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Contact Information:
Toll Free:(800) 665-2689
In the Homer Area:(907) 235-2921
Via Mail or in Person: 345 W. Sterling Hwy., Suite 102B
Homer, Alaska 99603
Fax:(907) 235-4008
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The 1st regular session of the 24th Legislature ended on Tuesday without resolving several major issues. The House and Senate failed to come to an agreement over the retirement system reform or the Worker’s Compensation program overhaul. The Capital Budget, Operating Budget, and HB 1 (Education funding) have also been left hanging. The Governor called an immediate special session resolve these items, in addition to HB 94 - the elections bill, the Fairbanks Virology lab, and HB 147 - insurance regulation changes.
By Sunday, all the House/Senate conference committees had completed action, and the House approved the Elections Bill and Insurance Reform Bill compromises. The two bodies are now arguing over what they see as the acceptable size of the Capital Budget. The House wants to save some of the high oil price ‘windfall’ by authorizing a smaller – but still much larger than last year – Capital Budget. The fate of the retirement bill is still uncertain in the House.
At this point, it is difficult to tell how long the special session will last, but hopefully I will be able to join you on the Kenai Peninsula soon.
Capital projects
As we go into special session we are unsure of where the capital budget will end up. However, for the time being it looks like we are going to be able to get some discretionary funds for small projects in the different communities in the district. We have been working hard to get 3 million in the budget for further construction on the Kachemak Bay branch of the college, and so far it looks promising. I will let you know as soon as the budget is finalized where we stand on these important projects.
Personal Legislation
HB 50 – Municipal Initiative and Referendum Elections
The companion bill of HB 50, SB 14, passed the House and Senate and was signed in to law on 3/22/05. SB 14 made it through the Senate quickly and took over for HB 50 in the House. Both bills were introduced to help cash-strapped local governments avoid costly special elections and referendums. Past law had required municipalities to hold initiative elections and referendums within 75 days of being petitioned by local residents. Normally, local governments hold annual elections each October, which includes voting on local ordinances, special initiatives and local officials. Having a special election within 75 days of certification of a petition, places a costly burden upon local governments.
Under the new law, local municipalities will be allowed to hold initiative and referendum elections at the following municipal election. This added flexibility saves time and money for local governments, while retaining their right to hold a special election.
HB 25: Refund of Fish Business Tax to Municipalities
HB 25, which seeks to redistribute the Fishery Business Tax on Exported/Unprocessed fish back to ports of landing ended the session in House Finance. The co-chairs of House Finance recommended that the bill be sent to a subcommittee. After we provided the subcommittee with an extensive list of answers to their questions regarding the bill, the subcommittee may recommend that the bill be referred to either House Fisheries or House Resources for further work. The answers provided to the House Finance subcommittee questions on HB 25 can be viewed by accessing my web page at and scrolling down to the subject bar that reads “personal legislation”. I look forward to working on this bill next year.
PERS/TRS Reform
What’s the problem?
The current Public Employee’s Retirement System and Teacher’s Retirement System is facing a 5.6 billion dollar unfunded liability (present dollar value), which jeopardizes its future solvency. This means that employers will need to dramatically increase their payments over the course of the next 25 years to make their retirement benefit payments. The percentage of salary that school districts will need to contribute on behalf of teachers will reach nearly 50%, and over 30% for PERS if employer rates are the only payment mechanism. Over the course of 25 years, the total of all the payments made by PERS and TRS employers to pay the unfunded liability will amount to over 15.6 billion dollars.
Is There Really a Problem?
Some people question whether or not there is a problem with the funding of our public pension system. Many have commented that the state has grown itself out of under-funded status in the past and should be able to do so again. Actuaries and financial analysts both counter this, saying that it would be both impossible and irresponsible to try and grow our way out of the problem at this point. The reason we were able to do so in the past is because we faced a much smaller unfunded liability, fewer drains on the system from retired members, and we had the stock market boom of the 1990s to help us out.
