SB 81-PUBLIC EMPLOYER PENSION CONTRIBUTIONS  2:31:25 PM CHAIR BJORKMAN reconvened the meeting and announced the consideration of SENATE BILL NO. 81 "An Act relating to employer contribution rates in the teachers' retirement system and the Public Employees' Retirement System of Alaska; and providing for an effective date." 2:32:00 PM SENATOR BERT STEDMAN, District A, Alaska State Legislature, Juneau, Alaska, sponsor of SB 81 read the following: [Original punctuation provided.] For the past two decades, the unfunded liability has significantly impacted the finances of both non-state PERS employers and the state. SB 81 advances the state's effort to reduce the unfunded liability by providing the Alaska Retirement Management Board with flexibility needed to adjust the twenty-two percent contribution rate. With input from municipal employers, the ARM Board would have the authority to increase or decrease rates to achieve measurable reductions in the unfunded liability and stop deferring costs that enable the liability to grow. In 2006, Alaska Retirement and Management (ARM) Board set employer contribution rates to the full actuarial rate. 2:33:21 PM SENATOR STEDMAN explained that the ARM Board would set a rate covering both the current year's required contributions and the amount needed to retire the unfunded liability. In 2008, as employer contribution rates surged and placed significant strain on municipalities and school districts, the legislature capped PERS employer contributions at twenty-two percent through SB 125. The state assumed responsibility for the difference between the cap and the actuarially required contribution, relieving local governments of excessive financial burdens. SENATOR STEDMAN stated that Alaska capped the rate at 22 percent of payroll because escalating rates risked bankrupting communities statewide, with the state covering the remaining balance. State assistance payments for municipalities and other PERS employers remain entirely funded with Unrestricted General Funds (UGF). 2:34:34 PM SENATOR STEDMAN noted that the costs are tightening and involve hundreds of millions of dollars. The ARM Board projected about $207 million, while the governor budgeted $232 million for one year, with rates expected to escalate annually. At the local level, the contribution cap represents twenty-two percent of aggregate payroll. Approximately nine percent of that amount goes toward the normal cost of retirement benefits for active employees, while the remaining thirteen percent is applied to the unfunded liability. Removing the twenty-two percent cap and bringing non- state PERS employers to the table to participate in discussions on setting the rate would encourage both communities and the state to pay down the liability sooner rather than later and not try to shift the liability from one entity to the other. SENATOR STEDMAN stated that over the past two decades, the state has shifted billions of dollars in costs to local governments; SB 81 would bring all parties to the table to discuss the rate without mandating changes to the 22 percent cap. Continuing the policies of the last 18 years has resulted in decades of payments toward exhausting this liability. These extensions continue to burden our communities, while also hindering their ability to potentially allocate this money towards other critical local priorities. 2:37:14 PM SENATOR STEDMAN noted that communities may choose to prioritize salary increases, lower taxes, or school funding, though, all systems should participate in setting the rate. He said the goal should be extinguishing the liability rather than passing it to future generations. 2:39:24 PM SENATOR DUNBAR asked whether the 22 percent cap originated in regulation or statute, and without a repealer in the bill, how can the board exceed that cap. 2:39:50 PM SENATOR STEDMAN replied that if the 22 percent cap was included in the bill, the cap would need repeal to allow flexibility. 2:40:12 PM SENATOR YUNDT stated that the unfunded liability has been paid for about 18 years and may continue until around 2039. He asked whether increasing principal contributions would allow earlier payoff, and if so, would additional funding come from the state or local governments. 2:40:53 PM SENATOR STEDMAN replied that addressing the liability will require either higher investment returns or increased contributions, and it may extend beyond 2039. He said contribution rates have remained at 22 percent for years, and while reductions were once expected, changes to amortization have extended the timeline and added flexibility, with ongoing discussions among stakeholders. 2:41:59 PM SENATOR YUNDT noted that Alaska is spending over 200 million a year right now and asked what percent of that is principal reducing and how much is interest. SENATOR STEDMAN replied that he didn't know. SENATOR YUNDT stated that it would be helpful to see an amortization analysis showing how much is going toward principal versus interest, and how additional contributions would reduce the timeline. SENATOR STEDMAN noted that large contributions do reduce the liability and payments, but continued extension of the amortization period prevents fully catching up. He said the liability was about $6.5 billion in 2015 and expects it to reach around $7 billion in FY25. 2:43:46 PM SENATOR YUNDT asked what is the liability today if the unfunded liability was $6.5 billion in 2015. 2:43:53 PM SENATOR STEDMAN replied that the FY25 figure is not yet available, though it's expected to reach around $6.5 to $7 billion. 2:44:10 PM CHAIR BJORKMAN stated that in his presentation last week, the House Majority Leader presented the committee with the same amount of $6.5 to $7 billion. 2:44:30 PM SENATOR STEDMAN stated that the liability dropped from about $8.3 billion to $6.5 billion after a $3 billion contribution, though large balances and compounding make the debt difficult to reduce. 