Legislature(2013 - 2014)SENATE FINANCE 532

02/20/2013 09:00 AM FINANCE

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09:05:16 AM Start
09:05:46 AM Presentation: Department of Administration on Contract Negotiations
10:12:32 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Dept. of Administration on Contract TELECONFERENCED
Negotiations, Commissioner Becky Hultberg
+ Bills Previously Heard/Scheduled TELECONFERENCED
+ Dept. of Commerce, Community & Economic Dev. TELECONFERENCED
<Above Item Removed from Agenda>
                 SENATE FINANCE COMMITTEE                                                                                       
                     February 20, 2013                                                                                          
                         9:05 a.m.                                                                                              
9:05:16 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Kelly  called the Senate Finance  Committee meeting                                                                    
to order at 9:05 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Curtis   Thayer,   Deputy    Commissioner,   Department   of                                                                    
Administration;   Nicki   Neal,    Director,   Division   of                                                                    
Personnel, Department of  Administration; Former Senator Jim                                                                    
^PRESENTATION:  DEPARTMENT  OF  ADMINISTRATION  ON  CONTRACT                                                                  
9:05:46 AM                                                                                                                    
CURTIS   THAYER,   DEPUTY    COMMISSIONER,   DEPARTMENT   OF                                                                    
ADMINISTRATION, introduced  department staff.  He recognized                                                                    
former  Senator  Jim  Duncan   and  the  General  Government                                                                    
Bargaining Unit  (GGU) team in  the audience. He  provided a                                                                    
disclaimer  that  any  discussion  on  previously  bargained                                                                    
state contracts was not an  indictment of past practices. He                                                                    
stressed  that all  contracts had  been  bargained with  and                                                                    
agreed to by  the state and parties. He  added that historic                                                                    
bargaining priorities  may have been different  than current                                                                    
9:08:13 AM                                                                                                                    
Mr.  Thayer   provided  a  PowerPoint   presentation  titled                                                                    
"Alaska  Department of  Administration: Understanding  Labor                                                                    
Contracts" dated February 20, 2013  (copy on file). He moved                                                                    
to slide 2 titled "Bargaining 101." He read from the slide:                                                                     
     · Negotiations are mandated by the Public Employment                                                                       
        Relations Act (AS 23.40.070-23.40.250).                                                                                 
     · Bargaining begins in accordance with the terms set                                                                       
        forth in the collective bargaining agreements but                                                                       
        generally commences between the months of October                                                                       
        and December.                                                                                                           
     · The State must negotiate and enter into written                                                                          
        agreements on matters of wages, hours and other                                                                         
        terms and conditions of employment. These are                                                                           
       considered mandatory subjects of bargaining.                                                                             
          o For example: cost of living increases, merit                                                                        
             increases, pay increments, leave accrual,                                                                          
             health insurance                                                                                                   
     · The State may, but is not required, to negotiate                                                                         
        permissive subjects of bargaining.                                                                                      
          o For example: classification, benefits for                                                                           
             retirees,   representation   of   non-permanent                                                                    
     · Monetary terms of the agreement must be submitted to                                                                     
        the Legislature no later than the 60th day of the                                                                       
        legislative session to receive consideration during                                                                     
        that calendar year (AS 23.40.215).                                                                                      
Mr.  Thayer elaborated  that  current contract  negotiations                                                                    
had commenced in  October 2012 for one union  and in January                                                                    
2013  for another.  The department  and unions  were working                                                                    
together  to   submit  their  monetary  agreements   to  the                                                                    
legislature by the March 15, 2013 deadline.                                                                                     
Mr. Thayer read from slide 3 titled "Bargaining 101":                                                                           
     · If negotiations do not lead to agreement and                                                                             
        mediation fails, employees (except protective                                                                           
       service personnel) have the right to strike.                                                                             
     · Employees who are on strike do not get paid, but may                                                                     
        not be terminated because they choose to lawfully                                                                       
     · Striking employees may be replaced - either                                                                              
        temporarily for the duration of the strike, or                                                                          
        permanently under certain circumstances.                                                                                
     · Our goal is to reach a fair and balanced agreement.                                                                      
     Contracts areā€¦                                                                                                             
     · three years in duration                                                                                                  
     · typically bargained by the State on a cycle of 3-5                                                                       
        separate agreements each year (see next slide for                                                                       
Mr. Thayer expounded that contracts were required to be                                                                         
negotiated at least every three years.                                                                                          
9:10:00 AM                                                                                                                    
Mr. Thayer turned to slide 4 titled "Bargaining Units                                                                           
     Contracts That Expire on June 30, 2013  Number of                                                                          
     ASEA Alaska State Employees Association                                                                                    
          (GGU)                              8,231                                                                              
     APEA Alaska Public Employees Association                                                                                   
          (Supervisory Unit (SU))            2,219                                                                              
     CEA Confidential Employees Association  192                                                                                
     Contracts That Expire on June 30, 2014                                                                                     
     AVTECTA Alaska Vocational Technical Center                                                                                 
          Teachers                           39                                                                                 
     IBU Inlandboatmens' Union of the Pacific 654                                                                               
     MEBA Marine Engineers Beneficial                                                                                           
          Association                        99                                                                                 
     MMP Masters, Mates and Pilots           97                                                                                 
     PSEA Public Safety Employees Association 487                                                                               
