Legislature(1995 - 1996)
04/01/1995 10:05 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HSTA - 04/01/95 HB 270 - EARLY RETIREMENT INCENTIVES ANNALEE MCCONNELL, Director, Office of Management and Budget, presented HB 270 on behalf of Governor Tony Knowles, stating the bill will provide management tools to address Alaska's fiscal gap and to allow downsizing of government. There are significant differences between this and previous retirement incentive programs (RIPs): It is not an across-the-board cut, the time in which savings must be demonstrated has been narrowed to three years, and it allows local options. Operational plans, including calculations to prove monetary savings, would have to be approved by her office. Number 152 MS. MCCONNELL said school districts are a good example of significant savings because higher paid teachers could be replaced with new hires. The Department of Corrections could replace prison guards at half the present cost, and other agencies who provide 24-hour care could see significant savings as well. She said it was true that long-term savings might not occur as the new hires later reached a higher pay scale, but savings could be realized now and in the short-term. Number 212 MS. MCCONNELL continued HB 270 would help Alaska avoid the chaos of radical downsizing, such as what happened in 1986. Another new aspect of this RIP is the provision for separation incentives which allows lump sum payments to employees who would not qualify for early retirement. Number 280 CHAIR JAMES requested testifiers to limit their testimonies to two minutes, unless they are speaking on behalf of a group of five or more testifiers. Number 322 CRAIG PERSSON said via teleconference, HB 270 would allow long-term state employees to be replaced with entry-level employees, and would have a positive effect on Alaska's economy because retired employees would stay in the state and their jobs would be filled by other qualified Alaskans. Number 359 ELWIN LEACH, via teleconference, pointed out HB 270 would save money on health care costs by replacing older employees with younger, healthier ones. It would also place more Alaskans in jobs. Number 390 LUCY HOPE spoke via teleconference on behalf of 20 people who were present in the Wasilla Legislative Information Office, plus another 16 who had signed a list. She explained new teachers could be hired at half the salary of retiring ones, and this is a better choice than increasing class size, laying off teachers, or eliminating programs to save money. Number 441 FRANK SMITH pointed out via teleconference, the North Slope Borough can save a great deal of money with this bill, and this is important since the oil income is decreasing. Number 465 JUDY MURPHY stated, via teleconference, the bill is very cost-effective, and it offers choices of participation. She added she is at the top of her salary schedule, as are others, and she could be replaced with a less expensive teacher. Number 494 ELDON BROTHEN mentioned via teleconference, HB 270 would allow school districts to save money at a time when drastic budget reductions and cuts are required without harming employees' or kids' programs. Number 523 JAMES CHAMBERS, via teleconference, urged passage of HB 270, pointing out it provides options for school districts and local governments and would eliminate economic uncertainty. Without the bill, layoffs would be required which would harm employees. Number 565 ALICIA NEWMAN noted via teleconference, HB 270 would allow local school districts and departments time to reorganize or restructure to be in line with available revenue. Number 573 SANDRA STRAUB remarked via teleconference that state employees who make large amounts of money are also accruing large amounts of interest and increasing the financial liability of the state. Number 585 PETE VELSKO said via teleconference, he believed HB 270 should be open to all eligible employees because it would increase savings by replacing senior employees with new ones. Number 596 VAL KOEBERLEIN thanked Representative James via teleconference for the opportunity to speak on this issue, which is very important to the city of Homer and could save the city $370,000 in three years. He suggested extending the eligibility period. He was speaking for nine other testifiers. Number 618 BILL MONROE spoke via teleconference on behalf of 15 other people who could not attend. This RIP could save the school district $400,000 in a three-year period. This money is desperately needed; even if the district is fully funded, they are facing severe cuts. Number 648 LEE FOSTER, via teleconference, said HB 270 is a cost effective bill, but he would like to address the overriding social issues. Delta Junction could lose half its teaching staff and other state offices as a result of the military cutback. Retiring senior employees could ease the financial stress and uncertainty by being replaced with younger employees. Number 664 MIKE SARVER said via teleconference, HB 270 would provide real incentive for teachers to retire. Approximately 