Others speculate that our system, which is currently funded at 69.5%, isn’t doing so bad in relation to other states, many of which don’t pre-fund their medical benefits. We in the legislature do not want to follow the model of other states and the federal government and turn PERS/TRS into a “pay as you go program” that may jeopardize our ability to pay future retirees. Most of those who have studied the issue in detail, including some labor union representatives, agree this is a legitimate concern.
Why is there a Problem?
You can pin blame on many people/things when speculating how we got into this 5.6 billion dollar situation: the legislature, the PERS/TRS board, the actuaries, rising cost of health care, slumped stock markets, etc. The truth is, it is a combination of all those things. First of all, when the system artificially appeared over-funded (late 1990s up until 2003) employers were not required to contribute sufficiently to the system. Municipalities were suffering from other funding cuts and this was a way to ease that pain. The legislature also has consistently increased benefits without collecting additional funds to cover those benefits. The PERS/TRS boards have been the target of much criticism lately for failing to see the problem and take action toward a solution by increasing employer contributions. The actuaries, in this case Mercer Human Resources Consulting, can be blamed for giving the PERS/TRS board bad advice, such as not advising them to adopt the most current mortality table. Additionally, health care costs have risen much more dramatically than anyone ever anticipated. Therefore not enough money was collected for current retirees drawing on their health care benefits. The rising cost of health care accounts for approximately 38% of the unfunded liability – or 2.12 billion dollars. The recent slump in the market does represent a short-term loss, but over the long term our rates of return are still above the 8.25% average used in calculations.
Finding a Solution
Both the House and Senate have worked extensively at finding a way to fix the State’s public pension system. The creation of a fourth tier is necessary to stop the system from incurring even greater unfunded liability. In 2004 Mercer underwent the process of studying the different alternatives possible and presented them to the PERS/TRS board tier committee in November of 2004. When session began in January, both the House and the Senate began with Mercer’s tier study as a base and began the process of constructing legislation to create a new tier. Although the bodies took different approaches, HB 238 sponsored by the House State Affairs Committee and SB 141 sponsored by the Senate Finance Committee, the bills were substantially similar and both parties thought they could come to some form of agreement using SB 141 as the vehicle. Senate Finance spent three weeks of often twice a day committee meetings discussing the details of SB 141, taking public testimony and making improvements to the bill. A similar process occurred on HB 238, and later SB 141, in House State Affairs.
What the Bill Does
It is important to note that SB 141 will not affect current retirees or employees. This legislation only applies to future employees and future retirees.
SB 141 creates a sustainable and attractive retirement system by instituting a new tier for future employees. SB 141 establishes a defined contribution account – similar to a 401K – for new employees. Under SB 141 an employee would be required to contribute 8% of their salary to their defined contribution account. The employer would contribute 5%. This would replace the existing defined benefit program through which a retiree receives a monthly pension amount with a portable lump sum account they can transport into another qualified employer’s retirement plan or take as annuity payments. Both employees and employers identified medical benefits as a crucial part of any retirement benefit. House State Affairs worked hard to design an attractive and flexible medical plan. Part of this is a Healthcare Reimbursement Account (HRA). Employers contribute 3% of a member’s salary into an HRA that can latter be used for qualified medical expenses. The employer also contributes 1.75% of salary toward a medical insurance plan for members after they reach Medicare eligible age. The system would pay a percentage of the premium for the member based on their years of service. A member becomes eligible for medical benefits after ten years of service retiring directly from the system at Medicare eligible age, or with 25 years of service in police/fire, 30 all others. Early retiree’s have access to the system and can use their HRA to pay the required premium until they reach Medicare eligible age.
Recruit and Retain
One of the main concerns for both employers and employees is maintaining a system that is rich enough to attract quality employees and provide a dignified retirement for members. The defined contribution plan, as amended, provides an adequate plan with the portability and flexibility that a new generation of employees finds attractive. Young people today will be more compelled to move to this great state and try out the Alaskan experience if they no they do not have to commit to 30 years of service to see a retirement benefit.
