HOUSE BILL NO. 195 "An Act relating to the compensation, allowances, geographic differentials in pay, and leave of certain public officials, officers, and employees not covered by collective bargaining agreements; relating to certain petroleum engineers and petroleum geologists employed by the Department of Natural Resources; relating to increased pay for certain partially exempt employees of the state in specific circumstances; making conforming amendments; and providing for an effective date." 8:06:19 AM BECKY HULTBERG, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, explained that the legislation implemented the provisions negotiated through bargaining agreements with the general government and supervisor's unit and applied them to the non-covered service. The change would provide the department consistency with the cost of living, a reduction of leave accrual, a cap on leave amount and decreases on the pay increment. Regarding the pay increment, she noted that employees above an "F" step would receive a raise of 3.75 percent every other year. The reduction in the pay increment decreased the state's long term legacy costs. Commissioner Hultberg noted several provisions in the bill that enhanced the department ability to recruit and retain high-quality skilled professionals. Finally, the bill would provide implementation of the geographic pay differential for one of the last phases of remaining employees. The geographic pay study was provided in 2008 and the terms were implemented in all collective bargaining agreements, when applicable. 8:07:58 AM CURTIS THAYER, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION, provided a sectional analysis. He noted that the new leave accrual rates were addressed in sections one through four. 8:08:49 AM AT EASE 8:12:17 AM RECONVENED Mr. Thayer presented his sectional analysis with the PowerPoint presentation titled "Alaska Department of Administration Overview of HB 195 and SB 95" (copy on file). Mr. Thayer began with slide 2: "What are HB 195 and SB 95 About?" · Consistency with cost of living, reduction of leave accrual, cap on leave amount and decreases in the pay increment · Enhance ability to recruit and retain highly-skilled professionals · Implementation of Geographical Pay Differential for last phase of remaining employees Mr. Thayer continued with slide 3: "Overview of the Bill Sections." · Section 1-4: Leave Accrual and Cap · Section 5: Petroleum Engineers/Geologists · Section 6-8: Cost of Living Increases · Section 9: Pay Increments · Section 10: Partially-Exempt Salaries · Section 11-14: Geographic Pay Differentials Representative Costello asked if the bill addressed the ability of the employee to transfer leave. Mr. Thayer replied that employees with over 1000 hours would be grandfathered in. The new cap applied to employees with less than 1000 hours. The estimate for cashing-out leave for employees who had accrued greater than 1000 hours in the fiscal note was approximately $40 million. Co-Chair Stoltze suggested that the pain would be delayed for future budgets. 8:14:45 AM Representative Costello asked if an employee could transfer leave to another employee. Mr. Thayer replied in the affirmative. Co-Chair Stoltze asked how the leave was valued among different pay ranges. NICKI NEAL, DIRECTOR, DIVISION OF PERSONNEL, DEPARTMENT OF ADMINISTRATION, responded that the value of the leave donor was converted to the value of the recipient. Representative Costello asked if an employee could exceed the cap set in the bill. Ms. Neal stated that the donated leave was treated differently, and was not subject to the cap. Co-Chair Stoltze explained that legislators did not accrue leave. 8:16:29 AM Co-Chair Austerman asked about slide 4 and the statement that "employees with a balance that exceeds 400 hours as of 12/16/2013 are exempt from the maximum accrual limit until such time as his/her balance equals 400 hours or less." He asked if employees with more than 400 hours would be strategically ratcheted down. Ms. Neal replied that the employees with over 400 hours would be required to use 112.5 hours per year. The hope was that the balance would be decreased by the mandate, although some employees would be grandfathered in. 8:17:55 AM Mr. Thayer discussed slide 5: "Petroleum Engineers/Geologists." · Removes exclusion of positions in Division of Geological and Geophysical Surveys (DGGS) · Only 1 position - DGGS, Energy Section Manager (currently SU Geologist V) - vacant since March 17, 2012. o Position requires complete understanding of petroleum systems analysis and exploration that is obtained primarily through industry experience o Industry salaries are approximately 50 percent higher than current authorized salary (data from Assoc of Petroleum Geologists 2011 Survey) o Two national searches failed - No qualified applicants after 45 days of recruitment and advertising in national trade publications · Amendment applicable to DNR, DGGS only 8:18:59 AM Mr. Thayer detailed slide 6: "Cost of Living Increases." Sections 6-8 · Effective 7/1/13 - 1 percent · Effective 7/1/14 - 1 percent · Effective 7/1/15 - 2.5 percent · Consistent