01/29/2004 08:01 AM House STA

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* first hearing in first committee of referral
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= bill was previously heard/scheduled

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ALASKA STATE LEGISLATURE HOUSE STATE AFFAIRS STANDING COMMITTEE January 29, 2004 8:01 a.m. MEMBERS PRESENT Representative Bruce Weyhrauch, Chair Representative Jim Holm, Vice Chair Representative John Coghill Representative Bob Lynn Representative Paul Seaton Representative Ethan Berkowitz Representative Max Gruenberg MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 366 "An Act relating to rat racing charitable gaming; and providing for an effective date." - HEARD AND HELD HOUSE BILL NO. 329 "An Act relating to retirement incentive programs for the public employees' retirement system, the judicial retirement system, and the teachers' retirement system; relating to separation incentives for certain state employees; and providing for an effective date." - HEARD AND HELD PREVIOUS ACTION BILL: HB 366 SHORT TITLE: RAT RACING CHARITABLE GAMING SPONSOR(S): REPRESENTATIVE(S) STOLTZE 01/12/04 (H) PREFILE RELEASED 1/9/04

01/12/04 (H) READ THE FIRST TIME - REFERRALS

01/12/04 (H) STA, FIN

01/29/04 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 329 SHORT TITLE: RETIREMENT INCENTIVE PROGRAM SPONSOR(S): REPRESENTATIVE(S) MCGUIRE 05/21/03 (H) READ THE FIRST TIME - REFERRALS 05/21/03 (H) STA, L&C, FIN

01/13/04 (H) STA AT 8:00 AM CAPITOL 102

01/13/04 (H) <Bill Hearing Postponed>

01/29/04 (H) WITNESS REGISTER KELLY HUBER, Staff to Representative Bill Stoltze Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Testified on behalf of Representative Stoltze, sponsor of HB DAVE LAMBERT, Emerald Isle Fairbanks, Alaska POSITION STATEMENT: Provided some history regarding rat racing during the hearing on HB 329. BARBARA HUFF TUCKNESS, Lobbyist for Teamsters Local 959 Anchorage, Alaska POSITION STATEMENT: Testified on behalf of the Teamsters Local RON RUCKER, President Classified Employees Association Matanuska-Susitna (Mat-Su) School District Wasilla, Alaska POSITION STATEMENT: Testified in support of HB MIKE CHMIELEWSKI, President Matanuska-Susitna (Mat-Su) Borough School Board Palmer, Alaska POSITION STATEMENT: Underlined the school board's support for HB questions. FATE PUTMAN, Lobbyist for the Alaska State Employees Association/American Federation of State, County, and Municipal Employees (ASEA/AFSCME) Local 52 Juneau, Alaska POSITION STATEMENT: Testified on behalf of ASEA/AFSCME during the hearing on HB JEFF BARNHART Kodiak, Alaska POSITION STATEMENT: Described HB Number 0050 CHAIR WEYHRAUCH announced that the first order of business was HOUSE BILL NO. 366, "An Act relating to rat racing charitable gaming; and providing for an effective date." REPRESENTATIVE SEATON moved to adopt HR would allow the Palmer Elks club to continue rat races at the Alaska State Fair [held in Palmer]. She described the rat races as a game of chance that has been in existence for over 50 years. MS. HUBER explained that over the years, as the gaming statutes have been amended, language which allowed "these games" to be permitted by the Department of Revenue has been inadvertently omitted. She added that as far as "we" know, the omissions were not intentional. She said a couple of years ago the attorney general's office issued an opinion stating that [the omission be corrected] or the [rat race] games could not continue. The proposed legislation would fix the omission and allow the rat races to continue, she reiterated. MS. HUBER noted that the proceeds from the rat races go to local charities. She offered to answer questions from the committee. Number 0225 CHAIR WEYHRAUCH asked if the opinion expressed by the attorney general was a formal one or an informal one. MS. HUBER noted that it had been issued as a memorandum, and she surmised that it was an informal opinion. She added, "However, we have had discussions with the Department of Law, and they believe strongly that we need to clarify and fix it in statute." In response to a request made by Chair Weyhrauch, she agreed to make available to the committee copies of the attorney general's opinion. Number 0296 CHAIR WEYHRAUCH asked, "If this rat race occurred before statehood, would it have to be in statute?" MS. HUBER noted that [the rat race] did occur before statehood. She explained that the attorney general's office "does not believe that that will fix the problem." Number 0409 REPRESENTATIVE LYNN asked if there have been any threats from PETA [People for the Ethical Treatment of Animals] to boycott tourism in Alaska, for example, if the use of the rats or gerbils for rat racing continues. MS. HUBER replied