03/08/2018 03:15 PM House STATE AFFAIRS

         HB  71-NO ST. EMPLOYEE PAY INCREASE FOR 2 YRS                                                                      
                                                                                                                              
3:24:01 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS  announced that  the next order  of business                                                               
would be  HOUSE BILL  NO. 71, "An  Act relating  to compensation,                                                               
merit   increases,  and   pay  increments   for  certain   public                                                               
officials,  officers, and  employees  not  covered by  collective                                                               
bargaining agreements; and providing for an effective date."                                                                    
                                                                                                                                
3:24:18 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease at 3:24 p.m.                                                                                 
                                                                                                                                
3:24:59 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS  referred   to  the  forthcoming  committee                                                               
substitute (CS) for HB 71,  [labeled 30-GH1018\O, Wayne, 2/28/18,                                                               
and referred to as "Version O"].                                                                                                
                                                                                                                                
3:25:21 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease at 3:25 p.m.                                                                                 
                                                                                                                                
3:25:48 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS requested  a synopsis of Version  O from the                                                               
Department of Administration (DOA) staff.                                                                                       
                                                                                                                                
3:26:09 PM                                                                                                                    
                                                                                                                                
LESLIE    RIDLE,    Commissioner    Designee,    Department    of                                                               
Administration  (DOA),  commented  that  the  changes  to  HB  71                                                               
resulted  from  collaboration between  DOA  and  the House  State                                                               
Affairs Standing Committee.                                                                                                     
                                                                                                                                
3:26:43 PM                                                                                                                    
                                                                                                                                
KATE  SHEEHAN,   Director,  Division   of  Personnel   and  Labor                                                               
Relations   (DPLR),    Department   of    Administration   (DOA),                                                               
paraphrased from the document, entitled  "CS HB 71 Explanation of                                                               
Changes,"  included  in  the  committee  packet,  which  read  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Section 1:  Modified from  original bill.  This section                                                                    
     maintains that the Governor may  waive a portion of his                                                                    
     annual  salary  but  no  longer  restricts  the  waiver                                                                    
     during  the period  of July  1, 2017  through June  30,                                                                    
     2019.                                                                                                                      
                                                                                                                                
     Section   2:  New   section.   Removes  language   that                                                                    
     temporary salary  schedules do  not affect  salaries of                                                                    
     employees in  a bargaining unit represented  by a labor                                                                    
     union   established   under   the   Public   Employment                                                                    
     Relations Act  and adds  the term  "pay period"  to the                                                                    
     title.  Language  that  was removed  is  now  found  in                                                                    
     section 3 of the bill.                                                                                                     
                                                                                                                                
     Section  3: New  section.  Allows the  Director of  the                                                                    
     Division  of  Personnel  to establish  a  two-week  pay                                                                    
     period  for biweekly  payment of  a monthly  salary. It                                                                    
     sets  forth  the manner  in  which  the Director  shall                                                                    
     determine  the amount  paid  biweekly. Recognizes  that                                                                    
     this  section   does  not  apply  to   employees  in  a                                                                    
     bargaining   unit   represented   by  a   labor   union                                                                    
     established under the Public Employment Relations Act.                                                                     
                                                                                                                                
MS. SHEEHAN added that currently  the pay period is semi-monthly,                                                               
and the  hours are  variable; under the  biweekly pay  period the                                                               
hours would be  consistent at 75 hours per every  two weeks.  She                                                               
referred to Section  3(b)(1)-(5) [page 2, lines  8-19, of Version                                                               
O] and  explained that  the five paragraphs  in the  section show                                                               
the  calculations for  figuring the  hourly, daily,  and biweekly                                                               
rates.                                                                                                                          
                                                                                                                                
3:29:05 PM                                                                                                                    
                                                                                                                                
MS. SHEEHAN  referred to  Section 3(c) [page  2, lines  20-22] to                                                               
point  out the  language  removed  from Section  2  and put  into                                                               
Section  3.    It  states  that Section  3  would  not  apply  to                                                               
employees covered by collective  bargaining agreements; their pay                                                               
periods would be subject to negotiated bargaining agreements.                                                                   
                                                                                                                                
MS.  SHEEHAN referred  to Section  4  [page 2,  lines 23-27]  and                                                               
stated  that  it  is  a  new section  which  clarifies  that  the                                                               
proposed  legislation  would   expressly  modify  pay  provisions                                                               
applicable to the governor.   She explained that this is included                                                               
because by  statute, legislation  is needed to  expressly provide                                                               
for the change in salary.                                                                                                       
                                                                                                                                
MS. SHEEHAN  relayed that Sections  5-7 address  effective dates:                                                               
Section 5  states that  the governor's ability  to waive  some of                                                               
his salary  would be  retroactive to January  1, 2018;  Section 6                                                               
states  that   Sections  1,  4,   and  5  would   take  effective                                                               
immediately; and Section 7 states that  Sections 2 and 3 would be                                                               
effective July 1, 2018.                                                                                                         
                                                                                                                                
