HOUSE FINANCE COMMITTEE April 19, 2007 1:40 P.M. CALL TO ORDER Co-Chair Meyer called the House Finance Committee meeting to order at 1:40:46 PM. MEMBERS PRESENT Representative Mike Chenault, Co-Chair Representative Kevin Meyer, Co-Chair Representative Bill Stoltze, Vice-Chair Representative Harry Crawford Representative Richard Foster Representative Mike Hawker Representative Reggie Joule Representative Mike Kelly Representative Mary Nelson Representative Bill Thomas Jr. MEMBERS ABSENT Representative Les Gara ALSO PRESENT Representative Peggy Wilson; Representative Andrea Doll; Eleanor Wolfe, Staff, Representative Kurt Olson; Cliff Stone, Staff, Representative Peggy Wilson; Annette Kreitzer, Commissioner, Department of Administration; Kevin Brooks, Deputy Commissioner, Department of Administration; Melanie Lesh, Legislative Liaison, Department of Natural Resources; Linda Hall, Director, Division of Insurance, Department of Commerce, Community and Economic Development; Michael Eberhardt, Superintendent, Southeast Division of Parks and Outdoor Recreation, Department of Natural Resources; Kathy Lea, Retirement Manager, Division of Retirement and Benefits, Department of Administration PRESENT VIA TELECONFERENCE Deborah Lyons, Executive Director, Sitka Trail Works, Sitka; Brian Hansen, Sitka Trail Works, Sitka; Marlene Campbell, Government Relation Director, City and Borough of Sitka; Harvey Brandt, Retired History Teacher, Sitka; Michael Lamb, Chief Financial Officer, Fairbanks North Star Borough SUMMARY HB 170 An Act relating to annual audit reports by insurers, to custodians of insurer assets, to writing workers' compensation insurance by surplus lines insurers, to reports by surplus lines insurers, to the definition of 'wet marine and transportation insurance,' to false or misleading financial statements concerning insurance audits, and to the membership of the Alaska Life and Health Insurance Guaranty Association; and providing for an effective date. CS HB 170 (FIN) was reported out of Committee with a "do pass" recommendation and with zero note #1 by the Department of Community & Economic Development. HB 176 An Act creating the Fort Rousseau Causeway State Historical Park. CS HB 176 (RES) was reported out of Committee with a "do pass" recommendation and with fiscal note #1 by the Department of Natural Resources. CS SB 123(FIN) An Act relating to the public employees' and teachers' defined benefit retirement plans; relating to the public employees' and teachers' defined contribution retirement plans; relating to the judicial retirement system; relating to the health reimbursement arrangement plan for certain teachers and public employees; relating to the supplemental employee benefit program; relating to the public employees' deferred compensation program; relating to group insurance for public employees and retirees; making conforming amendments; and providing for an effective date. HCS CS SB 123 (FIN) was reported out of Committee with a "do pass" recommendation and with a new fiscal note by the Department of Administration and a zero note #2 by Department of Administration. 1:41:33 PM HOUSE BILL NO. 170 An Act relating to annual audit reports by insurers, to custodians of insurer assets, to writing workers' compensation insurance by surplus lines insurers, to reports by surplus lines insurers, to the definition of 'wet marine and transportation insurance,' to false or misleading financial statements concerning insurance audits, and to the membership of the Alaska Life and Health Insurance Guaranty Association; and providing for an effective date. Vice Chair Stoltze MOVED to ADOPT work draft #25-LS0609\E, Bailey, 4/17/07, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. 1:42:13 PM ELEANOR WOLFE, STAFF, REPRESENTATIVE KURT OLSON, stated the bill had been introduced at the request of the Division of Insurance, Department of Community & Economic Development. LINDA HALL, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, stated that HB 170 relates to the accreditation of the Division of Insurance and includes other minor clarifying changes to the insurance code. The changes to the work draft address the oversight of the insurance industry by providing minor clarifications. She addressed the financial regulations, providing a base for the solvency oversight. It is the intent through statutory authority to adopt the balance of the model regulation. She mentioned the importance of accreditation, which occurs only once every five years; the Division hopes to be reaccredited. 1:45:08 PM The committee substitute reflects changes resulting from industry discussions during the House Labor and Commerce hearings. · Section 1 is the most important part of the bill, placing required language in statute. AS 21.09.195 - Registration for annual preparer of an insurer's audit financial report. This section was added requiring the director to establish a registration system for certified public accounts, conducting audits on Alaska insurance companies. 