that there has been no contact [by PETA]. Furthermore, she stated that there are many gerbils used at the state fair, and the gerbils are rotated on a regular basis; therefore, it is a very humane treatment of animals. Number 0485 REPRESENTATIVE BERKOWITZ noted that only rats are listed in the title of the bill, while gerbils are mentioned in the body of the bill. He offered his understanding that they are "not the same critters." MS. HUBER answered that Representative Berkowitz is correct. She explained that "the rat race" has been the title of the race run by the Palmer Elks club for years. She added that the distinction [regarding use of rats or gerbils] is "made in the definition." Number 0554 REPRESENTATIVE HOLM asked if Ms. Huber would have any objection to the Tanana Valley State Fair [being included in the legislation]. MS. HUBER responded that Representative Stoltze would consider that as a friendly amendment. She noted that "they" contacted Representative Stoltze's office after "this piece of legislation was introduced." Number 0609 CHAIR WEYHRAUCH asked about games of chance and video. MS. HUBER replied that the sponsor does not intend to expand gaming through [HB chance "of this nature" that have been going on for decades. Number 0641 REPRESENTATIVE SEATON turned to Section 4 of the bill. He asked for confirmation that the idea behind this is that it wouldn't open cockfights in Alaska, for example. MS. HUBER answered that's correct. Number 0681 REPRESENTATIVE COGHILL asked Ms. Huber if she has researched other places where "groups like this" have been specifically named in statute. MS. HUBER answered that she has not; however, she noted that [Legislative Legal and Research Services] believes that the current drafting is the best. She noted that there are a lot of specifics regarding "the exact game" in statute. She indicated that the name of the group is "actually the name of the event." REPRESENTATIVE COGHILL asked if the same group [from the Alaska State Fair] comes up to the Tanana Valley Fair, or whether a new group needs to be named. CHAIR WEYHRAUCH asked Representative Holm if rat racing is being done at the Tanana [Valley] Fair. Number 0758 REPRESENTATIVE HOLM offered his understanding that the Tanana Valley Fair has held rat races in the past; however, he said he doesn't know who was conducting them. Number 0838 CHAIR WEYHRAUCH noted that there are pig races at the fair that is held in Haines. Number 0864 REPRESENTATIVE BERKOWITZ reported that the entire section of AS organizations across the state." He offered some examples. He concluded, "This is your directory for fun in Alaska." Number 0935 MS. HUBER noted that, should the Palmer Elks club choose not to continue the rat races, the game would cease. She reiterated that the bill was not intended for expansion, but to allow something that has been happening for decades to continue. She offered her belief that if the pig races in Haines have been around as long as the rat races, the sponsor would not have any objection [to adding them to the bill]. Number 0970 REPRESENTATIVE SEATON stated his concern regarding the removal of the language specifying a specific race, because, as it currently stands, the rat race is conducted a certain way, and that may change if that language is removed. He referred to Representative Lynn's previous mention of PETA [regarding the question of whether animals are ill used or not]. He clarified that he is arguing to continue to keep the bill "very defined." REPRESENTATIVE LYNN clarified that [when he had previously mentioned PETA] he was "just being facetious, obviously." CHAIR WEYHRAUCH told Representative Lynn, "It's [an] unfortunate state of affairs, though, that what we think of as facetious sometimes people think is deadly serious. And who knows where things can go, particularly with groups like [PETA]." Number 1096 REPRESENTATIVE BERKOWITZ stated that AS 15.50.100. MS. HUBER, in response to a question by Chair Weyhrauch, noted that the rat races take place at the Alaska State Fair all day long at a booth. The fair runs from the end of August through the beginning of September. She reiterated that the funds go to help local charities. Number 1217 DAVE LAMBERT, Emerald Isle, told the committee that he operated the rat race at the Tanana Valley Fair in the past for several different "nonprofits." He stated he thinks the committee to understand "how we got to this point" and why the legislation is needed. He continued as follows: Even though the rat race took place before 1959, the legislators back then - when they passed statutes that allowed numbers wheels - they wanted to protect this type of activity. So, the law that outlaws numbers wheels says, "except where you use a rat, hamster, or other