Legislature(1993 - 1994)

02/03/1993 09:06 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  and SB  10  (RETIREMENT  INCENTIVE PROGRAM)  to  be  up  for                 
  Number 420                                                                   
  SENATOR DUNCAN,  prime sponsor of  SB l, testified  that the                 
  state had two previous retirement incentive programs in 1986                 
  and 1989.  The 1986 program saved approximately  $73 million                 
  dollars in personal services costs, with approximately 2,300                 
  employees  retired  under that  program.   The  1989 program                 
  resulted  in  a savings  of  $23  million dollars  with  the                 
  retirement of about 1,800 employees.                                         
  Last year  when the legislation was introduced and passed by                 
  the legislature, it  was estimated  there were about  10,600                 
  employees  eligible  for the  retirement  incentive program.                 
  About 20 to 30 percent  of those eligible have retired.   It                 
  was  estimated that  at that  2,000  - 3,000  might actually                 
  participate in  a retirement  incentive program.  He had  no                 
  reason to  believe that  number has  decreased, in  fact, it                 
  probably has increased.                                                      
  To qualify, an employee must be  within three years of early                 
  or  normal  retirement.  The increased  benefit  would  vary                 
  depending on each individual's length  of service, their age                 
  and which retirement system they are participating in.   The                 
  personal services savings required by the program will again                 
  be calculated over a five year period.                                       
  Letters are  on  file in  support  of the  program,  Senator                 
  Duncan  said,  from  such  places  as the  Anchorage  School                 
  District and  the Cities  of North  Pole, Hoonah,  Wrangell,                 
  Kenai,  Ketchikan, Juneau,  etc.   He  said  there is  great                 
  support for the program.                                                     
  Number 450                                                                   
  SENATOR DUNCAN  thought the  most compelling  facets of  the                 
  program  really are the  economic benefits it  brings to the                 
  state,  not  just   to  state  government,  but   to  school                 
  districts,  other  governmental   entities,  and   municipal                 
  governments. He said that the audits clearly point out there                 
  is a personal services savings.                                              
  In  a period of tightening budgets and declining revenues an                 
  early  retirement program means fewer  layoffs.  It's a more                 
  humane  and  a  more rational  way  of  reducing government.                 
  Studies  indicate   it  has  not  negatively   impacted  the                 
  retirement  system,  because  it's  a  fully  funded,  sound                 
  program.  It's a  management tool that should be  available.                 
  Even if there are not going to be massive layoffs due  to an                 
  economic downturn,  SENATOR  DUNCAN said the stated  goal of                 
  this administration and the majority  of this legislature is                 
  to  reduce  government   expenditures  and  reduce  personal                 
  services cost.                                                               
  Number 500                                                                   
  Furthermore, there's nothing mandated in  this program other                 
  than that we make the program available for managers.                        
  TAPE 93-7, SIDE B                                                            
  Number 560                                                                   
  SHELBY STASTNY, Director,  Office of Budget  and Management,                 
  said the administration's  position on SB 1 and SB 10 is not                 
  popular, and it  was not taken lightly.  They  believe it is                 
  the appropriate position, however.                                           
  They  believe the  retirement  incentive programs  work very                 
  effectively  when   there  are  large  numbers   of  layoffs                 
  required.  Many private industries and governments have used                 
  it as a  tool when significant  layoffs are necessary.   MR.                 
  STASTNY said one of the  difficulties the administration has                 
  with a series of retirement incentive programs  is that they                 
  lose their  effectiveness.  They begin to  have the opposite                 
  effects  for  which  they  were  intended.    As  retirement                 
  incentive programs become  a regular occurrence, it  is very                 
  difficult for a person to retire normally.                                   
