Legislature(1999 - 2000)
03/23/2000 09:10 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 23, 2000
9:10 A.M.
TAPES
SFC-00 #59, Side A and Side B
SFC-00 #60, Side A
CALL TO ORDER
Co-Chair Sean Parnell convened the meeting of the Senate
Finance Committee at approximately 9:10 A.M.
PRESENT
Co-Chair Sean Parnell, Co-Chair Torgerson, Senator Dave
Donley, Senator Loren Leman, Senator Gary Wilken, Senator Al
Adams, Senator P. Kelly, Senator Lyda Green, Senator Randy
Phillips.
ALSO ATTENDING: SENATE PRESIDENT DRUE PEARCE; SENATOR TIM
KELLY; BOB POE, Commissioner, Department of Administration;
ALISON ELGEE, Deputy Commissioner, Department of
Administration; DAVID KOIVUNIEMI, Special Assistant,
Department of Administration.
SUMMARY INFORMATION
Overview: State Employee Contracts
by the
Department of Administration
DEPARTMENT OF ADMINISTRATION
Co-Chair Parnell stated that it is imperative that the State
understands the economic consequences of the negotiated
contracts. He understood that the role of the commissioner
would be to advocate for the negotiated contracts on behalf
of the Administration. Co-Chair Parnell noted that the
Committee was meeting to further clarify the non-monetary
terms of those contracts. He emphasized that the
Legislature must know the total costs of the contracts and
the changes that the Administration and labor unions had
negotiated. He reiterated that the intent of the meeting
was to provide further understanding of the contract items.
BOB POE, Commissioner, Department of Administration,
requested that Deputy Commissioner, Alison Elgee and Special
Assistant, David Koivuniemi join him at the table.
Commissioner Poe advised that when the Department looked at
the labor contracts and determining what would make
economic, they created a wage study, comparing key positions
in State government with those in the private sector. He
added that there is a range of State employees whose work is
dangerous and yet, important for the State.
Commissioner Poe continued, over the past four years, State
employees have received only one half of the Consumer Price
Index (CPI) increase in pay for three years. Last year, no
union received any increase of any kind.
Commissioner Poe commented that State employees contribute
significantly to the State economy. There are approximately
21,700 State employees, which includes both part and full
time University employees.
Senator R. Phillips requested the number be broken down to
indicate part-time, full-time, permanent and non-permanent
employees.
Commissioner Poe offered to provide that information at a
latter date.
Co-Chair Torgerson asked if any union members had received
merit increases in the past year.
Commissioner Poe explained that anyone who was eligible had
received a merit increase. He pointed out that about $3
million dollars a year goes toward merit increases and that
merit increases are absorbed through personal services.
Co-Chair Parnell inquired if State employees had received
increased payments by the State for health benefits.
Commissioner Poe stated they did not. The State stayed with
the same employee contribution as had been outlined in
previous years. The State was able to do that given the
reserves, which had accumulated, at that level. The
Department was comfortable that the fund was adequately
filled.
Co-Chair Torgerson asked if there had been some
reclassification studies undertaken.
Commissioner Poe acknowledged that there had been some
reclassification changes and that some had been downgraded,
ongoing personnel activities. Over the last four years,
three years of contracts provided specific increased wages
into the base of one half of the CPI. Last year, there was
no increase in any base, and no increase in the employer
contribution to health care.
Co-Chair Torgerson countered that a merit increase qualifies
as an increase.
In response to a query by Senator Phillips, Commissioner Poe
stated that increases had been accumulated through employer
contributions and based on claims that go against those
funds. If the claims are lower than predicted, more could
be accumulated. That occurred in the General Government
Unit (GGU). There were reserves accumulated because usage
was lower than had been allocated for. There are two types
of reserves that are tracked:
· Reserves for incurred but not reported claims
· Reserves for claims fluctuations
Senator R. Phillips asked the amount of the State's and
employee's contribution.
Co-Chair Parnell requested that Commissioner Poe be able to
complete his presentation before the Committee questions
begin.
Commissioner Poe proceeded, of the total State employee
number, the payroll is approximately $795 million dollars a
year. He believed that would equate to a $1.4 billion
dollar in- put into the Alaskan economy. Each employee
makes an important contribution in the service that they
give Alaska and the money that they spend within Alaska.