animal." So, it's clearly defined in the statute and allows it. Two years ago, during the regulation process, we had a little over-[zealous] bunny hugger that worked for the department of gaming that wanted to do whatever they could to stop the rat race. During the process, ... he tried to introduce regulations that would make it so restrictive that it couldn't be done. ... They had a statewide committee from all over and nobody supported any of his decisions. When the regulations finally came out, the rat race was banned. This individual went to the attorney general's office saying, "Hey, this is our interpretation, can you give us an opinion." It's not a decision - it's an opinion. He was trying to do whatever he could. It's traditionally been ... called the rat race. Rats aren't very exciting. They stand there, and then they run straight for a hole. Gerbils are a lot of fun. They ... run around, play around, and they want to find out what's in the hole. They'll go in the hole, they'll come back - go to another hole; that's what they like to do. Number 1380 MR. LAMBERT stated that originally, during the Tanana Valley [State] Fair, there had been concern that there might be some outcry from animal rights people. He indicated that many animal rights groups were contacted, but no objection was found. During the fair, he reported, there was a complaint by an individual, and someone from the Fairbanks Northstar Borough animal control sent a veterinarian over. The vet's determination was that all the gerbils were well cared for and were "doing what gerbils do and having fun." MR. LAMBERT said, "It was one of the major attractions at the fair." He noted that last year, when people arrived at the fair, the number one question was, "Where is the rat race?" He emphasized that he would like to have [the rat race] at the fair [again], and he noted that in addition to conducting the race at the fair, it also used to take place at special events. He said the Fairbanks Chamber of Commerce recently contacted him to ask if the rat race could be done at one of its special events. He said, "Well, in the past we could have. Now we can't." MR. LAMBERT stated his support of HB [Contains brief discussion of HB draft. There being no objection, Version H was before the committee. Number 1930 HEATH HILYARD, Staff to Representative Lesil McGuire, Alaska State Legislature, testified on behalf of Representative McGuire, sponsor. He discussed changes made in Version H. First, he noted an important change is the elimination of the separation incentive program. Next, Mr. Hilyard noted the dates that are added within lines 4-9, on page 4, which read as follows: (1) to meet the age or service required for eligibility for normal retirement under AS AS 39.35.370 (3) to reduce the actuarial adjustment required for early retirement under AS 14.25.110 before July 1, 1990, or AS 39.35.370 before July 1, 1986, as appropriate; MR. HILYARD said, "The inclusion of the tier dates - July 1, have the effect of limiting the applicability of this bill entirely to Tier 1 employees only." Number 1997 MR. HILYARD said [the sponsor], as a result of discussions with several school districts within the state, has reduced some of the restrictions on reemployment. He noted that that language is found on page 11, [lines 3-7], which read as follows: (3) the individual may accept employment with a school district as a substitute teacher; and (4) an individual who participated in the teachers' retirement system may accept employment with a school district if the employment is on an hourly basis and does not entitle the individual to receive retirement, health, or leave benefits. MR. HILYARD explained the concern of the school districts is that while they seek potential cost savings in allowing their senior teachers to retire from the system early, they may lose the experience held by those teachers which would make it difficult to meet the demands of "no child left behind." Mr. Hilyard offered to answer questions. Number 2132 REPRESENTATIVE SEATON said: When I was first contacted about the bill during the interim, the rationale for this bill was given through a teacher retirement system. And ... actually, the example that was given was [in regard to] a superintendent and ... letting the superintendent retire, and then designating that ... you had to hire from within the system. REPRESENTATIVE SEATON questioned if by trying to hire less expensive staff to fill posts [vacated by higher paid people] in an effort to balance the budget, "we" would actually system that is going to eliminate the broadest pool of people to do those very highly skilled and necessary jobs." In response to a question by Mr. Hilyard, he clarified that when he used the word system, he meant the