Legislature(2013 - 2014)HOUSE FINANCE 519

02/27/2013 01:30 PM FINANCE

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01:34:43 PM Start
01:35:52 PM Presentation: Department of Administration on Contract Negotiations
02:33:56 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: "Understanding Labor Contracts" by TELECONFERENCED
Dept. of Administration
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 27, 2013                                                                                          
                         1:34 p.m.                                                                                              
1:34:43 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Austerman called the House Finance Committee                                                                           
meeting to order at 1:34 p.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative David Guttenberg                                                                                                 
ALSO PRESENT                                                                                                                  
Curtis   Thayer,   Deputy    Commissioner,   Department   of                                                                    
Administration;   Nicki   Neal,    Director,   Division   of                                                                    
Personnel, Department of Administration.                                                                                        
^PRESENTATION: DEPARTMENT OF ADMINISTRATION ON CONTRACT                                                                       
1:35:52 PM                                                                                                                    
Co-Chair Austerman asked members to hold questions until                                                                        
the end of the presentation.                                                                                                    
CURTIS   THAYER,   DEPUTY    COMMISSIONER,   DEPARTMENT   OF                                                                    
ADMINISTRATION, introduced  department staff. He  provided a                                                                    
disclaimer  that  any  discussion  on  previously  bargained                                                                    
state contracts was not an  indictment of past practices. He                                                                    
relayed  that  all contracts  had  been  bargained with  and                                                                    
agreed to by  the state and parties. He  added that historic                                                                    
bargaining priorities  may have been different  than current                                                                    
priorities.  He provided  a  PowerPoint presentation  titled                                                                    
"Alaska  Department of  Administration: Understanding  Labor                                                                    
Contracts" dated February 27, 2013 (copy on file).                                                                              
Mr. Thayer moved to slide 2 titled "Bargaining 101":                                                                            
     · Negotiations are mandated by the Public Employment                                                                       
        Relations Act (AS 23.40.070-23.40.250).                                                                                 
     · Bargaining begins in accordance with the terms set                                                                       
        forth in the collective bargaining agreements but                                                                       
        generally commences between the months of October                                                                       
        and December.                                                                                                           
     · The State must negotiate and enter into written                                                                          
        agreements on matters of wages, hours and other                                                                         
        terms and conditions of employment. These are                                                                           
       considered mandatory subjects of bargaining.                                                                             
          o For example: cost of living increases, merit                                                                        
             increases, pay increments, leave accrual,                                                                          
             health insurance                                                                                                   
     · The State may, but is not required, to negotiate                                                                         
        permissive subjects of bargaining.                                                                                      
          o For example: classification, benefits for                                                                           
             retirees,   representation   of   non-permanent                                                                    
     · Monetary terms of the agreement must be submitted to                                                                     
        the Legislature no later than the 60th day of the                                                                       
        legislative session to receive consideration during                                                                     
        that calendar year (AS 23.40.215).                                                                                      
Mr.  Thayer elaborated  that  current contract  negotiations                                                                    
had commenced  in October 2012 for  the General Governmental                                                                    
Unit  (GGU) and  in January  2013 for  the Supervisory  Unit                                                                    
(SU).  He added  that  the state  was currently  negotiating                                                                    
with  both units.  The department  and  unions were  working                                                                    
together  to   submit  their  monetary  agreements   to  the                                                                    
legislature by  the March 15,  2013 deadline. He  noted that                                                                    
the legislature  was not  required to  look at  the monetary                                                                    
terms if they were not provided by the deadline.                                                                                
1:39:15 PM                                                                                                                    
Mr. Thayer continued to discuss Bargaining 101 on slide 3:                                                                      
     · If negotiations do not lead to agreement and                                                                             
        mediation fails, employees (except protective                                                                           
       service personnel) have the right to strike.                                                                             
     · Employees who are on strike do not get paid, but may                                                                     
        not be terminated because they choose to lawfully                                                                       
     · Striking employees may be replaced - either                                                                              
        temporarily for the duration of the strike, or                                                                          
        permanently under certain circumstances.                                                                                
     · Our goal is to reach a fair and balanced agreement.                                                                      
     Contracts areā€¦                                                                                                             
     · three years in duration                                                                                                  
     · typically bargained by the State on a cycle of 3-5                                                                       
        separate agreements each year (see next slide for                                                                       
Mr.  Thayer expounded  that contracts  were  required to  be                                                                    
negotiated at least  every three years. He  relayed that the                                                                    
department  was negotiating  with  two-thirds  of the  state                                                                    
employees  in   the  current   year  including   GGU  (8,500                                                                    
employees),  SU  (2,200   employees)  and  the  Confidential                                                                    
Employees Association (CEA).                                                                                                    
1:40:32 PM                                                                                                                    
Mr.  Thayer  turned  to slide  4  titled  "Bargaining  Units                                                                    
