Legislature(2015 - 2016)ANCH LIO BUILDING
05/08/2015 01:00 PM House FINANCE
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| Audio | Topic |
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| Start | |
| HB1001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB1001 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
FIRST SPECIAL SESSION
May 8, 2015
1:08 p.m.
[NOTE: Meeting was held in Anchorage, Alaska at the
Legislative Information Office]
1:08:33 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:08 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Les Gara
Representative Lynn Gattis
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Sheldon
Fisher, Commissioner, Department of Administration; Senator
Cathy Giessel; Representative Andy Josephson;
Representative Liz Vasquez; Representative Sam Kito III;
Representative Harriet Drummond.
PRESENT VIA TELECONFERENCE
Representative Bryce Edgmon
Representative David Guttenberg
SUMMARY
HB 1001 APPROP: OPER. BUDGET/LOANS/FUNDS/AM APPRO
HB 1001 was HEARD and HELD in committee for
further consideration.
Co-Chair Neuman reviewed the agenda for the day. He relayed
that Mr. Teal would be discussing the state's revenue and
financial situation. He also let the committee know that
Commissioner Fischer of the Department of Administration
would be reviewing some information concerning union
contracts.
HOUSE BILL NO. 1001
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs, capitalizing funds, making
reappropriations, making capital appropriations, and
making appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for
an effective date."
1:09:54 PM
Co-Chair Neuman recognized Senator Giessel and
Representative Josephson in the audience.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION (LFD),
directed the committee's attention to the provided handout.
He began his presentation with slide 1. He pointed the top
chart showing unrestricted general fund (UGF) revenue and
expenditures. The expenditure line [Budget] was depicted in
red. It decreased from FY 14 to FY 17 and remained flat
afterwards. He suggested that the spreadsheet was
changeable; expenditure assumptions could be adjusted up or
down. The baseline was shown on the slide. He continued to
explain that the blue line represented the Department of
Revenue (DOR) fall revenue forecast. He pointed out the gap
between expenditures and revenue, referred to as the fiscal
gap or the deficit. The deficit was close to $4 billion in
FY 15 and over $3 billion or $3.2 billion in FY 16. The
deficit simply meant the state spent more money than there
was revenue resulting in depleted reserves as shown in the
lower graph on the slide. The Constitutional Budget Reserve
(CBR) was shown in blue and the statutory Budget Reserve
(SBR) in red. The SBR was expected to be depleted entirely
in the amount of $2.8 billion in FY 15. In addition the
state would be using some of the CBR balance. The CBR
balance by the end of FY 15 would be about $9.2 billion.
Each year there was a deficit the reserves went down.
Mr. Teal continued that many people looked at the graph as
if there was not a problem because reserves extended out
until 2025. The state's fiscal problem became evident if
the fall forecast for revenue was changed. He suggested
looking at the spring forecast.
1:13:18 PM
Co-Chair Neuman welcomed Representative Vasquez to the
meeting. He asked Mr. Teal to refer to the top chart
pointing out the increase in revenue. He wondered about the
price of oil per barrel assuming production of 500 thousand
barrels per day.
Mr. Teal stated that production was currently about 500
barrels of oil per day but was falling. He referred to the
third LFD chart in member packets (copy on file). He
indicated that the chart showed the price of oil reflecting
the spring revenue forecast. He surmised that part of the
problem was that in looking at the fall versus the spring
forecasts the fall forecast was higher. There was not a
great deal of difference over several years. However, in
the near future there was $1 billion or more of a
difference. The actual price of revenue was predicted to go
from the low to mid $60s for the forecast for FY 16,
rapidly recovering and climbing higher than any prices
Alaska had experienced previously. Looking at the graphs
again where the fall forecast showed reserves declining and
comparing it to the spring forecast that showed a minor
change, adding them together resulted in the reserves no
longer lasting beyond 2025; they would be gone by 2022. The
prices in the forecast were at higher levels that Alaska
had seen.
Co-Chair Neuman acknowledged Representative Kito III in the
audience.
Vice-Chair Saddler asked about DOR's revenue forecast and
the outlook for production for the following 4 years. He
wondered if the department's numbers were known, proven, or
probable.
Mr. Teal stated that DOR changed its forecasting
methodology. The department used to be criticized for
overestimating production and at the same time
underestimating pricing. The result was that the production
and price estimates canceled each other out. The overall
forecasts were fairly accurate. However, DOR changed its
forecasting practice 3 years previously. The forecast
included known numbers and different probabilities for
future production, depending on where producers were in
their process. If they were making investments towards
production it indicated high probability. If the producers
simply found oil it did not factor into the forecast as
heavily. The Department of Revenue did adjust for the
probability of future developed fields.
Vice-Chair Saddler suggested that some people would say
that every forecast was wrong. He understood that a person
could not predict the future exactly. He asked if the
forecasting was more accurate than in the past 10 to 20
years.
Mr. Teal believed the production forecasts were more
accurate. Production was on the constant decline. He
pointed to production figures on a page (copy not on file0.
He indicated that current production was about 500
[thousand barrels per day] and was anticipated to drop to
400 and below in the near future. He explained that even
with high oil prices, the production decline caused total
revenue to be lower than in other years with similar
prices.
1:18:47 PM
Representative Gara stated that he did not want to engage
in a debate about prior oil taxes. However, he was
realistic about having to discuss ways to raise revenue
including oil or other proposals. He wondered whether the
chart seemed to show that at high prices ($110 or $120 per
barrel of oil) the state used to be able to generate a
surplus. He suggested that under SB 21 [Oil and gas
production tax legislation which passed in 2013] at high
prices the state was not able to generate surplus. He asked
Mr. Teal to share his views on the subject.
Co-Chair Neuman remarked that Representative Gara was
digressing away from the legislation before the committee.
Representative Gara was not trying to go backwards but
forwards into the future. He mentioned firing every Juneau
employee and still not being able to fund the budget. He
emphasized the need to do something.
Mr. Teal indicated that from his perspective the oil tax
structure currently generated more revenue than under
Alaska's Clear and Equitable Share (ACES). It was more a
philosophical or a political argument rather than a
technical argument. Some people looked at the situation and
said that high prices revenue remained low. It primarily
had to do with the loss of production because the price of
oil did not matter if there was not any to sell. He
concluded that no matter what the tax was, the difference
was between the tax mechanisms that change from one price
to another.
Co-Chair Neuman redirected the committee to focus on the
current legislation.
1:21:26 PM
Representative Gara remarked that it was an issue that
would have to be addressed.
Co-Chair Neuman responded that the topic was the state's
current fiscal situation.
