Legislature(1999 - 2000)

05/17/1999 07:50 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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HOUSE FINANCE COMMITTEE                                                                                                         
May 17, 1999                                                                                                                    
7:50 P.M.                                                                                                                       
                                                                                                                                
TAPE HFC 99 - 147, Side 1.                                                                                                      
TAPE HFC 99 - 147, Side 2.                                                                                                      
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Vice-Chair Bunde called the House Finance Committee meeting                                                                     
to order at 7:50 P.M.                                                                                                           
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Co-Chair Mulder    Representative Foster                                                                                        
Co-Chair Therriault   Representative Grussendorf                                                                                
Vice Chair Bunde   Representative Kohring                                                                                       
Representative Austerman  Representative Moses                                                                                  
Representative J. Davies  Representative Williams                                                                               
Representative G. Davis                                                                                                         
                                                                                                                                
ALSO PRESENT                                                                                                                    
                                                                                                                                
Mike Tibbles, Staff, Representative Gene Therriault; Alison                                                                     
Elgee, Deputy Commissioner, Department of Administration;                                                                       
Don Etheridge, Alaska Laborers Union, Juneau; Vincent                                                                           
O'Connor, Alaska State Employee Association, Anchorage;                                                                         
Chris Christenson, General Council, Judicial Branch, Alaska                                                                     
Court System.                                                                                                                   
                                                                                                                                
TESTIFIED VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Paul Lyle, Assistant Attorney General, Department of Law,                                                                       
Fairbanks; John Athens, Assistant Attorney General,                                                                             
Department of Law, Fairbanks; Karol Alderman, Assistant                                                                         
Attorney General, Department of Law, Fairbanks; Leone Hatch,                                                                    
Assistant Attorney General, Department of Law, Fairbanks;                                                                       
Richard Keck, Assistant Attorney General, Department of Law,                                                                    
Fairbanks.                                                                                                                      
                                                                                                                                
SUMMARY                                                                                                                         
                                                                                                                                
HB 199 An Act relating to compensation for certain state                                                                        
employees; and providing for an effective date.                                                                                 
                                                                                                                                
 CS HB 199 (FIN) was reported out of Committee with                                                                             
a "do pass" recommendation and with fiscal notes                                                                                
by the Department of Administration and the Alaska                                                                              
Court System.                                                                                                                   
HOUSE BILL NO. 199                                                                                                              
                                                                                                                                
An Act relating to compensation for certain state                                                                               
employees; and providing for an effective date.                                                                                 
                                                                                                                                
MIKE TIBBLES, HOUSE FINANCE STAFF, REPRESENTATIVE GENE                                                                          
THERRIAULT, explained the changes made to the work draft                                                                        
version "K", committee substitute for HB 199.  He noted that                                                                    
the new version would establish:                                                                                                
                                                                                                                                
 1. A new pay differential for statutory employees.                                                                             
The bill provides that if there is a change or a reduction                                                                      
in employee's pay because of the change in pay differential,                                                                    
the employee would be frozen at their current pay due to                                                                        
cost of living allowances (COLA's) or longevity increases                                                                       
until the pay catches up to them.  From there, they will                                                                        
continue to move up the scale.                                                                                                  
                                                                                                                                
For the record, Representative Bunde clarified that current                                                                     
employees would not be asked to take a reduction in salary,                                                                     
but would remain in their current place until the schedule                                                                      
catches up with them.  Mr. Tibbles agreed unless an employee                                                                    
moved from one region to another locale.                                                                                        
                                                                                                                                
 2. The new version would remove the recommended                                                                                
reduction contained in the State Affairs version for                                                                            
commissioners and judges.                                                                                                       
                                                                                                                                
 3. The new version would remove the limit and cap for                                                                          
longevity steps, returning it as is.                                                                                            
                                                                                                                                
 4. The new version would modify the Supplemental                                                                               
Benefits System (SBS) for new employees.                                                                                        
                                                                                                                                