Commissioner Poe referenced the handout, "Employment &
Earnings Summary Report". [Copy on File].
Co-Chair Parnell noted a report from the Office of
Management and Budget (OMB) indicating personal services
funding by bargaining unit, which totaled $886 million
dollars - $453 million dollars of that being general funds,
$141 million dollars being federal funds and $291 million
being "other funds". He emphasized that the personnel costs
are higher than the $795 million dollars alluded to by
Commissioner Poe.
Commissioner Poe inquired if the OMB numbers included
benefits.
Co-Chair Parnell replied that they were categorized as
personal services and funded by bargaining unit.
Commissioner Poe pointed out that the study indicates that
changes in wages tell a lot about how the State system is
fairing. Between 1996 and 1998, private sector employees
increased wages by 4.9%, while during that same period,
federal employees received a 16% increase; however, Alaska
State employees received .1% increase. The Alaska State
employees are not fairing well compared to federal
government or private sector employees.
Senator Phillips inquired the differences between the salary
and benefits of the three groups.
Commissioner Poe explained that there are many differences.
He noted that a common dis-believe about State employees is
that they have a tremendous benefit package. He compared
such statistics to some of the cities and boroughs from
which members of the Senate Finance Committee come.
· Fairbanks - The City's monthly contribution is
$600 dollars per month for health care and the
employee contributes $0.
· Kenai Peninsula - The Borough's monthly employee
contribution is $559 dollars per month and the
employee contributes $0.
· Anchorage - The Municipality's monthly
contribution is $500 dollars and the employee pays
between $17 and $0 dollars per month.
· Mat-Su - The Borough's monthly contribution is
$500 and the employee pays $0.
Commissioner Poe acknowledged that these were comparable
plans as offered by the State of Alaska. For State
employees, the employer pays between approximately $423 -
$550 dollars per month, and 85% of the employees receive a
contribution of $488.50 per month while they pay anywhere
between $50 and $174 dollars per month out of pocket.
Commissioner Poe acknowledged that the federal employees do
not have quite as good of a benefit package as the State
employees does. The federal government pays $330 per month,
while the employees pay $135 dollars per month out of
pocket. He added that the federal package plan supports a
"preferred provider" program.
In the top five private industries in Alaska, the average
monthly wage is $3998 dollars. In the federal government,
the average wage is $3805 dollars per month, whereas, the
Alaska State government average wage is $3078 dollars. He
listed the top five industries by pay:
· Mining including petroleum production
· Durable goods manufacturing
· Construction
· Transportation
· Communications
The job classes were divided into three elements:
· Starting
· Five years into the career
· Peak of career
In the wage study, in the lower ranges 8, 9, & 10, the State
paid more than the private sector. In many of the job
classes, the starting salary was frequently higher than the
private sector; however, by the time that the employee got
to the five-year point, the wage was about even. By the
time the employee got to the peak of their career, the
salary was significantly less than the private sector. At
all three levels, the State of Alaska pay was significantly
below the federal government.
Commissioner Poe spoke to merit increases. He admitted that
the increases cost the State a little over $3 million
dollars per year. During the study, it was found that
private industry offers a range of benefits, which are
difficult to compare as they vary dramatically. He added
that the federal numbers include a cost of living
adjustment.
Commissioner Poe stated that the Department tried to put
together an economic package that was fair and would help
State employees to deal with the impact of the cost of
living and the changes in the cost of health care. Every
union was offered the same package which included a $1200
dollar flat payment to each employee in the first year; in
the second year, a 2% increase in the base; and in the third
year, a 3% increase in the base. Additionally, changes were
offered to health care. In the first year of the contract,
the employer contribution would be increased to $515
nd
dollars; the 2 year, it would increase to $575 dollars and
rd
in the 3 year, it would increase to $630 dollars. At $630
dollars, every bargaining unit would be receiving the same
contribution. That number reflects the total cost of the
health care plan today. He added that health care is
constantly increasing at a much higher rate than the normal
cost-of-living.
ALISON ELGEE, Deputy Commissioner, Department of
Administration, added that there are employees on various
plans, which creates different pricing schedule for health
insurance coverages. In the current year, Select Benefits
Plans are priced at $624 dollars, an amount found to be
insufficient. To adequately fund the reserves for that
plan, the price needs to be changed. Ms. Elgee distributed
a handout: "Cost of Health Insurance Premiums effective
2/1/00". [Copy on File].
