Legislature(1995 - 1996)
05/01/1995 03:08 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 270 - RETIREMENT INCENTIVE PROGRAM Number 312 CHAIRMAN KOTT asked the director from the Office of Management and Budget (OMB) to give her comments on HB 270. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, testified that HB 270 was one of the key management tools the Administration was seeking to help OMB deal with the state's current fiscal situation. It also addresses the downsizing of state government, not only in as financially effective way as possible, but to also address the needs of employees. She said they have structured the program differently than previous retirement incentive programs (RIP). It is their intention to use it in areas where the position would be not only vacated but eliminated. MS. MCCONNELL said the same sort of program could be used by local governments and school districts, both of which have expressed interest in having the same kind of management tool available to them. The initial plan was to restrict the RIP bill only to those areas where the positions would be eliminated. However, they decided it was a good idea to leave open the possibility of replacing employees in certain situations where they could demonstrate, within a three year time frame, significant savings. This would be implemented in the area of 24 hour institutions, such as pioneer homes or corrections. They would be replacing the employees who are very high on the pay scale with employees at a lower range and step. For example, a guard currently at a 15J level would be replaced by an 11A, for a savings of nearly half the total cost. They shorten the period during which the savings must be demonstrated to three years. They would also insist all costs be taken into account. MS. MCCONNELL pointed out there would be a need for substantial reduction in positions over the next few years. They have recommended a three year window and set it up so this would be applied strategically. She said this was the largest difference between past RIP programs. It is not an across the board RIP, and it would only be used where it could be demonstrated to yield a savings. Departments would have to show this fit not only the financial need for cost savings, but also their operational plans, so services would not be disrupted in order to grant RIP's. It would not be at the discretion of the employee. She would be pleased to address questions the committee might have. Number 384 REPRESENTATIVE ELTON asked if she was comfortable with the CS. MS. MCCONNELL answered yes. It was done as a result of inquiries from local government. The Administration surveyed and found they could handle the expected work load. Number 388 REPRESENTATIVE KUBINA asked if she would object to adding the Judicial System. Number 390 MS. MCCONNELL said she would prefer that Mr. Bob Stalnaker speak to the Judicial System question. Number 393 REPRESENTATIVE KUBINA observed that on page 7, the window for the school distinct plan was shorter than the window for the state plan. He asked if there was any reason not to expand the window for school districts. Number 397 MS. MCCONNELL explained that they had problems with the mechanics. Since Mr. Stalnaker was the administrator of this, they had worked out the windows so not only would they fit some over all purposes for downsizing, but also they could be sure the Administration could meet its commitments on the administrative end. She said Mr. Stalnaker could speak best to that aspect. Number 403 REPRESENTATIVE ROKEBERG asked which sections held the provisions for eliminating positions. Number 408 MS. MCCONNELL stated they didn't require that the position be eliminated, although that was their initial intent. This was because of situations like correctional institutions, pioneer homes, and health and human services facilities which require 24 hour care. They realized a substantial savings could still be made even if they replaced those positions. She noted they had submitted a diagram to the State Affairs Committee which outlined the steps they would go through to ensure a cost savings over the three year time period. Number 433 REPRESENTATIVE MASEK asked if the Administration worked with State Affairs on the changes in the CS. Number 438 MS. MCCONNELL answered yes. The changes came from the hearing in State Affairs where a number of communities testified they were interested in having a wider window so they could use the RIP. The initial reason for not having a wider window was they were skeptical about being able to handle all of the administrative work that would be required to do the RIP not only for state employees but also the political subdivisions. As a result of that hearing, the Department of Administration did a quick survey of local communities to find out the work load they could expect. They found they would be able to handle it. Number 451 REPRESENTATIVE KUBINA asked if in Section 10 where the separation incentive program was added, would those positions remain unfilled. He also asked if there were positions that people wouldn't be retiring from, but just eliminating the position. Number 457 MS. MCCONNELL replied yes. She said this was a provision she was resistant about initially. However, she spoke to private employers who pointed out that separation incentives are important because often it is the case that the places in need of downsizing, or which present the greatest opportunity for savings, aren't necessarily the places where you have the oldest employees. There are situations where the separation incentive can end up being less expensive for the state than the retirement incentive. Number 477 