Legislature(1997 - 1998)

03/21/1997 09:03 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
       Testimony was heard from TOM  WILLIAMS, BILL DONALDSON,                 
       BRUCE  LUDWIG,   BILL  CHURCH,  KEN   GRIFFIN,  ANNALEE                 
       MCCONNELL  and  NANCY  SLAGLE.   SB  126  was HELD  for                 
       further consideration.                                                  
  SENATE BILL NO. 126                                                          
  "An Act  relating to  the retirement  incentive program  for                 
  state employees; and providing for an effective date."                       
  TOM WILLIAMS, Staff  to Senate  Finance Cochair Sharp,  read                 
  the  Sponsor Statement  relating to SB  126 (copy  on file).                 
  Following is an excerpt:                                                     
       "SB 126 leaves the basic elements of current Retirement                 
       Incentive  Program  in  place.   However,  it  adds two                 
       principal  provisions.    It  [1]  limits  a  qualified                 
       employee's participation  to the first  RIP application                 
       period  for  which they  qualify  (section 3);  and [2]                 
       requires  state agencies  to offer  a RIP  plan to  all                 
       qualified classified  state employees during  three two                 
       month   application   periods   (section   1).     This                 
       legislation will  not only increase  RIP participation,                 
       it will  accelerate  when  employees  are  required  to                 
       retire  under  this  program.    Both  elements  should                 
       increase savings to the state, the principal impetus to                 
       passing the RIP legislation last year."                                 
  SENATOR ADAMS asked  about showing a greater  savings over a                 
  longer average, instead of three  years to possibly four  or                 
  five  so  more  people  could  participate.    MR.  WILLIAMS                 
  responded that the purpose  of SB 126 was simply  to address                 
  the two items mentioned.  The  primary impetus was to insure                 
  that people jump at their first opportunity rather than wait                 
  for a later time, and to make it available.                                  
  SENATOR ADAMS suggested  there were other areas  that needed                 
  to be  looked at  besides the two  in the bill.   He  had no                 
  objection to the bill.                                                       
  SENATOR TORGERSON  brought up  a proposed  amendment in  the                 
  committee files.  MR. WILLIAMS responded that it was drafted                 
  in discussion with the Division  of Retirement and Benefits.                 
  They noted a technical reference that needed to be made that                 
  insures that  the provisions  in the bill  for the  mandated                 
  openings are the same rules that are required by the current                 
  program.    It specifically  says  that  if an  employee  is                 
  offered RIP,  they have  to go  forward with  it within  six                 
  months, which is  consistent with  the current provision  of                 
  the discretionary plan.                                                      
  SENATOR  ADAMS  asked   to  hear  from   the  administration                 
  regarding the  technical  amendment.    VICE-CHAIR  PHILLIPS                 
  stated  his  intent  to  hear   from  people  testifying  on                 
  teleconference first.                                                        
  BILL DONALDSON,  testifying via teleconference  from Kodiak,                 
  stated that  if  the point  of  SB  126 was  to  reduce  the                 
  operating budget through personnel reduction, why wasn't the                 
  RIP offered to people  who showed a cost savings  based on a                 
  three-year time  period and  replacement at  a B  step.   He                 
  pointed out that  within the Department  of Fish and Game  a                 
  narrow focus was chosen.  He didn't  believe SB 126 went far                 
  enough and that offering the RIP  to those who qualified and                 
  showed a cost savings should be mandatory.                                   
  MR. WILLIAMS  responded that the impetus to  passing the RIP                 
  legislation  last  year was  for  downsizing and  to provide                 
  cost-savings.  SB 126 does go  a long way toward encouraging                 
  a more active offering of the RIP.  A substantial additional                 
  number of  individuals  could  take  advantage of  it  as  a                 
  result.  He  acknowledged there  were other provisions  that                 
  might be added that would extend  the RIP further, but could                 
  not say whether it was advisable.                                            
  SENATOR  TORGERSON asked  what impact SB  126 would  have on                 
  local governments tied to the  Department of Education, such                 
  as AVTECH or Mt. Edgecumbe.   MR. WILLIAMS responded that SB
  126 would apply only to state government.                                    