     Contracts That Expire on June 30, 2015                                                                                     
     ACOA Alaska Correctional Officers                                                                                          
          Association                        777                                                                                
     LTC Public Employees, Local 71          1,675                                                                              
     TEAME Teachers' Education Association                                                                                      
          of Mt. Edgecumbe                   29                                                                                 
     Non-Covered Exempt, Partially Exempt                                                                                       
          and Excluded                       1,359                                                                              
Mr. Thayer  explained that the non-covered  exempt positions                                                                    
included  commissioners,  deputy  commissioners,  directors,                                                                    
and the majority of the Department of Law.                                                                                      
9:11:34 AM                                                                                                                    
Mr.  Thayer  discussed the  average  yearly  base salary  on                                                                    
slide   5.  Salaries   varied  broadly   depending  on   the                                                                    
association; average annual pay  was $55,000 for GGU members                                                                    
$80,000  for  SU  members,   $55,000  for  the  Confidential                                                                    
Employees  Association (CEA),  and  $96,000 for  non-covered                                                                    
employees. He relayed that the  total personal services cost                                                                    
was  close to  $1.7  billion. The  average employee  benefit                                                                    
percentage was  49 percent  (the percentage  varied slightly                                                                    
per  union and  included  benefits on  top  of salary).  The                                                                    
slide also included the  geographic differential received by                                                                    
Mr. Thayer directed  attention to slides 6  through 8 titled                                                                    
"Contract  Negotiations  Now  Underway."  Slide  6  provided                                                                    
detail  on the  Alaska State  Employees Association  (ASEA),                                                                    
which had 8,941 budgeted  positions (the 8,231 number listed                                                                    
on  slide  4  represented  a   snapshot  of  the  number  of                                                                    
employees  on  payroll  at  a   certain  time).  Other  ASEA                                                                    
statistics included an average member  age of 44, an average                                                                    
service of 7.87  years, a $55,000 average  annual salary for                                                                    
full-time employees,  and a  total FY 12  gross pay  for all                                                                    
members of  $414 million. Slide  7 included  the information                                                                    
for   the  Alaska   Public  Employees   Association  (APEA).                                                                    
Statistics included a membership  total of 2,240, an average                                                                    
member  age of  49, an  average service  of 13.69  years, an                                                                    
average annual  salary for  full-time employees  of $76,638,                                                                    
and $173  million in total FY  12 gross pay for  all members                                                                    
(the  gross   pay  included   premium  pays,   but  excluded                                                                    
benefits). Shown on  slide 8, the CEA  included a membership                                                                    
total  of 201,  an  average  member age  of  42, an  average                                                                    
service of 8.26  years, a $55,000 average  annual salary for                                                                    
full-time employees,  and a  total FY 12  gross pay  for all                                                                    
members of  slightly under  $10 million.  He added  that the                                                                    
majority of  the CEA employees  worked in the  Personnel and                                                                    
Labor    Relations   Division    of   the    Department   of                                                                    
Administration (DOA).                                                                                                           
9:14:16 AM                                                                                                                    
Mr. Thayer  looked at slide  9 titled "Monetary  Terms." One                                                                    
portion   of  the   monetary  terms   found  in   collective                                                                    
bargaining agreements  was the  cost of living  increase. He                                                                    
detailed that  a general wage  increase was provided  to all                                                                    
bargaining  unit members  typically effective  on July  1 of                                                                    
every  year  of  the  agreement.  Merit  increases  and  pay                                                                    
increments also  fell under the monetary  terms category. He                                                                    
explained that pay  scale merit steps went from  "A" to "F";                                                                    
employees received  a 3.5 percent  raise on an  annual basis                                                                    
during state service. Once an  employee reached the "F" step                                                                    
they received a  3.75 percent pay increase  every two years;                                                                    
the statutory  requirement had been a  new contract addition                                                                    
in  2008/2009.  He  noted  that  the  merit  increases  were                                                                    
provided in addition to the cost of living increases.                                                                           
Mr. Thayer discussed how merit  increases and pay increments                                                                    
factored into  overall costs (slide  10). He used GGU  as an                                                                    
example and explained that granting  a 1 percent increase in                                                                    
FY  14  would  cost  approximately  $6.6  million;  however,                                                                    
cumulatively  over  three  years  the  increase  would  cost                                                                    
approximately  $46.7   million.  Merit  increases   and  pay                                                                    
increments were  valued at approximately  $15 million  in FY                                                                    
14,   with  a   cumulative   total  over   three  years   of                                                                    
approximately  $105 million.  The  slide  also included  the                                                                    
detailed information for  the SU and CEA.  He explained that                                                                    
the  costs  and  percentages  were  used  during  bargaining                                                                    
agreements. He  turned to slide 11  related to understanding                                                                    
increases  over time.  The slide  provided a  snapshot of  a                                                                    
state employee's  salary. He detailed  that if  the employee                                                                    
had  been  hired in  2006  they  would  have received  a  38                                                                    
percent  pay  increase  by  2012   due  to  cost  of  living                                                                    
increases and  merit/longevity steps.  He explained  that an                                                                    
employee  with a  "G" step  in  2006 would  have received  a                                                                    
28.25  percent  pay  increase by  2012  with  pay  increment                                                                    
increases occurring every other  year. The slide also showed                                                                    
the Consumer  Price Index  increase from  2006 to  2012; the                                                                    
increase averaged 18.3 percent.  The cost of living increase                                                                    
average  over  the  same  time period  was  17  percent.  He                                                                    
relayed that Alaska was one  of the only states that granted                                                                    
