Legislature(1995 - 1996)
01/16/1996 03:03 PM House HES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 354 - RIP FOR SCHOOL DISTRICT EMPLOYEES Number 1923 CO-CHAIR BUNDE said the next bill up for discussion was HB 354, and asked Representative Mackie to give his sponsor statement. REPRESENTATIVE JERRY MACKIE, Sponsor of HB 354, read the following sponsor statement: "I introduced HB 354 in response to the desire of many Alaskan school districts to achieve operational cost savings through a retirement incentive program. The program allows school districts to offer early retirement to teachers at the higher end of the district's salary scale. The savings would result from the hiring of replacement teachers that are younger and lower on the pay range. "The proposed early retirement program is similar to programs established for all public employees beginning in 1986 and ending in 1990. In November 1991 legislative audit estimated that the 1989-90 retirement incentive program saved approximately $23 million on the early retirement of 1,764 employees taking advantage of that program. In the 1986-87 program, 2,327 employees participated achieving a savings of over $73 million. It should be noted that retirement incentive programs are commonly used by business corporations to attain a more efficient and economic operation. Those numbers I quoted were the overall retirement incentive program that was offered to all state employees and this is geared directly to school districts. "The program established in HB 354 offers three years of service credited to eligible schools employees facing retirement. The offer is an inducement to employees near or at retirement eligibility to terminate their services. The resulting vacancies allow employers to achieve savings by filling positions with persons of lower step and pay range, and down classing positions, or keeping positions vacant. A key provision requires agencies to show on a case by case basis that a three year credited service award would result in a net personnel services cost savings. It should be stressed that participation in the program is completely optional for either the employer or the employee. "The three year credit must be applied in the following order: 1. To meet the age or service required for eligibility for normal retirement; 2. to meet the age required for early retirement; 3. to reduce the actuarial adjustment required for early retirement; and 4. as years of credited service for calculating retirement benefits. "An employee awarded the benefit is required to contribute to the retirement system the amount they would have paid in had they continued working for those three years. So that would be an up- front contribution by the teacher, ahead of time and that was to deal with concerns about the actuarial of the retirement fund remaining sound. And so that would be a requirement for that to happen. The employer's cost is the difference between the employee's contribution and the full actuarial cost of the three year incentive. Thus, the TRS or PERS retirement system is fully compensated for the effects of an individual's early termination of service. I know that concerns in the past have been raised about what it does to the retirement system and to the fund if a bunch of people are allowed to retire early and there wasn't substantial contribution to make up for that. That's not the case in this bill. "House Bill 354 also has a sunset clause that terminates the incentive program on July 1, 1998. So, this (indisc.-coughing) window of opportunity for districts to participate and they either have to get on board or it goes away. "I believe this legislature has to make a serious effort to address the state's continuing revenue shortfall and the need for long term financial stability. If education is faced with reduced or frozen budget funding levels, which I think is probably going to be the case this year, then we have to give the school districts the tools to make the necessary adjustments. Otherwise, the education of Alaska's youth will directly suffer." REPRESENTATIVE MACKIE continued that he looks at this as one of the tools that school districts could use. This is an issue he has worked on for a number of years, but primarily Senator Duncan and the other body have been responsible for offering the previous retirement programs and they continue to work with the Administration. He said he has taken a recent interest in the programs, and the school districts he has talked to certainly welcome this as an option. He doesn't believe in mandating them, so this would be an optional thing for either the school district or the teacher to exercise. He believes that every school district welcomes the opportunity to be able to have this as a tool. He said he recently read that the Juneau School District could save as much as $3 million over the next several years because of a RIP. One of the smaller of the 12 school districts in Representative Mackie's area indicated to him they have 8 teachers, all in the $50,000 to $53,000 range, who would fit this criteria. These are teachers who have been teaching for about 17 or 18 years. This school district could realize a $340,000 savings over a three-year period, by allowing those senior teachers to retire, if they opted to do it, and bring in new lower cost teachers to fill those vacancies. To a school district who has an annual budget of $1.5 million or $1.6 million, $340,000 is an incredible amount of savings. In some cases, 10 percent to 20 percent of their entire budget could be realized in savings. Number 2148 REPRESENTATIVE MACKIE said money is tight and he didn't anticipate the instructional unit value would be raised this year. He felt the legislature would not be in a position to direct more money at education. It would be in