with terms of recently negotiated collective bargaining agreements · Applies to noncovered classified and partially exempt (PX) and many exempt employees of the executive branch, employees of the legislature (AS 24.10.011 and AS 24.10.210), and the judicial branch 8:19:32 AM Mr. Thayer discussed slide 7: "Pay Increments." Section 9 · Effective 7/1/15 the percentage between pay increments (J and above) will decrease from 3.75 percent to 3.25 percent · Consistent with terms of recently negotiated collective bargaining agreements · Applies to noncovered classified and PX employees - also applies to many exempt employees through polity · Applies to legislative branch if a policy has been adopted (AS 39.27.011(j)) 8:19:59 AM Mr. Thayer discussed slide 8: "Partially Exempt Salaries." Section 10 · Partially Exempt (PX) positions are subject to classification and pay plans which limits flexibility · State often not competitive for top talent - need some flexibility for mission critical positions · Governor or designee on case-by-case basis: o serves critical governmental interest of state o employee possesses exceptional qualifications o recruitment difficulties exist; or o necessary to compete with labor market · Applies to executive branch Partially Exempt (PX) employees only 8:21:03 AM Representative Costello asked about an employee's range and step when initially hired by the state. Mr. Thayer replied that the state was permitted to hire an A through F step, but the governor was allowed, on a case- by-case basis, to go beyond the F step for an exceptional candidate, or when recruitment difficulties were faced. Representative Kawasaki asked about how frequently the partially-exempt salaries were used. He asked if the legislature would review the issue. Mr. Thayer replied that he had faced two instances addressing partially-exempt salaries in the last 18 months. The tool allowed for ease when hiring an attractive candidate for a difficult position. 8:22:31 AM Representative Gara wondered about section 3 and the use of 10 days of personal leave. He asked if a person was in a specialty position and was seen as indispensable, would they be allowed to take time off. Mr. Thayer replied that provisions existed to waive the mandatory usage with permission of the director or immediate supervisor. Representative Gara asked if a person was not able to use the leave, would they lose it. Mr. Thayer replied that a person would not lose the leave if they had written permission. He clarified that if the supervisor stated that they were not eligible to use the leave then the waiver for mandatory usage would be employed. 8:24:17 AM Co-Chair Austerman asked how many state employees were in the 10 year service. Mr. Thayer replied that during negotiations the supervisory unit (SU) displayed 1100 employees with over 1000 hours. He noted that SU had one third of their 8200 employees with more than 1000 hours. Only four legislative employees had over 1000 hours. The 1000 hour cap was negotiated with the unions as a break-even point. 8:26:01 AM Mr. Thayer discussed slide 9 "Geographical Pay Differentials." He noted that a report was produced by the McDowell Group in Fall of 2008. The report was completed in 2009 and addressed geographical pay differentials. The group used South Central Anchorage as the base and implemented the geographical differential for other unions. Anchorage was shown at zero percent above the base, while Fairbanks was at 3, Juneau and Sitka at 5, and rural Alaska would extend from 37 to 60 percent. He stated that the executive branch saw 483 employees receive an increase, 122 with frozen pay, and 727 without change. For the legislative branch, 145 employees would see an increase, 24 with frozen pay, and 204 without change. 8:27:32 AM Representative Kawasaki recalled that the 2008 McDowell study was controversial for Fairbanks, as it omitted the cost component for energy. He asked when the survey would be updated. Mr. Thayer replied that the department planned to have the study done every five years pending an appropriation from the legislature. Representative Kawasaki asked about the potential absence of an appropriation from the legislature. Mr. Thayer replied that the study would be maintained until the department had an updated survey. Co-Chair Stoltze explained that money would not be spent unless appropriated by the legislature. Representative Gara stated that OCS found it difficult to attract social workers to Bethel. He asked how the 50 percent salary adjustment for Bethel compared to the present figures. Ms. Neal replied that the geographical differential for Bethel was approximately 29.12 percent. 8:29:12 AM Representative Edgmon asked why Nome would be categorized in the 37 percent above-base category. Mr. Thayer replied that he would contact the McDowell group for an answer. He stated that the study included information about housing, utilities, food and transportation. He assumed that home prices affected the percentage for Nome. Representative Edgmon stated that the price of fuel in Dillingham was much higher than that in Nome. He noted that the cost of fuel was a significant piece of the rural communities' cost of living. 