     Contracts That Expire on June 30, 2013  Number of                                                                          
     ASEA Alaska State Employees Association                                                                                    
          (GGU)                              8,231                                                                              
     APEA Alaska Public Employees Association                                                                                   
          (Supervisory Unit (SU))            2,219                                                                              
     CEA Confidential Employees Association  192                                                                                
     Contracts That Expire on June 30, 2014                                                                                     
     AVTECTA Alaska Vocational Technical Center                                                                                 
          Teachers                           39                                                                                 
     IBU Inlandboatmens' Union of the Pacific 654                                                                               
     MEBA Marine Engineers Beneficial                                                                                           
          Association                        99                                                                                 
     MMP Masters, Mates and Pilots           97                                                                                 
     PSEA Public Safety Employees Association 487                                                                               
     Contracts That Expire on June 30, 2015                                                                                     
     ACOA Alaska Correctional Officers                                                                                          
          Association                        777                                                                                
     LTC Public Employees, Local 71          1,675                                                                              
     TEAME Teachers' Education Association                                                                                      
          of Mt. Edgecumbe                   29                                                                                 
     Non-Covered Exempt, Partially Exempt                                                                                       
          and Excluded                       1,359                                                                              
Mr. Thayer noted  that the numbers provided on  slide 4 were                                                                    
from  June  30,  2012.  He explained  that  the  non-covered                                                                    
exempt    positions     included    commissioners,    deputy                                                                    
commissioners,   directors,   and   the  majority   of   the                                                                    
Department of Law (DOL).                                                                                                        
Mr.  Thayer   discussed  the  average  annual   base  salary                                                                    
excluding  benefits  on  slide 5.  Salaries  varied  broadly                                                                    
depending  on  the  association;   average  annual  pay  was                                                                    
$55,000  for GGU  members, $80,000  for SU  members, $75,000                                                                    
for  the Alaska  Vocational Technical  Center Teachers,  and                                                                    
$50,000  to $85,000  for the  various  maritime unions.  The                                                                    
average  employee benefits  accounted for  an additional  49                                                                    
percent  on top  of wages.  For example,  including benefits                                                                    
the average  SU pay  was close to  $120,000 and  the average                                                                    
GGU pay was close to  $80,000. The average annual salary for                                                                    
the non-covered  employees (DOL attorneys and  the executive                                                                    
branch) was $96,000.                                                                                                            
Mr. Thayer directed  attention to slides 6  through 8 titled                                                                    
"Contract  Negotiations  Now  Underway."  Slide  6  provided                                                                    
detail on GGU which had  8,941 budgeted positions (the 8,231                                                                    
figure  listed on  slide  4 represented  a  snapshot of  the                                                                    
number of employees on payroll  on June 30, 2012). Other GGU                                                                    
statistics included an average member  age of 44, an average                                                                    
service of 7.87  years, a $55,000 average  annual salary for                                                                    
full-time employees,  and a  total FY 12  gross pay  for all                                                                    
members  of  $414  million.  He noted  that  the  gross  pay                                                                    
figures excluded benefits. Slide  7 included the information                                                                    
for SU. Statistics included a  membership total of 2,240, an                                                                    
average  member  age of  49,  an  average service  of  13.69                                                                    
years, an  average annual salary for  full-time employees of                                                                    
$76,638, and $173  million in total FY 12 gross  pay for all                                                                    
members. Shown  on slide  8, the  CEA included  a membership                                                                    
total  of 201,  an  average  member age  of  42, an  average                                                                    
service of 8.26  years, a $55,000 average  annual salary for                                                                    
full-time employees,  and a  total FY 12  gross pay  for all                                                                    
members of slightly under $10 million.                                                                                          
1:44:15 PM                                                                                                                    
Mr. Thayer  looked at slide  9 titled "Monetary  Terms." One                                                                    
portion   of  the   monetary  terms   found  in   collective                                                                    
bargaining agreements  was the  cost of living  increase. He                                                                    
detailed that  a general wage  increase was provided  to all                                                                    
bargaining  unit members  typically effective  on July  1 of                                                                    
every  year  of the  agreement.  Beginning  around 2008  the                                                                    
state had changed the system  to include merit increases and                                                                    
pay  increments. He  explained  that pay  scale merit  steps                                                                    
went  from "A"  to  "F"; statute  designated that  employees                                                                    
received  a  3.5  percent  raise  on  an  annual  basis  for                                                                    
approximately the  first 6 years  of state service.  Once an                                                                    
employee reached the  "F" step they received  a 3.75 percent                                                                    
pay  increase  every two  years.  He  noted that  the  merit                                                                    
increases were  provided in addition  to the cost  of living                                                                    
Mr. Thayer discussed how merit  increases and pay increments                                                                    
factored into  overall costs (slide  10). He used GGU  as an                                                                    
example and explained that granting  a 1 percent increase in                                                                    
FY  14  would  cost  approximately  $6.6  million;  however,                                                                    
cumulatively  over  three  years  the  increase  would  cost                                                                    
approximately  $46.7   million.  Merit  increases   and  pay                                                                    
increments were  valued at approximately  $15 million  in FY                                                                    
14,   with  a   cumulative   total  over   three  years   of                                                                    