1:46:55 PM · Section 3 provides the requirements for custodians of the insurer assets, AS 21.21.410. 1:47:37 PM There are five other clarifications in the work draft. · Section 2, AS 21.09.200, the insurer annual audited financial report. This section clarifies the retaliatory tax used against other states should they use Alaska's domestic insurance companies differently. There are three places in Alaska Statutes that allow off-sets. She noted Section 2 was duplicative of three other sections. The Division would like to see that language amended. · Section 4, AS 21.34.030(a) - Workers compensation written in the surplus line market, which replaces "directives" with "order". Order is defined in statute. · Section 5, AS 21.34.170, the monthly report of surplus lines broker, removes the requirement for a monthly report to be notarized. · Section 6, AS 21.34.900(9), provides the definition of wet marine and transportation insurance. It clarifies that the clauses are necessary for defining that marine insurance operate separately. · Section 8, AS 21.79.040, Alaska Life and Health Insurance Guaranty Association, addresses high deductible health plans. She noted that employers have been encouraged to offer deductible health plans. · Sections 10 & 11, provide regulations and changes to the definition of a member as someone authorized to write a line of business. · Sections 15-17, identifies language of the effective dates. 1:52:22 PM In response to comments made by Committee members, Vice Chair Stoltze emphasized that insurance concerns affect everyone and that it is an extremely important aspect for the State. 1:53:25 PM Co-Chair Meyer MOVED Conceptual Amendment #1. Vice Chair Stoltze OBJECTED to hear a description. Ms. Hall explained that the language in Section 2 was duplicative of Sections 9, 12 & 13. The intent is to clarify the calculation of retaliatory fees to negate premium tax credit. The amendment requests that duplicative language be deleted. Additionally, Line 14 addresses high deductible health plans, making them compliant with federal statutes. Vice Chair Stoltze WITHDREW his OBJECTION. There being NO further OBJECTION, conceptual Amendment #1 was adopted. Representative Hawker applauded the effort of Ms. Hall addressing concerns of the accounting industry. 1:55:27 PM Representative Foster MOVED to REPORT CS HB 170 (FIN) out of Committee with individual recommendations and with the accompanying note. There being NO OBJECTION, it was so ordered. CS HB 170 (FIN) was reported out of Committee with a "do pass" recommendation and with zero note #1 by the Department of Community & Economic Development. 1:56:17 PM HOUSE BILL NO. 176 An Act creating the Fort Rousseau Causeway State Historical Park. CLIFF STONE, STAFF, REPRESENTATIVE PEGGY WILSON, testified that HB 176 would create the Fort Rousseau Causeway State Historical Park. He pointed out that the fiscal note is small in the amount of $16 thousand dollars. HB 176 establishes the park with the corresponding language for the management and uses within its boundaries. · Section 1 - Legislative findings · Section 2 - Clarifies the purpose & management responsibilities Mr. Stone added that the creation of the park is consistent with the establishment of parks, as it promotes growth and development and provides opportunities for citizens and visitors alike. 1:59:01 PM Vice Chair Stoltze noted that the Legislature has taken a philosophical position of not adding new parks. He inquired how long it has been since a State park was created. Mr. Stone remembered that the Afognak State Park was the last and established in 1990. Vice Chair Stoltze worried about adding more State parks, and hoped to see more single-use lands, opened up for multiple uses & development. He acknowledged that HB 176 was fairly benign. REPRESENTATIVE PEGGY WILSON, SPONSOR, noted her appreciation for scheduling a hearing on the bill. 2:01:38 PM Co-Chair Meyer shared concerns voiced by Vice Chair Stoltze, locking up lands, making them unavailable for development & private ownership. He realized that the land requested has historical advantage. Mr. Stone stated that the Army Corp of Engineers, with the onset of World War II, connected about seven islands, placing tons of material, making a causeway connecting them. There are now several concrete buildings with gun emplacements still standing. The plan is to offer the park as a destination to tourists. He believed that with controlled management, it would be more adaptable to tourist trade. 