Commissioner Poe explained that the Administration had
requested four basic items from the unions in exchange for
an economic package.
· First - a three-year agreement.
· Second - adoption of Workplace Alaska.
· Third - formation of a labor management committee.
· Fourth - the encouragement of moving unions to
labor trust.
One of the reasons that Alaska is so expensive is that we
are the last State having full indemnity health care. Other
states use the preferred provider program, managed care and
HMO's. He acknowledged that there are strong positives to
the preferred provider agreements. When employees are
empowered to make the decisions where their dollars go, they
generally make "tougher" decisions regarding those funds.
The idea behind the trust would be to empower the employees
to make the decisions about how their health care dollars
should be used.
Commissioner Poe referenced the handout: "Collective
Bargaining Agreement". [Copy on File]. Contained within
the document is a list of the total costs of all the
contracts broken out by wages and health insurance. The
total cost is broken out by fund source. Additionally,
cumulative costs are included. The total general fund cost
would be $12.9 million dollars for all twelve contracts and
total funds would be $24.7 million dollars.
Co-Chair Parnell asked if the general fund number excluded
the mental health subsidy, which amounts to $1.6 million
dollars.
Commissioner Poe reiterated the total first year costs of
the contracts. The total cost would be $66.5 million
general fund dollars with total funds of $118.6 million
dollars for the three years.
Senator Leman asked the amount of the incremental cost.
Commissioner Poe explained that cost would incorporate the
year one, two and three columns and then would add those
numbers together. He noted that the packet included the
spreadsheets for each bargaining unit.
· Public Safety Employees Association (PSEA)
· Local 71 - Labor trade and crafts
· Correctional Officers (some represented by PSEA)
· Masters, Mates and Pilots
SENATOR DRUE PEARCE asked the cost of health insurance
[comments inaudible].
Ms. Elgee responded that the health insurance provisions
under State contracts are for full-time employees. They
exist for part-time employees only if they work 30 hours or
more per week. If a part-time employee works less than
that, they have the option to privately purchase health care
in the program.
Ms. Elgee clarified that the cost contracts are authorized
positions and that they are not all full at any one time.
There is a vacancy assessment calculation on those dollars.
SENATOR TIM KELLY asked if benefits were paid only on those
employees currently working.
Ms. Elgee responded that health benefits were paid to only
those employees in paid status and working.
Tape: SFC - 00 #59, Side B 9:57 AM
Co-Chair Torgerson asked if the non-permanent and the
temporary employee would both receive the $1200 dollars.
Commissioner Poe replied that different bargaining units
would make separate arrangements. The rule was that the
numbers could not be "pushed" but rather prorated.
Co-Chair Torgerson asked about the job classifications.
Commissioner Poe reminded members that there has been a long
history in creating the contracts. Merit increase
differences have occurred over a long period of time. The
bargaining unit did not try to change those relationships.
Recipients for the $1200 dollars were agreed upon with the
unions. He added that the package, as delivered to Senator
Parnell's office, itemizes point-by-point each contract and
all the changes made.
Commissioner Poe continued listing the components.
· General Government Unit - GGU
Co-Chair Parnell asked the changes made to the leave-area of
that contract.
Commissioner Poe explained that there had been a significant
change made to the manner in which leave was addressed in
that contract. GGU is the only unit remaining that has sick
leave and annual leave. The overall accrual, when adding
sick leave and annual leave is a "gray" area when compared
to the other bargaining units. The Administration agreed to
allow those employees to have the sick leave, and to convert
50% of it to personal leave on a one-time election. That
action would allow GGU to get off the dual system. He
acknowledged that there was a significant financial value
associated with that change.
Co-Chair Torgerson questioned what "significant financial
value" meant to the Legislature.
Commissioner Poe did not have that figure available but
offered to provide the information.
Co-Chair Parnell asked the average number of sick leave days
that an employee uses.
Ms. Elgee replied that number could vary. Some employees
use all of their sick leave every year. Unless there is a
threshold reached, the entire unit could go into the
personal leave environment.