everyone's best interest to offer the school districts some additional tools to save money. He emphasized that the school districts must show there would be a financial savings to the district, which would be certified by the Department of Administration and would be closely monitored. He felt it would be a win/win situation all the way around. CO-CHAIR BUNDE referred to the cost savings realized by the retirement of a teacher making $50,000 a year and replaced with a teacher making $25,000 and asked if Representative Mackie had given any thought to putting more specifications in the bill so a $50,000 a year teacher isn't replaced with a $40,000 a year teacher. REPRESENTATIVE MACKIE responded he was reluctant to do anything like that because that gets into micromanagement of school districts. He is a firm believer that a school board is elected in these communities to make those types of decisions. The spirit behind this is not to just allow teachers to retire and then fill the vacancy with another teacher at a similar range. The school district would need to demonstrate very clearly they have a program and what their starting range is, which he thinks may be in the range of $30,000 to $32,000. On the other hand, the teachers who are retiring are in the $50,000 to $60,000 range. His best guess is the potential savings to a school district could be anywhere from $25,000 to $35,000 per teacher. He noted that in a large school district, the savings could be incredible. Number 2240 CO-CHAIR BUNDE asked Representative Mackie to comment further on the demonstrated savings that would have to be shown by the districts. REPRESENTATIVE MACKIE said he believed the savings had to be certified by the Department of Administration. Number 2259 DAVE GRAY, Legislative Assistant to Representative Mackie, referred to page 2, subsection (c), line 10, which establishes the criteria for the approval of a school district's early retirement plan. One of the requirements is that a savings would have to be demonstrated to the administrator. CO-CHAIR BUNDE asked if administrator in this case referred to the Commissioner of Education? REPRESENTATIVE MACKIE responded it would be the administrator of the retirement fund. The savings would need to be certified before the plan could be approved. He added there would be no incentive for a school district, unless it does save money. Number 2309 CO-CHAIR BUNDE asked Representative Mackie how this bill differs from previous legislation that was introduced. REPRESENTATIVE MACKIE said this section was adopted by the House last year and put into HB 217, and vetoed by the Governor. So this bill in its entirely was once approved by the House in the form of an amendment, and passed by the House and the Senate. This has separated it out from the teacher tenure bill. The bill that has been offered by the Governor, the so-called consensus bill, and companion legislation to HB 217 which is in the other body, does not include this provision. The only way this can be addressed is to have it in the form of legislation. TAPE 96-1, SIDE B Number 005 REPRESENTATIVE MACKIE said he made a conscious decision to not get into the overall debate about the Retirement Incentive Program. He is not the person who can answer all the questions about it. The Governor has put that on the table and it will be dealt with during the legislative session. He noted if there was one thing he could do for the school districts he represents, as well as school districts across the state, it would be to provide them this tool. CO-CHAIR TOOHEY referred to teachers who are ready for retirement, but have a three-year contract that has been in place for one year, and asked does that mean the school district would have to wait two years. Also, what affect will this RIP bill have on new teachers going in under a negotiated contract. She asked if there is any way to lower the base entry to the incoming teacher. REPRESENTATIVE MACKIE asked if Representative Toohey was referring to the overall negotiated pay range and salary scale. CO-CHAIR TOOHEY replied yes. REPRESENTATIVE MACKIE said he didn't know if this bill would have an effect on that. He noted that usually when something is bargained in good faith, it is binding. CO-CHAIR TOOHEY questioned if this legislation would be immaterial then to school districts who have a two year contract left. REPRESENTATIVE MACKIE thought this would only deal with the individual teacher. If the individual teacher and the school district come to an agreement on the retirement, then a new teacher could be brought in at whatever range the negotiated contract stated as the starting point. He commented that the starting range is no where near the range of a teacher who has been there for 18 or 19 years. Number 037 MR. GRAY referred to page 5, Section 6, Program Changes, which essentially states this is a one-shot benefit that the legislature is offering and it doesn't get involved in any other thing. It also gives the legislature the right to change the program, so he thought it would be apart from any contract between the district and its employees. CO-CHAIR BUNDE felt it was safe to say the salary of a new hire would not be affected by this legislation. He asked Representative Mackie to address the comment he has heard that this isn't really early retirement, it's padded retirement for those teachers who already have their 20 years in. Also, he asked if Representative Mackie had considered limiting the bill to just those teachers who don't have their 20 years in or aren't 55 years of age yet. REPRESENTATIVE MACKIE said he hadn't considered that and he would need to look into it. He noted that not all teachers retire after 20 years. The whole purpose is to get higher paid staff off the books and get lower paid staff on. It is critical in