Alaska Legislature: Senate Finance, 4/24/26, 9am

Call the Senate Finance Committee to order. Today is April 24th. We're in the State Capitol, Senate Finance Room. It's 9:00 a.m. Present today are Chairman Steadman, Chairman Olson, Senator Keele, Senator Merrick, Senator Kaufman, Senator Cronk, and myself, Senator Hoffman.

We have two items on today's agenda. First being HB 78, retirement systems defined benefit option. And second, we will be hearing from OMB about the governor's latest budget amendments.

We will take invited testimony today on HB 78. We've already had public testimony, and we will look for the will of the committee after we have the test— invited testimony.

We have several people that are here, and it's unusual to limit the invited testimony, but I would just encourage the testifiers to try to limit their comments to under 5 minutes, given the amount of people that are here, uh, this morning. So with that, we would start off and invite the Mayor of Juneau Beth Weldon to be able to testify since we are in their community. Nope, any chair. Madam Mayor, please identify yourself for the record and provide us with your testimony. Thank you.

For the record, I'm Beth Weldon. I'm the mayor of the City and Borough of Juneau. Hello to the Senate Finance, including Chairs Olson, Hoffman, and Steadman. So I want to begin by addressing the committee amendment that would raise the non-state PERS employer contribution cap from 22% to 24%. Local governments across Alaska, including Juneau, have planned their budgets for nearly two decades based on the 22% employer cap and the state's on-behalf payment above that amount.

That framework grew out of difficult decisions made in In 2005 and 2006, when the legislature closed the defined benefit system to new hires through SB 141 and later established a uniform employer rate with the state assuming responsibility for costs above that cap. And I apologize, I forgot to let Ms. Kester introduce herself. Katie Kester, city manager for the city of Juneau and sidekick to the mayor. Thank you for that. At that time, municipalities were asked to accept a major shift in retirement structure and long-term workforce policy.

In return, the state committed to establishing employer rates and shoulder responsibility for legacy costs that were outside the control of local governments. That agreement, codified in statute and implemented through annual appropriations, has been relied upon by cities, boroughs, and school districts across the state. From Geno's perspective, the 22% cap is not just a number. It represents a longstanding policy commitment that allows municipalities to move forward without litigation without reopening past errors and without destabilizing local budgets. I respectfully ask the committee to maintain the 22% on-behalf payment and honor the framework that has been in place since SB 141 was adopted.

At the same time, I want to be very clear. Geno supports House Bill 78 goal of restoring a defined benefit program. We are struggling to recruit and retrain public employees, especially in police, fire, and education. These are demanding careers with high turnover costs, and the lack of a defined benefit pension has put Alaska and Juneau specifically at a competitive disadvantage. A well-designed benefit program that can be an important tool for retention, workforce stability, and community safety, especially at remote and high-cost communities like ours.

House Bill recognizes that reality, and we appreciate the legislature's willingness to revisit a policy choice made under a very different economic situation. Situations. Our support for a defined benefit option, however, is based on the understanding that legacy cost and structural funding issues remain a state responsibility, not one to be shifted on to municipal taxpayers through changes to the employer cap. As amended in Senate Finance, House Bill 78 would raise the PERS employer cap to 24%. For Gino, that change would result in an estimated additional cost of approximately $1 million $1 million annually to the city and borough and roughly $300,000 to the general school district.

Those costs would be borne by taxpayers, utility ratepayers, and local services, not by the retirement system itself. At a time when municipalities are already facing inflationary pressures, infrastructure needs, and education funding challenges, as well as disaster response and recovery, in general's case, this additional burden is significant. Our strong preference is that the 22% cap apply to all tiers, including any new defined benefit tier created under House Bill 78. That approach would preserve the longstanding state-municipal partnership while still allowing Alaska to rebuild a more competitive retirement system. That said, I also want to be pragmatic.

If maintaining the 22% for the new tier is not possible JITNO would be willing to accept a higher cap for the new defined benefit tier only, provided the existing tiers remain at 22%. This approach would honor the original SB 141 framework, avoid retroactive cost shifts to municipalities, and still allow the legislature to move HB 78 forward. In closing, JITNO supports restoring a defined benefit option to strengthen recruitment and retention. But we respectfully ask the committee to preserve the 22% on behalf payment for existing employers— employees and employers, and to avoid shifting additional costs onto local governments and not create the underlying liability. Thank you for your time and your consideration of these issues.

Thank you. We will move to John Leach. Manager for the City and Borough of Sitka. Online, John, please identify yourself for the record and proceed with your invited testimony.

Good morning, everyone. My name is John Leach. For the record, I'm the Municipal Administrator for the City and Borough of Sitka, and I appreciate the opportunity to testify on House Bill 78. I just want to take a moment to be direct about where I stand. I understand the rationale for returning to a defined benefit retirement plan.

Recruiting and retaining good public employees is a challenge that every municipality in this state faces, and I respect that this legislature is trying to address that. My testimony today is not against a defined benefit program. It is against being forced into it without a choice and against having the cost of that decision imposed on local governments that had no voice in making it. The Senate finance amendment raising the employer cap from 22 to 24% would cost the city and borough of Sitka between $400,000 and $500,000 in additional personnel costs annually. That may not sound like much in the context of a state budget, but for a community of 8,500 people, it is significant.

Sitka entered its FY27 budget planning with a $900,000 structural deficit. We worked hard to close it, but doing so required eliminating 2 positions and reducing services our residents depend on. We are simultaneously absorbing a $500,000 increase in health insurance costs. We have no margin left. A cap increase of this magnitude would force us to cut 4 to 5 additional positions from a workforce already operating below minimum staffing levels.