49 percent of the teaching staff will be nonretained as a result of the Army leaving Fort Greely. This bill would allow teachers at the top of the pay scale to retire. Number 685 ROD CLIFT testified via teleconference, there are 11 employees in his school district who would choose to retire if HB 270 passes. Number 706 DUANE GRIGG said via teleconference he has watched the school's programs decline over the years, and would like to maintain the existing programs. They are almost at the point of desperation and he feels HB 270 offers a solution. TAPE 95-40, SIDE B Number 000 RUTH ANN RUST said via teleconference her school district would save an average of $15,000 per retiree by replacing them with highly qualified, but beginning teachers. She stressed HB 270 would not be a reward for burned out educators or a giveaway program. Number 074 SUSAN VINCENTE declared via teleconference, HB 270 is one of the better RIPs that has been offered. She likes the flexibility and the local discretion, and feels the bill would allow salary cuts without cutting services. Number 105 TOM CHURCH stated via teleconference he had taught in Cordova for over 28 years. Approximately 18 teachers there would qualify for the RIP program this year. It is a win-win situation. However, he would recommend extending the eligibility period for school employees to match the one for university and state employees. Number 132 ROSE MARY BUSHON spoke via teleconference as an educator and as a parent. Her concern was maintaining the present teacher-pupil ratio, which has reached the absolute maximum. The RIP is the only way to do this while meeting required budget cuts. There is no other responsible choice. Number 163 TRINA RICHARDSON mentioned via teleconference her school district is planning next year to charge each student a $30 fee just to walk through the door. That is how critical their situation is. The RIP would give them a way to deal with their economic problems. Many teachers are already at the top of the salary scale but have less than the currently required number of years for retirement. Number 198 CAROL MITCHELL said via teleconference, approximately 40 educators in Ketchikan are eligible for retirement. Including a benefit package, they could save between $67,000 and $85,000 per teacher over the next three years by retiring experienced teachers and hiring new ones. This bill would force teachers to seriously consider retirement. Number 241 LEW BRANTLEY said via teleconference he could not understand how anyone would fail to see what a savings HB 270 offers. He added the lower income employees would also earn lower benefits. Number 260 MIKE WARD said via teleconference most of his comments have already been covered by other testifiers. However, he added Fish and Game could save money by replacing long-term employees who are covered under the Peace Officer Retirement System with lower-paid employees who would no longer receive that benefit. REPRESENTATIVE BRIAN PORTER asked Mr. Ward what classification was changed out of the PERS retirement. MR. WARD replied Fish and Game employees were formerly covered under the Peace Officer Retirement System, and it was changed about ten years ago. Employees then were "grandfathered in" but replacements would not be covered. REPRESENTATIVE PORTER asked if this pertained to Fish and Game as opposed to Fish and Wildlife. MR. WARD said that was correct. Number 292 CORKY MCCORKLE stated via teleconference, the City of Kodiak administration is in favor of HB 270 and SB 136, but he did not understand the difference in effective dates for municipal employees versus state employees. He suggested an amendment to make everyone eligible at the earlier date. Number 331 NORMA DUDIAK, via teleconference, noted she and her husband are both Fish and Game employees, and they endorse HB 270. They do not want to see employees laid off and she asked for an unbiased cost-savings analysis of the bill. She was concerned the requirements of the bill are so complicated it would require hiring more people to administer it. She requested the legislature not to stall on this bill, to be sure it comes up for a vote this year. Number 352 JUDY SHIFFLER stated via teleconference HB 270 makes a lot of economic sense in these times of budgetary concerns. She spoke to another concern: The future employability of our children. Younger teachers would be better trained than the older teachers to supply students with up-to-date computer skills and knowledge. Number 389 BRENDA MARTIN pointed out via teleconference the last RIP bill saved Fairbanks $1,554,000. Replacing a retiring teacher with a new one saves $15,000. Two retiring teachers save $30,000, which is the cost of hiring a new teacher. She asked the legislators not to play partisan politics with this bill, but to pass it quickly out of committee. Number 402 KELLY BROWN spoke via teleconference on behalf of the 8,000 ASEA members. HB 270 would avoid layoffs, reduce the number and cost of state employees, and would be a win-win situation. Number 