENATOR WIELECHOWSKI asked how much. MR. BARHILL replied it's $68.9 million. CHAIR DYSON asked if there is a discernable difference in recruitment and retention of PERS and TRS employees since the State adopted the defined contribution plan. MR. BARNHILL said he would provide the trend data that was prepared for Senator Giessel and the committee could draw its own conclusions. The State of Alaska hasn't done an employee movement report since the end of FY2011 but those numbers didn't show an increase in employee terminations subsequent to FY2007 when the defined contribution plan was adopted. They showed a small decrease in people leaving the state, but that could be due to the nationwide economic recession. Alaska experienced fairly high rates of employee turnover prior to the closing of the defined benefit plan and he believes that's the nature of Alaska. CHAIR DYSON asked if the state has a formal process for looking at trends and analyzing the efficacy of the salary and benefits program. MR. BARNHILL replied there is an informal process where the State is constantly being asked to evaluate the fairness of its salary schedules and pension benefits. He segued to highlight the benefits of the existing PERS Tier IV defined contribution plan. The employee contributes 8 percent of their income into an account that they control and the PERS employer contributes 5 percent. There is also the Supplemental Annuity System (SBS) in which the employee contributes 6.13 percent and the employer matches that contribution. The combined total comes to a contribution rate of 25.26 percent of an employee's salary. In a defined contribution system, employees are expected to stay employed for 30-35 years. That's not unreasonable; it's a normal working career. He submitted that testimony suggesting fewer years isn't reasonable because it's not possible to build a sustainable retirement plan on a 20-year career. With compounding, 35-40 years of contributions to a defined contribution pension plan add up to a secure retirement. MR. BARNHILL described the array of investment options that the ARM Board and the Division of Treasury put together as phenomenal. Under the U.S. Department of Labor regulations, defined contribution employees default into a target date fund that's based on their age. The funds are professionally managed and have low administrative and investment expenses. For example, the 2040 Target Date Fund charges 0.26 percent, which is far less than the administrative costs paid to the investment managers in the defined benefit plan. An employee who remains employed by the State of Alaska for 30-40 years may build up a defined contribution of over $1 million, assuming an 8 percent rate of return. Adding in the SBS roughly doubles that amount. 10:09:42 AM CHAIR DYSON commented that the defined contribution also allows portability. MR. BARNHILL agreed. 10:10:43 AM CHAIR DYSON stated he would hold SB 30 in committee. Although he didn't believe that the bill would pass this year, he said he was impressed with the efforts that were put forth to make it happen. HB 310-U.S. CONSTITUTIONAL CONVENTION DELEGATES 10:11:32 AM CHAIR DYSON announced the consideration of HB 310. [CSHB 310(STA) AM was before the committee for the first hearing.] 10:11:52 AM At ease from 10:11 a.m. to 10:13 a.m. 10:13:42 AM REPRESENTATIVE TAMMIE WILSON, Alaska State Legislature, Juneau, Alaska, sponsor of HB 310, introduced the legislation speaking to the following sponsor statement: HB 310 defines the process of delegate selection and duties of delegates selected to represent the State of Alaska at a Convention of the States called under Article V of the Constitution of the United States. When a Convention of the States is called, the Alaska State Legislature shall by a joint resolution appoint delegates, alternate delegates and an observer to the convention. All delegates will serve their state without compensation. Before the convening of the Convention of the States, the state legislature will provide instructions to delegates, alternate delegates and observer by joint resolution regarding the topics to be discussed and voted upon. Each delegate and alternate delegate will be sworn in and will faithfully discharge all of the duties provided by the Alaska State Legislature. The legislature can recall any selected delegates or observer at any time and appoint a new delegate, alternate delegate or an observer by joint resolution. Votes cast by delegates that are outside of the scope of the provided instructions by the Alaska State Legislature are considered ultra vires and void. Delegates who casts or attempts to cast non-authorized votes is subject to immediate replacement by an alternate delegate and is guilty of a class C felony and may be punished as provided in AS 12.55. REPRESENTATIVE T. WILSON related that the amendment that was made on the House floor removed the felony charges for any delegate who didn't follow the legislature's instructions. Furthermore, there will be just two delegates and the compensation isn't determined. 