  BRUCE  LUDWIG,  Business  Manager, Alaska  Public  Employees                 
  Association, Alaska Federation  of Teachers, and  Secretary-                 
  Treasurer  of the  state AFL-CIO,  testified next.   He  was                 
  appreciative of the bill and wanted to offer improvements to                 
  the concept.  There have been complaints from union  members                 
  throughout  the   state  in  the   way  the  RIP   has  been                 
  implemented.  Some employees partially funded by the federal                 
  government are being denied the opportunity because they are                 
  told  the  federal  government won't  participate.    With a                 
  powerful congressional  delegation, it was  his belief  that                 
  pressure could be brought to bear that would help save state                 
  and federal dollars.  He  supported an earlier suggestion by                 
  Senator Adams to extend the three years to five years in the                 
  cost-savings  portion.    He  gave  an example  of  up-front                 
  training costs for  hiring new employees in  the Departments                 
  of Corrections  and Public Safety.   Those jobs  are 20-year                 
  retirement system jobs that retain people  for a long period                 
  of  time.   In a normal  situation it is  amortized over the                 
  life of the employee.   Here, the department is  required to                 
  come up  with savings  within three  years to  pay for  that                 
  training.  By going to  five years, it is easier to  qualify                 
  people for the  RIP.   There is an  eight-year cost  savings                 
  when a correctional  officer in  longevity is replaced,  but                 
  the cost has to be recouped in three years.  By moving it to                 
  five years, there would still be three more years of savings                 
  that wouldn't be accounted for in the RIP.                                   
  MR. LUDWIG  proposed  draft language  (copy  on file).    He                 
  explained that  a significant  part of  savings that is  not                 
  being accounted for by the administration, is that employees                 
  hired prior to 1986 cost around  14 percent to the employer.                 
  Changes made in 1986  and last year brought the  figure down                 
  to between 7.5  and 8 percent.   There would be  substantial                 
  cost savings by  replacing a pre-1986 employee  with someone                 
  hired after July 1, 1996.  None  of that is being counted as                 
  savings.   He  suggested  the  bill be  amended  to  include                 
  savings from  different retirement tiers.   Division budgets                 
  wouldn't  be directly  impacted, but  the state  as  a whole                 
  would be  impacted because  an actuary  looks at  the actual                 
  work force  in determining  what  the employer  contribution                 
  will be in the future.                                                       
  Another suggestion offered by MR.  LUDWIG related to Section                 
  3 which requires the  employee to leave the first  time they                 
  were eligible.    He  believed  it could  create  some  real                 
  problems.   A number  of programs were  added to  government                 
  with  the  increase  of  oil  money.    Entire  programs  or                 
  divisions  came  on   at  once,  including  the   hiring  of                 
  employees, and there  was concern  that an entire  hierarchy                 
  within a certain program could be lost.  If allowed to phase                 
  in over a three-year period that impact could be alleviated.                 
  BILL CHURCH, Retirement  Supervisor, Division of  Retirement                 
  and  Benefits,  Department  of  Administration,  stated  his                 
  availability  to  speak to  the  technical amendment  or any                 
  questions the committee had.                                                 
  SENATOR ADAMS asked him to speak to the technical amendment.                 
  MR. CHURCH said he did not represent the administration  and                 
  deferred  to  Ms.  McConnell  to  speak of  their  position.                 
  SENATOR  TORGERSON  asked  if  there  was  another  area  of                 
  concern.  MR.  CHURCH confirmed  that his  concern was  with                 
  Section  3,  line 12,  which  references application  of the                 
  retirement  incentive credit  under  22(f) of  the  enabling                 
  legislation.  That section outlines how the three years will                 
  be  applied.  It is  first applied to  allow someone to meet                 
  eligibility for normal  retirement, it allows someone  to be                 
  eligible for early  retirement, then  allows someone who  is                 
  under the  age eligibility for early retirement to meet that                 
  eligibility.    SB  126  only  allows individuals  who  meet                 
  eligibility for normal  retirement.  He suggested  that line                 
  12 only include  (f)(1), which  would allow eligibility  for                 
  normal retirement only.  It ties everything together.                        
  KEN  GRIFFIN,   Biologist,  Department  of  Fish  and  Game,                 
  expressed that his concern with the present  RIP was similar                 
  to that  of Mr.  Donaldson.   He stated  he was  one of  the                 
  federally  funded  employees,  but only  for  the  last four                 
  years.  Prior  to that, he spent seventeen years  in a state                 
  funded position.   He asked whether  the Department of  Fish                 
  and  Game, under  the  present RIP,  could pick  and choose,                 
  through the process of downgrade or elimination of positions                 
  only,  the people  that got to  participate in the  RIP.  He                 
  didn't  believe  that was  the  intent,  but that  was  what                 
  happened in his department.  There were many that would like                 
  to  retire,  but  there  was  no  incentive  in  the present                 
  VICE-CHAIR  PHILLIPS asked  Ms.  McConnell  to  address  the                 
  ANNALEE  MCCONNELL,  Director,  Office   of  Management  and                 
  Budget, testified that as they  considered the RIP proposals                 
  over the  last two years, it was clear that the direction of                 
  the legislature  was not to have an  across-the-board RIP as                 
  had been  offered in the past.   It was consistent  with the                 
  governor's  strategic RIPs.    She acknowledged  legislative                 
  concern  and difference  of  opinion  regarding whether  the                 
  savings were  as large, and  followed legislative direction.                 
