Legislature(2017 - 2018)SENATE FINANCE 532

04/25/2018 09:00 AM Senate FINANCE

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* first hearing in first committee of referral
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= bill was previously heard/scheduled
Heard & Held
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 47                                                                                                             
     "An  Act   requiring  certain  municipalities   with  a                                                                    
     population  that  decreased  by more  than  25  percent                                                                    
     between 2000  and 2010 that participate  in the defined                                                                    
     benefit  retirement  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;                                                                    
     authorizing  the administrator  of the  defined benefit                                                                    
     retirement  plan of  the  Public Employees'  Retirement                                                                    
     System  of  Alaska  to  reduce  the  rate  of  interest                                                                    
     payable by  certain municipalities that  are delinquent                                                                    
     in transmitting employee  and employer contributions to                                                                    
     the  retirement plan;  and providing  for an  effective                                                                    
9:49:16 AM                                                                                                                    
Co-Chair MacKinnon  offered a brief  history of the  bill in                                                                    
REPRESENTATIVE NEAL  FOSTER, SPONSOR,  stated that  the bill                                                                    
would  provide relief  for communities  that  paid into  the                                                                    
PERS  system  and had  lost  more  than  25 percent  of  its                                                                    
population since  the last census.  He said that  the relief                                                                    
would be provided by resetting  the minimum payments for the                                                                    
2008 salary  levels to the  2012 salary levels. He  used the                                                                    
example  of  Galena,  which  had  lost  30  percent  of  its                                                                    
population,  reflected  in  the  last  census,  due  to  the                                                                    
closure   of   the   Air  Force   base.   He   shared   that                                                                    
municipalities had to pay into  the PERS system based on one                                                                    
of  two  alternatives:  an amount  based  on  their  current                                                                    
salary level or  an amount based on what  their salary level                                                                    
was  in 2008,  referred to  as  the 2008  salary floor.  The                                                                    
floor was established when  the legislature polled municipal                                                                    
PERS systems  in 2008 and  existed under the  rationale that                                                                    
local  governments usually  grew rather  than shrinking.  He                                                                    
explained  that the  problem  in Galena  had  been that  the                                                                    
salary  level  had  shrunk  from $1.5  million  in  2008  to                                                                    
$770,000  in  2012. According  to  the  PERS system,  Galena                                                                    
still had  to make contributions  into the PES system  as if                                                                    
it had  a $1.5  million workforce.  He lamented  that Galena                                                                    
did  not  have the  resources  to  pay into  the  retirement                                                                    
system  for  workers  that  they  did  not  have  and  could                                                                    
continue to  let their  PERS bill grow  or close  their city                                                                    
office. He  hoped that  the bill  could foster  a compromise                                                                    
that would provide Galena with some relief.                                                                                     
9:53:00 AM                                                                                                                    
PAUL  LABOLLE,  STAFF,  REPRESENTATIVE NEAL  FOSTER,  stated                                                                    
that  the reason  for Galena's  shrinking workforce  was the                                                                    
removal of  the Air Force  Base. He informed that  state law                                                                    
did not  allow for bankruptcy for  municipalities, nor could                                                                    
cities dissolve  unless debts were  paid, which  would leave                                                                    
the state  responsible for the  unfunded liability  the city                                                                    
had amassed.                                                                                                                    
Senator Stevens  asked whether any other  communities in the                                                                    
state  faced  similar problems  and  whether  there was  any                                                                    
assistance  from the  military  when  communities faced  the                                                                    
closure of a base.                                                                                                              
Mr.  LaBolle stated  that there  were five  communities that                                                                    
fit  the definition  of population  loss as  defined by  the                                                                    
bill. He  listed Pelican,  St. George,  and Galena  as three                                                                    
that were  affected. He  said that when  the Air  Force base                                                                    
moved out of Galena assets had been left with the city.                                                                         
9:55:19 AM                                                                                                                    
Senator von Imhof found the legislation compelling.                                                                             
9:56:35 AM                                                                                                                    
Co-Chair  MacKinnon  pondered  the   economic  impact  on  a                                                                    
community  losing  a  military  installation.  She  wondered                                                                    