10:16:40 AM CHAIR DYSON asked which version was before the committee. REPRESENTATIVE T. WILSON replied it's version C.A. She noted that most states that intend to send delegates to a convention of the states have passed a bill to that effect. She posited that the most important part is for each legislature to determine whether they want the delegates to talk about all three topics, offer suggestions, or submit amendments for the delegates to consider. SENATOR WIELECHOWSKI asked if appointing two delegates is the standard. REPRESENTATIVE T. WILSON offered that having just two delegates makes it easier to realize who is following the instructions. That number was inserted by the House State Affairs Committee. SENATOR WIELECHOWSKI questioned locking in the number. REPRESENTATIVE T. WILSON said she isn't tied to the number, but there doesn't seem to be a standard. Regardless of the number of delegates, each state gets just one vote, she said. 10:20:59 AM CHAIR DYSON pointed out that in order to get to a convention, there has to be convergence on the subject. His understanding is that the state wouldn't be excluded dependent on the number of delegates it sends. REPRESENTATIVE T. WILSON agreed. CHAIR DYSON commented on the two or three groups in the nation working on this process and his goal of ensuring that Alaska is in the queue no matter what happens. REPRESENTATIVE T. WILSON added that the bill specifies two delegates and two alternates. SENATOR WIELECHOWSKI asked if she had any comment on the email Mike Coons sent highlighting subsection (d) on page 2, lines 8- 12, that abdicates state sovereignty. REPRESENTATIVE T. WILSON said that Mr. Coons indicated that he would call in today and explain his position if didn't agree with the language in the bill. 10:24:23 AM MIKE COONS, Regional Director, Citizen Initiatives, Palmer, Alaska, said he supports the intent of HB 310, but the language on page 2, lines 8-12 abdicates state sovereignty and potentially makes the convention a deliberative body and opens the door for large states to make the rules. He also questioned the intention of the instructions on page 2, lines 13-17, and noted that Ohio, Michigan, and Georgia have passed a call for a convention of the states to propose the single topic of a balanced budget amendment. He said he has no problem with codifying the criminal aspect of a delegate who violates their oath, but this bill is just one part of the issue. To maintain the sovereignty of the State of Alaska, it must have a delegate resolution that not only binds the delegates, but also ensures that under Article 4, Section 4 of the U.S. Constitution that there is one state one vote, language that lays out the rules of the convention in advance, and any pre-approved amendment. He reported that Citizen Initiatives is working to be the facilitator to the state legislatures as to the resolution and amendment so that a majority of the states have the same language prior to the convention. He noted that he sent the Citizen Initiatives proposed delegate resolution, which will ensure a safe, efficient, and concise convention. CHAIR DYSON asked if passing the bill in this legislature would preclude addressing his concerns and suggestions. MR. COONS answered that it wouldn't preclude a change in the future. He added that the Citizen Initiatives resolution would further define how the convention would be run; if 26 states pass the same or a similar delegate resolution they would control the convention. This would prevent the more populous, liberal states from running rough shod over the states with less population. CHAIR DYSON closed public testimony and solicited a motion. 10:29:33 AM SENATOR GIESSEL moved to report CS for HB 310(STA) AM, labeled 28-LS0991\C.A, from committee with individual recommendations and attached fiscal note(s). 10:29:49 AM CHAIR DYSON announced that without objection, CSHB 310(STA) AM is reported from the Senate State Affairs Standing Committee. 10:29:54 AM There being no further business to come before the committee, Chair Dyson adjourned the Senate State Affairs Standing Committee hearing at 10:29 a.m.