8:30:32 AM Co-Chair Stoltze understood that a lack of action on the proposed legislation might lead to a detrimental fiscal impact for the state. He requested elaboration on the issue of accrued leave. Mr. Thayer replied that the value of leave was a key point in union negotiations. He stated the total leave value was $164 million for all state employees. He stated that 10 employees with the greatest leave balances had approximately 35 thousand hours of leave banked. The department sought to find a cap for the leave to temper the liability. He stated that the bill would cut the liability by more than two thirds. He stated that the department worked with the unions to decrease the leave accruals. Mr. Thayer noted that the paid time off incorporated an employee's sick leave. He pointed out that the 1000 hours represented approximately six months' worth of leave. He admitted that the leave amount was negotiated by the unions. He stated that the union's leave was valued at the union's current earnings. He noted that Alaska was the only state in the nation lacking a cap on leave. 8:34:25 AM Co-Chair Stoltze noted that a new type of unfunded liability might result if the cap was not instituted. Mr. Thayer agreed. He pointed out that the Department of Administration (DOA) requested money from various departments to pay for cashed-in leave. The hope was that the caps combined with employee retirements would lead to a decrease in the state's liability. Co-Chair Stoltze asked if a senior engineer with the Department of Transportation and Public Facilities (DOT/PF) with a large amount of leave would compromise the state's ability to hire social workers at lower entry levels. Mr. Thayer agreed that some employees had banked up to 4000 hours of leave. He added that DOA must better explain options other than banking leave, such as deferred compensation, since the cashed-in leave presented a tax liability for the employee. 8:36:46 AM Representative Gara asked if a person who had accrued large amounts of leave must relinquish it. Co-Chair Stoltze noted that the bill was without retroactive provisions. Representative Gara understood that an employee accrued approximately 5 weeks of leave per year. Mr. Thayer replied that accrual rates would remain the same. He clarified that the state did not have sick leave. He stated that the cap applied to those employees with less than 1000 hours of leave. The mandatory usage applied to all employees upon passage of the legislation. Representative Gara asked how much leave a new employee would earn in three years. Mr. Thayer moved to slide 4 and noted that the new scale allowed for a slight reduction in leave. 8:39:22 AM Representative Costello asked about the overall fiscal impact of the bill. Mr. Thayer offered to provide the calculations for the committee. Co-Chair Stoltze requested categorization of the potential savings or mitigated losses. Mr. Thayer replied that calculation were compiled for one of the unions, and finding showed that leave owed to employees with more than 1000 hours was $1.6 million. With the 1000 hour cap, the liability would be $400 thousand. 8:41:28 AM Representative Costello appreciated the department's offer to educate employees. Mr. Thayer replied that the proposed education would benefit both the state and the employee. Representative Kawasaki asked about section 10 and partially-exempt salaries. He wondered if a person might try to negotiate directly with the governor under this term. Mr. Thayer replied that the department would attempt to attract people into state service for a particular position. Only when a commissioner or director had a difficult time filling a position, would they go to the governor's office to ask for such a variance. The process to achieve the variance would be long and rigorous. 8:43:45 AM Representative Kawasaki asked about section 5 and DGGS. He recalled that one position was more difficult to fill. He asked if every DGGS Geologist 4 would encounter the same challenges upon vacancy. Mr. Thayer replied that the need was applicable to only one position. Vice-Chair Neuman asked about section 10 and the issues of employee retire-rehire. He asked if an employee must provide written proof that another applicant was not capable of performing the tasks in the job. Ms. Neal stated that the retire-rehire program sunset two years ago. If position recruitment were present, the employee could reenter a position and waive the retirement contribution. 8:45:44 AM Representative Edgmon MOVED Amendment 1. He stated that the conceptual amendment would bring judges and justices into the bill with a cap of $100 thousand. The change would affect 23 positions throughout the state. He understood that current law allowed judges and justices a geographical pay differential, which was limited to $7 thousand. Co-Chair Stoltze requested a written amendment. Representative Edgmon apologized that the written amendment was not in the hands of committee members. 8:47:56 AM AT EASE 8:48:34 AM RECONVENED HB 195 was HEARD and HELD in committee for further consideration.