And that's just the near-term picture. We understand that even after the prior system's debt pension liability is extinguished in 2039, rates under House Bill 78 will not fall as far as they would under current law. Local governments are being asked to permanently absorb higher costs well into the future for a policy decision the legislature is making unilaterally. We are not asking the legislature to abandon defined benefits. We are asking for a choice.

Employers the ability to opt in or opt out. Those who believe defined benefits services their workforce and their community can choose it knowing the cost. Or expense should not be forced to. This is a reasonable and fair approach and it is one we urge this committee to adopt. Without an opt-in or an opt-out amendment, this bill is an unfunded mandate dressed up as a workforce benefit.

And Sitka cannot absorb it, and I suspect many of my colleagues across the state cannot either. I want to thank you for your time and your careful consideration and your deliberations. Thank you, Mr. Mayor. We will go on to the City of Antioch and hear from Nora Kamroff, the manager for the City of Antioch. She's online.

Please identify yourself for the record and proceed. She's not online. She is not online, so we will go to the city of Bethel and hear from Lori Strickland, city manager of Bethel. Lori, please identify yourself and proceed with your invited testimony. Thank you, Senator Hoffman, and good morning.

My name is Lori Strickland and I'm the city manager for the city of Bethel. Municipal employers rely on the state to administer and manage incurred is on behalf of our employees. When policy changes increase those long-term costs without providing local governments with a reasonable time to account for those changes or options to accommodate those needs, financial risks for our community are created. Increasing the employer contribution rate from 22 to 24% while other major retirement change structures are being considered makes it difficult for all municipalities fully understand and plan for long-term financial impacts. This is occurring when many municipalities are working through annual budgets, collective bargaining agreements, and other workforce planning.

Implementing increased employer costs before a complete retirement package is presented creates uncertainty and limits our ability to make sound financial decisions. We respectfully request that the legislature only move forward with a fully developed plan. And if moving forward with the defined benefit structures, provide municipalities with the flexibility to opt in or out based off of the impacts and needs of that specific municipality to ensure long-term budget sustainability is maintained. Thank you for your time. Thank you, Lori.

How's things going in Bethel?

It is a beautiful day in Bethel. Thank you, Senator. Looking forward to going home. Thank you for that testimony. We will go to the city of Wasilla and hear from Glenda Ledford, the mayor of the city of Wasilla.

Please identify yourself for the record and proceed. Oh, are you online, Glenda?

She's not online either. So we will go to the Lower Yukon School District and hear from their Superintendent John Hargis. Please identify yourself and proceed with your invited testimony. Yes, good morning, Chair and members of the committee. Thank you for the opportunity to speak.

My name is John Hargis. Superintendent of the Lower Yukon School District, and I'm here in support of HB 78, specifically the underlying bill to restore a defined benefit retirement option for Alaska's educators. In rural Alaska, recruiting and retaining teachers is our greatest challenge. Since the pension was eliminated in 2006, we've seen a constant, a consistent pattern. Educators come for a few years and then they leave, and when we ask why, the answer is clear.

Alaska is not competitive for a long-term career without a defined benefit. This is not just a local issue, it's a statewide crisis. Across Alaska, hundreds of teaching positions remain unfilled. We're seeing increased attrition and a shrinking pool of applicants. At the same time, the cost of living continues to rise and our overall compensation is no longer competitive with other states.

Without a viable retirement system, we are asking educators to take on some of the most —challenging and remote assignments in the country with less long-term security than they can get elsewhere, and they are choosing to leave. In our districts, that means constant turnover. It means classrooms without consistent teachers. It means students building relationships with educators only to lose them in a year or two later. In some cases, when a teacher leaves, we don't have someone ready to replace them.

That instability directly impacts student learning and school culture. This is about kids. HB 78 gives us a path forward. It restores a defined benefit option that makes Alaska competitive again, not just to recruit teachers, but to keep them. It also creates an opportunity to bring experienced educators back into our system, which is something we desperately need.

We are not asking to go backward. We are asking to fix a system that is no longer working. A strong, stable educator workforce is essential to the future of our schools and our communities. Without meaningful action, we will continue to see shortages grow and outcomes decline. We strongly support moving this bill forward and appreciate your leadership on this issue.

Thank you for your time and consideration. Thank you, John. We will go in the room and hear from the Executive Director of the Alaska Municipal League. Please come forward, Nils Andreassen, and identify yourself for the record and proceed with your invited testimony. Thank you.

For the record, Nils Andreassen, Executive Director of the Alaska Municipal League. And I did want to mention, I know that the City of Antioch and City of Wasilla weren't able to make it this morning. And I think that it's a good example of just how busy local government leaders are. If you haven't heard more vocal support or opposition to HB 78, it's often because they're putting out fires in their communities. I know for City of Antioch, between some of their energy issues and others, it's been a really rough year.

And I think that capacity issue is really at the heart of what they're trying to address within HB 78, or it reflects the impacts of an increase from 22 to 24%. As you know, AML has not taken a position on HB 78 other than to reiterate that our membership, what our membership has said, which places an emphasis on the state addressing the net pension liability. We're encouraged by the ARM Board action to follow the original paydown plan by 2039. And hope that the legislature and governor will support what would otherwise be continued reamortization of this debt. I see you have done that in the operating budget, CS.

We would also continue to point out that the main reason for the state's inability to significantly lower the net pension liability was the choice in 2015 to move from a level dollar to a level percent of pay. This legislative choice was intended to reduce immediate payment pressures, an actuarial rate back then that was 64%. As level percent of pay amounts are lower in the early years compared to level dollar, though they become higher later. What we're experiencing now is the result of those decisions. Still, we're not here to revisit history, but we can certainly attempt to learn from it.

