PUBLIC HEARING AND WORK SESSION

HJR 18, HB 2651  

 

TAPE 219 AB, 220 A

 

HOUSE REVENUE COMMITTEE

JULY 10, 2003   2:00 PM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Phil Barnhart

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams

 

Members Excused:                      Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

 

Witness Present:                        Randall Edwards, Oregon State Treasurer

                                                Chuck Smith, Oregon State Treasury

                                                Kate Richardson, Oregon State Treasury

                                                Cynthia Burris, Department of Justice

                                                Ted Runyon, Legislative Counsel’s Office

                                                Fred Neal, Elections Division of Secretary of State’s Office

                                                Carol Samuels, Seattle Northwest Securities, Portland

                                                Harrison Conley, Legislative Counsel

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Richard Yates, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 219, SIDE A

 

004

Chair Shetterly

Calls meeting to order at 2:08 p.m.

 

PUBLIC HEARING ON HB 2651 AND HJR 18

 

021

Richard Yates

Provided description of HJR 18, (Exhibit 1), HB 2651 (Exhibit 2), described HB 2651-2 amendments, (Exhibit 3). Provided HB 2651, (Exhibit 4); Memorandum from Gregory A. Chaimov, Legislative Counsel, regarding HB 2651-1 Amendments – September Special Election, (Exhibit 5).

 

062

Randall Edwards

The state can take a step in reducing its costs by refinancing the outstanding liability the state has as an employer to the pension system in the amount of $2.3 billion.  Expect savings of $90 million per biennium, 40% would be applied to General Fund (GF) of $36 million in the next biennium, translating into a 6.5% reduction in contribution rate.

 

109

Chair Shetterly

$36 million in the next biennium?

 

112

Edwards

This biennium.  Projects cost savings of $1.3 billion over the life of the bond.  Discussed short term and long term importance of issuing General Obligation (GO) bonds for the state to refinance.

 

116

Edwards

Discussed advantage of getting measure on the September ballot, and moving bill package quickly.  The market place is at opportune moment for Oregon, quicker it is approved by voters, the quicker bonds can be issued.

 

120

Chuck Smith

Reinforced Treasurer’s statement with respect to low interest rates for pension obligations, which lowers costs substantially. Lowering rates increases probability for a successful transaction over its life.

 

181

Kate Richardson

Said the issue is a business decision before the Oregon Legislature to help  its rates for PERS. Read specified purpose from the Constitution.  Bill does not expand borrowing authority. Described forthcoming implementing bill similar to the OHSU Oregon opportunity bond bill seen in the last session.

 

 

 

220

Rep. Hass

Every taxpayer who has refinanced a home understands why this would be done, it makes sense in terms of efforts to reform the PERS system, it doesn’t raise taxes and will bring down the costs in the long run.

 

227

Rep. Farr

The $2.3 billion is the state’s share of unfunded liability?

 

228

Edwards

Answered affirmatively.

 

231

Rep. Farr

Does that reflect the savings of this Legislature as provided in the PERS liability?

 

232

Edwards

Answered affirmatively.

 

233

Rep. Farr

Is this a vehicle that municipalities and counties could use?

 

237

Smith

Yes.  Local governments have already refinanced over $2 billion in pension obligation bonds, during the last 12 month period and as recently as 2-3 months ago.

 

242

Edwards

Almost all of those issuances were general obligation.

 

255

Rep. Berger

Technically, what if Oregon refinanced $2 billion at a rate and the unfunded liability goes the other way, how does this play out carrying this debt on a liability that we don’t have?

 

262

Smith

That would be a good thing; first, Treasury proposes $2 billion rather than $2.3 billion allowing leeway.  Secondly, assume there is going to be a good market, with an 8% return.

 

282

Rep. Berger

In terms of process, the Legislature has been in session since January, the cities and counties have figured this out ahead of us, why are we hearing about this now?

 

284

Richardson

Described the Legislature’s clearly stated desire to address PERS reform, it was premature before knowing what the unfunded liability is going to be.  A lot of work has been done behind the scenes, taking a long time, watched where the markets were going, and providing behind the scenes due diligence work.

