Legislature(1999 - 2000)
04/20/1999 08:01 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE April 20, 1999 8:01 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative John Coghill Representative Scott Ogan Representative Jim Whitaker Representative Bill Hudson Representative Beth Kerttula Representative Harold Smalley MEMBERS ABSENT All members present COMMITTEE CALENDAR * HOUSE BILL 199 "An Act relating to compensation for certain state employees; and providing for an effective date." - HEARD AND HELD CS FOR SENATE BILL 33(FIN) "An Act relating to contracts for the performance of certain state functions previously performed by state employees and to the Commission on Privatization and Delivery of Government Services; and providing for an effective date." - HEARD AND HELD * HOUSE BILL 144 "An Act relating to access to public buildings or public facilities by legislators and to audits of public buildings or public facilities." - SCHEDULED BUT NOT HEARD HOUSE BILL 132 "An Act relating to allowable absences from the state for purposes of eligibility for permanent fund dividends; and providing for an effective date." - SCHEDULED BUT NOT HEARD HOUSE BILL 16 "An Act transferring to the Department of Health and Social Services the authority to license all assisted living facilities; eliminating the authority of the Department of Administration to license assisted living facilities; and providing for an effective date." - SCHEDULED BUT NOT HEARD HOUSE BILL 159 "An Act granting certain employees in correctional facilities status as peace officers under the public employees' retirement system." - SCHEDULED BUT NOT HEARD (* First public hearing) PREVIOUS ACTION BILL: HB 199 SHORT TITLE: STATE EMPLOYEE COMPENSATION SPONSOR(S): FINANCE Jrn-Date Jrn-Page Action 4/15/99 824 (H) READ THE FIRST TIME - REFERRAL(S) 4/15/99 824 (H) STA, FIN 4/20/99 (H) STA AT 8:00 AM CAPITOL 102 BILL: SB 33 SHORT TITLE: TASK FORCE ON PRIVATIZATION SPONSOR(S): SENATOR(S) WARD Jrn-Date Jrn-Page Action 1/21/99 49 (S) READ THE FIRST TIME - REFERRAL(S) 1/21/99 49 (S) STA, FIN 1/28/99 (S) STA AT 3:30 PM BELTZ ROOM 211 1/28/99 (S) MOVED OUT OF COMMITTEE 1/28/99 (S) MINUTE(STA) 2/01/99 125 (S) STA RPT 2DP 1NR 1DNP 2/01/99 125 (S) DP: WARD, PHILLIPS; NR:MACKIE; DNP:ELTON 2/01/99 126 (S) INDETERMINATE FN (GOV) 2/25/99 (S) FIN AT 9:00 AM SENATE FINANCE 532 3/04/99 (S) FIN AT 8:00 AM SENATE FINANCE 532 3/04/99 (S) HEARD AND HELD 3/04/99 (S) MINUTE(FIN) 3/09/99 (S) FIN AT 9:00 AM SENATE FINANCE 532 3/09/99 (S) HEARD AND HELD 3/09/99 (S) MINUTE(FIN) 3/15/99 (S) FIN AT 9:00 AM SENATE FINANCE 532 3/15/99 (S) HEARD AND HELD 3/15/99 (S) MINUTE(FIN) 3/22/99 (S) FIN AT 9:00 AM SENATE FINANCE 532 3/22/99 (S) SCHEDULED BUT NOT HEARD 3/24/99 (S) MINUTE(FIN) 3/31/99 (S) FIN AT 8:00 AM SENATE FINANCE 532 3/31/99 (S) SCHEDULED BUT NOT HEARD 4/01/99 (S) RLS AT 11:50 AM FAHRENKAMP 203 4/01/99 (S) MINUTE(RLS) 4/01/99 767 (S) FIN RPT CS 4DP 2NR NEW TITLE 4/01/99 767 (S) DP: PARNELL, TORGERSON, GREEN, LEMAN; 4/01/99 767 (S) NR: PETE KELLY, DONLEY 4/01/99 767 (S) PREVIOUS INDETERMINATE FN (GOV) 4/06/99 793 (S) FORTHCOMING (FIN) CS RECEIVED 4/07/99 804 (S) RULES TO CALENDAR AND 1DNP 4/7/99 4/07/99 805 (S) READ THE SECOND TIME 4/07/99 805 (S) FIN CS ADOPTED UNAN CONSENT 4/07/99 805 (S) AM NO 1 FAILED Y6 N14 4/07/99 806 (S) ADVANCED TO THIRD READING UNAN CONSENT 4/07/99 806 (S) READ THE THIRD TIME CSSB 33(FIN) 4/07/99 806 (S) PASSED Y15 N5 4/07/99 807 (S) EFFECTIVE DATE(S) SAME AS PASSAGE 4/07/99 807 (S) ELLIS NOTICE OF RECONSIDERATION 4/08/99 828 (S) RECONSIDERATION NOT TAKEN UP 4/08/99 829 (S) TRANSMITTED TO (H) 4/09/99 698 (H) READ THE FIRST TIME - REFERRAL(S) 4/09/99 698 (H) STA, FIN 4/20/99 (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER DENNIS DEWITT, Legislative Assistant House Finance Committee Alaska State Legislature Capitol Building, Room 507 Juneau, Alaska 99801 Telephone: (907) 465-2647 POSITION STATEMENT: Presented HB 199. ALISON ELGEE, Deputy Commissioner Department of Administration P.O. Box 110200 Juneau, Alaska 99811 Telephone: (907) 465-2200 POSITION STATEMENT: Provided information and testified in opposition to sections of HB 199. GUY BELL, Director Division of Retirement and Benefits Department of Administration P.O. Box 110203 Juneau, Alaska 99811 Telephone: (907) 465-4471 POSITION STATEMENT: Provided information on HB 199 and expressed some concerns. CHUCK O'CONNELL, Member General Government Bargaining Unit 3510 Spenard Road Anchorage, Alaska 99503 Telephone: (907) 277-5200 POSITION STATEMENT: Testified in opposition to HB 199 and to SB 33. PAUL LYLE 665 Aspen Hights Drive Fairbanks, Alaska 99712 Telephone: (907) 457-6650 POSITION STATEMENT: Testified in opposition to HB 199. DON ETHERIDGE Local 71 District Council Laborers 710 West 9th Street Juneau, Alaska 99801 Telephone: (907) 586-3707 POSITION STATEMENT: Testified on behalf of Local 71 in opposition to SB 33. JOHN ATHENS 1955 Raven Drive Fairbanks, Alaska 99709 Telephone: (907) 479-4172 POSITION STATEMENT: Testified in opposition to HB 199. CRAIG PERSSON, Representative Public Safety Employees Association P.O. Box 6044 Fairbanks, Alaska 99706 Telephone: (907) 456-4167 POSITION STATEMENT: Testified in opposition to HB 199 and to SB 33. CAMERON LEONARD 562 Dalton Trail Fairbanks, Alaska 99709 Telephone: (907) 455-6230 POSITION STATEMENT: Testified in opposition to HB 199. TIM BECK 3470 Pluck Road Fairbanks, Alaska 99705 Telephone: (907) 488-3320 POSITION STATEMENT: Testified in opposition to HB 199. MARK HODGINS, Legislative Assistant to Senator Ward Alaska State Legislature Capitol Building, Room 423 Juneau, Alaska 99801 Telephone: (907) 465-4522 POSITION STATEMENT: Presented SB 33 on behalf of Senator Ward. JUANITA HENSLEY, Administrator Division of Motor Vehicles Department of Administration P.O. Box 110200 Juneau, Alaska 99811 Telephone: (907) 465-5648 POSITION STATEMENT: Expressed concerns with certain sections of SB 33. DON ETHERIDGE District Council Laborers 710 West 9th Street Juneau, Alaska 99801 Telephone: (907) 586-3707 POSITION STATEMENT: Testified on behalf of Local 71 in opposition to HB 199 and SB 33. PAM LaBOLLE, President Alaska Chamber of Commerce 217 Second Street Juneau, Alaska 99801 Telephone: (907) 586-2323 POSITION STATEMENT: Asked if SB 33 was going to be held over. ACTION NARRATIVE TAPE 99-26, SIDE A Number 0001 CHAIR JEANNETTE JAMES called the House State Affairs Standing Committee meeting to order at 8:01 a.m. Members present at the call to order were Representatives James, Coghill, Ogan, Whitaker, Kerttula and Smalley. Representative Hudson arrived at 8:10 a.m. CHAIR JAMES noted that, depending on how much activity the committee has on the first two pieces of legislation, the committee might not be able to hear the other bills scheduled. HB 199-STATE EMPLOYEE COMPENSATION CHAIR JAMES announced HB 199, "An Act relating to compensation for certain state employees; and providing for an effective date," is the first item up in committee. Number 031 DENNIS DEWITT, Legislative Assistant, House Finance Committee, presented HB 199, noted that a sectional analysis and a proposed committee substitute were distributed to the committee members last evening. CHAIR JAMES asked the members if they had a chance to review the committee substitute. REPRESENTATIVE SMALLEY replied that he has not because he only received it this morning. CHAIR JAMES indicated that the members reviewed the original bill. REPRESENTATIVE WHITAKER informed the chair even that was received the original bill late yesterday afternoon and that he has had difficulty in reviewing that. Number 076 MR. DEWITT explained Sections 1-5 make conforming changes. The original Sections 2-5 errantly excluded judicial increases after July 30 of this year. Currently the judiciary would receive an increase if there was an increase in Range 28, Step E. He said, "In this bill we have removed Step E, the original draft simply terminated any relationship - the CS changes that relationship to Step C so that, if in Range 28-C there's an increase, the judiciary gets and increase. That was our intent originally." MR. DEWITT explained the other changes: Section 6 of the bill makes the cost-of-living differential adopted in this bill the maximum allowed in any collective bargaining agreement. Section 7 makes any part of a collective bargaining agreement, including longevity programs, subject to specific reporting to the legislature. Unlike the geographical differential, it's not taken out of bargaining (it can be bargained) it simply must be reported and approved as a monitory term to the legislature. Section 8, is a conforming amendment for salary ranges, it reduces the pay of the principal head of an executive department from Step E to Step C at Range 28. Those currently in office are grandfathered in Section 21. Number 129 Section 9 establishes a new salary schedule by eliminating Steps B, D, and E, at the current schedule. Section 9 also has housekeeping language that a wage or salary scheme different from the statutory schedule may be established by a collective bargaining agreement so that collective bargaining agreements have the freedom to establish their own salary schedules. And again, those come to the legislature for review and approval. Section 10 amends AS 39.27.011 by adding (h). This amendment sets out the means by which a statutory employee progress from step to step. And the amendment changes the step progression from each year to a three-year cycle. The "progressively greater value" language is the language developed by arbitrators over the years as the standard by which step increases may be awarded or denied. Section 11 places all statutory employees under the same geographic differential plan that applies to the bulk of our unionized employees. This plan is taken from the current agreements governing the General Government Bargaining Unit (GGU) and Supervisory Unit. Subsection (c) of this section gives the director of Personnel the authority to set differentials in