Legislature(2003 - 2004)
04/11/2003 09:03 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ 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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