some of the school districts. This would reserve the local decision making process at the local level, where he believes it should be. This legislation just provides the school districts the opportunity and also protects the retirement fund. He noted the Majority Leader had in previous years questioned the overall retirement incentive program because of the effect it had on the actuarial. Representative Mackie said he really didn't understand the bigger picture of it, but he certainly understood this is very simple in that the money is put up front and the fund remains sound. Number 136 DAN BECK, Assistant Superintendent, Delta/Greeley School District, testified via teleconference from Delta Junction. He commented that Representative Mackie had given a good picture of the fiscal impact this legislation would have on school districts. In looking at the possibilities in their school district, he believes they could save a considerable amount of money, even with hiring teachers back that weren't at the beginning step. School district salary schedules typically run years of experience along with education. Mr. Beck said they can hire back what they project as master's degree with five years experience and save approximately $10,000 a year per teacher at that range. That allows a school district to hire some teachers in at a zero range or someone with a master's degree and 36 hours above that. That leaves a wide range. He pointed out there had been considerable savings the two times they participated in the retirement incentive program. Mr. Beck said he has a different purpose for wanting the bill to pass; that is the Delta/Greeley School District. The impact of the Fort Greeley base realignment is going to have a severe impact on their population. In the next two years they are estimating a reduction of as much as 50 percent in student enrollment, which means probably 40 to 50 teaching positions in the district. This year with the notification they received, all their non-tenured (indisc.) which is about five teachers and about three or four tenured teachers will be let go. Since seniority plays the biggest role in who leaves, it is the lower paid teachers that are leaving. MR. BECK said he thought there was a second factor; that being in a healthy school, you have a mix of staff. Older teachers who have been there a long time provide a lot of stability and leadership. Motivation is also factor with new teachers coming in. He feels that a mix of teachers is needed. He reiterated the base realignment is going to be devastating and they really need help in their district. The average salary is going to push $50,000 because the only teachers who are going to be left are the ones who are at the top of the salary schedule. He urged the committee to take action as quickly as possible to give the schools districts some relief. Number 243 CO-CHAIR BUNDE said this is not a new issue; it has been debated for several years. He asked Mr. Beck to comment on the fact that there are some people who want to hire the most qualified and the most experienced teachers; yet getting rid of the most qualified and most experienced people flies in the face of that. MR. BECK said they very rarely hire people at the upper end of the salary schedule. They capped the amount of experience they will credit at five years. Therefore, a teacher who has taught for 20 years will come in at the same range as a fifth year teacher with their school district. He reiterated the average of the teachers hired by the Delta-Greeley School District is a master's degree with five years experience, which is in the bottom third of the salary schedule. Number 286 REPRESENTATIVE GARY DAVIS referred to the organizational unit on page 2, line 2, and said he didn't know what that would be. MR. BECK said that would refer to the district being able to disallow or create an organizational unit. It would allow the district to tailor how they use the retirement incentive program. Number 338 REPRESENTATIVE MACKIE asked if Mr. Beck had identified how many potential participants in their school district would fit the criteria under this program if it was offered by the legislature. MR. BECK said he believed about 20 to 25 teachers in their district by the sunset in 1998. REPRESENTATIVE MACKIE asked if he had figured out what the average savings per teacher would be. MR. BECK replied they have not broken it down by year because it changes. He guessed it would be somewhere around the $15,000 a year range per slot. REPRESENTATIVE MACKIE said that would be in excess of $300,000 to $400,000. MR. BECK responded in the affirmative. CO-CHAIR BUNDE asked Mr. Beck if he had some way of knowing how many people from this potential pool of 20 to 25 would indicate some active interest in using the program. MR. BECK said he thought they had 8 to 10 people that are very serious about participating if the districts had (indisc.) and the district adopts it. CO-CHAIR BUNDE asked how many of the 8 to 10 people currently have more than 20 years. MR. BECK said he thought only three of their teachers currently have 20 years or about 20 years. Number 405 RICHARD SWARNER, Executive Director of Business Management, Kenai Peninsula Borough School District, wanted to go on record as being in favor of the legislation. He said his reason may be selfish, but as previously outlined, they would see potential cost savings as a result of the legislation. He assured committee members that the Kenai Peninsula Borough School District's budget is becoming extremely tight, so they welcomed any tool that could be made available. Mr. Swarner referred to the previous comments about a potential savings of 20 percent, and said the Kenai Peninsula Borough School District would not realize that kind of savings. He noted they have not only participated