Legislature(2017 - 2018)BUTROVICH 205

04/05/2018 03:30 PM Senate STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Moved SB 159 Out of Committee
+ Bills Previously Heard/Scheduled: TELECONFERENCED
Heard & Held
          HB 47-MUNICIPAL PERS CONTRIBUTIONS/INTEREST                                                                       
3:40:15 PM                                                                                                                    
CHAIR MEYER called the committee back to order and announced the                                                                
consideration of House Bill 47 (HB 47).                                                                                         
3:41:00 PM                                                                                                                    
REPRESENTATIVE NEAL FOSTER, Alaska State Legislature, Juneau,                                                                   
Alaska, sponsor of HB 47, provided an overview as follows:                                                                      
     HB 47 provides relief for  communities who have lost 25                                                                    
     percent  or  more  of  their  population  in  the  last                                                                    
     census, it does this  by reducing the required payments                                                                    
     to  the  [Alaska  Public Employees'  Retirement  System                                                                    
     (PERS)]. Galena,  for example,  lost 30 percent  of its                                                                    
     population in the last census  and this was largely due                                                                    
     to the  closure of  the U.S.  Airforce base  in Galena.                                                                    
     Municipalities  must  pay  into  PERS  based  on  their                                                                    
     current salary  level and  at a  minimum they  must pay                                                                    
     based on what their salary  level was back in 2008. The                                                                    
     rational is that local  governments usually either grow                                                                    
     or  they  stay  the  same,  but  they  don't  typically                                                                    
     shrink.  The  problem  is  Galena's  salary  level  did                                                                    
     shrink and it shrank in  half from $1.5 million in 2008                                                                    
     to $770000 in 2012; but,  according to PERS, Galena has                                                                    
     to make  payments to  PERS as  if it  still had  a $1.5                                                                    
     million workforce.                                                                                                         
     Galena simply does  not have the resources  to pay into                                                                    
     the  retirement system  for workers  that  they do  not                                                                    
     have,  so they  are faced  with two  options; they  can                                                                    
     either let the amount that  they owe grow and currently                                                                    
     that bill  is $1 million,  or they can simply  shut the                                                                    
     doors and turnout the lights  and close-up shop. So, we                                                                    
     are hopeful  that we  can find  a compromise  with this                                                                    
     bill,  Galena would  still owe  for the  bill that  has                                                                    
     been  accumulated,  but  they would  be  provided  some                                                                    
     relief as they go forward.                                                                                                 
SENATOR GIESSEL asked if the bill has been previously presented                                                                 
to the Legislature.                                                                                                             
REPRESENTATIVE  FOSTER answered  that  the  legislation has  gone                                                               
through the  Legislature several times  but has not  "crossed the                                                               
finish  line."  He  noted  that  HB 47  is  the  first  time  the                                                               
legislation has made it to the Senate.                                                                                          
3:43:34 PM                                                                                                                    
PAUL LABOLLE, Staff, Representative Foster, Alaska State                                                                        
Legislature, Juneau, Alaska, provided an overview of HB 47 as                                                                   
     In  2007-2008,  we had  SB  125  that pooled  the  PERS                                                                    
     systems in the individual  municipalities which used to                                                                    
     be siloed  systems and  in that  pooling we  required a                                                                    
     22-percent payment  of their gross salaries;  there was                                                                    
     concern during  discussion on that  bill that  what you                                                                    
     might have  with that  system is  municipalities laying                                                                    
     off  employees so  they can  put them  out on  contract                                                                    
     thereby  reduce   their  contribution  and   yet  their                                                                    
     liability  remains the  same, and  it would  distribute                                                                    
     that to  the rest  of the PERS  employers. A  couple of                                                                    
     different options  were looked at for  addressing that,                                                                    
     what was settled upon was  the 2008 floor, which is you                                                                    
     have to  pay it  at the 2008  floor or  gross salaries,                                                                    
     which ever  is greater.  Existing statute also  had the                                                                    
     penalty payment for delinquent  payments, if you didn't                                                                    
     make the  full payment  then it's  one-and-a-half times                                                                    
     the  actuarial  amount or  in  our  case is  12-percent                                                                    
     interest on delinquent payments.                                                                                           
3:45:02 PM                                                                                                                    
He provided a sectional analysis as follows:                                                                                    
     Section 1                                                                                                              
     Clean up language that is  needed for implementation of                                                                    
     section  4  that  the administrator  is  authorized  to                                                                    
     determine  the  rate  of interest  assessed  under  the                                                                    
     statute referenced in section 4.                                                                                           
