Legislature(2003 - 2004)

04/11/2003 09:03 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 11, 2003                                                                                      
                              9:03 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-03 # 45, Side A                                                                                                             
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 9:03 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Lyda Green, Co-Chair                                                                                                    
Senator Con Bunde, Vice Chair                                                                                                   
Senator Robin Taylor                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Ben Stevens                                                                                                             
Senator Donny Olson                                                                                                             
                                                                                                                                
Also  Attending:  SUSAN COX,  Assistant  Attorney  General,  Special                                                          
Litigation  Section,  Department of  Law; BRAD  THOMPSON,  Director,                                                            
Division  of Risk  Management,  Department of  Administration;  PAUL                                                            
GROSSI, Director,  Division of Workers' Compensation,  Department of                                                            
Labor and Workforce Development                                                                                                 
                                                                                                                                
Attending   via  Teleconference:   There   were  no  teleconference                                                           
participants.                                                                                                                   
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 120-CLAIMS BY STATE-EMPLOYED SEAMEN                                                                                          
                                                                                                                                
The  Committee  heard testimony  from  the  Department  of Law,  the                                                            
Department  of  Administration,  and  the Department  of  Labor  and                                                            
Workforce Development. The bill reported from Committee.                                                                        
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 120                                                                                                        
     "An Act relating to  the state's sovereign immunity for certain                                                            
     actions regarding  injury, illness, or death  of state-employed                                                            
     seamen and to workers'  compensation coverage for those seamen;                                                            
     and providing for an effective date."                                                                                      
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-chair  Wilken  noted that  the Committee  would  hear  Department                                                            
responses to questions  that arose during the first  hearing on this                                                            
bill.                                                                                                                           
                                                                                                                                
SUSAN COX, Assistant  Attorney General, Special Litigation  Section,                                                            
Department  of  Law  responded  to  Senator   Taylor's  request  for                                                            
comparison  information pertaining  to injury and illness  claims by                                                            
State-employed Alaska Marine  Highway System (AMHS) employees verses                                                            
those of other  State employees covered through the  Alaska Workers'                                                            
Compensation Act  (AWCA). She clarified that, were  this legislation                                                            
adopted, AMHS employee  "onboard illnesses" would be covered through                                                            
the State employee sick leave system rather than through the "no-                                                               
fault remedies  of maintenance and care and unearned  wages" system.                                                            
She affirmed  that the State  would save money  as a result  of this                                                            
shift.                                                                                                                          
                                                                                                                                
Ms.  Cox  advised  that while  the  State  might  not  experience  a                                                            
decrease  in the  number  of AMHS  injury  claims, the  State  would                                                            
experience "a decease in cost relating to the litigation."                                                                      
                                                                                                                                
BRAD THOMPSON, Director,  Division of Risk Management, Department of                                                            
Administration  furthered  that  the  Department  has  compiled  new                                                            
comparison  analysis charts  [copies on file]  that include  FY 1997                                                            
through  FY  2002  incidence  information;  as,  he  clarified,  the                                                            
previous  information provided  to the Committee  was limited  to FY                                                            
2002 data.                                                                                                                      
                                                                                                                                
Mr. Thompson continued  that the analysis indicates  that 42 percent                                                            
of the  2002 AMHS  claims resulted  from personal  illnesses  and 58                                                            
percent  resulted  from  accidents.  He stated  that  this  relative                                                            
percent equates  to a five-year illness average of  17 per 100 full-                                                            
time employees (FTEs) and 24 accidents per 100 FTEs.                                                                            
                                                                                                                                
Mr.  Thompson furthered  that  this equates  to a  relative  percent                                                            
expense  of   16.2  percent  for   illnesses  and  84  percent   for                                                            
occupational  accidents  for FY 2002  and a  five-year illness  cost                                                            
average  of  $32,000  per 100  FTEs  and  $165,000  for "occupation                                                             
accident illness."                                                                                                              
                                                                                                                                
Senator  Taylor   asked  for  further   information  regarding   the                                                            
expenses,  specifically  whether the  16.2  percent is  the cost  of                                                            
administering the claims.                                                                                                       
                                                                                                                                
Mr. Thompson  responded  that the  16.2 percent  figure depicts  the                                                            
total expense associated with illness claims.                                                                                   
                                                                                                                                
Senator  Taylor expressed  that  in order  to compare  the costs  of                                                            
these programs,  the data must be  inclusive. He declared  that most                                                            
of the  administrative  expense incurred  by AWCA  results from  the                                                            
cost of adjusters  and claim personnel  rather than from  litigation                                                            
expenses  experienced by the  AMHS. He mentioned  that the  State is                                                            
self-insured  and  that  the Division  of  Risk  Management  handles                                                            
Workers' Compensation claims.                                                                                                   
                                                                                                                                