other states, that office already has the authority to set differentials in foreign countries. Section 12 is merely housekeeping to correct statutory references, conforming statutory changes in the cost-of-living survey. Number 175 Section 13 (a) imposes the salary schedule in Section 9 on all state agencies who have adopted 39.27.011 (a) as their salary schedule. Unlike the geographic differential, it is not mandated, but it requires specific action if the agency is currently using 39.27.011 schedule and chooses not too in the future. Section 13 (b) makes all non-collectively bargained longevity programs also subject to specific reporting and legislative approval, similar to union contracts. Again, those in exempt service can choose to have longevity programs, but they must be reported to and receive legislative approval. Section 14 is merely housekeeping to correct statutory references. Section 15 ends state participation in the SBS [Supplemental Benefits system] system for all employees hired after July 1, 1999. It grandfathers all employees who are participants in this system (in the pay period ending June 30, 1999) so long as they remain continuously employed. Section 16 is housekeeping to correct statutory reference. Number 210 Section 17 repeals the former geographic differential and longevity systems that are currently in place so that we can replace them. Section 18 freezes the pay of employees subject to the former statutory geographic differential pay schedule for two years as long as they remain in the same location and range. Section 19 (a) and (b) freezes the pay of employees in former Steps B, D, and E, until they qualify under the new plan for Steps C or F. The language in (c) freezes the pay of employees in longevity status for two years as long as they were receiving longevity pay on June 30, 1999. Section 20 freezes the pay of commissioners currently serving until the next governor takes office. And Section 21 sets an effective date of July 1, 1999. Number 233 MR. DEWITT explained the purpose of HB 199 is basically to do three things: It establishes a maximum geographic differential for all state employees by reducing the current differential for statutory employees. It ends longevity steps and reduces the steps in our wage-scale for classified and partially-exempt employees, and those employees that are exempt where the employer is using our schedule unless they change their system (and several have established their own system) and they have the authority to adopt separate systems. Those would become reportable issues to the legislature in the budgetary process. The third thing is the elimination of SBS for new employees after June 30, 1999. MR. DEWITT pointed out that the original draft and the current proposed CS indicate that if someone were employed, left state service and were re-employed, SBS would not be available to them on rehire. He noted that the Finance Committee will correct for new-hires only to resolve some of the concerns of that section. CHAIR JAMES mentioned Representative Hudson is present. Number 273 REPRESENTATIVE HUDSON asked if there is intent to reinstate social security in lieu of SBS, or are we doing away with the employer/employee contributed program. MR. DEWITT replied it is the intent to do away with that as a benefit over the long term. He added that it is "our" understanding that the PERS (Public Employees' Retirement System) and TRS (Teachers' Retirement System) system covers the obligation required by social security except for temporary employees. It's also "our" understanding that without SBS temporary employees will default to the social security system. REPRESENTATIVE HUDSON asked if the State would be paying for social security for the temporary employees. MR. DEWITT replied that's his understanding. REPRESENTATIVE HUDSON said this issue bothers him somewhat. He mentioned that he was involved when the state gave the employees the option of leaving social security and going into the SBS program, and they moved to it. Representative Hudson said, "I'd like to see something from a legal perspective as to whether or not we, or perhaps even through the bargaining Act, as to whether or not we have the right to unilaterally ... take away a benefit. And I admit that your grandfathering in everybody (that's in the program) - it's a good thing you're doing that because I think that you'd find yourself directly into court if you didn't." Representative Hudson said he believes these are the kinds of things that are handled at the bargaining table. For example, if you want to make a major changes to pay structures or benefits you should take those things to the bargaining table. That's the problem he has with HB 1999. Number 323 CHAIR JAMES asked, what about employees who are not here for five years, are they considered temporary employees. Chair James said she visited the Social Security Administration because the doctor told her that she had to have Medicare. She was informed that her social security payments were going down because she was working and has a substitute. In addition, if she had taken her PERS she had gained nothing in five years in her retirement benefits. Chair James said, "I lost almost all my social security" She asked, if people have to be here five years, and they're not temporary employees, how do they gain any retirement at all. MR. DEWITT said he can't answer that, but he will get that information. Number 358 REPRESENTATIVE KERTTULA asked if continuous employment means you can't quit and come back, and if you do you are dropped out of SBS. MR. DEWITT responded the co-chairs of Finance Committee intend to eliminate that. He noted that it was found to be problematic and that it will be redrafted to only effect new employees. He reiterated that if you left State service you would not lose your SBS eligibility if you returned. CHAIR JAMES asked Representative Kerttula if that statement makes her feel good. REPRESENTATIVE KERTTULA replied no. Number 381 REPRESENTATIVE SMALLEY pointed out that he had worked for a number of years in a school district that went to a second-tier-type structure for different classes of employees. The intent was to save money and the result was the exact opposite. He mentioned that was the first year his past school district went outside to recruit for 70 positions and that they came back with zero applicants. Therefore, hey started school short of counselors and short of elementary classroom teachers. It also caused moral problems with the different structures. Representative Smalley pointed out that people with the same background, same classification, and same the category were making less money due to when they came into this system. The school district found it very difficult to retain individuals that were hired and that it was costly to retrain them. He emphasized that the State of Alaska is going to find the same possible problems here. He said, "I think it's going to create difficulty in wanting to hire employees for the State. Constant turnover, high cost of retraining, to me appears to be a punitive bill for State employees, especially those that have been appointed by this Governor, and I find it very very difficult to support this bill in any way shape or form." REPRESENTATIVE OGAN remarked, this doesn't affect people who currently have jobs, it affects new-hires. Number 416 REPRESENTATIVE SMALLEY said he heard there was a section which freezes wages of those commissioners hired by the Governor. Sec. 20. COMMISSIONERS' SALARIES. Notwithstanding the amendments to AS 39.20.080(a), made by sec. 8 of this Act, and to AS 39.27.011(a) made by sec. 9 of this Act, the head of a principal executive department of the state who was serving in that capacity on June 30, 1999, is entitled to receive a monthly salary in the amount of $7,234 until the date on which the next governor is sworn into office. CHAIR JAMES explained that the next governor's appointees will fall under this. Number 431 ALISON ELGEE, Deputy Commissioner, Department of Administration, came forward noting that the department opposes HB 199 because it jeopardizes the ability of the Administration to attract and retain good qualified employees. MS. ELGEE said the department supports the change to the statutory geographic differential which takes the statutory scheme and conforms it to the scheme that is currently used by the General Government Unit and the supervisors. She explained that the change, on the side of the unions, was made back in the mid-eighties as the result of a cost-of-living study which reestablished differentials throughout the state. MS. ELGEE noted that the statutory schedule has never been amended, that there have been attempts by the legislature, however, the provisions never passed. She said HB 199 will bring the non-covered employees, subject to the statutory scheme, in conformance with the union employees and correct the disparity in places like Fairbanks. For example, State attorneys are subject to the statutory scheme and are currently receiving a 14 percent differential. The secretaries who are working in that same office are members of the union and only receive a 4 percent differential. Therefore, the department believes this section corrects that inequity. MS. ELGEE referred to Section 6 which takes the geographic differential out of collective bargaining. She noted that not all of our unions negotiate a geographic differential along this kind of a scheme. She said the "Trades and Crafts Union" has a very different type of application of geographic differential (and while she doesn't believe it compensates employees to a greater degree) it's not comparable. MS. ELGEE said the other reason the Department of Administration would suggest the committee not approve Section 6, is that the unions have been much more willing to adopt to a new cost-of-living study (at the times that they have been conducted), the statutory schedule has limits, and is slow to be amended. Ms. Elgee emphasized