Legislature(1995 - 1996)
03/05/1996 08:03 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 354 - RIP FOR SCHOOL DISTRICT EMPLOYEES The next order of business to come before the House State Affairs Committee was HB 354. CHAIR JAMES called on the sponsor of HB 354, Representative Jerry Mackie. Number 2358 REPRESENTATIVE JERRY MACKIE read the following sponsor statement into the record. "I introduced HB 354 in response to the desire to many Alaskan school districts to achieve operational cost savings through a retirement incentive program. The program allows school districts to offer early retirement to teachers at the higher end of the district's salary scale. The savings would result from the hiring of replacement teachers that are younger and lower on the pay range. "The proposed early retirement program is similar to programs established for all public employees beginning in 1986 and ending in 1990. A November 1991 legislative audit estimated that the 1989-90 retirement incentive program saved approximately $23 million on the early retirement of 1,764 employees taking advantage of the program. In the 1986-87 program 2,327 employees participated achieving a savings of over $73 million. It should be noted that retirement incentive programs are commonly used by business corporations to attain a more efficient and economic operation. "The program established in HB 354 offers three years of service credited to eligible public school employees facing retirement. The offer is an inducement to employees near or at retirement eligibility to terminate their services. The resulting vacancies allow employers to achieve savings by filing positions with persons of lower step and pay range, down classing positions, or keeping positions vacant. A key provision requires agencies to show on a case by case basis that a three year credited service award would result in a net personnel services cost savings. It should be stressed that participation in the program is completely optional for either the employer or any employee. "The three year credit must be applied in the following order: 1. To meet the age or service required for eligibility for normal retirement; 2. to meet the age required for early retirement; 3. to reduce the actuarial adjustment required for early retirement; and 4. as years of credited service for calculating retirement benefits. "An employee awarded the benefit is required to contribute to the retirement system the amount they would have paid had they continued working the additional three years. The employer's cost is the difference between the employee's contribution and the full actuarial cost of the three year incentive. Thus, the TRS or PERS retirement system is fully compensated for the effects of an individual's early termination of service. "The employer's additional contribution to the retirement system as well as sharing in other program administration costs are primary factors in calculating whether a potential early retirement will result in a net savings and hence qualify. The calculation is based on a five year time period. "House Bill 354 has a sunset clause that terminates the incentive program on July 1, 1998. "I believe this legislature has to make a serious effort to address the state's continuing revenue shortfall and the need for long term financial stability. If education is faced with reduced or frozen budget funding levels, then we have to give the school districts the tools to make the necessary adjustments. Otherwise, the education of Alaska's youth will directly suffer. HB 354 is one of the tools that can be used to mitigate budget shortfalls and preserve the excellence in our public school system." TAPE 96-27, SIDE B Number 0023 REPRESENTATIVE MACKIE referred the committee members to the survey by the Alaska Association of School Administrators in their packet of information. He explained all school districts were surveyed of which 67 percent of the school districts responded and an overwhelmingly number responded that they would participate in a RIP program. He also referred the committee members to an audit conducted by the Alaska State Legislature, Division of Legislative Audit, estimating the savings or (costs) by the employer the last time a RIP program was instituted in 1991. Furthermore, he referred the committee members to a letter from Lawrence A. Wiget, Director, Government Relations/Legislative Liaison, Anchorage School District, that estimated there were at least 600 eligible teachers to participate in a RIP program calling for a potential of $12 million in savings. The Anchorage School District had their own retirement incentive program and it was unclear if the District would participate at this point, however. He referred the committee members to a letter from Mary Rubadeau, Superintendent, Juneau School District, that estimated a saving of $3 million. He also cited the Hoonah School District estimated a substantial savings as well. In conclusion, he explained the amendment before the committee members included the commissioner of education as part of the reviewing and certification process of a RIP plan proposed by a school district. Number 0156 CHAIR JAMES asked, if a school district got its money, up front, for the three year credit, from the regular formula funding? She was concerned the state would need to pick-up the remaining money involved. Number 0187 REPRESENTATIVE MACKIE replied, once a decision was made to retire a teacher under a RIP plan, the cost savings depended on who was hired to replace the retired teacher. There was an obvious savings if the new teacher was hired at a lower pay scale. Therefore, the district would have the