5. The new version would place a cap on the amount of                                                                           
wages contributions could be made, a floating number.  The                                                                      
current statute places the cap at 1998 social security wage.                                                                    
For new employees, the State's contribution would be reduced                                                                    
from 6.13% to 3.065%.                                                                                                           
                                                                                                                                
ALISON ELGEE, DEPUTY COMMISSIONER, DEPARTMENT OF                                                                                
ADMINISTRATION, commented that the geographic differential                                                                      
schedule included in the committee substitute is in fact the                                                                    
same schedule currently in place for the general government                                                                     
unit employees and the supervisory employees throughout the                                                                     
State.  The Department of Administration has in the past                                                                        
proposed legislation to amend the statutory geographic pay                                                                      
differential in line with those schedules that have been                                                                        
negotiated through the collective bargaining agreements.                                                                        
                                                                                                                                
She continued, collective bargaining schedules are a result                                                                     
of a cost of living differential study provided in 1986.  At                                                                    
that time, new contracts were negotiated to reflect                                                                             
information resulting in a reduction of the geographic                                                                          
differential for a number of places in the State.  It has                                                                       
been problematic to modify that schedule.                                                                                       
                                                                                                                                
Ms. Elgee commented that the Department of Administration                                                                       
supports the committee substitute including the freeze                                                                          
provision to guarantee that no employee will loose anything                                                                     
from their current pay.  However, the Department strongly                                                                       
recommends the deletion of Section 1, which indicates that                                                                      
the geographic differential could not be negotiated through                                                                     
collective bargaining.  She emphasized that language does a                                                                     
disservice to the State of Alaska.                                                                                              
                                                                                                                                
In response to Representative Bunde, Ms. Elgee pointed out                                                                      
that the language in Section 5 is in existing statute.                                                                          
                                                                                                                                
DON ETHERIDGE, ALASKA LABORERS UNION, JUNEAU, commented that                                                                    
the concern of the Laborers Union is with the SBS portion of                                                                    
the proposed legislation.  He emphasized that it would not                                                                      
be good to create a two-tier system amongst employees. That                                                                     
will be difficult on the morale of new hires and could make                                                                     
it difficult to recruit qualified people.                                                                                       
                                                                                                                                
PAUL LYLE, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF                                                                        
LAW, FAIRBANKS, questioned if there would be a new schedule                                                                     
reducing current pay status.  Mr. Tibbles advised that all                                                                      
reductions have been eliminated from the bill.                                                                                  
                                                                                                                                
Representative J. Davies explained that pay would be frozen                                                                     
at one's current level until that person catches up with the                                                                    
new proposal.  Mr. Tibbles pointed out that the pay scale                                                                       
would be calculated first on the current area cost pay                                                                          
differential and then on the newly established pay                                                                              
differential.  Given the result on the new schedule, the                                                                        
employee's salary would be decreased and that person's                                                                          
salary would be frozen until COLA's or longevity annual                                                                         
increases bring them up to the current level, at which                                                                          
point, they would continue to increase.                                                                                         
                                                                                                                                
Mr. Lyle asked if freezing pay would mean that workers would                                                                    
not receive longevity pay increases.  Representative J.                                                                         
Davies commented that with the longevity plus inclusion of                                                                      
the new differential less than the current salary, the                                                                          
employee would not receive a pay increase.  Ms. Elgee                                                                           
clarified that in the past when modifications were made to                                                                      
the geographic differential schedule, a freeze was the                                                                          
approach taken.  For merit increase eligibility, the                                                                            
individual is calculated as if they had not been frozen for                                                                     
the purpose of each adjustment, measured by when frozen.  It                                                                    
is at that point with the new salary schedule and if that                                                                       
movement exceeds the frozen salary schedule, they would                                                                         
receive an increase.  It is assumed that an individual                                                                          
loosing 10% for a geographic differential, that a                                                                               
combination of events could leave a 3% per year improvement                                                                     
in the pay base.  During year four, that employee would                                                                         
actually receive more money in their check.                                                                                     
                                                                                                                                