Co-Chair Parnell asked when that threshold could be reached.
Ms. Elgee did not know. The sense of employees desire to
move into the personal leave environment is stronger than
the union leadership's sense of that. The Union's want the
membership to elect that environment.
Co-Chair Parnell emphasized that these are real costs that
the Committee must have access to.
Ms. Elgee interjected that it would amount to a 50%
conversion, not the entire amount.
Commissioner Poe offered to provide that information to the
Committee.
Co-Chair Parnell asked, when Legislative workers convert to
that system, would they get to cash in their sick leave.
Commissioner Poe replied it would go into a medical bank.
Ms. Elgee added that all non-covered employees were
converted at a 60/40 ratio. The balance that was not
converted into a cash environment went into a catastrophic
leave account, which would remain with the employee until
there was a break in service.
Co-Chair Parnell requested a cost estimate of that cash
value.
Commissioner Poe pointed out that a similar occurrence had
happened within the supervisory unit.
Co-Chair Torgerson understood that the departments believe
that they can absorb the cash-out.
Commissioner Poe agreed, pointing out that there is a
significant leave bank at this time. He stated that the
departments would be able to absorb it because it would not
come all at one time.
Co-Chair Torgerson voiced his concern that the departments
would be responsible for such a payout.
Ms. Elgee explained how terminal leave and leave protection
is funded at the present time. The State has two different
working reserve accounts for those two particular elements
of pay. They are calculated on a three-year rolling average
based on the actual activity of employees.
In response to Senator Kelly, Ms. Elgee advised that the
State would anticipate that those employees that do not
actually use their leave as leave, would end up taking it
either as a leave cash-in or as a terminal leave over the
life of their employment. The average State employee works
for the State about seven years. She indicated that the
cash-out would be a minimal impact in terms of departmental
budgets. The cash-out would not impact a specific
department or a specific appropriation. It would be
budgeted separately through the personal service factor.
Ms. Elgee explained that it is important to remember is that
as these employees are converted to a new leave environment,
they would be accruing less leave than they currently are.
Co-Chair Parnell countered that in current contracts, there
is a cap on the accumulated leave; however, there is no cap
on accumulated leave for those that transition to the new
personal leave system.
Ms. Elgee responded that the leave cap was specific to
annual leave and would not impact sick leave.
Co-Chair Parnell asked the cash exposure to the State for
not having a cap in place.
Commissioner Poe responded that personal services would be
"hit" from time to time to cover the expense. None of the
leave accrual changes are reflected in the spreadsheet. If
the employee is accumulating leave and not using it, those
are productive work hours that would otherwise be vacant.
He commented that this is an "opportunity cost" that must be
compared against the financial liability.
Senator R. Phillips referenced the leave of absence concern
and how that compared to the federal and private sector
employees.
Commissioner Poe replied that the study had indicated that
the State system is close to that used by the feds; however,
State employees receive more holidays than the private
sector does. State employees receive eleven paid holidays.
Senator Leman requested further information on each unit,
indicating the number of days of sick leave not taken.
Commissioner Poe explained that "abuse" is in the eye of the
beholder.
Senator Leman asked for a comparison of the sick leave used
in relationship to personal leave used. He claimed that
people "get healthier" when the sick leave has been used up.
Mr. Elgee noted that many State employees were converted in
the late 1970's, at which time, an audit was performed that
investigated implications voiced by Senator Leman. She
offered to research that audit.
Commissioner Poe spoke to sick leave balances as of March
1999. Of 7,748 State employees, 3,300 had less than 100
sick leave hours. Only 24 employees had over 2,000 hours of
sick leave. The number of employees with between 0-200
hours of sick leave totaled 4,493. The total value of the
sick leave, when using the 50% conversion rate, would amount
to $24 million dollars. The value of sick leave hours
varies according to the range or step within that range.
Co-Chair Parnell asked if there had been a projection
regarding the amount of the annual cash out.
Commissioner Poe stated that he would provide that
information to the Committee.
In response to Senator P. Kelly, Ms. Elgee explained that
the reserve accounts are accumulated through a payroll
charge. The State calculates the necessary amount as one of
the budgeting factors, looking at a three-year history. She
agreed that there are tax implications to cashing out all of
an employees leave. Most employees would reserve a portion
of their leave, recognizing that they could get sick. She
concluded that most of the employees that use sick leave,
use it legitimately.