Mr. Thompson  verified that  the State is  100 percent self-insured                                                             
for Workers'  Compensation incidents  and that the State  is insured                                                            
for up to one  million dollars per  occurrence for AMHS illness  and                                                            
injury claims.                                                                                                                  
                                                                                                                                
Senator Taylor understood,  therefore, that the majority of Workers'                                                            
Compensation cases would be handled in-house.                                                                                   
                                                                                                                                
Mr.  Thompson   confirmed  that  the   Department  of  Law   handles                                                            
litigation  resulting  from  maritime employee  situations,  and  he                                                            
affirmed that attorney  time and litigation expenses, as well as the                                                            
costs associated  with Workers' Compensation cases,  are included in                                                            
the  data.  He  agreed  that  Workers'  Compensation  cases  do  not                                                            
typically incur litigation expenses.                                                                                            
                                                                                                                                
Senator  Taylor interjected  that there would  be little  litigation                                                            
expense because few attorneys argue Workers' Compensation cases.                                                                
                                                                                                                                
Ms. Cox  informed that  while the Department  has approximately  two                                                            
staff  attorneys  who  are  responsible  for Workers'  Compensation                                                             
litigation cases,  she agreed that most of the AWCA  program expense                                                            
results from administrative expenses.                                                                                           
                                                                                                                                
Senator  Taylor   reiterated  that  few  private  attorneys   handle                                                            
Workers' Compensation  cases. He voiced the belief  that the State's                                                            
Workers' Compensation system  "is failing to adequately compensate,"                                                            
and he  spoke against  furthering  the misconception  that  shifting                                                            
maritime employees  to the Workers' Compensation system  is the best                                                            
option.  He voiced that,  in his Workers'  Compensation experience,                                                             
claims  are  denied  and  it  is  difficult  to  hire  attorneys  to                                                            
represent   claimants.  He   asked  for   clarification  that   this                                                            
legislation would apply only to seaman employed by the State.                                                                   
                                                                                                                                
Ms.  Cox  clarified  that  this  legislation   would  impact  seaman                                                            
employed  by the  State as  specified in  the bill  in Section  1(5)                                                            
language that reads as follows.                                                                                                 
                                                                                                                                
     (5) arises  out of injury, illness,  or death of a seaman  that                                                            
     occurs  or manifests  itself  during or  in the  course of,  or                                                            
     arises  out of, employment  with the  state; AS 23.30  provides                                                            
     the  exclusive remedy  for such  a claim and  no action  may be                                                            
     brought against the  state, its vessels, or its employees under                                                            
     the  Jones Act  (46 U.S.C.  688),  in admiralty,  or under  the                                                            
     general maritime law.                                                                                                      
                                                                                                                                
Senator Taylor  clarified therefore, that any seaman  working in the                                                            
State  but not  employed by  State, would  continued  to be  covered                                                            
through the Jones Act.                                                                                                          
                                                                                                                                
Ms.  Cox  concurred.   She  opined   that  while  "there   might  be                                                            
similarities  between the  jobs and occupations"  of State-employed                                                             
and non-State  employed seaman, the State employees'  benefits which                                                            
include such things as  sick leave, health insurance, and retirement                                                            
benefits exceed the benefits  provided to a private sector employee.                                                            
She expressed  that  "this bill  would  provide the  same system  of                                                            
remedy for all State employees."                                                                                                
                                                                                                                                
Senator  Taylor   argued  that  shifting   State-employed   maritime                                                            
employees to the  AWCA would create two systems within  the maritime                                                            
industry:  one  for  State employees  and  one  for  everyone  else"                                                            
working in the State's waters.                                                                                                  
                                                                                                                                
Ms. Cox responded that is correct.                                                                                              
                                                                                                                                
Senator  B.  Stevens expressed  that  two  systems  currently  exist                                                            
within  the  Maritime industry  as  State  maritime  employees  have                                                            
access  to the Jones  Act and  to the Public  Employees'  Retirement                                                            
System (PERS)  system, but  non-State employees  are limited  to the                                                            
Jones Act.                                                                                                                      
                                                                                                                                
Senator Taylor  agreed that "the overall  benefit package"  provided                                                            
to  State employees  is  not  provided to  other  maritime  workers;                                                            
however, he avowed that injury remedies are an issue.                                                                           
                                                                                                                                