Representative Gattis summarized Mr. Teal's previous
statement. She thought he stated that with current prices
the state was getting more for its oil than it would have
without SB 21. She really wanted to be clear because of the
current reality; the state had low oil prices and a budget
the legislature was trying to balance.
Co-Chair Neuman acknowledged Senator Donnie Olson in the
audience.
Vice-Chair Saddler referred to the second chart on the
first page, "Budget Reserves by CBR and SBR." He asked Mr.
Teal to differentiate the CBR from the SBR including their
origins and balances.
Mr. Teal explained that the SBR was established prior to
1990. It was established in recognition of the fact that
the state's primary source of revenue was oil and that it
had a volatile revenue source. Prices were volatile and
therefore the revenue was volatile. In order for government
to function reserves were needed. The state began setting
aside money in the SBR. In 1991 there was a constitutional
amendment creating the CBR fund. At the time the balance of
the SBR was transferred into the CBR. The big difference
was that the SBR was available to spend at any time at any
amount with a simple majority vote. The Constitutional
Budget Reserve required a super majority vote of three-
quarters in each house in order to access it. Access was
also possible with a simple majority under certain
conditions; those conditions had not been met since 1990
when it was established.
Vice-Chair Saddler relayed the information that he was
providing to his constituents. He discussed how the funds
were specifically set up by the legislature and the people
to provide savings that the state could draw on to pay the
expenses of government when day-to-day oil income was no
longer sufficient, a situation that the state currently
faced. He asked if the CBR and SBR were established for the
reasons he cited.
Mr. Teal acknowledged that Representative Saddler's was a
fair assessment. He added that there were two reasons for
having reserves. The first was to cushion short-term
volatility such as with a short-term decline in oil prices
accompanied by overestimated revenues in a given year. The
reserves would be available as a shock absorber when
forecasts were off. The second reason had to do with a
prolonged shortage of revenue. The reserves would then be
used as a long-term shock absorber. The reserves were never
meant to be large enough to address a structural deficit.
He clarified that a structural deficit was defined as a
long-term deficit. The reserves were really established to
address revenues below expenditures. However, when the
state had excess revenues money would be added back into
the reserves. He mentioned the difficulty of cutting
positions and programs and trying to reestablish them when
revenues recovered, hence the reserves. He reiterated that
it was meant for bouncing the expenditure line around. It
was a different issue when the state was constantly below
the expenditure line.
1:26:30 PM
Vice-Chair Saddler commented that many people often thought
that the legislature spent money and did not pay it back.
He asked for a brief history about how well the CBR was
repaid for previous draws.
Mr. Teal responded that whenever money was removed from the
CBR it implemented a section of the constitution that was
referred to as a "sweep." Whenever the state took money
from the CBR, the general funds and all sub funds were
swept at the end of each year into the CBR to replenish the
fund. The fund reached a higher balance in 2013. The state
had reserves of about $16 million in FY 14. However, the
state had massive deficits burning the reserves quickly. As
long as there was a gap in the budget the state would
continue burning the reserves. In the end, once the
reserves were gone and the deficits remained ongoing, there
was no choice but to reduce expenditures all the way down
to revenue levels or generate new revenues.
Representative Wilson understood the vote of 21 to access
the SBR and that the account would be exhausted at the end
of FY 15. She also understood that it took a three-quarter
vote to access the CBR. She wondered if there was any
provision in the constitution that anticipated a decline in
oil production excluding price. She asked if any other
savings accounts were instituted other than the SBR and CBR
that could be accessed if needed.
Mr. Teal stated that the first of the accounts was the
Permanent Fund. The Permanent Fund structure did not allow
the fund's principal to be spent. However, the earnings of
the fund were designed for use when oil revenues tapered
off to the point that it no longer supported government.
The expectation was that the state would begin using the
Permanent Fund earnings. The state did not have any other
large savings accounts unless endowments were included
(e.g. Power Cost Equalization (PCE) fund). Co-Chair Neuman
remarked that the PCE fund had a balance of approximately
$1 billion. Mr. Teal confirmed Co-Chair Neuman's figure. He
also considered the Alaska Higher Education Investment Fund
to be an endowment; the fund had a balance of about $460
million. The last fund he looked at as an endowment was the
Public School Trust Fund, which had about $1.2 billion
until it was emptied in the current budget cycle. He
reported that there were no other funds that remotely
approached balances of more than $100 million or more.
1:30:28 PM
Representative Wilson wanted clarity regarding the
Permanent Fund. She understood that the Permanent Fund
basically had two pots of money, one from which dividends
were paid and one containing earnings. She wondered if she
was accurate. She wanted to confirm whether there were
additional assurances put into place when the constitution
was formulated.
Mr. Teal explained that the Permanent Fund had two
accounts: the corpus account and the earnings reserve
account. The corpus could not be touched as outlined in
Alaska's constitution and the earnings reserve account held
all of the earnings of the principle and the earnings
reserve itself. In other words, all of the earnings of the
fund accumulated in the earnings reserve account. Dividends
were paid from the earnings reserve account, which had a
balance of $8.5 billion. Dividends were based on a five-
year moving average of realized earnings, roughly $1.4
billion in 2015, and the state paid inflation proofing. If
the earnings from the fund were greater than dividend
inflation proofing then the earnings reserve account grew.
The growth of the earnings reserve account depended on the
rate of return on investments of the Permanent Fund.
Representative Wilson had heard that the state could fire
all of its employees several times over and not make up the
state's deficit. She speculated that much of the state's
issues had to do with formula programs, programs that the
state paid out. She provided examples including Medicaid
and the school formula (money the state paid out in
grants). She mentioned the state previously capping some of
the programs. She wondered if the state should be looking
more at the cap approach versus an unlimited amount of
money being paid out for programs.
Mr. Teal detailed that in the past there had been a number
of formula programs that had been prorated. In order to
prorate formula programs statute had to be in place to
allow the state to do so. There was statutory language in
the education formula regarding prorating. There was also
statutory language regarding PCE. Some formula programs
such as Medicaid were considered entitlement programs,
meaning that if an individual was eligible and had need of
the program, services would be paid. It was not a matter of
prorating Medicaid because it would difficult to determine
when to begin prorating. He suggested the hypothetical
scenario of cutting people off saying that no one could get
sick after May. He emphasized that Medicaid would be a very
difficult program to prorate. However, it did not mean that
Medicaid was uncontrollable. It meant that there were other
methods for controlling Medicaid costs such as waivers.
Every state was allowed, to some extent, to design its own
Medicaid program both in terms of who was covered and what
services were covered.
1:34:51 PM
Representative Wilson remarked that the state had a
complicated budget. It was not simply addressing one area
of costs.
Co-Chair Neuman interjected that some questions were very
important in order for the public to understand what
legislators discussed regularly.