     Section 2                                                                                                              
     Portion  of  the bill  that  addresses  the 2008  floor                                                                    
     problem. What  it does  is put  a new  subsection under                                                                    
     subsection  (a)(2)  that allows  for  the  floor to  be                                                                    
     reestablished  for FY2012  if  the  community has  lost                                                                    
     more  than 25  percent  of its  population between  the                                                                    
     2000 and 2010 census.                                                                                                      
     Section 3                                                                                                              
     Conforming language.                                                                                                       
     Section 4                                                                                                              
     Addresses the  delinquent interest  payment that  is at                                                                    
     12 percent. The current version  of the bill allows the                                                                    
     administrator  to  negotiate   the  interest  rate  for                                                                    
     delinquent payments. In several  iterations of the bill                                                                    
     we  had   gone  through  different  ideas   of  setting                                                                    
     different rates, deliberation led  us to the conclusion                                                                    
     that  setting the  rate in  statute was  problematic to                                                                    
     begin  with. The  administration  would  have liked  to                                                                    
     have  helped  them  with their  burden,  but  they  are                                                                    
     directed  to  charge  12-percent interest  and  there's                                                                    
     nothing  they can  do about  it,  so we  give them  the                                                                    
     ability in these situations  to negotiate that interest                                                                    
MR. LABOLLE  addressed the cost  of not implementing the  bill as                                                               
     Right now,  they have about a  $1.5 million outstanding                                                                    
     balance they  owe the state.  As that accrues,  you run                                                                    
     into different  scenarios where the state  could cutoff                                                                    
     community  assistance, bar  them from  participating in                                                                    
     certain revolving  loan programs, and you  could end up                                                                    
     at a place  where the city can no  longer function, and                                                                    
     bankruptcy is  not an option for  municipalities in the                                                                    
     State  of Alaska.  Cities can  dissolve but  they can't                                                                    
     dissolve unless  they pay  all of  their debts,  and if                                                                    
     they can  pay all of their  debts they would not  be in                                                                    
     the situation. What that leaves  them with is basically                                                                    
     they could turnoff the lights  and give the keys to the                                                                    
     state in  which case we  would now  be on the  hook for                                                                    
     the entire  amount rather than paying  on their current                                                                    
     salaries and or the new established floor.                                                                                 
3:48:01 PM                                                                                                                    
CHAIR MEYER asked  how many communities would be  affected by the                                                               
MR. LABOLLE  answered that there  are five communities  that meet                                                               
the  population metric:  Atka, St.  George, Pelican,  Galena, and                                                               
Anderson. He  detailed that actuarial  analysis cites  only three                                                               
communities that  are affected, that being:  Pelican, Galena, and                                                               
St. George. He added that St. George was not an ongoing issue.                                                                  
CHAIR MEYER asked why St. George was not an ongoing issue.                                                                      
MR.  LABOLLE  replied that  Kevin  Worley  from the  Division  of                                                               
Retirement  and  Benefits  could  better  address  Chair  Meyer's                                                               
CHAIR MEYER asked what Galena's economy is.                                                                                     
MR. LABOLLE detailed that Galena  functions as a sub-regional hub                                                               
in addition to fishing. He  reiterated that Galena's main economy                                                               
used to be the Air Force base which closed.                                                                                     
CHAIR  MEYER  said  he  knew   Galena's  base  closing  caused  a                                                               
population  decrease. He  asked if  the population  will ever  go                                                               
back up to the level prior to the base closing.                                                                                 
REPRESENTATIVE  FOSTER  noted that  Galena  also  has the  Galena                                                               
Interior Learning Academy and students  from throughout the state                                                               
attend the academy.                                                                                                             
SENATOR  WILSON  noted  that  the  Air  Force  left  Galena  with                                                               
substantial assets that  the community could leverage  to pay off                                                               
some of its debts.                                                                                                              
MR. LABOLLE  concurred that  assets were  left. He  admitted that                                                               
the question remains as  to how much is an asset  and how much is                                                               
a liability. He  noted that one asset that has  been a major help                                                               
to  Galena has  been the  fuel that  was left  behind by  the Air                                                               
Force,  the fuel  has been  used to  offset the  community's fuel                                                               
3:50:44 PM                                                                                                                    
CHAIR MEYER  asked what  happened in  the other  communities that                                                               
caused the population decreases.                                                                                                
MR. LABOLLE  explained that Pelican  was impacted by  the closing                                                               