that the department would recommend the deletion of Section 6 for those reasons. An agreement concerning the wages of state employees may not establish a geographic differential or other cost-of-living allowance that is greater than the differential set out in AS 39.27.021. Number 483 MS. ELGEE noted that the conforming sections for municipal assistance and revenue sharing have been removed. She said municipal assistance and revenue sharing have always been tied to the old statutory geographic differential scheme, and by eliminating the hold-harmless sections that were contained in the original bill, you removed that protection for local government assistance, that it would also be reduced. The following was deleted: Payments to a municipality or other eligible recipient under AS 29.60.110 - 29.60.130 shall reflect area cost-of-living differentials. Payments shall be based on the sum of per capita, per mile, and per bed or facility grants due each municipality or other recipient multiplied by the appropriate area cost-of-living differential. The area cost-of-living differential for each recipient shall be determined annually by election district under the provisions of former AS 39.27.020 and AS 39.27.030. Application of the area cost-of-living differential may not result in distribution of an amount less than the amount of the payment determined without reference to application of this section. MS. ELGEE said, "The other section, relating to the geographic differential ... is a policy call, is the two-year freeze on employees. In the past, when we have negotiated new geographic differential schemes for employees, in the collective bargaining environment, we have frozen those employees so that they are not harmed by diminishment of wages. The new schedule takes effect with new employees, or as an employee was to separate or move out the district, and the proposal here is a two-year freeze. That is a policy consideration that I think needs to be discussed." Number 502 CHAIR JAMES referred to revenue sharing which is tied to the old system. She said it seems that, if we are going to implement the "real" geographic pay differential, that ought be the same amount used for revenue sharing. It doesn't seem that we ought to use two different numbers on that. MS. ELGEE replied it is a policy call of the legislature as to whether or not they want to do that. But revenue sharing amounts have been relatively flat, with some small reductions over the last several years. This would greatly reconfigure the distribution of what other dollars are made available between communities. She said the communities that presently enjoy a differential (under the statutory scheme are significantly greater than what is contained in the proposed schedule) would lose revenue sharing dollars in a reconfiguration of the same amount of money. She reiterated that Fairbanks is significantly higher at 14 percent than what's proposed at 4 percent. The statutory scheme also has differentials in it for the Mat-Su [Matanuska-Susitna] Borough and the Kenai Peninsula that go to zero in the context of the proposed statutory schedule contained in HB 199. So those communities lose that differential advantage in the distribution of dollars. She said she wasn't sure that the legislators were aware of that direct connection and the original bill did have the hold-harmless provisions in it which has been removed by the proposed CS. Number 538 GUY BELL, Director, Division of Retirement and Benefits, Department of Administration, testified that Section 15 excludes any State employee, hired or rehired after June 30, from the Supplemental Benefits System, and the annuity and the benefit components of the SBS plan. MR. BELL emphasized that all State employees are effected. He explained that employee's contribution to SBS is 6.13 percent of pay, and that the employer contributes an equivalent amount (up to the social security wage-base). He noted that the social security system currently requires 6.2 percent from the employer and employee, so by going to SBS the State has actually saved some money because we're paying less than we would have for social security. MR. BELL further explained that newly-hired, temporary, seasonal and part-time employees fall short of the IRS required contributions under the internal revenue code (Mr. DeWitt mentioned some of those issues). Mr. Bell said the department believes temporary employees would need to move into social security and that there would be a small net increase in cost to the system. Currently temporary employees are not in PERS; they're in the SBS only. He said the State's contribution is 6.13 percent of those employees' salaries to SBS. For social security, the State would shift that to 6.2 percent. Number 570 MR. BELL pointed out that IRS requires that a minimum of 7.5 percent of an individual's salary be set aside annually for that person's retirement benefit and that it has to be vested immediately; it can't be vested in five years because it has to be available to that person he or she leaves. He said the Public Employee Retirement System requires a 6.75 percent contribution, which a person vests in immediately, the rest of the PERS benefit is not vested in until the person reaches five years of service. So under the IRS requirement we're .75 percent short if this HB 199 were to pass of the minimum amount required to be set aside for retirement benefits for seasonal and part-time employees. CHAIR JAMES said she is not familiar with that IRS requirement. MR. BELL explained that it has to do with whether you have to be in or out of social security, if you stay out of social security you have to provide the benefit of 7.5 percent. REPRESENTATIVE HUDSON asked when the last effective change took place on social security. MR. BELL replied that he doesn't know that answer but his staff can pull the history of the social security system since 1980. He said he believes the major changes were in 1986 when Medicare was made mandatory for newly-hired employees. He indicated that there may have been some other changes. CHAIR JAMES said it might have been the Tax Reform Act of 1986. The only changes have been in the level of coverage. Number 616 MR. BELL stated that the Department of Administration is concerned with people who are rehired after July 1, especially through the general constitutional arguments over the retirement and benefit issue. But that will be addressed in the Finance Committee. MR. BELL explained that SBS is not just an annuity plan; it's also a benefit plan. Under SBS a person can select a disability benefit, survivor benefits, and accidental death benefits. Those are additional benefits that are available to folks. Without SBS, newly-hired employees won't have access to those benefits and an example of the kind of problem you might run into with newly-hired permanent employees, with less than five years of service, (although the department doesn't believe there's any requirement that they be in social security) there will be some issues about what happens if this person becomes disabled if that disability plan is not available to them. He noted that under PERS a person must have five years of service to be eligible to receive a non-occupational disability benefit. An occupational disability can occur any time and a person would be entitled to a benefit at the time they are disabled, but if the injury was not the result of an occupational hazard (indisc.), a person with less than five years of service is not eligible to receive the benefit. Basically a person can become "non-occupational disabled" and have no benefit available. CHAIR JAMES asked, isn't that currently true under social security. MR. BELL replied that he is not sure. CHAIR JAMES commented that they have to have a certain number of quarters to be able to qualify for the extra social security (SSI). REPRESENTATIVE HUDSON said he believes it is income related. CHAIR JAMES agreed that it is income related. Number 648 MR. BELL pointed out HB 199 eliminates both the employer and the employee contributions to SBS (an employee contributes 6.13 percent and the employer is contributing 6.13) and, of course, nothing is saved by eliminating the employees' contribution; nothing is saved by the State. MR. BELL referred to the general area of social security reform and what's happening in Congress. He said, "Congress is very concerned, and the President is performing social security. We have taken a position to one of the components of that social security reform (which is mandatory inclusion of newly-hired public employees). That's an issue that is raised fairly frequently at the Congressional level. That as of a certain date newly-hired public employees will be required to be in social security. One of the arguments that we have is that while we have a defined benefit plan in PERS and we have a defined contribution plan with SBS, social security added on top of that, that would be a costly addition to the employer and we feel that it would be unnecessary, given that we do have a combined SBS and PERS system at this time." Number 672 REPRESENTATIVE SMALLEY asked if the State employees strike, are they terminated. If they are terminated and return, do they become new-hires. CHAIR JAMES replied no, it applies only to the people who have not previously worked for the State. REPRESENTATIVE SMALLEY asked what happens to employees that take a leave, to improve their educational background, technical training or skills, and then return. MR. BELL explained the same issue would apply: Is the person rehired? He said, if that is amended in the Finance Committee, to remove the provision for rehired employees it becomes a moot issue. CHAIR JAMES asked what if, when they leave for educational purposes, they take their SBS out and decide to return. MR. BELL responded, currently in PERS, a person can leave and take their contributions out. If that person returns, he or she is still in the tier based on the original date of