The next step
The next step in solving the PERS/TRS problem is providing employers with fiscal assistance to deal with the sharply increasing employer contribution rates. This could take the form of pension bonds, or an appropriation by the state to pay the unfunded liability down. After this new tier is established, the legislature will turn their attention to this next phase of the solution.
You can find information on SB 141, along with a host of back up material at (scroll down until you find SB 141). If you have any specific questions that are not addressed in the literature please feel free to email or call my office.
House State Affairs Committee
This session House State Affairs worked to advance a wide range of issues important to Alaska, from election reform to pension reform. We spent weeks working on the large elections bill, going through many, many different amendments in order to ensure that the state’s elections are fair to both voters and political parties. The majority of our time in committee was spent working on an overhaul of the PERS/TRS system. The committee spent many sunny Saturday mornings listening to testimony from the administration, the public and an assortment of retirement experts. We also worked to ensure the state’s right to comment on and steer development on federal land and the Outer Continental Shelf by extending the Alaska Coastal Management Program. Without this important program, the state would lose its ability to apply the state’s development standards to activities in ANWR and NPR-A and on the OCS. The state would also lose the millions of federal dollars appropriated annually to the program. House State Affairs worked to extend various deadlines imposed on the program by the administration, and in doing so, promoted state’s rights.
House State Affairs Committee Sponsored Bills
HB 189 was originally a bill extending the deadline for local coastal management districts to submit their revised district plans. It also extended the state’s current coastal zone development standards until a revised, federally approved Alaska Coastal Management Program is in place. The House Community and Regional Affairs committee pared the bill down to a six-month extension for the state standards. House State Affairs amended the bill to include a sunset for the entire program on July 1, 2011 if legislative action is not taken. It also extended the current state standards until March 1, 2006 and extended the deadline for the Department of Natural Resources to review revised district plans to March 1, 2007. HB 189 merged with an identical bill, SB 102, in House Resources. SB 102 was amended to include a provision that DNR must every four years complete a review and update of development projects deemed categorically and generally consistent with the ACMP. This is an attempt to streamline the permitting process by reviewing and then possibly moving certain projects into categories where they are automatically determined to be consistent with ACMP standards. Another change in the bill is a provision prohibiting coastal districts from addressing issues in their local plans that are currently addressed in state or federal statute or regulation. This version of the bill also requires the Legislative Budget and Audit committee, and the Resources Committees to review the program and determine if it should continue. Finally, SB 102 terminates the ACMP on January 1, 2006 if the federal Office of Ocean and Coastal Resource Management does not approve the revised state plan before this date. I offered an amendment when this bill was sent to House Finance to extend the drop-dead date to March 1, 2006, giving the legislature time to act if the feds have not completed approval by the first of the year. This amendment did not carry. SB 102 passed the House and Senate and is waiting to be signed by the governor.
HB 90 also passed the legislature this session. This committee bill clarifies existing statutes governing state treasury warrants by providing that warrants, like bank checks, are negotiable instruments under the Uniform Commercial Code.
HB 152 taking legislative information systems out of the jurisdiction of the Department of Administration met in House Judiciary with a nearly identical bill from Senate State Affairs. The Senate bill became the vehicle, and this bill has been transmitted to the governor.
HB 238, the PERS/TRS bill crafted by House State Affairs, is still in the committee. Many elements of this bill were put into SB 141. Next session this bill may form the basis for the actual funding plan to deal with our unfunded liability.
Resources Committee
This session we focused on a variety of issues designed to generate revenue for the state, the university system, and local communities through resource development, and updated tax regimes. Major bills that the committee worked through include HB 130, the university lands bill, HB 19, the pesticide and broadcast chemical bill, HB 174, a bill updating commercial fishing permit and vessel license renewal fees, HB 252, adding a surcharge to resident and non-resident sport fishing licenses for the purposes of sport fish hatchery enhancement, HB 153 authorizing state primacy over federal wastewater permitting activities, and HB 280, creating a four-mill property tax on mining operations in unincorporated boroughs, and prohibiting incorporated boroughs from imposing a severance tax on minerals.