of its  processing plant. He  admitted that  he did not  know the                                                               
reasons for Atka, Anderson, and St. George.                                                                                     
SENATOR  WILSON asked  what the  cost is  to the  state from  the                                                               
communities'    population    decreases    and    reduced    PERS                                                               
MR. LABOLLE deferred the question to Mr. Worley.                                                                                
3:52:27 PM                                                                                                                    
CHAIR MEYER opened public testimony.                                                                                            
3:52:33 PM                                                                                                                    
SHANDRA  HUNTINGTON,  City  Manager,   City  of  Galena,  Galena,                                                               
Alaska, testified  in support  of HB 47.  She disclosed  that she                                                               
was born  and raised in Galena  and served as the  city clerk and                                                               
currently  as  city  manager.  She said  she  would  explain  the                                                               
importance of  HB 47 for  communities like Galena that  have seen                                                               
significant population decline between 2000-2010.                                                                               
MS.  HUNTINGTON  specified that  the  Air  Force base  in  Galena                                                               
closed  October 1,  2010,  but the  shutdown  process started  in                                                               
2006.  She  explained  that  prior  to  the  base's  closure  the                                                               
population in Galena  was 675 residents, after  the closure there                                                               
were 470 residents. She added that  a flood occurred in 2013 that                                                               
led to a disaster declaration for Galena.                                                                                       
She  detailed Galena's  PERS  contribution  challenges and  noted                                                               
that  the law  was  not designed  to  consider sharply  declining                                                               
populations from  events outside of  decisions made by  the city.                                                               
She explained the  city's financial challenges in  dealing with a                                                               
cashflow crisis. She set forth that  HB 47 will not undermine the                                                               
underlining goals and  structure of PERS while  helping to ensure                                                               
municipalities  facing significant  population loss  are able  to                                                               
continue contributing to PERS.                                                                                                  
3:59:48 PM                                                                                                                    
CHAIR MEYER  asked if  there were  assets left  by the  Air Force                                                               
after the base closing.                                                                                                         
MS.  HUNTINGTON answered  that  the Air  Force  left one  million                                                               
gallons of  fuel. She noted  that the fuel was  specifically left                                                               
for  the  Galena Interior  Learning  Academy,  but the  fuel  has                                                               
nearly run  out. She disclosed that  Galena had to take  out a $4                                                               
million loan  to upgrade the  heating system and  water utilities                                                               
that were  left in poor condition  by the Air Force  for the city                                                               
to receive a grant. She added  that the buildings left by the Air                                                               
Force were built in the 1960s and require maintenance.                                                                          
4:01:16 PM                                                                                                                    
At ease.                                                                                                                        
4:02:00 PM                                                                                                                    
CHAIR  MEYER called  the committee  back to  order. He  asked Ms.                                                               
Huntington if there  was any hope for  Galena's population coming                                                               
MS. HUNTINGTON  answered that Galena  always has hope.  She noted                                                               
that  the city  has  the Galena  Interior  Learning Academy.  She                                                               
opined  that the  city can  grow,  but maintenance  will have  to                                                               
occur  to the  buildings  and infrastructure  at  the closed  Air                                                               
Force base.                                                                                                                     
4:03:23 PM                                                                                                                    
KATHIE  WASSERMAN, Executive  Director, Alaska  Municipal League,                                                               
Juneau,  Alaska, testified  in support  of HB  47. She  concurred                                                               
with previous  testimony that  the legislation  related to  HB 47                                                               
has been  around for  quite some time.  She noted  that Pelican's                                                               
population drop occurred  when a cold storage  business closed in                                                               
2002 but  noted that the  community had  paid off its  PERS debt.                                                               
She explained that  St. George no longer has  PERS employees, but                                                               
their  PERS  debt  remains. She  explained  that  the  population                                                               
decreases  in  the  five communities  was  due  to  circumstances                                                               
outside of the communities control.                                                                                             
4:07:00 PM                                                                                                                    
CHAIR MEYER  asked if additional  communities can be  expected to                                                               
have population decreases in the future.                                                                                        
MS. WASSERMAN answered that she did  not have numbers to back her                                                               
response  but  opined that  populations  will  stabilize but  the                                                               
debts will not go away.                                                                                                         
CHAIR  MEYER noted  that Ms.  Wasserman addressed  SB 125  in her                                                               
overview  and  asked  if  that  the bill  passed  in  a  previous                                                               
MS. WASSERMAN specified  that SB 125 was  PERS legislation passed                                                               
by Senators Hoffman and Stedman in 2006.                                                                                        