hire; the original date of hire sets a person's PERS tier. He said he would assume that, if the bill is amended for SBS, the same kind of provision would apply. REPRESENTATIVE HUDSON asked if a person can pay it back to the SBS program. MR. BELL replied a person cannot pay back their SBS contribution after they have taken it out. Number 726 CHUCK O'CONNELL, Member of the General Government Bargaining Unit, testified via teleconference from Fairbanks in opposition to HB 199. Mr. O'Connell gave the following statement: I'm speaking in behalf of all members in our union. We have approximately 7,200 members in the General Government Bargaining Unit. And I'm speaking from the perspective of we have an obligation as an employee organization to protect the merit principle, and that obligation is legal, and we are extremely interested in maintaining the highest quality workforce possible. And we feel that these changes that were represented in HB 199 would in fact create a second-class workforce within our group and we are opposed to that approach to state government. Most people who go to work for the State of Alaska are looking at the State of Alaska as an opportunity for a career ... and if you compare any large employer in the private sector you will find that they have social security and they also have a retirement system. What you are doing with the changes promoted here is you are removing the replacement for social security within the framework of the employer and employee relationship. And we do not believe that it will do anything to promote and encourage and sustain a high-quality workforce. ... People are leaving state service and to set up a system where we replace those people in the future with a lower-valued worker is a (indisc.--teleconferencing) to quality workforce. We also feel that this bill would create a very significant problem in the area of temporary workers. We have seasonal employees, we have hundreds of "on-call" nonpermanent employees who function as substitute workers in 24-hour facilities, and this bill would have the direct effect into the social security system, which would create a dual-payroll system statewide and we do not believe that it's in the best interest of the state. Finally, I would like to report to you that in going through our membership we currently have in the GGU 984 members who are below the federal poverty level and qualify for public assistance in the areas of medical care and other areas. And to even further diminish their value (indisc.--paper shuffling) of the workforce and we certainly hope that all of you on the committee oppose this bill vigorously. Number 781 PAUL LYLE testified in opposition to HB 199 from Fairbanks, and noted that he is representing himself and is not speaking for the Administration. He read the following testimony: I'm a partially-exempt employee. ... HB 199 is a punitive bill. It takes 20 percent of my pay effective July 1, 2001. The geographic differential is a vital part of the compensation package for professionals in Fairbanks. It is not a cost-of-living (COLA) adjustment like the unions have, that is why it's different than the union's COLA. It is not left over from the "giddy" days of the pipeline. The geographic differential has been in place since 1966. It is an incentive payment to attract high-quality professionals to work in the less hospitable areas of the state. Fairness should be the touchstone of how you treat those professionals whose only sin in remaining employed with the state in Fairbanks has been their reliance upon the promises that past legislatures have made and kept over 30 years. Fairness dictates that those presently receiving the geographic differential be grandfathered into the old system if it is changed. That's how university professors were treated when they lost their differential in 1994. There are good [reasons] and valid reasons why professionals who have a high degree of schooling and skill should be treated differently than secretaries. But if you have to treat us the same as secretaries were treated, which is fine with me, then don't cut my pay because their pay was not cut when they lost their COLA. The 2001 step decreases and the repeal of the longevity increases should be rejected as unfair. House Bill 199 takes the most money away from those professionals who have devoted the most service to the state and who, as a result of their age, cannot easily change careers at this point. HB 199 will cause an unprecedented brain drain, a serious loss of institutional memory, and the loss of irreplaceable skills and experience. Number 815 HB 199 is a disguised income tax so far as I'm concerned. It takes about 20 percent of my income for the sole purpose of funding general government. Isn't that what an income tax does? The only difference is that this income tax falls on a few state employees who don't happen to have any collective bargaining agreement or union to protect them while all other citizens of the state (including other state workers) get a free ride on the income tax. Is that fair? Fairness dictates that all citizens should be subject to an income tax, not just a few. You do not write on a clean slate. Many years ago, the State of Alaska decided to build and maintain a career force of professionals who would devote their entire careers to state service, some in the less hospitable areas. You need to keep faith with those who responded to the State's call. It is easy to support draconian cuts in our salaries, despite the promises made to us over many years, when you do know who we are, the quality of the work we perform, or the honesty and integrity that we bring to the interaction of government with its citizens. State professionals in my department acquire the property you need to build capital projects in your districts. They advise agencies to ensure that the civil rights of Alaskans are left untrammeled. They file lawsuits to vindicate the policy decisions made by the legislature. They protect children under laws you pass, enforce the familial obligations of parents under the laws you design, protect cities and villages from those who commit crimes, and preserve the public fisk against unwarranted and unsupported claims. For their dedication, professionals working for the State of Alaska deserve to be treated fairly for their service rather than being made a target for personal political gain. They need to be grandfathered into the system of pay that they are currently compensated on. WE ARE NOT NUMBERS ON YOUR BALANCE SHEET. WE ARE PEOPLE WHO DESERVE TO BE TREATED FAIRLY. And I hope this committee will summons the courage to KILL HB 199, which is a mean-spirited, vindictive and ultimately unproductive approach to the state's budget shortfall. Number 846 DON ETHERIDGE, Local 71, District Council Laborers, told the members that the laborers are opposed to this bill in its entirety, they don't like any of it. He said they believe this is just another attack on the public employee because they're an easy target. MR. ETHERIDGE noted that the workforce for the state is changing. When he began to work for the State in the early 70s the comment at that time was that it was a home for the aged and a school for the young. However, it's not that way any longer. We don't send out unqualified help anymore, they have to be fully qualified in their job. TAPE 99-26, SIDE B Number 001 MR. ETHERIDGE continued, "For some of these jobs that the public employees are required to do. We've had several jobs where we've had to go out there and do a letter of agreement with the State, giving them a higher wage, starting them at a higher step because they could not find the people to do this work. And if we lose the SBS incentive, geographic differentials, and all this other stuff, it's even going to make it more difficult to find qualified people to do the jobs out there. It's easy enough to find somebody that will go out and pretend to do the job, or go out there and stumble through the job, but the State of Alaska deserves and requires top employees to do that job. And we look at this bill as a total way of undermining the public employees and our ability to find good help for the state." Number 035 JOHN ATHENS testified in opposition to HB 199 via teleconference: I'm here speaking for myself. ... The more the legislature cuts the pay and the benefits of partially-exempt (PX) employees the more the legislature is going to convert these jobs and the starter-jobs for young professionals just out of law school with respect to the Department of Law. I think that the legislature needs to discuss the basic philosophical change that is before it in House Bill 199 which is to change the PX employment with the State from career professional jobs to starter-jobs for young professionals (indisc.) where they will pass through for a couple of years. And I think the impact of that is whether you want professionals that have experience and longevity with the State to deal with the complex problems that face them on a daily basis or if you want the PX jobs to be a training ground for young professionals and then they will move on. Second, with regard to the geographic differential, I think it's really unfair to cut that from the employees that currently receive it. Many of us are career employees who have held our jobs for many years. We never understood that the geographic differential was tied to cost-of-living which could fluctuate. We understood that we got the geographic differential because of the place we live, because we lived in either a remote place or a place with a harsh climate and this was the incentive for us to remain in those locations. I disagree with the Administration's point of view that it would be fair to treat us like the union people in that the geographic differential should be the same. ... Their geographic differential has changed (I think the Administration said in the 1980s) they've had the benefit of collective bargaining since the 80s and they've had a