Legislature(2013 - 2014)BARNES 124

02/05/2014 03:15 PM LABOR & COMMERCE


Download Mp3. <- Right click and save file as

Audio Topic
03:16:45 PM Start
03:16:52 PM Overview: Department of Administration by Commissioner Curtis Thayer
04:45:17 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Overview: Dept. of Administration by
Commissioner Curtis Thayer
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                        February 5, 2014                                                                                        
                           3:16 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Lora Reinbold, Vice Chair                                                                                        
Representative Mike Chenault                                                                                                    
Representative Bob Herron                                                                                                       
Representative Dan Saddler                                                                                                      
Representative Andy Josephson                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Charisse Millett                                                                                                 
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW: DEPARTMENT OF ADMINISTRATION BY COMMISSIONER CURTIS                                                                   
THAYER                                                                                                                          
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
CURTIS THAYER, Acting Commissioner                                                                                              
Department of Administration (DOA)                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Presented an Overview on Department of                                                                   
Administration.                                                                                                                 
                                                                                                                                
MIKE BARNHILL, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions during the Department of                                                              
Administration's overview presentation.                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:16:45 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee  meeting  to  order  at   3:16  p.m.    Representatives                                                               
Reinbold, Saddler,  Herron, Josephson, Olson were  present at the                                                               
call to  order.  Representative  Chenault arrived as  the meeting                                                               
was in progress.                                                                                                                
                                                                                                                                
^Overview:  Department of  Administration by  Commissioner Curtis                                                               
Thayer                                                                                                                          
  Overview:  Department of Administration Commissioner Curtis                                                               
                             Thayer                                                                                         
                                                                                                                              
3:16:52 PM                                                                                                                    
                                                                                                                              
CHAIR OLSON  announced that the  only order of business  would be                                                               
an overview  by Department of Administration  Commissioner Curtis                                                               
Thayer.                                                                                                                         
                                                                                                                                
3:17:18 PM                                                                                                                    
                                                                                                                                
CURTIS THAYER, Acting  Commissioner, Department of Administration                                                               
(DOA),  offered to  update  the committee  on  several topics  of                                                               
interest  with  respect  to  the  Department  of  Administration,                                                               
specifically the  universal space standards and  labor contracts.                                                               
He characterized  the DOA as  a "department within  a department"                                                               
since it consists of ten  diverse divisions and five commissions.                                                               
The  department provides  services ranging  from the  Division of                                                               
Motor Vehicles (DMV) and the  Public Defender Agency (PDA) to the                                                               
Violent  Crimes  Compensation Board  (VCCB)  and  the Oil  &  Gas                                                               
Conservation  Commission (OGCC)  [slide  2].   The  DOA has  over                                                               
1,000 employees,  a budget of  $343 million, and  offers services                                                               
throughout  the  state, primarily  through  its  31 DMV  and  PDA                                                               
locations.   Additionally,  the Office  of Public  Advocacy (OPA)                                                               
has offices  in several locations,  and the state owns  15 public                                                               
buildings, primarily in Juneau, Palmer, and Anchorage.                                                                          
                                                                                                                                
3:19:25 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER   THAYER  provided  an  overview   of  labor                                                               
contracts  and  a status  report  on  contracts  [slide 4].    He                                                               
reported  that  this  year  the   state  is  in  the  process  of                                                               
negotiating  five  contracts,  including three  maritime  unions:                                                               
Inland Boatmen's  Union of the  Pacific (IBU),  Marine Engineers'                                                               
Beneficial  Association (MEBA),  and  Masters,  Mates and  Pilots                                                               
(MMP),  as  well  as the  Alaska  Vocational  Technical  Teachers                                                               
Association   (AVTECTA)   and   the   Public   Safety   Employees                                                               
Association  (PSEA).   Last year,  the DOA  negotiated three-year                                                               
contracts  for  the General  Government  Unit  (GGU), the  Alaska                                                               
Public Employees  Association (APEA), Supervisory Unit  (SU), and                                                               
the Confidential Employees Association  (CEA) covering the period                                                               
July 1, 2013  through June 30, 2016.  He  said that the contracts                                                               
are for three-year terms so they constantly rotate.                                                                             
                                                                                                                                
3:19:58 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER  THAYER said  that negotiations  are mandated                                                               
by  the  Public Employment  Relations  Act  (PARA) and  generally                                                               
begin in  October, and,  by statute the  department must  have an                                                               
agreement to  the legislature for  consideration by the  60th day                                                               
of session.   He  reported the  DOA met  this deadline  last year                                                               
with all  three contracts and he  hoped to have the  current five                                                               
contracts  completed timely.   He  anticipated  that one  union's                                                               
bargaining negotiations should be completed this month.                                                                         
                                                                                                                                
ACTING COMMISSIONER THAYER explained  that if negotiations do not                                                               
lead  to an  agreement and  mediation fails,  employees have  the                                                               
right to  strike [slide 6].   He  noted some exceptions,  such as                                                               
the Alaska  State Troopers, as  Class 1 employees are  subject to                                                               
binding arbitration, and the Alaska  Marine Highway System (AMHS)                                                               
workers, who would likely be subject  to an injunction due to the                                                               
life  and  safety  aspects  that  require  service.    While  the                                                               
department doesn't plan on  [binding arbitration or injunctions],                                                               
it could  happen.  The department's  goals are to reach  fair and                                                               
balanced agreements.                                                                                                            
                                                                                                                                
ACTING  COMMISSIONER  THAYER said  the  classes  of striking  are                                                               
Class 1,  Class 2, and  Class 3.  He  said that "Strike  Class 1"                                                               
relates  to  public safety,  "Strike  Class  2" relates  to  AMHS                                                               
vessel  employees, and  "Strike  Class 3"  primarily consists  of                                                               
public  employees covered  under contracts  that were  negotiated                                                               
last year.                                                                                                                      
                                                                                                                                
3:21:37 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER THAYER  turned  to a  listing of  bargaining                                                               
units (BU) by  contract negotiation year [slide 8].   He detailed                                                               
the  number  of employees  in  each  bargaining unit,  such  that                                                               
AVTECTA has 41 employees, IBU has  669, MEBA has 107, MMP has 98,                                                               
and  PSEA has  508 employees  or a  total of  approximately 1,300                                                               
employees  as compared  to the  nearly  12,000 employees  covered                                                               
under contracts negotiated last year.                                                                                           
                                                                                                                                