 

308

Rep. Barnhart

This proposal comes with a limitation of 2% of real market of the property which is about $5.5 billion. Do you have plans for the other 3.2 billion?

 

314

Edwards

I do not.  This is a tool that can be used in the future by future legislatures to address a variety of state’s needs.  Assuming this passes, Treasury would no longer issue Certificates of Participation (COP); Oregon would have stronger credit in the market with resulting long term costs savings, meeting needs as the Legislature, the Governor and Treasury see fit in expanding that limited resource.

 

337

Rep. Barnhart

Are there outstanding obligations now that could be refinanced now, saving money on current obligations in addition to PERS?

 

344

Smith

Treasury has been refinancing continuously at low interest rates, difficult refinancing with narrow spreads; anticipate this as being the perfect tool to do additional future refinancing.  The COP programs can be replaced with a GO program and begin to save money this biennium.

 

349

Rep Barnhart

Assume you would need additional authority from the Legislature for this kind of switch.  Do you already have the authority?

 

350

Smith

Treasury does not have the authority.

 

352

Richardson

Asked the Attorney General’s office to respond more directly, the constitutional amendment with implementing language does have enough implementation that it could be instituted for current COP programs.

 

359

Cynthia Burris

The constitutional amendment is written broad enough that when passed would allow constitutionally COPs or deeds to be refunded or deeds to be issued in lieu of a COP type obligation.  Discussed forthcoming legislation to implement the constitutional amendment including a specific provision relating to Pension Obligation Bonds (POB) and a provision that would substitute if the GO bond authority is granted in the election for these GO bonds to be issued in lieu of the COP authority granted or in the process of being granted for this biennium.

 

383

Chair Shetterly

It takes legislative authority, not Treasurer authority, to incur any indebtedness or refinance with this implementing legislation?

 

391

Burris

Answered affirmatively, going forward it would operate similar to lottery program and issuance of lottery bonds.

 

400

Rep. Hass

Regarding HB 2651 ballot title, is there a reason why the words are as they are?

 

405

Richardson

Legislative Counsel drafted wording.

 

408

Rep. Hass

Need to wordsmith it to make it clear what the specific purpose is, it never really defines specific purposes.

 

420

Richardson

Understand this to be consistent with prior ballot titles and the specified purposes since they are lengthy are laid out in the summary.

 

439

Edwards

Rep Hass are you suggesting there be something that specifies pension?

 

444

Rep. Hass

To make clearer, give it a better sell, show it is being done to achieve some savings. As it reads now says to incur debt, which is misleading.

 

458

Chair Shetterly

For instance authorize the state of Oregon to incur GO debt to refinance pension obligations and other specified purposes?

 

471

Ted Runyon

Discussed statute limitations on captions and exception for new legislation.

 

489

 

Questions and discussion regarding ballot titles in general and specifically.

 

507

 

Richardson

 

Suggested alternative language.

 

 

TAPE 220, SIDE A

 

122

Chair Shetterly

Does that cause consternation with the counties?

 

127

Fred Neal

Discussed informal electronic mail poll of counties, to apprise of the potential measure and to ask if there were other issues. Some responded there were county wide measures already, did not anticipate demand for ballot space that would incur additional county expense caused by space problems.

 

140

Chair Shetterly

In terms of GO bond capacity, given what is outstanding and a $2 billion issue, where does that leave us in the range of low-moderate-high?

 

145

Smith

The State Debt Policy Advisory Commission looked at capacities of all state bond programs in context, including GO bonds; indicated Oregon has a moderate debt load at $3 billion, would increase over time as a function of revenue in the general fund.

 

154

Chair Shetterly

Given what is outstanding already, are we the low end of the moderate range or the high end of the low range?

 

157

Smith

Current Oregon has moderate debt and could incur an additional $3 billion worth of this type of debt.

 

160

Edwards

The rating agencies will be looking at this and have taken a neutral position on the treatment of pension obligation bonds. Moody’s has said this could be a smart way to go. As far as capacity goes, did not believe it would be seen as a negative for Oregon in terms of vehicle and its size.

 

174

Chair Shetterly

You mentioned other states, for the record, we are not charting new territory?

