HB 174-PERS CONTRIBUTIONS BY MUNICIPALITIES  8:18:52 AM CO-CHAIR LEDOUX announced that the next order of business would be HOUSE BILL NO. 174, "An Act requiring each municipality with a population that decreased by more than 25 percent between 2000 and 2010 that participates in the defined benefit plan of the Public Employees' Retirement System of Alaska to contribute to the system an amount calculated by applying a rate of 22 percent of the total of all base salaries paid by the municipality to employees of the municipality who are active members of the system during a payroll period; reducing the rate of interest payable by a municipality with a population that decreased by more than 25 percent between 2000 and 2010 that is delinquent in transmitting employee and employer contributions to the defined benefit plan of the Public Employees' Retirement System of Alaska; giving retrospective effect to the substantive provisions of the Act; and providing for an effective date." 8:19:35 AM CO-CHAIR LEDOUX reminded the committee that public testimony had remained open. 8:20:05 AM GREG MOYER, Interim Manager, City of Galena, reminded the committee that in 2008 the largest industry in Galena, the military, 600 airman, left and June 30, 2008, the salary floor for the Public Employees' Retirement System (PERS) was set in law. Therefore, the population of Galena decreased significantly and is still reeling from the aforementioned circumstances. Although it's a blessing to have the infrastructure from the base, Galena doesn't have the population to support it as the population has dropped from around 800 to under 500. As the interim manager, he said his job is to save Galena from not being a first class city. The salary floor in Galena is $1.5 million, which are the salaries Galena has to have otherwise it is penalized plus interest. Galena, he emphasized, will never met that salary floor as Galena is almost half of that now and is looking to gain more efficiencies by cutting more in the next budget. Mr. Moyer opined that Galena is looking for a legislative fix [without] re-opening all the PERS issues. Although he understood that it's difficult to help a couple of communities when other communities also fall [in arrears with the salary floor]. This legislation, HB 174, is structured such that communities have to have had a population change in 2000-2010. He noted that there has been discussion of changing the floor amount for Galena to June 30, 2012, which would help. However, a legislative fix is necessary to save Galena so that other steps can be taken to move on and survive. 8:24:53 AM CO-CHAIR LEDOUX inquired as to what happens if this legislation isn't passed and the communities don't pay what is required under existing law. 8:25:19 AM SCOTT RUBY, Director, Division of Community & Regional Affairs, Department of Commerce, Community & Economic Development, explained that similar situations have happened to smaller municipalities, which have basically become nonfunctional and any revenue that they have received has been used to pay off their debt. For example, several cities in the Yukon-Kuskokwim Delta dissolved in the early 1990s. The tax debt of those municipalities, including Tuluksak, Newtok, and Tununak, was not on the scale of what is being targeted with HB 174. The aforementioned municipalities maintained the minimum amount of government by having a budget and holding a council meeting and elections each year, but stopped providing services. These municipalities only existed in order to continue to qualify for the revenue sharing program until the debt was repaid at which point they were allowed to dissolve. Mr. Ruby explained that prior to dissolving any corporation, whether it be a nonprofit, for-profit, or municipal corporation, it must be free of debt or have an entity that is willing to accept liability for that debt. The issue with Galena is that it has much more debt, such that the revenues from revenue sharing and other sources wouldn't outpace the rate at which they're accumulating those debts. Therefore, the most likely scenario [without HB 174] would be for Galena to stop functioning as a municipality and the school would likely return to a Rural Education Attendance Area (REAA). Although Galena would likely try to dissolve, it would legally exist until it resolved all of its debts. Mr. Ruby pointed out that Galena can't declare bankruptcy because there is no such statute allowing municipalities to go bankrupt, which is a requirement of the Internal Revenue Service (IRS) code. 8:28:05 AM CO-CHAIR LEDOUX inquired as to what the state would do if a municipality continued to function but didn't pay. MR. RUBY deferred to the PERS Board. 8:28:50 AM JIM PUCKETT, Director, Division of Retirement and Benefits, Department of Administration, stated that the only tool available to intercept funds is through revenue sharing. 8:29:26 AM REPRESENTATIVE HERRON inquired as to the administration's position on this specific circumstance. MR. PUCKETT answered that the administration has no position on HB 174, but clarified that's not to say that the administration doesn't recognize that these communities that have lost population simply don't have a means to address their situation. He said a fix will have to come from the legislature. 8:29:55 AM REPRESENTATIVE FOSTER highlighted that Galena's salary floor was set at $1.5 million in 2008 while today its total salary base is $700,000-$750,000. He further highlighted that Galena is paying 22 percent on the about $750,000 difference; these are salaries that they don't even have. Therefore, Galena is going to get farther and farther behind with no way in which to catch up. The legislation before the committee, therefore, attempts to rectify a situation that wasn't foreseen in 2008 and is no fault of Galena. 