SENATE BILL NO. 180 "An Act implementing pay differentials based on geographic areas for certain state employees and for members of the Alaska State Defense Force; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. PAUL LYLE, partially exempt State of Alaska Employee, testified via teleconference from Fairbanks on his own behalf, that this legislation is preferable to previous proposals, since it does not reduce the pay to partially exempt employees currently receiving a geographical differential. He requested the Committee amend Section 10 (b) the portion regarding freezing the salaries of partially exempt employees. He did not think it reasonable partially exempt employees should work for ten years before receiving a pay raise. He assured that he considered himself well compensated and that he made a career choice to work as a partially exempt employee. However, he asked that employees continue to receive pay increases in accordance with the provisions in effect when they were first hired. He spoke of the need to support families and the influx of younger employees as well as the need to provide incentive to attract employees to remote locations. PAM HARTNELL, partially exempt State of Alaska employee, testified via teleconference from Fairbanks on her own behalf to say, "this is an issue of fairness." She elaborated that while other employees receive pay raises, partially exempt employees' salaries would be frozen. She asked that this provision in the bill be changed. She reiterated many of the points raised by the previous witness. Co-Chair Donley presented the bill saying it implements the geographic pay differential currently in place for all collective bargaining employees of the state for certain non-collective bargaining employees. He referred to the existing cost of living variance, pointing out that it has not been changed since 1976. He said an updated cost of living variance has been implemented for the majority of state employees. Co-Chair Donley asserted that this legislation treats employees who are not covered by a collective bargaining unit almost the same as those who are covered, using a grandfather clause to implement the newer geographical pay differential ratio. He pointed out that the non-covered employees have had the benefit of a "higher than truthful" geographical pay differential for many years and have been paid more than covered employees performing the same functions in other areas of the state where the actual cost of living is greater. Co-Chair Donley affirmed the need to treat long-term employees fairly and opined that this bill does "more than treat them fairly" because the non-covered employees continue to receive higher salaries than they would under the updated geographical pay differential. He said this adjustment is fair to those employees who have been paid according to the updated geographical differential. Co-Chair Donley noted that some exempt employees would receive higher pay based on the geographical differential changes, while others would be "held harmless" and would not receive a raise. He stressed that new employees would be paid at the new geographical differential ratio, which would result in "significant savings" to the state over a period of time. Co-Chair Donley addressed the fiscal notes, showing that the Alaska Court System fiscal note shows increased expenses for the first two years after the legislation becomes effective, then decreased expenses escalating in future years. He described the Department of Administration fiscal note reflecting expenses for all state agencies showing savings to the state in excess of $100,000 in the first year, doubling in the next year and continuing to grow in the out years. He expressed this savings is a result of action that is "fundamentally fair" in treating all state employees the same with regard to geographical pay differentials. CHRIS CHRISTENSEN, Deputy Administrative Director, Alaska Court System, testified to the fiscal note stating that the largest impact would occur in Fairbanks, with a ten-percent differential and Palmer, with 3.5 percent. He pointed out that the increased expenses would be realized in smaller communities such as Bethel with a ten-percent increase, Barrow and Kotzebue with 10.5 percent increase and Nome with a 2.5 percent increase. He informed that the Alaska Court System takes no position on this legislation and noted that half of the employees would be unaffected because they are located in Anchorage. Senator Olson asked the witness the effect this would have on the ability to fill vacancies in rural courts. Mr. Christensen told of the difficulties in filling vacancies in courts located in rural communities. He gave one reason as some borough governments, such as in Barrow, pay a significantly higher salary than the state. He therefore predicted that if the geographical pay differential were to increase for these communities, it could be easier to hire for those positions. He pointed out however, that there could be some repercussions by those employees in non-rural communities who have their salaries frozen through this legislation. Senator Wilken referred to information showing job growth in different fields across the state that was used in the consideration of other legislation. He suggested this information could be helpful in considering this legislation and requested it be provided to the Committee. Senator Wilken said he appreciated the intent to make systemic changes to the state employee salary procedures but was concerned that the small amount savings could come at the expense of "people who have built their lives around their paychecks as almost all of us do." He recommended investigating the cost of applying the updated geographical pay differentials only to newly hired employees and retaining the existing salary structure for current employees. Senator Hoffman asked for an explanation of the Department of Administration fiscal note. ALISON ELGEE, Deputy Commissioner, Department of Administration, explained that the fiscal note gives consideration to the assumed five-percent annual rate of turnover as a result of the frozen salaries for current employees. She said with this turnover, new employees are hired at lower salaries. She added that the fiscal note also makes future assumptions for the current employees when their salaries are no longer frozen and they receive pay increases. She estimated that by FY 07, this legislation would result in a maximum net savings of $446,000. She told of the various funding sources involved. Ms. Elgee pointed out that the governor is in support of the legislation and she noted that he has actually introduced similar legislation in the past. She relayed his assertion that the issue is a matter of equity in making the geographical pay differentials the same for all state employees. Senator Hoffman referenced the five geographical areas that would experience salary reductions listed in the fiscal note. He asked for a detailed analysis. Ms. Elgee did not have figures to reflect the amounts resulting from this legislation, noting the limited time the administration had to prepare for this hearing. She offered to compile this information. Co-Chair Kelly asked for a comparison of this bill with one passed in the previous legislative session then vetoed by the governor. Ms. Elgee replied that the earlier legislation contained unrelated amendments to the Supplemental Benefits System (SBS), which resulted in the governor vetoing the bill. She noted this bill does not contain these provisions. She explained the provisions established a two-tiered environment for SBS, reduce the employer contribution to half of the employee contribution and set a maximum salary in statute. Co-Chair Kelly agreed that the information Senator Wilken requested would be valuable. However, he noted the need to report the bill from Committee and suggested the information could be provided before the Senate Rules Committee hearing on the bill. Co-Chair Donley stated he would not request a hearing for this bill in the Senate Rules Committee before the information is received. Co-Chair Donley offered a motion to report from Committee SB 180 with accompanying fiscal notes from the Alaska Court System, Trial Courts for $94,300, and the Department of Administration, all state agencies, for a negative $108,000. The bill MOVED from Committee with no objection. AT EASE 9:40 AM / 9:42 AM