Representative Wilson asked about options the department
might have in controlling costs versus changing or
implementing statutes. She wondered if the department could
make a change in formulas or if such changes would have to
occur by changing the law.
Mr. Teal responded that both potentially applied. He
referred to a time two years earlier when the legislature
debated the permissibility of upper and lower ventures in
one year. Under Medicaid rules the state could receive one
per year. Most changes would have to come through statute
modifications. There were regulations that accompanied the
statutes. In the late 1990s and early 2000s the legislature
was very concerned about Medicaid costs escalating rapidly
and wanted better control of the costs. The department
responded that while it implemented regulations the
legislature would have to enact corresponding laws,
potentially a two-year process. Assuming the legislature
wanted to reform Medicaid, results would not happen
rapidly.
Co-Chair Neuman suggested the committee would hear much
more on Medicaid in the following week.
Representative Wilson used Medicaid as an example. She
remembered having a discussion a few years earlier about
the heating assistance program when the state was seeing
high costs for energy around the state. The federal
government had a limit on its funding. The state followed
suit by limiting the amount of assistance. After the first
year of the program existing without a cap the state
realized the overwhelming cost and initiated a limit. She
believed there were several formula programs within
different departments that could be capped. She indicated
she was trying to look at the larger picture keeping in
mind the history of oil price fluctuation. She understood
that imposing caps in statute was not a quick fix but might
be an example of one way to help with the deficit.
1:38:40 PM
Representative Gara asked about the governor's budget
numbers. He asked Mr. Teal if he could plug the governor's
budget numbers into a spreadsheet. Mr. Teal asked for
clarification about which numbers Representative Gara was
referring to. Representative Gara responded that he was
talking about the governor's budget numbers filed for the
current special session. Mr. Teal responded in the
negative. He suggested the numbers would not show in his
model.
Representative Gara asked Mr. Teal to show the current oil
prices (approximately $66 per barrel) and the decline in
budget reserves based on the budget passed by the Majority.
He wanted to know how quickly the state's savings would run
out. Mr. Teal relayed that he had entered $70 per barrel of
oil into his model.
Representative Gara asked Mr. Teal to input $66 per barrel
of oil. Mr. Teal responded affirmatively.
Co-Chair Neuman recognized Representative Drummond in the
audience.
Mr. Teal pointed out that the line hardly changed when
inputting oil prices between $65 and $75 per barrel. He
continued that at any price below $80 per barrel, revenue
was not very sensitive (the gap would be nearly the same
with prices between $40 and $70 per barrel). He explained
that at an oil price of $65 per barrel the state had a very
large, long-term, unsustainable, structural deficit.
Reserves would be gone before FY 19.
Representative Gara asked Mr. Teal to move the budget up by
$79 and then down by $79 in order to see the effect on the
time in which the state savings were depleted.
Mr. Teal changed the line on the chart from $20 to $90 for
the capital budget. It did not matter where the money was
spent. It reflected an increase of $70. He pointed to the
line that moved on the chart.
1:42:03 PM
Representative Gara asked for verification that whether the
chart moved up or down by approximately $70 million the
state reserves would decline to zero in about three years.
Mr. Teal responded affirmatively.
Representative Gara directed attention to questions asked
by Representative Wilson about using the earnings reserves
of the Permanent Fund. He expressed that he was not a fan
of the idea. He received a memo from Legislative Legal
Services indicating that if the state spent from the
Permanent Fund earnings reserve it would result in lower
dividends. He wondered if Mr. Teal disagreed with the
conclusion.
Mr. Teal responded that if that was all the state did, any
money removed from the Permanent Fund on a perpetual basis
would reduce dividends in the future. The reduction would
be phased in over a five-year period.
Co-Chair Neuman welcomed Representative Pruitt to the
meeting.
Representative Gara had an additional problem with using
the earnings reserve. He suggested that even though people
saw a high number of $8 billion, the figure fluctuated. He
relayed that in 2008 and 2009 when the stock market
performed poorly the earnings reserve of the Permanent Fund
was so low that the state came close to not having enough
for a dividend payout. He continued that in high stock
market years there was a significant amount in the reserves
fund. He asked if it was fair to say that the reserves
account went up and down based on market performance. Mr.
Teal replied in the affirmative.
Representative Gara stated that some people thought the
economy was in for a stock market retraction. If the
Legislature began spending from the earnings reserve of the
Permanent Fund there would be a chance that there would not
be enough money in the fund to pay a dividend and
inflation-proof the fund. He asked if he was accurate.
Mr. Teal responded that the earnings reserves moved up and
down no matter what the state did. If the stock market
performed well then there would be plenty of money to pay
dividends, inflation-proof the fund, and add to the
reserves. If there was a bad year in the stock market the
reserve balance could fall. He furthered that if inflation
proofing and dividends exceeded the amount of earnings in a
given year then the balance would fall. He believed it was
in 2008 or 2009 that the state came very close to having an
insufficient balance in the fund to pay dividends.
1:45:08 PM
Representative Gara referred to Mr. Teal's presentation on
page 1. He asked about the top chart that showed a flat
line of spending. He commented that with population growth
and inflation, the flat spending line indicated less and
less money per person in the state in real dollars. He
asked if he was correct. Mr. Teal replied in the
affirmative.
Representative Gara asked whether more cuts would be
required if the state's spending remained flat. Cuts could
include reductions to education on a per-person basis, to
senior services on a per-person basis, or to other
services. He wondered if he was correct.
Mr. Teal responded that Representative Gara was correct. He
noted that if the budget remained flat and was not
increased for inflation purposes, it would have the same
impact on spending as a cut as large as inflation.
Representative Gara opined that the budget before the
committee was not a sustainable budget unless the
legislature did something to increase revenues. Options for
generating revenues included imposing an income tax,
raising sales tax, or adjusting oil taxes. He asked Mr.
Teal if he agreed that the budget was not sustainable. Mr.
Teal did not believe the budget was sustainable.
Co-Chair Neuman informed the committee that the governor
had announced he would be having meeting in Fairbanks in
early June 2015. The governor had invited some people to
accompany him to discuss some of the fiscal issues. He
relayed that the governor was taking the lead on the
discussions.
1:48:10 PM
Vice-Chair Saddler made reference to the comment made by
the legislator to his left about the budget passed by the
Majority. In actuality, the legislature passed the budget.
He asked about Mr. Teal's comment about being surprised at
the large reductions the legislature was able to make. He
asked Mr. Teal to expound on his comment.