raises  every  year  for state  employees  during  the  2008                                                                    
recession. He  elaborated that Florida had  not provided pay                                                                    
raises  for six  years and  the federal  government had  not                                                                    
provided raises for its employees for four years.                                                                               
Mr. Thayer  addressed slide 12 titled  "Leave." He described                                                                    
leave currently as  the "800-pound gorilla in  the room." He                                                                    
detailed  that employees  with zero  to two  years of  state                                                                    
service received 24  days of leave per  year, employees with                                                                    
two to five  years received 27 days, employees  with five to                                                                    
ten  years received  30 days,  and employees  with over  ten                                                                    
years  received  36  days.  He  noted  that  leave  included                                                                    
personal and  sick time;  in 2000  the bargaining  units had                                                                    
combined separate sick leave and  vacation time systems into                                                                    
one  leave system.  He detailed  that  previously there  had                                                                    
been  a cap  on leave  accrual;  however, the  cap had  been                                                                    
removed in  2000. Currently employees  were required  to use                                                                    
one week  of leave  per year. Additionally,  employees could                                                                    
cash-in unlimited leave providing  they maintained a balance                                                                    
of 37.5  hours. Leave  was valued  at an  employee's current                                                                    
rate of pay with the  exception of non-covered employees. He                                                                    
expounded that if  an employee had worked for  the state for                                                                    
10 years any accrued leave  would be valued at their current                                                                    
rate  of  pay. However,  leave  for  non-covered and  exempt                                                                    
employees was valued  at the rate of pay at  the time it was                                                                    
9:19:56 AM                                                                                                                    
Mr.  Thayer  continued to  discuss  leave  on slide  12.  He                                                                    
explained  that  there was  a  working  reserves account  in                                                                    
statute  that was  used  for funding  the  payment of  leave                                                                    
cash-ins and accrued leave  upon separation from employment.                                                                    
He relayed  that there were  currently employees  with 3,000                                                                    
and 4,000  hours of leave  accrued. He communicated  that in                                                                    
some of the  bargaining units if three  employees left state                                                                    
employment  they  would  be paid  over  $500,000  in  excess                                                                    
leave.  He directed  attention to  a bar  graph on  slide 13                                                                    
titled  "Growing  Leave  Liability."  The  increasing  leave                                                                    
liability was currently $164 million  and the state had paid                                                                    
out $36  million in leave  during the prior year.  The leave                                                                    
liability was valued at $140 million  in FY 09 and had grown                                                                    
by approximately  $10 million  per year  through FY  12. The                                                                    
state had  expressed its concern  over the liability  to its                                                                    
bargaining units  and was working  to address the  issue. He                                                                    
shared that the  state had discussed putting a  cap on leave                                                                    
and  raising  the  number  of hours  an  employee  would  be                                                                    
required to  use in a given  year. He stated that  the leave                                                                    
was  "better  than  the  bank"; merit  and  cost  of  living                                                                    
increases  caused leave  to grow  over time.  He noted  that                                                                    
many employees viewed their leave as a savings account.                                                                         
9:21:49 AM                                                                                                                    
Mr. Thayer addressed  a health insurance graph  on slide 14.                                                                    
The red bars showed the  state's contributions to the active                                                                    
employees'  health  plans (the  list  of  health plans  were                                                                    
shown on the right of the  slide). He relayed that the state                                                                    
did  not directly  insure all  state employees.  He detailed                                                                    
that some bargaining units used  a health trust (the state's                                                                    
contribution to  the trust  were based  on the  economy plan                                                                    
premium  for AlaskaCare).  He pointed  out that  the state's                                                                    
healthcare  contribution   was  growing   significantly.  He                                                                    
discussed the  importance of letting the  provider community                                                                    
know  that the  cost increases  could not  be sustained.  He                                                                    
relayed  that Alaska  was one  of four  states that  covered                                                                    
full  premium for  employees; most  state's  required an  80                                                                    
percent/20 percent copay.  The health insurance contribution                                                                    
per employee was approximately $15,900 in FY 13.                                                                                
Mr. Thayer directed attention to  "National Trends" shown on                                                                    
slide 15:                                                                                                                       
        · Little to no pay increases since 2007                                                                                 
        · Extensive furlough of employees                                                                                       
        · Extensive layoffs                                                                                                     
        · Freezing of longevity pay                                                                                             
        · Increase in subcontracting -"managed competition"                                                                     
        · Limitations on "legacy" costs such as pensions,                                                                       
          sick or vacation "buyback" upon retirement, and                                                                       
          other such long-term costs.                                                                                           
        · Greater operational flexibility, to provide more                                                                      
          service at the same or lesser cost to taxpayers                                                                       
          and citizens.                                                                                                         
Mr. Thayer  noted that Alaska  did not include  the furlough                                                                    
of state employees in its bargaining language.                                                                                  
9:24:19 AM                                                                                                                    
Mr.  Thayer  turned  to  slide   16  titled  "Department  of                                                                    
Administration's Bargaining Priorities and Concerns":                                                                           
        · Fiscally prudent cost of living increases                                                                             
        · Reducing the cost of longevity steps (i.e. pay                                                                        
        · Reducing the legacy costs of leave liability                                                                          
        · Operational productivity improvements                                                                                 
        · Obtain voluntary, balanced agreements                                                                                 
