SENATE STATE AFFAIRS COMMITTEE March 10, 1993 9:00 a.m. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Mike Miller, Vice Chairman Senator Robin Taylor Senator Johnny Ellis Senator Jim Duncan MEMBERS ABSENT None COMMITTEE CALENDAR SENATE BILL NO. 6 "An Act amending and making effective an annuity program and amendments to the longevity bonus program and the permanent fund dividend program provided for in secs. 2 - 18, ch. 99, SLA 1985; and providing for an effective date." SENATE BILL NO. 128 "An Act relating to legislative audits." PREVIOUS SENATE COMMITTEE ACTION SB 6 - See State Affairs minutes dated 2/3/93. SB 128 - No previous action to record. WITNESS REGISTER Barbara & Eric Poetzsch Box 871487 Wasilla, AK 99687 POSITION STATEMENT: Support SB 6 Hugh Johnson HC 31 Box 511L Wasilla, AK 99654 POSITION STATEMENT: Supports SB 6 Elizabeth Cason 2332 W. Lake Lucille Drive Wasilla, AK 99687 POSITION STATEMENT: Supports SB 6 Nyle Hill, Sr. Box 876446 Wasilla, AK 996787 POSITION STATEMENT: Supports SB 6 Ann Walsh 924 Kellum St., #201 Fairbanks, AK 99701 Tom Williams, Director Permanent Fund Division Department of Revenue P.O. Box 110460 Juneau, AK 99811-0460 POSITION STATEMENT: Offered information on SB 6 Rose Palmquist Talkeetna Ave. Palmer, AK POSITION STATEMENT: Supports SB 6 Doris Solthall Fairbanks Pioneers' Home Fairbanks, AK POSITION STATEMENT: Supports SB 6 Joe Workman Fairbanks Pioneers' Home Fairbanks, AK POSITION STATEMENT: Supports SB 6 Isabella Brady 610 Biorka St. Sitka, AK 99835 POSITION STATEMENT: Supports SB 6 John Shaffer 303 Kimsham St. Sitka, AK 99835 POSITION STATEMENT: Supports SB 6 Carlene Sanders Box 877492 Wasilla, AK 99687 POSITION STATEMENT: Supports SB 6 Ernie Line 2645 Whispering Woods Wasilla, AK 99654 POSITION STATEMENT: Supports SB 6 Rick Richards HC 30 Box 5530 Wasilla, AK 99654 POSITION STATEMENT: Supports SB 6 Harry Jenkins 210 10th Ave. Fairbanks, AK 99701 POSITION STATEMENT: Supports SB 6 Commissioner Nancy Usera Department of Administration P.O. Box 110200 Juneau, AK 99811-0200 POSITION STATEMENT: Offered information on SB 6 Paula Scavera, Legislation Analyst Legislative Research Agency 130 Seward St., Suite 218 Juneau, AK 99801 POSITION STATEMENT: Offered information on SB 6 Arnold Perry Box 871643 Wasilla, AK 99687 POSITION STATEMENT: Supports SB 6 Gerald Bohms 535 Halverson Fairbanks, AK 99709 POSITION STATEMENT: Supports SB 6 Hugh Doogan 359 Slater Drive Fairbanks, AK 99701 POSITION STATEMENT: Testified on SB 6 Harold Ward 1250 Clinton Circle Wasilla, AK 99654 POSITION STATEMENT: Supports Governor's version of annuity program legislation ACTION NARRATIVE TAPE 93-18, SIDE A Number 001 Chairman Leman called the Senate State Affairs Committee meeting to order at 9:00 a.m. SENATOR LEMAN introduced SB 6 (ANNUITY PROGRAM AMENDMENTS) as the first order of business and noted that seven teleconference sites around the state would be participating in the hearing. Number 043 BARBARA POETZSCH, a resident of Wasilla, stated her support for SB 6, saying she feels it is very necessary to keep seniors in Alaska because they are a very productive group of people. Number 085 HUGH JOHNSON, President of Wasilla Area Seniors, voiced his support for SB 6. He noted there were several senior citizens present at the Mat-Su LIO listening to the hearing. Number 110 ERIC POETZSCH, a resident of Wasilla, stated his strong support for SB 6 and said it is badly needed. Number 120 ELIZABETH CASON, representing the Wasilla Senior Center, said there is a large group of seniors that desperately need their monthly longevity bonus, and without it, they will not be able to remain in the state. They are in support of an annuity program rather than having no program at all. Number 142 NYLE HILL, SR., a senior citizen from Wasilla, stated he is a recipient of the longevity bonus and it is important that he continues to receive it or he will have to leave Alaska. Number 150 ANN WALSH, a resident of Fairbanks testifying in support of SB 6, said she believes the annuity is in the best interest of eligible Alaskans, and that the proposed amendment giving a person the choice of contributing 25, 50 or 75 percent of his or her annuity is very good. However, she said that people need to know what that would mean upon reaching age 65. She suggested that a chart be prepared illustrating the three options and what the individual would receive at age 65. She stressed that this kind of information needs to be distributed statewide so that Alaskans, especially young adults, can understand the program. Number 177 TOM WILLIAMS, Director, Permanent Fund Dividend Division, Department of Revenue, said his testimony would relate to technical concerns with regard to the bill. The bill refers to 1985 legislation which amended some PFD statutes. Those PFD statutes have subsequently been amended and the language that would become