  Although a person does, as Senator Duncan said, pay into the                 
  retirement  program for their share  of the actual cost, the                 
  fact  remains  that it  does  give  them an  opportunity  to                 
  participate in the retirement program for an extended period                 
  of time.   If it's on the books  as a tool, then it's in the                 
  back  of everybody's  head  that maybe  they  ought to  wait                 
  around  for  it and  lobby  the  administration to  make  it                 
  Number 575                                                                   
  MR. STASTNY said  the administration believes that  the cost                 
  savings are  not  there unless  there are  large numbers  of                 
  layoffs, and they  may not necessarily  be there then.   The                 
  average amount saved  by the state  in the last RIP  program                 
  was $8,000 per  employee, more or  less.  The difficulty  in                 
  the calculation comes  with the number  of people who  would                 
  have retired anyway.  $8,000 is  a skinny margin  as far  as                 
  savings go.   It doesn't take many of those people who would                 
  have  retired  anyway to  wipe  out the  $8,000  average per                 
  employee savings.  His responsibility as the Director of the                 
  Office of Management and Budget is to make sure the state is                 
  spending money appropriately and the  programs we enter into                 
  make good economic sense.                                                    
  In order for  RIP programs to  save a significant amount  of                 
  money,  a  large number  of the  positions  need to  be held                 
  vacant  which  could be  written  into  the way  the  RIP is                 
  administered by the state.                                                   
  The last point is the drain it has on good experienced state                 
  employees at  a time when our revenue  projections are going                 
  down.  It seems that  we ought to be working to hang  on the                 
  most  experienced employees  rather  than encouraging  those                 
  people to leave.                                                             
  We believe that at  this particular point in our  history it                 
  doesn't make good  sense to enact  these bills, MR.  STASTNY                 
  SENATOR DUNCAN  said a  person has  to decide  if they  will                 
  retire by a certain date, according to his legislation.  For                 
  example, state employees have an application period of three                 
  months.  Participation is not mandatory.  It is a management                 
  decision.    This  is  a  management  tool  which should  be                 
  SENATOR DUNCAN  asked Mr. Stastny  if the Governor's  FY '94                 
  budget took  into  account inflationary  increases, cost  of                 
  living increases for  contracts, and built in  increases for                 
  education  funding etc.?   Or  were agencies being  asked to                 
  absorb those monies?  MR. STASTNY answered that agencies are                 
  asked to absorb significant amounts of money, yes.                           
  SENATOR  DUNCAN asked  if there  were  major reorganizations                 
  going on in state  government that could impact a  number of                 
  positions?    MR.  STASTNY  answered  that  there  was  some                 
  reorganization being  planned, but whether  they will entail                 
  significant reductions, he  could not answer that  for sure.                 
  SENATOR  DUNCAN  said that  rumors  are, for  example, DOTPF                 
  design  and  construction   in  southeast  could  lose   ten                 
  SENATOR DUNCAN  asked  if  there  was  any  concern  in  the                 
  administration that  oil prices might  continue to  decline.                 
  MR. STASTNY answered obviously there is always that concern.                 
  SENATOR DUNCAN said that all those  things concern all of us                 
  and you  should have a management tool  available to address                 
  those situations.   MR. STASTNY  said he understood  Senator                 
  Duncan's concern.                                                            
  SENATOR TAYLOR said  he could  understand the tough  manager                 
  argument and also appreciated the difficulty a manager would                 
  have taking out  a crystal  ball to try  and determine  what                 
  would happen in the future.                                                  
  SENATOR TAYLOR asked if once the department makes a decision                 
  to participate, do  they have an  idea how many people  will                 
  actually take  advantage  of  the  program.  SENATOR  DUNCAN                 
  answered that the decision is  always in management's hands.                 
  The  first decision  to  be made  is  will state  government                 
  participate  at  all.    Second,   will  the  Department  of                 
  Administration participate.   Third, of the 200 - 400 people                 
  eligible in administration, which of them will be allowed to                 
  SENATOR TAYLOR asked, if management would have the authority                 
  to discriminate among  the employees  once they have  opted.                 
  SENATOR DUNCAN answered that they had in the past.                           
