Legislature(2017 - 2018)SENATE FINANCE 532
03/23/2017 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 31 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 57 | TELECONFERENCED | |
| += | HB 59 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
March 23, 2017
9:15 a.m.
9:15:54 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:15 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Anna MacKinnon, Co-Chair
Senator Click Bishop, Vice-Chair
Senator Mike Dunleavy
Senator Peter Micciche
Senator Natasha von Imhof
MEMBERS ABSENT
Senator Donny Olson
ALSO PRESENT
Sheldon Fisher, Commissioner, Department of Administration;
Kate Sheehan, Director, Division of Personnel and Labor
Relations, Department of Administration; Bill Milks, Office
of the Attorney General, Department of Law.
SUMMARY
HB 57 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 57 was SCHEDULED but not HEARD.
HB 59 APPROP: MENTAL HEALTH BUDGET
HB 59 was SCHEDULED but not HEARD.
SB 31 NO ST. EMPLOYEE PAY INCREASE FOR 2 YRS
SB 31 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 31
"An Act relating to compensation, merit increases, and
pay increments for certain public officials, officers,
and employees not covered by collective bargaining
agreements; and providing for an effective date."
9:16:22 AM
SHELDON FISHER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION,
discussed the presentation, "Salary Freeze for Nonunion
Employees" (copy on file). He turned to slide 2, "What Does
the Bill Do?":
• Addresses pay increases in the form of:
o Cost of Living Allowance (COLA)
o Merit increases (3.5% every year for five
years)
o Pay increments (3.25% every other year)
o Bonuses
• Allows the Governor to reduce his salary
• Effective July 1, 2017 - June 30, 2019
Commissioner Fisher explained the legislation would freeze
pay increases for two years, would affect the governor's
pay, and apply to exempt and partially-exempt employees.
9:18:18 AM
Commissioner Fisher showed slide 3, "Understanding Exempt
and Partially Exempt":
Exempt
•Can only be exempt through statute (AS 39.25.110)
•Exempt from Personnel Act and statutory pay plan
•Examples: Governor's Office, Legislative staff
Partially Exempt
•Through statute or Personnel Board
•Subject to Personnel Act and statutory pay plan
•Examples: Deputy Commissioners, Directors
Commissioner Fisher noted that the group referred to those
employees who set policy.
9:19:00 AM
Commissioner Fisher displayed slide 4, "Who Does the Bill
Include?":
(1) Employees not covered under a collective
bargaining agreement in the executive branch,
including: employees of boards, commissions,
authorities, and executive officers;
(2) Employees in the legislative branch;
(3) Employees not covered under a collective
bargaining agreement of the University of Alaska;
(4) The governor, lieutenant governor, department
heads, and legislators.
Commissioner Fisher noted that the bill did not include the
court system.
9:19:32 AM
Commissioner Fisher discussed slide 5, "Why is the Bill
Needed?":
This legislation was introduced as part of the
Administration's ongoing efforts to lead by example
to:
• Reduce state expenditures
• Address serious budget shortfalls
Commissioner Fisher relayed that the governor had
considered that it was appropriate to ask employees to lead
by example for this two-year period as other Alaskans saw a
reduction in their Permanent Fund Dividend.
9:20:09 AM
Commissioner Fisher reviewed slide 6, "Estimated Savings":
EMPLOYEES AFFECTED
This bill will affect approximately 5,000 state
employees in the executive and legislative branches.
This represents 23% of the state employees in the
executive and legislative branches.
SAVINGS
The Office of Management & Budget estimates the
following savings in the executive branch:
FY 18 = $2.3 million ($1 million UGF)
FY 19 = $1.9 million ($.8 million UGF)
Total = $4.2 million ($1.8 million UGF)
Commissioner Fisher stated that some had questioned why the
administration had first selected the group designated in
the bill. He specified that it represented the second
largest group of state employees. He noted that the savings
over two fiscal years would be about $4.2 million. It did
not reflect the University as it had already implemented
similar policies.
9:21:26 AM
Senator Micciche stated that he was in support of the
effort. He inquired about Commissioner Fisher's comments
pertaining to why the particular group was chosen first. He
commented that essentially the bill was freezing the
salaries of non-covered employees only. He wondered how the
state would get to the point where the salary freeze would
affect also those employees who were covered.