approximately  $105 million.  He detailed  that a  1 percent                                                                    
increase  added to  the merit  increases and  pay increments                                                                    
would mean  an additional  $150 million  in the  budget over                                                                    
three   years.  The   slide  also   included  the   detailed                                                                    
information for  the SU and  CEA. The cumulative  total over                                                                    
three  years  was  approximately  $60  million  for  SU  and                                                                    
approximately  $3  million  for  CEA. He  relayed  that  the                                                                    
figures did  not reflect vacancies or  employee turnover. He                                                                    
communicated that  employees hired to fill  vacant positions                                                                    
would not  be hired at  the same wage as  their predecessors                                                                    
(new hires were typically paid a lower wage).                                                                                   
1:47:05 PM                                                                                                                    
He  turned to  slide 11  related to  understanding increases                                                                    
over  time.  The  slide  provided  a  snapshot  of  a  state                                                                    
employee's  salary. He  detailed  that if  the employee  had                                                                    
been hired  in 2006  they would have  received a  38 percent                                                                    
pay increase  by 2012  due to cost  of living  increases and                                                                    
merit/longevity steps. He explained  that an employee with a                                                                    
"G" step  in 2006  would have received  a 28.25  percent pay                                                                    
increase  by 2012  with  pay  increment increases  occurring                                                                    
every other year.  The slide also showed  the Consumer Price                                                                    
Index  increase from  2006 to  2012;  the increase  averaged                                                                    
18.3 percent.  He relayed  that Alaska was  one of  the only                                                                    
states  that  granted  annual  raises  for  state  employees                                                                    
during the  past six years.  He elaborated that  Florida had                                                                    
not  provided pay  increases  for six  years  and that  some                                                                    
states had reduced wages.                                                                                                       
Mr. Thayer  addressed slide 12  titled "Leave."  He detailed                                                                    
that  employees with  zero  to two  years  of state  service                                                                    
received 24 days  of leave per year and  employees with over                                                                    
ten years  received 36  days. He  noted that  leave included                                                                    
personal and  sick time;  in 2000  the bargaining  units had                                                                    
combined separate sick leave and  vacation time systems into                                                                    
one  leave system.  He detailed  that  previously there  had                                                                    
been  a cap  on leave  accrual;  however, the  cap had  been                                                                    
removed in  2000. Currently employees  were required  to use                                                                    
one week of leave per  year. He noted that employees earning                                                                    
36 days  of leave per  year could earn a  substantial amount                                                                    
of leave given the requirement to  only use 5 days per year.                                                                    
Additionally,  employees   could  cash-in   unlimited  leave                                                                    
providing  they maintained  a balance  of 37.5  hours. Leave                                                                    
was valued  at an  employee's current rate  of pay  with the                                                                    
exception of non-covered employees.  He expounded that if an                                                                    
employee had worked  for the state for 10  years any accrued                                                                    
leave  would  be  valued  at  their  current  rate  of  pay.                                                                    
However,  leave for  non-covered  and  exempt employees  was                                                                    
valued at the rate of pay at the time it was accrued.                                                                           
Mr.  Thayer  continued to  discuss  leave  on slide  12.  He                                                                    
explained  that  there was  a  working  reserves account  in                                                                    
statute  that was  used  for funding  the  payment of  leave                                                                    
cash-ins and accrued leave  upon separation from employment.                                                                    
He relayed  that in 2012  the state had made  leave payments                                                                    
to employees totaling $36 million.                                                                                              
1:50:49 PM                                                                                                                    
He  directed attention  to a  bar graph  on slide  13 titled                                                                    
"Growing  Leave Liability."  The increasing  leave liability                                                                    
was currently $164 million. The  leave liability was growing                                                                    
by approximately  $6 million to  $10 million per  year; when                                                                    
pay increments  and cost of  living increases  occurred, the                                                                    
leave cost grew.  He noted that many  employees viewed their                                                                    
leave investment  as a bank  account. He pointed to  a leave                                                                    
liability  example  for the  state's  top  ten employees  on                                                                    
slide  14. He  communicated  that the  ten  employees had  a                                                                    
combined personal  leave balance of 34,500  hours, which was                                                                    
valued at  $1.6 million.  The slide included  the annualized                                                                    
hourly leave rate  that varied by employee. He  noted that a                                                                    
CEA employee  had the highest  leave balance  (4,400 hours),                                                                    
but due to  their wage structure the  employee's leave value                                                                    
was  lower than  that  of  an employee  with  a lower  leave                                                                    
balance but  with a higher  hourly rate. He  emphasized that                                                                    
the leave balance was a  substantial liability to the state.                                                                    
The state had worked with  the three bargaining units on the                                                                    
issue. He shared that the  state had discussed putting a cap                                                                    
on  leave and  the possibility  of implementing  new accrual                                                                    
ratings. He  stressed that  the issue  had become  the "800-                                                                    
pound  gorilla in  the  room"  in the  past  six months.  He                                                                    
reiterated  that employees  were  only required  to use  one                                                                    
week  per year.  He noted  that the  ten employees  shown on                                                                    
slide 14 were  probably earning 36 days or close  to 36 days                                                                    
of leave per year.                                                                                                              