money saved from that hire to put up front into the retirement account. He stated a fiscal note was never considered because of the savings. Furthermore, the teacher would have to contribute the money up front into the account as well. Number 0257 CHAIR JAMES asked Representative Mackie if he felt the amendment before them was needed? Number 0263 REPRESENTATIVE MACKIE replied, it was not a bad idea. He called it an extra safeguard. He said, a school district should have a plan and demonstrate a savings, and if by including the commissioner of education was necessary to ensure that, then he agreed with the amendment. CHAIR JAMES wondered if the state should be the entity telling the school districts they needed a RIP plan. Number 0288 REPRESENTATIVE MACKIE replied, HB 354 gave the school districts the ability to act on a local level. However, it was responsible of the state to require a demonstration of savings before implementing a RIP plan. CHAIR JAMES replied she had more faith in the school district. It was hard to believe a school district would implement a plan without demonstrating a savings. She resisted the idea of including the commissioner of education. Number 0326 REPRESENTATIVE MACKIE replied some might feel it was one more level of bureaucracy. He said it really did not matter to him if the amendment was adopted or not. Number 0348 REPRESENTATIVE SCOTT OGAN wondered about a conceptual amendment to address the cost savings issue to include a provision that did not allow the re-hire of a teacher with more than three years of experience, for example. He agreed with the concept of local control and hoped the local voters would hold their school districts accountable. However, he wondered about the school districts that were not closely watched by the local voters and felt a conceptual amendment would protect those districts. Number 0411 REPRESENTATIVE PORTER announced he supported the amendment. Moreover, he commented about specialty positions that required a high level of qualification, such as a special education teacher. He wondered how there would be a savings for a district in that case. Number 0437 REPRESENTATIVE MACKIE replied he understood Representative Ogan's concept to require a district to maximize its savings. However, he would resist going to that extreme. He explained HB 354 was only a tool for local school districts. A district would know if it was in its best interest to re-hire a teacher at the low-end of a pay scale. He did not want to suggest to a school district what was in its best interest in terms of experience to replace the retired teacher. That, he said, should be addressed at the local level. Number 0496 CHAIR JAMES expressed her support for HB 354. However, she was terrified to hear from teachers in her district that supported a RIP program because they were "burnt-out." A RIP program should not be necessary to get rid of teacher who were burnt-out. Local control was needed to give district the flexibility to manage their teachers. Number 0590 REPRESENTATIVE MACKIE replied each district and each employee was different. He said there were various reasons a teacher could take advantage of a RIP program. He further said it would be hard for a district to get rid of a good teacher, and agreed the more local control the better. Number 0639 REPRESENTATIVE ROBINSON reminded the committee members it was the teacher that would make the decision to approach the school district to retire. CHAIR JAMES called on the first witness via teleconference in Kenai, Steve Wright. Number 0663 STEVE WRIGHT member of the Kenai Peninsula Educational Support Association, read the statement from the National Education Association-Alaska (NEA-Alaska) into the record. "NEA-Alaska supports utilization of a retirement incentive program (RIP) as a cost effective means to reduce the overall cost of school district operation. This cost saving measure is needed especially at a time when student population is increasing and inflation continues to chop away at the opportunities schools offer children. Additional funding is needed to correct the problem but, in the short term, the RIP provides an option for school districts to trim already tight budgets. "In January over 400 NEA-Alaska member delegates attending our annual Delegate Assembly approved the following legislative priority: Retirement Incentive Program: NEA-Alaska shall seek legislation to support the enactment of a retirement incentive program that is actuarialy sound. Delegates also discussed the need to make the program available to all school employees in each school district. "If it is the intent of the Legislature and the Administration to reduce the cost of state and local governments, a retirement incentive program is an excellent opportunity to achieve that goal without harming employees at the upper or lower ends of the salary schedule. Absent a RIP, a school district attempting to cut operating costs through reduction in staff (RIP) would be forced to lay off less experienced employees. This option creates a hardship on younger employees and their families and disrupts initial career goals of these employees. "Previous RIPs provided certified and non-certified school employees the benefit of the retirement incentive. Lawmakers have a history that demonstrates the benefits of RIP to both the employee and employer. "NEA-Alaska represents nearly 10,000 members; 2,500 of which are non-certified Educational Support Personnel. Earlier bills extended the benefits of RIP to all school employees. We support the universal application of the RIP to all school employees. "A retirement incentive program offers school district administrators