Legislature(2015 - 2016)SENATE FINANCE 532

04/07/2016 05:00 PM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled: TELECONFERENCED
Moved CSSSSB 91(FIN) Out of Committee
Heard & Held
Heard & Held
Heard & Held
+ Invited Testimony: TELECONFERENCED
David Teal, Director, Legislative Finance
Norm Wooten, Executive Director, Association
of Alaska School Boards
Lisa Parady, Executive Director, Alaska
Council of School Administrators
Diane Barrans, Executive Director, Alaska
Commission on Postsecondary Education
Department of Education and Early Development
Saicha Oba, Associate Vice President,
Student & Enrollment Services
Kathie Wasserman, Executive Director, Alaska
Municipal League
SENATE BILL NO. 207                                                                                                           
     "An Act  relating to increasing  employer contributions                                                                    
     to   the  defined   benefit  plan   in  the   teachers'                                                                    
     retirement system."                                                                                                        
SENATE BILL NO. 208                                                                                                           
     "An Act eliminating the  Alaska education grant program                                                                    
     and  the Alaska  performance  scholarship program;  and                                                                    
     providing for an effective date."                                                                                          
SENATE BILL NO. 210                                                                                                           
     "An  Act  relating  to the  community  revenue  sharing                                                                    
     program;  changing the  name of  the community  revenue                                                                    
     sharing  program to  the community  assistance program;                                                                    
     and relating  to the  municipal property  tax exemption                                                                    
     on the residence  of a senior, a  disabled veteran, and                                                                    
     a widow or widower of a senior or disabled veteran."                                                                       
5:11:21 PM                                                                                                                    
NORM WOOTEN, EXECUTIVE DIRECTOR, ALASKA COUNCIL OF SCHOOL                                                                       
ADMINISTRATORS, read from a prepared statement (copy on                                                                         
     Thank  you, Madame  Chair.  For the  record  I am  Norm                                                                    
     Wooten,  executive  director   of  the  Association  of                                                                    
     Alaska School Boards. Our  member school districts will                                                                    
     be testifying  to the expected  impacts of  Senate Bill                                                                    
     207  on their  schools and  students. I  would like  to                                                                    
     address  the overall  impacts  of  this legislation  on                                                                    
     Alaska's K-12 education system.                                                                                            
     First,  let me  say  that the  education community  has                                                                    
     been  firmly   in  favor  of  the   Alaska  Legislature                                                                    
     adopting a long-range fiscal plan  to address the major                                                                    
     revenue problems of state government.  But never did we                                                                    
     imagine that  any bill would get  serious consideration                                                                    
     if it  proposed - like SB  207 - to transfer  more than                                                                    
     $2 billion dollars from K-12  schools operations to the                                                                    
     Teachers Retirement  System. And  not until  today were                                                                    
     we  asked  for  our  input on  how  this  would  affect                                                                    
     operations of Alaska's 500 public schools.                                                                                 
     The actuarial report from  Buck Consultants dated April                                                                    
     3rd calculates that if SB  207 is enacted, it will mean                                                                    
     the diversion  of $2.1 billion  over the next  23 years                                                                    
     from  school districts  to the  T.R.S. Where  will this                                                                    
     money come  from? School districts  do not  have taxing                                                                    
     authority and  local governments do not  own oil wells.                                                                    
     So,  the $2.1  billion  will have  to  come from  local                                                                    
     taxpayers and/or our children's classrooms.                                                                                
     That is  neither wise nor  fair, in my opinion.  SB 207                                                                    
     is  unwise because  it borrows  from our  future -  the                                                                    
     education of the next generation  of Alaskans. And it's                                                                    
     unfair  because the  unfunded liability  of T.R.S.  was                                                                    
     created  by actions  at the  state and  national level,                                                                    
     not  local school  districts. Passage  of SB  207 could                                                                    
     have  many  unintended  consequences,  among  them  the                                                                    
     layoff  of teachers  and the  removal  of other  caring                                                                    
     adults  from the  lives of  our children.  Many schools                                                                    
     districts   already  have   difficulty  in   recruiting                                                                    
     teachers.  The  average  salary of  teachers  statewide                                                                    
     dropped  1.9  percent  this   year,  according  to  our                                                                    
     surveys,  probably because  of  retired teachers  being                                                                    
     replaced  by   new  ones.   School  boards   have  been                                                                    
     wrestling with tight budgets for  most of a decade, but                                                                    
     passage of  SB 207 will  make that deficit  a permanent                                                                    
     fixture for K-12 education for  the next two decades. I                                                                    
     urge you to put this bill aside.                                                                                           
Co-Chair   MacKinnon  stated   that  the   purpose  of   the                                                                    