        · If a strike occurs, continue to provide essential                                                                     
          services to citizens                                                                                                  
Mr.  Thayer  relayed that  a  strike  situation was  a  last                                                                    
resort to the state.                                                                                                            
9:25:20 AM                                                                                                                    
NICKI NEAL,  DIRECTOR, DIVISION OF PERSONNEL,  DEPARTMENT OF                                                                    
ADMINISTRATION, addressed slide 17  titled "Next Steps." She                                                                    
discussed  that  once  monetary terms  were  agreed  to  DOA                                                                    
submitted  them to  the legislature  for appropriation.  She                                                                    
explained  that  if  the  legislature  failed  to  fund  the                                                                    
monetary  terms of  an agreement  the next  steps varied  by                                                                    
bargaining unit  and the action  taken could be  affected by                                                                    
whether or not  the terms were submitted in  a timely manner                                                                    
(by the  60th day  of legislative session;  March 15  in the                                                                    
current  year). She  communicated  that  if the  legislature                                                                    
failed to fund  the agreement, an impasse  was considered to                                                                    
exist for  some units  and others  had 10  days to  reach an                                                                    
agreement. She  stressed that  each situation  was evaluated                                                                    
and  was fact  specific;  contract  language varied  between                                                                    
units. She stated  that the fact that the  monetary terms of                                                                    
the  parties' agreement  could potentially  be submitted  to                                                                    
the  legislature  after the  60th  day  of session  did  not                                                                    
prevent the  legislature from either considering  or funding                                                                    
them.  Additionally, the  appropriation was  subject to  the                                                                    
ratification of  the collective bargaining agreement  by the                                                                    
union's membership.                                                                                                             
Co-Chair Kelly asked members to  read through slide 17 as it                                                                    
related specifically to the legislature's duties.                                                                               
9:27:04 AM                                                                                                                    
AT EASE                                                                                                                         
9:28:01 AM                                                                                                                    
Ms.  Neal continued  to address  slide 17.  She communicated                                                                    
that when monetary  terms of an agreement  were submitted to                                                                    
the legislature  the union membership had  typically not yet                                                                    
ratified  the  agreement.  She  detailed  that  appropriated                                                                    
funding was  proportionately reduced  if the unions  did not                                                                    
ratify the  agreement. A flow  chart on slide 18  provided a                                                                    
bargaining "road  map." She relayed  that the  ideal process                                                                    
began with  negotiation, which was  followed by  a voluntary                                                                    
agreement,   the  submittal   of  monetary   terms  to   the                                                                    
legislature,  and  the  funding of  monetary  terms  through                                                                    
legislative appropriation.                                                                                                      
Ms.  Neal  reiterated  her earlier  testimony  that  if  the                                                                    
legislature  failed   to  fund  the  monetary   terms,  some                                                                    
contracts specified that an  impasse existed; whereas others                                                                    
required the  state to return  to negotiations. In  the case                                                                    
of  an  impasse, the  state  often  entered into  mediation;                                                                    
interest arbitration  for Class I employees  (i.e. troopers,                                                                    
correctional  officers,  and  other)  was  entered  into  if                                                                    
mediation was  not successful. It  was the  state's position                                                                    
that it was not required  to go to interest arbitration with                                                                    
units  with a  mixed membership  (i.e. units  that were  not                                                                    
solely Class  I) until  the membership  voted to  strike. In                                                                    
the event  of an  impasse a couple  of options  existed: (1)                                                                    
the state could  choose to implement its  "last best offer";                                                                    
however, any  monetary terms were subject  to appropriation;                                                                    
and (2) the  state could choose to continue  under the terms                                                                    
of the current collective  bargaining agreement. She relayed                                                                    
that  in  either  situation  the   state  and  unions  would                                                                    
continue to negotiate.                                                                                                          
9:30:31 AM                                                                                                                    
Senator   Dunleavy   asked   for   verification   that   the                                                                    
legislature did not set a  cap on increases (e.g. 1 percent,                                                                    
3  percent, or  other) or  items  agreed to  in the  state's                                                                    
negotiations  with unions.  He asked  for confirmation  that                                                                    
the state  bargained with unions and  subsequently asked the                                                                    
legislature to  fund the agreements.  Ms. Neal  responded in                                                                    
the affirmative.                                                                                                                
Co-Chair  Kelly  asked  the department  to  provide  further                                                                    
detail  on how  Alaska's  contracts compared  with those  in                                                                    
other states.  He asked  Vice-Chair Fairclough  to elaborate                                                                    
on the question.                                                                                                                
Vice-Chair Fairclough  referred to  AS 23.40.210  related to                                                                    
cost  of living  differentials.  She pointed  to a  specific                                                                    
comparison between the state and  Seattle, WA. She asked the                                                                    
department to expand on the comparison.                                                                                         
Ms. Neal asked for clarification on the statute.                                                                                
Vice-Chair Fairclough pointed to  AS 23.40.210(a) related to                                                                    
the  cost  of  living   differentials.  She  read  from  the                                                                    
     ...the  plan shall  provide that  salaries  paid as  of                                                                    
     August  26, 1977,  to  employees  residing outside  the                                                                    
     state  shall  remain  unchanged  until  the  difference                                                                    
     between those salaries and  the salaries paid employees                                                                    
     residing in  the state  reflect the  difference between                                                                    
     the cost  of living  in Alaska  and living  in Seattle,                                                                    