whether there  could be any  help on the federal  level. She                                                                    
asked whether  termination studies had been  done for Galena                                                                    
to determine the total liability.                                                                                               
Representative Foster  addressed how the  federal government                                                                    
had been  involved in  Galena. He noted  that the  Air Force                                                                    
had left over  1 million gallons of heating  fuel, which was                                                                    
now largely gone. He said  that no other financial resources                                                                    
had been bestowed on the community.                                                                                             
Co-Chair MacKinnon wondered about  the fairness issue of the                                                                    
state picking  up the cost  for this small  community verses                                                                    
Mr.  LaBolle stated  that Galena  had  not done  termination                                                                    
studies.  He  said  that  SB  25  had  two  components:  the                                                                    
termination  studies   and  the   2008  floor.   Galena  was                                                                    
currently only  affected by  the floor.  He shared  that the                                                                    
total debt,  to date, was  $1.5 million; changing  the floor                                                                    
would  bring  their minimum  payment  to  $775 thousand.  He                                                                    
added that  the payroll had  grown to just over  $1 million,                                                                    
with the 2008 floor of $1.5 million.                                                                                            
Co-Chair  MacKinnon observed  that the  state would  pick up                                                                    
the   difference   of   approximately   $133   thousand   in                                                                    
Mr. LaBolle deferred to the Legislative Finance Division.                                                                       
10:00:31 AM                                                                                                                   
Senator Olson wondered whether there  was an alternative way                                                                    
to keep the city functioning if the bill did not pass.                                                                          
Representative   Foster  replied   that   he   knew  of   no                                                                    
alternative.  He noted  that  the  Galena Interior  Learning                                                                    
Academy  was  an  asset  and  a hub  in  the  community  and                                                                    
coordinated  work on  renewable energy  and water  and sewer                                                                    
issues.  He   reiterated  that   there  were   no  immediate                                                                    
alternatives to the city office.                                                                                                
Senator Olson thought  the importance of the  city office in                                                                    
Galena was sizable.                                                                                                             
10:02:25 AM                                                                                                                   
Vice-Chair Bishop  commented it was still  unknown where the                                                                    
employees  from  Galena  had  gone  and  whether  they  were                                                                    
working in another PERS system.  He noted that the school in                                                                    
Galena had a 100 percent graduation rate.                                                                                       
10:03:11 AM                                                                                                                   
Senator Stevens asked about what  happened if the population                                                                    
returned to prior levels.                                                                                                       
Mr. LaBolle  stated that  if the  population grew  and there                                                                    
was  a corresponding  growth  in  municipal government,  the                                                                    
actuals would be paid versus the floor.                                                                                         
Senator von Imhof  asked about the total  population for the                                                                    
three towns.                                                                                                                    
10:03:55 AM                                                                                                                   
AT EASE                                                                                                                         
10:05:30 AM                                                                                                                   
Mr.  LaBolle  relayed  the  populations  for  the  following                                                                    
Anderson: 246                                                                                                                   
Atka: 61                                                                                                                        
Galena: 470                                                                                                                     
Pelican: 88                                                                                                                     
St. George 102                                                                                                                  
Senator von Imhof  pointed out that Pelican  had an employer                                                                    
number of 200.                                                                                                                  
Mr.  LaBolle  stated   that  the  number  was   a  code  for                                                                    
identifying the positions.                                                                                                      
Senator  von Imhof  referenced communities  with percentages                                                                    
under 25.  She asked  whether the  sponsor had  considered a                                                                    
rubric  with  which  to   evaluate  communities  that  would                                                                    
benefit  from  the state's  relief.  She  considered how  to                                                                    
afford the  implementation over  the long-term,  and whether                                                                    
there were  multiple funding sources. She  urged the sponsor                                                                    
to develop a rubric.                                                                                                            