Commissioner Fisher asserted that it was necessary to start
somewhere. He thought that if the legislation was not used
as a foundation for negotiating with covered employees it
would be difficult to bargain. He believed that it was
appropriate to start with non-covered employees, and with
the passage of the legislation the state was in a stronger
position to negotiate with bargaining units to apply it to
covered employees.
9:23:46 AM
Co-Chair Hoffman asked if the 3.5 percent merit increases
beginning July 1, 2019 were based on employees' current
salaries. He clarified he wanted to know the starting point
on July 1, 2019.
Commissioner Fisher stated that with passage of the
legislation, the salary of the employees would be frozen
for two years, and then employees would receive increases
based on the frozen income.
9:24:38 AM
Senator Micciche remarked that merit increases were not
based on a consumer price index (CPI). He wondered how the
state had arrived at a 3.5 percent merit increase rather
than an indexed percentage.
Commissioner Fisher stated that the logic of the salary
schedule contemplated that as employees grew in each job,
the experience warranted an increase over time. He remarked
that certain professional positions such as attorneys or
technical professionals tended to start low and grow with
experience. Also built in to the logic was the idea that
there should be cost of living adjustments (COLA). He
reminded that the current administration had not negotiated
any CPI increases due to the fiscal situation. He thought
the curve was too steep and that salaries grew too quickly.
He thought the administration would welcome the opportunity
to work collaboratively to rethink the percentage if it
were deemed appropriate.
9:27:18 AM
KATE SHEEHAN, DIRECTOR, DIVISION OF PERSONNEL AND LABOR
RELATIONS, DEPARTMENT OF ADMINISTRATION, referred to
statutes regarding salary schedules. The percentage between
merit increases and pay increments was set in statute.
Merit increases dated back to the 1970s. Original pay
increments of 3.75 percent was in the longevity statute
which also dated to the 1970s. In 2013 that was reduced in
legislation to 3.25 percent.
9:27:47 AM
Senator Micciche asked Commissioner Fisher if he believed
that every employee grew at the same rate and should be
compensated as such.
Commissioner Fisher stated that he shared the senator's
private sector experience and believed that employees
contributed differently and should be compensated
accordingly.
Senator Micciche asked if there was any potential in the
future to have an incremental reward system for those
employees that were growing at a quicker rate than others.
Commissioner Fisher thought it would be necessary to work
collaboratively on the matter. He remarked that there had
been discussion in that regard but there was no legislation
prepared to address it.
9:29:17 AM
Senator Dunleavy asked if Commissioner Fisher could
estimate the ballpark figure for all state employees.
Commissioner Fisher thought that it was near $1.5 billion.
9:29:52 AM
Senator von Imhof understood that there was not a cap to
pay increments, and wondered what happened over time.
Commissioner Fisher relayed that an employee received merit
steps for the first five years, and afterwards received a
pay increment step increase every other year for the
duration of their employment.
Senator von Imhof asked how, considering the law of
compounding, what happened after about eight or nine years.
Commissioner Fisher stated that the amount would continue
to grow.
9:30:59 AM
Vice-Chair Bishop thought it was true to a point, but noted
that step increases only went as far as the alphabet.
Ms. Sheehan confirmed that there was not an "end to the
alphabet" but there was not currently anyone at the final
step.
Vice-Chair Bishop expressed a desire to see all of the
ranges and steps within the employees that would be
affected by the bill.
9:32:08 AM
Senator von Imhof asked when an employee could effectively
double their salary.
Commissioner Fisher did not recall, and offered to provide
the answer at a later date. He believed that certain
categories started below market salary and ended up above
market, while some never reached market salary levels.
Senator von Imhof thought the bill seemed like a short-term
fix for what she considered to be a structural framework
that needed more scrutiny. She mentioned the possibility of
a salary comparison with the private sector to create
reasonable ranges for each employee level. She thought a
ten year re-evaluation of that made sense. She thought it
was important to be fairly competitive within all
categories. If the state was allowing employees with no
extra responsibilities to price themselves out of the
market, it could be problematic going forward. She thought
that it would fairer to pay new employees at market rate
from the start.
9:34:58 AM
Senator Micciche spoke to the 3.25 percent salary increase.
The spending limit was based on Anchorage CPI, which was
around half of that. He thought that in order to maintain
that rate, other parts of the government would be
continuously cut. If there was not a better system for
analyzing what the market should pay for positions, and
reducing the steps after the sunset of the legislation, the
state could not catch up.
