HOUSE BILL NO. 485 "An Act amending the State Personnel Act to place in the exempt service pharmacists and physicians employed in the Department of Health and Social Services or in the Department of Corrections and corporate income tax forensic auditors employed by the division of the Department of Revenue principally responsible for the collection and enforcement of state taxes who specialize in apportionment analysis and tax shelters of multistate corporate taxpayers; and providing for an effective date." 3:00:53 PM JANET CLARKE, ASSISTANT COMMISSIONER, DIVISION OF FINANCE AND MANAGEMENT SERVICES, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, referred to Virginia Smiley to speak to a situation which generated the bill. 3:01:55 PM VIRGINIA SMILEY, DIRECTOR, DIVISION OF PIONEER HOMES gave an overview of the pharmacist duties in the Pioneer's Home. She gave the following overview of the pharmacy and pharmacist duties as follows:    "The six Pioneer Homes located in Ketchikan, Sitka, Juneau, Anchorage, Palmer and Fairbanks all rely on receiving medications for their residents from the Division's central pharmacy located in APH. Per state and federal law the pharmacy must be under the oversight of licensed pharmacists. We can and do use school of pharmacy interns and pharmacy assistants, but three pharmacists are necessary to supervise staff, dispense medications, comply with Medicare Part D and Medicaid documentation, and provide clinical consultation to physicians, residents, families, and staff. In the quarter ending Dec 31, 2005, the pharmacy packaged and dispensed 353,821 individual doses of medications. Dispensing that volume of medications requires a full staff present and working. We have almost a full year's history in first losing our pharmacists to jobs that pay much higher wages and then not being able to attract new pharmacists to apply for the vacant positions. The federal government is paying wages that are competitive with the private sector, and offering signing bonuses and forgiveness of student loans. Nationally, the same is true in the private sector, as shown by lucrative offers being made to pharmacists in recruitment letters and advertising in national publications. For eight months of last year we had a single pharmacist on our payroll. It was necessary for us to sign contracts with two temp agencies, and we were able to fill many, but not all, of the vacant shifts. We paid the contract agencies $70 hr for their pharmacists. At this critical point we finally placed the pharmacist PCN into a temporary higher paying category in order to recruit and hire more competitively. However, the Division of Personnel advised us we would have to seek a more permanent solution. That is why we are here today. The problem is that under the present wage scale for permanent pharmacist positions in the state system, we are not competitive with other employers. We are asking to have pharmacists moved into the exempt service with other professional classifications as it will provide the needed flexibility to be competitive in the marketplace. She noted that pharmacists dispensed an extremely high number of doses of medication, but that they were not able to attract or retain qualified pharmacists as compared with other states. She notes that during the following year, only one pharmacist was on contract, requiring them to hire temporary pharmacists at over double the salary paid to the contract employee." 3:04:19 PM Ms. Clarke noted that eight pharmacy positions existed in the Department of Health and Social Services: three at the Pioneer Home, two at API, two in Medicaid, and one in epidemiology and public health. She stated that those in these positions were required to provide high-level consultation services, meaning that risks were great if these positions were not filled. She noted that in the private sector, pharmacists were paid $55 to $65 per hour, or up to $70 per hour for temporary employees. She proposed that pharmacists belonged in the same exempt category as psychiatrists, medical examiners, etc. 3:06:36 PM LAURA LINK, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF CORRECTIONS expressed that her department experienced similar problems in recruiting and retaining qualified pharmacists. Responding to a question by Co-Chair Meyer, she stated that pharmacists maintained similar educational requirements as doctors. 3:08:26 PM JERRY BURNETT, DIRECTOR OF ADMINISTRATIVE SERVICES, DEPARTMENT OF REVENUE spoke to the second part of the bill, regarding corporate tax forensic auditors, moving them into the exempt category. ROBYNN WILSON, DIRECTOR OF TAX DIVISION, DEPARTMENT OF REVENUE explained the function of auditors for the State of Alaska. She discussed the method for determining the taxable income of large groups of companies. She noted the complexities involved in dealing with multi-state and worldwide companies that did business in Alaska, as well as the wide variety of taxpayers. She explained the goal of determining value of property, sales, vessels, etc. 3:11:03 PM Ms. Wilson noted her experience as an auditor hired by the State of Alaska 11 years ago. She explained that at that time, a number of their more experienced auditors came from the internal revenue service. She noted that public auditors made money by working long hours, as employees gained experience. She pointed out that at that time the state paid a wage competitive with the federal government. 3:12:18 PM Ms. Wilson then explained how circumstances had changed in several ways: 1) large public accounting firms had condensed, decreasing supply of employees; 2) the manner of business had changed, with a new focus on selling tax structures; 3) accounting rules had developed out of recent corporate upsets, increasing the wages for auditors in the private sector. She pointed out that the state of Alaska had maintained an even wage, while wages in the public and federal sectors had increased. She stated that in recent years, the number of state auditors decreased from ten to two, a number too small to complete the workload. 