8:31:18 AM CO-CHAIR NAGEAK asked whether HB 74 is limited to only those municipalities with operations that decreased by more than 25 percent. 8:31:52 AM PAUL LABOLLE, Staff, Representative Foster, Alaska State Legislature, replied yes, HB 174 only applies to municipalities that have lost more than 25 percent of their population between census years 2000 and 2010. The committee packet should include a spreadsheet listing all the PERS municipalities and their population loss or gain during the 2000-2010 census period. 8:32:29 AM CO-CHAIR NAGEAK inquired as to whether HB 174 addresses municipalities that experience a 25 percent population decrease in the future. MR. LABOLLE answered that the legislation only speaks to a 25 percent reduction in population during the 2000-2010 census period, and thus future population loss would have to be revisited by the legislature. 8:33:06 AM REPRESENTATIVE HERRON asked what the catalyst was for the 25 percent designation. MR. LABOLLE responded that it was a bright line that reached [the goal]. 8:33:29 AM REPRESENTATIVE HERRON noted that the debt will remain, and asked whether there should be a way to ratify the debt that can't be paid off. MR. LABOLLE pointed out that HB 174 includes a retroactivity clause that goes back to 2009 such that the 2008 would no longer apply and basically erode the existing liability. He directed attention to the fiscal note that includes a large supplemental payment in fiscal year (FY) 13, which is the retroactivity portion of the legislation. 8:34:28 AM REPRESENTATIVE HERRON questioned whether it would make more sense to ratify, forgive, an amount than to pay an amount. MR. LABOLLE deferred to PERS, but speculated that the goal is to make the system whole because if no [municipality] pays [their debt] it would contribute to the unfunded liability that PERS already has. In response to Co-Chair LeDoux, if the municipality continues to function without paying, the system continues to get an unfunded liability. Therefore, it's not a good solution for the system. If a municipality becomes a nonfunctioning government and only revenue sharing is collected as an intercept, then [the system] misses out on the current/existing salaries on which the municipality is paying. Currently, Galena is unable to pay on $1.5 million but is able to pay on the approximately $750,000 in existing salaries. 8:35:57 AM REPRESENTATIVE FOSTER recalled a question from the last meeting regarding how many communities are close to the threshold provided in HB 174. MR. LABOLLE, referring to a spreadsheet, pointed out the column specifying the population percentage decrease and noted that those over 25 percent are highlighted. If the committee wanted to use another percentage, say 20 percent, then Angoon, Kake, Nulato, and Tanana would qualify. 8:37:57 AM CO-CHAIR LEDOUX inquired as to why 25 percent was chosen when there are other communities that just miss that cut off. MR. LABOLLE responded that 25 percent was a placeholder to start the discussion. REPRESENTATIVE FOSTER interjected that the percentage is a policy call for the committee. MR. LABOLLE encouraged the committee to obtain input from the department before changing the percentage because he understood the department's neutral position on HB 174 is due to its narrow focus and limited fiscal impact. 8:39:48 AM REPRESENTATIVE HERRON opined that there has to be recognition that Anderson, Galena, Pelican, and even St. George lost population because of major industry [withdrawal]. He expressed the need to have sideboards [with regard to the population change] in order to avoid including cities experiencing natural attrition. 8:41:33 AM CO-CHAIR NAGEAK reminded the committee that HB 174 is limited to [population changes] during the 2000-2010 census period and any [population] changes in the future would have to be revisited. MR. LABOLLE confirmed that anything in the future would have to be revisited by the legislature. 8:42:25 AM CO-CHAIR LEDOUX commented that even those communities that lose population slowly will be in the same position. Although HB 174 fixes things for four communities, she said she wasn't sure it gets to the real problem that may be a systematic problem. MR. LABOLLE mentioned that there is termination study legislation that is reviewing the system as there is lots of agreement that the system needs work. However, HB 174 isn't targeting the system but rather attempting to save a couple of communities. 8:43:46 AM The committee took a brief at-ease. 8:44:40 AM CO-CHAIR NAGEAK moved to adopt CSHB 174, Version 28-LS0656\U, Wayne, 4/1/13, as the working document. REPRESENTATIVE REINBOLD objected for purposes of discussion. 8:45:03 AM MR. LABOLLE explained that Version U is the result of Representative Herron's previous discussion regarding obtaining a new snapshot. The legislation is now simpler such that the following language is added to Section 1(a)(2): ", or, if the employer is a municipality in which the  population decreased by more than 25 percent between  2000 and 2010, according to the decennial census  conducted by the United States Census Bureau, the  corresponding payroll period for the fiscal year  ending June 30, 2012. 8:46:33 AM REPRESENTATIVE REINBOLD withdrew her objection. There being no further objection, Version U was before the committee. 8:46:39 AM CO-CHAIR LEDOUX commented that she wasn't sure HB 174 totally solves all the problems with the system, but noted that it has another committee of referral. 8:46:59 AM CO-CHAIR NAGEAK moved to report CSHB 174, Version 28-LS0656\U, Wayne, 4/1/13, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 174(CRA) reported from the House Community and Regional Affairs Standing Committee.