Senator  Taylor  asked  for  further  information   regarding  union                                                            
negotiations with the State  in respect to the Workers' Compensation                                                            
program.                                                                                                                        
                                                                                                                                
Ms. Cox responded  that the three  ferry worker unions participated                                                             
in negotiations  during an eight-year  period between 1983  and 1991                                                            
in which "worker's  compensation benefits  were provided  in lieu of                                                            
traditional maritime  remedies including maintenance  care, unearned                                                            
wages, and Jones  Act litigation remedies as a result  of collective                                                            
bargaining."  However, she informed,  the inclusion of the  Workers'                                                            
Compensation provision  in the labor agreements was challenged by an                                                            
individual  in one of the  unions, and she  continued that  although                                                            
the provision  providing for workers' compensation  benefits in lieu                                                            
of Jones  Act remedies prevailed  in the  Alaska Superior Court,  it                                                            
failed  in the Alaska  Supreme Court,  which determined  that,  as a                                                            
matter of collective  bargaining,  "unions could not negotiate  away                                                            
the individual's  federal remedies." She concluded  that this ruling                                                            
voided  the provision  in the contract,  and she  informed that  the                                                            
current system has been in effect since 1991.                                                                                   
                                                                                                                                
Senator Taylor asked whether  the federal remedy issue, specifically                                                            
the  federal "savings  to  suitors  clause,"  would be  affected  by                                                            
passage of this legislation.                                                                                                    
                                                                                                                                
Ms. Cox responded  that, "the State cannot be sued  in federal court                                                            
under  the eleventh  amendment; so,  the federal  remedy applies  to                                                            
State employees under the  savings to suitors clause if the State is                                                            
sued  in  State court."  She  specified  that  the  State  currently                                                            
utilizes  this  clause   as  a  defense  against  federal   maritime                                                            
litigation  in  State court.  She  explained  that this  bill  would                                                            
withdraw  the State's consent  to be sued  by State employees  under                                                            
the federal maritime  remedies for employee claims  in any form, and                                                            
"would   instead   provide"   for  the   application   of   workers'                                                            
compensation  remedies.  She stated  that the US  Supreme Court  has                                                            
repeatedly  upheld the ruling  that a "state's  sovereign  immunity,                                                            
constitutionally,  can trump the federal interest  in the uniformity                                                            
in the maritime world."                                                                                                         
                                                                                                                                
Senator  Taylor  understood  the issue  of  State  sovereignty,  but                                                            
voiced   concern  that   resulting   litigation   could  delay   the                                                            
implementation of the legislation.                                                                                              
                                                                                                                                
Ms. Cox  specified  that this legislation  would  have an  immediate                                                            
effective date, and upon  its passage, the State "would switch over"                                                            
to  workers'  compensation  benefits   for  injuries  and  illnesses                                                            
occurring after that effective  date. She explained that an employee                                                            
who is dissatisfied with  an injury remedy could file a lawsuit, and                                                            
she reminded the  Committee of the three-year statute  of limitation                                                            
provision  in  the Jones  Act.  She specified  that  the  Department                                                            
currently  handles injury  lawsuits  and would  continue to  address                                                            
them after  passage of this bill.  She expected that the  litigation                                                            
process would  include the State Superior  Court and, if  necessary,                                                            
the Supreme  Court wherein  the Department  would  ask the Court  to                                                            
rule as to  whether "this law is,  in fact enforceable and  valid in                                                            
the State of Alaska." She  stated that this process would be no more                                                            
involved than the work the Department currently handles.                                                                        
                                                                                                                                
Senator  Taylor predicted  that litigation  would  result from  this                                                            
bill.                                                                                                                           
                                                                                                                                
Ms. Cox  replied  that while  it is  an unknown,  lawsuits could  be                                                            
possible.                                                                                                                       
                                                                                                                                
Senator  Taylor asked  whether a final  resolve  as to whether  this                                                            
legislation  "is in fact constitutional,"  would take approximately                                                             
one or two years.                                                                                                               
                                                                                                                                
Ms. Cox  approximated  that this action  could take  that amount  of                                                            
time;  however,  she  advised,  in the  meantime,  the  State  would                                                            
provide Workers' Compensation  to employees in lieu of the Jones Act                                                            
remedies until such time  that the State might be informed that this                                                            
action is unenforceable.  She informed that three  other states have                                                            
enacted this type of legislation.                                                                                               
                                                                                                                                