effective should SB 6 pass in its current form is different than the current amendments. SENATOR TAYLOR asked if the department was going to submit amendments to correct the problem. TOM WILLIAMS acknowledged that they would do so. Number 224 SENATOR TAYLOR noted that at a previous hearing on the legislation, there was discussion on amending provisions that would allow for an unlimited contribution into a person's individual account, but the legislation, as currently drafted, would need an amendment to accomplish that. TOM WILLIAMS said the Permanent Fund Dividend Division's involvement simply is with respect to the check- off on the dividend application. It was limited to a specific number of options. The Department of Administration would be responsible for setting up the annuity program and administering it, and the Division of Treasury in the Department of Revenue would be responsible for investing those funds. SENATOR TAYLOR commented that he would rather see the funds being managed by the Alaska Permanent Fund Corporation. Number 295 ROSE PALMQUIST, Legislative Chairman of the Older Persons' Action Group (OPAG), presented the committee with resolutions passed by three different organizations supporting the development of an annuity program. Ms. Palmquist referred to a 1991 study by OPAG, which she said clearly showed that senior citizens are not only a cost to the state, but they bring back many times over what they might cost the governments. Senior citizens bring more to the economy of the state than does tourism and more to the state than fisheries provides to the state. Ms. Palmquist said the programs the State of Alaska has had for its seniors has improved the demographic population mix of Alaska's residents, and she thinks that is a considerable factor to consider. Number 400 SENATOR ELLIS asked if OPAG has done any research on the Alaska longevity bonus hold harmless provision, and if that program was discontinued, what the impact would be on peoples' federal benefits, etc. ROSE PALMQUIST said they would review that particular legislation and come up with a position on it. Number 428 DORIS SOLTHALL, testifying from the Fairbanks Pioneers' Home, stated her support for SB 6, saying it will still bring economy to the State of Alaska. She questioned if any thought has been given to a cut-off amount of assets that a person before being disqualified for the longevity bonus program. Number 436 JOE WORKMAN, testifying from the Fairbanks Pioneers' Home, stated his support for SB 6. Number 446 ISABELLA BRADY, a member of the Alaska Native Sisterhood Camp 4 in Sitka, said she and her husband have been receiving the longevity bonus for several years and they do need it to meet their monthly budget. She said it is supplement to their social security monthly checks. She is aware of the yearly rising cost of the current longevity bonus program and supports the concept of an annuity program. Number 470 JOHN SHAFFER, a Sitka resident, said that although he does not receive the longevity bonus, he is deeply concerned about it as he reflects on its impact upon persons he does know and upon the future of the State of Alaska. He said that after a great deal of reflection by senior citizens, they have agreed to support the concepts that are contained in SB 6. They believe it will help to protect the current recipients and that it will assure program stability. He urged passage of the legislation this session. Number 494 CARLENE SANDERS of Wasilla, stated she and her husband support SB 6. She said they both receive the longevity bonus and they would like to spend the rest of their lives in the state. Number 500 ERNIE LINE, a resident of Wasilla, related that several weeks ago he attended a Wasilla Chamber of Commerce meeting that was addressed by Governor Hickel. He asked Governor Hickel, specifically, whether or not he was supportive of SB 6, and his answer was "Yes." Two weeks after that meeting, the governor's legislation was introduced. Mr. Line has studied both bills and believes that SB 6 is a better piece of legislation. Number 515 RICK RICHARDS, testifying from Wasilla, stated he was a 66 year resident of Alaska, and he understands how seniors would be affected if the existing longevity bonus and tax exemption programs for seniors were eliminated. He believes the existing program is about as good as can be done for the seniors of the state. Number 534 HARRY JENKINS, testifying from Fairbanks, stated support for SB 6. However, he said more information is needed in the news media explaining the program to the younger people of the state and how much their return would be when they turn 65 years of age. He urged passage of SB 6. Number 545 COMMISSIONER NANCY USERA, Department of Administration, said for many years Governor Hickel has supported an annuity approach to phasing out the longevity bonus, and the most priority