HB 74 SALARIES FOR CERTAIN STATE OFFICIALS Number 0433 CHAIR JAMES announced HB 74, "An Act relating to salary caps and to the power to transfer certain positions to the classified service and entitlement to longevity increments for certain state officials," is before the committee and that she didn't plan on moving it out of committee today. REPRESENTATIVE KERTTULA stated that she had a conflict with this piece of legislation, because her husband, her sister, and her cousin all work for the State of Alaska and could be affected. REPRESENTATIVE SMALLEY objected. REPRESENTATIVE OGAN said, "Please consider this bill, not as an end, but as a beginning in making the necessary reductions to our new fiscal reality. You have in your packets a comparison of the governor's budget and the legislature's from 1996 through 1999. Also provided is a summary by Pam Varni from Legislative Affairs outlining the very responsible consistent reforms the legislative branch of the government has taken to respond to public demands for a leaner more efficient government. Please take time to review it. It is an excellent model for the Administration to use as an example of how to do more with less." REPRESENTATIVE OGAN continued, "Also in your packet is a fiscal note that shows a savings of at least $3 million in salaries in certain partially-exempt, and exempt persons within the Administration were capped at a range 21, step F. I fully expect the Administration to raise arguments of the people who supervise, now being paid less than those they direct. This bill is not unique in that regard. In fact there are many employees who not only make more than directors, or commissioners; they make more than the Governor does. Perhaps someone in the Administration could tell the committee how many employees in our state have a high salary higher than the Governor's. I expect the Administration to show us the list of some 32 legislative employees who are not capped at 21-F." Number 0468 REPRESENTATIVE OGAN said, "I recognize that these employees, with a high degree of education credentials or responsibility, should be offered more in wages. In HB 74 I have intentionally provided a section for similar exemptions for the Administration. And we're open to expanding that list and I think a good example of that is something I read in the newspaper about a gentleman who has to be a doctor, whose a director of a division, and certainly that would be a rational exemption. I also expect to hear the argument that qualified people will not work for salaries that are too low." REPRESENTATIVE OGAN continued, "The expertise argument fails on at least two counts. First, many of these political positions are political. If expertise and institutional knowledge were important there would not be a huge turnover in these positions. ... With each administration that comes in a lot of people that had these positions were removed, not because they were doing a poor job, but simply they were in the wrong party. And that is, of course, the prerogative of the Governor, because they serve in his pleasure. If these positions were advertised at a 21-F, as the legislature currently offers, the Administration would undoubtedly find many applicants, especially during this downturn period. I think there are at least 600 people that were laid off a week or two ago from one of the major oil companies and I imagine a lot of those guys would be good managers. They might have the wrong letter behind their name, but they would be good managers." Number 0493 REPRESENTATIVE OGAN continued, "For example, our new Commissioner, Ed Flanagan, has taken, as have other administrator's in the past, pay cuts when he was promoted. In Mr. Flanagan's case it has been reported the cut would be about $3,000 a year as he goes from deputy commissioner to commissioner. Perhaps the Administration could give other examples of cuts for promotions." REPRESENTATIVE OGAN said, "I have also heard comments about the recent wage and benefit study showing top-level ranges being within the standards of the private sector. Madam Chair, could this be the same study, which was criticized just few short weeks ago by the same Administration as being politically motivated and not accurate? Let's take a look at the executive summary of the study. On page 2, if you have it in your packet, the executive summary shows": The costs of benefits for state employees are substantially higher than the survey participants. Now I think the study shows that the high level of exempt employees, their salary compensation is fairly consistent. But it also says the state contributions toward medical is 31 percent higher than the private sector. The state contributions toward SBS (Supplemental Benefits System) and PERS (Public Employees' Retirement System) is 25 percent higher and paid time off benefits for state employees is 48 percent higher than the average surveyed participant. REPRESENTATIVE OGAN further stated, "The question of whether or not a person takes a professional position needs to be asked, not on salary alone, but on the entire package available. And we haven't even addressed in those figures the travel, and we've got some