  Number 910                                                                   
  BARRY HAIGHT, Fairbanks  fire fighter, representing  a group                 
  of  Fairbanks  Public  Safety  employees,  supported  SB  1,                 
  because he believed  the Retirement Incentive Program  is an                 
  effective management tool to cut costs and reduce government                 
  in times of declining revenues.                                              
  He  said  the  City  of  Fairbanks  and  its employees  have                 
  participated in two previous programs and it had worked well                 
  saving 3/4  of a million dollars  in the 1989 program.   The                 
  City has agreed with its fire fighters to participate in any                 
  future early retirement programs.                                            
  SENATOR  TAYLOR  asked if  the  program they  were currently                 
  operating under  was a twenty-year  and out program  and was                 
  there a five-year  buy-in of  previous military  time?   MR.                 
  HAIGHT answered the program was twenty-years and out.  There                 
  was also a buy-in for military time.                                         
  Number 860                                                                   
  JIM  PRESTON,  President-elect   of  the  Juneau   Education                 
  Association, and teacher at the local high school, stated as                 
  an  employee  of the  Juneau  School  District, he  was  not                 
  eligible  under  the  proposal  to  retire.   If  the  early                 
  retirement program would not have been vetoed last  year, we                 
  could have saved in our own district  one and a half million                 
  dollars, and that's out of a $35 million dollar budget.                      
  Another  advantage  to  using early  retirement  is  that by                 
  replacing a retiring  teacher with a less  expensive younger                 
  teacher fresh from  the university with new  ideas certainly                 
  would increase the chances for restructuring to occur.                       
  Number 835                                                                   
  BOB DEITRICK, President of the Juneau Education Association,                 
  and  teacher at the  Harborview Elementary School, supported                 
  SB 1.  The district is at a point where the budget  is being                 
  reviewed for next year.  There is a shortfall in next year's                 
  budget.   Fortunately, the School Board held some money back                 
  this year for  carry-over because  of the budget  shortfall.                 
  However,  Juneau  is looking  at a  two  percent cut  in the                 
  school district's budget. In another year, we are looking at                 
  a  greater deficit in our budget.  Layoffs will occur in the                 
  Juneau School District if we don't  have some way of cutting                 
  back our expenses.                                                           
  The local economy will  benefit by the passage of  this bill                 
  by keeping people in the city and in the state.                              
  In the education business, you cannot  cut positions and you                 
  cannot cut classrooms.  If you cut classroom  positions, you                 
  increase class size.  For  the benefit of the kids, we  need                 
  passage of this bill.                                                        
  Number 770                                                                   
  MR. DEITRICK said we  need to have an avenue to  maintain an                 
  equitable  program  to  deliver  services  to  kids  in  the                 
  MIKE HAROLD, Juneau  Education Association and a  teacher at                 
  the high school, said most of  the teachers (120 to 160) are                 
  eligible under  this program  to retire.   In  the past  two                 
  RIP's 70 teachers  retired at a  savings to the district  of                 
  $1,500,000.  Many teachers stayed and continued teaching.                    
  MR.  HAROLD  said  he  was  eligible under  this  particular                 
  program and probably would elect to take it.                                 
  Number 730                                                                   
  BILL  KELDER,  aide  to  Senator  Kerttula,  testified  that                 
  because SB 1 and  SB 10 are virtually identical,  except for                 
  the windows of opportunity, and SB 1 was introduced  earlier                 
  by Senator Duncan  that he  would respectfully request  that                 
  action  on SB 10 be deferred at this time.  Senator Kerttula                 
  is  not  asking that  the bill  be  withdrawn, just  held in                 
  abeyance at the chairman's desire.                                           
  MR.  KELDER  said it  was  encouraging to  hear  Mr. Stastny                 
  testify that he didn't see  imminent massive layoffs coming,                 
  but he may be wrong and  Senator Kerttula thought this would                 
  be a very valuable tool to have in place.                                    
  SENATOR LEMAN said he would hold SB 1 for further testimony.                 

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