Mr. Thayer addressed  a health insurance graph  on slide 15.                                                                    
The red bars showed the  state's contributions to the active                                                                    
employees'  health  plans (the  list  of  health plans  were                                                                    
shown on  the right of the  slide). He pointed out  that the                                                                    
state's healthcare  contribution was  growing significantly.                                                                    
There  were  approximately  8,000 active  employees  in  the                                                                    
state  benefit  plan. He  relayed  that  the state  did  not                                                                    
directly insure all of its  employees. He detailed that some                                                                    
bargaining  units used  a  health trust;  GGU  and APEA  had                                                                    
health trusts,  and the Public Safety  Employees Association                                                                    
used a third-party  insurer. The state was  required to make                                                                    
an  annual  health  insurance contribution  of  $15,960  per                                                                    
employee (the amount was included  in the 49 percent average                                                                    
employee  benefit figure  on slide  5).  The state's  annual                                                                    
health insurance  contribution to the GGU  union was $16,506                                                                    
in FY 13. He relayed that  Alaska was one of the four states                                                                    
that  covered the  full premium  for the  basic family  plan                                                                    
(100 percent contribution to the economy plan).                                                                                 
1:54:40 PM                                                                                                                    
Co-Chair Stoltze asked the department  to elaborate on slide                                                                    
15.  Mr.  Thayer   replied  that  in  2001   the  state  had                                                                    
negotiated with GGU  to leave the state  healthcare plan and                                                                    
to create  a trust fund.  The state paid the  annual $15,960                                                                    
per employee and  an additional $600 per  employee per year.                                                                    
He  relayed that  using the  trust  fund cost  the state  an                                                                    
additional $4.5  million. The state  had discussed  the idea                                                                    
of bringing  8,000 employees back  into its  healthcare plan                                                                    
to save money and to  increase its market share, which would                                                                    
provide a more cost effective deal.                                                                                             
Co-Chair Stoltze  noted that with insurance,  the larger the                                                                    
pool of  insured individuals,  the better  the deal  was. He                                                                    
surmised that there was a good  deal for one group, but that                                                                    
the  average state  employee may  get the  better deal.  Mr.                                                                    
Thayer  responded that  the state  was  paying $4.5  million                                                                    
more  into  the GGU  health  trust  than  it was  for  state                                                                    
employees for roughly the same benefit package.                                                                                 
Mr. Thayer turned to slide 16 titled "National Trends":                                                                         
     · Little to no pay increases since 2007                                                                                    
     · Extensive furlough of employees                                                                                          
     · Extensive layoffs                                                                                                        
     · Freezing of longevity pay                                                                                                
     · Increase in subcontracting -"managed competition"                                                                        
     · Limitations on "legacy" costs such as pensions, sick                                                                     
        or vacation "buyback" upon retirement, and other                                                                        
        such long-term costs                                                                                                    
     · Greater operational flexibility, to provide more                                                                         
        service at the same or lesser cost to taxpayers and                                                                     
Mr. Thayer  elaborated that the extensive  layoffs had begun                                                                    
in  2008  going  forward.  He  turned  to  slide  17  titled                                                                    
"Department  of Administration's  Bargaining Priorities  and                                                                    
     · Fiscally prudent cost of living increases                                                                                
     · Reducing the cost of longevity steps (i.e. pay                                                                           
     · Reducing the legacy costs of leave liability                                                                             
     · Operational productivity improvements                                                                                    
     · Obtain voluntary, balanced agreements                                                                                    
     · If a strike occurs, continue to provide essential                                                                        
        services to citizens                                                                                                    
Mr.  Thayer expounded  that the  state could  not afford  to                                                                    
have  large  cost  of  living increases.  He  noted  that  a                                                                    
reduction in  the cost of  longevity steps would have  to be                                                                    
negotiated in statute. He reiterated  that the current leave                                                                    
liability  was $164  million  and that  ten  of the  state's                                                                    
employees had  34,000 hours in accrued  leave. He emphasized                                                                    
that  the  state  had 16,000  employees  and  arresting  the                                                                    
growing leave liability was necessary.  The state's goal was                                                                    
to negotiate agreements that the  unions and the legislature                                                                    
were  both  comfortable  with.  He  relayed  that  a  strike                                                                    
situation was a last resort to the state.                                                                                       
1:59:19 PM                                                                                                                    
NICKI NEAL,  DIRECTOR, DIVISION OF PERSONNEL,  DEPARTMENT OF                                                                    
ADMINISTRATION, addressed slide 18  titled "Next Steps." She                                                                    
discussed  that  once  monetary terms  were  agreed  to  DOA                                                                    
submitted  them to  the legislature  for appropriation.  She                                                                    
explained  that  if  the  legislature  failed  to  fund  the                                                                    
monetary  terms of  an agreement  the next  steps varied  by                                                                    
bargaining unit  and the action  taken could be  affected by                                                                    
whether or not  the terms were submitted in  a timely manner                                                                    
(by the  60th day  of legislative session;  March 15  in the                                                                    
current  year). She  communicated  that  if the  legislature                                                                    
failed to fund  the agreement, an impasse  was considered to                                                                    