Commissioner Fisher thought it was important to understand
that the department did not receive a budget increase for
salary increases. Theoretically, the salary increases were
managed through the ebb and flow of employee new hire and
retirement. He thought that most departments had
successfully managed the fixed amount of personal services
dollars. He did not disagree that the matter needed
examination, but reiterated that salary increases did not
require an annual appropriation.
9:37:31 AM
Vice-Chair Bishop asked if the commissioner had evidence of
an attrition rate for the affected employees.
Commissioner Fisher did not have rate for the 5,000
employees in question.
Ms. Sheehan offered to provide a number for the group, but
all separation was seeing a 13 percent separation rate.
9:38:17 AM
Co-Chair MacKinnon asked for a walk-through of the
sectional analysis.
BILL MILKS, OFFICE OF THE ATTORNEY GENERAL, DEPARTMENT OF
LAW, went through the sectional analysis:
Section 1 Outlines intent of bill is to reduce state's
expenditures.
Section 2 of the bill amends AS 39.25.140, AS
39.25.150 and AS 39.27.011 by disallowing for merit
increases and pay increments for classified and
partially exempt employees in the executive branch who
are not covered by a collective bargaining agreement
during the period of July 1, 2017 and June
30, 2019.
Section 3 of the bill disallows general salary
increases, merit steps, pay increments, bonus or
comparable salary increases for employees in the
exempt service under AS 39.25.110 (9), persons
employed in a professional capacity to make a
temporary or special inquiry, study or examination as
authorized by the governor, (11) the officers and
employees of the following boards, commissions, or
authorities; Alaska Permanent Fund Corporation; Alaska
Industrial Development and Export
Authority; Alaska Commercial Fisheries Entry
Commission; Alaska Commission on Postsecondary
Education; Alaska Aerospace Corporation; Alaska
Gasline Development Corporation and subsidiaries of
the Alaska Gasline Development Corporation, (12) the
executive secretary and legal counsel of the
Alaska Municipal Bond Bank Authority, (13) the state
medical examiner, deputy medical examiner,
and assistant medical examiners appointed under AS
12.65.015 and pharmacists and physicians licensed to
practice in this state and employed by the Department
of Health and Social Services or by the Department of
Corrections, (14) petroleum engineers and petroleum
geologists employed in a professional capacity by the
Department of Natural Resources and by the Alaska Oil
and Gas
Conservation Commission, (17) officers and employees
of the state who reside in foreign countries,
(18) employees of the Alaska Seafood Marketing
Institute, (20) employees of the Office of the
Governor and the office of the lieutenant governor,
including the staff of the governor's mansion,
(26) investment officers in the Department of Revenue,
(30) a person employed as an actuary or assistant
actuary by the division of insurance in the Department
of Commerce, Community, and Economic Development, (34)
the chief executive officer and employees of the
Alaska Mental Health Trust Authority employed under AS
47.30.026 (b), (35)the assistant adjutant general for
space and missile defense appointed under AS
26.05.185, (36) the victims' advocate established
under AS 24.65.010 and the advocate's staff, (37)
employees of the Alaska mental health trust land unit
established under AS 44.37.050, (38) the executive
director of the Council on Domestic Violence and
Sexual Assault established under AS 18.66.011, (39)
the executive director and employees of the Knik
Arm Bridge and Toll Authority under AS 19.75.051 and
19.75.061, (40) the chair of the Workers' Compensation
Appeals Commission (AS 23.30.007), (41) the Alaska
Gasline Inducement Act coordinator appointed under AS
43.90.250, (42) oil and gas audit masters employed in
a professional capacity by the Department of Revenue
and the Department of Natural Resources to collect oil
and gas revenue by developing policy, conducting
studies, drafting proposed regulations, enforcing
regulations, and directing audits by oil and gas
revenue auditors, (43) the in-state gasline project
coordinator appointed under AS 38.34.010, during the
period of July 1, 2017 and June 30, 2019.
Section 4 of the bill prevents the State Officers
Compensation Commission from increasing the salary of
the Governor, Lieutenant Governor, Department Heads
and members of the legislature through operation of AS
39.23.500-39.23.599.