HESS Committee
This session in Health Education and Social Services committee we were busy with many issues. Senior care, a program establishing need-based assistance for seniors was extended. Prescription drug coverage for seniors was also part of the move this year to help Alaskan’s seniors. The Child in Need of Aid program was improved with an omnibus family rights bill that gets parents of children removed from the home more involved in the process and makes that process more transparent. A bill extended the sunset date for school debt bond reimbursement for two more years to allow quickly growing communities like Mat-Su to build new schools. We heard a wide variety of bills this session covering topics from funding for boarding schools to allowing children to self-administer asthma medication. For a detailed list of the bills that have passed the House, link to .
Ways and Means Committee
We spent the majority of our time this session examining the state’s existing tax structure to find other possible sources of revenue, while ensuring an equitable distribution of tax burden amongst the industries. Much of this came in the form of a comprehensive tax measure introduces by the committee chair, Rep. Bruce Weyhrauch. The omnibus tax analysis was broken down in to smaller sections allowing us to look individually at income, sales, employment and education taxes. While few bills came out of the overview, it is hoped that this will help make the committee more effective next session.
The committee sponsored four bills:
HB 143 attempts to address future budget shortfalls by requiring the state to draw equally from the constitutional budget reserve (CBR) and the earnings reserve account. The CBR is consistently drawn from to cover shortfalls, but is projected to be depleted during the next decade if other fiscal measures are not implemented. Another element of the bill is that no new tax measures could be enacted until the CBR was depleted – a provision that I will oppose. This bill was held in committee.
HB 262 would provide for an income tax to be scaled in relation to the shortfall amount. If, for instance, state expenditures exceeded revenues by between 80 and 100 million dollars, the tax would be two percent of an individual’s taxable federal income. If expenditures did not exceed revenues, there would be no tax. This bill was also held in committee.
HB 263 proposes a 10-dollar employment tax on anyone receiving greater than $1000 in compensation. The bill was held over till next session.
HJR 19 proposed amending the Constitution to allow appropriations from the Permanent Fund based on the Percent Of Market Value formula. If passed, the issue would be put before the voters during the next regular election. This idea has circulated for some time as an option for establishing a steady source of revenue for the state. Though there would be less administrative overhead involved with this measure than an income tax, there is a good deal of remaining opposition to this bill. The committee passed the bill on to Finance where it has been held until next session.
Following Bills
All bills can be found on the State's Bill Action and Status Inquiry System (BASIS). You can see what committee a bill is in, when it will be heard, how committee members voted, and much more. Don't forget that you can view all bills relating to your areas of interest by selecting "Subject Summary" from the menu on the right. You can access BASIS through the link below.
Live on the Web
Most committee hearings can be seen and heard on Gavel to Gavel, which is broadcast on both local access TV and on the internet. You can also access online archives from their website. .
Contact Us
If you would like to speak to me regarding a specific issue, it is helpful to first get in touch with the member of my staff handling related issues. You can click on their email addresses to send them a note, or just give us a call at the office. Please provide your full name, address and phone number on any correspondence with the office. Your time and effort are much appreciated.
Louie Flora
State Affairs, Resources, Fisheries, HB 25
(907) 465-4963
louie_flora ''@'' legis.state.ak.us
Katie Shows
Health Education and Social Services, HB 20, HB 24
(907) 465-2028
katie_shows ''@'' legis.state.ak.us
Ian Laing
Ways and Means, HB 50
(907) 465-2689
ian_laing ''@'' legis.state.ak.us
Rep. Paul Seaton
House District 35
(800) 665-2689
representative_paul_seaton ''@'' legis.state.ak.us # # # |