information in there on what the travel of a lot these people are and the airline miles. Now I know, I'm consistently taken to task, as a legislator, for my high salary, and my opponents always point out what the total package for the cost of me being a legislator, which includes my office account, any travel that I do, my moving expenses, and those. And they all say well you max x-amount of dollars per year. And if we look at it critically with that point of view, some of these folks are pushing $200 thousand." Number 0528 REPRESENTATIVE OGAN said, "The committee needs to know what the total typical benefit package is worth for a range 28, step F position. I respectfully ask the chair to request that information. This is a political business, not a corporate performance driven entity. Many of the positions in this bill are political appointees, first and foremost. I do not mean to suggest that credentials are not necessary, but experts of the wrong political persuasion are simply not hired for these positions. In other words, expertise is not always the primary hiring criteria." Number 0535 REPRESENTATIVE OGAN continued, "This Administration contains at least 30 persons who once worked for the legislature. Just like our staff, they once traveled to Juneau twice yearly without reimbursement, they managed two residences, worked long hours and received no travel budget or area pay differential. And I would suggest Madam Chair that we have some pretty fine employees around here who are pretty highly qualified. And actually I know some employees who are pretty highly educated. .... With a few exceptions these employees are all capped at range 21-F. Why were these professionals originally attracted to the legislative jobs? Were they any less talented or ambitious when they held positions here? The point is, we have similarly qualified professionals working with vastly different compensation packages." REPRESENTATIVE OGAN added, "As members look at these financial notes, please also consider all the benefits and additional perks. The Legislative Budget and Audit Committee examined the travel of deputy commissioners and directors and we have that handout. Please note the costs to the state with airline miles being accumulated as additional personal benefits to all who travel. We don't address that in the bill, but I would just like to state for the record that if everyone in the state was willing to give up their airline miles as a perk, I would certainly be willing to go along with that and as we build up our accounts - be able to credit those for our state travel. What's good for the goose is good for the gander." REPRESENTATIVE OGAN asked, "Can we afford to make further legislative cuts and leave the Administration whole? Should we eliminate positions rather than reduce salaries? Should we reduce benefits and leave salaries and positions alone?" Number 0564 REPRESENTATIVE OGAN followed, "I do not have the final answer. I do know the governor has asked the private sector; our constituents to sacrifice and cut their budget. As the Governor himself has emphasized we are all going to have to make some adjustments. I have asked the persons affected by this bill, many I know very well, to please suggest their ideas for responding to our revenue shortfalls. I am asking them to step up, as they support their governor who is asking the public to pay taxes." REPRESENTATIVE OGAN closed, urging the committee to use this bill as a place to find facts, to ask hard questions, to encourage solutions and not controversy. Let it be a beginning point for those, who the public looks to for leadership, to do so by example. He said, "As we discover positions, which should be exempt, we may add them into the section in the bill established for that purpose. After all that has been examined, and if we find adjustments to the caps in this bill are fair and necessary, I am prepared to discuss those changes." REPRESENTATIVE HUDSON asked Representative Ogan if his concept takes into consideration the level of responsibility in the pay structure. REPRESENTATIVE OGAN replied, "Yes sir, I think (indisc.--a teleconference network glitch) as far as the responsibility with the governor, and many directors, and many deputy commissioners, and even commissioners are paid more than the governor. And many directors are paid more than commissioners." Number 0579 REPRESENTATIVE HUDSON said he believes that is a wrong comparison. For example, director of the Alaska Marine Highway, is responsible for one of the largest passenger liners in America, which entails managing 700 personnel, a fleet of ships, and all of the politics and rigors of the schedule. REPRESENTATIVE OGAN mentioned that he has taken into consideration, there being certain exemptions, as stated in a section of the bill on page 2, line 4. Some people have a certain level of responsibility that the committee may wish to give deference to. There is something wrong with the system when people that have the ultimate responsibility are paid less than the people under them. Number 0627 REPRESENTATIVE KERTTULA asked whether or not there was going to be a geographic differential, for example are people in Nome