cost-of-living adjustment. The partially-exempt employees do not have collective bargaining and we don't have the cost-of-living adjustment. I think that if you want an example of how it would be more fair to treat us, it would be how the university professors were treated in Fairbanks. Several years ago, as a result of bargaining they did in fact lose their geographic differential but what happened was that they were given raises that were the same amount of the geographic differential that they received so they did not have any out-of-pocket loss, and new people coming in would be paid at the pay-scale that they would start new people at. That would be far more fair. You shouldn't take money out of the pockets of people who are career employees that devoted their career to working for the state. I'm given a signal that I'm out of time. I actually wanted to discuss (indisc.) more about the bill rolling back salaries to Step F, and I wanted to discuss something about how demoralizing this bill is to the people who currently work in these positions. If the committee would accept my written testimony, I'd be glad to submit that as written testimony [On file]. Number 170 CRAIG PERSSON, Representing the Fairbanks Public Safety Employees Association appeared before the committee in opposition to HB 199. He gave the following testimony: We represent basically 1,100 State troopers, Fish and Wildlife troopers, correctional officers, and airport safety officers throughout the whole state. First of all, there are three different areas in that bill that we don't like: The SBS - taking that from new employees, the geographic differential, and taking longevity increases basically out of collective bargaining and giving it to the legislature for appropriation. The SBS, that's a big one for us, attracting and retaining employees - it is very hard for us to do so. State troopers, at our last academy we had approximately 700 recruits, out of these 700 we got it down to 30. It's getting harder and harder to attract good qualified employees. By the time you take the employee, and you take him all the way through all the testing process to be a State trooper, it's very difficult to end up with 30 people that are ready to go to the academy. Geographic differential: We have a different formula than the GGU, the formula that we have has basically negotiated over the last 10 to 12 years. For an example, right here in Juneau' as you legislators all know, the cost-of-living is much higher here than it is in a lot of places in the state so our members receive a 3.75 percent one-step differential here. Number 213 Longevity increases: Basically longevity increases are for people hanging in there with the State doing their job day-after-day and the State says, "You've done this job, you've been here, you've been a good employee, therefore, you're going to receive this increase." There's basically only three increases in the longevity throughout your last 13 years of employment with the State. Finally I want to say where does it end. As you probably all know, the Public Safety Officers Unit was the first union this year to sign an agreement with the Administration. We took into effect the oil prices and what the legislature was taught in the situation this year of low oil prices and low oil production. With this in mind we said, "We're not going to even ask for increases this year," so we signed a three-year agreement that asked for no increases in the fiscal year 2000. For this the legislature comes up with House Bill 199, which basically kicks us in the knees, and I believe it is a disservice to the men and women who protect us every day. Number 245 CAMERON LEONARD testified via teleconference from Fairbanks in opposition to HB 199. His testimony is as follows: I'm with the Attorney General's Office here in Fairbanks. I've been there for a dozen years. I feel fortunate to have the opportunity to make my career in that office and in the public sector I found it very rewarding. And I share the comments and the thoughts that my two colleagues have already offered, Mr. Lyle and Mr. Athens. I'm here to ask the committee not to cut my pay by 20 percent. I haven't run the numbers but I think it would be somewhere in that neighborhood, given the 10 percent loss in the geographic differential and loss of longevity, which I am in the longevity program. I would like to underscore the comment that the spokesperson for the Administration made that there is a policy call that the committee should be considering as to how to handle people like myself, whether there should be some sort of a grandfathered approach that would hold harmless the people who have made decisions in reliance upon a certain compensation package, and have a new salary schedule and a new differential apply perspectively to new-hires, or whether you want to pursue the other course of cutting our pay, in many cases somewhat dramatically. I think that is an important policy call for you to make, I would urge you to make it in the same way that it's been made in other context such as the professors that would recognize some sort of grandfather rights of people who have made career decisions, bought houses, financial commitments, the usual kinds of lifetime decisions that we all make. Obviously, it's difficult to see your pay cut in the neighborhood of 20 percent and still meet those sorts of commitments. So please consider that policy call carefully and do the right thing by those of us who are effected by this bill. Number 290 TIM BECK testified in opposition to HB 199 via teleconference from Fairbanks and presented the following testimony: I'm speaking in opposition to HB 199. Not only does this bill fail to plan, it appears to indeed plan to fail. I've been employed by the State of Alaska for 24 years. It's my opinion that the State of Alaska has a contract indeed my time and services, I deliver and continue to do so - I expect no less of the State of Alaska. The Supplemental Benefits System is a substitute for social security benefits. The vote was only allowed by the federal government if the alternative system was provided by the State of Alaska. Some of the things that I utilize the Supplemental Benefits System for to provide for my family are: Life insurance, accidental death and disability, survivor benefits, short term disability, long term disability, additional health care benefits (which I pay for out of my pocket), and another alternative option which I do not utilize is the dependant care reimbursement. So this is not just a retirement plan, it is a plan that we have utilized to structure our lives around. If, in fact you do indeed try to pull this wonderful program from the employees of the State of Alaska I would suggest that you can do no less than put us at least back in the social security where these other things are available to us because I don't want to leave my family without protection. I've given my time to the State of Alaska. I can't get that back. Much like these other folks here that have given testimony, I think that this is a very poor bill and I'm not sure where it's going other than the fact that I suppose if the disincentive is there to be employed by the State of Alaska, maybe there's a long-term run, maybe people will hope that there's going to be less government. I don't think that's going to occur. I encourage you to kill this and defeat this bill. And like I said, take a good look at what the Supplemental Benefits Program really is. It's not just another cash-cow for public employees, it provides a protection our families deserve and need. Number 339 CHAIR JAMES closed the public testimony on HB 199. She asked Mr. DeWitt, what do you say to those people who are not vested; do we automatically put them on social security? She stated that they would have the money taken out but they'll never get it back. MR. DEWITT responded, as he understands it, temporary-hires would default into social security. The folks who are permanent-hires, if they left before vesting in five years, would receive their portion of their contribution back. He said those are the two options for temporary and short-term employees that were permanent. He mentioned that he hasn't been able to clarify that to share the similarity. CHAIR JAMES stated temporary employees would be eligible for social security, but permanent employees who don't stay with the State for five years (and become vested) won't receive any credit for social security. She asked if that's how it works. MR. DEWITT said that was his understanding. CHAIR JAMES indicated that she doesn't know if that's a good idea. Number 396 REPRESENTATIVE HUDSON emphasized that it is not a fair idea and that's part of the problem. He said, if we were going to move out of the SBS program and provide social security, he would feel that we were at least developing some parity there. However, we heard that would cost the State more money because the contributions to social security are higher than the State's contributions to the SBS program. He reiterated that it interrupts a longstanding negotiated agreement between the employees and those who represent them in the State of Alaska and the Administration. He said, to arbitrarily eliminate a program for all new-hires and put people into a dual-pay status (doing the very same job), doesn't seem that will encourage people to stay with the government. Representative Hudson said, "You can understand the moral problems that that might generate, for those who wouldn't be receiving a contribution on behalf of the SBS." MR. DEWITT remarked, Representative Hudson, we are getting paid differently. REPRESENTATIVE HUDSON interjected, you more than me. MR. DEWITT added, "You are in Tier 1, I'm in Tier 2, and our benefits are different as a result of that." REPRESENTATIVE HUDSON said, "But we still have a program." CHAIR JAMES asked for a motion to put the proposed committee substitute before the committee. Number 441 REPRESENTATIVE COGHILL made a motion to