item for him is that the people who are currently receiving the bonus continue to do so; that the current generation of seniors be grandfathered in. She said the governor's proposal, as well as SB 6, does that. Commissioner Usera said the annuity concept, itself, is very sound, but their disagreement with the annuity is having a government run program, setting up another bureaucracy, and putting the government in the business of doing something that local financial institutions are already doing. She pointed out that if there was a high level of participation for the program, a significant number of permanent fund dividends would come out of the local economies and that could have a very negative impact. Commissioner Usera said the Administration's difficulty with the annuity is that it has some administrative problems associated with it, and they think that the people who are currently receiving that bonus should continue to do and be grandfathered in. TAPE 93-18, SIDE B Number 020 SENATOR TAYLOR asked if the Commissioner had an estimate of what the administration of this investment portfolio would cost to run. COMMISSIONER USERA responded that it would be driven by the level of participation. She said she wasn't sure that under the structure of this program that there would be a sufficient level of participation to be able to absorb the fixed overhead costs of administering it. She said she was concerned that "in the name of seniors," one more time we're going to be paying state employee salaries to administer programs that otherwise could be spent in delivering direct services to seniors through direct grant programs and community based programs that are the true foundation of providing a real network for seniors in the state. SENATOR TAYLOR commented that the program is going to fall flat on its face if it isn't attractive enough for a prudent investor to invest in. Number 100 PAULA SCAVERA, Legislative Analyst, Legislative Research Agency, said she has worked on longevity bonus problems and questions since 1983. She related that when the annuity proposal was first a proposal before the Hammond Commission, it was thought then that the Permanent Fund Corporation would do the investing, however, they did not want it and that is why it is not in the bill. She noted that last year the real rate of return was higher in the Division of Treasury than it was with the Permanent Fund Corporation, and that is where these funds would be invested. Ms. Scavera said a fiscal note shows that it would cost the Division of Retirement and Benefits a little over $1 million to run the program. Ms. Scavera said she had a discussion recently with Daniel Carpenter, a tax attorney who designs pension programs on Wall Street for Fortune Five Hundred Companies. Mr. Carpenter feels that the state annuity fund would be capable of earning a higher rate of return for an individual contributor than an individual pension plan. He also states that he feels that if an individual defers his permanent fund dividend through the annuity program, that he wouldn't pay taxes on it. Number 462 SENATOR TAYLOR restated his suggestion that individuals shouldn't be limited in the amount that they may wish to put into their own annuity account. PAULA SCAVERA said she could contact Mr. Carpenter to ask him if he thought there would be any pros or cons, tax advantage-wise, for that cause. Number 200 ARNOLD PERRY, a resident of Wasilla, said he supports SB 6 and there should be no doubt as to which way the legislature or the governor should go on this bill. Number 220 GERALD BOHMS, a resident of Fairbanks, voiced his support for SB 6, as well as the testimony by Ann Walsh relating to getting information on the program out to the younger adults. He said he agreed that the only way the program is going to work is if there is wide participation in order to build the fund so that it will be self-sustaining. Number 235 HUGH DOOGAN, a lifelong Alaskan residing in Fairbanks, said he was just about 63 years of age. He contended that a section of the bill, which says that a person who is 65 years of age on or before January 1, 1995, may only receive the permanent fund dividend in cash and may not elect to receive an annuity credit, was discriminating against him. Number 246 HAROLD WARD, a resident of Wasilla, said he thought the governor's proposal was a viable program and he feels that it is really the best program for the seniors in the state. He also spoke to the importance of getting information out to the seniors and other people in the state. Number 275 There being no other witnesses wishing to testify on SB 6, SENATOR LEMAN closed the public hearing on the bill. He said the bill would be brought back up sometime in the future. SENATOR LEMAN informed the committee that SB 128 (LEGISLATIVE AUDITS) would be held over. He then adjourned the meeting at 10:13 a.m.