2:04:50 PM Representative Wilson spoke about the actual property, noting that it had been a defense sight for Alaska and Sitka during that war. Representative Thomas commented on the inadequate road maintenance in several of the State parks in his district. He emphasized for the record that he was "jealous" of providing funding for a park in Sitka. 2:07:01 PM DEBORAH LYONS, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR, SITKA TRAIL WORKS, SITKA, testified in favor of HB 176, an Act creating the Fort Rousseau Causeway Historical State Park. Sitka Trail Works has over 300 member- households and is in a partnership Memorandum of Agreement with the City and Borough of Sitka. Ms. Lyons pointed out that Sitka Trail Works is taking the initiative to find funds to help restore the historic Fort Rousseau for the public benefit. It is important that the capital investment being made into historic Fort Rousseau is protected and conserved through permanent management of the area, which having a State park status provides. The idea of the project would be to renovate the 8,000 foot causeway road as a hiking trail to view the historic World War II structures. Visitors to the park would learn about Alaska's role in World War II, while enjoying a spectacular scenic setting. She summarized the financial plan.   For the record, Ms. Lyons reiterated the goals and objectives, which are included in the Fort Rousseau Development plan. The plan lays out the development objectives and goes on to estimate the approximate revenues that could be earned from tours on the site. Revenues would pay for future maintenance and hopefully generate enough revenue to support other State Parks in the system. Ms. Lyons outlined the project development goals: · Restore local recreational opportunities · Preserve and interpret State and national history · Provide a quality visitor experience, compatible with community values · Honor and accommodate Sitka Tribe of Alaska concerns   Ms. Lyons continued highlighting the objectives: · Make the area clean, safe and accessible so that it can be enjoyed in its present state. · Perform the necessary environmental, cultural and historic surveys and site mapping to document current conditions. · Produce a site plan and an interpretation plan to guide the capital investment and development of the area. · Secure the capital investments needed to install the dock & interpretative signage, complete historic building restoration, construct visitor center/administration building, and repair portions of the causeway road. Ms. Lyons noted that Senator Stevens specifically named the World War II Causeway project as eligible to apply for federal funding. In 2005, the area was awarded a grant of $140.7 thousand dollars to begin work renovating the causeway. She pointed out that $60 thousand dollars of that grant had been given to the State of Alaska, Department of Natural Resources and the State Historic Preservation office, to pay for the necessary site mapping and cultural resources survey and inventory. Another $14 thousand dollars was used for Phase I, an environmental assessment to determine current levels of hazardous materials. The remainder of the Alaska Trail Initiative grant funds was used to pay for clean up of the causeway. Ms. Lyons urged passage of the bill. Vice Chair Stoltze pointed out that Haines does not receive cruise ship traffic like Sitka. He proposed that some of the proceeds from the park help support Fort Seward in Haines. Ms. Lyons understood that any collected revenues from the State park, would go into the General Fund, to be used for all statewide parks. She hoped that the park would be successful and be able to raise revenue to sustain itself. 2:14:11 PM BRIAN HANSEN, (TESTIFIED VIA TELECONFERENCE), BOARD OF DIRECTORS, SITKA TRAIL WORKS, SITKA, testified in support for establishing the State park in Sitka. He encouraged that the area be saved as a historical & cultural park. 2:17:01 PM MARLENE CAMPBELL, (TESTIFIED VIA TELECONFERENCE), GOVERNMENT RELATION DIRECTOR, CITY AND BOROUGH OF SITKA, noted the Advisory Board and the citizens of Sitka have been working on getting the causeway into some kind of protective status. To date, it has been passively managed by the Department of Transportation & Public Facilities and has fallen into disrepair. Local citizens have attempted to develop it as a part of the City; however, the only vehicle to protect the treasure, would be through the State park system. She emphasized that it is not controversial in Sitka. Ms. Campbell commented that the park is unique as a historic site and consists of 58 acres of connected little islands with trails between the areas. The future of the causeway will be bright if State Parks does assume it. She urged passage of the project through the bill. 2:20:02 PM HARVEY BRANDT, (TESTIFIED VIA TELECONFERENCE), RETIRED HISTORY TEACHER, SITKA, urged passage of the bill. He commented that action would acknowledge the importance of the greatest naval