435 HAL SMALLEY spoke via teleconference as a city councilman and a 25 year Alaskan teacher, stating the city of Kenai could save half a million dollars with HB 270. He suggested extending the program from July 1995 to July 1998. Without a RIP, local governments will be forced to layoff less expensive employees at the bottom of the seniority scale and keep expensive employees, which also increases medical costs. He spoke on behalf of 16 other testifiers. Number 476 BOB RUTMAN said via teleconference, HB 270 would help with Alaska's financial crisis and reduce financial problems in his school district. Number 488 DALE JUDGE asked via teleconference, whether a person could combine years worked under the public employees retirement system with those worked in the teachers retirement system to be eligible under the RIP. Number 498 BOB STALNAKER, Director of the Division of Retirement and Benefits, Department of Administration, replied no, service could not be combined under the retirement systems to meet minimum eligibility. A person who had worked under both systems would still have to be of an age to meet eligibility requirements. Number 507 MARILYN NIGRO said via teleconference, she had been at the top of her teacher salary schedule since the 1980s, and a beginning teacher would make approximately half her salary. As they face a crisis and need to make drastic cuts in their budget, retirement should be encouraged for those at the top of the salary schedule. Number 520 TED DELEON said via teleconference, he agreed with previous testifiers, but did not understand why there were different windows and felt they should be the same for municipalities, state employees, and the university. He added most of the funds will not come from the state but from the retirement fund, and it does not belong to the legislature or the state; it belongs to the employees. Number 538 PAM DARNALL noted via teleconference, the Fairbanks North Star Borough has worked hard to keep class size down, and she feared class size would rise unless they can lower some costs. HB 270 would also open jobs for our new local teachers who would otherwise have to leave the state to seek employment. Number 551 TERRY MARQUETTE, via teleconference, supported HB 270. As a high school building manager, he has seen a lot of valuable programs for kids lost because of budget cuts. This bill would save programs. Number 558 MARGARET SAMPSON said via teleconference she has been at the top of the salary scale for several years. HB 270 would allow such teachers to be replaced with new and highly qualified university graduates at a much lower salary. Number 579 REPRESENTATIVE CAREN ROBINSON asked for an explanation of the "window" question several people had raised. MS. MCCONNELL responded the reason there were different window periods and start dates for state and local governments and school districts was the enormous administrative requirement to be sure everything gets processed properly for the employees. If it hit all at once, the system could break down. She suggested the Administration could canvas the local governments and school districts to get a sense of how many employees would be taking advantage of the program and what timing would work best for them. This would allow them to do some workload planning and possibly accommodate different dates. Number 609 CHAIR JAMES read statements for the record: The Anchorage Council of Education had called in support of HB 270 as written. Creekside Park School in Anchorage had FAXed a list of names in support of HB 270. Two individuals had called in support of the bill, and many other supporting FAXes had arrived. Number 626 VERNON MARSHALL, Executive Director of the National Education Association of Alaska, thanked the Governor for submitting the bill and thanked Chair James for scheduling it for hearing. He asked for a good nonpartisan effort to pass HB 270, and said the bill is actuarily sound. It would not create a "brain drain" and it would reduce class sizes. Number 656 GARY BADER, Administrative Services Director for the Juneau School District, said he likes the fact that HB 270 is not a mandate but permits local school districts to decide. He believes it would save his school district a minimum of $1.8 million over five years, by retiring an estimated 30 teachers. Number 691 BRUCE LUDWIG, Business Manager of the Alaska Public Employees Association and Secretary/Treasurer of the state AFL/CIO, noted HB 270 would stimulate Alaska's economy. Money invested in PERS and SBS is invested outside the state. When a person retires, that money comes back into the state in the form of a pension or an annuity, is spent in the community, and creates 1.8 other jobs. Number 707 JEFF BUSH remarked that the Juneau School District needs tools to deal with financial problems, and HB 270 would provide those tools. TAPE 95-41, SIDE A Number 000 JAMES TEDFORD observed most school districts are in a financial crisis. He urged the committee to move HB 270 so a RIP could be in place before the end of this