exist for  some units  and others  had 10  days to  reach an                                                                    
agreement. She  stressed that  each situation  was evaluated                                                                    
and  was fact  specific;  contract  language varied  between                                                                    
units. She stated  that the fact that the  monetary terms of                                                                    
the  parties' agreement  could potentially  be submitted  to                                                                    
the  legislature  after the  60th  day  of session  did  not                                                                    
prevent the  legislature from either considering  or funding                                                                    
them.  Additionally, the  appropriation was  subject to  the                                                                    
ratification of  the collective bargaining agreement  by the                                                                    
union's membership.  She detailed that  appropriated funding                                                                    
was  proportionately reduced  if the  unions did  not ratify                                                                    
the agreement.                                                                                                                  
Ms. Neal directed attention to  a bargaining "road map" flow                                                                    
chart on slide 18. She  relayed that the ideal process began                                                                    
with negotiation and was followed  by a voluntary agreement,                                                                    
the submittal of monetary terms  to the legislature, and the                                                                    
funding    of    monetary    terms    through    legislative                                                                    
appropriation.  If  the  legislature   failed  to  fund  the                                                                    
monetary  terms, some  contracts specified  that an  impasse                                                                    
existed;  whereas others  required  the state  to return  to                                                                    
negotiations for a specified period  of time. In the case of                                                                    
an  impasse,   the  state  often  entered   into  mediation;                                                                    
interest arbitration  was entered into if  mediation was not                                                                    
successful   for   Class   I   employees   (i.e.   troopers,                                                                    
correctional  officers,  and  other).  It  was  the  state's                                                                    
position  that  it  was  not  required  to  go  to  interest                                                                    
arbitration with  units with a mixed  membership (i.e. units                                                                    
that were not solely Class  I) until the membership voted to                                                                    
strike. In  the event of  an impasse the state  could choose                                                                    
to implement  its "last best  offer"; however,  any monetary                                                                    
terms  were  subject  to appropriation.  She  stressed  that                                                                    
situations were evaluated on a case-by-case basis.                                                                              
2:02:55 PM                                                                                                                    
Co-Chair Austerman referred  to slide 16 and  asked what the                                                                    
term "managed  competition" meant. Mr. Thayer  answered that                                                                    
the concept  was being implemented  on a national  level; it                                                                    
put public  employee unions in competition  with the private                                                                    
sector on  a given  project or  function. For  example, tree                                                                    
cutting  services in  Chicago had  previously  been done  in                                                                    
parks by state employees;  however, the contract was awarded                                                                    
to the  private sector due  to its more competitive  bid. He                                                                    
stated that  the citizens  appeared to  be getting  the best                                                                    
Representative Wilson pointed  to slide 15 and  asked if the                                                                    
state paid $15,960  per employee for all  unions except one.                                                                    
Ms. Neal  answered in the  affirmative; the state  only paid                                                                    
more for GGU members.                                                                                                           
Representative Wilson asked whether  step increases were the                                                                    
same  under   each  union.  Ms.   Neal  answered   that  pay                                                                    
increments   were  all   at  3.75   percent;  however,   the                                                                    
percentages between A through F  varied even within a union.                                                                    
For example,  the GGU schedule varied  between slightly over                                                                    
3 percent  and 4  percent. The 3.75  percent was  an average                                                                    
increase between each step.                                                                                                     
Mr.  Thayer  added  that maritime  unions  had  a  different                                                                    
contract and  pay scale  than the  one used  for non-covered                                                                    
employees and the majority of the bargaining units.                                                                             
2:05:36 PM                                                                                                                    
Representative   Gara  discussed   insurance  premiums   for                                                                    
families.  He  wondered  whether  an employee  only  paid  a                                                                    
specific amount  for insurance (regardless of  the number of                                                                    
people  in  a  household)  and   the  state  picked  up  the                                                                    
remainder. Ms.  Neal answered that there  were not different                                                                    
premiums  for single  people versus  families for  employees                                                                    
covered under the state's Select Benefits plan.                                                                                 
Representative Gara  asked about the logic  behind the state                                                                    
paying for  health insurance for  all of a  state employee's                                                                    
family members. Mr. Thayer replied  that the policy had been                                                                    
negotiated with unions.  He agreed that the  issue (the same                                                                    
premium  was paid  for single  employees  and for  employees                                                                    
with a family  of four) needed to be looked  at in the light                                                                    
of growing healthcare costs.                                                                                                    
Representative  Gara believed  paying the  same premium  for                                                                    
individuals  and families  was absurd.  He wondered  why the                                                                    
state had  not looked  into the  issue. Mr.  Thayer answered                                                                    
that healthcare  was a large  issue. He elaborated  that the                                                                    
state  had looked  at costs  between its  economy, standard,                                                                    
and  premium  plans. The  state  was  also looking  at  high                                                                    
deductible  plans and  others that  could potentially  level                                                                    
the playing  field. He stressed that  the administration and                                                                    
DOA Commissioner  Becky Hultberg  had been prudent  in their                                                                    
effort  to  look at  ways  to  reduce healthcare  costs.  He                                                                    