If you haven't heard as much more— as much from AML members as you think you should about HB 78, it's because of that history. If you haven't heard a position from AML members, it's because of that history. We have members who are deeply opposed to a return to defined benefit and who have little trust for the state-administered system that has resulted in that longer-term obligation. We have others who are deeply committed to a return, who view this as another tool to address their own recruitment and retention issues. And then there are others who are simply stuck, who really can't afford to stay in, who can't afford to get out, who are entirely at the mercy of the system and for whom an amended 22 to 24% is simply an added cost.

I understand the math. I return— a return to DB costs more, and you would like to share that cost with others. I get it. AML members get it. And I think you heard that in the testimony this morning.

I want to briefly unpack what increasing the non-state employer cap from 22% to 24% means. Here is a variety of answers I got from different types of employers when we reached out asking for feedback. Keep in mind that housing authorities are PERS employers, and at least for one, they don't have— for all of them, they don't have access to a tax base. This legislation for them means that they will fire people, and for the one that I talked to, that would be 3 people. Housing authorities will pay just over $600,000 more with this amendment.

As a local government that provides robust health insurance benefits, one local government said that they'll likely have to reduce these to make up the difference. So instead of providing 100% of the premium, there will be an additional cost share with employees. As an REAA, this will come out of state aid and the BSA, meaning we have less for students or maintenance. For reference, school districts will pay $7 million more with this amendment. I heard from some that they aren't unsupportive of the concept, that it makes sense that they would share some of the cost burden associated with return.

Others remain strongly opposed to being forced into a system where they don't have a say. The only way to take into account the condition of employers and the variability is to give them choice. That's a principle of AML anyways, the autonomy of decision-making. We would ask this committee to consider an amendment that allows for non-state employers to opt in or out prior to it becoming an employee choice. This creates a system where those employers who believe in defined benefit as an effective tool can use it, and bear the cost, and those who don't or can't afford to won't be made to.

Employees already make a determination of what kind of employer they choose, whether a PERS employer or a non-PERS employer under today's law. This option would allow for greater choice between employers, offering them the ability to structure competitive total pay and benefit packages accordingly. 22% Felt fair to those negotiating back in 2007. The actuarial rate then was 21.77%. It avoided litigation.

24% As a fixed number feels forced, even if the math is there. Why isn't it just the actual increase in normal cost from current to the new system? Why wouldn't it be able to decrease depending on the new tier's actual normal cost relative to normal cost now? This is a sensible amendment. Let the ARM Board decide what that actual normal cost difference between the new system and old is with 24% as the cap to give some certainty, but floating otherwise to be accurate.

That gives everyone confidence in a well-managed system. I would remark on just a few other things. There will remain a Tier 1, 2, and 3, previous forms of DB that have their own costs and not new ones. Why would 24% be applied to them when they aren't increasing costs? The 22% cap should be kept in place for them.

What about the continuation of a defined contribution plan, since that doesn't come with additional state funds at all? Why would 24% be applied to them? The 22% cap should be kept in place. I do think that means separate accounting, not just for employers but for employees as well. The ARM Board and its actuaries should be able to present an actuarial rate for each group with the cap applied to sufficiently manage for this.

If all an employer employer has or DC employees, why would they pay as if they had DB? And since employees have a choice, it removes some of the concerns the legislature has previously been worried about, avoiding the concern that employers would move from one type of employer over another, choose one type of employee over another. Finally, an effective way to manage cost of this new plan is for the ARM Board to provide reasonable, conservative assumptions for returns, payroll growth, and inflation. This is something that we said in House Finance last year. Aggressively managing for a fully funded pension plan is perhaps one of the best ways to learn from our history.

Too often we worry that choices have been made to ensure the state's costs are alleviated. We encourage the legislature to provide active oversight over these assumptions, including more regular review of experience. We would ask too that if non-state employers are going to share more of the cost burden, you allow them to help more in the system's governance by adding a seat to the ARM Board for non-state employers. Ultimately, non-state employers are not in charge of establishing this legislation, not in charge of PERS/TERS implementation, not in charge of pension management, not in charge of legislative appropriations. The very little control they have in all of this is stark.

Increasing choice, ensuring accuracy and cost in decision-making, will instill confidence in a system that has seen challenges, but which is also a critical component of public sector compensation. Thank you. Thank you, Mr. Andreasen. Since you represent the municipalities, are there individual questions that members may have of Mr. Andreasen? Senator Steadman.

Thank you. Just for those watching at home, I think we— let's try to put it in perspective here. I think the current rate is about 27.5, 27.55 this year if I recall. I don't have the notes in front of me. And the cap is 22%.

So that delta is, the state is picking that up. And it's over $200 million. I think we just added some monies to the budget to replicate what the advice of the ARRM Board was from the governor's submitted budget. It's a little over $200 million. So that's the burden.

So I think one of the issues that we have before us here in the discussion is the increased cost of the new tier. Maybe the new tier could have been designed for lesser cost. I don't know. But the bill we have in front of us is an increase in cost. And that has to be borne by somebody.

Obviously the state employer, the state employees, that is borne by the state. All these employees that the Municipal League represent, that I'm aware of, are not state employees. They're like the housing authorities and so on and so forth. We're not responsible, frankly, for their benefit package. They could put in their own system if they so choose.

They've got that type of flexibility. But the other thing that isn't noted here also is that this liability that— and we can argue if it's going to be created or not created. Virtually the vast majority of defined benefit plans become underfunded when people start retiring after they're about 20 to 30 years old. This plan with the roll-in of the current defined contribution is about a 20-year window on it. So you got about 10 years before this thing is going to start rolling upside down.