adopt the proposed committee substitute (CS) for HB 199, version LS0823\G, Cramer, 4/19/99, as the working draft. There being no objection, it was so ordered. CHAIR JAMES referred to page 6, Section 39.30.165, Limitation on participation by state employees: A state employee may participate in the supplemental benefit program under AS 39.50.150 - 39.50.180 only if the employee was in pay status, on approved leave without pay, or on seasonal leave without pay on June 30, 1999; CHAIR JAMES asked what language would fix the problem for temporary employees. MR. DEWITT replied, "It's my belief we don't need to put language in for temporary employees. I believe they default, as I understand it, to the social security system. The change that we were suggesting, ... generally Section 3 would be eliminated, as I understand it. ... The substance of the amendment would be that rehired employees would continue in SBS on a separate tier system, similar to the other tier systems that we have." Number 482 CHAIR JAMES asked Mr. DeWitt, what do you say to the statement that, "Even private sector employees, generally if they're under social security, at least larger employees have a retirement system too." MR. DEWITT quoted the "KPMG" study that was conducted last fall: Total compensation for State of Alaska employees was calculated to be 120 percent of the market median and 125 percent of the market weighted average private survey data. This indicates that State employees are compensated more than employees performing similar work in other organizations within the State's defined labor market. He said it seems that we can pick and choose individual parts of compensation and what we need to look at is the size of the compensation package, is it within the range that we ought to be in. Mr. DeWitt further stated that the Finance Committee believes these reductions help bring us back into a relatively competitive area with other employers. CHAIR JAMES asked, "What about the 37.5 hours which factors in, and other benefits (not counting retirement) and so forth factor in. And that certainly does up the amount that we're paying for State employees. Can we fix that? Another 2.5 hours a week would make a big difference in the amount of compensation compared to other folks who are working 40 hours a week." MR. DEWITT replied that those are all options. He said his point was that we have different sets of benefits. He further stated, "I didn't hear anybody come to the table and object to the fact that we have a shorter work-week than most other employees. And that is one of the comparable benefits that in fact we do have on the employees of the State." Number 544 CHAIR JAMES stated that, "It's your annual that makes up the difference and I don't know that that KPMG report did it on an annual salary basis for the hours worked and I think a standard work-week is 40 hours. I think that an awful lot of the factors that plugged in there were the other benefits, the 37.5 hour work-week and some of the other benefits of vacation time and time not working." She indicated that State employees don't work as many days and hours as the rest of the folks do; that's where the difference is but that doesn't affect the bottom-line annual salary that they're making. She said, "It seems to me like if you wanted to do some real conservative planning for the State to make the State employees be more effective, we'd have them work more for the same pay." REPRESENTATIVE HUDSON said he researched collective bargaining and found that there were years and years when there were no increases whatsoever in pay. He mentioned the Egan Administration negotiated with the State employees and gave them a 7 percent reduction in their work-week in lieu of a 7 percent pay raise. CHAIR JAMES said she believes "we" ought to be back to the table on that issue in lieu of taking away benefits and reducing salaries and increases. Number 584 REPRESENTATIVE KERTTULA emphasized that State employees are not just working a 37.5 hour work-week because they take work home, some employees are putting in the hours whether they're getting paid for it or not. She said she takes umbrage at the fact that they don't work as hard, or they don't work as much because she doesn't think that is accurate. REPRESENTATIVE KERTTULA indicated she has a difficult time with HB 199 because it is really regressive. She said she would like to know quite a bit more about what Mr. Bell had to say in terms of whether or not it would actually save the State money with the increased cost that we would have to put into it to go to social security. CHAIR JAMES stated that she knows employees who don't work beyond 37.5 hours a week, however, if they do work long hours they should be paid for it. She said she was only making a statement that changes could be made and that they should be made by collective bargaining as opposed to this piece of legislation [HB 199]. Chair James further stated, "I think that the most productive employees are the ones who are happy with where they are and feeling good about what they're doing. I don't think this bill is going to do that. In fact I think it is going to have a negative effect so I'm not comfortable with it in that respect. I think that before you reduce someone's salary, you need to know how dependent they are on their salary because it's very likely that if you reduce their salary, they're going to have to look for another job ... and where are they going to find one ... that makes the amount of money they need to make." 632 CHAIR JAMES asked Mr. DeWitt to provide the language that rehires would be eligible for the SBS. CHAIR JAMES stated that, since the committee only had the bill itself just recently, and the CS this morning, she would like to hold HB 199 over until Thursday because this is a serious issue. REPRESENTATIVE WHITAKER asked that a fiscal note also be provided. MR. DEWITT stated the Administration has not yet provided it. Number 682 CHAIR JAMES indicated that HB 199 will be moved out of committee on Thursday. [HB 199 was held over in committee]. SB 33-TASK FORCE ON PRIVATIZATION Number 687 CHAIR JAMES announced the next order of business is CSSB 33(FIN) "An Act relating to contracts for the performance of certain state functions previously performed by state employees and to the Commission on Privatization and Delivery of Government Services; and providing for an effective date." Number 695 MARK HODGINS, Legislative Assistant to Senator Ward, presented SB 33 on behalf of the Senator. He pointed out that SB 33, version LS0317\S, sets up a commission which looks into the aspects of contracting out, privatizing, or redistributing State services to the municipalities and to the federal government and reports back in one year [to the legislature and the governor]. He said this commission would not make any horrendous changes in the delivery of services. Mr. Hodgins said, "We have to look at how we deliver government. And if there are better ways of delivering services, we need to look at what needs to be done - and some of the alternatives." He further stated that there are portions of State government which should never be privatized, there are porions of state government that should be run more efficiently, and there are possibly portions of state government that we need to add more revenues and more staff. Number 728 MR. HODGINS indicated that Governor Knowles vetoed similar legislation for three reasons, one was that the Governor felt that it was a separation of powers issue. A legal opinion from Legal Services said they feel that separation of powers was not a valid reason. Mr. Hodgins said it was the fact that the Governor was going to be mandated to appoint a certain individual as one of his representatives, representing a certain faction of the society. Mr. Hodgins further stated, "We feel in that the opinion that came out, to guess that as long as there's no legislation coming out of this committee, that there is not the question of separation of powers." The second reason is the Governor felt that it should be presented as a resolution and not as a bill. Mr. Hodgins said, "We feel that the bill does demand a certain time and does put a little bit of teeth into the information that will be gathered and the recommendations that will come forward. Again, those will simply be recommendations that the legislature can decide on, decide the policy and move forward with." The last point Governor Knowles made was that it had a power to administer an oath. Mr. Hodgins said SB 33 does not have that power because it's simply a commission. He pointed out that SB 33 was originally a task force and was changed to a commission by the Senate Finance Committee. He said, "There is no difference between a commission and a task force because their duties are laid out specifically in the body of the bill and that's what gives a task force or a commission the appropriate powers to do its findings." Number 762 CHAIR JAMES asked, what is the net result of the work of this commission, if they find areas that would be beneficial to either privatize or contract out, that they make that report to the legislature and that the legislature makes those decisions. What happens as a result of their decision making process? MR. HODGINS replied the commission's report is given to the Governor and to the legislature and there is nothing binding on that. REPRESENTATIVE OGAN said he supports SB 33, however, he would like to offer a conceptual amendment which would expand the task force [commission] to include, "looking at functions of state government that need to go away." He suggested that the panel also be a "reprioritization commission" which makes recommendations of things that the State has provided in the past, but that we possibly can't afford to do it any longer, "so we can do the things that we're supposed to do well." MR. HODGINS responded that, "The sponsor [Senator Ward] agrees that there are probably some areas of state government that we