Mr. Lyle agreed that the legislation was better with the                                                                        
changes proposed in the work draft.  He believed that the                                                                       
cuts would have the greatest impact on career professionals                                                                     
who have worked the longest for the State.  Those employees                                                                     
experience the fewest pay increases, and those increases are                                                                    
extended over longer periods of time.  He suggested that                                                                        
freezing pay for state professionals statewide would be                                                                         
counter productive.  Career professional and administrative                                                                     
staff working for the State of Alaska are underpaid in                                                                          
relation to their counterparts in the private sector.  Mr.                                                                      
Lyle stressed that there should be a grandfather clause                                                                         
included for existing employees since they can not negotiate                                                                    
for higher wages.  He concluded that taking money from a few                                                                    
state employees in the form of cuts or no pay increase is                                                                       
nothing more than a "disguised income tax".  He urged that                                                                      
everyone in the State be treated equally.                                                                                       
                                                                                                                                
JOHN ATHENS, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF                                                                      
LAW, FAIRBANKS, echoed the comments of Mr. Lyle.                                                                                
Additionally, he questioned the need to "rush" the                                                                              
legislation.  He stressed that many people are concerned                                                                        
with the proposed legislation and asked why the Department                                                                      
of Administration was intent on changing the cost of living                                                                     
differential from the 1986 study.                                                                                               
                                                                                                                                
KAROL ALDERMAN, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT                                                                      
OF LAW, FAIRBANKS, voiced concern with the "unfriendly"                                                                         
provisions of the legislation toward the long-term employee.                                                                    
In days of budget cuts, she suggested that the long-term                                                                        
employees are essential and should be compensated through                                                                       
longevity.                                                                                                                      
                                                                                                                                
LEONE HATCH, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF                                                                      
LAW, FAIRBANKS, testified regarding how the legislation                                                                         
would effect the quality of the State work force and                                                                            
stability.  She believed that the proposed legislation would                                                                    
make state service a training ground for inexperienced                                                                          
people who do not have a commitment to the value of their                                                                       
work.  Additionally, Ms. Hatch believed that the legislation                                                                    
would result in increased litigation.                                                                                           
                                                                                                                                
RICHARD KECK, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF                                                                     
LAW, FAIRBANKS, echoed concerns previously expressed in                                                                         
testimony of the other speakers.  He urged the Legislature                                                                      
not to single out State employees.                                                                                              
                                                                                                                                
Mr. Lyle asked if Section 8 would constitute a reduction in                                                                     
what is presently being interpreted by the State.                                                                               
Representative Bunde replied that the employee contributions                                                                    
would continue as they currently are, however, the State                                                                        
contribution would be reduced for future employees.                                                                             
                                                                                                                                
Ms. Elgee discussed the two parts included in Section 8.                                                                        
That section would reduce for the immediately hired                                                                             
employees and employees first hired after the effective date                                                                    
of the legislation, the employer contribution to its present                                                                    
level.  The $68,400 savings figure is a reference to the                                                                        
social security wage base in effect for calendar year 1998.                                                                     
Employees that reach that wage base generally do so late in                                                                     
the fall and the social security base is adjusted at the                                                                        
federal level.  It increases on an annual basis, which would                                                                    
freeze the contribution at the level in place last year.                                                                        
The contributions for current employees would not continue                                                                      
to escalate.                                                                                                                    
                                                                                                                                
VINCENT O'CONNOR, PRESIDENT, ALASKA STATE EMPLOYEE                                                                              
ASSOCIATION  (ASEA), LOCAL 52, ANCHORAGE, stated that he                                                                        
represented clerks, social workers and labor economists.                                                                        
There are 7,500 members that provide various State services                                                                     
throughout Alaska.  He urged that the legislation not be                                                                        
passed, as it would provide an unfair change to current and                                                                     
future public employees throughout Alaska.  Public employees                                                                    
are professionals and are dedicated to their jobs and                                                                           
provide a good service to their communities.  He asked                                                                          
members of the Committee to consider ways to raise benefits                                                                     
for all Alaskans.                                                                                                               
                                                                                                                                