ACTING COMMISSIONER  THAYER turned  to a  listing of  the average                                                               
yearly base salaries  for fiscal year 2013 (FY 13).   He reported                                                               
the  yearly  average pay  is  approximately  $76,000 for  AVTECTA                                                               
employees, $51,000  for IBU,  $73,000 for  MEBA, and  $85,000 for                                                               
MMP employees.   Additionally, the department adds  49 percent to                                                               
cover  benefits.   He stated  that  this year  the department  is                                                               
negotiating with highly-compensated public  safety employees.  He                                                               
pointed out that the MMP (Mates  and Pilots) are the highest paid                                                               
employees  in state  government, with  some salaries  approaching                                                               
$180,000 to $190,000.                                                                                                           
                                                                                                                                
3:23:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD asked  for the  long-term impacts  of SB                                                               
95,  which passed  the legislature  last  year, and  how it  will                                                               
affect  the state's  Public Employees'  Retirement System  (PERS)                                                               
and the Teachers' Retirement System's (TRS) unfunded liability.                                                                 
                                                                                                                                
ACTING COMMISSIONER THAYER offered  to provide the committee with                                                               
details;  however, he  related that  nearly 50  percent of  state                                                               
employees fall under the defined  contribution (DC) and not under                                                               
the PERS and TRS.   He noted last year was  the largest take back                                                               
the state  has ever had with  employees.  He said  that last year                                                               
the  state employee  increase was  [1 percent  effective July  1,                                                               
2013, another  1 percent increase  effective 1, 2014 and  a final                                                               
2.5 percent  increase effective July  1, 2015 (often  referred to                                                               
as 1, 1, and 2.5)].                                                                                                             
                                                                                                                                
3:24:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD more  specifically requested  the fiscal                                                               
note  for SB  95 and  how  passage of  the bill  will affect  the                                                               
Public Employees'  Retirement System  (PERS)/Teachers' Retirement                                                               
System (TRS) unfunded liability.                                                                                                
                                                                                                                                
ACTING COMMISSIONER  THAYER said  he did  not have  those figures                                                               
today but offered to provide the committee with the information.                                                                
                                                                                                                                
3:24:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD   referred  to  page  9   of  the  DOA's                                                               
presentation and asked if the number of IBU employees is 41.                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER answered yes.                                                                                        
                                                                                                                                
3:24:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  for  clarification  on the  term                                                               
"take  back"  used  to  describe   the  1,  1,  and  2.5  percent                                                               
negotiated increases.                                                                                                           
                                                                                                                                
ACTING  COMMISSIONER THAYER  responded  that the  1,  1, and  2.5                                                               
percent increases represent the  Cost of Living Allowance (COLA).                                                               
He explained that  the DOA and the unions have  worked to address                                                               
concerns, including the unfunded  leave liability.  He elaborated                                                               
that  the  department  did  not  cap  leave  so  employees  could                                                               
accumulate an  unlimited amount  of leave and  then cash  it out.                                                               
In some  instances, the department experienced  employees leaving                                                               
service or retiring  with $200,000 to $300,000  payment for leave                                                               
balances,  thus, the  DOA negotiated  a  cap of  1,000 hours  and                                                               
increased  the  mandatory leave  usage  from  one to  two  weeks.                                                               
Further, employees with 400 hours  or more accumulated leave must                                                               
take  three  weeks  of  leave  or cash  in  one  week  of  leave.                                                               
Additionally,  the state  negotiated a  lower leave  accrual rate                                                               
for new hires effective July  2013.  Finally, the merit increases                                                               
were negotiated  from 3.75  to 3.25  percent for  outlying years.                                                               
Additionally, the state  also paid a health care  premium of $700                                                               
to $800  per member  per year, which  totaled about  $20 million.                                                               
He  estimated that  the state  saved $14  million by  providing a                                                               
one-time lump sum and no longer paying ongoing premiums.                                                                        
                                                                                                                                
3:27:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON acknowledged that he  is a fan of public                                                               
workers, but accumulating $200,000 to  $300,000 in leave seems to                                                               
represent  "another retirement."    He asked  whether the  policy                                                               
changes will  result in  more absent  workers since  workers will                                                               
exercise their leave rights more liberally.                                                                                     
                                                                                                                                
ACTING  COMMISSIONER  THAYER answered  yes.    He explained  more                                                               
details   on  the   leave   earnings,   noting  employees   could                                                               
essentially   bank  five   weeks  of   leave  each   year,  which                                                               
contributed to such high leave balances.                                                                                        
                                                                                                                                
REPRESENTATIVE   JOSEPHSON   understood   it  would   likely   be                                                               
impossible to measure the impact  the policy changes will have on                                                               
the functioning of government.                                                                                                  
                                                                                                                                
3:28:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  asked  the  commissioner to  add  to  the                                                               
information  he'll   provide  the  committee  and   identify  the                                                               
location of where all the employees live.                                                                                       
                                                                                                                                
ACTING COMMISSIONER THAYER agreed to do  so.  He reported that 10                                                               
percent of  IBU's members,  20 percent of  MMP's members,  and 40                                                               
percent  of MEBA's  members reside  outside of  Alaska.   He said                                                               
that this  is a concern  during negotiations since 40  percent of                                                               
the members may  not understand some of the  cost constraints and                                                               
issues the  state faces  in operating  the Alaska  Marine Highway                                                               
System.                                                                                                                         
                                                                                                                                
3:29:33 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON asked whether this  includes the Ocean Ranger program                                                               
since  he   recalled  about  90   percent  of   its  participants                                                               
previously resided outside Alaska.                                                                                              
                                                                                                                                
ACTING COMMISSIONER THAYER offered to confirm the figures.                                                                      
                                                                                                                                
3:29:58 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER compared  expenses verses revenues for                                                               
marine vessel operations [slide 10].   Referring to the chart, he                                                               
explained that  the green bar  represents the  personnel services                                                               
and the red  bar represents the total cost  of marine operations.                                                               
He estimated  that the AMHS  will lose  $114 million in  2014, of                                                               
which personnel  costs is the largest  driver.  He said  that the                                                               
state can't afford to continue on this trend.                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON  understood this to mean  that the state                                                               
must subsidize the AMHS.                                                                                                        
                                                                                                                                
3:31:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD offered  her belief  that the  disparity                                                               
between revenues and expenditures  couldn't happen in the private                                                               
sector.  She asked how the department plans to remedy this.                                                                     
                                                                                                                                
ACTING  COMMISSIONER  THAYER  answered that  the  DOA  negotiates                                                               
contracts, but  the department also  works very closely  with the                                                               
Department of Transportation &  Public Facilities (DOT&PF), which                                                               
is the  agency responsible  for the  AMHS.   While the  DOA works                                                               
with the  DOT&PF on operational  issues and personnel  costs, the                                                               
fundamental operational costs for the AMHS rest with the DOT&PF.                                                                
                                                                                                                                