emphasized that some  of the plans had been in  place for 20                                                                    
to 30  years. He agreed  that it  was necessary to  look for                                                                    
alternative options.                                                                                                            
Representative Gara  asked the  state to do  something about                                                                    
the situation.  Mr. Thayer affirmed that  the administration                                                                    
wanted to do something about the issue.                                                                                         
Representative  Gara felt  that DOA  was saying  it had  not                                                                    
negotiated  contracts  that it  wished  it  had. He  thought                                                                    
negotiating the  contracts as prudently as  possible was the                                                                    
department's job.                                                                                                               
Mr. Thayer responded that the  department was not saying the                                                                    
contracts were  good or  bad. He stated  that unions  were a                                                                    
"creature  of statute"  and that  the  state operated  under                                                                    
PERA [Public  Employment Relations Act]; the  contracts were                                                                    
successive and  he did not  know what  bargaining priorities                                                                    
had  been  20  years  earlier   and  where  they  should  be                                                                    
currently.  He highlighted  that the  state currently  had a                                                                    
very  lucrative  plan  for  its  employees  including  merit                                                                    
increases,   health  insurance,   and  leave   balances.  He                                                                    
compared the issue to a large  ship that the state was going                                                                    
to slowly  turn. He hoped  that when the  legislature looked                                                                    
at the negotiated  terms that the focus  would expand beyond                                                                    
the  cost  of  living  allowance. He  stressed  focusing  on                                                                    
whether the state  was "turning the tide"  on leave balances                                                                    
and  accrual  rates  and  looking at  the  cost  of  living,                                                                    
longevity, and  health insurance  costs. He  emphasized that                                                                    
the existing  contracts were not  bad. The current  goal was                                                                    
to  present  what the  department  thought  a good  contract                                                                    
would  look like.  He  reiterated that  he  believed a  good                                                                    
contract  in the  future  would  begin addressing  long-term                                                                    
leave   accrual  costs,   implementing  a   cap  on   leave,                                                                    
reasonable  cost of  living, reducing  longevity steps,  and                                                                    
other. He discussed  that negotiating sick leave  out of the                                                                    
state contracts had been beneficial;  Alaska had been one of                                                                    
the first in  the country to make the change.  Why the state                                                                    
had not negotiated to put a  cap on the leave was unknown to                                                                    
him; therefore,  it was currently  necessary to  address the                                                                    
2:11:38 PM                                                                                                                    
Representative  Kawasaki  asked   if  the  increasing  state                                                                    
contributions  to active  employee health  plans (slide  15)                                                                    
matched healthcare  cost increases. Mr. Thayer  replied that                                                                    
some  of the  state's costs  were not  rising as  quickly as                                                                    
those in the broader  healthcare arena; whereas, others were                                                                    
higher. He detailed  that over the past couple  of years the                                                                    
state had only  seen a single digit  increase in healthcare,                                                                    
while  prior  to  that  the  state  had  seen  double  digit                                                                    
increases in  other years. He elaborated  that the increases                                                                    
were  fluctuating, but  the state  was working  to keep  the                                                                    
healthcare  costs down.  He  believed the  state  was at  or                                                                    
slightly below the national average.                                                                                            
Representative  Kawasaki rephrased  his  question and  asked                                                                    
whether the figures on slide  15 roughly reflected the costs                                                                    
in healthcare from  2001 to 2012. Ms. Neal  believed so. She                                                                    
elaborated  that the  figures  on slide  15 represented  the                                                                    
state's  contribution to  health  plans; contributions  were                                                                    
based on claims  history. She would confirm  the answer with                                                                    
the Division of Retirement and Benefits.                                                                                        
Representative  Kawasaki wondered  whether the  first bullet                                                                    
point on slide 16 ("little  to no pay increases since 2007")                                                                    
was an  ongoing trend. He referred  to a recent copy  of the                                                                    
Stateline legislative magazine  that showed improved budgets                                                                    
(e.g.  an 8  percent increase  in Indiana's  public employee                                                                    
Ms. Neal  had answered  that she  had recently  attended the                                                                    
National Association of  State Personnel Executives meeting.                                                                    
She relayed that Alaska was one  of two states out of the 22                                                                    
in attendance  that had continued to  provide pay increases.                                                                    
Delaware had  provided increases in the  past several years;                                                                    
however, the governor had not  included the increases in the                                                                    
current budget.  She expounded that Louisiana  and one other                                                                    
state had planned  to provide increases in  the current year                                                                    
for the  first time  in several  years. She  elaborated that                                                                    
the other states  had not provided cost  of living increases                                                                    
and very  few had  provided merit steps.  Additionally, many                                                                    
states had  furloughed employees  or had lain  off thousands                                                                    
of workers.                                                                                                                     
2:15:29 PM                                                                                                                    
Representative  Kawasaki asked  whether the  state used  the                                                                    
market  rate for  its employment  positions  and whether  it                                                                    
compared to similar private sector  positions on a statewide                                                                    
and national level.                                                                                                             
