Legislature(2009 - 2010)BELTZ 105 (TSBldg)
03/30/2010 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB377 | |
| Confirmation Hearings | |
| SB298 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 298 | TELECONFERENCED | |
| + | HB 377 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 298-ST. EMPLOYEE GEOGRAPHIC PAY DIFFERENTIAL
2:48:37 PM
CHAIR PASKVAN announced SB 298 to be up for consideration.
2:48:51 PM
SENATOR DENNIS EGAN, sponsor of SB 298, said he introduced this
bill by request of constituents. He said the Palin
administration commissioned the geographic pay differential
study in 2008, but declined to introduce the bill. He said
regional differences in the cost of living change drastically
over time and the statute update on this issue was over a
quarter century ago. SB 298 will bring the geographic
differential statute up to date and many citizens believe it is
a matter of fairness.
2:50:29 PM
DANA OWEN, staff to Senator Egan, elaborated that 25 years have
passed since this issue was updated. Serious pay inequities
developed over that time and this inhibits recruitment and
retention in certain areas of the state. It is time to begin the
discussion on fixing this problem.
When the Palin administration requested the study McDowell was
charged with looking at differences in cost of living in various
communities across the state and in various regions of the
state. SB 298 incorporates the findings of the McDowell study.
It follows the structure of the current statute in that is uses
the same original 19 election districts that are currently
embedded in the statute, but it would change the approach by
substituting the McDowell study's percentage variation for the
current step variation. The way the statute recognizes the
geographic differential is by applying one or two and up to as
many as eight pay steps within that geographic area.
2:52:23 PM
MR. OWEN said it's important to note that McDowell recommended a
different approach to grouping communities not in relation to
their geography but in relation to their cost of living. The
regions they recommended would have a maximum differential
across the region of 10 percent. Using the approach suggested by
the McDowell Group raises a new policy question of how to pick
the number within the pool. Within a pool, for instance, if
there is a 10 percent difference, do you split the difference or
pick a number that is half between the lowest and the highest?
Do you take a weighted average or use some other rationale for
picking a number within that variation?
SB 298's approach is the simplest, Mr. Owen said, and is one
that people are familiar with. However, it is only intended to
be a point of departure for the discussion and the sponsor is
open to considering other methods.
2:54:13 PM
CHRIS CHRISTENSEN, Deputy Administrative Director, Alaska Court
System, said this is the third time he had addressed this
subject with the legislature; the first time being in 1996 on SB
152 which failed to pass; the second time in 2002 was on SB 180
which passed but was vetoed by Governor Knowles. Both bills
attempted to fix the geographic system for non union employees
and both failed over the details. He said the legislative focus
in 1996 and 2002 was finding a way to lower the state's personal
services budget, not fixing the inherent unfairness in the
current system.
The current differential was adopted in 1976 while the TAPS was
still under construction. Obviously a lot has changed since
then. The executive branch's union contracts, which are
renegotiated every three years, have not reflected this out-of-
date differential since around 1985, although the differentials
in the current contracts are apparently also substantially out
of date.
He said while the judiciary is a tiny branch using less than 2
percent of the state's general fund operating budget they
actually employ about two-thirds of all the non union employees
who are currently getting a geographic differential. They have
266 eligible employees as of late last year; the executive
branch has 190 and the legislative branch has 10. He said this
situation is especially problematic for his employees because
most of them are clerical workers at ranges 10 and 12, whereas
many of the executive branch employees are attorneys in the
Department of Law and the Public Defender Agency who get a much
higher base salary to live on.
Assuming that the differential rates reflected in the McDowell
study are accurate, he has clerical employees who, in rural
Alaska for example Dillingham, are being paid as much as 25
percent less than the actual cost of living. To put it a little
differently, those employees are effectively being paid about 25
percent less than employees in Anchorage for doing the exact
same work. Conversely, he has employees in certain urban areas,
such as Fairbanks and Palmer, who are effectively being paid 5-
10 percent more than Anchorage employees for the exact same
work.
