HOUSE BILL NO. 545 "An Act relating to the cost-of-living differential for certain public employees residing in the state and the criteria for determining eligibility for the differential; and providing for an effective date." PAT GULLUFSEN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW noted that HB 545 was introduced by the Administration in order to clarify the definition of residency for Cost of Living Differentials (COLD) for Alaska Marine Highway employees. He observed that HB 545 adopts the permanent fund dividend definition of resident for purposes of the COLD. The definition was altered by the insertion of "temporarily" as requested by the Administration. The House State Affairs Committee also deleted from the temporarily allowable allowances exemptions for serving in Congress or the Peace Corps. He noted that HB 545 clarifies that the criteria is not subject to bargaining under the Public Employees Retirement Act (PERA). The legislation also gives the Commissioner of Administration the authority to clarify and implement the criteria by regulation. He noted that this is similar to the authority of the Commissioner of the Department of Revenue in relation to the permanent fund dividend. Mr. Gullufsen noted that the Department of Administration has proposed an amendment, Amendment 1 (copy on file). The 2 amendment would set the differential rate by statute. The rate is currently subject to negotiation. The rate would be set based on a recent study of COLD by the Division of Personnel. The Director of Personnel would have the authority to adjust the rate according to studies demonstrating the cost of living in Alaskan communities and Bellingham, Washington. Adjustments would be subject to annual legislative review. Co-Chair Hanley stressed that the intent is to clarify in statute that the criteria for residency will not be negotiable. MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION referred to a two page chronological listing of COLD events (copy on file). He noted that COLD was implemented in 1980 and became active in 1982. He observed that PERA directed that the State have a cost of living differential. It does not specify the amount or criteria of the differential. He emphasized that the dispute over COLD payments began in 1989. Historically the amount of the COLD and the criteria for qualification have been settled through negotiation. He maintained that COLD is part of the negotiation package. He observed that it was initiated to entice out-of-state employees to come to Alaska for residency. The original amount was 22.5 percent which was the same as the federal cost of living allowance at the time. He maintained that the real cost of living differential between Seattle and Southeastern communities are negligible and should be reviewed. Commissioner Boyer observed that the Administration has asked that COLD criteria be placed in statute. He emphasized that contracts that do not contain the criteria could be reopened if the legislation is enacted to deal with COLD criteria. If this fails the criteria will be in place the next time the contracts are negotiated. Co-Chair Hanley summarized that the two contracts currently before the Legislature for ratification would not be affected. Commissioner Boyer noted that the Marine Engineer's Beneficial Association (MEBA) will be under negotiation in the fall. In response to comments by Representative Martin, Commissioner Boyer emphasized that the problem was not created by the current Administration. He stressed that there are a number of programs that require residency. Mr. Gullufsen stated that the court has not recognized a definite set of criteria under the COLD statute. He observed that COLD statutes, AS 23.42.10, states "for 3 employees residing in the state of Alaska. He noted that there are statutes for establishing residency for voting purposes. Mr. Gullufsen noted that an arbitrator determined that time spent working on a vessel in Alaskan waters can be counted toward residency. He stressed that the legislation proposes language that would clarify that the criteria will be the same as the State has always thought was the criteria. He stated that if the legislation is enacted the State will argue that the criteria applies now to everybody except MEBA which has other agreed to criteria. He clarified that the MEBA agreement would apply permanent fund dividend regulations. Commissioner Boyer noted that the problem began when COLD was initiated. Administrations since 1989 have recognized the need to set criteria through regulation. He reviewed events outlined on Attachment 1. He summarized that there was not adequate criteria. Co-Chair Hanley noted that the current Administration could have adopted regulations. He added that discussions were held on this issue during the 3/20/96, House Finance Committee meeting. Commissioner Boyer recounted negotiations during the previous year. Co-Chair Hanley asked for copies of arbitrator's decisions. Discussion occurred regarding the responsibility of the Administration and Legislature in regards to the failure to implement criteria. Representative Mulder asked if the legislation would result in a uniform, consistent COLD format. Commissioner Boyer clarified that the legislation only applies to the marine units. Commissioner Boyer reiterated that Amendment 1 would take COLD criteria outside of the bargaining process. Representative Mulder expressed support for Amendment 1. Co-Chair Hanley asked if Amendment 1 would be consistent with other legislation. Commissioner Boyer stated that it would be consistent with other legislation. Co-Chair Hanley summarized that the legislation would provide that new contracts would not be negotiated. The criteria and rates set by the legislation would be enacted and become statute. Commissioner Boyer added that the rates would be reviewed every five years after a study is 4 completed. In response to a question by Co-Chair Hanley, Commissioner Boyer explained that IBU members tie ships off. Employees at ferry terminals are GGU and SSU members. The person who ties up the ships receives a COLD of 18 to 22 percent. On shore personnel receive a fraction of this amount. Mr. Gullufsen observed that the State was told that COLD criteria needed to be bargained in order to be applied. Under PERA disputes must go to an arbitrator. The State has challenged the arbitrator's ruling in court. He emphasized that accept where the State has set down to permissively negotiate criteria the State has the authority as a public employer to propagate criteria without negotiation. Co-Chair Hanley asked if there is a penalty section in the legislation. Mr. Gullufsen explained that there are no specific penalty provisions in the statute. He emphasized that employees can be dismissed and required to return COLD payments that they should not have received. He stated that criminal prosecution is possible if false physical evidence is given. Co-Chair Hanley stated that there should be some penalty specifically associated with false resident claims. Mr. Gullufsen stated that there is a criminal penalty provision stated on the form. (Tape Change, HFC 96-135, Side 2) Representative Martin asked if the same penalties for falsifying permanent fund dividend applications could apply. Mr. Gullufsen did not think the same penalties could apply unless they were included in the legislation. He stated that it would not complicate or harm things to have specific criminal provision with regards to false claims of residency for COLD purposes. In response to a question by Representative Martin, Mr. Gullufsen stated that it would be difficult to impose on the union the responsibility to report the true residence of their members. Commissioner Boyer pointed out that employees sign a form to certify their Alaskan residency. He noted that the new form will embrace the criteria. All members of MEBA will have to recertify under the new criteria. The Alaska Marine Highway system will submit the forms to the Permanent Fund Dividend Division. Representative Mulder MOVED to adopt Amendment 1. There being NO OBJECTION, it was so ordered. Commissioner Boyer noted that the rates included in Amendment 1 reflect the 5 1994, Runzheimer study. The study recommended a 14 percent differential for Ketchikan and a 7 percent differential for Kodiak. These were adjusted in Amendment 1. Co-Chair Hanley summarized that the rates if enacted would be adopted for any new contracts until a new study is completed. The Director of Personnel would implement new rates by regulations after the next study is completed. The regulations would be subject to legislative review. Commissioner Boyer clarified that the bench mark should be Bellingham since operations were moved there from Seattle. He emphasized that rates will be subject to legislative input. Representative Brown observed that the amendment would state that there is no difference in the cost of living in Juneau or Anchorage and Bellingham, Washington. Commissioner Boyer noted that the Runzheimer study contained an error range of -3.5 - +3.5. Commissioner Boyer reiterated that the Legislature can change or modify rates placed by regulations. There being NO OBJECTION, Amendment 1 was adopted. Co-Chair Foster MOVED to report CSHB 545 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSHB 545 (FIN) was reported out of Committee with a "do pass" recommendation and with three zero fiscal notes by the Department of Administration, the Department of Revenue, and the Department of Transportation and Public Facilities, all dated 3/22/96.