battle in the history of America. He worried about the deterioration of the facility. He guaranteed that it would be used only as a park. PUBLIC TESTIMONY CLOSED 2:22:35 PM Co-Chair Meyer asked if additional funding would be required. Mr. Stone explained that funds had been approved by the U.S. Department of Transportation appropriation for $200 thousand dollars this fiscal year. Co-Chair Meyer questioned if there would be capital costs to the State. Mr. Stone did not know of any capital requests. Vice Chair Stoltze asked about prohibiting incompatible land and water uses. MELANIE LESH, LEGISLATIVE LIAISON, DEPARTMENT OF NATURAL RESOURCES, explained that the existing uses for the park would be allowed, as opposed to a public use area, which offers greater allowances for multiple uses. State parks do restrict uses. Vice Chair Stoltze noted that he preferred multi-use designations for parks; however, thought that the concept could work well for Sitka since they cannot log or mine in that area. Mr. Stone provided an example of an incompatible use, discharging firearms. Vice Chair Stoltze inquired about access without a permit. 2:27:52 PM Representative Thomas asked if the park could be created before the land was transferred from the Department of Transportation & Public Facilities to the Department of Natural Resources. Ms. Lesh explained that it could be with the legal description contained in the proposed legislation. The bill authorizes the transfer. There are questions regarding the ownership of the causeway portion of lands. She pointed out that the Department is in an inner-agency land transfer arrangement, which can take a long time. MICHAEL EBERHARDT, SUPERINTENDENT, SOUTHWAST, DIVISION OF PARKS AND OUTDOOR RECREATION, DEPARTMENT OF NATURAL RESOURCES, explained that currently, the land is State owned and is classified. If it were not State land, the action of the Legislature could automatically revert it to the Department of Natural Resources. The Department of Transportation & Public Facilities and the Department of Natural Resources transfer would be strictly internal. 2:30:55 PM Representative Kelly asked if there was a list of the current uses for that land. Mr. Eberhardt explained that there have been many public meetings in Sitka discussing public uses; however, there is no list. He hoped to create a management plan. The Sitka Trail Works has come up with some non-consumptive uses. Creating a prohibitive use list is not taken lightly. Issues that could change would be commercial use. Permitting use for commercial gain would be administered through the Department. Representative Kelly asked about less restrictive categories like recreational use. Mr. Eberhardt did not know. Representative Kelly worried about the people using the areas in other ways that could become restricted through passage of the bill. 2:34:00 PM Representative Wilson explained that because the area is so close to the airport, no hunting has ever been allowed. She did not anticipate a lot happening that previously had not happened before because of the airport location. To date, there has been no commercial use. The intent is to make it a tour spot location. The anticipated income should be more than the requested funding. Mr. Stone acknowledged that a State park versus recreational area was a valid point. Ms. Campbell commented that the State Park Advisory Board looked at all the options and determined that a recreational area would not be appropriate for the historical site. The area contains tremendous assets and it needs to be maintained. There are many buildings on the eight islands. She commented on the deterioration on the structures on the islands. The City did not pursue the recreational site, as the management would not enable the City to take care of the historical structures. She stressed that the area is small and specialized as a historical site. 2:39:39 PM Vice Chair Stoltze noted that he did have concerns with the "restrictive use" of the land but that he would not hold the bill up. He wanted to know that people understand what they are getting into with State park management. Representative Thomas echoed concerns mentioned by Vice Chair Stoltze. He referenced troubles in his area with traditional use prohibitions. Representative Foster noted that he had no State parks in his area; however, the federal park rangers in his area do not work well with the locals because they carry weapons. He asked if a State park ranger always carries a weapon. Mr. Eberhardt replied that when they are on duty, they do at all times. They are required to by the State Troopers in order to assist in law enforcement activities. Representative Foster worried about guns being carried. Representative Crawford applauded the intent of the legislation and the preservation of the historical sight. Representative Kelly echoed sentiments of Representative Foster about gun carrying officers. 