in the past state program, but they had a similar type program within the district. They experienced a savings of about $1.5 million from their participation in the state retirement incentive program about seven or eight years ago and anticipate a similar savings under this program on a yearly basis. While there is the reduction in salary, there is also the increased payoff in order to participate in the program. He said the impact on their budget would be about 2.5 percent to 3 percent. Three percent would be a $1.5 million savings. He said while it is not 20 percent, 2.5 percent or 3 percent of a $72 million budget is a significant amount of money. He stated one of the drawbacks is the mix of teachers and they had some reservations about that. He said quite frankly, from an operational standpoint, the Kenai Peninsula Borough School District is coming up against it as far as making things balance, and trying to offer an educational program that is meaningful to their students. Number 540 CO-CHAIR BUNDE referred to the district retirement incentive program and asked if Mr. Swarner could comment on how much Kenai offered to encourage early retirement and what the net savings was. MR. SWARNER said it was similar to what was offered in Anchorage with a $10,000 incentive. Based on that, their savings was about $670,000 the first year. CO-CHAIR BUNDE asked how many people participated. MR. SWARNER responded 32. REPRESENTATIVE MACKIE wanted to clarify that he had suggested that a potential as high as 20 percent could be realized in the Hoonah district; he did not want it to imply that it would be an average, because it could be up or down depending on the teachers. He noted that the Hoonah School District has an extraordinary high number of teachers at the high end of the salary schedule. For larger districts, he thought the figures pointed out by Mr. Swarner were more realistic. Number 662 MR. SWARNER noted that 50 percent of the teachers in the Kenai Peninsula Borough School District are at the top level of the salary schedule. He explained the salary schedule has a B column with a B+18 and a B+36. Some of the teachers are at the bottom of each one of those columns; they are not all in the far right B+90 column. He noted there is somewhere between 35 to 50 people in his district who would participate. CO-CHAIR BUNDE referred to B+90 and pointed out the teachers' salary schedule goes down per years of experience and then it goes across per college credit. Thus a B+90 is a bachelor's plus an additional 90 credits. REPRESENTATIVE VEZEY asked Mr. Swarner if he knew what the Kenai Peninsula Borough School District's past contribution rate was. MR. SWARNER said he didn't have that figure. The last figure they were able to obtain from the state was when they participated in the last retirement incentive program offered by the state. Number 721 JAMES SIMEROTH, Kenai Peninsula Education Association, testified in favor of HB 354. The Kenai Peninsula Education Association represents the teachers in the Kenai Peninsula Borough School District. He said this program is needed to free up funds for operating their school and pointed out they have one of the leaner budgets in the state. They serve a lot of people, spread out over a large area with 37 schools and are funded at the same rate as some districts that are more consolidated. He noted that currently there is a committee consisting of people from the community, school district employees, and school administrators working on budget planning. There is a feeling of desperation in trying to find areas to cut to make up for increased costs. The need for a way to free up funds for the school district is very clear. Mr. Simeroth said while this legislation does not speak to it, it is his hope there will be some state employee retirement incentive program to accompany this in order to free up money in other areas of state government. CO-CHAIR BUNDE asked if there were additional people to testify. Seeing none, he reminded committee members that since this was the first hearing, further testimony would be taken in a later meeting. REPRESENTATIVE VEZEY said last year the legislature voted to give the teachers a retirement incentive program, but there were other aspects that went with the bill (indisc.). He asked if Representative Mackie didn't think there should be some of those other aspects in this legislation. REPRESENTATIVE MACKIE said if the Governor had included this in his legislation, this bill wouldn't have been necessary. Also, if the companion bill dealing with the tenure issue in the Senate had included this, Representative Mackie wouldn't have had to introduce the bill. He stressed he thinks this is one of the most important things and one of the best things the legislature can do for school districts. He reminded committee members it was his amendment on the floor, supported by committee members and others, that put it into the bill last year, so this was not a new issue to him. He said it remains to be seen what the legislature will do with the overall retirement incentive program, the tenure bill, and any other bills regarding the education system. This is just one piece of it, but one of the most important. He stated when that bill was vetoed by the Governor, this program was vetoed along with it and he is trying to resurrect that idea. REPRESENTATIVE VEZEY said there have been many retirement incentive bills since 1986; all of which have been structured very similar to this legislation, if not almost verbatim. There are a lot of different ways that a RIP bill can be structured. He asked why not just offer a cash bonus, fund it up front for retirement and not fool with their retirement fund. REPRESENTATIVE MACKIE said he believed that would work with teachers who have achieved the required