 

178

Smith

Illinois did $10 billion of GO bonds and has the same rating from Moody’s and Standard and Poor’s, and was well-received the market place.

 

188

Chair Shetterly

For the record, what are other borrowing mechanisms currently used when the state does use GO bonds.  Discussed COPs, appropriation credits,  Lottery bonds, talk about those alternatives.  We’re giving the state the ability to go after the lowest rate option.

 

197

Smith

Looking at appropriation credits, including COPs and Oregon appropriation bonds, discussed options would not pursue.

 

217

Neal

Discussed short time frame to pass bill in order to make the September ballot, (Exhibit 7) beyond July 18 puts at risk the state voter’s pamphlet and production of ballots that pay respect to overseas, and military ballots. Second, -2s do not provide an appropriation to reimburse counties an Secretary of State’s office will incur to get the voters pamphlet printed and distributed. Elections understands that an appropriation will follow and subsequent implementation legislation.

 

252

Carol Samuels

Works with governments and school districts on pension obligation bonds, endorsed this as a prudent financial tool for the state.  Interest rates are at all time lows, savings could be over $100 million for the next biennium.  A GO bond to access the savings will augment savings compared to sales on an appropriation basis.

 

267

Chair Shetterly

The market knows what these are and likes these?

 

269

Samuels

The market likes them more than the appropriation bonds sold previously, and that is seen in lower interest rates.

 

273

Chair Shetterly

Asked about her reaction on rating agencies and pension obligation bonds?

 

275

Samuels

Rating agencies tend to look at these as a replacement obligation, not a new obligation; therefore this tool replaces the current obligation at lower cost, which is a prudent move from their perspective.

 

286

Rep. Barnhart

Asked about her sense of the spread as are currently in the market on the instruments described.

 

293

Samuels

The spread between GO and appropriation bonds in this market could be as much as 20 basis points or two-tenths of a percent, or about $100 million over the life of the issue.

 

306

Chair Shetterly

Questions and discussion over amendments to HJR 18 and HB 2651 and limited timeline.

 

337

Chair Shetterly

Closed public hearings on HJR 18 and HB 2651.

 

OPENED WORK SESSION HJR 18

 

330

Yates

Discussed conceptual amendment to HJR 18-A3, Page 2, Paragraph 2, (Lines 13 and 14), (Exhibit 8), should read “Enrolled House Bill 2651” and delete “(LC 3744)”.

 

360

Chair Shetterly

MOTION:  MOVED CONCEPTUAL AMENDMENT OF THE -A3 AMENDMENT INTO HJR 18, (Page 2, Paragraph 2, line 13), FOLLOWING THE WORD “ENROLLED” INSERT “HOUSE”, FOLLOWING THE WORD “BILL” INSERT 2651 AND DELETE “(LC 3744)”.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REPS. SCOTT AND VERGER, EXCUSED)

 

388

Rep. Hass

MOTION:  MOVED ADOPTION OF THE –3 AMENDMENTS, AS CONCEPTUALLY AMENDED, INTO HJR 18.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REPS. SCOTT AND VERGER, EXCUSED)

 

 

388

Rep. Hass

MOTION:  MOVED , HJR 18, AS AMENDED INCLUDING CONCEPTUAL AMENDMENTS, TO THE HOUSE FLOOR WITH A DO PASS RECOMMENDATION

 

ROLL CALL:  MOTION PASSED 7-0-2

REPRESENTATIVES VOTING AYE:  Barnhart, Berger, Farr, Hass, Hopson, Williams, Chair Shetterly.

 

Rep. Chair Shetterly will carry the bill.

 

 

OPENED WORK SESSION ON HB 2541

 

428

 

Questions and discussion regarding language of the amendment.

 

483

Burris

Discussed concept they are trying to capture in the wording is not that these are just for pension obligations, but that they can be used for savings on other obligations like COPs and to finance new projects as a GO project which would be cheaper than financing as a COP going forward.  Provided potential wording.

 

510

Chair Shetterly

Said much of the suggested language was subsumed in “other specified purposes”.

 

 

TAPE 219, SIDE B

 

053

 

Questions and discussion regarding language of the amendment.