10:08:09 AM                                                                                                                   
Co-Chair  MacKinnon  asked  about  the  population  size  of                                                                    
Senator  Stevens replied  that that  population of  Anderson                                                                    
was 246.                                                                                                                        
Co-Chair  MacKinnon corrected  her precious  statement about                                                                    
the fiscal note and what  the state would owe in perpetuity.                                                                    
She corrected that  the fiscal note reflected  a timespan of                                                                    
20  years  to   pay  down  the  interest   and  the  current                                                                    
obligation. She  noted that there  was a defined end  to the                                                                    
contributions.  She added  that the  contributions that  the                                                                    
cities had to make were effected  by the size of the payroll                                                                    
and not necessarily  the number of employees.  She felt that                                                                    
it was important  to understand the employee  change in each                                                                    
community  versus   the  population  drop.   She  reiterated                                                                    
previous  testimony  that  the   population  in  Galena  had                                                                    
dropped  30  percent  and  that there  was  a  $1.5  million                                                                    
payroll in 2008.                                                                                                                
Mr. LaBolle affirmed the numbers were correct.                                                                                  
Co-Chair MacKinnon  continued that the $1.5  million payroll                                                                    
of Galena had been reduced by half to $750,000 in 2012.                                                                         
Mr. LaBolle answered in the affirmative.                                                                                        
Co-Chair MacKinnon  thought that in considering  the bill it                                                                    
was important  to recognize the payroll  numbers and whether                                                                    
the state  government grew or  declined. She  reiterated the                                                                    
need for a termination liability  study of the system at the                                                                    
current  payroll.  She  referenced  the  fiscal  note  which                                                                    
reflected  expected  small  increases   to  the  payroll  in                                                                    
Galena. She  spoke to  the effective  date written  into the                                                                    
bill,  which would  alleviate the  cities contributions  for                                                                    
2017,  and make  that a  state responsibility  with the  new                                                                    
floor. This  required a supplemental request  of $148,000 in                                                                    
addition to the $141,000 of reoccurring operating costs.                                                                        
10:13:01 AM                                                                                                                   
Senator Micciche  wondered what the  effect would be  if the                                                                    
$148,000 was  amortized in future  years rather  than placed                                                                    
in the supplemental budget.                                                                                                     
Co-Chair  MacKinnon said  that if  the supplemental  was not                                                                    
provided there could be a  shortfall in the calculation that                                                                    
could  hit the  state differently  on the  retirement system                                                                    
and  the  state's  obligation.   She  thought  that  if  the                                                                    
supplemental was not  going to pass then  the effective date                                                                    
would need to be changed,  which would affect the fiscal not                                                                    
on  the reoccurring  operating cost  line, or  the liability                                                                    
would go up and local  communities would experience a higher                                                                    
interest rate over the amortization period.                                                                                     
Ms. Lea agreed with that assessment.                                                                                            
Co-Chair MacKinnon concluded that  the bill would positively                                                                    
impact  affected  cities  because  they would  not  owe  the                                                                    
additional  contribution or  the  interest  payments to  the                                                                    
state - even though the fiscal year was nearly at an end.                                                                       
10:14:29 AM                                                                                                                   
Mr.  LaBolle  added  that the  existing  liability  of  $1.5                                                                    
million  would remain  on  the books  after  passage of  the                                                                    
Co-Chair MacKinnon countered that  the fiscal note showed an                                                                    
outstanding  liability  of  $1,099,633.35 from  Galena.  She                                                                    
believed that the issue merited further discussion.                                                                             
10:15:14 AM                                                                                                                   
Mr.  LaBolle  said that  Section  1  of the  bill  contained                                                                    
enabling  language  that  corresponded   to  Section  4.  He                                                                    
addressed the Section  2, where the 2008  floor was adjusted                                                                    
to establish  a new  floor for  the effected  communities of                                                                    
FY12. He spoke to Section 2, subsection (B):                                                                                    
     (B) June 30, 2012, if that total is less than the                                                                          
     total under                                                                                                                