Ms. Neal replied  that the department would get  back to the                                                                    
committee with a response.                                                                                                      
Co-Chair  Kelly spoke  to  the  department's testimony  that                                                                    
Florida  and the  federal government  had not  provided step                                                                    
increases  for employees  [in relatively  recent years].  He                                                                    
asked  whether   there  were  other   states  in   the  same                                                                    
9:33:28 AM                                                                                                                    
AT EASE                                                                                                                         
9:35:20 AM                                                                                                                    
Mr. Thayer answered  that 22 states had been  present at the                                                                    
recent  National Association  of State  Personnel Executives                                                                    
meeting  and  20   of  the  states  had   not  provided  pay                                                                    
increments or  salary increases;  only two states  had given                                                                    
raises in the  past two years. He added that  Ms. Neal could                                                                    
provide more detail on the issue.                                                                                               
Co-Chair Kelly  asked Mr. Thayer  to repeat the name  of the                                                                    
organization.  Ms. Neal  replied that  the organization  was                                                                    
the National Association of  State Personnel Executives. She                                                                    
relayed that Alaska  was one of two states out  of the 22 in                                                                    
attendance  that had  continued  to  provide pay  increases.                                                                    
Delaware had  provided increases in the  past several years.                                                                    
She elaborated that  the other states had  not provided cost                                                                    
of living increases  and very few had  provided merit steps.                                                                    
She  expounded  that  Louisiana  and  one  other  state  had                                                                    
planned to  provide increases  in the  current year  for the                                                                    
first time in several years.                                                                                                    
Co-Chair  Kelly extended  an invitation  for former  Senator                                                                    
Duncan to  address the committee  if he desired.  Mr. Duncan                                                                    
Senator  Dunleavy  referred  to step  and  column  increases                                                                    
provided to  teachers. He wondered whether  there were steps                                                                    
and columns in the state employee contracts.                                                                                    
9:37:23 AM                                                                                                                    
Ms.  Neal replied  that the  teachers' salary  structure was                                                                    
slightly different. She expounded  that state employees were                                                                    
assigned  a salary  range when  hired and  received advanced                                                                    
steps based on years of service and performance.                                                                                
Senator Dunleavy  surmised that there  did not appear  to be                                                                    
complete  agreement on  what constituted  a raise.  He asked                                                                    
whether  a  cost of  living  increase  raised an  employee's                                                                    
columns  or steps.  Ms. Neal  answered  that the  negotiated                                                                    
cost of  living increase  caused the entire  salary schedule                                                                    
to increase  (e.g. a 2  percent salary increase  would cause                                                                    
the salary  schedule to  rise by  2 percent).  She explained                                                                    
that merit  steps were raises  provided to  employees within                                                                    
their salary  range. She elaborated that  a typical employee                                                                    
was eligible  for one increase  per year for the  first five                                                                    
years;  after  five  years  the  employee  advanced  to  pay                                                                    
increments,  which was  a 3.75  percent  increase every  two                                                                    
years thereafter.                                                                                                               
Senator Dunleavy  wondered about  specifics related  to what                                                                    
was considered a  raise. He asked whether in  the absence of                                                                    
a cost  of living increase  an employee could say  that they                                                                    
did not receive  a raise. He thought that  in some instances                                                                    
even though employees  moved columns or steps  they were not                                                                    
considered to have received a raise.                                                                                            
Ms. Neal  responded that employees  were still  eligible for                                                                    
merit increases or  pay increments in the absence  of a cost                                                                    
of living  increase. She believed the  increases constituted                                                                    
a raise.                                                                                                                        
9:39:32 AM                                                                                                                    
Co-Chair  Kelly  asked  at what  point  in  an  individual's                                                                    
employment they began receiving  merit increases every other                                                                    
year. Mr. Thayer  replied that employees moved  to the every                                                                    
other year schedule after approximately five years.                                                                             
Co-Chair Kelly  asked whether there  were any  employees who                                                                    
did not  receive step or  merit increases (aside  from those                                                                    
employees receiving the increases every other year).                                                                            
Mr. Thayer  replied that some  marine highway  employees did                                                                    
not receive  merit and step  increases; however,  only about                                                                    
1000 employees  fell under the category.  He elaborated that                                                                    
most of  the 16,000 state  employees received merit  and pay                                                                    
increments. The  department had  worked hard  to communicate                                                                    
to  unions  that merit  and  pay  increments constituted  an                                                                    
increase  in  salary;  cost  of  living  increases  were  in                                                                    
addition  to the  other increases.  He pointed  to slide  11                                                                    
that represented  how an employee's salary  had increased by                                                                    
28 percent  to 38 percent  over the past 7  years (increases                                                                    
shown were  a combination of  merit pay increments  and cost                                                                    
of living allowances).                                                                                                          
9:41:13 AM                                                                                                                    
Vice-Chair Fairclough  surmised that  the cost to  the state                                                                    
had  increased  more  than  the 38  percent  due  to  health                                                                    
benefit costs.  She asked  for an  overall cost  increase to                                                                    
the  state. Mr.  Thayer  replied that  the department  would                                                                    
follow  up on  the question  at a  later time.  He confirmed                                                                    
that  the   state's  liability  continued  to   grow  as  it                                                                    