3:30:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX asked  whether Section  1(b) of  Version O                                                               
[page 1, lines 6-8] has anything  to do with the deductibility of                                                               
charitable contributions under federal tax law.                                                                                 
                                                                                                                                
COMMISSIONER RIDLE asked for clarification of the question.                                                                     
                                                                                                                                
REPRESENTATIVE LEDOUX  explained that  her question  is:   If the                                                               
governor does not  want to take part of his  salary, why wouldn't                                                               
he write  a check  back to  the State of  Alaska?   Why is  a law                                                               
necessary  unless  he  wished  to   take  a  charitable  donation                                                               
deduction for federal tax purposes?                                                                                             
                                                                                                                                
COMMISSIONER RIDLE answered that under  Version O, the portion of                                                               
salary  that  the   governor  does  not  receive   would  not  be                                                               
considered a charitable donation for  tax purposes; the intent of                                                               
Version O is to preclude the  governor from paying federal tax on                                                               
money he will not receive.   She said that if the governor writes                                                               
a check back to  the state, it would be necessary  for him to pay                                                               
taxes on  it, because it would  be paid salary.   She opined that                                                               
she  doubts  that the  money  could  be considered  a  charitable                                                               
donation.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  LEDOUX relayed  that she  wanted to  clarify that                                                               
the proposed legislation was regarding federal tax law.                                                                         
                                                                                                                                
CHAIR KREISS-TOMKINS  restated that the governor  would be liable                                                               
for paying  tax on his  entire salary even  if he writes  a check                                                               
back  to the  state for  the portion  of the  salary he  does not                                                               
choose to take.                                                                                                                 
                                                                                                                                
COMMISSIONER RIDLE  responded, that's correct.   Under Version O,                                                               
he would accept the smaller amount  and not have to write a check                                                               
back  to  the  state  for  the balance  and,  therefore,  not  be                                                               
required to pay taxes on salary he did not receive.                                                                             
                                                                                                                                
3:32:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH  asked,  "What   happened  to  the  bill  I                                                               
actually  kind of  liked which  had to  do with  ... freezes  for                                                               
unrepresented  employees?"    He  maintained  that  the  original                                                               
version of  HB 71 would have  accomplished that.  He  stated that                                                               
he attempted  to make a  motion on the  House floor to  enact the                                                               
cost savings that would have been  realized by a freeze, and this                                                               
version  represents  a  significant   change  from  the  original                                                               
version.                                                                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH asked whether  his interpretation of Version                                                               
O is  correct:  the  governor wants to  avoid being taxed  on his                                                               
income, and Version O would permit  the employer - the state - to                                                               
waive that portion of his salary as income.                                                                                     
                                                                                                                                
COMMISSIONER  RIDLE replied  that  Version O  was not  introduced                                                               
because the governor  does not want to pay taxes;  the dates have                                                               
been removed so  that the provision could apply  to any governor.                                                               
Version O would  remove the necessity to pay taxes  on money that                                                               
the governor is not keeping;  if the governor receives the salary                                                               
then returns it, he would have to pay taxes on it.                                                                              
                                                                                                                                
REPRESENTATIVE BIRCH  asserted that  he finds  it ironic  that an                                                               
administration that  has been working  to impose income  taxes on                                                               
working Alaskans  is advancing legislation that  would permit the                                                               
governor of that administration to  avoid federal income taxes on                                                               
his pay.   He said that  most people who want  to make charitable                                                               
donations, receive  the pay, then  write a check to  their church                                                               
or  charity  of choice.    He  maintained  that if  the  governor                                                               
chooses to redirect  his compensation to a charity  of his choice                                                               
- the State of  Alaska or any other - he is  permitted to do that                                                               
currently.  He expressed his  dissatisfaction with the changes in                                                               
HB 71,  which was  intended to  freeze salaries  to unrepresented                                                               
state employees, and  now is a federal tax  avoidance measure for                                                               
the governor.                                                                                                                   
                                                                                                                                
COMMISSIONER RIDLE  answered that the  original version of  HB 71                                                               
had the same provision for  the governor's salary as does Version                                                               
O; the  only difference is  the elimination of  dates restricting                                                               
the  waiver  to  a  certain  period.   She  maintained  that  the                                                               
governor is  not trying  to avoid paying  income tax,  but rather                                                               
does not  want to  take a full  salary.  He  or any  governor who                                                               
wishes to take  advantage of this provision, will  pay income tax                                                               
on  all the  salary  he/she  receives.   The  intent  is for  the                                                               
governor to be able to reduce his/her salary.                                                                                   
                                                                                                                                