     (A)  of   this  paragraph,   and  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                                                                    
     Bureau of the Census.                                                                                                      
Mr.  LaBolle relayed  that  Section  3 contained  conforming                                                                    
language. He  said that Section  4 would allow for  the PERS                                                                    
administrator to negotiate the  delinquent interest rate. He                                                                    
furthered  that  bill  would  allow  the  administration  to                                                                    
negotiate  an  interest  rate for  delinquent  payments.  He                                                                    
concluded that Section 5 was the effective date.                                                                                
10:17:10 AM                                                                                                                   
Co-Chair MacKinnon OPENED public testimony.                                                                                     
JOHN   KORTA,   MAYOR,   CITY   OF   GALENA,   GALENA   (via                                                                    
teleconference),  testified  in  support  of  the  bill.  He                                                                    
discussed the closure of the  Air Force base, which had been                                                                    
a significant source of employment  for Galena residents. He                                                                    
said that  in 2000, Galena  had 675 residents, 470  in 2010,                                                                    
resulting in  the 30 percent  decline. He furthered  that in                                                                    
2013, ice  dammed the  Yukon River, which  led to  a federal                                                                    
disaster  declaration. He  relayed that  the 2008  floor had                                                                    
been established  to prevent a municipality  from gaming the                                                                    
PERS  system  by contracting  out  work  previously done  by                                                                    
municipal  employees,  in  order  to  avoid  making  ongoing                                                                    
contributions to  PERS. He related that  the current minimum                                                                    
PERS contribution  was based on  2008 salaries, the  law had                                                                    
not accounted for Galena's unexpected  situation and had not                                                                    
contemplated    municipalities   with    sharply   declining                                                                    
populations. He stated that HB  47 only affected communities                                                                    
that  faced  a  minimum  25 percent  decline  in  population                                                                    
between  2000 and  2010.  He asserted  that  the bill  would                                                                    
simply  replace  the 2008  floor  with  the 2012  floor.  He                                                                    
stated that Galena was  currently paying contributions based                                                                    
on   the  2008   floor,  which   represented  a   population                                                                    
substantially   larger  than   the  actual   population.  He                                                                    
lamented   that  the   cities  required   PERS  contribution                                                                    
approached  half od  the cities  entire current  payroll. He                                                                    
shared  that the  FY08 salary  total had  been $1,513.365.19                                                                    
for  36 employees,  making  their  annual PERS  contribution                                                                    
$332,940. In  FY 12,  Galena's payroll  was $765,776  for 17                                                                    
employees. He reiterated that under  the current 2008 floor,                                                                    
Galena's annual minimum contribution  was over half of their                                                                    
entire  payroll costs.  He  warned that  if  action was  not                                                                    
taken, the  differential would continue  to create  an ever-                                                                    
increasing   obligation.  He   stressed   that  the   cities                                                                    
financially situation  was so  severe that in  FY 11,  a low                                                                    
interest loan  from the Alaska  Bond Bank had to  be secured                                                                    
for heat and electricity in the city.                                                                                           
10:21:19 AM                                                                                                                   
Mr.  Korta  continued  that  HB 47  did  not  undermine  the                                                                    
underlying policy  goals of the existing  PERS structure but                                                                    
helped   ensure  that   municipalities   remained  able   to                                                                    
contribute to  PERS, while recognizing  that the  city could                                                                    
not make  a contribution  based on  a larger  population. He                                                                    
noted that  Galena had continued  to pay 100 percent  of its                                                                    
annual  obligation of  22  percent to  PERS  for its  actual                                                                    
10:24:06 AM                                                                                                                   
Co-Chair  MacKinnon  asked  the   testifier  to  submit  any                                                                    
written testimony.                                                                                                              
Co-Chair  Hoffman asked  about the  status of  the municipal                                                                    
bond bank loan taken out in 2011 to pay for fuel.                                                                               
Mr.  Korta  estimated that  the  loan  balance was  over  $1                                                                    
million. He said that all payments had been made on time.                                                                       
Co-Chair  Hoffman asked  how long  the  borrowed $1  million                                                                    
from the  bond bank  had been  expected to  last to  pay for                                                                    
heating fuel and electricity.                                                                                                   
