Legislature(1995 - 1996)
03/06/1996 01:36 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CONTRACT LABOR AGREEMENTS & COMPENSATION INCREASES:
Co-Chair Hanley provided members with a spreadsheet compiled
by the Legislative Finance Division, Approximate Cost of
Bargaining Unit Contracts and Other Non-Covered Employee
Compensation (Attachment 1). He reviewed Attachment 1. He
explained that the calculations for University of Alaska and
the Alaska Court System were divided between non-covered and
covered employees. The increase for Court non-covered
employees is 5.2 percent.
MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION noted
that
this proposal would treat Court System non-covered employees
differently than other non-covered employees. Co-Chair
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Hanley restated comments made by Arthur H. Snowden, II,
Administrative Director, Alaska Court System during the
3/6/96, 8:00 a.m. meeting. He noted that the spreadsheet
shows what has been requested by the Alaska Court System.
Commissioner Boyer suggested that all non-covered employees
be treated similarly. He cautioned against creating
disparity among non-covered employees. Co-Chair Hanley
noted that the Administration recommends a 1.5 percent
increase for exempt employees. To put exempt employees and
legislative employees on par with Alaska Court System
employees they would have to receive an additional 3.6
percent increase. Commissioner Boyer noted that the
University of Alaska has a different system for compensation
based on performance.
BOB STALNAKER, DIRECTOR, DIVISION OF RETIREMENT AND
BENEFITS, DEPARTMENT OF ADMINISTRATION clarified that health
insurance increases for SU and PSEA were included in the
upper part of the spreadsheet. A separate line for health
benefits includes costs for GGU and Labor, Trades and Crafts
(LTC). Co-Chair Hanley noted that these units would go to a
set amount in 1998.
Commissioner Boyer observed that the LTC Health Trust Fund
is speculative. Mr. Stalnaker stressed that the State has
gone four years without increases for health costs.
Co-Chair Hanley stated that merit costs will remain
regardless of contract approval. Some estimated health
benefit increases will also remain. He clarified that the
health benefits assumption is based on a 3 percent increase
for the last 6 months of 1997. Mr. Stalnaker stated that
the intention is to convert to a fiscal year basis to adjust
health costs. The assumption for the next 2 years would be
6 percent. Commissioner Boyer emphasized that the line
listing health benefit costs at $137.9 thousand dollars is
speculative. Co-Chair Hanley agreed that these costs are
speculative.
Commissioner Boyer noted that $2,148.9 million dollars is
the entire amount for estimated merit increases based on
actuals from FY 95. He stressed that the impact of
contracts is 1.5 percent of this amount. He stated that
merit costs are not driven by the contracts. Co-Chair
Hanley agreed that the merit increase line is not driven
entirely by the contracts.
Representative Brown asked how merit increases are normally
handled. She clarified that merit increases are absorbed by
the agencies as higher paid employees retire. Co-Chair
Hanley questioned if retirements of people at higher steps
actually cover merit increases. He noted that there may be
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reallocations of spending as opposed to savings. He
questioned the value of early retirement legislation.
Representative Brown asked how much of the $12,298.6 million
dollar subtotal is in the Governor's proposed budget.
Commissioner Boyer stated that the Governor's proposal
includes $8,33.0 million general fund dollars and $5,820.0
million other fund dollars. He observed that PSEA and Alaska
Court System costs are not included in this amount.
In response to a question by Co-Chair Hanley, Mr. Stalnaker
clarified that SBS and PES are included in the numbers
calculated in Attachment 1. Co-Chair Hanley observed that
the line for Non-Add SBS Incremental Costs is an estimate of
the dollars in the above lines that are attributed to SBS
costs.
In response to a question by Representative Therriault, Mr.
Stalnaker stressed that the employment force is dynamic. He
argued that personnel costs remain consistent as employees
leave and are replaced by employees at a lower range or
step. He observed that vacancies are also a factor. Co-
Chair Hanley pointed out that a person who remains in the
system will get an average annual increase of 1.5 to 2
percent. Commissioner Boyer provided members with copies of
pay schedules (Attachment 2). He noted that an employee can
anticipate an accumulative increase of 33 to 38 percent over
an 18 year career. He pointed out that over the same time
frame there is a 150 percent increase in the CPI.
Co-Chair Hanley pointed out that if contracts are accepted
employees will get an accumulated 3.4 percent increase
during the life of the contract which will out pace the
anticipated CPI. Commissioner Boyer noted that the
Anchorage CPI grew by 226 percent from 1973 through 1996.
Employee wages in the GGU unit grew by 182.9 percent during
the same time. Co-Chair Hanley pointed out that the
addition of 33 percent for merit increases would bring them
even with inflation.