2:48:22 PM Representative Foster MOVED to REPORT CS HB 176 (RES) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 176 (RES) was reported out of Committee with a "do pass" recommendation and with fiscal note #1 by the Department of Natural Resources. 2:49:40 PM CS FOR SENATE BILL NO. 123(FIN) An Act relating to the public employees' and teachers' defined benefit retirement plans; relating to the public employees' and teachers' defined contribution retirement plans; relating to the judicial retirement system; relating to the health reimbursement arrangement plan for certain teachers and public employees; relating to the supplemental employee benefit program; relating to the public employees' deferred compensation program; relating to group insurance for public employees and retirees; making conforming amendments; and providing for an effective date. Representative Hawker MOVED to ADOPT work draft #25- GS1004\M, Chenoweth, 4/17/07, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. ANNETTE KREITZER, COMMISSIONER DESIGNEE, DEPARTMENT OF ADMINISTRATION, introduced the retirement manager, Ms. Lea. KATHY LEA, RETIREMENT MANAGER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, distributed a copy of the presentation, Technical Bill Overview. (Copy on File), which provides a highlight of the bill; a more in depth view can be found in the sectional analysis. Many of the provisions are currently in place. SB 123 carries many provisions from last session's, HB 475. The bill has been reviewed by the Department of Law & the Division of Retirement and Benefits. The purpose of the bill is to insure that the benefits of the Contribution Retirement Plan are provided as they were intended by the Legislature. It updates provisions of the Defined Benefit Plan (DB) for compliance with the Federal Pension Protection Act of 1986. The Division will be submitting an application for requalification of the DB Plan in 2008. Ms. Lea pointed out that the bill also amends and/or adds sections to provide for the appropriate administration of the plan. The legislation is divided into three areas. · Changes to the defined contribution retirement plan · Changes to the defined benefit plan · Administrative and accounting changes 2:54:11 PM Ms. Lea explained that the changes to the Defined Contribution Retirement Plan (DC) are: · Occupational disability and death benefit administration and funding · Employer participation · Member participation · Internal Revenue Code (IRC) contribution limits Ms. Lea noted that funding was inserted for the Teachers Retirement System (TRS) but not for the Public Employees Retirement System (PERS). She pointed out the annual inflation proofing, providing the lesser of 75% disability or a 50% survivor rate. Ms. Lea listed characteristics of the occupational death and disability: · Periods of disability and survivor benefits constitute membership service for retirement/medical eligibility · Members or survivors are not entitled to individual accounts until retirement · Medical cost share at normal retirement, regardless of age. 2:58:25 PM Ms. Lea noted that the employer participation provides participation and termination authority for new PERS employers; it establishes a time limit on conversion election period for employees; and assigns employer retiree health contributions to the Alaska Retiree Health Trust. The bill addresses member participation, adding the Governor, Lieutenant Governor & Legislators as members of the DC plan. It clarifies that DB members, hiring with a new DC-only employer, participates in the DC plan. 3:01:17 PM The bill also clarifies that a former DB member who does not reinstate service before July 1, 2010, will be a DC plan member if reemployed after that date. It specifies how the IRC & 415© limit affects payment of the conversion match for DB to DC transfers. The IRC compliance allows: · Disabled members to receive 100% vested in employer contributions · Survivor retirement benefit funded from Occupational D&D fund · USERRA Compliance · 415©, contribution limits of the contributions on behalf of the survivors and voluntary employee contributions The Defined Benefit Plan. The Pension Protection Act updates rollover provisions and includes a ROTH IRA as of January, 2008; it allows an alternate payee to rollover contributions and requires a rollover of pre/post tax contributions to be accounted for separately by the receiving plan. Ms. Lea discussed that the employer participation would be a normal cost and past service rates apply to total payroll dollars, while establishing a deadline for terminated employers to pay termination costs. It allows the plan to intercept other State funds for payments of delinquent contributions and codifies the use of forfeitures to be