Mr. Teal pointed to Figure 3 [Page 5] of the packet. The
chart showed per capita UGF revenue and budget history
adjusted for inflation. It was directly responding to
Representative Gara's comments about how much the state
spent per person as inflation eroded the spending of the
expenditure and as there were more people to serve. He
highlighted that 2016 agency expenditures on a per capita
basis were as low as they had ever been previously. In the
early 2000s there were a few years were the state was
fairly close. There were two or three years where the state
was below current spending. There was always the question
anytime there was a deficit as to whether the state had a
spending problem or a revenue problem. The answer was one
of the two or a combination of both. He turned to the chart
and pointed out that when revenue increased in the 1980s
expenditures followed. He explained that the big capital
budgets were highlighted in yellow. Agency expenditures
also grew. He confirmed that the same thing happened after
2005; revenue jumped resulting in larger capital budgets
and agency budgets increased. They were presently on a
downward trend but at its peak the real per capita
expenditures were lower than in the 1980s. The state's
current level of spending was high per capita; there were
only 4 other years in history where the per capita
expenditures were higher. He did not see the situation as
an expenditure problem. He saw revenues as the problem.
Revenues on a per capita basis were by far the lowest since
1975. In reading across the chart the state had deficits in
the early 2000s with state revenues of about $4 thousand
per capita. He pointed to the $5 thousand dollar mark and
then at the mark of $3 thousand per capita in revenue.
Currently the state was at the lowest per capita in
revenue.
Co-Chair Neuman remarked that when looking at the agency
operations costs, represented by the dark blue lines, the
day-to-day agency operations, the state paid the same as
was spent in 1977 when the state likely had about less than
half as many people as it did now. He thought the chart was
interesting. He noted that when there was an assumption
that the legislature or the government spent a lot of money
per capita per person within the State of Alaska He asked
Mr. Teal if he was correct.
Mr. Teal invited committee members to turn to the last two
pages of the handout to further answer what the state was
doing in the current year. He referred to the Senate
version of the budget rather than the conference committee
budget. For the purpose of review it did not matter which
budget was being referred to. The point of the chart was to
determine how many years of spending was unwound in the
current year's budget. He highlighted in yellow, agency-by-
-agency, the budget closest to the FY 16 level of spending.
He summarized that on an overall basis, four years' worth
of spending was unwound. The state was back at spending
levels of FY 12. Some agencies were three years back and
some reached back as far as FY 08. He stated that there
were some massive reductions. He referred to Representative
Gara's question as to whether he was surprised at what the
legislature had cut. He relayed that he would have been
surprised to see a 5 percent reduction, but the actual
reduction was 9.9 percent. If the amounts were adjusted for
inflation, the legislature unwound approximately 7 years'
worth of spending, back to FY 09 levels. He reiterated that
some agencies were more and some were less. He reported
that DHSS and DEED accounted for the largest expenditures.
The Department of Education and Early Development Education
took up over 30 percent of the state's budget, and DHSS
followed closely behind. Together the budget for DHSS ad
DEED made up 60 percent of the state's available UGF.
Budgets for the University of Alaska, DOC, and DOT were the
only other ones exceeding 5 percent of the overall budget.
Other departments were small in comparison.
1:55:42 PM
Co-Chair Neuman asked Mr. Teal to return to the chart on
page 9 of the handout that showed agency operations
adjusted for inflation 2014. He though it was an
interesting chart that basically described to the public
what the legislature recommended for reductions in state
government for the current year. He asserted that the chart
reflected a dollar-for-dollar evaluation adjusted for
inflation. He suggested that the legislature rolled back
agency operations worth more than half of the departments
within the State of Alaska. He opined that it was a fairly
dramatic reduction. At the same time the state lost 60
percent of its revenue stream in the previous fall within 5
or 6 months. The legislature reacted to try to slow down
the burn rate of spending in order to ensure funding
availability in the state saving accounts for government
into the future. Many of the department budgets, almost
half of them, were rolled back 7 or 8 years. He noted his
concerns in reducing the budgets for DOC and DPS that might
have long-range effects on the economy such as job losses.
Even these budgets were rolled back 4 years. He indicated
that the page told him more about what the legislature did
to reduce agency operations within state government. He
highlighted that it showed how many years were rolled back
department-by-department. He emphasized the descriptiveness
of the page.
Vice-Chair Saddler stated that people from his district had
been telling him that the legislature should prioritize
these items. As he looked into the audience he saw many of
the people who had been authors of those messages. The
chart before the committee showed clearly that the
legislature had and continued to prioritize education and
health and social services. He wished the press were
present so that they could carry the message to their
viewers and readers. He believed it was an important
message Alaskans deserved to hear.
Vice-Chair Saddler told of his experience hearing from
people that the state government was bloated and that it
was spending more and more of whatever it had. The previous
chart contained UGF revenues. He clarified that the state
did not have a bloated government. The state generated the
lowest revenue per capita in many years. He asked if he was
correct.
Mr. Teal stated that Vice-Chair Saddler was correct that
the state was at $5 thousand per capita agency spending. He
asserted that agency spending was discussed because of both
the formula and non-formula funds running through the
agencies. The other spending was capital in yellow and
statewide expenditures depicted in light blue. The number
equaled $1.5 billion. Luckily half of the money was the tax
credits and $200 million of debt service monies, and $250
million for retirement.
1:59:30 PM
Vice-Chair Saddler referred again to the blue lines in the
previous two year. He wondered what percentage of the solid
blue line indicating agency operations actually accounted
for DEED and DHSS expenditures.
Mr. Teal restated that DHSS and DEED had remained at about
60 percent of the budget. He added that the growth rates
had been remarkably similar for formula programs and non-
formula programs.
Co-Chair Neuman asked, "So, about two-thirds for that
line?"
Vice-Chair Saddler interjected, "I call that a priority."
He indicated that in the past some state leaders had wanted
to limit the drawdown of the CBR balance to a certain
level. He wondered if it was prudent to ensure that there
was some amount left in the CBR to act as a cushion, a
level below which the CBR should not be drawn. He
understood his question might be a policy question that Mr.
Teal should not answer. He also asked if there were any
structural problems with drawing the CBR down below a
certain level.
Mr. Teal remarked that it was a policy choice. He indicated
he liked a certain level [Note: Mr. Teal referred to a
level on a chart not specified]. He relayed that his job
was to make sure the legislature did not get into fiscal
problems. People who wanted to see a higher level of
expenditures might be comfortable with a certain level
during a year or more of a bad deficit. He suggested that
the balance that was acceptable to the legislature should
depend on the volatility of revenue sources. If the state
relied on income tax, sales tax, property tax, and other
taxes, more stable revenue sources, then a higher level of
reserves would not be needed. Alaska currently had an
extremely volatile revenue source, which lead him to
conclude that the state also needed an extremely high level
of reserves. He corrected himself by saying that Alaska did
have a high level of reserves. He thought legislators had
been to National Conference of State Legislatures (NCSL)
conferences where reserve balances were discussed as a
measure of state fiscal health. In those presentations
Alaska was typically removed because its reserves distort
the entire nation's picture. He suggested examining why
Alaska needed a significant level of reserves. He asked how
anyone could budget when in one year the state had $9
billion and within two years the state had $2 billion. The
volatility in the state's revenue was larger than the
budget. Other states look at a 5 percent decline in revenue
as a major crisis.