In response to a question by Representative Martin,
Commissioner Boyer observed that the contracts would provide
for increases of only half of the CPI. Representative
Martin suggested that state salaries have kept up with the
CPI better than private salaries.
Mr. Stalnaker noted that an average of 400 employees retire
each year. The average PERS retiree receives $700.0 dollars
a month. An average of 2,000 employees leave state
employment each year.
In response to a question by Representative Therriault, Mr.
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Stalnaker noted that a member of the retirement system can
pull out their contributions regardless of whether they are
vested. The employer contribution cannot be withdrawn.
Representative Therriault maintained that there is more job
security in the state system. Mr. Stalnaker agreed that
private sector employees are nervous. He asserted that
public sector employees are also nervous about their
employment. He observed that the average age of an employee
in TRS is increasing. He suggested that an older employee
is less likely to prematurely leave their employment. He
stressed that the aging of the baby boomer generation is
effecting all retirement systems. Representative Therriault
restated that employees want job security. Commissioner
Boyer agreed that employees have made concessions in order
to protect employment.
Mr. Stalnaker gave a brief history of the SBS system. He
noted that the State initiated withdrawal from Social
Security in 1978. He noted that SBS was part of the
agreement reached in order to achieve employee support.
After the state of California applied for withdrawal from
Social Security the federal government shut the door. He
observed that public sector employers could withdraw from
Social Security until after the withdrawal of the state of
Alaska. He observed that SBS was not set up as a
requirement of the federal government. It was the result of
collective bargaining to allow benefit options equal to
Social Security. The benefit to the employer was that the
contribution rate would be fixed. Social Security costs had
increased to 6.13 percent when the State pulled out. Social
Security has since increased to 7.6 percent. He maintained
that the State is saving money by virtue of being in SBS.
He observed that public sector employees now must
participate in Social Security unless there is an
alternative plan that is at least equal to Social Security.
A defined contribution plan must have contributions combined
of at least 7.6 percent. He observed that PERS would
satisfy this requirement. He concluded that SBS is not
needed to satisfy federal requirements. He noted that there
has been enlarged growth in PERS.
Mr. Stalnaker observed that the State Constitution states
that retirement benefits should not be diminished or
impaired. He observed that the opinion of the Office of
Attorney General is that contributions could be stopped in
SBS because the constitutional protection does not protect
future contributions of a defined contribution plan. He
stressed that any change to the SBS system would result in
lawsuits. He noted that statutes state that SBS was
designed to replace Social Security. It also states in
statute that contributions can be reduced or stopped if the
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employer goes back into Social Security.
Co-Chair Hanley noted that benefits for new employees have
been reduced in PERS.
(Tape Change, HFC 96-64, Side 2)
Representative Grussendorf observed that there is a higher
percentage of Alaska Court System employees at lower level
ranges. Co-Chair Hanley observed that judges are at the
upper end of the salary scale and would receive the same pay
increase as clerical staff.
Co-Chair Hanley observed that salaries of employees at the
lower end receive a lower percentage of total increases over
time. He asked the justification for variations in step
increases at different ranges. Discussion ensued regarding
the variation in range and step percentages.
BEVERLY REAUME, DIRECTOR, DIVISION OF PERSONNEL, DEPARTMENT
OF ADMINISTRATION noted that in the late 70's the statutory
schedule tracked with general government. She explained
that variations occurred over a number of negotiations which
occurred over a number of years.
BRUCE CUMMINGS, DIVISION OF PERSONNEL, ALASKA MARINE
HIGHWAY, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES
observed that prior to collective bargaining the salary
schedule in AS 39.27 was fully integrated with fixed
percentages between every step. Every step was 3.75 percent
higher than the preceding step. He noted that percentage
increases were applied across the board with collective
bargaining. At times uneven percentages were distributed.
He noted that over a period of years the integrated schedule
of 3.75 percent has been changed. Higher salary ranges
receive a higher percentage due to implementation of
increases based on a higher salary.
Representative Brown asked the rationale for not including
all employees under the merit system. Mr. Cummings noted
three classifications of employees; fully exempt employees,
partially exempt employees and fully classified employees.
A five step schedule was set at statehood based on the
premise that an employee could work five years before they
would have maximized their learning curve. In the 70's the
Legislature added four additional longevity steps.
In response to a question by Representative Brown,
Commissioner Boyer clarified that the three marine
bargaining units and the Labor, Trades and Crafts unit are
not included under the merit and longevity system.
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In response to a question by Representative Brown,
Commissioner Boyer noted the bargaining unit that applies to
each salary schedule. He observed that the statutory salary
schedule is in current statute. The other schedules reflect
current contracts. Salary schedules have not been adjusted
in the negotiated contracts.
Co-Chair Hanley asked for more information regarding vesting
in the state retirement system. There is a five year
vesting period for PERS.
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