Legislature(1995 - 1996)
04/12/1995 09:10 AM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 137 RETIREMENT INCENTIVE PROGRAM Number 366 CHAIRMAN GREEN introduced SB 137 as the next order of business before the committee. SENATOR SALO noted that a good portion of SB 137 was in SB 132, therefore, it might be more appropriate to focus on the portions of SB 137 that are not in SB 132. The portion of SB 137 that was not present in SB 132 is the state employees participation in the program. CHAIRMAN GREEN agreed. SENATOR SALO felt that those who wanted to testify would possibly forego their opportunity to testify if they knew that the committee intended to pass the bill out of committee. SENATOR MILLER said that he had an amendment which would authorize the court system to include the executive director in the retirement incentives program (RIP). This provision was in last year's bill, although it is not in the governor's bill this year. He understood that it was the intention of the Chair to move the bill today. Senator Miller moved that Amendment 1 be adopted. Hearing no objection, Amendment 1 was adopted. SENATOR SALO reiterated that SB 132 was passed out of HESS last week which included all the school district employees. SB 137 is essentially the same process of early retirement. Perhaps, the discussion today should focus on the state employees included in SB 137. She noted that the only conflict with SB 137 would be regarding the possibility of the state saving money. Number 321 ANNALEE MCCONNELL, Director of the Office of Management & Budget (OMB), emphasized that this retirement incentive program had been developed differently than past RIPs in order to ensure saving money and helping with the needed downsizing and restructuring. One difference in this RIP is that it is not an across the board program. This RIP is only available if a department has determined that its plans for restructuring, downsizing, and saving money can be accomplished by using the RIP. She explained that RIP would be used in a strategic area with very stringent savings calculations. The calculations would include employer costs, training costs, and specialized equipment costs. Ms. McConnell differentiated between the two scenarios in which RIP would be used. The first scenario would involve a vacant position due to downsizing. She expected that type situation to utilize RIP the most. The savings in that case would be in eliminating the position all together. She clarified that OMB would eliminate the vacant position in the following budget cycle. Another scenario would involve the replacement of a position, but the level of scrutiny would be extremely high in order to ensure real savings. She ensured everyone that the costs taken into account would be very comprehensive in order to have a true savings. Another change to tighten up the savings was to demonstrate the savings in a three year period after the position was replaced versus the five year period of past programs. Ms. McConnell also pointed out that the budget environment currently is very different than the budget environment of prior RIP bills. Furthermore, the need for management tools to accomplish downsizing has changed as well. CHAIRMAN GREEN asked if there were many positions in state government that allow the range of the Department of Corrections in which a position could start at a 11A range and move up to a 15J range; are there some positions that simply begin at a certain range that cannot be changed. ANNALEE MCCONNELL did not know the number of situations with the wide range in pay ranges. Number 234 BOB STALNAKER, Director of the Division of Retirement & Benefits for the Department of Administration, explained that the majority of state positions begin at a 15A going through the longevity step. There are a lot of positions such as a Retirement Specialists who begin as a Retirement Specialist 1 and moves up to a Retirement Specialist 3. He noted that moving up to Retirement Specialist 3 was gained by years of learning the systems and counseling. There are a lot of such positions which seem to be common to many departments in state government. He stated that there was some value to not tying the RIP to the elimination of a position, but replacing the position with a lower paid person. SENATOR SALO agreed and explained that school districts save money by replacing positions with a lower paid person. She noted that eventually, the new hire would move up to the higher range anyway. Senator Salo pointed out that the scrutiny provision was missing from the last bill. She felt that the scrutiny provision improved the bill. SENATOR LEMAN commented that he had voted for a RIP bill in 1989, after which he was not convinced that this program saved money. This RIP is much better and will work if the commitment is honored. He emphasized that the key to the success of the program is the commitment to the program. If a program can be designed and there is commitment to it, then the program could work. Senator Leman would then support such a program. ANNALEE MCCONNELL informed Senator Leman that with regards to her commitment, she has had experience in saying "No". She informed the committee that she was the Director of Management & Budget in Anchorage when the RIP bill came up in the late 1980s. At that time, Anchorage elected not to participate in the RIP. She emphasized that she would not hesitate in saying no if a department's plan does not save money or the savings were too speculative. She explained that since the majority of positions would be eliminated under this RIP, the uncertainty is not so close or speculative. Number 171 SENATOR LEMAN inquired as to the up front costs of RIPs which would pose a concern. BOB STALNAKER pointed out that SB 137 provides that the employer must demonstrate savings. The employer pays the cost by virtue of that savings. Mr. Stalnaker explained that if an employer can show a savings over three years by utilizing RIP, then those costs can be paid over the same three years. There is no front loading; the agencies must maintain within the approved budget. The agencies must take a portion of their savings to pay the RIP costs before the person qualifies. CHAIRMAN GREEN stated that she intended to move SB 137 out of committee today. Those who are not in support of the bill and wish to testify should come forward. Chairman Green informed everyone who had signed up to testify that they would be shown in support of SB 137, unless they wished to speak in opposition to the bill. She proceeded to ask if any of the sites on teleconference wanted to testify. CAROLYN FLOYD, Mayor of the City of Kodiak, informed the committee that Kodiak is facing a real dollar reduction in their budget and they are looking for additional savings. She noted that the committee should have a letter from Kodiak in support of SB 137. She emphasized the need for an amendment that would make eligibility for three years begin July 1, 1995 or not later than October 1, 1995. She explained that this earlier opening date with an extended length of eligibility was due to the increased turnover caused with this program. Under the proposed program, the City of Kodiak would have to hire and train 25 percent of their entire work force, 16 employees would be eligible for early retirement. Many of these positions are a more experienced and knowledgeable level. Furthermore, a longer period would allow the counsel and management the opportunity to evaluate personnel resources and restructure the city's operations. She noted that the reduced hours of vacation had not been calculated which would also affect Kodiak's budget. CHAIRMAN GREEN asked if those comments were included in her letter. CAROLYN FLOYD replied yes. CHAIRMAN GREEN said that suggestion would be passed on to the Finance Committee, the next committee of referral. BOB STALNAKER stated that this concern of Ms. Floyd is an issue for many employers. He pointed out that another difference between SB 132 and SB 137 is that SB 137 includes political subdivisions not just school districts. The delayed process is present in order to provide the most efficient staffing needs so as not to delay retirement or the employers ability to enter necessary contracts. The staffing needs could be reviewed to allow the political subdivisions the same amount of time as the state. Number 072 VAL KOEBERLEIN, the Finance Director for the City of Homer, agreed with Kodiak's comments. The extended time would afford the city the opportunity to restructure. He informed the committee that if Homer had to fill 11 positions all at once, they would still save $370,000 over three years. With the extended time in which some of the positions would be eliminated, the savings would increase to approximately $700,000. SENATOR SALO moved that CS SB 137(HES) be reported out of committee with individual recommendations. SENATOR LEMAN objected in order to point out that the last line on page 1 is repeated on the top of page 2. He recommended that technical problem be noted for clean up. Senator Leman removed his objection. CHAIRMAN GREEN asked if there was further objection. Hearing no further objection, CS SB 137(HES) was moved out of committee with individual recommendations.