Teachers' Retirement System (TRS). He added, "Excuse me, no, what I mean is the hiring of a new superintendent." He remarked that it would have to be someone less expensive than the person "going out," otherwise doesn't work for anybody." He asked if that is correct. MR. HILYARD answered that would be correct. REPRESENTATIVE SEATON clarified that he is trying to understand how "we" get the most qualified people in the jobs if a restriction exists [to hire less expensive employees to fill higher paid positions]. Number 2264 MR. HILYARD responded that he was not aware that there was "that specific limitation in place," nor was he aware that "such a limitation would be included in this bill." He said he has not been counseled by school administrators, for example, that that is a concern. He indicated that the language of the bill regarding authorization states that the employer may extend the program, but need not extend it to everybody. Therefore, he explained, if the concern previously stated by Representative Seaton is shared by a school district, it may opt not to "do the program." Mr. Hilyard stated that once a school district, municipality, or state agency puts forward a plan for retirement incentive, the commissioner of [the Department of] Administration has to "sign off on it." REPRESENTATIVE BERKOWITZ stated he is concerned that the language gives the employer too much discretion to determine which employees might receive the benefit. He asked Mr. Hilyard if he has done an equal protection analysis. He opined, "Equally situated people in this state, who are eligible, deserve access to the same legal rights and protections." MR. HILYARD replied that an equal protection analysis has not been done. He said that, during the process of drafting the bill and its CS [Version H] now before the committee, "there was no concern, particularly on the part of [Legislative Legal and Research Services] about the accessibility." He revealed that [the sponsor] has been in close contact with the Alaska State Employees Association (ASEA) while working on this bill, and "that concern has been expressed." He said the sponsor would not oppose correcting the language, and he suggested that it would be up to the committee to make that decision. Number 2456 LUKE HOPKINS told the committee that he is a member of PERS who has been employed by the University of Alaska for 30 years, and he stated that he is testifying on behalf of himself. He said that, in his years with the University, he has seen other retirement incentive programs (RIPs) have positive outcomes for employees and employers. In his area of work, he noted, it appears that the changes that the RIP allowed to occur in the labor pool acted not only as a savings in labor, but in allowing entry-level positions to be advertised and filled. He added, "We were able to have a few more employees in that area." MR. HOPKINS asked the committee to support the bill. He posited, "It could be a budget tool used both in state departments and local entities." He stated his understanding that past [RIP] actions have reduced operational budget costs. Number 2590 BARBARA HUFF TUCKNESS, Lobbyist for Teamsters Local 959, stated that that group supports HB 329. to support the upcoming testimony from Bob Doyle, who is the district's chief school administrator. Number 2833 REPRESENTATIVE SEATON asked Mr. Rucker to explain how saves money "over the elimination of those positions." MR. RUCKER replied that that's a good question that he does not know if he can answer. He offered the perspective of the employees as follows: If the district, because of the high cost of long-term employees, has to terminate those employees, then, for instance, custodians who two years ago were cleaning 25,000 square feet of building each night are now cleaning 35,000. Through a termination process, the few ones who remain will be probably cleaning 45 or 50,000 square feet. MR. RUCKER said that if the higher-cost employees are allowed to retire, then the district may be able to [hire] some lower-cost employees and keep that workload down. He described [the current situation] as a spiraling trend down, where each employee is being required to do more and more. Classroom sizes are increasing and the amount of work that each employee has to do to keep the system running is increasing. He indicated that getting higher-cost employees off the payroll in a positive manner, both for the employee and the employer, would allow the employer to hire some positions back and decrease overall costs, while still maintaining a reasonable number of employees. Number 2920 ROBERT DOYLE, Chief School Administrator, Matanuska-Susitna (Mat-Su) Borough School District, testified on behalf of an excess of 1,500 employees and 14,000 