REPRESENTATIVE REINBOLD surmised  that there isn't a  plan to fix                                                               
the [revenue shortfall].                                                                                                        
                                                                                                                                
3:31:42 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER THAYER  reiterated that  the DOA  negotiates                                                               
contracts, but  the DOT&PF operates  the AMHS, so he  deferred to                                                               
the DOT&PF to respond.                                                                                                          
                                                                                                                                
REPRESENTATIVE REINBOLD  asked whether  the state will  lose $117                                                               
million.   She said she  definitely would  like to know  what the                                                               
plan is to fix this.                                                                                                            
                                                                                                                                
CHAIR OLSON  asked whether  the $117  million includes  any costs                                                               
for fuel charges in excess of the budgeted amount.                                                                              
                                                                                                                                
ACTING COMMISSIONER THAYER answered yes.                                                                                        
                                                                                                                                
3:32:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON,  referring to  the  graph  on the  marine                                                               
vessel  operations on  page 10,  asked for  a similar  graph that                                                               
shows the expenses versus revenues for Alaska's highway system.                                                                 
                                                                                                                                
ACTING  COMMISSIONER THAYER  indicated the  next slide,  page 11,                                                               
entitled  "Per  Capita  Transportation Cost,"  might  answer  the                                                               
question.    He highlighted  the  approximate  number of  primary                                                               
users  of the  highway system  is 675,000,  the net  cost to  the                                                               
state  at  $28 million,  with  a  per capita  cost  of  $42.   He                                                               
reported  the rural  aviation per  capita cost  is $166,  and the                                                               
AMHS per capita cost is $1,100.                                                                                                 
                                                                                                                                
3:34:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON   reiterated  his  request  to   obtain  a                                                               
breakout  of the  total expenditures,  cost, and  expenditures of                                                               
Alaska's highway system using the graph format as on slide 10.                                                                  
                                                                                                                                
ACTING COMMISSIONER  THAYER answered that the  graph was obtained                                                               
from a  University of Alaska  study.  Further, the  state doesn't                                                               
charge the public to use  the highway system; however, he offered                                                               
to work with the DOT&PF to try to provide the requested graph.                                                                  
                                                                                                                                
REPRESENTATIVE  HERRON   indicated  that   [Acting]  Commissioner                                                               
Thayer's  response illustrates  his point,  which is  to identify                                                               
the amount of revenue the highway system generates.                                                                             
                                                                                                                                
3:34:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  whether  he  could  estimate  the                                                               
number of  Alaska residents versus non-resident  passengers using                                                               
the Alaska Marine Highway System's ferries.                                                                                     
                                                                                                                                
ACTING COMMISSIONER  THAYER answered  that he  was unsure  of the                                                               
break  out  of  resident  and  non-resident  passengers,  but  he                                                               
offered  to obtain  the  figures  from the  DOT&PF.   In  further                                                               
response, he answered he couldn't even offer a rough estimate.                                                                  
                                                                                                                                
3:35:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked  whether uncompensated travel time                                                               
is subject to collective bargaining.                                                                                            
                                                                                                                                
ACTING COMMISSIONER THAYER answered that  the issue of travel has                                                               
been brought  up, but at this  point travel is not  negotiated as                                                               
part of the collective bargaining process.                                                                                      
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked whether  he was aware of employees                                                               
who are not compensated for their travel time.                                                                                  
                                                                                                                                
ACTING COMMISSIONER  THAYER said he has  observed state employees                                                               
at the airport;  however, the state tries  to encourage employees                                                               
to travel  during business hours.   He reiterated that it  is not                                                               
currently part of the contract.                                                                                                 
                                                                                                                                
3:37:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  referred to  the graph  on page  10 with                                                               
the green bar  representing personnel services.   She pointed out                                                               
that the 2014  figures are approximately $90 million  of the $150                                                               
million  of the  operational costs  for  the ferry  system.   She                                                               
asked the  commissioner to  identify who  serves on  the contract                                                               
negotiating team.                                                                                                               
                                                                                                                                
ACTING  COMMISSIONER   THAYER  answered  that  the   Division  of                                                               
Personnel   &  Labor   Relation's  employees   are  the   primary                                                               
negotiators.   Also, employees within the  AMHS, including Deputy                                                               
Commissioner  Yost,  also sit  on  two  of the  three  bargaining                                                               
teams.  He explained that  having DOT&PF's management involved in                                                               
the process  is important since  complex business rules  apply to                                                               
the AMHS system.                                                                                                                
                                                                                                                                
REPRESENTATIVE REINBOLD  asked the department to  provide a long-                                                               
term 20-year  projection for the  effects of SB  95 as well  as a                                                               
list of negotiators.                                                                                                            
                                                                                                                                
ACTING COMMISSIONER THAYER asked  for clarification and responded                                                               
that he could  provide a list of the negotiators  for all five of                                                               
the current contracts being negotiated.                                                                                         
                                                                                                                                
CHAIR  OLSON  clarified  that his  office  will  post  additional                                                               
information  received  for  each  hearing  on  the  legislature's                                                               
website.                                                                                                                        
                                                                                                                                
3:39:41 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER  THAYER   explained  that  negotiations  are                                                               
confidential  in  nature;  however,   he  discussed  three  items                                                               
contained  in  current  contracts  that  are  public  information                                                               
[slide 12].  For example,  the cost of living differential (COLD)                                                               
was established  in 1977  and initially  provided for  a cost-of-                                                               
living  differential between  Seattle  and Anchorage.   The  COLD                                                               
currently  ranges from  $450  to  $650 per  pay  period for  some                                                               
employees.  He  said some studies show it could  be argued that a                                                               
COLD does not exist so the  department would like to address this                                                               
issue with bargaining teams.   Second, he highlighted that travel                                                               
pay, which is pay for time  spent traveling outside of work hours                                                               
to  temporary  work  assignments,  is a  provision  the  maritime                                                               
unions have  in their  contracts, but  it is  not a  provision in                                                               
other  contracts.   Thus, the  DOA would  like more  alignment in                                                               
this area.   Third, some employees are paid nonwatch  pay in lieu                                                               
of  certain  overtime  entitlements, in  particular,  for  higher                                                               
level  of employees.   For  example, maritime  employees are  not                                                               
eligible  for  overtime   so  they  receive  "watch   pay."    He                                                               
summarized that  these three items  will be discussed  during the                                                               
contract negotiations for maritime employees.                                                                                   
                                                                                                                                