Mr. Korta stated that the  city had to do some restructuring                                                                    
after the closure of the  base, which he believed was closer                                                                    
to $2  million. He  said that  the city  had paid  down that                                                                    
obligation and had stabilized since the restructure.                                                                            
Co-Chair Hoffman  asked whether the community  of Galena had                                                                    
an annual audit.                                                                                                                
Mr. Korta answered in the affirmative.                                                                                          
Co-Chair  Hoffman asked  that the  last 3  years' audits  be                                                                    
made available to the committee.                                                                                                
10:26:03 AM                                                                                                                   
Senator  von Imhof  looked at  the city  manager's testimony                                                                    
(copy on  file). She indicated  that the salary in  2008 was                                                                    
approximately  $1.5  million, and  the  salary  in 2012  was                                                                    
about $765,000;  yet both years  the city had paid  the same                                                                    
PERS  contribution of  $332,000 for  both years  despite the                                                                    
salaries going down by half.                                                                                                    
Mr. Korta agreed.                                                                                                               
Co-Chair MacKinnon asked whether  the contributions had been                                                                    
paid or owed.                                                                                                                   
Mr.  Korta replied  that  the city  had  been paying  actual                                                                    
contributions but not paying on the accruing interest.                                                                          
Senator von  Imhof asked whether  the $332,000  included the                                                                    
accruing interest.                                                                                                              
Mr. Korta deferred to the city manager.                                                                                         
Senator von  Imhof understood that  under a  hypothetical in                                                                    
the letter,  the actual payroll  should have  been $164,000,                                                                    
with a difference of $150,000.                                                                                                  
Co-Chair MacKinnon thought that  without a termination study                                                                    
to reduce  and pay to the  plan the amount owed  to a person                                                                    
who retired, Senator  von Imhof was correct.  She thought it                                                                    
was  accurate  when Vice-Chair  Bishop  stated  that if  the                                                                    
employees  moved  to  another state  system,  the  employees                                                                    
would continue to contribute to costs in the state system.                                                                      
10:29:14 AM                                                                                                                   
KATHIE  WASSERMAN,  EXECUTIVE   DIRECTOR,  ALASKA  MUNICIPAL                                                                    
LEAGUE,  testified  in  support   of  the  legislation.  She                                                                    
informed  that that  league had  been working  on retirement                                                                    
termination studies  and below the  floor costs since  SB 25                                                                    
went into  effect in  2008. She  asserted that  many smaller                                                                    
committees  in   the  legislature   did  not  have   a  full                                                                    
understating of PERS issues,  which made passing legislation                                                                    
difficult. She said that when  she was mayor of Pelican, and                                                                    
the  population had  dropped, the  community  had lost  many                                                                    
people from  all areas of  the workforce. She  lamented that                                                                    
the state  could only expect  so much from  communities with                                                                    
no money and no tax base.                                                                                                       
10:32:53 AM                                                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Senator  Micciche   requested  the  audit   information  and                                                                    
information on the city's tax base.                                                                                             
Mr. Korta replied  that he would need a  physical address to                                                                    
send the information to.                                                                                                        
Co-Chair MacKinnon provided the address.                                                                                        
Co-Chair MacKinnon  stated that proposed amendments  due the                                                                    
following day at noon.                                                                                                          
HB  47  was   HEARD  and  HELD  in   committee  for  further                                                                    

Document Name Date/Time Subjects
CSHB217 Supporting Document - Benefits of Farmers Markets 2017.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 CS Ver J Supporting Document Farm Bureau Support 2.8.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Alaska Grown Sponsor Statement 4.5.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Supporting Document - Oceanside Farms 4-2-18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Signed waiver from Senate Resources 4.17.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Summary of Changes Version O to I 4.13.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Version I Sectional Analysis 4.13.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB217 Supporting Document - Homer Farmers Market.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB 217 Supporting letter Farm Bureau 4.14.18.pdf SFIN 4/25/2018 9:00:00 AM
HB 217
HB47 DOA Documents.pdf SFIN 4/25/2018 9:00:00 AM
HB 47
HB47 Letters of Support.pdf SFIN 4/25/2018 9:00:00 AM
HB 47
HB47 Sponsor Statement.pdf SFIN 4/25/2018 9:00:00 AM
HB 47
HB 306 01.23.18 Speaker Edgmon Transmittal Letter PERS & TRS.PDF SFIN 4/25/2018 9:00:00 AM
HB 306
HB 306 Sectional Analysis.pdf SFIN 4/25/2018 9:00:00 AM
HB 306