If it goes under 90%, who knows?

But that liability that is created relies at city— or lays at City Hall. We're not responsible for the city of Sitka's unfunded liability or the city of Anchorage or Fairbanks or Bethel or Juneau. The city is.

And that liability, if it materializes, is for them to deal with. We took on, as referenced earlier, the liability of the old tiers because of the difficulty in unwinding who actually owed how much. So we pooled it to— as properly reflected earlier in the testimony— to avoid litigation. So we agreed on a 22% rate, and we've been holding the 22% rate since then. But now we're faced with a decision on a new plan that's going to increase the cost.

This is a whole different system, or a whole different issue, than the old tiers that we shut down. So just to kind of put it in perspective, Mr. Chairman, there are increased costs. If you want more benefits, it costs more. You want less, it costs less. Somebody has to pay the costs.

And the state of Alaska is responsible for the state employees, but we're not responsible for the non-state employees or, frankly, their salary levels.

And we can have a whole discussion over the teaching environment, we end up assuming that, Mr. Chairman, because we have a constitutional obligation to educate our children in the state. So it rolls back on our desk if we want it or not. And that's why they're held at, one of the main reasons why they're held at the normal cost. And the school districts pay that and we absorb the entire unfunded liability for the teaching tours. I just thought I'd point that out, Mr.

Chairman. Thank you. In addition to the amount we're including in the budget for— to add what the ARRM Board is requesting, we are also adding several million dollars to the budget to assist local governments in this year's budget. It's not— as though we're ignoring the high costs to the state of Alaska. We are also including additional revenues in the operating budget.

Since you mentioned, mentioned that the budget, Mr. Andreessen, we are, we are proposing to help individuals to the tune of $150 per individual, not per family. So larger families will benefit from that. So we are also looking at the school districts and putting in close to $30 million to help those school districts to address their higher cost of fuel. So although we are responsible for what's happening at the state level, We are cognizant of the hardships that individuals, communities, and school districts are facing, and we're trying to do what we can to assist them during these hard times. I know this, this is just a one-time approach to the higher costs.

We don't know what they're going to be, but getting back to To this I would associate this issue and this topic, I would associate my comments with Senator Steadman, and I don't know if you have any comments on his comment. Thank you, Chair Hoffman, and I guess through the chair to Senator Steadman or in general. Yes, in general. The— I think there's a few things. So it is worth knowing that the majority of AML members don't participate in PERS.

And I think that says something, right? It says that they can't afford to. And I think cost versus value is probably at the heart of that conversation. There are some employers in Alaska for whom the value of DB is worth the cost. There are others who simply can't bear the cost.

And that is really at the heart of our remarks is let there be choice so that for those who can't afford to be in under the current system of 22%, let alone 24%, let them at least stick with where they're at so they don't have additional costs. For those who choose otherwise, who choose DB, we understand that there's additional— there's an increase to the normal cost which I think is where we're focused in the increase from 22 to 24% and not related to the net pension liability. So choice is a big part of that. I want to make sure we're clear about who is currently participating and not and why. I should also be really clear that we appreciate the work this body, Senate Finance Committee, has done within the operating budget to support communities, and it's been longstanding over these last years, continued work to reimburse for school bond debt reimbursement, to recapitalize community assistance in this current price environment where there's high energy costs, to, to address some of those needs.

So affordability in Alaska will be really challenging, and we appreciate the work and the effort that you've put in. I do think one of the points that Senator Steadman made actually suggest maybe an additional amendment that I would ask for your consideration of. That it could be that we need to remove termination costs. If it's such that employers could have the potential to establish their own plan, then let them go. Let them— and that does mean that it comes with additional costs to the state for now, but it allows them to differently address the high cost that they bear.

But those are ways to get to some of the questions and comments that I heard. This isn't an easy discussion. It's also ultimately true that we don't have a vote here. That when it comes down to whether you choose to implement a DB or not, or to address or add to the cost that non-state employers bear, It's entirely up to the legislature, and local governments will have to make decisions within their budget, budgetary scope. And as we heard from the city and borough of Sitka, that means reducing services, reducing employee bases, and otherwise compensating for those increased costs.

Not only have we assisted those communities You should also recognize the fact that it was this committee, the Senate Finance Committee, that reinstated the Community Assistance Program that was taken away. So it's not that this committee has— and it's been some time, but it's not that we are ignoring the communities. We are working with them. We are doing what we can. Within our budget restraints to assist them.

So, Senator— I think Senator Kaufman had a question first before I go back to Senator Steadman. Senator Kaufman? Thank you. I'm fine. The subject was covered in the conversation.

Okay. Senator Steadman. Thank you, Mr. Chairman. I think we need a definition of termination costs for those watching at home. I mean, we throw it around the table, but it's a significant issue.

We do have, maybe Mr. Andreesen can help us with that, because we do have, as he mentioned, kind of a trap. We've got about 2 dozen employers that are way behind their contributions. One of them is over 500 payroll runs, 500 payroll runs behind. Some of them are a couple dozen or whatever. But we at the state end up covering that.

Those employees, some of them don't realize that their employer is not paying their benefits. So somebody's got to step up to the plate, and we're the deep pocket. So if you could help us with the termination cost and why it's there. Mr. Andresen. Through the chair, Senator Steadman, termination costs refer to the ability for an employer to leave the system.

It includes includes the cost of actually doing the study and starts to address or includes the net pension liability that might have accrued during their term within PERS and then also works through for each employee how much would continue to be owed to them and paid out. So it is a continued liability. It is kind of this trap that Senator Sedman references. Even if those employers exit they continue to pay on that pension liability and other types of costs. So for employees that receive no benefit, for current employees that receive no additional benefit, I think when it comes to— we have highlighted this over the last few years, the delinquencies issue.