Ms. Neal answered that the state  did not have a practice of                                                                    
comparing  and setting  state  salaries  for individual  job                                                                    
classes based  on market. She  detailed that DOA had  done a                                                                    
market survey in 2009 for the  first time in many years. The                                                                    
survey  had looked  at  174 benchmark  job  classes; it  had                                                                    
determined that 11 classes potentially  had not paid enough.                                                                    
The state looked  into the 11 classes and found  that it was                                                                    
not  having recruitment  difficulty  and was  not forced  to                                                                    
offer advanced step placement upon  hire; it had also looked                                                                    
at several  other factors and  had decided that  the results                                                                    
did not warrant raising salaries.  Currently the state had a                                                                    
contractor reviewing  classification pay plans  to determine                                                                    
future options.                                                                                                                 
Representative  Kawasaki referred  to  recent Department  of                                                                    
Revenue  testimony   that  it   had  been   unsuccessful  in                                                                    
recruiting  for  vacant  auditor positions.  He  noted  that                                                                    
other  agencies had  testified  on  unsuccessful efforts  to                                                                    
hire accountants.  Ms. Neal replied that  she had misspoken.                                                                    
She  explained   that  the  full  market   survey  had  been                                                                    
conducted in  2009; however, around 2006/2007  the state had                                                                    
implemented a program called  market-based pay. She detailed                                                                    
that  the  program had  been  difficult  to manage  and  had                                                                    
created   some   inequities;    therefore,   it   had   been                                                                    
discontinued. During  the same time the  state had conducted                                                                    
a  survey  on  job  classes  that  had  extreme  recruitment                                                                    
difficulty;  oil  and  gas  auditors had  been  one  of  the                                                                    
classes and had subsequently received a pay increase.                                                                           
2:18:07 PM                                                                                                                    
Representative  Thompson  asked  what would  happen  if  the                                                                    
monetary terms  of a contract  agreement were  not submitted                                                                    
to  the legislature  by  the  60th day  of  session and  the                                                                    
legislature  chose not  to address  the contracts.  Ms. Neal                                                                    
believed that  legislative action on the  contracts would be                                                                    
delayed until the following year  if the legislature did not                                                                    
act  prior  to  the  end   of  session.  She  added  that  a                                                                    
retroactive  implementation of  the  updated contract  terms                                                                    
may be required under the scenario.                                                                                             
Co-Chair  Stoltze  was  interested in  the  increasing  $164                                                                    
million leave liability. He  asked about potential exposures                                                                    
in   the  budget   process.  He   referred  to   an  ongoing                                                                    
conversation with  members of his district  who believed the                                                                    
state was awash  in money, that it could  chose to implement                                                                    
an income tax,  that the permanent fund was  large, and that                                                                    
the  state  should  fund  members'  contracts.  He  wondered                                                                    
whether the discussion had occurred with bargaining units.                                                                      
Mr. Thayer  replied that he  had been involved with  GGU and                                                                    
SU negotiations;  Ms. Neal  had been  involved with  the CEA                                                                    
negotiations.   He   relayed   that   some   of   the   same                                                                    
conversations  had  occurred  at the  bargaining  table.  He                                                                    
continued  that John  Boucher [Senior  Economist, Office  of                                                                    
Management  and   Budget,  Office   of  the   Governor]  had                                                                    
presented  on oil  production, the  price of  oil, and  what                                                                    
occurred when the items went up  or down. He believed it had                                                                    
been helpful  to begin negotiations with  a discussion about                                                                    
how  a drop  in the  price of  oil impacted  state spending.                                                                    
There  had  also  been positive  dialogue  with  the  unions                                                                    
related  to  leave accruals  and  potential  leave cap;  the                                                                    
unions  understood the  increasing liability.  Additionally,                                                                    
the  state   had  discussed  rising  healthcare   costs  and                                                                    
reasonable  cost of  living allowances.  He  noted that  the                                                                    
state  was  still working  out  what  a reasonable  cost  of                                                                    
living allowance was. He believed  the negotiations had been                                                                    
productive  and that  the legislature  would see  meaningful                                                                    
contract terms.  He relayed that  they had taken a  break in                                                                    
current  negotiations  to  present   to  the  House  Finance                                                                    
Committee.  He hoped  to have  something to  the legislature                                                                    
prior to March 15, 2013.                                                                                                        
2:22:55 PM                                                                                                                    
Co-Chair Stoltze had  been told that some  of the bargaining                                                                    
units  were on  a 40-hour  workweek as  opposed to  the more                                                                    
common 37.5-hour state workweek. He  asked for detail on how                                                                    
the  issue  impacted  bargaining. Ms.  Neal  responded  that                                                                    
there  were  11 different  bargaining  units  plus the  non-                                                                    
covered employees.  She detailed that state  troopers worked                                                                    
a 40-hour  week and  correctional officers worked  a 42-hour                                                                    
week.  She   noted  that  the  employees   were  compensated                                                                    
accordingly.  She  communicated   that  marine  and  teacher                                                                    
unions were  slightly different as  well. The  average state                                                                    
employee  including GGU,  non-covered, SU,  CEA, and  Public                                                                    
Employees (LTC) all worked a  37.5-hour week. She added that                                                                    