3:14:00 PM She noted that the department had tried several recruitment methods for auditors. She discussed methods seeking auditors from the University of Alaska that had as yet been unsuccessful, and noted that even if it had succeeded; they did not have the ability to train new auditors. She concluded that salary was the problem in recruitment, and proposed that the bill would help to attract experienced auditors by establishing three exempt positions that could compete with the private market. 3:15:43 PM Responding to a question by Co-Chair Meyer, Ms. Wilson noted the curiosity over whether new auditors might be needed in developing the new PPD tax. Responding to a further question, she noted that the educational requirements for auditors would include a Masters Degree or Certified Public Accountant certificate. Representative Joule asked for clarification on the exempt status. Mr. Burnett explained that an exempt position was not covered by the personnel rules adopted by the Personnel Board and not subject to the salary schedule of other employees, enabling salaries to be paid by a different method. Representative Joule asked whether exempt positions were only appointed, such as government officials. Mr. Burnett explained that certain positions in Department of Revenue were exempt, not due to political appointment, but rather to skills sets. 3:18:41 PM Representative Stoltze asked what aspect of the classification status solved the salary problems. Mr. Burnett clarified that the issue at hand was one of salary, and not classification. He noted that they were currently unable to pay beyond the classification limit of range. He stated that the department was not able to pay the level of salary expected by an experienced CPA, which could exceed $100 thousand. Responding to another question by Representative Stoltze, Ms. Wilson noted that a salary survey focused on the Level 3, revealed a large salary disparity at the higher level, higher than the disparity on levels 1 and 2. She explained that even moving an auditor up by one or two ranges could not provide a competitive salary within the market. She concluded that this was the reason for the need for a category. 3:21:30 PM Representative Kerttula commented that exempt employees were easier to terminate. She wondered if this would present a problem with the coming oil taxes. She asked whether it was possible to simply negotiate higher salaries in the collective bargaining process. Mr. Burnett conceded there might be some possibility of negotiating a higher salary within classified service. He pointed out that the terms of the negotiation would need to be approved by the legislature, which he proposed would be an inefficient method of hiring. Representative Kertulla commented that it might be worth that method considering the importance of the upcoming jobs. Representative Kelly asked if it was standard for these types of positions to be exempt in the private sector. Mr. Burnet clarified that the types of jobs in the private sector were structured differently. He surmised that auditors might not be terminated for political reasons. Representative Hawker noted his own experience during his tenure at the Legislature of auditors being terminated for political reasons. 3:24:26 PM JIM DUNCAN, BUSINESS MANAGER, ALASKA STATE EMPLOYEES ASSOCIATION testified. He concurred that both pharmacists and auditors were difficult to recruit and required a higher salary, but disagreed with creating an exempt position to solve the problem, pointing out that other types of positions were difficult to fill. He reminded the Committee that the merit system of employment was established by the Alaska State Constitution, with those elected or appointed being exempt from the system. He expressed concern over changing the system through this bill, and observed that the issue at hand was salary rates and not policy. 3:27:43 PM Mr. Duncan proposed that in exempt service there would be political pressure. He gave the example of an auditor being placed under pressure by a large corporation to slow an audit by means of the exempt system. He further pointed out that as the State considered changing its corporate tax structure, it might not be wise timing to move those in charge of collecting tax and auditing corporations into exempt status where they might be subjected to political pressure. He referred to recent occurrences in Department of Natural Resources. 3:28:51 PM Mr. Duncan commented that the classified system was not at issue, but rather the pay structure within the system. He reminded the Committee that the pay plan was mandatory, subject to bargaining, enabling the Administration to change the pay plan due to an inability to attract employees. He stated that he was currently composing a letter to the Administration proposing that ranges 28, 29 and 30 be added to the pay scale in order to solve the problem. He suggested that the classified service ought to afford the same salary as in exempt service. He encouraged the Administration to examine the ability for movement to other pay scales through internal/external comparisons and market based studies. 