number of years for retirement and thought that is what happens to school districts that offer the cash incentive. Unless an individual has worked the required number of years and is within that three year window, Representative Mackie said he didn't know how they could retire someone if they haven't met the requirements of the retirement system. This would allow for that to happen. REPRESENTATIVE VEZEY recollected that under TERS, a teacher could retire and begin to collect benefits immediately after 20 years of service regardless of age. He asked Representative Mackie if he was referring to individuals who would typically be in their early 40s. REPRESENTATIVE MACKIE said that would depend on when the individual got started. REPRESENTATIVE VEZEY said we're talking about bringing people on and being a recipient of the retirement program at some earlier period of time than they were planning on and the actuaries were planning on; why not just offer people a bonus to retire and not risk messing with the retirement pool. He said if his recollection of the TERS program is correct, they don't lose any benefits; they are fully vested, but they just can't start collecting until a certain age. REPRESENTATIVE MACKIE said he thinks it has worked with teachers who have qualified to start receiving retirement benefits. He thought the $10,000 bonus offered by the Kenai Peninsula Borough School District, had similarly been offered in Juneau and other areas. He said that works for a teacher who can immediately start collecting retirement benefits, but he didn't think $10,000 would get anyone to retire ahead of time, or to give up their job if they haven't met the requirements to start receiving benefits. He reiterated he felt the bonus program only works with those teachers who are beyond the 20 years. REPRESENTATIVE VEZEY asked Representative Mackie if he thought this incentive should be offered to teachers who have worked for 20 years or more, are already eligible for retirement, and could begin to receive the benefits immediately. REPRESENTATIVE MACKIE said he didn't know; he hadn't really thought it through. REPRESENTATIVE VEZEY said he could be mistaken, but he thought that under the TERS program, a teacher with 20 years of service who is allowed to buy in three years would accrue more additional benefits than a teacher with 17 years of service. REPRESENTATIVE MACKIE said his first thought is that he would be reluctant to discriminate against teachers that have 20 or 21 years of service, when we are going to offer it to teachers who have been there 17, 18 or 19 years. He pointed out that the whole emphasis behind this bill is to get higher range teachers to retire and bring in teachers at a lower range. He thought the program would be offered to teachers whether they had been there 18, 19, 20, 21 or 22 years. Number 1095 REPRESENTATIVE VEZEY asked Representative Mackie to comment on the possibility of including the authority of the school board to force a retirement. REPRESENTATIVE MACKIE said he didn't think he could personally support that because the whole idea behind this legislation is it is optional, not a mandate and allows both the district and the school teacher to make the decision jointly. He questioned whether they could force someone to retire. He referred to Representative Vezey's question about why this bill did not include the other items, and said he thought the Governor and other legislators were working on that particular issue. He said every school district in the state, school board association, teacher's organizations, and PTAs support this particular concept. Representative Mackie suggested that a possible amendment to the bill would be to a certification of savings by the Department of Administration. It could be reviewed and certified with the commissioner's approval if the committee felt they wanted the additional layer of protection. He would not be adverse to that amendment. Number 1218 WAYNE BALLIET, Teacher, testified via teleconference from Bethel, and asked if there was any possibility this bill could be extended over a two-year period, or to the summer of 1998. He said that would extend the window period for people to make decisions regarding retirement. REPRESENTATIVE MACKIE said anything is possible, but questioned why that would make the bill better. He felt there needed to be a deadline. MR. BALLIET commented he had interpreted it as applying for retirement up until December. For a teacher that would mean ending the contract and retiring in the summer of 1997. He asked if it was possible to extend it in case a teacher wanted to retire in 1998. REPRESENTATIVE MACKIE referred to Section 3 which authorizes a district to adopt a retirement incentive plan to begin June 30 and ending December 31, 1996, and said that is when the window of opportunity would take place for a teacher to retire at the end of that school year. He reiterated there has to be a window of opportunity that opens and closes, rather than having an ongoing open retirement incentive program. The short window of opportunity was a decision made in drafting the bill and is much like the past retirement incentive programs. MR. BALLIET said he understood if it couldn't be extended. REPRESENTATIVE MACKIE said he was not suggesting that it couldn't be extended, but that is normally why the window of opportunity is short. He added that if Mr. Balliet wanted to send him a letter explaining why it should be extended, he would be happy to consider it. Number 1391 CO-CHAIR BUNDE commented that if there wasn't an end to it, it would become a 17- or 18-year retirement program rather than a 20- year retirement program. He said this bill would be heard again by the committee and thanked everyone for testifying.
| Document Name | Date/Time | Subjects |
|---|