continued to  pay health  care premiums  at 100  percent and                                                                    
leave  value  increased. He  stated  that  23 years  earlier                                                                    
there  had  not  been  an   issue;  however,  currently  the                                                                    
liability  was  significant  and   continued  to  grow.  The                                                                    
department had talked with  unions during negotiations about                                                                    
how to arrest  the liability through a  leave cap, different                                                                    
leave accrual for new employees, or other.                                                                                      
Vice-Chair  Fairclough  returned  to  her  earlier  question                                                                    
related  to   how  the  state  determined   cost  of  living                                                                    
increases. She wondered how the  state compared to the other                                                                    
49 states. Ms.  Neal answered that the  specific statute [AS                                                                    
23.40.210] was applied to the  Alaska Marine Highway System;                                                                    
employees received a cost of  living differential for living                                                                    
in Alaska.  She did not  know why the differential  was only                                                                    
applied  to marine  highway employees  and  would follow  up                                                                    
with detail at a later time.                                                                                                    
Vice-Chair Fairclough  asked the department to  follow up on                                                                    
how often cost  of living was established  and what location                                                                    
the  state compared  itself  to in  order  to establish  the                                                                    
amount. She believed the cost  of living in different states                                                                    
varied and was  interested to know where Alaska  fell on the                                                                    
9:44:19 AM                                                                                                                    
Ms. Neal responded that the  specific statute [AS 23.40.210]                                                                    
was  not applied  during the  state's contract  negotiations                                                                    
for   non-covered  employees.   She  believed   the  statute                                                                    
pertained to a geographic differential  as opposed to a cost                                                                    
of living  increase. She reiterated the  department's intent                                                                    
to follow up on the issue.                                                                                                      
Co-Chair Kelly asked if the  current leave accrual liability                                                                    
was  $163  million.  Mr. Thayer  replied  that  the  current                                                                    
liability was $164 million.  Co-Chair Kelly wondered whether                                                                    
leave  accrual included  benefits  in addition  to time  and                                                                    
salary. Mr.  Thayer replied that  the leave  accrual related                                                                    
strictly to time and salary.                                                                                                    
Co-Chair Kelly  was concerned about an  apocalyptic scenario                                                                    
that   could  potentially   cause  the   price  of   oil  to                                                                    
dramatically  drop  and the  impact  it  would have  on  the                                                                    
state. He  wondered if  the state had  a furlough  system in                                                                    
place to deal with the  potential problem and whether unions                                                                    
had money  set aside to  take care of employees  during such                                                                    
an event.                                                                                                                       
Mr. Thayer  answered that  the state  did not  have furlough                                                                    
language  in its  contracts;  contracts  did include  layoff                                                                    
language.  He  believed  individual  unions  and  bargaining                                                                    
units would be able to  better answer the question regarding                                                                    
any funds set aside.                                                                                                            
9:46:52 AM                                                                                                                    
AT EASE                                                                                                                         
9:49:12 AM                                                                                                                    
Senator  Hoffman pointed  to an  increase  in accrued  leave                                                                    
over  time.  He asked  whether  individuals  were moving  to                                                                    
higher  cost of  living areas  when they  neared retirement.                                                                    
Ms.  Neal replied  that the  state did  not monitor  it, but                                                                    
there was  rumor of the  occurrence, especially with  Tier I                                                                    
employees;  all  other  tiers  were  required  to  spend  50                                                                    
percent  of their  career in  a location  with a  geographic                                                                    
Senator  Olson   asked  why  binding  arbitration   was  not                                                                    
included in the state's process  in the event of an impasse.                                                                    
Ms. Neal answered that interest arbitration was binding.                                                                        
Co-Chair  Kelly  asked  for verification  that  the  binding                                                                    
interest arbitration was statutory.  Ms. Neal replied in the                                                                    
Senator  Olson asked  about funding  that  would be  reduced                                                                    
proportionately [if a union failed  to ratify the bargaining                                                                    
agreement]  (slide  17).  Ms. Neal  replied  that  when  the                                                                    
monetary  terms   were  brought   to  the   legislature  for                                                                    
appropriation the  agreement had not yet  been ratified. She                                                                    
explained  that  when  a  membership  failed  to  ratify  an                                                                    
agreement typically  the legislature had already  funded the                                                                    
monetary    terms;    therefore,   funding    was    reduced                                                                    
Vice-Chair Fairclough asked whether  the state had conducted                                                                    
an analysis  on the  effectiveness of  a 37.5-hour  versus a                                                                    
40-hour  workweek.  She  wondered   whether  the  issue  was                                                                    
discussed during labor negotiations.  She had heard that the                                                                    
37.5-hour  workweek   had  been  implemented  to   remove  a                                                                    
potential liability of overtime payments.                                                                                       
9:52:34 AM                                                                                                                    
Ms. Neal answered  that she was not aware  that any analysis                                                                    
had been done and did not  know how the state had arrived at                                                                    
a  37.5-hour workweek.  The workweek  hours were  negotiated                                                                    
and in order  to increase the hours the state  would need to                                                                    
negotiate it  with each union.  She stated that  perhaps the                                                                    
working to  avoid overtime payments was  initially an issue.                                                                    
The Fair Labor Standards Act  did not require overtime until                                                                    
after 40 hours per week;  however, under most of the state's                                                                    
collective bargaining  units the  state paid  overtime after                                                                    
37.5 hours.                                                                                                                     