going to get paid the same as people in Juneau. REPRESENTATIVE OGAN said that's correct and urged the Administration to use the legislature as an example. REPRESENTATIVE KERTTULA mentioned some of the legislative staff don't work year-round. REPRESENTATIVE OGAN stated the legislative staff does work year-round. CHAIR JAMES clarified that some employees work year-round and some don't. REPRESENTATIVE KERTTULA referred to Section 4. She said it wouldn't allow for any pay increments for the deputies. They could never get a pay increase once they came in that would be as it is drafted. REPRESENTATIVE OGAN replied that's correct. If they're at their maximum pay range, that's the maximum they could get. REPRESENTATIVE KERTTULA asked, "Was it your intention to never allow a pay raise, though, because that appears to be how it's written right now?" REPRESENTATIVE OGAN replied that would be correct. Number 0647 CHAIR JAMES asked, "We're talking about political appointees, not people that are hired for long periods of time. We're talking about political appointees in this case aren't we? ... Political appointees not people that are hired through the hiring process ... in collective bargaining and those kinds of things?" REPRESENTATIVE OGAN replied, "That's correct Madam Chair. It's simply political appointees and it's pretty well defined I believe and they'd be held at the same standard as our legislative employees because they are essentially political employees. I mean we hire them at our will and they serve at our pleasure." REPRESENTATIVE HUDSON said, "We are talking about deputy commissioners, assistant commissioners, and directors. I guess the problem that I have is that we have many people down beneath the directors and the commissioners who are already up in range 22 to 24 -- and the high salary grades because they've been around for many years. My concern is that, and while I accept the prime sponsor of the bill as a point to start from and to really start thinking seriously about how we can reduce are cost of government, we have collective bargaining, we have responsibilities and they're almost contractual responsibilities. I think we'd have to really look seriously at whether or not we don't have to go back; if we're going to take care of the division director are we going to then be forced to go back in and take care of everybody else that would earn a higher salary, because they've been there longer or because they have earned it and they're collectively bargained for a particular position." CHAIR JAMES stated, "This is my seventh year here. And I've been concerned about the parameters in which we hire legislative staff. ... They are more restrictive I believe than the Administration. But for legislative staff there is the number movement. If you started at a 21 and ... the next year you get a merit increase. But if you get to 21-F you're at the top and you can't go any further. Some of these folks that have been hired at 21 already are at 21-F because they have been working elsewhere in the State ... and are qualified for a higher appointed amount. It's very difficult to compare ... with other employees, where legislative employees are hired for seven days a week, 24-hours a day ... with no overtime." People that are not from Juneau have to pay their own way and we're not having a shortage of finding people who want to work. It is like comparing "apples and oranges" when people are hired to work for the Administration, and when people are hired to work for the legislature." TAPE 99-2, SIDE A [Approximately three minutes of testimony was lost due to recorder malfunction]. Number 0001 REPRESENTATIVE OGAN said that what spurred this legislation was a discussion with some high-level executives of the oil companies attending the Alliance Conference. One of the oil companies said that their executive budget has been cut by 50 percent. They have profit-driven programs as opposed to constitutionally mandated programs, which is different, but the reality is that they are on the same fiscal stream. He said that he has yet to see any cuts on the upper echelon of the bureaucracy. The legislature has made a lot of cut backs, but the upper levels need to be made to reorganize. Number 0056 TOM BOUTIN mentioned he has lived in Alaska since 1973 and has lived in Juneau since 1983. He said supports HB 74 and that he believes the government needs to move toward solving its fiscal problems, before asking the private sector to help. He said, "State government took its oil money and bulked up and now it has to adjust to reduce circumstances, that happens in the private sector very often. Alaskans have a government that was built by oil. Now a process needs to take place to determine how much government we can have without oil. This bill brings an important stakeholder, the executive branch management and professionals into that process and certainly gets everyone's attention. I think the legislature needs to do that and it needs to be done very soon. Before coming here today I talked with people who currently have state government positions that could be directly impacted if HB 74 became law. I think if you polled state employees