3:30:34 PM He suggested that currently they were comparing inappropriate job classes, and that other comparisons should be made to perhaps create a new job class family for these forensic auditors. Mr. Duncan stated that he did not believe the bill would serve the State's problems well and would erode the merit system. He addressed the issue of pharmacists, noting that federally funded positions were required to be subject to a merit based pay system, and asked how these requirements would be satisfied or if federal funding would be lost. 3:33:23 PM Mr. Duncan also noted that pharmacists' positions were established, and pointed out that our constitution prevented repairing a contract by passing a statute. He pointed out that the pharmacists were covered by the current collective bargaining agreement. He proposed that the statute would violate the contract provision. He stated that although the Union did not wish to enter into a debate, they would certainly demand enforcement of their current contract. 3:35:35 PM Mr. Duncan expressed his confusion over the description for the position of forensic tax auditor. He noted the theory that a description would be written after hiring the type of individual needed for the job and proposed that the process should work in a different manner. He stated his belief that a forensic tax auditor was a Revenue Auditor 4 and read from the description of that position: "work with multiple and complex accounting methods and systems, generate significant revenue from the collection of taxes, apply a wide diverse body of authorities dealing with apportionment issues, determine correct unitary group, apportionable income, be aware of state statute and federal regulations". He concluded that the new positions duplicated a position, which occurred within the classified service. He suggested that a new pay plan be discussed with the Union, and that a job description be developed, prior to a hiring process. In summary, he stated his belief that the proposed process was flawed, ignoring the mandatory bargaining agreement of the state and perhaps other representing unions. Mr. Duncan also surmised that the proposed legislation would place these revenue auditors at will and subject to pressures by those corporations they audit. He observed that while a new revenue system was being considered, they were also considering placing those overseeing the taxes in an "at will" position subject to political pressure. He urged care in considering this legislation. 3:38:49 PM Representative Hawker asked whether Mr. Duncan had discussed these issues with the Administration. Mr. Duncan stated that the Union had not been briefed in advance by the Administration, but that they now intended to follow up with discussion. In response to a follow up by Representative Hawker, Mr. Duncan expressed his belief in the possibility for productive discussion and the implementation of an improved pay plan. He emphasized that his proposal would not open the discussion of changing pay plans for other positions. 3:40:24 PM Representative Kelly asked if such a circumstance had occurred before. Mr. Duncan referred to a list of positions that had been added to the exempt service. He noted however that these jobs were formerly in commissions, for example the Mental Health Trust, when employees were actually laid off and then rehired into exempt service. He urged caution, since there were other jobs where pay scales were not adequate. Representative Kelly asked if the system proposed was flexible enough to allow for downward changes. Mr. Duncan responded that although the union would not advocate for lower pay, there had been determinations for positions to be classified downward in the past. 3:42:54 PM Clarifying an issue for Representative Kelly, Mr. Duncan commented that the pharmacist shortage had been solved on a temporary basis. Representative Kelly asked whether this would be a method to carry forward until the next round of bargaining to solve the current problem. Mr. Duncan conceded that this was possible. He pointed out, however, that since the proposed legislation would not take effect until July, and a new pay period could be in place by that time. 3:43:59 PM Co-Chair Meyer expressed the intention to HOLD the bill in Committee, and a desire to view Mr. Duncan's letter to the Administration. He suggested that there be a representative from the Administrative present at the next hearing of the bill. MILA COSGROVE, DIRECTOR, DIVISION OF PERSONNEL, DEPARTMENT OF ADMINISTRATION clarified that there were three types of employees: 1) Classified, fully subject to the merit system, including the classifications and pay plan; 2) Partially Exempt, not subject to all rules, but subject to classification and pay plan; and 3) Exempt, which were not subject to classification or pay plan, but still possibly subject to collective bargaining, such as employees of the Marine Highway System. 3:46:25 PM Ms. Cosgrove noted that while some exempt positions were "at will", such as Commissioners and high level policy makers, other exempt employees were held at a higher bar for dismissal from state service. She pointed out that these state employees were treated fairly and equitably with management rights and not easily dismissed. 3:47:26 PM Ms. Cosgrove also emphasized that wages for pharmacists and other such professionals were very volatile at the current time. She suggested that these wages were well beyond what could be negotiated under the current classification plan, which relies upon the concept of internal alignment. She explained that all job classes must bear some relationship to one another. She followed that revenue auditor positions would have to increase to remain in relation to the increased wages for top-level auditors. She also pointed out that the state was considering a market based pay plan, but stressed that internal alignment would still apply. She concluded that the market based pay plan would not solve the problem of pharmacists and auditors at the highest level. She expressed a desire to reply in more detail at the next meeting. 3:49:15 PM Co-Chair Meyer stated that HB 485 would be HELD in Committee for further consideration.