an opportunity to retire staff at the top-end of the salary schedule. Those who retire can be replaced by employees at a lower position on the salary schedule. If school administration carefully employs equally qualified but less experienced teachers and support employees, a school district will net a reduction in operating costs. "Previous RIPs offered experienced employees an early retirement option by providing them a credit of three additional years of service provided the employer and employee pay the actuarial cost of that service. Maintaining that option will not encourage large numbers of experienced school employees to retire since many would likely retire within three to five years anyway. Furthermore, it would maintain the strength of the retirement system for present and future generations of retirees. "We support a retirement incentive plan that is universal in nature. State and local governments, including school districts, can utilize a RIP to achieve cost savings in fair way to both the employer and employee. A RIP is a way to address the economic uncertainty many school districts face. The legislation presents an equitable and fair plan for the employees of Alaska's schools and state government to retire during periods of economic uncertainty." CHAIR JAMES called on the next witness via teleconference in Mat- Su, Lucy Hope. Number 0885 LUCY HOPE, President, Mat-Su Education Association, said the Association represented 852 school teachers in the Mat-Su School District. She said the District was currently facing budget difficulties. She recently received formal notification to lay-off every non-tenure school teacher, approximately 170 teachers. The RIP program was a good way to alleviate those concerns, she said. The salary schedule was built so that beginning teachers made about one-half of what most experiences teachers made. The last time the District participated in a RIP program 26 teachers retired, double the number of teachers hired in a given school year, and the District saved over one-half million dollars over three years. She called the RIP program a humane way to deal with the budget difficulties a district was faced with. She supported HB 354 as a tool for school districts to use to maintain the integrity of the schools. Number 0983 REPRESENTATIVE OGAN asked Ms. Hope if the teachers were hired at a lower salary because of seniority or because of a different pay tier? Number 1006 MS. HOPE replied a teacher was hired at a lower salary because of the number of years of experience and education the teacher brought to the District. The only way a teacher could be hired at the same salary as the retired teacher was if he or she had taught in Alaska for the same number of years. She explained the local negotiated agreement recognized only four years of out-of-state experience, and the actual number of years of Alaska experience. REPRESENTATIVE OGAN thanked Ms. Hope for the clarification. Number 1051 REPRESENTATIVE MACKIE asked Ms. Hope how many teachers received a lay-off notice? MS. HOPE replied 170 teachers. She stated she only received a formal notification and the teachers had yet to receive their individual letters of notification. Number 1070 REPRESENTATIVE MACKIE wondered if the notices were sent to clear the books so the school district was not saddled with additional tenured teachers. Number 1080 MS. HOPE said the budget would probably not be finalized by the last day of school and by statute that was the last opportunity the District had to lay-off employees. The formal notification was necessary because of the negotiated agreement that required a notification by March 1. She said the District planned to recall a number of the teachers based on qualifications. CHAIR JAMES called on the next witness in Juneau, Gary Bader. Number 1116 GARY BADER, Administrative Services Director, Juneau School District, said the District supported HB 354. He said in terms of the repayment, the District calculated the savings made on each teacher. The current contract for the Juneau School District limited a new teacher to bring four years of service to the District. He said, according to HB 354, a district did not have to start repaying until the second year after retirement, reserving a portion of the first year of savings while the rest would be available for the general expenditures of the school district. He reiterated the District favored HB 354 and hoped it would be passed out of committee today. Number 1176 REPRESENTATIVE MACKIE said the Juneau School District had a higher number of teachers at the top-end of the salary range compared to the other districts. He asked Mr. Bader if he knew the exact number of teachers at the higher-end of the salary range? MR. BADER replied the District estimated about 60 teachers would participate in a RIP program. However, not all were vested in the system. He reiterated the District had 60 eligible participants. Number 1205 REPRESENTATIVE ROBINSON asked Mr. Bader his opinion regarding the proposed amendment. Number 1214 MR. BADER replied the District did not have a difficulty with the proposed amendment. He said the bill already contained provisions to ensure there was a savings, however. He felt certain the Juneau School District RIP Plan would pass any scrutiny. CHAIR JAMES called on the next witness in Juneau, Vernon Marshall. Number 1238 VERNON MARSHALL, Executive Director, National Education Association-Alaska (NEA-Alaska), said the reality was echoed by Representative Mackie that many districts were experiencing frozen funding levels. He explained, due to inflation and demands for new programs from the state and federal governments, an