3:41:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  referred to  the COLD on  page 12.   She                                                               
returned to SB  95, to a chart within the  bill indicating Juneau                                                               
employees will receive an additional  five percent Cost of Living                                                               
Allowance (COLA).   She asked for the justification  for the COLA                                                               
contained in SB 95.                                                                                                             
                                                                                                                                
ACTING COMMISSIONER  THAYER responded  that the COLA  was derived                                                               
from a 2008 study.  He  offered to provide the information to the                                                               
committee.   He said that COLA  has been negotiated into  most of                                                               
the contracts.   He pointed  out that  the study showed  that the                                                               
COLD  between   Anchorage  and  Seattle  is   zero;  however,  it                                                               
identified   Juneau   as   having  a   5   percent   geographical                                                               
differential, although Fairbanks experienced  a reduction from 11                                                               
percent to 4 percent geographical differential.                                                                                 
                                                                                                                                
3:42:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  whether  travel pay  is  paid  at                                                               
straight time.                                                                                                                  
                                                                                                                                
ACTING COMMISSIONER THAYER answered yes.                                                                                        
                                                                                                                                
3:42:57 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER, with  respect to monetary terms, said                                                               
that if the state  negotiates a 1 percent raise in  FY 15 it will                                                               
cost  $500,000 in  the  first year,  but  cumulatively, when  the                                                               
raise is  compounded over  three years  it represents  $5 million                                                               
[slide 13].   He noted that it  is easy to consider  a proposed 1                                                               
percent raise theoretically, but  he cautioned that the increases                                                               
are in  "real dollars," which  is something the DOA  is concerned                                                               
about.   He  said that  COLD  costs the  state and  IBU about  $8                                                               
million, with  an additional $1 for  MMP and MEBA for  a total of                                                               
$10 million.  He emphasized that  these costs are based on a 1977                                                               
study that is in statute.   He characterized these issues as some                                                               
of the challenges the state faces during contract negotiations.                                                                 
                                                                                                                                
CHAIR  OLSON remarked  that  conceivably  the statutory  language                                                               
just referenced could be addressed by the legislature.                                                                          
                                                                                                                                
ACTING COMMISSIONER THAYER agreed.   He reported that between the                                                               
years  2007-2013,  the  MMP  and   MEBA  received  a  31  percent                                                               
increase.   Additionally, the MMP  and MEBA received a  lump sum.                                                               
Further,  the IBU  received similar  increases.   For comparison,                                                               
the PSEA  would have  received a 33  percent increase,  but since                                                               
that  union also  receives merit  increases  the total  increases                                                               
would actually have  been closer to 50 percent for  the prior ten                                                               
years.  Ironically,  he noted that the largest  increases for MMP                                                               
and    MEBA   fell    during   [former    Governor]   Murkowski's                                                               
administration, with  increases of "7  percent, 7 percent,  and 2                                                               
percent."   He noted that  the MMP, MEBA,  and IBU unions  do not                                                               
receive merit or pay increments, but negotiate the COLA.                                                                        
                                                                                                                                
3:46:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON remarked  that  it  was interesting  to                                                               
note the  absence of any pay  increases in 2011, 2012,  and 2013,                                                               
when  the  state was  particularly  "flush."    He asked  for  an                                                               
explanation.                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER  THAYER offered to  find out and  report back                                                               
to the committee.                                                                                                               
                                                                                                                                
CHAIR OLSON  commented that  some other  items may  be negotiated                                                               
besides wages.                                                                                                                  
                                                                                                                                
ACTING  COMMISSIONER  THAYER agreed.    He  highlighted that  the                                                               
negotiations  might also  cover  leave and  operational or  shift                                                               
differential pay, which are typically provided as "packages."                                                                   
                                                                                                                                
3:47:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked whether  the pilots  are captains                                                               
of large cruise ships.                                                                                                          
                                                                                                                                
ACTING COMMISSIONER  THAYER answered no; these  employees are all                                                               
AMHS  workers.   He  said  he also  chairs  the  Board of  Marine                                                               
Pilots,  and the  marine pilots  are often  retired captains  who                                                               
will apply to be a pilot on one of the larger vessels.                                                                          
                                                                                                                                
CHAIR   OLSON  commented   that   the   pilots  are   independent                                                               
contractors.                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER agreed.                                                                                              
                                                                                                                                
REPRESENTATIVE  REINBOLD asked  to  discuss  the statutory  merit                                                               
increases.    She  related her  understanding  that  the  private                                                               
sector links  merits to pay  increases based on  their employees'                                                               
performance.  She  asked whether the state's  merit increases are                                                               
given automatically or if they are linked to performance.                                                                       
                                                                                                                                
ACTING COMMISSIONER  THAYER explained that if  a state employee's                                                               
performance  is less  than satisfactory,  the  employee will  not                                                               
receive  a  merit  increase,  otherwise,  for  steps  "A-F,"  the                                                               
increase happens automatically  without a performance evaluation.                                                               
Once a  state employee reaches  the "F" step,  his/her evaluation                                                               
must be given or the employee will  not receive a raise.  He said                                                               
the  department encourages  supervisors  to complete  evaluations                                                               
since  otherwise  the department  must  pay  the merit  increases                                                               
retroactively.   He offered  his belief that  the state  does not                                                               
have  a robust  evaluation of  its employees.   Evaluations  help                                                               
monitor employee performance but the  way the system is designed,                                                               
an employee  doesn't need  an evaluation in  the first  six years                                                               
unless  performance  is unsatisfactory.    He  said it  seems  as                                                               
though  employees  should  have their  strengths  and  weaknesses                                                               
identified,  which would  be  helpful to  supervisors,  too.   He                                                               
acknowledged  that some  departments  are better  than others  in                                                               
completing evaluations.   In fact, some are  fantastic at getting                                                               
their evaluations in, but others are not.                                                                                       
                                                                                                                                
3:50:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD related  her  understanding that  almost                                                               
all  state  employees  receive  their  raises,  although  a  tiny                                                               
percentage do not receive any merit increases.                                                                                  
                                                                                                                                
ACTING COMMISSIONER  THAYER answered that  for the most  part she                                                               
is correct.                                                                                                                     
                                                                                                                                