Co-Chair Thompson asked if DOR had made any projections
associated with additional production as a result of
increased activity occurring presently or estimates
reflecting the effects of the expiration of tax credits at
the end of 2016.
Mr. Teal suggested that DOR might have the information but
he had not seen it. He relayed that DOR typically generated
a single production forecast. The forecast was risk-based
but included possible and probable production increases. He
believed that the production increases the department was
looking at were more than offset by the declines. The net
loss was going down to 400 [thousand barrels per day]
according to DOR projections. The Department of Revenue
could certainly change risk measures; however, he did not
have access to the numbers.
2:04:52 PM
Co-Chair Neuman believed that DOR forecasted $450 million
in small producer credits for the year, but the actual
credits equaled $700 million for the year.
Mr. Teal relayed that the small producer tax credits were
expected to decline. They were stacked to some degree in FY
15 and FY 16. He explained that part of the reason for the
decline from FY 16 to FY 17 was that the tax credits were
supposed to be declining from $700 million to about $250
million in a certain period [Note: Mr. Teal pointed to an
unspecified curve on a chart].
Representative Wilson wanted her constituents to understand
the options the legislature had certain questions. She
explained that her questions did not necessarily reflect
her position on an issue. She maintained that there was a
difference of opinion amongst committee members about
certain issues. She believed that there were things that
could be done to further reduce spending while others
preferred to spend additional money.
She opined that Alaskans had the right to be informed about
the state's different financial accounts, how they
correlated, and the growth of the accounts. She expressed
her displeasure with other members' interpreting the
meaning of her questions.
Co-Chair Neuman did not believe anything was meant to
offend Representative Wilson personally.
Representative Gara acknowledged that he had no idea about
the views of Representative Wilson. He remarked that all
members should be mutually respectful.
Co-Chair Neuman urged all members to do their best to be
respectful.
2:07:44 PM
Representative Kawasaki brought up Representative
Thompson's comments on projections for oil and gas tax
credits. He noted that DOR released historical information
on production tax credits. In his freshman year as a
legislator the state did not have any refundable oil and
gas tax credits. He continued that in the previous year
preliminary numbers were about $600 million in refundable
tax credits, $625 million in 2015, and $700 in the coming
year. He opined that the legislature should be reviewing
the amounts of the credits and the total amount. He
remarked that it was a "spend" and was within the state's
tax code. He asked if it should be part of the discussion.
Mr. Teal thought it was part of the discussion. Tax credits
were included in the forecast and were declining. The graph
did not provide a history but it was available. He
suggested that the tax credits had been fairly large.
Another way to look at the tax credits was to view them as
a loss of revenue rather than an expenditure. He explained
that it was debatable how to treat a tax credit. Certainly
the tax credits claimed by the major producers was a
reduction of revenue. The tax credits that were refundable
appeared as an expenditure. He asserted that both were
really reductions in revenue. If the expenditure line was
reduced by $700 million in conjunction with reducing the
revenue line by $700, the deficit would remain the same.
Co-Chair Neuman commented that there were a multitude of
tax credits involved.
Representative Kawasaki asked about the small producer
credits under SB 21 [Oil and gas production tax legislation
passed in 2013] amounted to $44 million in the previous
year, rose to $50 million, rose again to $60 million, then
began to taper off. He asked about the credits used against
tax liability and the refundable credits looked to be
increasing in the following several years. He relayed that
in FY 07 showed $600 million in tax credits, $1.4 [billion]
in FY 15, $1.2 [billion] in the following year, $1.3
[billion], and $1.8 [billion]. In terms of the
sustainability of the budget whether credits used against
the liability or refundable credits, which were actually
expenditures, the numbers seemed to be increasing according
to DOR. [Note: Representative Kawasaki referred to an
unspecified document]. Mr. Teal indicated that he did not
have the revenue forecast in front of him.
Co-Chair Neuman interjected that no one else on the
committee had the information Representative Kawasaki was
referring to.
Mr. Teal reported that when he looked at the information he
focused only on the expenditure side. He furthered that LFD
took the revenue forecast as a given. He had not looked at
the detail to determine what was built in by DOR and how
much was attributable to the regular tax credits for major
producers. He added that LFD did track tax credits more
carefully and relayed that they were projected to drop from
the current level of $700 [million] to roughly $250
[million]. After looking at his paperwork he confirmed that
the tax credits were supposed to drop from $716 [million]
to $400 [million] to $250 [million] in the future.
Co-Chair Neuman interjected that care had to be taken
because some of the credits were done under ACES
legislation and some were done under SB 21.
2:12:28 PM
Representative Kawasaki pointed out that when he first took
office there were no costs associated with tax credits. The
state did not have a refundable tax credit at all. It was a
very significant expense. He also noted that the credits
used against liability due to the per-barrel credit that
would come into effect soon seemed to keep growing off the
chart. He asked the presenter to refer to figure 3. The
light blue bars on the chart representing UGF revenue for
statewide operating costs would be growing. Whereas, the
dark blue representing agency operations such as funding
for schools and troopers would be declining. He opined that
it was alarming that the big blue line was not being looked
at as part of the problem.
Co-Chair Neuman remarked that he believed the committee
had. He explained that in looking at statewide operating
costs a moratorium on school bond debt reimbursement was
imposed, a statewide salary freeze was implemented for both
union and non-union employees, and there was a freeze on
education funding to name a few.
Mr. Teal responded that Representative Kawasaki was correct
that when he took office the tax credits did not exist.
However, the statewide operating costs in 2006 were less
than $300 million total. Statewide expenditures were
comprised of debt service. The legislature had started
issuing general obligation bonds. He reported that bonds
had been paid off at a certain point in time [Note: Mr.
Teal pointed to an unspecified place in Figure 3]. The
bonds were issued and currently the debt service was over
$200 million per year.
Mr. Teal continued to explain that in 2008 both retirement
costs and the tax credits began. The growth represented by
the blue line was primarily retirement costs. Both went to
$700 million in the current year. Retirement costs had also
climbed over $700 million in the previous year. The
legislature took action in the prior year depositing $300
billion of state assistance to the retirement funds as well
as applied the changes involved in re-amortization. These
actions reduced the amount to $250 million in the current
year. He commented that it was a massive $500 million
reduction in retirement debt. Currently, tax credits made
up half of the statewide budget. The legislature addressed
the other major statewide expenditures: bond debt and
retirement.