the majority might favor this bill over alternatives. I would not be surprised if those who would have their salaries reduced by this bill would favor this level of pay roll reduction over a state income tax." MR. BOUTIN continued, "One person pointed out that salary cuts that might result from HB 74 would be before tax and therefore the real impact on take home pay would be better. I hope everyone could agree that state payroll reductions would certainly would be more efficient than new taxes and have a much smaller impact on the Alaska economy. It will be interesting to what the fiscal notes say; none were available when I checked yesterday." MR. BOUTIN said, "Like many people in Alaska that I know - I've worked for both the private sector and government. In working for the government, I worked first for the Alaska Department of Revenue and then for the Department of Natural Resources. The positions were in the professional service and therefore exempt or partially exempt. The Department of Revenue job was paying about $73 thousand a year; when I took the job at the Department of Natural Resources that job paid $83 thousand a year. Public service should not pay as much as the private sector. I have never worked for a private sector firm which gave any where near as much paid vacation, any where near the 13 paid holidays, nor the other benefits, such as not having to pay social security and having the Supplemental Benefits System, the additional Public Employee Retirement System and a Deferred Compensation Plan." MR. BOUTIN continued, "I have to tell you it was an eye-opener for me to see people not only take sick leave when they were ill - something I never encountered in the private sector, and also take sick leave when family members were ill. Most importantly of all, all of my private sector jobs had a normal work week of six, ten-hour days including my first job in Alaska, which was a logging engineer position at 'Ketchikan Pulp'. So, as far as I know, professional positions, and that is what HB 74 impacts, continue to be six tens in the private sector. The private sector manager has to turn a dollar into jobs, costumer satisfaction, and at least a dollar ten or a dollar and a quarter. Productivity is measured and managers either earn their keep or they show them the door." Number 0127 MR. BOUTIN said, "The type of budget cut proposed by HB 74 is not unreasonable given the budget cuts that need to come. Hardly a week goes by that some large lower 48 private sector firm doesn't announce major payroll cut backs. Now Alaska government has to cut back; it's unfortunate, but it's not unhealthy. It would be unhealthy to not first reduce the costs of government. I think that cutting the Alaska government payroll must take place, and beginning at the higher echelons is good process and good management." MR. BOUTIN continued, "The rank and file should be much more willing to understand the other changes that need to come if a professional staff has first had to tighten its belt. If General Motors had just lost all sales of the Cadillac, Oldsmobile, Buick and Pontiac divisions, cutting the pay of top executives and grounding the corporate jet fleet would be a meaningful symbol and an important preliminary step to solving the problem. I think symbolism is important in managing; I think that bringing every part of an organization into the solution is good process. Sometimes government people like to talk about the public as their customers; I think that before you go to your customers to try to raise prices, you need to reduce your own costs. HB 74 is a small, but an important step." MR. BOUTIN further stated, "State government is spending at least $3 million more than it is taking in each day, about $7 thousand per minute based on a 7.5-hour day, therefore, I'm expecting many measures like HB 74 to be enacted. I think that the private sector is expecting measures like this to be implemented before any discussion of new taxes, I know I am. I keep reading in the newspapers that this budget situation needs to be explained to the public; the thinking seems to be that a person who works 30-hours a week at K-Mart and 30-hours a week at Costco, with no benefits, would say fine to an income tax if only she understood how much state revenues have diminished. I think it's curious that no one is first trying to bring the 21 thousand state employees into the process." MR. BOUTIN said, "HB 74 goes a long way toward doing that, a good beginning. I also think the public would take notice if it were quickly enacted. For several years now the Alaska legislature has shown leadership, taken the heat. HB 74 demonstrates the sort-of leadership that is needed right now." Number 0174 MR. BOUTIN concluded, "The final point I want to make is that in my experience, legislative staffers work very hard compared to Administration personnel. Of course there are hard working people in every administration, but I'd be quite surprised if anyone does not believe that legislative staffers work harder. The key point is that every legislative staffer works hard, by hard worker I'm talking about people who come in early and work late, always working against