Section 5 of the bill disallows general salary
increases, merit steps, pay increments, bonus or
comparable salary increases for permanent and
temporary employees of the legislative branch of the
state government, including employees of the house and
senate receiving compensation under AS
24.10.210, the employees of the office of victims'
rights and victims' advocate, and the employees of
the office of the ombudsman and the ombudsman, who are
not covered by a collective bargaining agreement
during the period of July 1, 2017 and June 30, 2019.
Section 6 of the bill disallows general salary
increases, merit steps, pay increments, bonus or
comparable salary increases for employees of the
University of Alaska who are not covered by a
collective bargaining agreement during the period of
July 1, 2017 and June 30, 2019.
Section 7 of the bill amends Provides that merit
increases can be awarded on the merit anniversary date
of the employee between July 1, 2019 and June 30, 2020
and accounts for time worked before July 1, 2017 to
count toward the next merit step. Also provides that
the merit increase may not be awarded retroactively.
Section 8 of the bill Provides that pay increments can
be awarded on the merit anniversary date of the
employee between July 1, 2019 and June 30, 2020 and
accounts for time worked before July 1, 2017 to count
toward the next pay increment. Also provides that the
pay increment may not be awarded retroactively.
Section 9 of the bill states that this act does not
apply to individual employment contracts entered into
before July 1, 2017.
Section 10 of the bill provides transition language to
allow for the personnel board to adopt any necessary
regulation changes.
Section 11 of the bill provides that any necessary
regulation changes can be adopted immediately.
Section 12 of the bill provides an effective date of
July 1, 2017
9:44:44 AM
AT EASE
9:45:25 AM
RECONVENED
Vice-Chair Bishop referred to a question by Senator
Dunleavy about what the total dollar amount of gross salary
wages of the 5,000 employees affected.
Commissioner Fisher had misunderstood the question. He was
not aware if OMB had the total number but would follow up.
Vice-Chair Bishop asked for follow up.
9:46:21 AM
Co-Chair MacKinnon stated that there were two questions.
Senator Dunleavy had asked for the total number, and
Senator Bishop wanted to know the total for the group
affected by the legislation.
Senator Dunleavy asked if having an automatic pay increase
incentivize or disincentivize retirement.
Commissioner Fisher thought that at some level it might be
beneficial to stay another year and receive another pay
increase prior to retirement. He wondered what might be the
alternative.
Senator Dunleavy asked if the executive branch would be
able to perform salary overrides under the legislation.
Commissioner Fisher did not know the answer to the
question.
9:48:10 AM
AT EASE
9:48:51 AM
RECONVENE
Ms. Sheehan stated that it would depend on how salary
overrides were defined. She noted that many salary
overrides regarded geographic differential in which the
salary went down, the salary of those employees was frozen.
Additionally, if an employee is reclassified to a lower
range under collective bargaining agreements, pay is
frozen. Those would be considered salary overrides. Any
type of advance step placement at hiring due to exceptional
qualifications or recruitment difficulties is also done via
a salary override.
Senator Dunleavy asked if it was the policy of the
governor's office to freeze hires.
Commissioner Fisher stated that the governor's office had
implemented a hiring restriction. He stated that every
department had continued hiring. It had not been a complete
salary freeze, just a greater degree of scrutiny around
hires.
Senator Dunleavy asked if it was a restriction rather than
a freeze. Commissioner Fisher answered in the affirmative.
Senator Dunleavy asked if, under the legislation, employees
could be appointed at a range or step in excess of what the
salary schedule would dictate, commensurate with their
accrued time and grade at that step. He asked whether
someone could be appointed a range 23-B if they had less
than three or four years of service.
Ms. Sheehan answered that in order to appoint a person
above step A, it was necessary for the employee to be a re-
hire to the position, or it would have to be demonstrated
recruitment difficulties. There was also a provision in
statute that allows the governor to make appointments above
F step.
9:52:04 AM
Senator Dunleavy asked if Ms. Sheehan could define the
exception.
Ms. Sheehan specified that it was in Senate Bill 92 [Note:
invalid bill reference]. The governor's office would have
to demonstrate extreme difficulties in filling a position,
or requirements for a position not in the pay structure.
She gave the example of oil and gas expertise. She stated
that it had only occurred a couple of times.