MR. CHRISTENSEN said every year they go without fixing the
unfairness inherent in the current system it gets more expensive
because the differential between Anchorage and most rural
communities has increased compared to what it was the last times
they tried to fix it. It's complicated because those employees
who are benefiting from a too high differential in their
communities like Fairbanks have based their economic decisions -
like mortgage payments, car payments, and rate at which they
save for retirement and their children's education - on their
current salaries, projected longevity increases and cost of
living adjustments granted by the legislature. Under those
circumstances they think it would be unfair to reduce the
differential of those employees as was proposed in the past or
even to freeze those employees in place as the current bill
proposes. Some employees would not get a merit increase for 5-10
years if this would pass because their geographic differential
has been changed so much. In conclusion, Mr. Christensen urged
them to do something that would address the inherent unfairness
in the current system.
2:58:24 PM
SENATOR JOE THOMAS asked what he used to determine the
differential in places like Bethel versus Anchorage.
MR. CHRISTENSEN answered that those figures were based on what
the law currently gives employees and what the McDowell study
would give those employees in those communities.
SENATOR THOMAS asked if the real problem wasn't finding a
meaningful formula that everyone can agree on. He said they
should have compared a comprehensive list of things that were
done the same way every time. He said he received a complaint
that a lot of the Fairbanks housing data was used when the
military troops were gone and that applied downward pressure to
the housing market as far as what rents were or sale of houses.
He didn't know what the right answer was, but he did know that a
lot of people were excited about it.
MR. CHRISTENSEN said he didn't know if the committee received a
letter from the Association of Alaska Magistrates stating
concern about the McDowell study because they disagreed with
some of the methodology and the way it affected certain
communities. He agreed that deciding what is fair is the most
difficult thing.
SENATOR CON BUNDE asked what he thought would be a good
solution.
MR. CHRISTENSEN replied their preferred method would be to give
people who are getting paid substantially less than the cost of
living relative to Anchorage a raise and freeze people who are
getting paid too much. He said the court system has a great deal
of turnover, about 10 percent per year, and that would make the
fiscal note for the first year the same either way; the cost
would go down more slowly if they were allowed to retain their
current salaries and continue to get merit increases.
He explained that a merit system gives annual merit increases to
employees, if they deserve it, but often it isn't used like
that. In the Court System merit increases are withheld if people
aren't performing adequately. When you tell people they aren't
going to be eligible for merit increases for 4-10 years because
of this change in the law, you have to wonder what is going to
happen in your organization. So, there are practical problems.
SENATOR BUNDE remarked that very few state employees think they
get paid too much.
3:04:15 PM
JIM CALVIN, principal, McDowell Group, Juneau, said they
provided the geographic differential survey. He said two primary
methodological tasks were involved in this project. One was a
household survey of 2500 Alaskan households in 74 communities
scattered throughout the state; the purpose was to essentially
understand the size and shape of the Alaskan household budget
relative to housing, food, transportation, medical care, et
cetera. The second was a retail price survey conducted in over
600 retail outlets throughout the state and 58 different
communities to understand the difference in prices of a market
basket of about 200 typical household items over the state -
like the price of a loaf of bread in Angoon versus a price of a
loaf of bread in Anchorage.
He stated clearly that the study never addressed nor implied
that anyone was being overpaid in state government. In fact they
didn't measure the cost of living; they measured the differences
in cost of living between Anchorage as the base community, and a
differential of 1 and a range of other districts. So the equity
of pay overall is not part of what they were trying to do and
they don't want that suggested.
MR. CALVIN said one last methodological background point is that
they initially departed from the election district structure of
the previous differential and focused instead on defining
geographic differential pools, which are essentially collections
of communities that exhibit like characteristics in terms of
size, geographic location, climactic conditions and
transportation infrastructure. One of the overarching
conclusions the study found is that if you're on a road system
you're in a very different situation than if you are off the
road system, although small Southeast communities are different
because they have ferry service. Road access is probably the
most critical aspect in the cost of living.
3:08:01 PM
In regards to Senator Thomas's issues about the impact of the
deployment of troops on the Fairbanks economy, there certainly
was an impact. But typically about 60 percent of the residents
in a community own their own home; so that deployment didn't
affect anyone's mortgage payment. It would affect rental
payments if a typical renter were moving into a different rental
situation during the period and new people coming into town
might have experienced slightly lower rents if property values
were slightly lower. But overall, if you think of the slice of
the population that might have been affected because they were
moving in or out of the community it was pretty small.
MR. CALVIN said turnover in Fairbanks housing is relatively low
and it is typically about one-third of the household budget.
Some minor variation in that aspect of the household budget is
possible, but they didn't see that as having any meaningful
impact on the differential. What really matters is
transportation infrastructure and Fairbanks has great
transportation infrastructure. Essentially they have the same
overall cost of living as Anchorage and many other communities
on a highway system.