students in support 329, Version H. district for the last 22 years, and he stated that he is aware of the cost savings from the last two state RIPs. He indicated [his district] has not [offered] local RIPs like the Anchorage School District has, but said there will be discussion about "those kinds of things." He offered an example. TAPE 04-09, SIDE B Number 2977 MR. DOYLE said, "We have seen long-term savings." For example, by retiring a teacher who is being paid $60,000 or more, and hiring a teacher at $35,000 to $40,000, the number of layoffs will be reduced. He indicated that it would be possible to try to mitigate the class size, and he said there are benefits for the children, as well as the employees. MR. DOYLE said "we" believe in giving school boards the option to participate [in the RIP]. In the past, he indicated, a cost savings [analysis] has always been [required] that shows a savings calculated over three to five years. Number 2900 CHAIR WEYHRAUCH asked Mr. Doyle to provide a quantitative analysis of how HB impact would be to his district, as well as "how it would be used to benefit students, teachers, the district, and the state." MR. DOYLE noted that [the school district] has submitted in writing what it thinks is important to consider: 40 percent of its employees are eligible for such a retirement program and its current salary and benefits cost are at 90 percent of its budget. He noted that because [choosing to RIP] is an option for employees, the district will be making its calculations of what money will be saved, based on [an estimation of how many employees will choose the RIP], and then calculate that in terms of "what it could possibly offset in budget cuts." Number 2844 REPRESENTATIVE SEATON revealed that he has been involved in teacher hiring policies in the past. He noted that the teacher selection process has always been focused on the best qualified, which is often those teachers with the most experience. He questioned, "Are we putting into place a system that lets people know that, if you've got much experience as a teacher, don't apply to the district, because the purpose of this is to move out highly experienced teachers and bring in those ... with lesser experience?" Number 2785 MR. DOYLE said page 11 of 329 to represents the general government unit of state employees, which is "the rank and file of state employees" and makes up the bulk of the state employee union. MR. PUTMAN explained that [ASEA/AFSCME] is attempting to get a management tool to the administration so it can, if it chooses, downsize government [by offering] retirement at 27 years to senior employees on a 30-year [retirement]. He also noted that [ASEA/AFSCME] also represents employees in the 20-year retirement system, and those employees could be offered retirement at 17 years. MR. PUTMAN suggested the committee consider a change to the language as follows: Page 2, line 5 Between "employer" and "extend" Delete "need not" Insert "should" MR. PUTMAN noted that [ASEA/AFSCME] is also concerned about the language on page 2, line 10 [text previously provided]. He stated that [ASEA/AFSCME] has found that it is difficult to find employees to go out to rural Alaska [to work]. He explained that [ASEA/AFSCME] is concerned that the RIP will be offered only to people who live in urban Alaska, and that, because of the difficulty in finding employees to work in rural Alaska, the administration won't offer the RIP to social workers who live in Bethel, for example. Ideally, he said, [ASEA/AFSCME] would like to see the RIP made available to anyone who is a Tier I employee. Notwithstanding that, it understands that the administration needs the flexibility [in the areas of] bargaining units, job [classifications], and administrative components [listed in Section 2, paragraphs (1) and (2)]; however, it would like to see [Section 2, paragraph (3)] removed from the legislation. Number 1746 MR. PUTMAN noted that the contribution rate for a 30-year employee is three times his/her contribution to PERS, while a state employee in a 30-year system contributes 6.75 percent of his/her salary towards PERS annually, making that contribution rate 20.25 percent. He added that "the 20-year employees" contribute 7.5 percent. Regarding a previous question by Representative Gruenberg about the PERS system, Mr. Putman stated the following: The contribution rate about eight years ago from the state to the PERS system used to be about 12 percent. The stock market was doing well, so they reduced the employer contribution rate down to as low as 3.5 percent. And because of the crash in the stock market and the increase in health insurance premium costs, the PERS account is short money this year. ... It is not the employee who caused the problem; the