Co-Chair  Kelly asked  whether the  37.5-hour workweek  went                                                                    
back to  statehood. Ms. Neal  replied that the  workweek had                                                                    
been  37.5 hours  throughout her  30 years  of service.  She                                                                    
recalled a couple  of attempts to switch to  40 hours, which                                                                    
had been unsuccessful.                                                                                                          
Co-Chair  Kelly asked  whether  the  37.5-hour workweek  had                                                                    
been  negotiated versus  set in  statute. Ms.  Neal answered                                                                    
that she did  not know how the  37.5-hour workweek initially                                                                    
began,  but  it  was  currently in  the  state's  collective                                                                    
bargaining agreements.                                                                                                          
Co-Chair Kelly  noted that  he would  not be  surprised that                                                                    
the workweek was  outlined in statute; he  believed the 37.5                                                                    
hours went back to statehood.  He discussed that when he had                                                                    
worked for  the University  of Alaska, the  university would                                                                    
have paid  $300,000 to $400,000  per year in overtime  if it                                                                    
had  moved   from  its  40-hour  workweek   to  a  37.5-hour                                                                    
workweek.  He  discussed  that   there  were  currently  $25                                                                    
million  in  automatic  increases  paid  to  state  agencies                                                                    
regardless of  contracts. He  surmised that  contracts would                                                                    
likely be  for an additional  $10 million to $20  million in                                                                    
the current year.  He wondered whether an  analysis had been                                                                    
done  on the  number  of  layoffs that  may  be required  or                                                                    
services  that  may need  to  be  cut  as  a result  of  pay                                                                    
increases during a time of  declining revenues. He discussed                                                                    
that legislators working on the  operating budget had an eye                                                                    
on savings;  the goal was  to avoid eating into  the state's                                                                    
savings or to tap them in a managed way.                                                                                        
9:56:37 AM                                                                                                                    
Mr. Thayer  answered that  DOA had not  done an  analysis on                                                                    
the issue. He discussed state  government and pointed to the                                                                    
employees,  programs, and  space.  The  department had  been                                                                    
looking  at the  state's current  leased space  to determine                                                                    
whether it was possible to  reduce its footprint in order to                                                                    
save  money;  preliminary  estimates showed  an  approximate                                                                    
savings  of over  $125 million  in  the next  20 years.  For                                                                    
example, the  state had been  looking at the  elimination of                                                                    
three  floors  at  the Atwood  Building  in  Anchorage;  the                                                                    
potential savings  would be over  $1 million.  He elaborated                                                                    
that  agencies could  be moved  from  private leased  space,                                                                    
which rented  at $2 to $3  per square foot, into  a building                                                                    
that cost  $1.56 per square  foot. He concluded that  in the                                                                    
Atwood  Building alone  there  was the  potential  for a  $2                                                                    
million savings.  There were  capital costs  associated with                                                                    
the shift, but  the payback period was within  five to seven                                                                    
years. He noted that  savings resulting from space reduction                                                                    
would occur over the long-term.                                                                                                 
Co-Chair Kelly asked whether there  was a plan to reduce the                                                                    
leave  accrual.  Mr.  Thayer   responded  that  DOA  was  in                                                                    
negotiations   with  unions   related   to  leave   accrual.                                                                    
Discussions had included a potential  leave accrual cap or a                                                                    
new leave accrual. He believed  there was an acknowledgement                                                                    
by all parties that the unfunded liability was huge.                                                                            
9:59:43 AM                                                                                                                    
Senator  Bishop  pointed  to  slide  14  related  to  health                                                                    
insurance  costs. He  stressed that  something needed  to be                                                                    
done to  arrest the  growing costs  of health  insurance for                                                                    
the state. He emphasized that  the state could not expect to                                                                    
stay  in business  if costs  continued to  increase by  $100                                                                    
million  every six  years. He  relayed that  he had  brought                                                                    
information to DOA.  He asked for an update  on methods that                                                                    
would save the state money  related to health care costs. He                                                                    
noted it could be provided at a later time.                                                                                     
Vice-Chair Fairclough  looked at the bargaining  road map on                                                                    
slide  18.  She  observed  that  it  would  be  helpful  for                                                                    
everyone  for negotiations  to occur  under a  standard road                                                                    
map to make it easier to navigate  if the state was put in a                                                                    
position  where it  could not  approve a  contract due  to a                                                                    
lack  of   funds.  She  wondered   whether  the   state  was                                                                    
negotiating to  streamline the process. She  stated that the                                                                    
$164 million  of outstanding  leave and  the ability  for an                                                                    
employee to  cash out all  their leave upon  separation from                                                                    
the  state  was  adding   substantially  to  the  liability.                                                                    
According to her math, using  the 37.5-hour workweek instead                                                                    
of a 40-hour  workweek added up to a full  year within a 16-                                                                    
year time period;  she believed the state paid  for close to                                                                    
two years in time off  (in addition to benefit packages) for                                                                    
employees  who  worked  30 years.  She  discussed  that  the                                                                    
benefit   was  significant   and   provided  families   with                                                                    
flexibility. She stated that the  federal government cost of                                                                    
living allowances  were difficult  for the state  to compete                                                                    
with  and  caused  the  state  difficulty  when  working  to                                                                    
attract specialized employees.                                                                                                  
10:03:49 AM                                                                                                                   
Co-Chair Meyer inquired if there  were some bargaining units                                                                    
that  could  not  strike   (e.g.  public  safety  employees,                                                                    