2:45:07 PM SENATOR YUNDT asked who decided to extend the amortization schedule, when was the schedule finalized, and in what year did the amortization occur. 2:45:19 PM SENATOR STEDMAN replied that the Alaska Retirement Management Board has repeatedly recommended contribution levels, which are submitted through the administration for the budget. For FY27, the board recommends about $270 million, while the proposed budget includes $232 million; legislative action is still pending. He said these amounts address only the unfunded liability, not ongoing benefits, and surplus funds from other areas, like health care, cannot be used for pensions. 2:46:59 PM SENATOR YUNDT stated that last year's contribution was $218 million, this year's recommendation is $270.2 million, and the governor's proposed budget includes $232 million. He asked whether the contributions cover only interest, or is the principal being reduced. 2:47:20 PM SENATOR STEDMAN replied that there is concern that the problem has been repeatedly deferred, with little progress despite significant spending overtime. He said unfunded liability has persisted for decades, largely driven by pension costs, not healthcare, which is now in surplus. State intervention was necessary to prevent local governments from failing, though liability remains an ongoing challenge. 2:48:52 PM CHAIR BJORKMAN stated that the issue is whether to fully fund pension contributions now, per ARM Board recommendations to meet a 2039 payoff, or continue underfunding and extend the liability into the future. Historically, lower contributions have worsened the problem due to compounding. SB 81 would allow increased contributions, including from local governments who are currently capped at 22 percent, to pay down the liability more quickly. 2:50:49 PM SENATOR STEDMAN stated that the ARM Board can adjust contribution rates, shifting costs between local governments and the state. Without action, the unfunded liability will continue burdening current and future workers throughout their careers, paying for benefits accrued decades ago. 2:51:59 PM CHAIR BJORKMAN solicited a motion. 2:52:01 PM SENATOR MERRICK moved to adopt Conceptual Amendment 1. CONCEPTUAL AMENDMENT 1  BY SENATOR STEDMAN Delete Section 1, lines 5-12 2:52:12 PM CHAIR BJORKMAN objected for purposes of discussion. 2:52:18 PM SENATOR STEDMAN stated that the state covers all unfunded liability for teachers (TRS), so the 22 percent cap does not apply there; the issue is concentrated in PERS. He said this reflects state responsibility for education costs, which is why the state assumed the unfunded liability rather than leaving it to local governments. 2:53:05 PM CHAIR BJORKMAN removed his objection; found no further objection and Conceptual Amendment 1 was adopted. 2:53:26 PM SENATOR DUNBAR noted that SB 81 expands the ARM Board's authority. He asked if the 22 percent cap still exists in statute, how can the board exceed it, and if the cap was repealed in 2021, why is no repealer needed now. 2:54:07 PM SENATOR STEDMAN replied he will get back to the committee with an answer and noted that if SB 81 needed a repeal it would have been put in by legislative legal. 2:55:17 PM CHAIR BJORKMAN opened public testimony on SB 81. 2:56:00 PM CYNNA GUBATAYAO, Manager, Ketchikan Gateway Borough, Ketchikan, Alaska, testified in opposition to SB 81 and read the following: [Original punctuation provided.] Good afternoon, my name is Cynna Gubatayao Smith, I am the Assistant Borough Manager for the Ketchikan Gateway Borough. Regarding SB 81, the 22 percent PERS cap was negotiated in 2008 under the PERS restructuring plan which was intended to address the unfunded liability while giving municipalities a predictable cost-share. Our Borough has dutifully paid its share of the NPL ever since. Our community's current share of the PERS NPL is now over $57M for the Borough, City of Ketchikan, and the School District. That's for a total community of about 13,500 people and whose population is declining. The original 2006 amortization period for paying off the unfunded liability was set at 25 years, to end in 2030. In 2018, that date was extended to 2039, with much discussion and huge debate. In an April 29, 2025, presentation to the House Finance Committee, Gallagher told the Committee that the unfunded liability is not projected to reach full funding until 2048. That in itself is already a major cost shift to the municipalities. Since 2016, the Ketchikan Gateway Borough Assembly has adopted multiple resolutions opposing any attempts to cost-shift by increasing the PERS & TRS contribution limits. The Assembly reaffirmed that position as recently as Dec 1, 2025, and I am now conveying to you the Assembly's opposition to increasing the contribution limits. 2:58:02 PM STEVE CARRIERE, Council Member, City Council of Dillingham, Dillingham, Alaska, testified in opposition to SB 81. He stated that Dillingham has relied on about $188,000 annually in state assistance, with some years exceeding $250,000. He said the money is essential for a small, declining community and losing that predictable support would be difficult to manage. 2:59:36 PM DONNA ADERHOLD, Council Member, Homer City Council, Homer, Alaska, testified in opposition to SB 81. She stated that increasing the 22 percent PERS contribution unfairly shifts costs from the state to the municipalities. She said that she recognizes the seriousness of the issue and emphasizes that municipalities should be included in any discussions about changes. 3:01:18 PM CHAIR BJORKMAN closed public testimony on SB 81. 3:01:24 PM At ease. 3:02:28 PM CHAIR BJORKMAN reconvened the meeting and stated that the committee will submit questions to the Department of Administration and the ARM Board to clarify their intentions, as well as what is currently allowed and enforceable under statute driving policy decisions. 3:03:14 PM CHAIR BJORKMAN held SB 81 in committee.