school year. Number 024 HERB HOLEMAN said he spoke for many other state employees who support HB 270. He works for the Department of Administration, is a range 21M, and his position could easily be filled by a range 17A which would be one-half to two-thirds of his salary. Number 056 CHAIR JAMES noted Representative Kim Elton was present in the audience. Number 067 PHYLLIS OLSTA spoke on behalf of employees of the Alaska Marine Highway ferry system. HB 270 would allow retirement of employees hired under the old contract of 1986; newer employees are under a new contract with more spartan benefits. Hiring new employees would stimulate the Alaska economy and "get rid of the people who are just coasting along waiting for something to happen." Number 106 DR. GLEN MASSAY, Director of Mat-Su College, stated via teleconference the estimated savings for Mat-Su College would be $150,000 if HB 270 passed, allowing them to retire four or five positions. This would be a great help. Number 114 MARY ANN CASEY said via teleconference, HB 270 would eliminate uncertainty and help Aniak School District. THOMAS BROCK said via teleconference, HB 270 would benefit Aniak School District by providing cost savings and opportunities for new teachers. Number 155 CHAIR JAMES called Annalee McConnell and Bob Stalnaker back to the table to answer questions. Number 165 REPRESENTATIVE ROBINSON asked how proposals would be scrutinized, and by whom, in keeping with HB 270. Number 175 MS. MCCONNELL replied her office intends to very tightly scrutinize the proposals because they need the cost savings. They cannot afford to be inaccurate on projections. The downsizing pressures have increased, and all commissioners are aware of the need for significant savings. Her office will review proposals both from a budget analyst side and from a policy and organizational side to be sure both are achievable. Number 224 REPRESENTATIVE ROBINSON inquired how the Administration would deal with explaining who fits and who does not fit into the program. MS. MCCONNELL answered the Cabinet has had many discussions about this very issue. First, they are acknowledging this will be a difficult task, and managers will have to be prepared to justify their criteria. Expectations need to be reduced, and the public needs to be aware this is not an across-the-board RIP. Number 285 REPRESENTATIVE PORTER asked if anyone from the Department of Law had been asked to consider the legal issues of equal protection regarding the selection process. MS. MCCONNELL responded the question had been raised. The bill has specific language to make it clear there is no entitlement for employees and there is no contractual right for employees. MR. STALNAKER added those questions had been dealt with in prior RIPs. Number 320 MS. MCCONNELL said they cannot guarantee no one will challenge it, but the bill is carefully structured in Section 12 to minimize the risk. She added the affect on employee morale of not having a RIP needs to be considered, when it is well known jobs are going to be cut. This is very disruptive. A RIP reduces anxiety regarding the future for the remaining work force. Number 368 CHAIR JAMES said she sees a really big savings for the school districts in dollars, but she cannot accept the idea that a new person is as good as an experienced one. Experience is valuable. She was also concerned about what happens to stability of the Teachers Retirement System (TRS) if people are suddenly dumped into it ahead of schedule to collect their retirement. Number 390 MS. MCCONNELL responded to the first part of the question by agreeing new employees do not have the same experience as older ones, but determination will be made at the local level regarding how to deal with budget cuts. A choice between cutting students' services and increasing class size, versus hiring some less expensive teachers, is best made by each district. The program is optional. Number 418 MR. STALNAKER addressed the question of TRS by saying the actuaries were sound in the two previous RIP bills. He added a teacher, even if designated, would not be required to take advantage of the RIP. In the previous program, of all those designated only about one-third elected to take the opportunity. Regarding the actuarial soundness of the systems and what happens if people are dumped into the system early, he said this cost is factored into the overall cost analysis and must be offset by savings. Number 453 REPRESENTATIVE PORTER said he was concerned with employees who want to take advantage of a RIP but are not eligible, from a legal standpoint. In any event, those who do take advantage of a RIP are covered by retirement until they die, and each one of those time periods would be extended by three years. The state, as the employer, would be responsible for back-funding and making this actuarily sound. A demonstrated cost savings is only required for the first three years, but what about the last three years at the other end? Number 472 MS. MCCONNELL said the demonstration of cost savings is not