2:16:14 PM
Co-Chair Neuman added that the legislature reduced agency
operations by $444 million from the prior year to the
current year. Mr. Teal asked which document Co-Chair Neuman
was referring to.
Co-Chair Neuman responded that he was looking at the
spreadsheet numbered 1516.1 titled, Gas State Fiscal
Summary. He relayed that the state had $444 million in
agency operations and about $477 million in capital. He
noted that Mr. Teal had stated that there was $450 million
to $500 million less in retirement costs in the current
year because about $3 billion had been paid into the
retirement finds. Instead of having to pay $700 million in
the current year, the state had to pay about $200 million.
The state reduced the statewide agency operations by
approximately $1.4 billion from the previous year. Mr. Teal
agreed that what Co-Chair Neuman stated was true after
correcting for the retirement.
Co-Chair Thompson reported that the tax credits were put in
place due to declining throughput. The state had to do
something to encourage new investment, new drilling, and
new oil into the line. It was also done to encourage
production in Cook Inlet. He thought the credits were
working. All of a sudden the state went from brown-out
practices in Anchorage and the possibility that the state
would run out of gas to currently there was not a problem.
He relayed that have of the tax credits applied in the
previous year were associated with Cook Inlet. There were
small producers on the North Slope drilling, exploring, and
discovering new oil, confirming that the tax credits were
working. Also, the amount of equipment the Alaska Railroad
was shipping to the North Slope, such as drill stems, pipe,
and equipment was at an all-time high over the previous ten
years. He elaborated that there was three times the tonnage
that was hauled to the North Slope in the current year
compared to the prior year. The tax credits were also being
reduced. The state reached $750 million in tax credits in
the current year, a surprise to the state. Both ACES and SB
21 credits applied. The state doubled up because there was
an expedited amount of time for producers to submit them.
The state was projected to payout $250 million in credits.
He reemphasized that the tax credits had worked. Once oil
was found it took two to three years to build
infrastructure before the oil hits the line. The state
would not see immediate results. However, he felt that the
state would see a turn-a-round and an increase in
production.
Co-Chair Neuman noted that there would be plenty of
discussions on oil and gas taxes in the future.
2:19:40 PM
Representative Munoz agreed with Co-Chair Thompson that
there was a combination of tax credits for Cook Inlet and
the North Slope under two different structures (one under
ACES and one under SB 21) that equaled the $700 million and
were expected to go down in the following few years. She
thought it was very fair to tell the entire story when
discussing the tax credits.
Representative Gara agreed with Representative Munoz and
Representative Thompson that smartly written tax credits
encouraged production. However, the state had to have an
oil tax that could afford the credits, which he thought was
the problem. He commented that the state had probably saved
itself roughly $750 million by paying down the retirement
debt. Had the state not chosen to do so, the current
retirement payment would have equaled about $1 billion
rather than $250 million. Although the savings did not show
anywhere, the state had saved money by paying down the
debt. He reemphasized a savings of about $750 million in
the current year and wanted to verify his number.
Co-Chair Neuman thought the retirement expenditure was
going to be about $700 million instead of $1 billion.
Mr. Teal relayed that depending on the amortization method
used (the Alaska Retirement Management Board preferred
level dollar) the payments would have been just over $1
billion in the current year instead of $250 million that
the state was paying.
Representative Gara gave credit to the good bi-partisan
work that was done.
Co-Chair Neuman asked committee members to be mindful of
the time as the Department of Administration was also
present to discuss union contracts before the end of the
meeting.
2:23:07 PM
Representative Gara stated that the cloud over everyone's
heads was the impending government shutdown. He asked about
the state's financial status if the legislature remained at
an impasse on the budget beyond July 1, 2015. He had heard
from OMB that there was money available as a result of
delaying payments to maintain government operations through
August 27, 2015. He wondered if there was also a
continuation budget for FY 16 to keep operations running.
Mr. Teal stated that the legislature was not like the U.S.
Congress where there was an option to pass continuing
resolutions. The legislature either passed a budget bill
and made the appropriations or did not. Congress had an
authorization and an appropriation process. If the state
did not have a signed appropriation bill the state could
not spend money from the treasury. He was uncertain of
Representative Gara's reference to a plan, but there was
not a continuing resolution that would take effect to
enable spending if a signed budget was not in place.
Co-Chair Neuman remarked about previous votes on the House
floor that failed. He discouraged members from entering
into a discussion about those votes.
Representative Gara believed it was clear that without a
budget by July 1, 2015, there would be no funding [for FY
16]. He asked if he was correct. Mr. Teal responded in the
affirmative.
Co-Chair Neuman added, "If there is no money, there is no
money."
Vice-Chair Saddler asked if there had ever been a situation
in which the governor had introduced a new operating budget
before signing or vetoing a budget bill passed by the
legislature and transmitted by the legislature. Mr. Teal
did not believe so; however, he could not swear that it had
never happened.
2:26:49 PM
Representative Gattis cited that the legislature had been
unable to get the votes to access the CBR to fully fund the
FY 16 budget. She asked Mr. Teal if he was familiar with
any other economists such as those at Commonwealth North,
and at the Institute of Social and Economic Research
(ISER). She relayed that in ISER's report there were some
technicalities that, upon further research, may allow for
access to the CBR and the use of income from the Permanent
Fund. Mr. Teal had not seen the report Representative
Gattis was referring to.
Representative Gattis wanted to look at all of the options
including those suggested by outside experts. She reported
that the House was four votes short of passing a budget.
Co-Chair Neuman responded that there were many options and
the legislature would be looking at every possible option
available.
2:28:51 PM
AT EASE
2:34:42 PM
RECONVENED
Co-Chair Neuman reviewed the history of the union
contracts. He reported that in the present year the
legislature passed legislation that froze salaries at the
current level eliminating increases in salaries for union
and non-union employees. The changes were made in an effort
to slow down the growth of government. Although the salary
increases were frozen, step increases were not affected and
equated to approximately $32 million per year. The salary
increases for non-union employees totaled about $18 million
and salary increases for union employees equaled
approximately $35 million or $36 million. The discussion
that was to pursue would focus on the governor's request in
HB 1001 to finance a salary increase of 2.5 percent for
union employees to honor year three of the state's union
contract.
Representative Gattis asked the commissioner to explain
some terms, such as "step", for individuals working in
private industry.
Co-Chair Neuman suggested that the department provided
definitions on the first page of the presentation.