Commissioner Poe clarified when sick leave can be used. The
employee must adhere to the agreements made by the State and
that medical disability claims only receive 20-days of pay.
Ms. Elgee explained that the average length of service of a
State employee is about seven years. The State calculates
the activity moving for the life of that employee.
Ms. Elgee clarified that the reserve was available for any
employees that are doing leave cash-in. Those funds are not
segregated or pooled by bargaining unit.
Co-Chair Torgerson inquired the working balance left in that
account.
Ms. Elgee explained that it is replenished through payroll
each month. The Department attempts to maintain a balance
on an annual basis to meet the annual demand. She noted
that there is a separate account for unemployment insurance.
Co-Chair Torgerson asked if there was a financial liability
with the new bargaining agreement attached to the annual
leave. He commented that $24 million dollars was a huge
financial stake.
Commissioner Poe noted that the manner, in which the statute
reads, indicates that the things that affect useful work
hours would require appropriation. He stated that it had
not been included, as the Administration does not believe
that it would require appropriation and that over time, it
would be absorbed. He reiterated that there has been no
change to the annual leave liability.
Ms. Elgee clarified that there was approximately $10 million
dollars in each of the accounts. She added that the
Worker's Comp Claim payments pool through the Risk
Management budget. There is no accrual basis available for
worker's comp. She reiterated that account is completely
cash funded.
Co-Chair Torgerson claimed that did not follow what the work
reserve account stipulates. He asked if Risk Management was
paid before those funds were placed into the account.
Ms. Elgee offered to check the terminology being referenced.
In the early 1990's, the Legislature made a choice to
discontinue funding Worker's Comp on an accrued base and
moving to a cash base. She believed that the statute had
not been amended to reflect that change.
Commissioner Poe continued with testimony. He noted that in
the first year, there would be a new merit step effective
for the life of the contract. Employees benefiting from the
merit step would not be receiving the $1200 dollars.
That the State has attempted to calculate how to maintain
the experienced State employee, with a lot of institutional
knowledge. GGU tried to find something that would benefit
the employees who had been working for the State for a
longer period of time. GGU suggested the merit increase.
The $1200 dollar flat payment would go to anyone that did
not benefit from the merit step and would be prorated on a
$50 dollar per pay period, for all employees that worked
from July 1, 1999 through June 30, 2000.
Tape: SFC - 00 #60, Side A
Commissioner Poe noted that the 2% and 3% increase would not
take effect until six months after the first year. He
reiterated that the increase would be delayed for six months
and that the $1200 dollars would only be paid out in the
first year.
The Longevity Step, the new "G" step, was established for
employees that had been at step "F" for more than one year.
The costs were calculated, with a small number of employees
in that area. Commissioner Poe offered to provide that
information to the Committee.
Co-Chair Torgerson referenced the contract and asked what
the $50 dollar one-time payment was.
Commissioner Poe clarified that the $50 dollar one-time
payment was the $1200 dollar flat payment for a year broken
out by paid periods.
Co-Chair Torgerson asked if there was a cost associated with
the State-maintaining employees in the plan, if they were
terminated from the State workforce.
Ms. Elgee indicated that the employee would pay all the
costs associated with that plan.
Commissioner Poe stated that each bargaining unit has
certain employees that they attune to their specific needs.
Delaying the implementation of the base and pro-rating the
$1200 dollars, would provide a larger "bump" in later years
of employment. The Administration attempted to level the
longevity steps, making a 3.75% increase between each step.
DAVID KOIVUNIEMI, Special Assistant, Department of
Administration, corrected that some steps have a 3.4%
increase.
Co-Chair Parnell pointed out that the longest served
employees make almost 4.2% more than other employees over
the life of the contract.
Commissioner Poe agreed with that statement, stressing that
negotiating is a "give and take process".
Co-Chair Torgerson asked if some employee were being frozen
in specific step ranges so that they do not automatically
receive merit increases.
Commissioner Poe stated that in the longevity steps, the
employee would not receive a merit increase every year.
There are different time periods used to calculate longevity
increases. In the end, no more are received.