By law, those are supposed to be exited from the system. There shouldn't be a case where they continue to be expected to pay on 500 payrolls by law. I think there is a continued debate around how to protect them or manage their participation in the system. But it definitely adds to the net pension liability, to the liability overall. It is shared across all employers, so it is not just the state, but to the extent that it increases that overall net pension liability beyond the 22% It's true that the state's on behalf covers that amount.

But that's another— we've highlighted a number of other employer-type issues that could and should be fixed, and if it's not in this legislation, then otherwise. But these are hopes and things that AML has been asking for to work on over the past few years. Senator.

Thank you. Excuse me. Thank you, Mr. Chairman. I think it's a good discussion, and I think the one other detail on the termination studies that's important is that part of that figuring out— I think the term was net pension liability that is owed by, in this discussion, a municipality— is figuring out, looking at the individual employees and where they worked when they earned the benefits. Because public workers go back and forth frequently between municipalities and the state.

I can think of quite a few state troopers who started off as municipal police officers. I think quite a few leadership-level police officers around the state who started off as state troopers. There are former city employees in the room here on state payroll. We certainly had folks at the table today representing state— local government who start off on the state payroll. And so one of the great benefits that we have in a blended system is the efficiency, the opportunity for each employer to benefit from the opportunity to get good public workers, trained, experienced, capable people, when they are ready to make a career move, a job change, a city change, whatever their motivations are as an individual.

But we only get those efficiencies, we only get those benefits, and everybody benefits with that blended system. So I am ready to assure Mr. Andreasen that nothing in the bill before us forces any of your members who do not currently participate in PERS to start. In case that was a worry, it wasn't quite clear from the testimony. But we do have this blended system, and we have this blended system across all 4 of the PERS tiers that we have now, right? Even within the defined contribution system, there are a few elements like the retiree healthcare pool, like the occupational death and disability pool, where you earn years of service and you earn the ability to potentially get that benefit, whether you are with the city or the school district or the state.

So we are maintaining a blended system. It is a great efficiency for all concerned. Mr. Andreessen is right about who has control of that system.

And we don't have to rehash the history. We have covered it at the table in past hearings and a little bit this hearing about that is how we got to the 22% cap. And the state picking up on behalf, because municipalities had exactly zero impact on that management.

But the good news, I guess, that I see in this bill is that we have a sub-trust here for the new tier, this new defined benefit tier. The previous tiers 1, 2, and 3 in PERS It's easy enough, well, for an actuary to split out the liabilities. Tier 1 employees, Tier 2 employees. But we always pooled the assets. So with this new tier, we'll separate the assets as well.

And I don't share Senator Steadman's concern that this is going to go upside down. I think this is a very safe plan with a lot of checks and a lot of safeguards. I would be interested, Mr. Andreasen, one of the great elements of the bill that created the current defined contribution tier was that it required a lot of those safeguards. One of which was experience studies. So we are not just hoping the ARM Board takes a look at the national longevity table or whichever assumption and applies it to Alaska right.

We actually look at Alaska PER's experience. You said in your comments that you thought we should do that more differently. What were you driving for there? Mr. Andreasen. Senator Keele, through the Chair.

I think two elements. I think one of the, as you say, one of the benefits of the bill is that the assets are managed differently or separately. Which might be a good case for splitting out the 24% versus 22% by those employer types, employee types, if you are already separating out those assets. So I would make that point. And if— when it comes to the experience study, there is a lag, right, that I think the experience study or the arm board process is every 4 years, one study, and then 2 years later a different study, and then they make a determination for how they set their assumptions.

And I think what I'm getting at is how do we reduce that lag so that they're able to make decisions more quickly or efficiently in response to the experience that they're noting and able to refine and— and I think when we say aggressively manage or more conservatively manage those assumptions, those should be in the interest of a well-funded plan and not in the interest of reducing the actuarial rate that might be borne by all. And I think that's the distinction that we're trying to make, that those assumptions need to get us to 100% funded or a well-funded system and not have other influence. But by reviewing experience more frequently, by working more closely with actuaries to update those assumptions, I think that would be helpful. Thank you, Mr. Andresen. Senator Keehl.

It's a very short follow-up. Thank you. If memory serves, the requirement is that those experience studies be no less often than every— it's either 4 years or 5 years. Do we need to change that in statute, or is that something the ARMB board can take on in the interest of their fiduciary work? Through the chair, Senator Keehl, if it does say that, then they should, but I don't know that they have that direction.

So if you provided that to them, then it might be beneficial. Thanks. Thank you, Mr. Andreasen. Any additional questions of Mr. Andreasen at this point?

Seeing none, thank you for the testimony.

We will go to Senator Steadman for a motion. Thank you, Mr. Chairman. I move amendment number 1. And I would object for Rose Foley to come to the table to explain exactly what the amendment does.

For the record, Rose Foley, staff Senator Steadman. Amendment T.11 in front of you creates an opt-in provision for non-state PERS employers to participate in the defined benefit retirement plan created by HB 78. You'll find that on page 1, lines 1 through 7 of the amendment.

Page 4, line 7 through page 5, line 2 of the amendment provides if these employers elect to offer the defined benefit retirement plan, they will contribute to the plan at a rate of 24% of the total of all base salaries of employees who participate in this new plan, or the normal cost of the new defined benefit plan plus any required payments to the defined contribution plan for employees who may not have converted, as well as any past service liabilities responsibilities that develop under HB 78's defined benefit plan.

