Joint Committee Committee on Joint Finance (01/26/2012)

Final
STAFF SUMMARY OF MEETING

COMMITTEE ON JOINT FINANCE

Date:	01/26/2012	ATTENDANCE

Time:	10:23 AM to 12:13 PM	Acree	*
		Beezley	*
Place:	LSB A	Brophy	X
		Conti	*
This Meeting was called to order by		Giron	X
	Senator Johnston	Guzman	X
		Hullinghorst	X
This Report was prepared by		Jahn	X
	Rachel Kurtz-Phelan	Joshi	X
		Kagan	X
		Kefalas	X
		King K.	*
		Labuda	X
		McCann	*
		Pabon	X
		Scheffel	X
		Swalm	E
		Swerdfeger	X
		DelGrosso	X
		Johnston	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Presentation to the JBC on budget recommendations Presentation by PERA Presentation by the OSPB		Witness Testimony and/or Committee Discussion Only Witness Testimony and/or Committee Discussion Only Witness Testimony and/or Committee Discussion Only

10:25 AM -- Presentation to the Joint Budget Committee (JBC) On Budget Recommendations

Senator Johnston, Chair of the Senate Finance Committee, gave brief introductory remarks stating that the Senate Finance Committee had no formal recommendations to provide to the Joint Budget Committee (JBC) on the budget requests from the Departments of Revenue and Treasury (Attachments A and B). The committee felt that this was a good baseline year and are anxious to see the progress the departments make in certain areas when they return to make their SMART Act presentations next year. Representative DelGrosso, Chair of the House Finance Committee, made his opening remarks and stated that the House Finance Committee also had no formal recommendations to the JBC and echoed Senator Johnston's sentiments about this year being a benchmark year for departments' goals (Attachments C and D). Representative Gerou, Chair of the Joint Budget Committee, talked about the liaisons from the JBC to the committees and stated that these liaisons will be available to answer questions from committee members during the session. She then introduced the other JBC staff members who were present: Kevin Neimond, David Meng, and John Ziegler. Representative Gerou gave brief remarks about the work the JBC has done this year. Senator Lambert introduced the other members of the JBC who were present. He notified committee members that he is the JBC liaison to the Finance committees and mentioned the SMART Act requirements and Joint Rule 25 and their impact on the department and the JBC budget process. Senator Lambert talked about improvements in transparency with the JBC and the effect that social media and technology has had on transparency.

10:35 AM

Senator Lambert stated that members of the General Assembly are always welcome to attend the JBC hearings with the departments that occur every year in November and December and said that members now have to ability to listen to these hearings remotely via the new Granicus system if they are not able to attend in person. He focused on Limited Gaming revenue and changes that have resulted from the passage of Amendment 50. Half of this revenue is constitutionally mandated for specific programs and the other half is distributed by the General Assembly. Senator Lambert said that Governor Hickenlooper has asked specifically that some of discretionary money be directed to the Governor's Energy Office as well as be used to fund some film incentives.

10:44 AM

Senator Scheffel asked for clarification about how the film incentives will be funded if approved and said that he hopes the Local Government Limited Gaming Impact funds will be maintained. Senator Lambert then spoke about the Department of Revenue budget breakdown and supplementals and specifically mentioned the Tax Amnesty Program. Senator Steadman spoke about the Tax Amnesty Program and how the money collected from the program is directed.

10:55 AM

Senator Steadman continued to explain how the tax amnesty program is structured. Representative DelGrosso asked the JBC members for clarification about the Department of Revenue budget line item for the funding of driver's license operations and discussed funding levels. Senator Lambert answered that the JBC will introduce legislation to permanently create a cash fund to finance driver's license operations through driver's license fees. Discussion ensued about driver's license fees funding the cash fund as well as customer service at the Department of Motor Vehicles. Discussion ensued in response to Senator King's question about General Fund money tied to the conservation easement tax credit.

11:10 AM -- Mr. Mark Couch, Legislative Liaison for the Department of Revenue, responded to questions about disallowed conservation easement state income tax credits.

11:10 AM

Senator Lambert concluded by speaking about the Department of Treasury budget and explained that a very small amount of General Fund dollars are used to fund the department. It is mainly funded by cash funds. Representative Labuda asked for clarification on the suspension of "Old Hire" Fire and Police Pension Plan (FPPA) payments. Representative Gerou answered that there is a delayed payment schedule for FPPA Old Hire plans that resulted from the recent budget shortfall.

11:17 AM -- Presentation by the Public Employees' Retirement Association (PERA)

Mr. Meredith Williams, Executive Director, began a presentation about the Public Employees' Retirement Association (PERA). Mr. Williams was joined by Mr. Greg Smith, General Counsel, and Ms. Jennifer Paquette, Chief Investment Officer. Committee members received a summary of the panel's presentation (Attachment E).