3:50:36 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER  THAYER discussed  the top three  earners for                                                               
the MMP,  MEBA, IBU, and  PSEA to  provide a perspective  for the                                                               
committee.    He reported  that  the  top MMP's  master  receives                                                               
approximately  $165,000,  the  MEBA's chief  engineer  and  first                                                               
assistant's salaries range from  $161,000-$183,000, and the IBU's                                                               
average salary  is $51,000, with  the highest wages  ranging from                                                               
$116,000-$138,000, and the top PSEA's  Alaska state trooper earns                                                               
approximately $202,000.   He explained that the  top PSEA earners                                                               
are   typically  in   rural  Alaska   and  receive   geographical                                                               
differential pay and  sea duty, which is  considered premium pay.                                                               
He reiterated  these are  the salaries  for personnel  for unions                                                               
currently under contract negotiations.                                                                                          
                                                                                                                                
3:51:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether  sea duty  applied to  the                                                               
ocean.                                                                                                                          
                                                                                                                                
ACTING  COMMISSIONER THAYER  answered  that these  AST operate  a                                                               
fish and  wildlife protection boat.   In response to  a question,                                                               
he agreed  the AST operates  in coastal  waters and tend  to work                                                               
more overtime since shift relief is not necessarily available.                                                                  
                                                                                                                                
3:52:15 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER discussed  the growing leave liability                                                               
[slide 16].   He acknowledged that the leave  liability is capped                                                               
for most of  the unions.  He  anticipated that FY 14  will show a                                                               
reduction  and   the  threshold   has  likely  been   reached  at                                                               
$169,765,136.   He stated that  this figure represents  the total                                                               
amount  if  everyone  cashed  out  their  leave  banks;  however,                                                               
capping the  leave and increasing  the mandatory leave  will help                                                               
to shift that figure down.   He reported that the new leave rules                                                               
became effective  on December 13 and  the new measure will  be in                                                               
December 2014.                                                                                                                  
                                                                                                                                
3:53:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CHENAULT referred to page  15, to the MEBA section                                                               
and for clarification of "other pay."                                                                                           
                                                                                                                                
ACTING COMMISSIONER  THAYER answered  that it  usually represents                                                               
cashed-out leave.                                                                                                               
                                                                                                                                
REPRESENTATIVE CHENAULT noted several were in the $20,000 range.                                                                
                                                                                                                                
3:53:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   asked  whether  some   personnel  are                                                               
prevented from  taking leave  due to their  work loads,  which is                                                               
something he experienced  as a state prosecutor in  Kotzebue.  In                                                               
fact, he  said he could have  been sanctioned by the  court if he                                                               
had taken leave so his leave time  piled up.  He wondered if that                                                               
might explain some of the large leave balances.                                                                                 
                                                                                                                                
ACTING COMMISSIONER  THAYER answered that  it depends on  the job                                                               
function.     He  acknowledged  that  some   employees  have  the                                                               
availability  of  relief  workers.    He  noted  that  the  state                                                               
contracts  have  a provision  to  carry  leave forward  with  the                                                               
supervisor and commissioner's approval.                                                                                         
                                                                                                                                
3:55:10 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER THAYER  turned to  page 17  entitled, "Leave                                                               
Liability  Example  - Top  Ten,"  which  identifies the  specific                                                               
concern.  He pointed out the  ten employees depicted on the slide                                                               
represent  $1.6  million in  accrued  leave.   He  provided  some                                                               
details, including that the confidential  bargaining unit has the                                                               
most accumulated  hours, at 4,469  hours, but their  salary rates                                                               
are $31.80.   He  reiterated that caps  have been  negotiated but                                                               
some  employees,  such  as  correctional  officers,  are  up  for                                                               
negotiations  next  year  and the  department  will  continue  to                                                               
strive to negotiate a cap on its future negotiations.                                                                           
                                                                                                                                
3:56:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD expressed  her concern,  noting she  has                                                               
recently been attending education  meetings and some teachers are                                                               
being  laid  off.   She  offered  her  belief that  the  contract                                                               
negotiators  were   possibly  negligent   in  not   fixing  these                                                               
loopholes.  She did not believe  this could happen in the private                                                               
sector and indicated she supports negotiations going "public."                                                                  
                                                                                                                                
CHAIR  OLSON  asked whether  some  of  these  issues go  back  to                                                               
statehood.                                                                                                                      
                                                                                                                                
ACTING COMMISSIONER THAYER agreed  that leave liabilities are the                                                               
"800-pound gorilla in  the room when we  walk into negotiations."                                                               
He also said,  "This is what the state negotiated.   This is what                                                               
bright light  brought to  the subject."   He indicated  that when                                                               
the department shared the leave  liability obligations with union                                                               
representatives, they  also recognized the problem  and the union                                                               
negotiated and  worked together with  the administration  to come                                                               
up with  a solution.   In  fact, Alaska was  the only  state that                                                               
does not have a cap on leave.   He provided a brief history, such                                                               
that the  state moved  from sick/annual  leave to  personal time;                                                               
however,  a   cap  was  not   negotiated  until   the  department                                                               
highlighted the  leave liability.   He  predicted that  the leave                                                               
balance  figures   were  cut  by   two-thirds  last  year.     He                                                               
characterized last year's  negotiations as very well  done by the                                                               
negotiating team and unions.                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD thanked  him for  identifying the  issue                                                               
although she wished it had  been addressed sooner.  She expressed                                                               
concern that the  state is at risk of failure  as has occurred in                                                               
other states,  such as California.   She hoped  that negotiations                                                               
take  into consideration  the future  so  funding for  education,                                                               
disasters, and the elderly will be available to Alaskans.                                                                       
                                                                                                                                
ACTING  COMMISSIONER  THAYER  responded that  he  couldn't  agree                                                               
more.   He reiterated his  support for  a cap on  leave benefits.                                                               
He  related his  understanding  that in  order  for contracts  to                                                               
receive legislative approval they must include a cap.                                                                           
                                                                                                                                
4:00:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  agreed [the  leave liability  issue] is                                                               
alarming.  He  surmised that some people like their  work and did                                                               
not exercise leave.                                                                                                             
                                                                                                                                
ACTING COMMISSIONER THAYER  was uncertain of the  reasons for the                                                               
high leave balances.  He  acknowledged that as some employees get                                                               
close  to retirement  they save  their leave.   He  also remarked                                                               
that the  state could have  done a  better job by  counseling its                                                               
employees  on retirement  planning since  there are  a number  of                                                               
ways to better accomplish savings.                                                                                              
                                                                                                                                