9:52:53 AM
AT EASE
9:53:11 AM
RECONVENED
Ms. Sheehan continued that the provision was contained in
AS 39.27.011, Section K:
(k) Notwithstanding (a) - (j) of this section, the
governor or a designee of the governor may, on a case-
by-case basis, authorize for a partially exempt
employee in the executive branch a higher pay than
Step F. The authorization must be based on a
determination that the action serves a critical
governmental interest of the state, the employee
possesses exceptional qualifications, recruitment
difficulties exist, or the action is necessary due to
competitive salaries in the relevant labor market. A
determination made under this subsection must be in
writing.
Senator Dunleavy thought the provision could be construed
by some as fairly large.
Co-Chair MacKinnon OPENED and CLOSED public testimony.
Co-Chair MacKinnon stated that amendments to the bill were
due to her office by Friday at 5:00 p.m.
9:55:15 AM
Vice-Chair Bishop read from FN1:
1. Increases for exempt and partially exempt positions
eligible for merit and pay increment steps were
calculated and compared to the current base. Two
increases were identified: a) costs of FY2017
increases incurred for 12 months in FY2018 (versus
less months at the higher merit step in FY2017). These
costs are unavoidable in FY2018 despite a statute
change but are used as the estimated avoided cost
increase for the second merit step in FY2019. b) Costs
of new increases that would have been paid in FY2018.
Positions in merit steps were considered separately
than those in pay increments.
2. Positions of certain corporations, such as Alaska
Housing Finance Corporation and Alaska Permanent Fund
Corporation, and positions that appeared to be outside
of the "normal" salary rules (Commissioners and
positions that have had no pay increases for a number
of years) were excluded from the calculation in #1
above. Agencies provided the estimated savings for the
positions outside of "normal" salary schedule.
The estimated savings that may be realized is $4,165.6
over two fiscal years for the executive branch.
Estimates for the Alaska Permanent Fund Corporation,
the University, and the Legislative and Judicial
Branches are not included in this fiscal note. The
University is not included because the Board of
Regents already implemented similar actions, so no
additional savings would be realized from the
University for this bill. Total savings are not
realized in one year because individuals in pay
increments receive a salary increase every other year.
In addition, individuals in merit steps receive
increases at various times during the fiscal year. It
takes two years to get the full savings because merit
steps increases don't happen on July 1, but on an
employee's hire date. Additional savings in fiscal
years beyond FY2019 are anticipated because salaries
will be lower in those years than if the temporary
freeze was not implemented, however that amount is
indeterminate.
The FY2018 Governor's budget includes an initial
estimate in the branch-wide component of $1,817.9.
This updated estimate of $2,205.5 includes entities
where data was not yet available at the time of the
initial estimate. This estimate may be reflected in
each component's budget versus in a statewide
component at the legislature's discretion.
In addition to the $2,205.5 reduction for the merit
and pay increment freeze, a $64.0 reduction in general
funds in FY2018 is included for a one-third salary
reduction for the Governor of Alaska. The total FY2018
reduction is $2,269.5.
9:57:17 AM
Vice-Chair Bishop addressed a second fiscal note that was
indeterminate [FN2]. Estimated savings for the legislative
branch were $407,600 for FY 18 and $1,179,200 for FY 19.
9:57:48 AM
Co-Chair Hoffman asked why the Alaska Housing Finance
Corporation (AHFC) and the Alaska Permanent Fund
Corporation (APFC) were outside of the normal salary rules
[in FN1]. He noted that the wording of the fiscal note was
"appeared to be outside of the "normal" salary rules."
Ms. Sheehan believed that AHFC had a separate pay plan with
separate payroll. The APFC also had a unique pay plan.
Co-Chair Hoffman understood that. He asserted that
ultimately the legislature had appropriation powers and
could choose to include them.
Commissioner Fisher agreed and stated that the legislation
did include the two agencies. He continued that the fiscal
note was prepared by the OMB and did not include what was
in the legislation.
Co-Chair Hoffman asked if the calculations were not in the
fiscal note but did appear in the legislation. Commissioner
Fisher answered in the affirmative.
9:59:52 AM
Co-Chair MacKinnon reiterated that amendments were due the
following Friday at 5:00 p.m. She stated her intention to
bring the bill back before the committee the following
week.
SB 31 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:00:41 AM
The meeting was adjourned at 10:00 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 31_DOA Presentation_SFIN 3.23.17 FINAL.pdf |
SFIN 3/23/2017 9:00:00 AM |
SB 31 |