Mr. Williams began by giving his opening remarks and gave a brief overview of PERA. He explained that PERA is generally a substitute for social security for its members. PERA is a hybrid defined benefit plan and runs one of largest defined contribution plans in the public sector, with $2.4 billion managed by its members. PERA also runs the largest health care coverage group in the state of Colorado, as well as providing voluntary life insurance plans. Mr. Williams noted that PERA is the largest pension plan in Colorado, the 23rd largest pension plan in the United States and the 50th largest in the world. Membership in PERA is almost flat with only some growth and very little decline.

In 2010, $908 million was paid into PERA by the state of Colorado, school districts and some local governments. In addition, PERA paid out $3.2 billion in retirement benefits to its members. Mr. Williams spoke briefly about PERA's management and portfolio structures and gave a breakdown of the money that it raises for its pension plan. Of this, 20 percent comes from employers, 20 percent from employees and the balance of 60 percent is from market returns. Currently, PERA's annual payments represents 3.3 percent of total Colorado wage income.

11:29 AM

Ms. Jennifer Paquette, Chief Investment Officer, spoke about PERA's $38 billion investment portfolio and its diversification. She was joined by Mr. Greg Smith, General Counsel, who discussed PERA's assets and liabilities and its unfunded liability. He also spoke about Senate Bill 10-001 which was passed in order to address PERA's unfunded liability. Mr. Smith concluded by talking about the defined contribution plans and a new investment program that was recently implemented.

11:35 AM

Representative Labuda asked for explanation as to why PERA payments in Denver are much higher than payments to other cities and counties in the state and the impact that Denver Public Schools' contribution may have on these figures. Mr. Williams answered that the Denver Public Schools division is better funded than other divisions which have pension obligation bonds that DPS will be paying off in coming years. Representative McCann asked for clarification of the defined benefit plan and defined contribution plan and which employees can choose which plan. Mr. Williams answered that historically, 10-12 percent choose the defined contribution plan in any given year. Representative DelGrosso asked why the defined contribution plan is only available to 20 percent of state employees. Mr. Williams answered that the General Assembly and the Governor set that standard. Representative Kagan asked for explanation of the projection for an 8 percent rate of return needed in order for PERA to be fully funded in 30 years.

11:46 AM

Mr. Smith explained the process for making the 30 year projection and detailed what information is examined in order to make this projection annually. Representative Kefalas asked why PERA's net assets are down $1.3 billion and Mr. Williams explained that this is because PERA pays out approximately $2 for every $1 taken in. The presentation ended with a discussion about current, future, and past rates of return and how that affects projections.

11:58 AM -- Presentation by the Office of State Planning and Budgeting (OSPB)

Mr. Henry Sobanet, Director of the Office of State Planning and Budgeting (OSPB), and Eric Scheminske, Deputy Director, distributed their presentation to the committee (Attachment F). Mr. Sobanet gave an overview of the main topics represented in their presentation which included the process of OSPB's budget preparation, its management efficiency program, Regional Tourism Act duties, and reforms to its economic publications. The budget that OSPB's presented to the JBC showed a growth rate of under 3 percent for its operating budget, with the major growth area being Medicaid. Mr. Sobanet spoke about the implementation of a LEAN management plan and stated that they have hired vendors to train and work with state employees on this process. Currently there are 50 LEAN projects being conducted with the vendor and an additional 30 projects or so will be finished by state employees by March 2013. Senator King asked about the competition between Medicaid funding and K-12 education funding and suggested that an examination of Medicaid allocations and expenditures be conducted. Mr. Sobanet noted that the new Director of Healthcare Policy and Financing is currently analyzing where cost-savings can be found in the administration of the Medicaid program. Senator King requested that Mr. Sobanet provide the committee with an analysis of Medicaid expenditures and allocations so that the committee can examine the analysis as part of its SMART Act responsibilities.

12:09 PM

Representative Conti asked about the possibility of implementing Medicaid spending reductions at a state level, even though it's a federal program. Mr. Sobanet explained that eligibility requirements are constrained by federal health care reform law. Mr. Sobanet then talked about the need to avoid provider rate cuts in this budget because of a possible cost shift to private insurance. Representative Acree asked for analysis of overpayments to providers and the rate of recovery of these overpayments. Mr. Sobanet answered that the department realized $65 million from its recovery efforts in 2011 which recovered overpayments due to fraud, over-billing and simple errors. Mr. Sobanet will put together a breakout of this $65 million by category.

12:13 PM

The committee adjourned.