employee's rate has always stayed the same, and we've actually continued to pay the same amount of money. But if you will recall, about six years ago, the PERS board voted to return money to the state - ... I think it was in the tune of about $12 million ... - for use of other purposes, because they didn't need the money. So, that situation has reversed dramatically, and we find ourselves in a situation where PERS does need money in order to be actuarially sound. Number 1637 REPRESENTATIVE GRUENBERG questioned whether there should be an amendment to the PERS statute that would prohibit the pension fund - really a trust fund - from "just turning money over to the state." Perhaps a loan [could be considered], he opined, but there should be "a fiduciary duty there." He stated that he wants to ensure that the same thing cannot happen again. MR. PUTMAN offered his understanding that about 15 years ago the PERS board did not exist and the administration controlled the contribution. A senator put in a bill to change it to a citizens' PERS board, elected by the members who benefit from it. REPRESENTATIVE GRUENBERG remarked that he was in the legislature when this took place and he doesn't think anyone envisioned what would happen at the time. He stated, "Sometimes it's not popular to protect a trust." He added that he is "looking also at the permanent fund here." He asked Mr. Putman and the "folks on line, too" to "look at this." He said, "It's timing, to a large extent, whether we can afford the draws on these funds now if it's going to bust the bank [in] the next few years." Number 1487 REPRESENTATIVE SEATON referred to Mr. Putman's previous recommendation to eliminate the language on page 2, line 10, because of a concern that [the RIP] will not be offered in areas where it is difficult to fill employment. He said, "If this language is taken out, you see a potential for getting people out of the very jobs we are having a hard time filling." He offered an example. He asked, "Doesn't' serving the best interest of the state to eliminate that geographic distinction?" MR. PUTMAN replied that he understands Representative Seaton's logic and agrees with him that there are times when it is hard to find [employees for rural jobs]. However, as a public employee union, [ASEA/AFSCME] wants all employees to be treated equally across the board, regardless of where they happen to be working. He said it would fall to the administration to determine if it's feasible to offer a RIP to "that He asked, for example, "Is it fair to treat a social worker in Anchorage [differently from] a social worker in Bethel, because that social worker has chosen to take the Bethel job?" He said that from the perspective of [ASEA/AFSCME], it isn't [fair]. Number 1300 REPRESENTATIVE SEATON stated it seems that what is wanted is [to offer] retirement at 17 years instead of 20 and at 27 years instead of 30. He asked if it would accomplish the same goal if [the legislature] just changed the retirement [in statute] to 17 and 27 years, respectively. Number 1264 MR. PUTMAN offered his understanding that "you can't change the retirement age." He said he believes the administration can't change a contract that was made with an employee at the time that employee was originally hired. REPRESENTATIVE SEATON noted that there are currently bills under consideration to [change the retirement] for fire fighters, for example; therefore, he asked again whether Mr. Putnam's organization thinks that adjusting the retirement time would accomplish the same task as offering the RIP. MR. PUTMAN answered, "I believe, under that scenario, it would ...." Number 1160 CHAIR WEYHRAUCH said that leaving the specific geographic location language in the bill wouldn't prevent the administration from making a determination on a case-by-case basis regarding where it will apply [the RIP]. MR. PUTMAN responded that is correct. CHAIR WEYHRAUCH asked what the benefit of deleting the language would be, in terms of adding more options. MR. PUTMAN noted that during the last RIP, [the early retirement] was not offered in areas of rural Alaska. He said members [of ASEA/AFSCME] brought concerns regarding this issue to him. He reiterated that [ASEA/AFSCME] wants to see [the RIP] offered universally. Number 1100 REPRESENTATIVE GRUENBERG emphasized that he wants to "think about that amendment." He commented that he holds some of the same concerns. He said, "We have a duty to the people of the state who are served by the public employees, also." MR. PUTMAN responded that [ASEA/AFSCME] understands that and also understands that the House State Affairs Standing Committee is the committee that decides policy regarding how to administer "such things as this RIP." He said it is up to the committee