CHAIRMAN KOTT inquired whether that the Administration had a goal as to where they wanted to be in three to five years, as far as downsizing. Number 479 MS. MCCONNELL responded that the Administration had not yet pegged a specific dollar amount. The long-range fiscal planning commission which is now underway would help look at the issue. She said coming in as a new Administration, they have not yet had a chance to have the commissioners take a look at all the services out there and where the greatest opportunities for savings were located. They also have not had a chance to look at the statutory and regulatory requirements that they might want to propose changing. They plan on having an outline ready with the next budget what addressing what they think makes sense concerning expenditures in the out years. Number 510 REPRESENTATIVE SANDERS inquired if the example she used of level 15J being replaced by an 11A was a normal situation. He thought perhaps they would need to replace them with someone closer to experience and longevity. Number 517 MS. MCCONNELL explained that people were moving up the career ladder with greater experience and training. So, although the person leaving would be at a 15J, the new person replacing him would be at the bottom. Other employees already would have gone through those steps. They wouldn't be replacing a large chunk of experience with inexperienced people. In the case of corrections, for example, you would still maintain the experience and training in the work force to continue to get the job done right. Number 531 CHAIRMAN KOTT commented on having sat through another session of budget hearings, and most of the departments which testified commented they were stretching themselves thin. The personnel cuts, over the years, have gotten to the point where they can't fulfill their statutorily required actions. Without making substantial cuts in programs, he doesn't think the departments can absorb any more personnel losses. Number 546 MS. MCCONNELL concurred this was the general feeling among the commissioners. They've gotten to the point where they need to address which functions are no longer as necessary as they have been in the past. She said the effort has begun, and in some area proposals are coming forward, such as with the Department of Environmental Conservation (DEC). Number 560 CHAIRMAN KOTT said this was commendable. He added that with over 20,000 employees out there, he hoped the people advocating and pushing this legislation wouldn't think for an instant they would cut 5000 employees without wholesale changes in the way business is conducted in the state. The RIP will satisfy some requirements; however, they won't see a 20 percent reduction in the state work force. MS. MCCONNELL agreed and added it was important not to have expectations out of line. They want them to be challenging expectations, not unrealistic. Number 568 REPRESENTATIVE SANDERS inquired if there were more state employees today than in May, 1994. Number 569 MS. MCCONNELL replied she wasn't sure about the number for 1994. There are places where there have been increases, such as in Child Support Enforcement. There were 31 enforcement officers added during the course of last year and many of those were added with federal funds. She said as the federal government changes its requirements, they still don't know where these changes will come. However, they may affect areas of state government. They need to be prepared to address those. Number 584 REPRESENTATIVE SANDERS asked if there were any significant areas that were downsized. MS. MCCONNELL said she wasn't aware of one particular area where the number went down. There were more positions in this year's budget than in last year's budget, attributable to a combination of child support enforcement, totally revenue supported positions, and capital funded positions. CHAIRMAN KOTT asked if there were more questions for Ms. McConnell. Hearing none, he asked the representative from the Alaska Marine Highway to join them at the table. Number 594 PHYLLIS OLSTA, STEWARD, ALASKA MARINE HIGHWAY SYSTEM, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, testified that all employees of the ferry system were members of the union. The terms of the new contract are not as generous as the contracts prior to 1986. Her vacation benefit is $3,100 a year more than employees hired at this time. She said she is at the age where she could continue working for another five or six years. The person replacing her would receive no more than 35 hours a month vacation. The employees working in this system would be younger, receiving less benefits, supporting the economy, building homes, sending their children to school and other things that would be much more cost effective than older employees, who are not stimulating the Alaskan economy in such a manner. Number 611 JIM TEDFORD, PARENT, read the following statement: "To whom it may concern: Alaska is no longer the land of plenty. We all have to learn to get by with less, but we should try to minimize the impact on our children. Today most school districts are in a financial bind. Class sizes are growing and education is suffering. HB 270 offers a partial solution to this crisis in funding. A retirement incentive program would free up thousands of dollars that school districts could use to better educate our children. Please move HB 270 expeditiously through the legislative process so RIP can be in place before the end of the school year. Thank you." Number 624 REPRESENTATIVE KUBINA asked Mr. Bob Stalnaker, Director, Division of Retirement and Benefits, Department of Administration, why on page 7, lines 4 and 5, the time span for