corrections,   or   other).   Ms.  Neal   replied   in   the                                                                    
affirmative.  She elaborated  that Class  I employees  could                                                                    
not strike,  which included state troopers,  airport, police                                                                    
and  fire, and  correctional officers.  She added  that some                                                                    
Class I  employees worked  within GGU  and SU  as protective                                                                    
service workers  (e.g. probation  officers and  pioneer home                                                                    
Co-Chair Meyer  asked for verification that  employees could                                                                    
cash-in  their entire  leave amounts.  Ms. Neal  answered in                                                                    
the  affirmative. She  detailed that  most bargaining  units                                                                    
allowed employees to cash-in an  unlimited amount of accrued                                                                    
leave;  a minimum  balance  of 37.5  hours  was required  to                                                                    
remain in an employee's account.                                                                                                
Co-Chair  Meyer asked  whether leave  included vacation  and                                                                    
sick time. Ms.  Neal responded that leave  was classified as                                                                    
personal leave  for most units;  there was not  a designated                                                                    
sick leave bank.                                                                                                                
Co-Chair  Meyer asked  whether there  was a  concern from  a                                                                    
safety  standpoint  if employees  never  took  time off.  He                                                                    
believed the purpose of leave  was to allow employees to get                                                                    
rest. He  was worried  about how  a lack  of time  off would                                                                    
affect employees  who carried guns as  a job responsibility.                                                                    
He  opined that  there may  be workers'  compensation issues                                                                    
that should  be considered  as well.  He believed  leave was                                                                    
healthy for the state and the employee.                                                                                         
Ms. Neal replied that mandatory  leave usage provisions were                                                                    
meant  to  address  the  issue.  She  elaborated  that  most                                                                    
collective  bargaining  agreements  required the  use  of  a                                                                    
minimum  of 37.5  hours per  year;  however, when  employees                                                                    
accrued the  maximum level  of 36 days  per year  they still                                                                    
accumulated a  significant amount  of leave. She  noted that                                                                    
occasionally departments certified that  an employee did not                                                                    
have  the  opportunity to  use  the  leave due  to  business                                                                    
Co-Chair  Meyer noted  that  overtime  for Anchorage  police                                                                    
officers  was  negotiated and  was  based  on seniority.  He                                                                    
asked  whether overtime  was based  on  seniority for  state                                                                    
employees.  Ms. Neal  answered that  overtime  needed to  be                                                                    
equitably  assigned;  it  was not  assigned  strictly  on  a                                                                    
seniority basis.                                                                                                                
10:07:14 AM                                                                                                                   
Senator  Olson   asked  about  the  distribution   of  state                                                                    
employees in  Tiers I through  IV. Ms. Neal would  follow up                                                                    
on  the  question. She  noted  that  Tier I  employees  were                                                                    
beginning  to decline,  but  she did  not  have the  precise                                                                    
Co-Chair Kelly  asked for verification that  merit increases                                                                    
were  no  longer provided.  Mr.  Thayer  replied that  merit                                                                    
increases  were provided  during  an  employee's first  five                                                                    
years  with the  state. Following  the first  five years  an                                                                    
employee  received a  pay increment  every other  year going                                                                    
Co-Chair  Kelly  asked  for   confirmation  that  all  state                                                                    
employees received merit increases  in the first five years.                                                                    
Mr.  Thayer  answered  in the  affirmative.  Co-Chair  Kelly                                                                    
surmised that  the word  "step" had  been replaced  with the                                                                    
word "merit." He wondered whether  merits and steps had been                                                                    
merged because  merit had  not been used  as it  should have                                                                    
Ms.  Neal   answered  that   increases  were   merit  steps.                                                                    
Employees were automatically  awarded merit increases unless                                                                    
a  supervisor  proactively  denied the  increase  through  a                                                                    
written performance evaluation prior to the due date.                                                                           
Co-Chair Kelly  asked how frequently supervisors  had denied                                                                    
merit increases in the past  year. Ms. Neal replied that she                                                                    
did not have the number, but that it did not occur often.                                                                       
Co-Chair Kelly  remarked on poor  management related  to pay                                                                    
issues.   He  recalled   his   discussion   with  a   former                                                                    
commissioner 15 years earlier;  the commissioner had relayed                                                                    
that three  merit increases had  been denied the  past year.                                                                    
He  communicated  that  state  supervisors  should  work  to                                                                    
improve management skills.                                                                                                      
10:10:15 AM                                                                                                                   
Mr.  Thayer  responded that  the  state  had been  asked  to                                                                    
provide bargaining units with  information on its management                                                                    
practices;  the  state  had  learned  a  significant  amount                                                                    
through  the   process.  He   explained  that   the  reports                                                                    
generated in response to the  units' questions raised issues                                                                    
pointing out  that management skills needed  improvement. He                                                                    
discussed  that over  time, information  requests had  shown                                                                    
the  state that  the  existing leave  accrual  system was  a                                                                    
10:11:14 AM                                                                                                                   
AT EASE                                                                                                                         
10:11:36 AM                                                                                                                   
Co-Chair Kelly  thanked the department for  its presentation                                                                    
and time.   He invited former Senator Jim  Duncan to address                                                                    
the  committee  if  he desired.  [Mr.  Duncan  declined  and                                                                    
thanked the committee from his seat in the audience.]                                                                           
10:12:32 AM                                                                                                                   
The meeting was adjourned at 10:12 a.m.                                                                                         

Document Name Date/Time Subjects
DOA-Labor Contracts2013 (02-20-13) Senate Finance-FINAL.pdf SFIN 2/20/2013 9:00:00 AM