Page 5, lines 26 to 31 provides the employees of a non-state PERS employer who elects to participate in this new defined benefit plan will have a period from October 1, 2026 to January 1, 2027 to decide whether they would like to convert to to the defined benefit plan. State employees currently in the defined contribution plan would have between July 1, 2026, and January 1, 2027, to make that decision. Page 5, lines 26— I'm sorry, page 6, lines 6 to 11 provides a non-state state PERS employer a time frame of July 1st, 2026 to September 30th, 2026 to decide whether the employer would like to participate in the new defined benefit plan. It's a long amendment. There's a lot of other conforming language in there, but those are effectively what the amendment does.

I'm happy to answer questions. There was testimony for two 2 options. One was to opt out, and I think that that would be too cumbersome, and every community would have to debate the question and decide whether or not they could afford it. By opting in, I think it reverses the role so that but it gives much more flexibility for those communities to make this decision whether or not they can actually afford the additional benefits that are being offered to their employees. So I think this is something that I can support, and I know that we've had some of the communities supporting, requesting this, and Mr. Andreessen also requesting this.

So I think it's a good amendment with that. We are listening to our testifiers, and I would remove my objection to accommodate what testimony we've received. Are there further objections to this amendment? Yes, Mr. Chairman. Senator Keele.

Thank you, Mr. Chairman. So I guess the question then I have would be, how would this work for— let's use the public safety example. For a state trooper who is being recruited by their local municipality, but that municipality has opted out, how would a trooper in the defined benefit program under this new tier— what would their retirement look like if they went to work work for the local PD. I don't know if Rose Foley is in a position to answer that question. It's a very difficult question.

It's one that I pondered, but I don't know if there's a simple answer to that, Senator Keele. Thank you, Mr. Chairman. Part of the reason I ask is that in past years and prior attempts, there was a shot at a public safety only pension system, and I remember the Division of Retirement Benefits being very adamant that you couldn't have somebody who was a member of two tiers. So in this case, as an example, they would be a tier 4 and a tier 5, unless they had to give one up. So I don't understand how this could work.

Could work and be implemented? I think that when municipalities are contemplating this decision, they would also be pondering that question, and it may, you know, it may be taken into consideration whether or not they wanted to opt in. So again, we don't know what those dialogues are. We don't know what that— I understand the problem and I don't know the solution, but I will continue to support the amendment given that the municipalities are requesting it. I will listen.

They say that they don't have a voice. We heard their voice and I will listen to their voice.

Further comments or questions on— is there further objection to the adoption of the amendment? Seeing none, that amendment is adopted. Mr. Chairman, I maintain my objection. I'm sorry.

Okay. Yeah. Okay. Can we have a roll call, please? Senator Merrick?

No. Senator Cronk? Yes. Yes. Senator Kaufman.

Yes. Senator Kiel. No. Senator Hoffman. Yes.

Senator Olson. Yes. Senator Steadman. Yes. 5 Yeas, 2 nays.

The motion is adopted. Further debate on the amended bill?

Do you have a motion? Brief edits.

Senate Finance Committee, back to Warder. At this point, I would entertain a motion to move the bill from committee. Senator Steadman. May I make a comment first before we do the vote on that? There is a concern issued and that is Section 2408.036, fiscal notes on bills affecting state retirement systems.

Before a bill which would have an effect on the retirement system of the state is reported to the Rules Committee, there shall, the word shall, be attached to the bill an analysis of the long-term and short-term costs to the state if the bill is adopted, as well as the impact of the bill on the actuarial soundness of the fund. The analysis, in addition to the fiscal note requirement under AS 2408-35. And I just want to note that, Mr. Chairman, before we go to the vote on the bill, please.

Senator Kaufman. Thank you. Earlier we were discussing costs and I happen to have Section 36 of the current operating budget and we've got a combined $270 million that we've got in the budget for funding the PERS and TERS collectively. And interestingly, back in— it was the bicentennial of America, which is interesting interesting because we are at the sesquicentennial this year. Some crafty politicians put in a retirement system for themselves and we are funding $1.5 million on that still.

So there are some survivors out there that we are still paying for. And you know, this bill is trying to solve a real problem. There is a retirement issue for public employees, teachers, et cetera. But that's because of a gap, the absence of an equivalent of Social Security or an annuity-type program that many of us other public employees have. And, you know, the issues that I see, the retirement is relatively low in terms of age at 60 Senate Bill 65 creates an enduring obligation, guaranteed payments without guaranteed income.

That's a big part of the liability that causes pension systems to fail. It puts a framework into statute that future legislators can incrementally sweeten up because of political pressure to make the system more beneficial for the recipients. And that's a big hazard that's easy to fall into. You combine all that with our very strong state constitutional protections for preventing a reduction of benefits, and so you're putting in place a ratchet that can be tightened up in the future, and it can increase the obligation. So all of those are the structural problems with a system like this, and it's why the conversation has been so difficult.

To me, it doesn't really solve the problem of the missing piece of retirement that's out there. We've got another bill, SB 55, that does that, that directly addresses that gap. And so I'm concerned with the obligations that this creates in its present form, and I'm concerned with the obligations that will be worsened with future— we'll call them adjustments— of tampering with the system. Thank you, Senator Coffman. Do we have a motion Senator Steadman.

Thank you, Mr. Chairman. I move the Finance Committee substitute for House Bill 78, version T, from committee as amended with the attached and forthcoming fiscal notes and individual recommendations. Additionally, legislative legal has granted the authority to make technical and conforming changes. I'll object. There's objection.

You already spoke to your objection, or you want additional comments? Senator Cronk.

There is an objection. Roll call, please. Senator Cronk. No. Senator Kaufman.

No. Senator Keele. Yes. Senator Merrick. Yes.