2:36:43 PM
SHELDON FISHER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION,
expressed his thanks for the opportunity to appear before
the committee. He explained that due to the time constraint
he would be moving quickly through the slide presentation
to allow time for questions at the end. He would focus on
the monetary terms and potentially the bargaining process
if time allowed.
Co-Chair Neuman asked Commissioner Fisher to explain step
increases. Commissioner Fisher indicated the answer to Co-
Chair Neuman's question was part of the slide presentation.
Commissioner Fisher referred to slide 3: "Bargaining Units
(BU)":
Contracts That Expired on June 30, 2014 (Number of
Employees)
· IBU -Inlandboatmens' Union of the Pacific (624)
· MEBA -Marine Engineers Beneficial Association (94)
· MMP -Masters, Mates and Pilots (98)
Contracts That Expire on June 30, 2015
· ACOA -Alaska Correctional Officers Association (947)
· LTC -Public Employees, Local 71 (1,690)
· TEAME -Teachers' Education Association of Mt.
Edgecumbe (29)
Contracts That Expire on June 30, 2016
· ASEA -Alaska State Employees Association (8,303)
· APEA -Alaska Public Employees Association (2,278)
· CEA -Confidential Employees Association (188)
Contracts That Expire on June 30, 2017
· AVTECTA -Alaska Vocational Technical Center Teachers
(38)
· PSEA -Public Safety Employees Association (491)
Non-Covered -Exempt, Partially Exempt and Excluded
(1,378)
Commissioner Fisher outlined that the state had 11
bargaining units (BU). Each BU negotiated three-year
contracts. He pointed out that the first three BU contracts
expired in the prior year and were negotiated the previous
fall as well as the first contract for the Alaska
Correctional Officers Association (ACOA). The monetary
terms of these four contracts, representing a little over
12 percent of the state's workforce, were before the
legislature for consideration. The department was currently
in negotiations for the following two contracts for the
Public Employees, Local 71 (LTC) and the Teachers'
Education Association of Mt. Edgecumbe (TEAME); the two
units equaled about 11 percent of the state's workforce. He
furthered that in the fall of the current year,
negotiations would begin for contracts that expired on June
30, 2016 representing about 73 percent of the state's
workforce). He pointed out that the contracts currently
before the legislature in addition to contracts it would
consider the following session, represented roughly 95
percent of the state's overall workforce. He would be
discussing it further as he went through the presentation.
2:39:12 PM
Commissioner Fisher turned to slide 4: "Monetary Terms":
In addition to negotiated Cost of Living Adjustments,
State employees receive:
Merit Increases
· Steps A-F (A-G for General Government Unit members)
on the salary schedule;
· Represent an increase of approximately 3.5% every
year providing the employee's performance is
considered "acceptable or better;"
· Automatically awarded unless a proactive action is
taken to deny the merit increase through a timely
performance evaluation.
Pay Increments
· 3.25% increase awarded every two years providing the
employee's performance is "acceptable or better;"
· For administrative purposes, pay increments are
designated as steps J and above on the salary
schedule;
· No limit as to how many pay increments an employee
can earn.
Commissioner Fisher offered that there were two or three
concepts related to the growth in wages for an individual
employee. The first was a cost of living adjustment (COLA).
There had been significant discussion about the adjustment,
which he would detail in a following slide. The cost of
living adjustment was intended to address inflation and to
protect employees from adjustments in inflation.
Commissioner Fisher continued that there were two
additional concepts that were referred to as step or merit
increases and pay increments. He explained that merit or
step increases occurred within the first five years of
employment with the state. Each year, in addition to a cost
of living increase, an employee received a 3.5 percent
increase. Following the first five years and six years for
the General Government Unit (GGU) pay increments kicked in.
Pay increments were provided every two years and equaled an
increase of 3.25 percent. He summarized that the salary
increases an employee received in their lifetime was
comprised of COLA increases (merit increases for the first
5 or 6 years of employment) and pay increments.
2:41:49 PM
Commissioner Fisher referred to slide 5: "Monetary Terms."
He noted that there were other monetary terms relating to
differential, travel pay, and training that factored into
BU negotiations.
Commissioner Fisher continued with slide 6: "Sample
Historical COLAs and CPI Comparison." The slide provided a
sense of the Consumer Price Index (CPI) increases as well
as the negotiated COLA increases for the previous 10 years.
Over the past 10 years there had been an approximate 23
percent increase in the CPI. Each BU had a story associated
with the CPI percentage. Sometimes the BUs wanted something
else in lieu of receiving a portion of the COLA increase,
for example. The slide depicted a range of 24 percent to 14
percent. Additionally, in the third column from the left,
under the heading "Non-Covered", employees received 24
percent. Essentially the practice had been to give the
state's non-covered employees the same COLA increase that
had been negotiated with the state's supervisory union.
Commissioner Fisher advanced to slide 7: "Built-In Wage
Escalation: COLA + Longevity." He suggested that the slide
highlighted the salary increase that an employee received.
He specified that the slide represented the GGU BU for a
10-year period from 2006 to 2015. Over the previous 10
years the combined COLA and merit increases resulted in a
63 percent hourly wage increase.
Commissioner Fisher moved to slide 8: "Average Yearly Base
Salary for FY 14." He highlighted that the slide showed the
average annual pay by the various units. It also accounted
for geographical differentials sometimes paid to attract
and retain people in high-cost areas but did not include
benefits.
2:44:51 PM
Commissioner Fisher skipped to slide 17: "Contractual
Terms." He indicated that there had been questions about
potential consequences if the legislature chose not to fund
and to reject the contracts, something the legislature had
the right to do. He explained that in each contract there
was a period of negotiations. For example, in looking at
the GGU or Alaska State Employees Association (ASEA)
contract the state was contractually required to enter into
negotiations.
Co-Chair Neuman asked for clarification about what type of
employees were part of the GGU or ASEA. Commissioner Fisher
replied that the GGU typically represented employees that
were secretaries, clerical workers, and some environmental
workers.
Co-Chair Neuman asked if GGU represented the majority of
state employees. Commissioner Fisher confirmed that GGU was
the majority of state employees. The GGU was the largest BU
with over 8 thousand members. If an agreement was unable to
be negotiated members could take a strike vote after a 10-
day period of renegotiations. All of the bargaining units
had some language in their contracts that required the
state to enter into negotiations and renegotiate if
necessary. He added that it was his interpretation that the
department would not be negotiating on monetary terms
because the legislature had already expressed its opinion.