applied to future employer contributions. It repeals the ability to reinstate service for conditional or public service benefits as of July 2010. DB members who hire with a DC only employer, participates in the DC plan and former DB members who do not reinstate by July 2010, are DC members upon rehiring. In regard to new trusts, the Alaska retiree health trusts are: · Alaska Retirement Management Board (ARMB) Trustees · Commissioner of Administration · Receives ER health contributions · Pays retiree medical premiums The administrative language removes National Education Association (NEA) as an eligible employer and removes Social Security tax wage base cap from the employee and employer contribution. It conforms the administrator's duties across plans. Ms. Lea noted that in the administrative functions, authority is returned to the Commissioner of the Department of Administration to adopt regulations for the Supplemental Benefits System (SBS), DC & Health Reimbursement Act (HRA) plans. It provides the Office of Administrative Hearings (OAH) authority to hear appeals for the SBS, DC and HRA plans and provides OAH authority to hear PERS/TRS requests for waivers of adjustment. Ms. Lea summarized the bill: · Allows the State to administer benefits intended by the Legislature · Provides funding mechanisms for all benefits · Addresses IRC requirements · Removes administrative ambiguities 3:15:17 PM MICHAEL LAMB, (TESTIFIED VIA TELECONFERENCE), CHIEF FINANCIAL OFFICER, FAIRBANKS NORTH STAR BOROUGH, testified in opposition to Sections 1 and 24. He maintained that administrative plans would take time and funding that the State does not have. He stated that the administrator could take funds without due process. The language claims that the administrator can take other government funds without due process. He maintained that an administrator could interrupt a government's revenue stream; he asserted that the bill is too "heavy handed" & would lead to financial destabilization of local governments. Mr. Lamb addressed Sections 72-74, dealing with terminations. He encouraged scrutiny of language calling for unlimited termination costs extracted from an employer. He added that deadlines also need scrutiny, to prevent the abuse without preventing all good and bad changes to the system. He stated that the bill proposes far reaching changes & policy determinations. Mr. Lamb cautioned against pitting boroughs against the cities within its boundary. 3:20:50 PM Representative Kelly commented on the "intercept". He questioned what would happen if a single rate was accepted and someone did not pay in. He wondered about the difficulty of providing proof. Mr. Lamb noted that there are two issues, pointing to the termination sections which apply. If a rate were set at 22%, anything above the normal cost rate would not be the responsibility of the member employers. The question is, should the language be applied to all possibilities. He thought it should not, but instead, due process. He questioned justification of 22%. There are few communities that have not paid the rate put forth by the State. He noted concern that conflict will happen; the language needs to be more specific. 3:26:15 PM Commissioner Kreitzer knew that there were provisions in the legislation that the municipalities would not like such as the intercept funds. The State already does that, if an employer does not pay their unemployment insurance. She observed that the legislation is not intended to be the State going after someone's mortgage. She offered to have someone from the Department address due process. When money is due, there is a long process of letters and communication before the State takes other recourse. The State can sue the community, but the legislation does allow a payment plan. Vice Chair Stoltze appreciated the constructive "tone" voiced by the Fairbanks testimony. He commented on the unhealthy approach taken by the Alaska Municipal League. AT EASE: 3:28:40 PM RECONVENED: 3:40:03 PM PUBLIC TESTIMONY CLOSED Commissioner Kreitzer addressed the fiscal notes. She pointed out the new note request (4/13/07), FY08 for $108 thousand dollars, which will cover programming costs. It would be the same for FY09, split among PERS, TRS & the Judicial Retirement System (JRS). Representative Nelson asked if a person was on disability coverage as a Tier 4 employee, would they be eligible to receive health insurance. Ms. Lea explained that a DC employee does not have medical insurance while on disability. Representative Foster MOVED to REPORT CS SB 123 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 123 (FIN) was reported out of Committee with a "do pass" recommendation and with a new fiscal note by the Department of Administration and a zero note #2 by Department of Administration. ADJOURNMENT The meeting was adjourned at 3:44 P.M.