Ms. Elgee added that in the past, employees had been
"frozen" when other types of action have been taken. As a
result of the labor trade and crafts classification and with
the geographic differentials changed, portions of the State
that would be subject to substantially less money than they
currently receive, were frozen until they caught up on the
page scale. She reiterated that there are a variety of
circumstances in which an employee could be "frozen".
Co-Chair Parnell asked what would happen with the health
insurance plan in the new contract.
Commissioner Poe stated that the intent was to move labor
unions to an employee directed trust. The concern for GGU
was that they wanted the State to commit that there would be
$4 million dollars left in the reserve at the time that the
contracts were signed. That amount would allow them
official reserves enough to move to a trust and know that
they had a sufficient cushion to begin. He pointed out that
the Administration could not guarantee that there would be
$4 million dollars in that account. However, the
Administration agreed that there would be a sufficient
balance to move to a trust. The Administration wanted to
make sure that the State did not get "stuck" with all the
liability and no reserves for the health care plan.
The agreement at this time is that as soon as the
Administration knows that there is $4 million dollars
available, GGU will then be able to move to a health trust.
Co-Chair Parnell asked where the $4 million dollars would
come from.
Commissioner Poe advised that there are two reserves that
are watched. The first is that which is incurred but not
reported (IBR). The IBR is a reserve for claims existing
that are logically based on historic data. There is an
"additional cushion" or "claims fluctuations" reserves
resulting from unanticipated kinds of claims. He clarified
that it was not indented that these reserves would come from
the general fund.
Senator T. Kelly inquired the amount that would be remaining
for the other unions.
Commissioner Poe replied that would depend on what the claim
projections might be.
Ms. Elgee added that within the health trust, all the select
benefit people are pooled, as are the GGU employees. Those
employees have different premiums and different plan
designs.
Senator T. Kelly understood that three of the twelve unions
have gone to a trust system. He questioned if funds had
been transferred over to the other trusts.
Ms. Elgee explained what at the Administration had done for
the Labor, Trades and Crafts unit. She did not know what
had happened with the PSEA unit and offered to check out
that information.
Commissioner Poe interjected that the PSEA unit buys their
own health insurance.
Ms. Elgee stated that there were advantages to the
membership from a tax perspective in doing it that way,
which was one of the appeals for that unit.
Co-Chair Parnell asked if that trust had been front-loaded.
Ms. Elgee responded that the Labor, Trades and Crafts trust
was created in 1984 and at that point, most of the specifics
were settled through an arbitration agreement. That
agreement identified which portion of the reserves were
being maintained and belonged to them. It was then, that
portion of the reserves was moved into the trust. She
commented that the same scenario is being discussed and
considered by GGU.
In response to a request by Co-Chair Torgerson, Commissioner
Poe commented that the numbers were part of the health trust
and were used relative to the claims. He stipulated that
this was not separate claims or statutory authority.
Ms. Elgee pointed out that the health trust was located in
AS 39.
Senator Green asked when the change had been made to the
"self insured". She questioned if any of the bargaining
units were part of that population.
Ms. Elgee commented that the State went self insured in
July, 1997. At that point, the Labor, Trades and Crafts and
the PSEA unit already had trusts. Also, at that time,
correspondence teachers moved into the National Education
Association (NEA) trust environment.
Co-Chair Parnell asked how many were left in the self-
insured trust.
Ms. Elgee replied that there are over 4,000 employees
outside of GGU.
Commissioner Poe interjected that the largest category, GGU
was not included in select benefits.
In response to concerns voiced by Senator Green, Ms. Elgee
clarified that there would be no sharing of risk between the
various groups. All of the costs and all of the premiums
are accounted for separately as is the pricing.
Commissioner Poe stressed that health care costs are
increasing everywhere. GGU and the select benefits are
significant sides of the "pool". He noted that the risks
had been separately considered. The health trust provides
the opportunity for the units to make decisions for
themselves. In the end, it would reduce the cost of health
care. He summarized that theory had been proven throughout
the country.
Co-Chair Torgerson requested a breakdown of all the costs
associated with the agreements. That figure could allow the
Committee to consider total costs.
Co-Chair Parnell voiced appreciation to the Department and
advised that there would be additional hearings scheduled.
ADJOURNED
Co-Chair Parnell adjourned the meeting at 11:11 A.M.
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