to decide if an amendment [regarding the deletion of line 10, on page 2] is something it wants to [adopt]. He added, "And I believe that the sponsor is neutral on it." Number 1000 JEFF BARNHART, testifying on behalf of himself, told the committee that he works for the Alaska Department of Fish & Game (ADF&G) in Kodiak, Alaska. He opined that HB Number 0692 MR. BARNHART confirmed that, over the years, the federal government has paid more than the state; therefore, a number of employees have shifted from state to federal service. He reiterated that those who are not senior employees would be the first to go [due to layoffs], while the more senior people with the expertise would remain. If those senior people choose to retire in the next year or two, that expertise will be lost anyhow, and the junior folks will be lost due to layoffs. He said that would mean, "then we've really lost." Number 0522 JACK KREINHEDER, Chief Analyst, Office of the Director, Office of Management & Budget, Office of the Governor, told the committee that the fiscal note is an indeterminate one for a number of reasons that are stated in the analysis. He said that program is flexible and confirmed that it would be up to the administration and individual commissioners whether they participate; therefore, it is not possible to forecast how many people would retire under the program and what the savings would be. Number 0463 CHAIR WEYHRAUCH asked if this bill is an important tool for managers of state employees to have in order to make budgets and address issues regarding employees. MR. KREINHEDER stated his preference would be to defer that question to the Department of Administration and to answer questions solely regarding the fiscal note. Number 0379 REPRESENTATIVE SEATON indicated that many of the positions that "we've been talking about" are ones that will be cut. He mentioned an analysis given on savings [included in the committee packet], which he said is based solely on "replacing ... each position with a B ... step." He said he is trying to figure out whether "that" has any reality to "the real potential of the fiscal note." REPRESENTATIVE SEATON, in response to a question by Mr. Kreinheder, confirmed that he was referring to materials supplied by the sponsor. MR. KREINHEDER replied that he cannot comment directly on those materials that he does not have; however, to the extent that he understands Representative Seaton's question, he surmised that it sounds like the savings estimate that were calculated based on refilling positions at a B step, rather than eliminating them. REPRESENTATIVE SEATON said that's correct. MR. KREINHEDER said, given a number positions are eliminated rather than be refilled at a B step, the savings would be considerably larger. He said he has done research looking at other states that have used RIPs and, not surprisingly, the biggest savings are where positions can be eliminated rather than refilled. Number 0175 REPRESENTATIVE SEATON clarified that he would like to see an analysis where the RIP doesn't cause the position to be eliminated; rather, the position is going to be eliminated anyway. He said that in most of the school districts 30 to 50 teachers are being eliminated, but he is not seeing the analysis to reflect "the actual circumstance that we're looking at." MR. KREINHEDER responded that the savings are greatest by laying people off, rather than through a RIP. In a RIP, the employer has to contribute the full actuarial cost. The argument for the RIP is that it avoids layoffs and people are allowed to choose to leave. Number 0076 REPRESENTATIVE SEATON noted that there are two considerations to be made: economic and social. He stated that what he is not seeing is an actual analysis of the economic considerations, "with these positions already scheduled to be eliminated." He said he would like to see that in a fiscal note. The committee took a brief at-ease. TAPE 04-10, SIDE A Number 0001 REPRESENTATIVE SEATON said that he would like to see a fiscal note based on the probable scenario of the elimination of the jobs in either case and the savings or cost through the imposition of a RIP program versus without. MR. KREINHEDER interjected that he assumed Representative Seaton was referring to the State of Alaska as opposed to the school districts, because the state wouldn't do a fiscal note on behalf of the school districts. REPRESENTATIVE SEATON said that would be acceptable because he merely wanted to get to the analysis. MR. KREINHEDER recalled that the governor's 2005 budget is looking at eliminating 400 positions, of which only about one- third are currently filled. Therefore, there are 100-135 filled positions that could potentially be eliminated. However, the aforementioned is subject to