4:02:40 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER THAYER  discussed the  bargaining priorities                                                               
and concerns  for the marine  units, noting  that much of  it has                                                               
been covered.   He read from a list of  contract priorities, such                                                               
as   fiscally  prudent   cost-of-living  increases,   operational                                                               
flexibility, and  conflicts of interest on  board vessels between                                                               
masters  and fellow  union members.   Also,  the department  will                                                               
negotiate  limiting pass  privileges  for  dependents and  family                                                               
members  and eliminate  cash draws  on  board vessels.   The  DOA                                                               
strives for  voluntary and balanced  agreements, and if  a strike                                                               
occurs,  to  work  to provide  essential  services  to  citizens.                                                               
Finally, DOA  has been working  to clarify the limitation  on the                                                               
right to  strike or  cross a  picket line.   He said,  "We're not                                                               
there yet," but there is plenty of time to negotiate.                                                                           
                                                                                                                                
4:04:38 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER   THAYER  turned   to  the   "Public  Safety                                                               
Employees  Association (PSEA)  [slide  19]."   He  said that  the                                                               
department's approach  has been to mirror  last year's contracts,                                                               
in  terms  of  being   prudent  with  cost-of-living  allowances,                                                               
reducing  longevity steps,  addressing leave  liability, creating                                                               
operational  flexibility, and  striving  for voluntary,  balanced                                                               
agreements.  He  suggested  that   the  department  is  close  to                                                               
reaching an agreement with the  PSEA, and it will submit monetary                                                               
terms  of  an  agreement  by  mid-March to  allow  time  for  the                                                               
legislature to decide whether to fund it [slide 20].                                                                            
                                                                                                                                
ACTING  COMMISSIONER   THAYER  turned   to  slide   21  entitled,                                                               
"Universal  Space Standards."   He  said the  primary reason  for                                                               
implementing universal space standards is  to save the state over                                                               
$125 million in  the next 20 years [slide 22].   He provided some                                                               
details, including that  the state will save  on system furniture                                                               
by  contracting  with  the Western  States  Contracting  Alliance                                                               
(WSCA).    The  department  believes that  the  new  spaces  will                                                               
provide  improved  space  for   employees  with  better  airflow,                                                               
additional natural  lighting, as well as  achieving reduced costs                                                               
by sharing printers  and copiers.  He emphasized that  if it does                                                               
not make good fiscal sense, DOA  won't do it.  The department has                                                               
focused  on state-owned  buildings,  and  the photographs  depict                                                               
"before and after" spaces of  the accounting department.  He said                                                               
that  by  using  shared  printers,  general  services  will  save                                                               
$30,000-$40,000 per year on its space that serves 30 people.                                                                    
                                                                                                                                
4:09:59 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON asked whether the  commissioner could set up tours of                                                               
the State Office Building.                                                                                                      
                                                                                                                                
ACTING COMMISSIONER  THAYER answered yes.   He said the  DOA also                                                               
encourages  a clean  desk policy,  which means  that confidential                                                               
information should  not be  left on  the desk at  the end  of the                                                               
day.   He said that  DOA manages 17 buildings  totaling 1,623,383                                                               
square feet and $70 million in  annual lease costs.  He indicated                                                               
the  department believes  that  the  legislature must  ultimately                                                               
decide whether to cut programs, people, or space costs.                                                                         
                                                                                                                                
ACTING COMMISSIONER  THAYER briefly referred  to a list  of state                                                               
buildings, including  the Robert  B. Atwood building,  the Palmer                                                               
State Office building, and the  Dimond Courthouse building.  Most                                                               
of the larger  buildings, such as the State  Office Building were                                                               
initially built with an open concept design as shown [slide 25].                                                                
                                                                                                                                
4:12:57 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER discussed  the recent history of lease                                                               
costs, noting that they have risen  by $15 million in the past 11                                                               
years [slide 26].   He explained that the  most expensive private                                                               
lease per  square foot cost in  Anchorage is $3.75, in  Juneau it                                                               
is $2.86, in Nome it is $3.00, and  in Fairbanks it is $2.63.  He                                                               
compared that to  state lease costs to maintain  the building per                                                               
square foot,  noting the State  Office Building is $2.06  and the                                                               
Atwood building  plus the  parking garage is  $1.89.   He pointed                                                               
out  that  one  agency,  the  Department  of  Natural  Resources,                                                               
believes that implementing universal  space standards will result                                                               
in over  $1 million in  savings once completed, primarily  due to                                                               
current inefficient use of space.                                                                                               
                                                                                                                                
4:14:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD referred  to slide 23 to  the 1.6 million                                                               
total square  feet of  space at  an annual  cost of  $20 million.                                                               
She asked the total space when new standards are implemented.                                                                   
                                                                                                                                
ACTING COMMISSIONER  THAYER explained  that the  department plans                                                               
on  consolidating some  of the  current space  owned and  move in                                                               
other agencies that currently have private leases.                                                                              
                                                                                                                                
REPRESENTATIVE REINBOLD asked if the state will still own it.                                                                   
                                                                                                                                
ACTING COMMISSIONER  THAYER provided  an example.   He  said that                                                               
once  the  standards are  applied  in  the Atwood  building,  the                                                               
department  will save  40,000 square  feet of  space and  will be                                                               
able to  move additional agencies  currently under  private lease                                                               
to the Atwood building.  The  DOA estimates some of these private                                                               
lease  costs  range   from  $3.00  to  $3.50   per  square  foot.                                                               
Therefore, reducing the cost to  $1.89 per square foot represents                                                               
the cost savings.                                                                                                               
                                                                                                                                
4:15:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  reiterated her  question is  to identify                                                               
the state's total lease space after the standards are applied.                                                                  
                                                                                                                                
ACTING  COMMISSIONER THAYER  answered  that the  DOA charges  the                                                               
agencies for  the actual  square footage used  and the  costs are                                                               
not split equally  between divisions.  For example,  the DNR will                                                               
shrink from nine  floors to six floors, which will  free up three                                                               
empty floors in  the Atwood building.  As  private leases expire,                                                               
the  DOA will  be able  to relocate  the employees  to the  three                                                               
available floors in the Atwood building.                                                                                        
                                                                                                                                
REPRESENTATIVE REINBOLD said  it seemed that a lot  of malls were                                                               
purchased by  the government over  the years.   Additionally, the                                                               
state doesn't pay property taxes so that has an impact.                                                                         
                                                                                                                                
ACTING COMMISSIONER THAYER agreed.                                                                                              
                                                                                                                                
REPRESENTATIVE  REINBOLD  asked  whether he  could  identify  the                                                               
total square feet of space the state owns for all its buildings.                                                                
                                                                                                                                
ACTING  COMMISSIONER  THAYER  answered   no;  the  DOA  owns  and                                                               
operates   17  office   buildings   and   the  DOT&PF   maintains                                                               
facilities,  such  as  warehouses  and  public  facilities.    He                                                               
offered to consult with DOT&PF and report back to the committee.                                                                
                                                                                                                                