Senator Hoffman. Yes. Senator Olson. Yes. Senator Steadman.

Yes. 5 Yeas, 2 nays. So that bill moves on to the next committee of referral, which will be the Rules Committee. We'll go to the second item on today's agenda, which is just as exciting, hearing on the overview from OMB about the latest governor's amendments. We'll take a brief at ease while members clear the room.

They are not interested in hearing these— We call the Senate Finance Committee back to order.

We have OMB to present the Governor's amendments. Lacey Sanders, please come forward, identify yourself for the record and Give us what you got.

Good morning. Thank you. For the record, my name is Lacey Sanders. I am the Office of Management and Budget Director. Today I am going to walk through a brief presentation on amendments that were submitted both on April 8th relating to the capital budget and the State Transportation Improvement Program, STIP program, as well as a small packet of amendments that was transmitted to the legislature yesterday.

This is our final packet of amendments for the committee's consideration. And so with that, I'll— for the presentation.

So starting on slide number 2, we have just an updated brief fiscal summary I will note for the committee there are not substantial changes. The amendment packets that are before the committee are fairly small and don't change the surplus deficit outcome in a large way. So with that, I'm going to proceed to the meat of the amendments and we will walk through slide 3 starting with operating amendments for the fiscal year 2027 budget. Um, so midway down the page, we've got amendments to the operating budget that were submitted yesterday. Um, they are also noted in the very large spreadsheets within your packets.

Um, but at a high level, uh, in the Department of Administration, we have a $50,000 grant award, uh, that is coming to us from the federal government. This grant allows for work for recruitment and retention within the Office of Public Advocacy. So this is asking for additional federal receipt authority in the budget. And you will see a corresponding supplemental in future slides. In the Department of Commerce, Community and Economic Development, While it shows as a zero change, there is an amendment for the Alaska Energy Authority.

This is related to the newly established Rail Belt Transmission Organization. This organization was initially requested in the budget to use remaining Rail Belt Energy funds, which is an unrestricted general fund source. After working with the Department of Commerce, Community and Economic Development. It was identified that there is no remaining funding in that fund, and so therefore a pure UGF appropriation, so a UGF to UGF appropriation is being requested.

And oh, for the committee, I'll just— they're shown a little bit easier on this slide, slide 4, so I'll just move ahead if that's okay.

Um, the most notable changes are within the Department of Public Safety and the Department of Transportation and Public Facilities. The bargaining agreement negotiations were completed for the Public Safety Employees Association, or PSEA. Those are the employees that fall within the Department of Public Safety, so you'll 3 distinct items here. One is for the salary adjustments associated with the salary increases and health insurance increases within that union. There is a net zero fund source change from program receipts to unrestricted general funds for a change in that contractual bargaining unit agreement for rural trooper housing.

Previously, the troopers provided funding towards their housing. In the contractual bargaining unit agreement, they are no longer responsible for that. We still have housing costs that are associated with the troopers. So there is a fund source change. And then the third bullet is actually separate from the contractual bargaining unit agreements.

This is $920,000. $24,000 For contract increases related to dispatch services in both the Kenai Peninsula and the Matsu Borough. So there have been several years now where the Department of Public Safety has not received an increase associated with those contractual increases. I think, believe, 3 years now. This would provide enough funding, uh, to meet the cost of the, uh, the contract with those two communities.

In the Department of Transportation and Public Facilities, again, um, we have a contractual bargaining unit agreement, um, related with Public Safety, uh, Employees Association, or PSEA. Um, these are for employees or that are located in international airports, and we have the salary adjustments as well as health insurance costs associated with those individuals. The last change on the page is related to the University of Alaska. As many may be aware, several of their non-covered employees recently voted to establish a union and unionize. In the governor's original budget, those positions had a salary increase for approximately 3%.

This amendment reverses that increase for those individuals that are now unionized. Those individuals will work through the negotiation process over the next year and bring any agreed-upon terms back before the legislature. To the legislature for consideration in the next fiscal year. Happy to take any questions. Do we have any questions at this time?

Brief at ease.

[FOREIGN LANGUAGE] Call the Finance Committee back to order. We received some communication from Cook Inlet Tribal regarding TANF that they have unforeseen costs starting, I think, the last 2 months and for next year, as it relates to the Hul'q'angu disaster where members are coming into the city of Anchorage.

I wonder if you might comment upon that and briefly describe the TANF program and the cost savings of that program to the state of Alaska? Yes, Chair Hoffman. So this, this particular item was recently just brought to my attention. I am working with the Department of Health to get additional details on what level of funding is needed to support those individuals that have been impacted by the disaster and how we can support them through that program. The TANF, or Temporary Assistance to Public Family— no, I'm— thank you, needy families, thank you.

The TANF program, you know, supports individuals that are in a tough spot right now and provides not only federal funds, but there is a portion of funding. And, you know, by utilizing those federal funds but meeting the state's maintenance of effort, it is a cost savings. If, you know, if we didn't have that federal program or have the federal portion to it, the state would be on the hook for a much larger portion. So again, I will follow up with the Department of Health and make sure we get clarity on what that need is in the Anchorage area. As it pertains to those individuals that have been impacted by Ha Long.

I will have my staff work with you and the recipient Cook Inlet tribal entity to assure that those costs are addressed in the budget. Any further comments or questions at this time? Senator Keehl. Thank you, Mr. Chairman. Ms. Sanders, maybe a question about the university amendment.

If memory serves, the 3% for all the workers who weren't in the union in December was the Regents' top request. I believe the governor did initially submit an amendment to cover the 3% for all those folks. President of the university, Sat at the end of the table and said 3% for all those folks was essential to the stability of the University of Alaska system.