  An   area  of  concern  was  the  issue  of  federal  funded                 
  positions, a  particularly large  problem in  DOT&PF from  a                 
  financial standpoint.   They were  not being allowed  by the                 
  Federal Highway Administration  to use federal funds  to pay                 
  for the RIP, which meant they had to use general funds.  She                 
  noted that Nancy Slagle (DOT&PF) had run some numbers on the                 
  impact (copy on file).   MS. MCCONNELL agreed with  the idea                 
  of not having the "take it or leave it" provision apply only                 
  to  classified  employees.     She  questioned  the   intent                 
  regarding efforts to downsize.   If RIP were offered  to all                 
  employees, there was  no way to  responsibly say they  would                 
  have a large percentage  of vacancies in those areas.   They                 
  would  need  to deal  with  that  issue.   In  addition, the                 
  legislative  expectation about  how many positions  would be                 
  refilled would have  to change considerably.   MS. MCCONNELL                 
  handed out an update of all RIP plans approved to date (copy                 
  on file) and explained.   221 have applied to date, but they                 
  may not all retire.  6,200 of the total number  of employees                 
  were  eligible  from all  departments.   MS.  MCCONNELL next                 
  spoke about why Tier 3 was not used.  One reason was because                 
  many  of  the people  who  filled  the positions  had  prior                 
  experience before state government.   Another was because of                 
  non-Tier 3 people within a department who fill the position.                 
  SENATOR ADAMS asked  if Ms.  McConnell had  seen a  proposed                 
  technical amendment.   MS. MCCONNELL  did not see  a problem                 
  with  it.   SENATOR  TORGERSON  asked  her to  speak  to Mr.                 
  Church's proposal  to go  to 22(f)(1)  instead of  22(f)(2).                 
  MS.  MCCONNELL  said there  would  need  to be  a  technical                 
  correction there.   She did not  object to that,  as it  was                 
  separate from the overall policy question.                                   
  End SFC-97 #65, Side 1                                                       
  Begin SFC-97 #65, Side 2                                                     
  In  response to a  question posed by  SENATOR TORGERSON, MS.                 
  MCCONNELL stated there had not been a consistent policy from                 
  federal  agencies.    Some   have  allowed  their  grantees,                 
  including the state, to use federal funds for RIP.  The same                 
  issue was faced  when local governments  asked the state  if                 
  they were allowed  to use state money to pay RIP costs.  The                 
  state believed if they were asking the feds to do that, they                 
  needed to apply it  to local governments.  An  exception was                 
  that  sometimes federal money was restricted,  so that if it                 
  were passed on  to the state,  the restriction could not  be                 
  lifted.  DOT&PF had the largest negative impact by the feds.                 
  SENATOR  TORGERSON  asked  that  Nancy  Slagle  address  the                 
  NANCY SLAGLE, Director, Administrative  Services, Department                 
  of  Transportation  and  Public   Facilities,  informed  the                 
  committee that she had run some  numbers to figure out where                 
  they were on  federal funded positions.  She  explained that                 
  they offered  the  RIP  to employees,  but  to  qualify  for                 
  participation, there needed to be  a non-federal savings for                 
  them.  The Federal Highways Administration, citing Title 23,                 
  the guiding laws for state funding, would not participate in                 
  the RIP.  So all RIP costs would have  to be absorbed by the                 
  department's  general fund.  Discussions are continuing with                 
  the  FHA.    For  FY 97,  there  were  96  people  who could                 
  potentially qualify with a savings of about $1  million, but                 
  the state would  have to absorb  $2.9 million in RIP  costs,                 
  taking into account that  only a portion of the  savings are                 
  general fund based on the 90/10 split of federal and general                 
  funds.  MS. SLAGLE estimated that  about 30 percent of those                 
  96 people would participate, but they could not absorb  such                 
  a substantial cost in their budget.                                          
  VICE-CHAIR  PHILLIPS   called  for   further  testimony   or                 
  questions regarding SB 126.  There being none,  he announced                 
  SB 126  would be  HELD for further  consideration.   SENATOR                 
  ADAMS  directed staff  to  provide  the technical  amendment                 
  regarding 22(f)(1).   VICE-CHAIR PHILLIPS brought up  SB 109                 

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