4:18:06 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER THAYER explained  that DOA evaluates existing                                                               
space  and  works with  the  other  departments [slide  27].  For                                                               
example, the Department of Corrections  consolidated its space on                                                               
the 18th floor  of the Atwood building and  collaborated with the                                                               
DOA on  the layout, conference rooms,  and phone rooms.   The DOC                                                               
consolidated its  offices from  three floors  to one,  which also                                                               
achieved  additional  efficiencies  since  its  staff  needed  to                                                               
interact and can now do so  more efficiently.  He summarized that                                                               
the  DOA's analysis  includes considering  the agency's  mission,                                                               
public  interface, employee  needs,  parking,  and current  lease                                                               
terms.   The DOA  will not implement  the space  standards unless                                                               
savings can be achieved.                                                                                                        
                                                                                                                                
ACTING  COMMISSIONER THAYER  said  that a  significant number  of                                                               
small  appliances,   including  refrigerators,   microwaves,  and                                                               
toasters,  were seen  in the  Atwood  building.   Once the  space                                                               
standards are  implemented, employees  will have break  rooms and                                                               
the  policy  doesn't  allow many  small  appliances  in  personal                                                               
spaces and limits employees to the ones listed [slide 28].                                                                      
                                                                                                                                
4:21:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON asked whether the  3rd floor of the Capitol                                                               
building has implemented the appliance restrictions.                                                                            
                                                                                                                                
ACTING  COMMISSIONER THAYER  said the  office has  a break  room.                                                               
The Fairbank's  governor's office  has a  space-standard credenza                                                               
and desk, and has implemented universal space standards.                                                                        
                                                                                                                                
REPRESENTATIVE  HERRON  asked   whether  the  legislature  should                                                               
consider restricting appliances as per slide 28 for its floor.                                                                  
                                                                                                                                
4:23:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  remarked that he appreciated  the work.                                                               
He asked whether employees' morale has been affected.                                                                           
                                                                                                                                
ACTING COMMISSIONER  THAYER answered that the  department surveys                                                               
employees about  three months after implementing  space standards                                                               
and asks  for suggestions.   For  example, in  Anchorage, sliding                                                               
pocket  doors  were  used  in  conference  rooms,  but  employees                                                               
reported they could hear private  conversations so the doors were                                                               
replaced.    In  some  instances the  acoustical  panels  in  the                                                               
existing spaces  were old  and inefficient  so the  new standards                                                               
reduced the overall noise levels.                                                                                               
                                                                                                                                
4:24:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  recalled   efficiencies  suggested  by                                                               
Frederick  Law  Olmsted in  the  late  1800s,  and he  hoped  the                                                               
measures being  taken are not  Draconian and will allow  for some                                                               
personality.                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER  THAYER  agreed  and  provided  examples  of                                                               
personal effects allowed.                                                                                                       
                                                                                                                                
4:27:16 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER  THAYER reviewed  some changes to  the Atwood                                                               
building's 4th  floor, noting the department  gained training and                                                               
conference rooms  and that the space  standards were accomplished                                                               
primarily with federal funds [slide  29].  He pointed out "before                                                               
and after" photographs  that showed improvements [slide  30].  He                                                               
remarked that  employees like the  new break rooms and  have made                                                               
positive comments.                                                                                                              
                                                                                                                                
4:28:14 PM                                                                                                                    
                                                                                                                                
ACTING COMMISSIONER  THAYER discussed  space standard  changes to                                                               
the  Atwood's  18th  floor for  the  Department  of  Corrections,                                                               
detailing the  "before and after"  changes made  to workstations,                                                               
reductions in the number of  private offices, plus eliminating 37                                                               
appliances [slide 32-33].                                                                                                       
                                                                                                                                
REPRESENTATIVE  CHENAULT  acknowledged  the Atwood  building  has                                                               
great views, especially looking south.                                                                                          
                                                                                                                                
ACTING COMMISSIONER THAYER turned  to slide 33 entitled, "Sample-                                                               
Juneau  SOB  7th  Floor,"  which  replaced  30-year-old  outdated                                                               
systems,  furniture,  carpet,  and   paint  using  agency  funds.                                                               
Before the  change 12 windows were  available to 4 staff  but now                                                               
24  windows are  available to  31 staff.   He  showed photographs                                                               
showing  significantly  improved  work  space  by  de-cluttering,                                                               
removing partitions, and providing lots of natural light.                                                                       
                                                                                                                                
4:30:37 PM                                                                                                                    
                                                                                                                                
ACTING  COMMISSIONER  THAYER  discussed funding,  including  that                                                               
some departmental  operating funds  are used or  the cost  can be                                                               
amortized within the monthly lease  payment [slide 35].  Finally,                                                               
departments  have realized  savings in  the overall  reduction of                                                               
leased  space.   He pointed  out  that the  new space  standards,                                                               
including an  analysis and  report, have all  been posted  on the                                                               
website at www.doa.alaska.gov/dgs [slide 36].                                                                                   
                                                                                                                                
4:31:17 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON asked  for  an  update on  the  state's health  care                                                               
conversion from Blue Cross to Aetna.                                                                                            
                                                                                                                                
ACTING   COMMISSIONER  THAYER   explained  that   the  department                                                               
received four  bids for  the $100  million health  care contract,                                                               
awarded the bid  with zero protests, and  converted 84,000 active                                                               
and  retired employees  from Health  Smart to  Aetna.   He lauded                                                               
Deputy  Commissioner   Mike  Barnhill  and  his   team  as  being                                                               
instrumental in the conversion.   He stated that the state spends                                                               
$600 million per  year on medical claims for  retirees and active                                                               
employees not in union trusts.   The component in the request for                                                               
proposal (RFP)  was to  reprice medical  costs all  four vendors.                                                               
He said  Aetna believes it can  reduce claims by $50  million and                                                               
stated  that  previously  the  DOA focused  on  the  third  party                                                               
administrator rather than the total  claims.  The state and Aetna                                                               
have focused on the network and subsequent savings.                                                                             
                                                                                                                                
CHAIR  OLSON expressed  concern that  in the  smaller communities                                                               
the doctors, internists,  and dentists that have signed  up to be                                                               
in the network  are limited.  He wondered how  the federal health                                                               
care plays into the limited providers in the network.                                                                           
                                                                                                                                