conversation was intended for  the day's conversation was to                                                                    
better understand how the state  and local communities could                                                                    
work toward  paying off and  meeting the obligations  of the                                                                    
retirement system.                                                                                                              
5:15:33 PM                                                                                                                    
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
presented a  spreadsheet (copy on  file). He stated  that SB
207  would raise  the rate  cap on  the Teachers  Retirement                                                                    
Employment  System (TRS)  employers.  The  current rate  was                                                                    
12.56 percent, and  the state paid the  remaining. He shared                                                                    
that the  bill would increase  the rate cap by  6.44 percent                                                                    
in  the first  year, and  1 percent  increases for  the next                                                                    
three  years.  The  new  rates  would  be  19  percent,  and                                                                    
climbing to  22 percent, at  the point of  stabilization. He                                                                    
remarked that the increased  rates reduced state assistance.                                                                    
The  baseline projections  showed that  the state  would pay                                                                    
$110 million, and then decline,  and slowly climb again. The                                                                    
change in  state assistance  would be  $46.6 million  in the                                                                    
first year, and increasing with  the increase in payroll. He                                                                    
stressed that the schools would  absorb the costs. He stated                                                                    
that there was additional formula  funding to the schools to                                                                    
help  alleviate  the cost.  He  remarked  that there  was  a                                                                    
fiscal note  attached that showed  a constant  $33.7 million                                                                    
increase paid out in the same way as the formula.                                                                               
5:21:04 PM                                                                                                                    
Mr.  Teal   noted  that  the   bill  shifted   funding  from                                                                    
retirement assistance to education funding.                                                                                     
Mr. Teal noted the fiscal notes.                                                                                                
5:24:15 PM                                                                                                                    
Co-Chair MacKinnon  queried how  much the state  would cover                                                                    
of the  local districts' costs.  She queried the  cash calls                                                                    
on the  state for the  districts. Mr. Teal replied  that the                                                                    
12.56 percent  was the  normal cost of  TRS. He  stated that                                                                    
those normal costs  referred to the cost  of actually paying                                                                    
the  pension. He  stated that  the numbers  assumed all  the                                                                    
actuarial   assumptions   including  life   expectancy   and                                                                    
earnings  came  out as  projected.  He  asserted that  those                                                                    
projections were not always accurate.  He remarked that both                                                                    
retirement systems  recently lost money in  investments, and                                                                    
the  actuarial assumptions  were changed.  He stressed  that                                                                    
the  increased  cost  was  neither  the  states'  or  school                                                                    
districts' fault.  He remarked that the  legislature set the                                                                    
12.56 percent rate.                                                                                                             
Co-Chair Kelly  noted that the approximately  $8 million per                                                                    
year  increase was  not  reflected in  the  chart. Mr.  Teal                                                                    
replied that it was not reflected in the chart.                                                                                 
5:28:02 PM                                                                                                                    
Co-Chair  Kelly remarked  that the  Base Student  Allocation                                                                    
(BSA) was increased  in 2008 to accommodate  expenses to the                                                                    
local districts.                                                                                                                
Co-Chair MacKinnon queried the  actuary percentage number in                                                                    
the   Public  Employees'   Retirement  System   (PERS).  She                                                                    
remarked  that school  districts continued  to expand  their                                                                    
programs, even with  the 12.56 percent cap.  She queried the                                                                    
percentage  call to  the state  in  2016 and  2017 that  was                                                                    
above the  12.56 percent. Mr.  Teal replied that  the number                                                                    
for 2016  was $122 million  for school districts,  and other                                                                    
couple million dollars for non-school districts.                                                                                
Co-Chair  MacKinnon queried  the  actuarial  rate. Mr.  Teal                                                                    
replied that the  TRS rate was over 50 percent  until the $2                                                                    
billion deposit. The rates were  then reduced to 30 percent,                                                                    
and the April projections showed  the rate under 30 percent.                                                                    
He  remarked that  the  delta between  the  12.56 and  22.56                                                                    
percent, the state paid a larger  share of the TRS cost than                                                                    
the school districts.                                                                                                           
Co-Chair  MacKinnon  surmised   that  the  percentages  were                                                                    
reduced because  of the $2  billion cash infusion.  Mr. Teal                                                                    
replied in the affirmative.                                                                                                     
