SB 247-REVENUE SHARING PROGRAM 1:42:49 PM CHAIR BERT STEDMAN announced SB 246 and SB 247 to be up for consideration. He noted that public testimony was taken at the previous hearing and that this day the committee would consider committee substitutes (CS) for each bill. Version Y CS for SB 247 establishes the municipal public employees' retirement system unfunded liability relief account. Version G CS for SB 246 appropriates $29,300,000 from the general fund to the relief account to make up the difference between what employers will pay in FY07 and the actuarial calculated rate. At-ease from 1:44:06 PM to 1:45:16 PM. CHAIR STEDMAN asked for a motion to adopt version G. SENATOR GARY STEVENS moved version G CS for SB 246. CHAIR STEDMAN objected for discussion purposes. He explained that the Alaska Retirement Management Board ("ARM Board") was created last session to review the issue of the roughly $6 billion unfunded liability for PERS and to present a report to the Legislature this session. It has asked for additional time to make recommendations regarding long-term solutions. Employers are required to adhere to a payment schedule to pay off the liability that ticks on as a solution is sought. Because the employers' contribution rate isn't at the rate that the actuaries calculate it ought to be to pay off the liability, a special appropriation is to be established to fund the difference between where municipalities are on their funding schedule and where the actuary requires them to be. The goal is to stop the growth of the unfunded liability until such time as the ARM Board can submit its report and some long-term action is undertaken. He removed his objection and announced that version G CS for SB 246 was adopted. 1:49:06 PM SENATOR GARY STEVENS stated that this combines two important issues and should address a number of problems that communities face. CHAIR STEDMAN clarified that version G doesn't change the special appropriation from the Alaska Capital Income Fund. That fund is commonly referred to as Amerada Hess and it resides within the Alaska Permanent Fund, but isn't counted toward the annual dividend that citizens receive. 1:50:37 PM KEVIN RITCHIE, Executive Director of the Alaska Municipal League (AML), thanked the committee for the work it had done. He advised that AML hadn't had time to give the bill full review, but it would get the information out to municipalities. Obviously, he said, the concept of putting the liability into a holding pattern is significant. At-ease from 1:51:18 PM to 1:52:14 PM. CHAIR STEDMAN asked for a motion to adopt version Y. SENATOR GARY STEVENS moved version Y CS for SB 247. CHAIR STEDMAN objected for explanation purposes. He advised that SB 247 is the revenue sharing bill and state aid for certain municipalities' under-funding of PERS and providing for an effective date. Language in Section 2 on page 3 establishes that in FY07 the funds will be used to make up the shortfalls between the PERS contributions from municipal employers and the actuarial calculated rate for the contributions. The communities that will receive funds are listed on page 3, line 24 through page 5, line 2. Communities that aren't on the list are either funding at the required actuarial calculated rate or they are in a funding surplus. He noted that the under funded amounts range from $11 for the City of Egegik to a high of $14,134,590 for the Municipality of Anchorage. He removed his objection and announced that version Y was adopted. 1:55:42 PM MELANIE MILLHORN, Director, Division of Retirement and Benefits, commended Senator Stedman for the work he had done on SB 247, version Y. She recapped the bill and said it provides that appropriations will be made to the various accounts to pay the difference between what the actuary has calculated as their rate to be for FY 07 compared to what their contribution rate is as capped by regulation to AAC 35.900. The division would make the appropriations to the various accounts by January 1, 2007. CHAIR STEDMAN added if the appropriations aren't made, the money lapses into the general fund. SENATOR GARY STEVENS referenced the spreadsheet in the packet and asked what the $204,976 appropriation for the City of Seward represents. MS. MILLHORN replied it represents the difference between the 24.26 percent actuarial calculated rate found in column 5 and the 18.74 percent employer's FY07 rate found in column 3. CHAIR STEDMAN asked her to include the 5 percent cap in her explanation. MS. MILHORN responded a regulation in PERS places a 5 percent annual cap on the contribution rate increase that the board adopts. That regulation is scheduled for repeal, but when the ARM Board adopted the FY07 rate it was operative until repealed. The valuation itself sets forward an average calculated employer rate, but the PERS supplement report that accompanies the valuation has an individual employer calculated rate based on the individual liabilities. She told the committee to note that each liability is different based on the FY07 rate compared to the actuarial calculated rate. SENATOR GARY STEVENS asked her to use the City of Seward as an example to explain each of the columns in the spreadsheet. MS. MILLHORN replied column 1 has FY07 estimated earnings. It shows that the City of Seward has a FY07 payroll base of $3.7 million. Column 2 shows the FY07 rate at 18.74 percent. She noted that the supplement report indicates that the rate is capped at 18.74 percent. Column 3 indicates the actual contribution amount of $695,880, which is calculated by multiplying column 2 times column 1. Column 4 is the actuarial calculated rate at 24.26 percent. Column 5 is the required contribution according to the actuarial calculated rate, which is calculated by multiplying column 4 times column 1. Column 6 total is $204,976, which is the difference between the actual contribution in column 3 and the actuarial required contribution in column 5. 2:00:54 PM CHAIR STEDMAN summarized that the City of Seward has an annual payroll of $3.7 million and it should be contributing $900,856 per year into the retirement system, but because of the cap it is only contributing $695,880. Version Y makes up the $204,976 difference. This is a one-time appropriation because the idea is that by next year there will be a long-term solution. SENATOR KOOKESH mentioned that the cap would be eliminated. SENATOR THOMAS WAGONER asked when the cap would be removed. MS. MILLHORN replied the regulation is scheduled for repeal in the next several months and will impact the FY08 rate. 2:02:24 PM KEVIN RITCHIE stated that this is a positive step and he reiterated that AML would get the information out to its members. 2:03:27 PM VALERIE McCANDLESS, Mayor of the City of Wrangell, voiced support for the effort represented in SB 246 and SB 247. She said she would follow the legislation to see how it would affect her community. 2:04:35 PM DEBBIE KENUKTOOK, Mayor of the City of Koyuk, reported that the city financial situation is bleak and she strongly encouraged the Legislature to reinstate a revenue sharing program. CHAIR STEDMAN observed that Koyuk isn't the only community in Western Alaska that is facing financial strains in the last several years. He noted there was no further testimony and asked for motions to move SB 246 and SB 247. 2:08:49 PM SENATOR WAGONER motioned to report CSSB 247(CRA), version Y, and attached fiscal note(s) from committee with individual recommendations. There being no objection, it was so ordered. 2:09:18 PM SENATOR WAGONER motioned to report CSSB 246(CRA), version G, from committee with individual recommendations. There being no objection, it was so ordered.