limited to just the first three years, but it must include them. REPRESENTATIVE PORTER asked if the cost savings must be demonstrated for the duration. MR. STALNAKER said that was correct. Each calculation is done on an individual basis, and health insurance costs might even be factored in, in addition to an administrative fee. Number 501 CHAIR JAMES asked if there is an estimate of how many employees are still working past retirement and have opted not to retire yet. MR. STALNAKER replied the average age of retirement is generally three years beyond eligible retirement age. Number 518 CHAIR JAMES observed that private industry uses RIPs as a management tool to handle downsizing. It is never intended to save money, to her knowledge, and in fact it usually costs money. If HB 270 is a tool for downsizing, it should say so. She agreed with Representative Porter's concern that people will be treated selectively. CHAIR JAMES continued school districts will not be downsizing their teaching staff, though it would be good to decrease the number of administrators, and she might agree a RIP would benefit school districts. But she thinks something is wrong with the existing system if we believe new hires are just as good as old ones at twice the salary. We need to address that problem at the same time so we are not back in the same situation in another ten years, needing to get rid of high paid people and hire lower paid ones. Number 549 MS. MCCONNELL said that was a good point. New labor contracts will have provisions different from the old ones, in an effort to address some of these issues. But even with revised salary schedules, a person in year one will not make the same amount as someone who has worked in a job for 10 or 15 years because we hope they do gain experience and skill as they go along. Number 567 REPRESENTATIVE PORTER said his questions were not aimed at trying to make the bill not work, but at trying to make it work. He asked if he was correct in understanding the teachers' retirement system was not a 20 year retirement. MR. STALNAKER replied the teachers' system was a 20 year system for new hires. The new hires' benefits are less costly, in both PERS and TRS, and include a reduction in benefits. REPRESENTATIVE PORTER asked if this means the new hires will be less expensive throughout their whole careers. MR. STALNAKER responded the retirement system contribution rate is the same for all employees, new or old, but the new hires will accumulate less costs. Number 602 REPRESENTATIVE PORTER asked if costs of individual employees would be compared with their replacements. MR. STALNAKER said the Office of Management and Budget would do that comparison for state employees and certify the cost savings to his office. For school districts, the calculations would be done by the district and certify them to his office. His office does not plan to "police" or double check what numbers are used or how the calculations are done. He does not think it would be appropriate to do so. Number 623 REPRESENTATIVE PORTER asked if a significant difference was expected between state teachers and a specific district in the savings projected. MR. STALNAKER replied he would not expect a significant difference. Number 648 MS. MCCONNELL added there are two sets of calculations done. In the Office of Management and Budget, savings will be analyzed in light of what an employee costs as well as what the replacement will cost. These figures are matched with Retirement and Benefits to see the actual bottom line. It is a split responsibility. Number 664 CHAIR JAMES mentioned the fiscal note and the cost of up-front three year advance payments, noting there will also be a cost of administering. Number 687 MR. STALNAKER referred to the section of the bill allowing payments to be made over a three year period, saying overall cost savings must exceed the cost of those. It would require no additional funds. The administrative costs are required within 30 days of the contract, which pays for the administrative costs in the fiscal note. MR. STALNAKER continued he anticipates approximately 14,500 people, through both PERS and TRS, to be eligible. TAPE 95-41, SIDE B Number 000 CHAIR JAMES asked how much of the cost would be coming from the state as an employer. MR. STALNAKER replied it depends upon the participation, since the employer pays 15 percent up-front. If the employer chooses not to participate, it costs them nothing. Number 035 CHAIR JAMES appointed a subcommittee to consider HB 270: Representative Porter, Chair; and Representatives Ogan and Robinson, members. REPRESENTATIVE ROBINSON inquired what problem areas the subcommittee would be working on. CHAIR JAMES replied the subcommittee would contact the departments regarding that. REPRESENTATIVE ROBINSON asked when the bill would be back in front of the whole committee. CHAIR JAMES said she would defer to the subcommittee on that decision. REPRESENTATIVE ROBINSON asked what other committee referrals the bill had. CHAIR JAMES answered, Labor and Commerce and Finance.