school districts was so short. Number 629 BOB STALNAKER, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, answered that the time window is the same as in the previous two RIPs. It is designed to cover two school years. TAPE 95-55, SIDE A Number 000 REPRESENTATIVE KUBINA asked if their plan had to be submitted between the end of June, and the end of the year, they then could then retire at the end of this school year and the end of the next school year. MR. STALNAKER said this was correct. By having a June 30, as the application date, a person can apply and then be retired on July 1, for this school year. By having it in July, they can apply June 30 next year to be retired by July 1 of the following year, which would give them the latitude of two school years. Number 018 REPRESENTATIVE KUBINA said he was thinking specifically of Delta Junction, currently in the process of base closure over the next three years. Because they have the three year closure plan, he asked if it would be objectionable to extend the date of August 1, 1996 to 1997. Number 034 MR. STALNAKER responded that first and foremost they have always looked at this as a tool. They have been diligent in making it revenue neutral to the systems, by identifying the full cost up front. If the employer can better utilize the tool by extending it another year for school districts, the retirement system wouldn't have an objection. It would expand the number of teachers for all school districts which would qualify, giving them more latitude in phasing it through. Number 048 REPRESENTATIVE KUBINA stated they would still have to file their plan before the end of this calendar year. MR. STALNAKER said this was correct. Number 051 JACK KREINHEDER, SENIOR POLICY ANALYST, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, stated that when the bill was being drafted, they discussed it with representatives from the education community. The concerns some school districts have with extending the window are that they have problems they need to address now. They want as many teachers who might be able to participate now to do so, but teachers, given the option of another year, may stay on the payroll for another two years. School districts could address this by saying if they are eligible for the program they must use it now. Only teachers not eligible will be able to use it down the road. Number 074 MR. STALNAKER concurred with Mr. Kreinheder. In previous RIPs, some school districts have offered cash incentives to entice teachers to retire during the first year instead of the second. He said they haven't heard from school districts that they don't like the window. They have heard from the employees that they would like the longer window period in which to strategically use it themselves. Number 091 REPRESENTATIVE KUBINA asked if he had an objection in including the Judicial System in this bill. He asked, "Are they under your purview or are they a separate retirement system?" MR. STALNAKER responded that it was a separate retirement system, but felt this would be fine. Number 101 MARK LIVINGSTON, testified from Ketchikan via teleconference in support of HB 270. He read the following statement: "Recently Ketchikan School District has had to cut many educational programs. The school district is looking at a $200,000 plus deficit. Next year, the funding unit will be at $61,000, and they're talking about a funding unit cut to $59,000. Because classroom teaching positions are based on school enrollment, teaching positions cannot be eliminated or reduced much, at least hopefully, more than it already has been. If retiring teachers are replaced with teachers at the low end of the pay scale, school districts will save a substantial amount of money. According to the Ketchikan School District business manager there are approximately 40 teachers eligible to retire now. If a retirement incentive program were passed, Ketchikan School District could save from $67,452 to $85,716 for each retiring teacher over a three year period. Within the last decade, 75 percent of the largest U.S. companies have offered early retirement options. This comes out of U.S. News and World Report, dated November, 1991. I think that's a pretty good endorsement considering corporate America's search for a better bottom line. The retirement incentive bill is one of the more viable options available to save money. Thank you." Number 139 GARY BLOOMQUIST, CITY MANAGER, CITY OF KODIAK, testified from Kodiak via teleconference. He stated that in 1992, they made efforts to gear their budgeting and personnel policies to accomplish significant savings in the long term. He said anyone being replaced in Kodiak would be replaced at a step A rather than a step I. In 1992, they eliminated longevity pay for all new hires, expecting to get the benefit of the elimination of longevity pay over a seven to ten year period. All new employees would be hired with nine days less vacation per year. In order to budget and maintain minimal staffing levels they use overtime. Beginning April 1, 1992, they established part payment for dependent medical coverage. They have 32 people that would be eligible out of a total employment force of 107. The estimates show that 16 of those would leave. He said they would hate to lose them all at one time. He said he very much appreciates the effort that has gone on in the House to extend the period and move the date to an earlier date. It appears the savings for Kodiak in the first year would conservatively exceed $200,000. They would like to take advantage of this as soon as possible. The major concern they have is the Senate has merged SB 137 into SB 148, and the savings could be