Co-Chair MacKinnon stated that  there was a second actuarial                                                                    
analysis on the proposal. Mr. Teal agreed.                                                                                      
Co-Chair  MacKinnon announced  that  health  care costs  had                                                                    
been reduced and there was a  reduction in cash calls to the                                                                    
system.  Mr. Teal  replied that  the reduction  in the  cash                                                                    
call for FY 18 was $25 million.                                                                                                 
Co-Chair MacKinnon  urged Alaskans  to be thoughtful  in the                                                                    
approach to this issue.                                                                                                         
5:34:25 PM                                                                                                                    
LISA PARADY,  EXECUTIVE DIRECTOR,  ALASKA COUNCIL  OF SCHOOL                                                                    
ADMINISTRATORS,  ANCHORAGE  (via teleconference),  testified                                                                    
against  the legislation.  She remarked  that  the bill  had                                                                    
zero public opportunity to provide  input. She stressed that                                                                    
the impact of the  legislation would impact school districts                                                                    
in a  negative way. She  stated that the  underfunded issues                                                                    
in the  state system  were state-created. She  remarked that                                                                    
there would  be a  turn to the  municipalities to  cover the                                                                    
Ms. Parady  continued with her testimony.  She remarked that                                                                    
the bill did not provide  a stable situation. She reiterated                                                                    
her position against the bill.                                                                                                  
5:42:34 PM                                                                                                                    
Co-Chair  Kelly   encouraged  the  education   community  to                                                                    
declare their  opposition to the bill,  rather than offering                                                                    
to work together.                                                                                                               
Co-Chair MacKinnon stated that the committee would now                                                                          
discuss SB 208.                                                                                                                 
5:45:16 PM                                                                                                                    
DIANE BARRANS, EXECUTIVE DIRECTOR, ALASKA COMMISSION ON                                                                         
POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION AND EARLY                                                                      
DEVELOPMENT, read from a prepared statement (copy on file):                                                                     
     •  Students in  Alaska  are  likely facing  substantial                                                                    
     increases  in  the   costs  of  pursuing  postsecondary                                                                    
     education and training.                                                                                                    
     • At  current year average  costs of attendance  at our                                                                    
     public  university ($21,500),  after receiving  an APS,                                                                    
     recipients must find other ways  and resources to cover                                                                    
     78 percent to 87 percent  ( between $17,000 and $19,000                                                                    
     annually) of the cost of full-time attendance.                                                                             
     • The  UA Scholars  program has been  pointed to  as an                                                                    
     alternative;  however,   it  covers  only   14  percent                                                                    
     ($3,000) of current year costs  and as of 2013-14, only                                                                    
     31  percent  of  APS  recipients  also  received  a  UA                                                                    
     Scholars award                                                                                                             
     •  While  Pell  grants  are available  on  a  financial                                                                    
     needs-basis,  because  many  APS  recipients  are  from                                                                    
     middle-income families,  less than one in  five qualify                                                                    
     for federal needs-based grants; and,                                                                                       
     •  For students  who do  qualify for  federal aid,  the                                                                    
     current maximum  Pell grant covers  a little  more than                                                                    
     one-quarter of  UA's average  annual full-time  cost of                                                                    
     As I  prepared these remarks,  I did so  confident that                                                                    
     these are issues  about which you are  all familiar and                                                                    
     have  shared  interest and  concern.  If  you were  not                                                                    
     strong  proponents  of   education  and  training,  you                                                                    
     simply would not have  supported these programs through                                                                    
     very  substantial  appropriations  over the  past  five                                                                    
     years. So,  in concluding my  testimony--my proposition                                                                    
     to  you would  be, if  SB208  is to  advance, that  the                                                                    
     Legislature  consider extending  the  phase out  window                                                                    
     during which  graduating high  school seniors  can earn                                                                    
     eligibility through the class of 2018.                                                                                     
     That   two-year  extension   would  give   student  and                                                                    
     families advance  notice of  your intent  to terminate.                                                                    
     It would also allow the  Legislature to base your final                                                                    
     decision on  a full analysis of  the programs' impacts.                                                                    
     You  could  then examine  whether  the  return on  your                                                                    
     investments    in     these    Alaskans     is    worth                                                                    