Are we imagining that now that some of them have voted to unionize, they're going to get less than 3%? Is that realistic budgeting?

Through the chair, Senator Keel, when a group of individuals decides to unionize, part of that process is going through a negotiation process. That negotiation process has not happened. It would be premature to provide any salary increases for those individuals. I have spoken with President Pat Bitney about this issue, and we are on the same page with the next step for these individuals is to go through the unionized process, or the union process, and negotiate. That may be bringing something back next year.

The timing is what it is. It is also my understanding that the University did make the individuals aware that this was the process that would be gone through if they were to unionize at this point. Senator Keele. Thank you, Mr. Chairman. We'll just want to account for this in next year's guaranteed supplemental requests.

Thank you, Senator Keele. Further questions of OMB Director?

None. I will move forward, sir, if that is okay. Maybe. There were— was, excuse me, a package of amendments that were transmitted to the legislature for the capital budget. These— this is related to the DIP and the AIP program, so the, uh, Airport Improvement Program.

Um, I— it is a very, very lengthy list. Uh, we put the summary of the changes on slide 5, but as well, um, just wanted to talk through, um, you know, when we submit the governor's budget in December, we put a placeholder in as an estimate. Um, so you can see that at the top here. Um, this is what the governor's budget included as an estimate. Once we have gotten to the point where we have a finalized detailed list that we can share with the legislature, we work with the Department of Transportation to submit the many amendments that go along with it, which are in your packet.

And the overall change is the difference between those two processes. So if there are any questions related to the SIP or the AIP program, I do have support in the, uh, gallery to assist with that. Questions from Senate members? None. Please proceed.

Okay, uh, so lastly, we will cover fiscal year 2026, uh, supplemental requests that were submitted. Um, the first is one that we've already spoken to within the Department of Administration in the Office of Public Advocacy. This is the grant that federal receipt authority is being requested. The second item is another one that we have already talked about. It pertains to the Alaska Energy Authority and the Rail Belt Transmission Organization— Transmission Organization.

Again, it shows as a zero on this slide, but it is a fund source change to from UGF, a UGF fund source to another UGF fund source. Under special appropriations throughout the year, and again, I'm gonna fast forward just so people can see it here. Throughout the fiscal year or the legislative session, we bring forward any judgments and claims that the Department of Law negotiates or comes to an agreement on or has a settlement for. There is an additional $1.3 million $5.8 million associated with two judgments and settlements to the state. So there is that request.

And then lastly, we have a capitalization of the election fund. The department— or excuse me, the Office of the Governor received a notice that we would be receiving an additional award under the Help America Vote Act, and so the operating budget would include a deposit into the election fund. Senator Steadman. Thank you, Mr. Chairman. When she's done with the slide, could we get a further delineation of the judgment settlements, of what the two claims are?

Through the chair, Senator Steadman, yes. Backup materials have been provided to the committee. There are two items. Morris Johnson Jr. versus the State of Alaska's Department of Transportation, and then Pollocki/Harry et al. Versus the State of Alaska Department of Family and Community Services.

Those are the two items, and the details of those case settlements are in your packets. Senator Steadman. I know we got them in our packet, but for those watching at home, could you just give us a a real high level of what those two are. Senator Steadman, or through the chair, I'm going to ask Assistant AG Corey Mills to assist me on that one.

Your lifeline, please identify yourself and proceed with the explanation. Yes, Deputy Attorney General Corey Mills from the Civil Division at the Department of Law. Thank you, Chair, and through the chair, Senator Steadman, Yes, so the, the first settlement that the director talked about was this Johnson case. This involved an inverse condemnation action. Normally in the process of Department of Transportation building a road, they may have to condemn someone's property to ensure they can build the road properly.

In this case, some actions took place that resulted in access issues with a piece of property that was not resolved during construction. And that property owner brought a case against the state alleging that the state had changed their access, caused flooding. And so this is a settlement that was a result of that action. We got a lot of the different claims dismissed, but there were 4 left over, the major one being inverse condemnation. We came to a settlement, I think, of about $378,000, something like that, to solve those issues.

Second case, Hari v. the Department of Family and Community Services. This is an Office of Children's Services case. It was a pretty horrific injury of a child where the child is going to be injured for the rest of the child's life. The allegations were that the Foster father shook the baby. The baby was 9 months old, which resulted in the, the injuries.

So the state came to a settlement with the family. It was not just the state. This is an allocation of fault sort of case. The allegations against the state were negligent placement of the foster child. The majority of the damages go against the foster father for his actions.

The allocation of fault for the state ended up with this million-dollar appropriation that's needed to cover that settlement. Senator Steadman. That's pretty sad. Very sad. Further questions of the OMB director?

Another slide. Chair Hoffman, yes, so I have one last, which is our capital supplemental request. And again, I'll just move forward to the details of the two items that were submitted. One is a reappropriation in the Pioneer Home. This is the Palmer Pioneer Home.

There was a roof project that was completed. The department is requesting to utilize the remaining balance for doors. And then in the Office of the Governor, we have the actual expenditure from the elections fund for that elections— excuse me, Help America Vote Act grant that was noted on the earlier slide. And with that, Chair Hoffman, those are the items that were submitted to the committee. Thank you for that presentation.

Do members of the Senate Finance Committee have any final questions at this point?

Seeing none, thank you. That concludes this morning's agenda. The next meeting will be on Monday at 9:00 a.m. Where we will hear Senate Bill SB 208, which will be the agricultural land use legislation, and Senate Bill 174, invasive species management. Anything else to come before the committee?

With that, we are adjourned. [FOREIGN LANGUAGE].