SENATOR THOMAS said he appreciated that and would probably
agree, but he wanted to know how values were assigned to these
things. Rents and housing costs, for instance, vary dramatically
from one part of town to another whether the town is Anchorage
or Fairbanks. The cost of fuel is extremely volatile in
Fairbanks but not in Anchorage, and the cost of fuel also
affects the price of electricity because Fairbanks has a fuel
surcharge that doubled the electric costs last year. It still
exists now as it is getting paid off. That made his electric
bill go from $100/mo. to $200/mo. and doubled the cost of fuel
for his car. He had difficulty with understanding the
methodology in the survey. He thought there should be relatively
fair way of establishing it and then some adjustment would have
to be made for up and down. People probably looked at their
survey and compared it to what took place in 2009 and said it
didn't make sense because the cost of fuel went way up and a
variety of other things. He wasn't so much concerned about the
cost of tooth paste and Campbell's soup.
MR. CALVIN responded that the basic methodology in the survey
was to measure the cost of housing as people experience it in
each community. Their challenge was to compare how people live
in Anchorage versus how they live in Fort Yukon and look at how
important the cost of housing is to a household budget in Fort
Yukon versus Anchorage. Housing is the single most important
factor; urban areas typically have higher mortgage rates and
housing costs. Anchorage's are among the highest in the state.
So, using Anchorage as the base doesn't mean it's the lowest
cost by any stretch of the imagination for all aspects of the
household budget.
3:15:23 PM
SENATOR THOMAS said it's important for him to know how they
settle on particular items that they think are indicative of the
economy in that specific area and how they are adjusted because
a lot of things are based on that - like salaries, for instance.
They are talking about percents; so even if there was a minor
impact to housing, it is such a big item in the overall
household budget that 1 or 2 percent would have a big impact.
Also, he wanted to know what McDowell used when they compared
the heating cost - a dollar value or a barrel of equivalent -
for the heating value that one gets out of a certain increment
of a particular fuel.
MR. CALVIN replied that they collected a great deal of data on
what people paid in each community regardless of the energy
efficiency of their home or the price of fuel in their community
and calculated how important it was to the average household
budget there.
He said they conducted their household survey and all of their
secondary research where they collected price data in the fall
of 2008. The peak of fuel prices was in the summer of 2008; so
fuel prices were changing dramatically right during their
research effort, but they weren't at a peak. They asked people
to tell them about their average monthly expenditures for the
year of 2008. It interested them to understand if they had done
the study in 2009 or 2007 what differences they might have seen
in the differentials. There is some sensitivity in the
differentials if prices had been 30 percent lower for fuel
primarily in the small remote rural communities, not so much
Fairbanks that might be 1.05 instead of 1.04 or 1.06.
Sensitivity to prices is much more evident in the rural areas
where they are not only paying higher prices for their fuel but
the effect of a spike in fuel prices is multiplied because first
you have to get the fuel out to the community and then you pay
the additional price on that. It's really a geometric increase
in prices when you look at a fuel change in Bethel. for example.
3:18:00 PM
CHAIR PASKVAN asked if the McDowell Group knew that the Striker
Brigade had deployed.
MR. CALVIN answered yes, certainly; they keep close track of the
economy.
CHAIR PASKVAN asked what numbers left Interior Alaska as a
result of that deployment.
MR. CALVIN answered if 2000 people were deployed that might be a
population change of 3 percent or so.
CHAIR PASKVAN asked if triple those numbers would that have an
immediate effect on selling prices of homes and rents.
MR. CALVIN answered certainly in the rental market. The turnover
in the population is what is meaningful. People leaving is not
going to change anyone's mortgage nor will it change rent for a
renter.
CHAIR PASKVAN asked if he didn't believe that rents dropped as a
result of the deployment.
MR. CALVIN said they probably did, but it didn't change the
rental rates for people already living in the community pre
Striker Brigade deployment. He said a guy wasn't going to drop
his rental rates; although someone who lost renters because of
the deployment might need to offer lower rental rates to someone
new coming in.
3:22:18 PM
CHAIR PASKVAN said this discussion has shown SB 298 to be a
complex issue; he thanked everyone for their testimony and said
it would be held for more work. He adjourned the meeting at 3:22
p.m.
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