Co-Chair  Wilken   asked  for  information  regarding   the  $71,000                                                            
increase  in funds  as  specified  in the  Department  of Labor  and                                                            
Workforce  Development   fiscal  note  #2,  and  he  asked  how  the                                                            
Department would be affected were this funding eliminated.                                                                      
                                                                                                                                
PAUL   GROSSI,  Director,   Division   of   Workers'  Compensation,                                                             
Department  of  Labor  and  Workforce  Development   explained  that                                                            
Workers' Compensation  is a self-funded, fee-based  system, and that                                                            
these funds  would allow  the Department to  conduct such things  as                                                            
hearings  that  would  occur  during  the  transition   of  Maritime                                                            
individuals to the State's Workers' Compensation system.                                                                        
                                                                                                                                
Senator  Taylor  asked  why the  Department  of  Administration  has                                                            
submitted a zero  fiscal note as its analysis indicates  that, "very                                                            
significant cost savings will be realized in future years."                                                                     
                                                                                                                                
Mr. Thompson  explained  that the  Department has  submitted a  zero                                                            
fiscal note with the expectation  of savings; however, he explained,                                                            
the  FY  04  projected  zero  fiscal  note  is  the  result  of  the                                                            
Department's financial  methodology which obligates funds for claims                                                            
the Department  expects to pay within  the next year as well  as the                                                            
continuation   of  payments   for  existing   claims  for   maritime                                                            
employees. He expressed  that "the cost of risk" premium for each of                                                            
the  departments  the Division  of  Risk  Management  represents  is                                                            
determined  by the department's  "experience  and exposure,"  and he                                                            
continued that  over time, the decrease in claims  would result in a                                                            
decrease in the premium paid by the Marine Highway System.                                                                      
                                                                                                                                
Senator Taylor asked the amount projected to be saved.                                                                          
                                                                                                                                
Mr. Thompson responded  that savings are projected  over a five-year                                                            
period.                                                                                                                         
                                                                                                                                
Senator  Taylor ascertained  therefore,  that  no savings  would  be                                                            
expected  in FY 04  nor in the  following few  years because  of the                                                            
three-year statute of limitations for claims.                                                                                   
                                                                                                                                
Mr. Thompson clarified  that savings would be expected in regards to                                                            
illness claims and unearned  wages; however, he specified that these                                                            
expenses  are  not  included  in  the  Risk  Management  budget.  He                                                            
reiterated that there would  be "a lag-time" in the Division of Risk                                                            
Management's savings being reflected.                                                                                           
                                                                                                                                
Senator  Taylor asked  whether the  projected  savings amount  would                                                            
offset  the  expenses  presented  in the  Department  of  Labor  and                                                            
Workforce Development fiscal note.                                                                                              
                                                                                                                                
Mr.  Thompson answered  that  the unearned  wages  component of  the                                                            
Jones  Act currently  costs the  AMHS approximately  $250,000  on an                                                            
annual basis;  however, he  clarified, this  expense is in  the AMHS                                                            
budget rather than in the  Department of Administration's budget. He                                                            
expected that the savings  resulting from this legislation "would be                                                            
greater  than" the  increased  sum of the  Department  of Labor  and                                                            
Workforce Development expenses depicted in the fiscal note.                                                                     
                                                                                                                                
Senator Bunde moved to  report the bill from Committee with attached                                                            
fiscal notes and individual recommendations.                                                                                    
                                                                                                                                
Senator  Taylor objected.  He voiced  that illnesses  and  accidents                                                            
would continue  to occur; however,  he asserted that, by  exercising                                                            
the State's  sovereign  right, the  State would  "just pay less"  by                                                            
withholding  an employees' right to  sue. He avowed that  this is "a                                                            
poor  precedence."  He  declared  "little  faith"  in  the  existing                                                            
Workers'  Compensation  system, and  opined that  "to force  another                                                            
group of State employees"  into "a failed system is an inappropriate                                                            
way" for the  State to address the  issue. He questioned  the levels                                                            
of  projected  savings  and expenses  that  this  legislation  might                                                            
produce.  He declared that  while this issue  has been addressed  by                                                            
previous  administrations,  he declared  that "for  good reason"  no                                                            
action has occurred.                                                                                                            
                                                                                                                                
Senator Taylor WITHDREW his objection.                                                                                          
                                                                                                                                
There being  no further  objection, SB 120  REPORTED from  committee                                                            
with  previous fiscal  note  #1 from  the  Department  of Labor  and                                                            
Workforce  Development   and  previous  fiscal   note  #2  from  the                                                            
Department of Labor and Workforce Development.                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 09:32 AM                                                                          

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