should not be in, there's some services that we deliver that maybe we shouldn't be delivering." He said the first section of SB 33 kind of lays out the territory and states that if government shouldn't be doing this, maybe private enterprise should be, that maybe other organizations should be doing some of the services. He indicated that (before the oil money started coming in) it seemed like the churches and other organizations did most of the social services type work by helping individuals and their neighbors. Mr. Hodgins stated, "And then when we got a lot of money it seemed like there was a faceless, nameless person that sent checks ... to help rather than personal assistance. ... Because people expect those services, it's quite traumatic to make a change." He added that he wholeheartedly agrees with Representative Ogan that there are areas that the state should not be involved with, whether they should go away and that maybe this commission can give us some insight on that. Number 821 CHAIR JAMES said she totally disagrees with the term "privatization" because true privatization means that the State goes out of business and that the private sector has the option of picking it up or not. We just say, "This is not a proper thing for the government to be doing anymore and someone else should pick it up, it's not something we should be spending public funds on." She said it may be better managed and done more efficiently if someone else were to do it because we have our rules and (indisc.) that keep us from doing it the way it ought to be done. CHAIR JAMES stated that she doesn't call it contracting out or outsourcing privatization because we're still doing it, we're just not having state employees do it and so that's really not privatization at all. Chair James further stated, "I'm not convinced that the decision to determine whether we should contract out or not should be based on just the cost of it. If it's something that we've determined that we as a State should be doing, we should be doing it well, and we should be doing it as inexpensively as possible. ... And the most important times that we should do outsourcing is when we have a blip in the need and we don't have a steady workforce to provide that need." Number 856 CHAIR JAMES added, "I think that the agencies should have an opportunity to put their own costs together and they might find that they're wasting their funds in getting the job done because I think there is an ability to cut the costs if we go out, but it needs to be costs over the long-term. There's no point in putting something out for a bid to the private sector, and somebody comes in with a low-bid, and you give it to him, and a year later you know you have to pick it back up again, now you..." TAPE 99-27, SIDE A CHAIR JAMES continued. "...Privatization, and I think this task force should find those kinds of things even though it doesn't say that in this piece of legislation. And I think that would kind of respond to Representative Ogan's concerns." Number 010 REPRESENTATIVE COGHILL said he resists task forces because quite often the foregone conclusion is just to be substantiated. He said the title is more simplified than the actual title (Section 8, page 4), "The Commission on Privatization and Delivery of Government Services." He said that if he understands it correctly that would be the whole intent of it and that efficiency is going to be just as important as whether we contract out or actually do go out of business on it and let the private sector take care of it. He said he is in favor of doing that. Representative Coghill further stated that, "I know that there's some discussion ... on how should we deliver services (and with the people that we have already hired to do that) I think other states also have had to wrestle with this and this bill says that that commission would look at other state policies. So it would be, to me a tremendous resource to see the comparison and what a commission might do in gathering information from around Alaska. Then I think the legislature can ask them real serious questions on, 'Should we do this anymore,' and I think the argument would be framed, not only by pinpointing whether it is actually happening, but how it's done. So I am going to favor the bill." CHAIR JAMES expressed a concern with the language in Section 2, page 2, is amended to read: Sec. 23.40.075. Items not subject to bargaining. The parties may not negotiate terms contrary to the Number 079 CHAIR JAMES emphasized that she is not happy with that language because she believes bargaining should not exclude any type of contracting out, or privatization of their job. She stated, "I think they are entitled to job security, in some language so that it is not done flippantly or without good cause." Chair James said she is not sure how she would like to amend this, but that it can be discussed later. Number 103 JUANITA HENSLEY, Administrator, Division of Motor Vehicles, Department of Administration, came forward noting that the Administration feels that (any time that a function is out for a study) that it should be done to make sure that it can be done wiser, cheaper, better, and more efficiently. She said the State currently has that in the collective bargaining process, in contracts that have been negotiated in good faith. She explained that, "We have language in there that allows the State to contract out services providing that feasibility studies are completed, and that we can show just cause as to why those functions should be outsourced." For example the Division of Motor Vehicles closed offices when they made a determination that it would be cheaper to outsource it to a private entity. MS. HENSLEY also noted that the Administration has real concerns with Sections 2, 3, and 4, and requested that this committee delete that language. She mentioned that this language was added by Senate Finance Committee, which adds to the list of items that "we" cannot bargain for the collective bargaining process, that contracting out language cannot be put in the collective bargaining process. They believe that changing those sections in PERA (Public Employees' Relation Act), that this magnitude is going to affect the collective bargaining process, and that they currently have 11 more contracts to negotiate and their first priority in the negotiating process (has been what the legislature has asked for) is coming in with zero cost contracts and cost containment. Ms. Hensley said the Administration believes that they've done that with the agreements that they have currently negotiated for. For example PSEA (Public Safety Employee Association), came in with a zero contract cost containment for the State which she believes is good. She emphasized that they believe changing PERA at this time could jeopardize their negotiation process and they would hate to see that happen because they too believe that cost effective government is a good way to go. REPRESENTATIVE OGAN indicated that privatizing some of the functions in the Division of Motor Vehicles (DMV) were done by statute. Number 180 MS. HENSLEY replied no, there have been no statute changes mandating privatization. She said a bill was previously introduced that mandated the privatization of the DMV, however that legislation did not move and that was several years ago. REPRESENTATIVE OGAN remarked that he wasn't sure if it passed or not. CHAIR JAMES said she doesn't believe there is anything on the books, short of collective bargaining, that would keep this Administration from outsourcing and that the Administration can't go to true privatization, go out of doing business without statutory change. She said, as far as outsourcing is concerned, except for collective bargaining agreements, she doesn't think there is anything that would stop this Administration from being able to do that. MS. HENSLEY replied that is correct, even in the current contracts and collective bargaining contracts that the Administration has, it allows them to outsource, or to go out and look at oursourcing, and do the feasibility studies. She noted that the feasibility studies cost in the range between $20,000 and $50,000 to do full intensive study depending on what function you want to outsource. However, the current contracts have the contracting-out language in them and that providing (indisc.) come back and show that there is definitely a cost-savings, it can be done. Number 220 CHAIR JAMES remarked, let's talk about the feasibility studies because there are a lot of things that don't require a feasibility study. For example, if you have a blip and have a large amount of work that needs to be done and it's something that's quite simple, you could contract that out rather than hiring new employees. She said she believes that's available under existing law and you won't need to do a feasibility study to determine that. MS. HENSLEY replied, you are correct. However, if you are going to displace any current employee that's when the feasibility study needs to be done and the whole process needs to be looked at. CHAIR JAMES said she also agrees with that because, if you're contracting out, and if that doesn't work, then you would have to hire new employees so that needs to be checked thoroughly before you do that. REPRESENTATIVE OGAN said he agreed that a feasibility study should probably be done in every case. He remarked, "I guess ... this bill is a policy call, whether or not a feasibility study will be done, totally within the Administration or within more of a broad spectrum of people that might not be quite as biased and protective of the bureaucratic function." Number 273 REPRESENTATIVE SMALLEY noted that there are no numbers on the fiscal note. He asked if a fiscal note will be attached for meetings at various times during the year and perhaps various locations. MS. HENSLEY explained that it is an "asterisk fiscal note" which means that they have no way of determining what those costs are at this time. CHAIR JAMES asked Ms. Hensley