some caveats such as attrition. Mr. Kreinheder surmised that Representative Seaton wanted to know the potential savings from eliminating the filled positions as opposed to those employees being offered a RIP. REPRESENTATIVE SEATON agreed with Mr. Kreinheder's understanding of what he was requesting. MR. KREINHEDER clarified that it's a bit of an apples and oranges situation because a number of the employees in those 130 positions probably aren't eligible to participate in a RIP because they are too young and don't have enough years of service. REPRESENTATIVE SEATON specified that what is being reviewed is either eliminating positions or if there is a RIP, then positions will be eliminated and other [individuals] will move into them. Number 0341 REPRESENTATIVE GRUENBERG summarized [Representative Seaton's] question as follows: "What are the impacts of eliminating employee A versus employee B?" The [aforementioned information] will allow the legislature to properly and logically analyze the situation. Representative Gruenberg returned to viewing this as a triangle in which there is the state employer, the employees, and the pension fund. He asked if Mr. Kreinheder represents the pension fund. MR. KREINHEDER answered that he doesn't work for the pension boards, which are administered by the respective PERS and TRS boards with support from the administration, primarily through the Division of Retirement & Benefits. REPRESENTATIVE GRUENBERG requested that witnesses who could advocate from the [PERS and TRS] perspectives be available to the committee. Number 0606 REPRESENTATIVE SEATON inquired as to the effect of changing the [years of service necessary for retirement] to 17 and 27 versus a RIP. MR. KREINHEDER agreed that the state could legally reduce the number of years of service for retirement. However, the concern is that doing a RIP every so many years is tantamount to reducing the years of service for retirement and thus might even encourage employees to delay retirement until the next RIP, which would have the opposite impact of the RIP. With regard to the fiscal impact to the state, any enhancement to the retirement system, such as reducing retirement age, would cost the state more unless the employee contributions were increased. However, he said he believes that an increase in employee contributions could only be done for new employees. Number 0871 MELANIE MILLHORN, Director, Health Benefits Section, Division of Retirement & Benefits, Department of Administration, in response to Chair Weyhrauch, confirmed that the division's actuarial consultant, Bob Reynolds, who is going to do a cost analysis on HB Human Resource Consulting has been the division's actuarial consultant for approximately 12 years. In further response to Chair Weyhrauch, Ms. Millhorn noted that Mr. Reynolds is stationed out of Seattle, Washington. MS. MILLHORN related to the committee that at this time the division has a neutral position as it relates to However, the division contacted Mercer Human Resource Consulting last week and requested that it prepare a cost analysis associated with HB provided an estimate with regard to the completion of the cost analysis. CHAIR WEYHRAUCH expressed the need to move on this matter due to the shortness of the session and the scrutiny that this legislation will receive. Number 1045 REPRESENTATIVE SEATON asked if the cost analysis will discuss the elimination of positions that he discussed earlier. MS. MILLHORN pointed out that the [consulting firm] would identify the pool of individuals who are available. She said she understood Representative Seaton to be requesting additional analysis that would specifically review the elimination [of positions]. She highlighted that, as the legislation is currently written, it allows the employer to produce a cost savings in a number of different mechanisms. CHAIR WEYHRAUCH noted that the [committee] has a history of reviewing RIP legislation, and therefore he asked if any of these sort of cost-benefit analysis has been done. MS. MILLHORN said that she has reviewed one of the earlier legislative audits, which includes some caveats that specify that although the legislation had cost savings associated with it, depending on the case the savings seemed a bit elusive. Number 1228 REPRESENTATIVE GRUENBERG commented that it would be helpful to see the legislative audit to which Ms. Millhorn referred. Representative Gruenberg requested that a session be devoted to this legislation and that perhaps the House Special Committee on Ways and Means be invited to participate. [HB ADJOURNMENT There being no further business before the committee, the House State Affairs Standing Committee meeting was adjourned at 9:54 a.m.

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