the state paid overtime for  many employees when they worked                                                                    
above 37.5 hours  per week. She relayed that  the state paid                                                                    
additional straight-time  for a smaller number  of employees                                                                    
working between 37.5 and 40  hours, with overtime paid after                                                                    
40 hours.                                                                                                                       
2:24:42 PM                                                                                                                    
Representative Wilson asked whether  contracts could be tied                                                                    
to oil  production. Mr. Thayer  replied that  the department                                                                    
had  discussed   the  idea  internally  prior   to  entering                                                                    
negotiations.  He  discussed  that   the  concept  would  be                                                                    
difficult given various factors  including the price of oil,                                                                    
production, and  any mechanical issues  that may  occur with                                                                    
the  pipeline;  therefore,  DOA had  experienced  difficulty                                                                    
determining   how   the   concept   would   be   structured.                                                                    
Additionally, it was hard to  determine how to tie the issue                                                                    
to  employees; the  state needed  the employees  to come  to                                                                    
work and  the idea of  tying them  to something they  had no                                                                    
direct involvement in would be difficult.                                                                                       
Representative Gara  pointed to  slide 19 and  asked whether                                                                    
management  members  of  the  executive  branch  accrued  an                                                                    
unlimited  amount  of leave.  Mr.  Thayer  responded in  the                                                                    
affirmative;   however,    because   the    positions   were                                                                    
politically  appointed, the  employees were  not necessarily                                                                    
accruing leave as fast as  some employees. He noted that the                                                                    
leave  for  non-covered,   executive  branch  employees  was                                                                    
valued at  the rate  it was  earned whereas;  union employee                                                                    
leave was valued at their  current salary. He added that the                                                                    
executive branch expected union  negotiations to apply to it                                                                    
as well.                                                                                                                        
Representative  Gara  suggested that  it  may  be easier  to                                                                    
negotiate a  cap on  leave for union  employees if  the non-                                                                    
covered employees had a cap on leave accrual.                                                                                   
Mr. Thayer replied that the  state intended to implement the                                                                    
same accrual  of leave, cap,  cost of living  allowance, and                                                                    
health insurance  for both non-covered and  union employees.                                                                    
He  added  that  the  executive  branch  typically  followed                                                                    
structure outlined in negotiated union contracts.                                                                               
2:28:27 PM                                                                                                                    
Representative  Munoz  asked  about  overtime  savings  that                                                                    
would occur if  the 37.5-hour workweek was changed  to a 40-                                                                    
hour  workweek.  Ms.  Neal replied  that  the  question  was                                                                    
difficult to  answer. She  communicated that  some employees                                                                    
received  overtime pay  for anything  above  37.5 hours;  if                                                                    
their hours were  increased to 40 per week it  would have to                                                                    
be  determined whether  the employees  would be  compensated                                                                    
for the additional  2.5 hours, which equated  to an increase                                                                    
of approximately 6.3  percent. She relayed that  DOA did not                                                                    
currently have the figure and would need to look into it.                                                                       
Mr. Thayer added  that the 37.5-hour workweek  dated back to                                                                    
1955; the  workweek had been  negotiated down from  40 hours                                                                    
per week to 37.5 hours in lieu of a furlough.                                                                                   
Representative Munoz inquired if  the department could share                                                                    
some of its  proposals related to a potential  cap on leave.                                                                    
Mr.  Thayer   replied  that  the  state   was  currently  in                                                                    
discussions  with  unions  on  a  potential  leave  cap.  He                                                                    
declined  to comment  on specifics  given the  current union                                                                    
negotiations that were underway.                                                                                                
Representative  Munoz  queried  how  a cap  on  leave  would                                                                    
impact employees  who could  not take more  than a  few days                                                                    
off at  a time, given  the critical nature of  their duties.                                                                    
Mr. Thayer replied  that the department had  been looking at                                                                    
the  cap and  increasing  the required  usage  of leave  per                                                                    
year.  He stated  that generally  employees should  find the                                                                    
time  to  take  the  necessary  leave.  He  elaborated  that                                                                    
employees had  earned the  usage of the  time and  should be                                                                    
allowed  to  take leave  for  their  own mental  health.  He                                                                    
provided an  example of  businesses that  required mandatory                                                                    
leave.  The state  was not  discussing mandatory  leave with                                                                    
the  unions,  but it  was  discussing  how to  increase  the                                                                    
usage. The state  needed to work with  supervisors on giving                                                                    
employees  leave  approval; it  would  keep  costs down  and                                                                    
would give employees increased time off.                                                                                        
Co-Chair Austerman discussed the  schedule for the following                                                                    
week and the following day.                                                                                                     
2:33:56 PM                                                                                                                    
The meeting was adjourned at 2:33 p.m.                                                                                          

Document Name Date/Time Subjects
DOA-LaborContracts2013(02-27-13)HouseFinance_Print.pdf HFIN 2/27/2013 1:30:00 PM
DOA Labor Contracts Presentation
PERS-TRS Health Cost Trends.pdf HFIN 2/27/2013 1:30:00 PM
Response HFIN Labor Contracts 2/27/13
DOA-LaborContracts2013HouseFinance_Pg15.pdf HFIN 2/27/2013 1:30:00 PM
Response HFIN Labor Contracts 2/27/13
DOA Response - House Finance - Understanding Labor Contracts - 27Feb13.pdf HFIN 2/27/2013 1:30:00 PM
Response HFIN Labor Contracts 2/27/13
Alaskas Health-Care Bill.pdf HFIN 2/27/2013 1:30:00 PM
Response HFIN Labor Contracts 2/27/13