Representative Bunde MOVED to adopt work draft 1-LS0823\K,                                                                      
Cramer, 5/17/99, as the version before the Committee.  There                                                                    
being NO OBJECTION, it was so ordered.                                                                                          
                                                                                                                                
Representative Austerman MOVED to delete Section #1.  Ms.                                                                       
Elgee agreed that the Administration would like to see                                                                          
Section #1 eliminated from the legislation which would                                                                          
provide more flexibility when negotiating cost of living                                                                        
differentials.  There being NO OBJECTION, it was deleted                                                                        
from the bill.                                                                                                                  
                                                                                                                                
Co-Chair Mulder asked if the bill was prospective.  Ms.                                                                         
Elgee explained that the amendments would effect employees                                                                      
that are first hired after July 1, 1999 and would not impact                                                                    
anyone that is currently employed or was previously employed                                                                    
by the State.  The changes to the geographic differential do                                                                    
have an impact on current employees.  Those employees would                                                                     
not see a diminishment of their current salary.                                                                                 
Representative J. Davies foresaw a negative change would be                                                                     
that the social security wage base frozen at the 1998 level.                                                                    
                                                                                                                                
Ms. Elgee noted that the legislation would only effect new                                                                      
employees to State service that start after July 1, 1999.                                                                       
Co-Chair Therriault added that the legislative intent is to                                                                     
take care of seasonal employees and women in the work force                                                                     
who need to take time off following pregnancy.  The changes                                                                     
would allow those returning to state service, return at the                                                                     
pay rate they left off at.                                                                                                      
                                                                                                                                
In response to questions by Co-Chair Mulder, Ms. Elgee                                                                          
explained the current tier system.  Under the public                                                                            
employees retirement system (PERS) and the teacher                                                                              
retirement system (TERS), the State has three tiers.  The                                                                       
last modification made, created Tier #3, to the vesting                                                                         
retirement length of service.  Modifications to that program                                                                    
have been made prospectively.  The SBS program has not been                                                                     
modified since its inception, making this a first time                                                                          
change to the SBS system.                                                                                                       
                                                                                                                                
(Tape Change HFC 99 - 147, Side 2).                                                                                             
                                                                                                                                
Co-Chair Therriault focused on the fiscal note.  He asked                                                                       
how a 5% turnover rate had been determined.  Ms. Elgee                                                                          
replied that was a factor that the actuaries look at in                                                                         
determining any kind of future projections on the PERS                                                                          
system because of the tiered structure of that program.  Ms.                                                                    
Elgee advised that she had very little time to create the                                                                       
fiscal note and asked that the Committee allow the                                                                              
Department to prepare a more accurate number.  The note                                                                         
represents the savings for all the employees going through                                                                      
the state payroll system.                                                                                                       
                                                                                                                                
CHRIS CHRISTENSEN, GENERAL COUNCIL TO THE JUDICIAL BRANCH,                                                                      
ALASKA COURT SYSTEM, explained that the Court System has                                                                        
assumed a 10% turnover rate, which is double the rate that                                                                      
the Executive Branch experiences.  The rate is high because                                                                     
Court System employees tend to be low paid and low paid                                                                         
employees tend to turn over at a higher rate.                                                                                   
                                                                                                                                
Co-Chair Mulder MOVED to report CS HB 199(FIN) out of                                                                           
Committee with individual recommendations and with the                                                                          
accompanying fiscal notes.  Representative J. Davies                                                                            
OBJECTED for the purpose of a comment.  He objected to                                                                          
reducing employee benefits to balance the budget.                                                                               
                                                                                                                                
Representative J. Davies WITHDREW the OBJECTION.  There                                                                         
being NO further OBJECTION, it was so ordered.                                                                                  
                                                                                                                                
CS HB 199 (FIN) was reported out of Committee with a "do                                                                        
pass" recommendation and with fiscal notes by Department of                                                                     
Administration and the Alaska Court System.                                                                                     
ADJOURNMENT                                                                                                                     
                                                                                                                                
The meeting adjourned at 8:50 P.M.                                                                                              
                                                                                                                                
H.F.C. 7 5/17/99 p.m.                                                                                                           

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