HOUSE BILL NO. 176 "An Act eliminating geographic pay differentials for employees of the legislature; repealing state employee salary schedule increases; and providing for an effective date." 9:03:53 AM JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON, explained that HB 176 repealed state employee salary schedule increase, the Cost of Living Adjustment (COLA), of 2.5 percent that was scheduled to go into effect on July 1, 2015. Representative Guttenberg asked if work draft, version E, was the version that the committee should be looking at. Ms. Pierson responded in the affirmative. 9:05:07 AM Co-Chair Thompson OPENED public testimony. Co-Chair Thompson CLOSED public testimony. Co-Chair Thompson indicated Representative Gara had joined the meeting. Representative Guttenberg remarked that although the bill was simple, it represented a significant step that the legislature was taking. He asked about the history of the state honoring its labor contracts. He wanted to understand both the short-term and long-term consequences for the administration and the bargaining units. He did not feel there had been enough discussion on the matter. 9:07:28 AM SKIFF LOBAUGH, HUMAN RESOURCES MANAGER, LEGISLATIVE AFFAIRS, reported that the proposed legislation repealed the 2.5 percent COLA for exempt employees. He worked on the fiscal note for the bill but deferred to Ms. Sheehan, the director of the Division of Personnel from the Department of Administration. He explained that the executive branch had the largest number of exempt employees and thought it would be better for her to speak to the bill. KATE SHEEHAN, DIVISION DIRECTOR, DIVISION OF PERSONNEL AND LABOR RELATIONS, DEPARTMENT OF ADMINISTRATION, detailed that the bill applied only to partially exempt, exempt, legislative, and court employees. She added that the bill did not pertain to employees represented by collective bargaining agreements. In the executive branch there were approximately 636 exempt and 682 partially exempt employees. Representative Guttenberg wondered if the bill was an effort by the legislature to organize partially exempt and exempt employees. He did not feel anyone was speaking on behalf of the combined group of employees. He felt that it was the legislature's job to consider what pressure was being placed on the economy and who would be impacted most. He expressed his concerns regarding the long list of actions that were being taken by the legislature. He noted that the fiscal note represented approximately $5.8 million. Representative Gara wanted to confirm that a three-year statute was being discussed. Employees were given an increase of 1 percent two years prior, an increase of 1 percent the previous year, and an increase of 2.5 percent scheduled for the current year. He asked if the legislation would revoke the 2.5 percent increase. Ms. Sheehan responded affirmatively that it was the third year. Representative Gara asked if his numbers were accurate. Ms. Sheehan answered, "Yes, they are correct." Representative Gara stressed that the problem he had with the legislation was that the state offered a three-year deal in which the first two years the employees received raises that fell below the inflation rate leaving them behind cost of living increases. In the third year the promise was to provide employees with a better raise. The increases in salary averaged over three years remained behind the rise in the cost of living. If circumstances were reversed he would be more supportive of the bill. The legislature was proposing to take the most valuable increase away from state employees after two years of austerity. He had a problem with the bill without further discussion. Representative Munoz asked if the bill addressed the geographical differentials. Co-Chair Thompson responded that the bill did not address cost differentials. Representative Munoz asked if it just applied to the third year of the contract. Co-Chair Thompson responded that it was just the third year of the COLA increase. 9:11:03 AM Vice-Chair Saddler suggested that three years prior when the contracts were negotiated the state's oil revenue was significantly higher than at present. Before the meeting he read in the paper that Alaska's current oil revenue was lower than when the pipeline first opened. He contended that either jobs would be cut or salaries would be held steady after two years of increases. It could be argued that it was a cut because it did not keep up with inflation but the legislation would hold people's salaries steady and insure job security. It was not a pleasant thing to have to impose, but he believed it was respectful of everyone to try to keep them employed. Representative Gara remarked that there were additional choices aside from cutting jobs. He suggested that over the following two years the state would be giving out over $500 million to the oil industry in tax credits, more than the state would receive in production taxes. Co-Chair Thompson interjected that the current discussion was not about oil taxes. Representative Gara asserted that there were additional options to consider and that he could not be supportive of the bill. He opined that there were smarter options available. Co-Chair Neuman MOVED to REPORT CSHB 176(FIN) out of committee with individual recommendations and the accompanying fiscal notes. Representative Guttenberg OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Gattis, Pruitt, Saddler, Wilson, Neuman, Thompson OPPOSED: Guttenberg, Munoz, Edgmon, Gara The MOTION PASSED (6/4). There being NO further OBJECTION, CSHB 176(FIN) was REPORTED out of committee with a "no recommendation" recommendation and with three new fiscal impact notes from the Alaska Judicial System, the Governor, and the Legislature. 9:14:03 AM AT EASE 9:18:11 AM RECONVEYNED Co-Chair Thompson mentioned that he had forgotten to recognize Representative Pruitt earlier in the meeting.