immense amount of pressure was put on the employees. He called a RIP program a safety valve to relieve the pressure, and HB 354 was a step in the right direction. Number 1376 CHAIR JAMES said it was costly to incorporate new programs demanded from the state and federal governments. It was the biggest contributor to the raising cost of education, and she did not see evidence of any improvement in the system. She asked Mr. Marshall to respond to her statements. Number 1423 MR. MARSHALL said the question of who would pay for a new program needed to be answered first. He called it the mission for public education. He said 1996 presented various problems relative to children and the issues brought to the classrooms, and cited students having babies as an example. He said there were a lot of frustrated teachers who wanted to do more, but because of the demands and limited resources they were not able to. Number 1578 CHAIR JAMES said the reasons why a RIP program was needed was also necessary to discuss. She commented the schools were expected to address social issues and suggested funding them with social money as opposed to education money. She said the schools were getting a "bad rap" because they were expected to be parents, social workers, and police officers, for example. Number 1671 MR. MARSHALL agreed with the comments of Chair James. He further said HB 354 addressed the economic issues and was a mechanism to save districts money. Number 1742 CHAIR JAMES said it was important to keep the title of HB 354 tight for support. Number 1762 REPRESENTATIVE OGAN asked Mr. Marshall what he contributed the inflation issue to discussed earlier? Number 1812 MR. MARSHALL replied the inflation was the same that everyone experienced and was a factor that the school district absorbed. He cited school districts operated on a funding unit of $61,000. He said, if it was adjusted, it was worth much less. Therefore, the districts had to pay to react to the new demands. He called the bill a safety valve to allow districts to let-off steam. Number 2017 CHAIR JAMES agreed with Mr. Marshall about inflation. She said it did not relate to real income and was a serious problem. Number 2049 REPRESENTATIVE OGAN said he was concerned about the causes of inflation. He said one of the biggest problem with inflation were the negotiated salaries. He said he supported full funding for education last year, but felt it was time the districts started talking about why a RIP program was necessary. He stated the private sector absorbed inflation. He said he would support HB 354 because it would help his district, and asked Mr. Marshall to be realistic about the future salary demands. Number 2160 MR. MARSHALL said he would be glad to provide a break down of the salaries negotiated. He said the salary increases were about 2 percent. A report indicated from the University of Alaska that Alaska ranked 14th in America for inflation adjusted salaries. He said he did not see that the school districts were causing the academic inflation. CHAIR JAMES called on the next witness in Juneau, Steve McPhetres. Number 2280 STEVE MCPHETRES, Executive Director, Alaska Council of School Administrators, said the Council represented 600 school administrators and business officials across Alaska. He said the Council supported HB 354 as another tool to balance the budgets. He explained there would be a substantial savings per teacher, if the district hired an employee at the low end of the pay scale. He said it was also an opportunity to hire more faculty as the classrooms continued to grow in size because of the money saved. Number 2456 REPRESENTATIVE MACKIE thanked Mr. Mcphetres for his work done in support of HB 354. Number 2480 REPRESENTATIVE PORTER moved to adopt Amendment 1. Hearing no objection, it was so adopted. TAPE 96-28, SIDE A Number 0000 REPRESENTATIVE PORTER said some school districts needed help with their numbers, therefore, he supported the amendment. He said he did not see it as an infringement. Number 0095 CHAIR JAMES said a school district should not have to be overseen because it was suppose to house the smartest people in the state. Number 0132 REPRESENTATIVE OGAN said he agreed with Chair James. He said he would support Amendment 1 because of accountability for districts that were not as responsible or careful. Number 0216 CHAIR JAMES disagreed with Representative Ogan for the record. Number 0238 REPRESENTATIVE PORTER moved that CSHB 354(STA) move from the committee with individual recommendations and attached fiscal notes. Representative Ogan objected. CHAIR JAMES called on the next witness via teleconference in Kenai, Walt Bromenschenkel. WALT BROMENSCHENKEL said in 1986 and 1987, 39 employees chose to participate in the RIP program in Kenai; and in 1989 and 1990, about 43 employees chose to participate in the RIP program which generated over $800,000 in savings. Furthermore, HB 354 would allow money to be redirected to the education of the students. He was pleased with the motion to pass the bill out of the committee. Number 0436 REPRESENTATIVE OGAN explained he objected to the motion for the sake of further discussion. He said he supported HB 354 because he recognized the problems in his district. He hoped districts would look at local management further to hire personnel in a cost effective manner, however. He said he trusted his district to address the problems and hoped the bill would alleviate the major crisis back home. REPRESENTATIVE OGAN removed his objection. CHAIR JAMES responded hearing no further objection, CSHB 354(STA) moved from the House State Affairs Committee.
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