     institutionalizing for  the long-term.  This additional                                                                    
     time would  also inform your ultimate  decision, should                                                                    
     you  conclude  defunding  is  unavoidable,  whether  to                                                                    
     fully repeal  the programs or  simply shutter  them but                                                                    
     leave  program authorization  in place  with confidence                                                                    
     that the State of Alaska  will, in the future, have the                                                                    
     financial capacity  and collective  will to  once again                                                                    
     support  human   resource  development   through  these                                                                    
5:56:36 PM                                                                                                                    
SAICHI   OBA,   ASSOCIATE   VICE  PRESIDENT,   STUDENT   AND                                                                    
ENROLLMENT    SERVICES,    UNIVERSITY   OF    ALASKA    (via                                                                    
teleconference), testified against SB 208.                                                                                      
6:03:04 PM                                                                                                                    
KATHIE  WASSERMAN,  EXECUTIVE   DIRECTOR,  ALASKA  MUNICIPAL                                                                    
LEAGUE, testified against the legislation.                                                                                      
Co-Chair Kelly understood the problem with communication.                                                                       
6:05:09 PM                                                                                                                    
Ms. Wasserman  spoked to  SB 207.  She also  did not  take a                                                                    
firm stance  on SB 210.  She stressed that tax  payers would                                                                    
shoulder  the cost  of the  increase, because  the districts                                                                    
had no  taxing authority. The  taxing authority fell  to the                                                                    
municipalities. She  felt that  the bill would  be a  way to                                                                    
tax the  municipalities instead of  the state.  She remarked                                                                    
that  the  bill would  not  shrink  the size  of  government                                                                    
rather  it   would  transfer  the  cost   of  one  governing                                                                    
authority to another.  She did not know how  the rural areas                                                                    
would  cover   the  cost  without  reducing   the  classroom                                                                    
opportunities.  She announced  that the  state was  the only                                                                    
entity  with  fiduciary  responsibility. The  districts  and                                                                    
municipalities  did  not  have  a  say  in  how  the  system                                                                    
operated, and simply paid the  bills that the state required                                                                    
them to pay.                                                                                                                    
6:12:09 PM                                                                                                                    
Co-Chair  MacKinnon wondered  whether the  local communities                                                                    
benefited from the $3 billion  injection into the plans. Ms.                                                                    
Wasserman  replied  that  the municipalities  received  nine                                                                    
more years of 22 percent.                                                                                                       
Co-Chair  MacKinnon  wondered   whether  the  payments  were                                                                    
reduced. Ms. Wasserman responded  that their payments stayed                                                                    
at 22 percent.                                                                                                                  
Co-Chair Kelly noted that the  statement was made that since                                                                    
the 2008  deal, the districts  had covered the cost  of TRS.                                                                    
He  felt that  the  cost of  TRS was  paid  through the  BSA                                                                    
increase in 2008.                                                                                                               
Co-Chair MacKinnon understood the concerns with the bills.                                                                      
Senator Hoffman  shared that  he was  in the  legislature at                                                                    
the time  of reinstitution  of the revenue  sharing program.                                                                    
He remarked  that it was  a result of the  state's receiving                                                                    
billions of  dollars. He felt  that reducing the  program by                                                                    
50 percent and making the  changes were intended to save the                                                                    
program with no guarantees.                                                                                                     
Co-Chair MacKinnon  understood that  there would  be impacts                                                                    
to individuals and local communities.                                                                                           
SB  207  was  HEARD  and   HELD  in  committee  for  further                                                                    
SB  208  was  HEARD  and   HELD  in  committee  for  further                                                                    
SB  210  was  HEARD  and   HELD  in  committee  for  further                                                                    
6:20:22 PM                                                                                                                    
AT EASE                                                                                                                         
6:21:15 PM                                                                                                                    
Co-Chair MacKinnon discussed the following day's agenda.                                                                        

Document Name Date/Time Subjects
SB 91 DVSA prevention Clarke.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
SB 91 Public Testimony Stanfill.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
SB 91Public Testimony Cordova Family Resource Center.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
SB 91 Public Testimony Crane.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
SB 91 Public Testimony Support Walsh.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
SB 91 Public Testimony Support - AWARE.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
SB 208 One-Page APS Inforgraphic - aps-elimination.pdf SFIN 4/7/2016 5:00:00 PM
SB 208
SB 91 Testimony ANDVSA.pdf SFIN 4/7/2016 5:00:00 PM
SB 91
040716 SB 207 4 7 16 SFC SB 207.pdfpdf.pdf SFIN 4/7/2016 5:00:00 PM
SB 207
SB 207 Remarks of Norm Wooten AASB.pdf SFIN 4/7/2016 5:00:00 PM
SB 207
SB 208 Testimony D. Barrans.pdf SFIN 4/7/2016 5:00:00 PM
SB 208