COMMISSIONER  RIDLE conceded  that the  portion of  HB 71,  which                                                               
called for pay freezes for  state employees, was removed from the                                                               
proposed  legislation.   She  maintained that  DOA  has not  been                                                               
successful  in  negotiating such  a  provision  with any  of  the                                                               
bargaining units.   She  added that  even with  that elimination,                                                               
Version O retains the provision  addressing the governor reducing                                                               
his/her  salary  and adds  the  new  section -  transitioning  to                                                               
biweekly pay -  which is something that the  unions and employees                                                               
have  requested for  quite some  time.   It is  a more  efficient                                                               
system for payroll.                                                                                                             
                                                                                                                                
3:37:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH stated  that he  agrees with  the provision                                                               
simplifying  payroll; however,  he  expressed that  he is  deeply                                                               
disappointed that  the proposed  legislation does not  retain the                                                               
provision on  pay freezes.   He maintained that  his constituents                                                               
and the  public support  restrictions on  spending and  new state                                                               
government hires.                                                                                                               
                                                                                                                                
3:37:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL  restated that Version O  allows the governor                                                               
to not take a paycheck and not pay taxes on money not received.                                                                 
                                                                                                                                
COMMISSIONER  RIDLE  confirmed  that the  governor's  end-of-year                                                               
Internal Revenue Service  (IRS) Form W2 would  reflect the amount                                                               
of salary that he takes.                                                                                                        
                                                                                                                                
REPRESENTATIVE WOOL  continued by  saying that Version  O changes                                                               
payroll  to  every  other  Friday,  rather  than  the  first  and                                                               
fifteenth  of the  month.    He asked  for  confirmation that  to                                                               
retain the pay freezes in the  original version of HB 71, DOA and                                                               
the bargaining units would have to come to an agreement.                                                                        
                                                                                                                                
COMMISSIONER RIDLE explained  that the original version  of HB 71                                                               
only  applied  to  unrepresented   employees;  for  anyone  under                                                               
contract, the provision would have  to be negotiated; and DOA has                                                               
attempted to do that.                                                                                                           
                                                                                                                                
3:39:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  whether there  was any  reason for                                                               
not offering that  option [reduced salary] to  any state employee                                                               
- not  just the  governor.   She suggested  that there  are other                                                               
reasons a person  might want to take advantage  of the provision,                                                               
such as to avoid being in a higher tax bracket.                                                                                 
                                                                                                                                
COMMISSIONER  RIDLE replied  that she  is  not sure  it could  be                                                               
offered to every  class of employee because of federal  law.  She                                                               
maintained that the governor is  in a different category in state                                                               
statute  than  other  employees.     She  offered  to  pose  that                                                               
possibility to DOA's attorney.                                                                                                  
                                                                                                                                
3:40:00 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS agreed that  adding other classifications to                                                               
the proposed legislation may be logical.                                                                                        
                                                                                                                                
COMMISSIONER  RIDLE  offered  to  find out  and  reiterated  that                                                               
federal law may interfere with that possibility.                                                                                
                                                                                                                                
3:40:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL referred  to a proposal by  the governor that                                                               
if  "something didn't  happen  by a  certain  day," the  governor                                                               
would  forego his  pay and  the legislature  would as  well.   He                                                               
asked  hypothetically:   If the  legislators'  pay was  suspended                                                               
after day  120 of the legislative  session for failure to  pass a                                                               
budget, would they  be liable for federal tax on  the salary they                                                               
were not receiving if they are not included in the HB 71 waiver.                                                                
                                                                                                                                
COMMISSIONER RIDLE  offered that the governor's  proposal [HB 283                                                               
and SB  141] only applied  to per  diem, and legislators  are not                                                               
currently taxed on per diem.                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL expressed  his understanding  that different                                                               
proposals  were  introduced.   He  suggested  that if  there  was                                                               
legislation  resulting in  a reduction  to  legislators' pay  for                                                               
some  reason, they  would be  liable  for federal  tax, unless  a                                                               
provision such as in Version O was in place to include them.                                                                    
                                                                                                                                
3:42:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  suggested that possibly he  was referring                                                               
to a bill  she introduced eliminating per diem after  90 days [of                                                               
the legislative session]; however, per diem does not get taxed.                                                                 
                                                                                                                                
3:43:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  moved to adopt  the CS for HB  71, Version                                                               
30-GH1018\O, Wayne, 2/28/18, as the working document.                                                                           
                                                                                                                                
REPRESENTATIVE BIRCH objected.                                                                                                  
                                                                                                                                
A roll  call vote was  taken.  Representatives Wool,  LeDoux, and                                                               
Kreiss-Tomkins  voted in  favor of  adopting  the CS  for HB  71.                                                               
Representatives Birch  and Johnson voted against  it.  Therefore,                                                               
Version O was adopted as a work draft by a vote of 3-2.