denied to them if the retirement bill alone isn't allowed to proceed as the retirement bill. He said they would appreciate any advice the committee might have, and thanked them for their time. Number 175 CHAIRMAN KOTT inquired how the two Senate bills were intertwined. Number 177 MR. BLOOMQUIST replied, "As of this morning SB 137, which is the House's HB 270 as was amended in the House and moved onto this committee, was merged into SB 148 which, in effect, is a new retirement program. There is now a single SB 148 and SB 137 has gone no where. REPRESENTATIVES KOTT and Kubina both commented: "The plot thickens." Number 187 CHAIRMAN KOTT believed that bill to be in the Senate Finance Committee. Number 191 MR. BLOOMQUIST believed the bill passed out of the Finance Committee this morning. He said their understanding was that SB 148 is controversial enough and hasn't had the full discussion that HB 270 has had and could possibly cause the demise of the RIP bill. Number 207 CHAIRMAN KOTT added that very seldom do they follow what's going on in "the Dark Side". He asked Representative Porter to comment, having chaired the subcommittee on HB 270. Number 213 REPRESENTATIVE PORTER stated the subcommittee of the State Affairs Committee came away with the impression that HB 270 was designed to do exactly what they were touting it to do. The mechanism is in place to review and make sure it does that. The bill doesn't guarantee the budgets of affected divisions and departments would go down. That is the function of the legislature in the years to come, to take the reports HB 270 requires to be submitted and find out if the budgets don't come down, and what the cause is. Number 234 REPRESENTATIVE KUBINA offered Amendment 1, to include the Judiciary System. Number 247 CHAIRMAN KOTT objected for the purpose of discussion. REPRESENTATIVE KUBINA told the committee it would be the entire Section 9. This is the same language that was in the Senate version. Number 266 CHAIRMAN KOTT inquired if he was removing Section 9. REPRESENTATIVE KUBINA replied no. He would be inserting in the title the words: "The Judicial Retirement System", and on page 7, line 20, adding the entire Section 9 of his amendment, It would be adding a new Section 9, and renumbering the subsequent sections. Number 278 CHAIRMAN KOTT asked if he was adding a new Section 8. REPRESENTATIVE KUBINA replied, a new Section 9. CHAIRMAN KOTT commented that starting at line 20 would be a new Section 8. Number 279 REPRESENTATIVE KUBINA apologized and said it would be a new Section 8 and 9. However, he just wanted a new Section 9. Numb 290 CHAIRMAN KOTT said he could amend the amendment starting on page 1, line 27, insert the amendment of Section 9, and renumber the subsequent sections. He asked if this was the intent of the amendment. Number 297 REPRESENTATIVE KUBINA said this was correct. CHAIRMAN KOTT asked if there was someone present from the Court System who would like to comment on this. Number 302 ART SNOWDEN, ADMINISTRATIVE DIRECTOR, ALASKA COURT SYSTEM, said he hadn't yet seen the language in this amendment. However, if it was the same language as is contained in the Senate bill, it would allow the administrative director of courts to participate in the RIP if there is a savings to the state. This language was in the past two or three RIPs that had been introduced in the legislature. If there isn't a monetary savings, the administrative director wouldn't be allowed to use the RIP. This has to be approved by the Chief Justice. It doesn't give the administrative director anymore years towards retirement. It just lets him get older. This has been in the previous two RIP bills, and the Senate put it in their version. The Supreme Court supports this. Number 319 CHAIRMAN KOTT asked if there were questions for Mr. Snowden and added that it was Mr. Snowden's birthday. Number 328 REPRESENTATIVE ROKEBERG asked if the rest of the Judicial System was involved in this. MR. SNOWDEN replied no. There would be no savings. All other court employees are in the bill under the Public Employees Retirement System (PERS). There is an Administrative Director's Retirement Act in the state. To allow himself to participate in the RIP, there has to be specific reference to that act. It has the same mandate as every other part of the bill. If there's no savings, it cannot be done. Number 337 CHAIRMAN KOTT asked if there was an objection to Amendment 1. Number 340 REPRESENTATIVE PORTER commented that it was his birthday tomorrow and wondered what he was going to get. Number 347 CHAIRMAN KOTT replied there would be no Labor and Commerce Committee meeting. Hearing no objections to Amendment 1, it was adopted. He added that he planned on ordering a CS and bringing it back before the committee on Wednesday. Number 348 REPRESENTATIVE PORTER stated that he wouldn't resist moving HB 270, as amended. Number 350 CHAIRMAN KOTT asked the committee members if they were comfortable with the incorporated language. Number 353 REPRESENTATIVE ELTON said this was a straight forward amendment. It comes from the "other side." He didn't have a problem with it. Number 355 REPRESENTATIVE KUBINA wondered what games were being played with them changing the amendment. He would like to see this make it to the Finance Committee. Number 360 REPRESENTATIVE PORTER made a motion to move the CSHB 270(STA) as amended, with accompanying fiscal notes. Number 362 CHAIRMAN KOTT asked if there was an objection to moving the CSHB 270(STA) as amended. He noted the House Labor and Commerce Committee will work on a new CS in incorporating Amendment 1. I would then become CSHB 270(L&C). Hearing no objection, the CSHB 270(L&C) was moved.