CHAIR MEYER  asked if  the state  went to  the defined-retirement                                                               
plan in 2006.                                                                                                                   
MS. WASSERMAN answered yes.                                                                                                     
SENATOR GIESSEL addressed PERS employee-count data from FY2008-                                                                 
FY2016. She noted in FY2016  that Galena had 18-PERS employees, 0                                                               
in Nenana and St. George, and 5 in Pelican.                                                                                     
MS. WASSERMAN  remarked that a  lot of the communities  have gone                                                               
out of their way  to not let go of employees  because they do not                                                               
want to trigger a termination study.                                                                                            
CHAIR MEYER asked why the time frame of 2000 to 2010 was chosen.                                                                
MS.  WASSERMAN  surmised  that  it  was  when  "this  legislation                                                               
4:11:27 PM                                                                                                                    
CHAIR MEYER closed public testimony.                                                                                            
CHAIR MEYER asked Mr. Worley  to address the bill's fiscal notes.                                                               
He asked if there were two fiscal notes and one forthcoming.                                                                    
4:12:08 PM                                                                                                                    
KEVIN WORLEY,  Chief Finance Officer, Division  of Retirement and                                                               
Benefits,  Alaska Department  of Administration,  Juneau, Alaska,                                                               
stated  that HB  47  has no  fiscal impact  on  the division.  He                                                               
explained  that  the  division would  provide  updated  actuarial                                                               
numbers and a new fiscal note soon.                                                                                             
CHAIR MEYER  pointed out  that the fiscal  note that  he reviewed                                                               
was dated FY2017  when the bill was introduced.  He detailed that                                                               
it showed $121,000  for FY2018, and then $112,000  for FY2019. He                                                               
asked if those numbers will be adjusted.                                                                                        
MR. WORLEY answered correct.                                                                                                    
CHAIR MEYER asked him to confirm  that the bill modifies the 2008                                                               
salary floor  and it has  to do  with the 25-percent  decrease in                                                               
population  between  2000-2010.  He  asked  why  time  range  was                                                               
between 2000 and 2010.                                                                                                          
MR. WORLEY answered that the years  were based on the U.S. Census                                                               
from 2000 and 2010.                                                                                                             
CHAIR  MEYER asked  if the  25-percent  population decrease  only                                                               
applies to the five communities.                                                                                                
MR. WORLEY  answered yes.  He noted  that the  division confirmed                                                               
the  five impacted  communities  participating in  PERS with  the                                                               
Department of Commerce, Community, and Economic Development.                                                                    
4:14:31 PM                                                                                                                    
CHAIR MEYER asked if there  could be other communities asking for                                                               
the same relief in the future  or if the bill precludes the state                                                               
from providing relief again.                                                                                                    
MR. WORLEY  answered that the legislation  was very date-specific                                                               
between 2000  to 2010 and  only deals with the  five communities.                                                               
He believed  that new  legislation would have  to be  enacted for                                                               
communities that suffer the same decline in the future.                                                                         
CHAIR MEYER admitted that population  loss in smaller communities                                                               
is concerning  due to fragile  economies. He asked Mr.  Worley if                                                               
he believed that the fiscal note will be presented soon.                                                                        
MR. WORLEY answered that he will present the fiscal note the                                                                    
following day.                                                                                                                  
4:16:05 PM                                                                                                                    
CHAIR MEYER held HB 47 in committee.                                                                                            

Document Name Date/Time Subjects
HB 47 Version A.PDF SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Sponsor Statement.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Actuarial Letter.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents amended statutes.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents cities impacted by the floor.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents DOA-RAB letter.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents effected employers.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents Gross Salaries.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents Huntington PERS.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents PERS cities by 2010 population.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents PERS Employer Salaries for FY08 - FY12.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents testimony Korta PERS.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Supporting Documents Total PERS employers.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 47 Fiscal Note DOA OMB 64.pdf SSTA 4/5/2018 3:30:00 PM
HB 47
HB 152 Version N.PDF SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
HB152 ver N Sponsor Statement.pdf SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
HB152 Memo of Changes 3.20.18.pdf SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
HB152 Additional Documents-DMVA Letter and bill info 3.19.18.pdf SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
HB152 Supporting Document-DMVA Letter and Sectional 3.19.18.pdf SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
HB152 Opposing Document-Letter Lawrence Wood 3.19.18.pdf SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
HB 152 Fiscal Note.pdf SSTA 4/3/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
HB 152
SB 159 Version A.PDF SSTA 3/20/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
SB 159
SB 159 Hearing Request.pdf SSTA 3/20/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
SB 159
SB 159 DOA Presentation in SSTA 3.20.18.pdf SSTA 3/20/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
SB 159
SB 159 Tranmsittal Letter PERS and TRS.pdf SSTA 3/20/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
SB 159
SB 159 Fiscal Note.pdf SSTA 3/20/2018 3:30:00 PM
SSTA 4/5/2018 3:30:00 PM
SB 159