4:34:39 PM                                                                                                                    
                                                                                                                                
MIKE BARNHILL,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department  of Administration,  stated  that  network issues  for                                                               
health insurance  plans have  been problematic  for decades.   He                                                               
explained that Alaska has a  small market with little competition                                                               
between  providers so  many providers  don't see  the benefit  in                                                               
joining  a  network  and  negotiating a  discount  for  fees  and                                                               
abiding by  the standards that  the third-party  administrator or                                                               
network provider impose.  He  hoped that providers will recognize                                                               
the  benefits through  Aetna.   Thus far,  he has  been impressed                                                               
with Aetna's efforts  to reach out to providers  across the state                                                               
to  create  "win-win" situations.    Last  fall in  Juneau  there                                                               
weren't  any   major  providers,  and  now   three  primary  care                                                               
practices are  in the network, including  pediatrics and Bartlett                                                               
Regional Hospital,  noting that BRH  has never fully been  in the                                                               
network.  He  said that at this point no  one is being penalized,                                                               
and  active  employees  or  retirees may  use  providers  out  of                                                               
network for care, but it is common  in the Lower 48 to be subject                                                               
to  network differential.   For  example,  the insurance  company                                                               
would reimburse  60 percent of an  allowed cost as opposed  to 80                                                               
percent or 90  percent for network providers.   He concluded that                                                               
this practice drives  people into the network  for care; however,                                                               
the state doesn't have network  differential since the network is                                                               
not fully robust across Alaska.                                                                                                 
                                                                                                                                
4:37:04 PM                                                                                                                    
                                                                                                                                
MR. BARNHILL  indicated that if constituents  have concerns about                                                               
the health  care coverage to  pass them  on since Aetna  has been                                                               
very responsive.   He acknowledged that people  take their health                                                               
care  coverage very  seriously and  any changes  are viewed  as a                                                               
potential  hardship.   He assured  members that  this is  not the                                                               
department's intention and the DOA will consider all concerns.                                                                  
                                                                                                                                
4:37:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD recognized the  transition in the federal                                                               
health care  changes and  asked how  the [Patient  Protection and                                                               
Affordable Care Act (PPACA)] has  affected Alaska's residents and                                                               
businesses.  She offered her belief  that 3 million people in the                                                               
Lower 48 and 3,000 Alaskans have signed up so far.                                                                              
                                                                                                                                
MR. BARNHILL answered that Alaska's  retiree plan is not directly                                                               
subject to  the PPACA and  although the active plan  is somewhat,                                                               
it  is a  grandfathered plan  so the  state can  maintain current                                                               
plan design so  long as certain changes are not  made to the cost                                                               
structure.  He  said that it is hard to  overstate the impact the                                                               
PPACA has had in the medical  marketplace throughout the U.S.  He                                                               
explained that Alaska's plans have  been affected even though the                                                               
plans are  not directly subject  to the  PPACA.  First,  the PPCA                                                               
has  impacted  expectations  for  coverage,  in  particular,  for                                                               
dependents  up to  26.   While the  retiree plan  is not  legally                                                               
subject to  that provision, many  members would like  coverage to                                                               
be  expanded.   Thus, the  DOA  has engaged  in discussions  with                                                               
retirees  on  whether to  do  so  and  the  state may  make  some                                                               
changes.  He cautioned that  any time additional coverage happens                                                               
it results in  cost more money.   Additionally, some restrictions                                                               
occur if the state loses  its grandfathered status.  Finally, the                                                               
state is subject to some of  the PPACA's taxing provisions so the                                                               
state contributes  a $2  fee per  person to  the Patient-Centered                                                               
Outcomes  Research Institute  (PCORI), as  well as  a reinsurance                                                               
fee at $63 per  head for the first year, which  is reduced to $25                                                               
per  person in  the third  year.   He summarized  that these  are                                                               
additional  financial burdens  placed on  the state's  plans that                                                               
the DOA seeks funding from the legislature to cover.                                                                            
                                                                                                                                
4:40:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD asked  for  the projected  costs if  the                                                               
state adds coverage for dependents ages 26 and under.                                                                           
                                                                                                                                
MR.  BARNHILL answered  that the  state  made the  change in  the                                                               
active  plan, but  has not  done so  in the  retiree's plan.   He                                                               
offered to share the actuarial  letter, noting that initially the                                                               
projections were  higher than  the actuals.   He  emphasized that                                                               
the state  is reluctant to  add any  costs to the  retiree health                                                               
care plan since  it is underfunded.  One  aspect under discussion                                                               
is  that  enhanced   benefits  for  dependents  up   to  age  26,                                                               
preventive care,  or shingles vaccines,  raises the issue  of how                                                               
to  cover the  additional costs.   For  example, the  state could                                                               
raise deductibles,  increase out of pocket  maximums, or decrease                                                               
other coverage.  He said it is an important discussion.                                                                         
                                                                                                                                
4:42:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  asked how  many  retirees  live out  of                                                               
state and for clarification on the $2 per head cost.                                                                            
                                                                                                                                
MR.  BARNHILL answered  that 42,000  retirees are  in the  Public                                                               
Employees'  Retirement  System  (PERS) and  Teachers'  Retirement                                                               
System (TRS),  and 40 percent  live out-of-state;  however, based                                                               
on where medical care is provided that  it could be as high as 50                                                               
percent.  He  explained that retirees living in  Alaska receive a                                                               
Cost of Living Allowance (COLA).   He explained that the PCORI is                                                               
an  entity created  by the  PPACA  as a  federal research  entity                                                               
designed to research patient-centered outcomes.                                                                                 
                                                                                                                                
4:43:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  asked whether  the department  is asking                                                               
the state to cover the federal program.                                                                                         
                                                                                                                                
MR. BARNHILL answered that the state must comply with the law.                                                                  
                                                                                                                                
REPRESENTATIVE REINBOLD related her  understanding that the state                                                               
will pay  for this.   She asked who  will be making  the decision                                                               
and when will it be made.                                                                                                       
                                                                                                                                
CHAIR OLSON said that DOA is responding to a federal mandate.                                                                   
                                                                                                                                
MR. BARNHILL answered  that the federal mandate  requires the tax                                                               
be paid.                                                                                                                        
                                                                                                                                
CHAIR OLSON remarked that the state doesn't have a choice.                                                                      
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked whether  he could receive  a copy                                                               
of the recent actuarial letter mentioned earlier.                                                                               
                                                                                                                                
MR. BARNHILL offered to provide a copy to committee members.                                                                    
                                                                                                                                
4:45:17 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
4:45 p.m.                                                                                                                       

Document Name Date/Time Subjects
DOA-DeptOverview 02-05-14.pdf HL&C 2/5/2014 3:15:00 PM
Dept. of Administration Presentation To HL&C 2-5-2014