Instead, it would be attempting to find other areas of
agreement that would continue to support the contract. He
reiterated the department's position that it was very
important to honor the contracts. He relayed that the
contracts were entered into in good faith. The employees
had relied upon them. He believed that if the legislature
rejected the contracts (specifically those contracts that
the legislature had previously approved the monetary terms)
it would make it more difficult for the state to negotiate
in the future, particularly if the state asked the unions
to forego a current benefit with a commitment to some
future benefit. The administration urged the legislature to
honor the commitments that had been provided to state
employees
Co-Chair Neuman asserted that most of what was covered in
the remainder of the handout was individual BU summaries.
He reiterated that all of the contracts were subject to
appropriation. He reviewed that the legislation that passed
reflected contract negotiations during a time when the
price of oil was over $100 per barrel versus the current
price below $50 per barrel of oil. The legislature chose to
find ways to reduce the budget. He expressed the difficulty
of making a decision not to fund the salary increases.
Several legislators delivered heartfelt messages on the
House floor on the issue. He expressed appreciation for all
of the hard work of state employees. The decision not to
continue to fund the increases had more to do with keeping
as many employees in their current positions at their
present salaries rather than people losing their jobs to
fund another employee's increases. He reemphasized that the
vote was very emotional for many House members.
2:50:33 PM
Vice-Chair Saddler referred to slide 2 [Note: Vice-Chair
Saddler was actually referring to slide 4 of the
presentation]. He asked whether the cost of living
adjustment was a separate increase from the merit increase
of 3.5 percent annually and the pay increment of 3.25
percent every two years. Commissioner Fisher responded
affirmatively. He elaborated that employees saw both the
cost of living adjustment and either the merit increase
within the first five years or the pay increments
thereafter.
Vice-Chair Saddler asked about the percentage of employees
who did not qualify for merit or pay increases.
Commissioner Fisher responded that the only employees that
would not qualify for a merit or pay increase were those
who had been rated below "acceptable." He thought the
percentage was less than 1 percent.
Vice-Chair Saddler asked the commissioner to confirm that
99 percent of state employees received automatic increases.
Commissioner Fisher answered, "Yes."
Representative Pruitt referred to slide 4 concerning the
merit increase discussion. He understood the merit increase
existed only for the first six years of employment. He
wondered if the term was set to zero again if an employee
was promoted to a different position.
Commissioner Fisher offered that it depended on the
position and the individual's circumstance. It may or may
not start again.
2:52:29 PM
Representative Pruitt wanted to better understand the
impact of not honoring the already-agreed-upon union
contracts and how it might affect the state's ability to
negotiate contracts in the future. He noted he was looking
at slide 17 outlining contractual terms. He wanted to
better understand the timeline.
Commissioner Fisher explained the process of negotiations.
For example, the department would begin negotiations in the
fall of 2015 for those contracts that expired at the end of
June in 2016. The department would then come to the
legislature with monetary terms during the following
session. The monetary terms would be before the legislature
for approval or rejection prior to the expiration of the
contract. If the legislature accepted the monetary terms
then they would go into effect. If the terms were not
accepted additional negotiations would ensue. He opined
that there was an important distinction between rejecting a
previously negotiated contract approved by the legislature
and rejecting a contract that was being presented to the
legislature for approval for the first time. In the former
scenario where a contract was negotiated in good faith and
approved by the legislature, he felt it was important to
honor and respect the contract in order for the state to
maintain its credibility with the bargaining units.
2:55:33 PM
Representative Pruitt asked about what would happen if a
vote was taken at the end of session and the contracts were
voted down. He wanted to know what actions would follow.
Commissioner Fisher reported that the state would negotiate
a revised set of terms. Assuming that there was no
opportunity for the legislature to take action on it until
the following session, the state would in all likelihood
continue with the union under the current terms through
July until the legislature reconvened. In the event the
state has agreed to terms that the legislature approved
then a retroactive payment would be initiated to cover the
period.
Representative Pruitt asked about the current situation. He
wondered why "subject to appropriation" was included if it
was really not a tool in the legislative toolbox when the
state did not have money.
Commissioner Fisher responded that there was no question
that the legislature had the right to reject the contracts.
He agreed that it was a tool in the legislature's toolbox.
He and the administration believed that there were
consequences that would follow from the legislature
breaking the contract. He continued that he believed the
consequences would be more costly in the end. The governor
had signaled to DOA and DOA had signaled to the BUs that
the state intended to negotiate very aggressively any
future contracts.
2:59:05 PM
Representative Gattis wondered why non-exempt [exempt]
employees would not want to become union employees if the
legislature honored only the union employee salary
increases. She argued that the state was sending mixed
messages when it did not honor all of its employees. She
was concerned about sending a message to all Alaskans that
one group of individuals would receive their increases
while another group would not. She felt such an action
would encourage employees to join a union. She opined that
it was a poor message to convey. She also wanted to make
sure that all state workers understood that the state was
on a fiscal cliff. She stated emphatically that the state
had to do something different.
Representative Wilson commented that the state negotiated
the terms with what it had. She did not believe that the
legislature was being disrespectful by rejecting the
negotiated contracts. She expressed her appreciation to all
state employees for the work they do throughout Alaska. She
opined that she did not see the rejection of the negotiated
contracts as a loss of credibility. She argued that it
would be different if the state had a significant amount of
money. She asked why the administration did not approach
the unions in the prior months of December through April
since it did not like the legislature's decision. The state
did not have money. She wanted to know why the commissioner
had not approached the unions, rather than making the
legislature do it.
Commissioner Fisher was uncomfortable with revealing any
conversations with the unions. He did say that the governor
had explored every possible option.
Representative Wilson relayed that in a previous discussion
she had suggested that Commissioner Fisher or someone from
DOA approach the unions with the question about what they
preferred: increasing wages but loosing employees, or
keeping employees but not receiving increases. She wondered
if anyone had gone to the unions with the two scenarios she
suggested.
Commissioner Fisher indicated that there had been long
conversations with the bargaining units about the
consequence of maintaining the COLA's. The unions had been
clear on their position that the contracts should be
honored.
Co-Chair Neuman drew attention to the commissioner's
comments about honor and respect regarding the contracts.
He opined that, no matter what position a person took,
every person in the legislature and in the administration
honored the state employees.
3:03:19 PM
Co-Chair Thompson reviewed the agenda for the following
week that were to be held in Anchorage at the Legislative
Information Office.
Co-Chair Neuman thanked the members and the presenters for
their participation.
HB 1001 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
3:05:01 PM
The meeting was adjourned at 3:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 1001 HFC Teal Presentation.pdf |
HFIN 5/8/2015 1:00:00 PM |
HB1001 |
| HB 1001 Admin House Finance Presenatin 5 8 15.pdf |
HFIN 5/8/2015 1:00:00 PM |
HB1001 |