if she could estimate how often the commission is going to meet in order to figure out the per diem and travel expenses. MS. HENSLEY said she doesn't know how the sponsor envisioned the commission meeting and how often they expected these meetings. Number 292 MR. HODGINS responded, "We took a fiscal note off of SB 68 [COOPERATION WITH FEDERAL AGENCIES] which was the one that Governor had vetoed, and we came up with a $26,000 fiscal note, and then here at the continuation of the fiscal note, as to how it would be spent as far as meetings and travel, and what not." CHAIR JAMES stated that fiscal note should be filed with this bill. MS. HENSLEY remarked, "This is done by the Legislative, Executive Director's Office." REPRESENTATIVE SMALLEY said he thinks that there is merit into looking at long-term cost savings and privatization may in fact assist in that. He referred to a recent comment made in the House about a "long-term-strategic-plan for the State." Representative Smalley said he believes this is something that would probably help tie into that because in a long-range strategic plan you could look at other situations such as other future potential consolidations rather than ... piecemeal them together in 120 days, or whatever the legislature tries to do it in. He said he would support that effort in its self. Number 321 REPRESENTATIVE SMALLEY further stated, "In looking at this particular document, it doesn't necessarily give you what's on page 2. And, in reference to the Oregon report assessed successful privatization in some areas it was successful, and I know in some areas it was a disaster because it was short-term-cost-savings, but on the third year the hammer came down and it ended up the privatized custodial work actually went back to the school district and they ended up purchasing brand new equipment and, et cetera, et cetera, et cetera, because nobody else would pick up the contract when it was advertised. So long-term potential is what I would definitely be interested in, and I think the committee in a strategic plan could in fact give us that information." CHAIR JAMES cited how the folks from British Columbia explained how they privatized their road maintenance, and the net result of that wasn't that they saved money, the costs were smaller but there was more division of that money. More people in the smaller communities had jobs and they had more control in making decisions at a local level. Number 363 CHUCK O'CONNELL, Member, General Government Bargaining Unit, testified in opposition to SB 33 via teleconference from Anchorage. He stated that: I am here in firm opposition to SB 33. You have heard testimony already from Ms. Hensley about the fact that we do currently have language in our collective bargaining agreements involving contracting out what is currently recognized as State work. That language works well. We in the classified service work for the executive branch and this commission is composed in majority from people being appointed from the legislative branch and we have some significant problems with that. In the disputes that we have had with our employer, over the issue of contracting out, the major area of disagreement that we have had is that the contracting out, that we have questioned the propriety of in all cases cost the State a considerable sum of money. Let me give you a couple of brief examples, the Division of Public Health contracted out audiology services and laid off the State audiologist, his salary at the time was about $55,000 a year. In the first year of that contract the division paid to private sector audiologist $350,000 to do Mr. (Indisc.) work; that does not represent good management or any kind of a cost-savings to the State. I agree with the Chair that sometimes cost savings may not be paramount, but in most instances that we are talking here, it is important that economies enter into whatever decisions are made. Another example of contracting out where we can't accomplish cost savings is at API (Alaska Psychiatric Institute) for example the State has been attempting to hire a psychiatrists for a number of years and nobody will apply, therefore, they must contract out to the private sector at great costs to the State of Alaska. Another example, at DOT (Department of Transportation and Public Facilities) right now with the airport project, you've heard a lot about the cost overruns there. Currently we have six of our members working at the airport expansion project and they're earning a wage of about $22.00 an hour. Along side of our six members are 22 private project engineers doing exactly the same work and they are earning a wage 40-hours a week of $110.00 to $125.00 an hour. That is not good government that is not efficient operation and expenditure of funds. Number 436 CHAIR JAMES asked what is the time frame for the airport expansion. MR. O'CONNELL said he believes there are different phases, it may be 2002. CHAIR JAMES said if they were to hire State employees, for example, to take the place of the highly paid engineers, the State employees would have to be hired on a temporary-basis. MR. O'CONNELL responded that that depends on what legal counsel finds out as to the IRS definition. He said he believes Chair James is correct. Mr. O'Connell added that they would also be saving $2,200 an hour [22 private engineers]. CHAIR JAMES remarked, if you can find somebody to work that, doing that. MR. O'CONNELL agreed with Chair James comment. CHAIR JAMES indicated that he might be precluded from hiring somebody because they [State engineers] wouldn't work for $22.00 an hour and you don't have a provision in law to give them any more than that. MR. O'CONNELL added that they would also have a retirement program and social security. Number 470 DON ETHERIDGE, District Council Laborers, Testified on behalf of Local 71, noting that they are opposed to SB 33 in its current form. He said Local 71 came out in support of the bill which was vetoed by the Governor. Mr. Etheridge emphasized that they don't have a problem with being compared to the private sector on a fair- basis. He said, "Our main concern is that it's on a fair-basis that they are compared with. And we do believe that we can prove ... that we are very competitive." MR. ETHERIDGE cited examples of Local 71 work being handed over to private sectors or to the local governments to do street and airport maintenance (three different instances). He stated that in the first year the State gave away the equipment and facilities to take care of these projects, and when it came back to the State (in the third-year) they'd already destroyed all the equipment. He said, "And now they were realizing how much it really is going to cost them to do this, so now they wanted to triple the price (in the third year) and now DOT[/PF] now has those areas back." He explained that while those projects were under the operation of local governments, DOT personnel had to go in and do the maintenance because nobody at those locations had the experience to take care of the airports properly. He further stated that they were made unsafe for landings and DOT had to come back and fix them. MR. ETHERIDGE noted that Local 71 is strongly opposed to removing the language on their subcontracting and that they believe that legislature should also be opposed to this language because their main interest in the contracts is that the State can prove that they can do it cheaper and better, and if they can't then it shouldn't be outsourced. Number 510 CRAIG PERSSON, Representative, Public Safety Employees Association (PSEA), said he agrees with Mr. Etheridge. He noted that PSEA opposes SB 33 in its current form and that they do not oppose looking at long-term costs. However SB 33 takes that out of collective bargaining. He added that, "We believe that it should stay in collective bargaining. We do have feasibility studies in our contracts right now that are basically the same as some of the other unions have that says that if the state can save money and do a better job, then they can go ahead and contract out." MR. PERSSON further stated that, "There is a real danger in contracting out. I believe public safety systems in Alaska is an example; I know there is a big push right now in Delta for the Delta Prison to go through with private guards and everything down there. I think there's a real danger when you're going to pay people $7.00 or $8.00 an hour to take those jobs. Right now we have a hard time recruiting folks to work in the correctional facilities and there's a high turn-over-rate of correctional officers based on the fact. Once they get the job and they are in the facility, a lot of times they just don't last, they get burned out; they work seven days a week at a time, in 12-hour shifts. And I'm glad I have the job I have. I work in Fairbanks as a Public Safety Officer there. Every time I take somebody to jail, I just shake my head and thank God I don't work here because I wouldn't want to." Mr. PERSSON pointed out the other concern they have is that this commission is only made up of one person from labor. He said he believes there ought a few more people on the commission from labor and some of the best people you can have on the committee, or even testify in front of the commission, would be folks that are directly involved with these jobs and know the system. Mr. Persson stated that, "I don't know if I trust somebody from the Alaska Chamber of Commerce making decisions that are going to have long-term impacts on public safety of the state. That is not to say that they can't bring other specialists in to testify, and I hope they plan on doing that." Number 554 PAM LaBOLLE, President, Alaska Chamber of Commerce, asked if SB 33 was going to be held over because she didn't want to rush through her testimony. CHAIR JAMES announced SB 33 will be held over until Thursday. ADJOURNMENT There being no further business before the committee, the House State Affairs Standing Committee adjourned at 10:07 a.m.