 

053

Chair Shetterly

MOTION:  MOVED TO CONCEPTUALLY AMEND THE –2 AMENDMENT INTO HB 2541, (Page 1, Exhibit 3), LINES 15 AND 16 TO READ:  “AMENDS CONSTITUTION:  AUTHORIZES STATE OF OREGON TO INCUR GENERAL OBLIGATION DEBT FOR SAVINGS ON PENSION LIABILITIES AND OTHER SPECIFIED PURPOSES”.

 

088

Rep. Berger

Provided a cautionary note that the Committee is going very fast on something that is very important.  Supports refinancing as a very good idea, but wants to ensure all the i’s are dotted and t’s crossed in the short time line.

 

096

Rep. Williams

Commented on status of bill as a House Bill and will still go through the Senate, has confidence given strong bi-partisan support will have the time to pick up any corrections in the Senate.

 

113

Richardson

Also believe it would make sense to have the result of yes vote and no vote also reflect those changes.

 

117

Chair Shetterly

Using the same language?

 

118

Richardson

Answered affirmatively.

 

122

Chair Shetterly

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REPS. SCOTT AND VERGER, EXCUSED)

 

126

Chair Shetterly

MOTION:  MOVED TO CONCEPTUALLY AMEND THE –2 AMENDMENTS INTO HB 2541, (Page 1, Exhibit 3)  LINES 18 AND 19 TO READ:  “RESULT OF “YES” VOTE:  “YES” VOTE AUTHORIZES STATE TO INCUR GENERAL OBLIGATION DEBT FOR SAVINGS ON PENSION LIABILITIES AND OTHER SPECIFIED PURPOSES”.

 

131

Chair Shetterly

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REPS. SCOTT AND VERGER, EXCUSED).

 

132

Chair Shetterly

MOTION:  MOVED TO CONCEPTUALLY AMEND THE –2 AMENDMENTS INTO HB 2541, (Page 1, Exhibit 3)  LINES 21 AND 22 TO READ:  “RESULT OF “NO” VOTE:  “NO” VOTE DOES NOT AUTHORIZE STATE TO INCUR GENERAL OBLIGATION DEBT FOR SAVINGS ON PENSION LIABILITIES AND OTHER SPECIFIED PURPOSES”.

 

137

Chair Shetterly

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REPS. SCOTT AND VERGER, EXCUSED).

 

146

Chair Shetterly

MOTION:  MOVED ADOPTION OF THE –2 AMENDMENTS, AS CONCEPTUALLY AMENDED, INTO HB 2651.

 

ORDER:  HEARING NO OBJECTION, THE CHAIR SO ORDERS. (ALL MEMBERS PRESENT EXCEPT REPS. SCOTT AND VERGER, EXCUSED).

 

150

Rep. Hass

MOTION:  MOVED HB 2651, AS AMENDED BY THE -2 AMENDMENTS AS CONCEPTUALLY AMENDED, TO THE HOUSE FLOOR WITH A DO PASS RECOMMENDATION AND THAT THE SUBSEQUENT REFERRAL TO THE WAYS AND MEANS COMMITTEE BE RESCINDED.

 

ROLL CALL:  MOTION PASSED 7-0-2

REPRESENTATIVES VOTING AYE:  Barnhart, Berger, Farr, Hass, Hopson, Williams, Chair Shetterly.

 

Rep. Hass will carry the bill.

 

 

 

 

 

178

Chair Shetterly

Meeting adjourned at  3:15 p.m.

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant

 

Exhibit Summary:

1.       Yates, “Staff Measure Summary HJR 18-A3, 1 page

2.       Yates, “Staff Measure Summary HB 2651-1, 1 page

3.       Yates, “HB 2651-2 Amendment”, 5 pages

4.       Yates,  “Chaimov Memorandum:  House Bill 2651-1 Amendments-September Special Election”, 1 page

5.       Edwards-Richardson, “State of Oregon Pension Obligation Bonds”, 3 pages

6.       Neal, “Timelines for the September 16, 2003, Special Election”, 1 page

7.       Yates, “HJR 18-3 Amendment”, 2 pages