deadlines, always producing. The Administration's managers can spend a lot of time traveling, going to meetings, churning, going to the Anchorage Board Room any Friday night, yet you call their offices on Saturdays and most of those people aren't at work; they don't work Sundays either. After a while you come to realize they do not intend to make up the work they missed when they were traveling and sitting in meetings. If the top pay of a legislative staffer is going to be used as a benchmark for government workers, then I don't think that any government pay level should exceed what the legislature pays even if oil goes back to $25. Please move this bill on behalf of the legislative staff that will be on this floor working this Saturday, and for the woman who works 30-hours a week at Costco and 30-hours a week at K-Mart just to make ends meet." Number 0203 ALISON ELGEE, Deputy Commissioner, Department of Administration, said that she is here on behalf of the Administration to oppose HB 74. The concern is one that Representative Hudson has already expressed. That is qualifications are very important for these positions, but the underlying responsibility is really the benchmark against which we determine our compensation policy. When you look at the responsibilities of the director level people, and the Alaska Marine Highway example is a good one, where the management responsibility includes management of several millions of dollars and several hundred employees on a year-round basis. It is difficult to compare that job with that of a staff assistant to the legislature. We need to be competitive not only internally to state government, but also externally to attract good qualified people to take these positions. She mentioned the Department of Administration prepared the attached fiscal note. MS. ELGEE explained, "There are a couple of points that I would like to make on the benefit analysis that was raised by Representative Ogan. He picked three specific areas of benefits that the study showed were higher than their comparables that they used in conducting that study. The overall benefit package, they said, was only 7 percent higher than the comparables. When you take apart the pieces, the retirement and benefits are identical to every public sector employee in the state of Alaska - be it a state employee or a municipal employee. And, that is also recorded by their 'KPMG' study, the retirement and benefits are identical. The health benefits are I think overstated in their comparisons, because they have compared a number of employees from outside of the state of Alaska that participate in managed care plan environments which we do not have available to use in this state." MS. ELGEE further stated, "When you look at a comparison that is a direct conventional plan comparison to the state of Alaska's costs, on the employer side our costs are running from zero to 8 percent higher. On the employee contribution side, our employees contribute as much as 50 percent higher than the comparables that are used in that study. And when you look at the paid time off benefits, you end up with a distorted comparison because what 'KPMG' did was take the number of days off, convert it to dollars, and then run it against a base level comparison where the dollars that you're starting with are substantially different. If it is look at it on a day-by-day basis, the people that we have working for state government in an annual and sick leave environment do have more paid days off than their comparables in the study. But the majority of our employees are in a personal leave environment and those employees actually receive less paid time off than the comparables that were cited." REPRESENTATIVE OGAN asked if Ms. Elgee would be affected by the passage of HB 74. MS. ELGEE replied yes. REPRESENTATIVE OGAN asked why didn't the Administration send a commissioner that does not have a conflict to testify on this. MS. ELGEE replied that the time demands on the staff varied and she agreed to do it. REPRESENTATIVE OGAN asked, "Is it the position of the Administration that they take no cuts in salary or benefits?" MS. ELGEE said she felt it's inappropriate to say that the Administration is unwilling to consider any kind of reduction, but they feel this approach is a wrong approach in terms of just taking across the board action that ignores the level of responsibility of the people that we're asking to perform these duties. REPRESENTATIVE OGAN asked Ms. Elgee if the Administration is willing to come up with some alternatives, with some changes. MS. ELGEE replied that she was not in a position to make that commitment, but would discuss that with the Administration. Number 0287 REPRESENTATIVE KERTTULA asked Ms. Elgee is she was the person who normally would come before a committee to discuss salaries and employment. MS. ELGEE responded yes, as Deputy Commissioner of Administration, this is one of her responsibilities. Number 0293 REPRESENTATIVE KERTTULA stated for the records, "For exempt employees, such as this bill would affect, they don't receive any overtime pay for any of the extra hours that they work. Is that right?" MS. ELGEE replied, "The employees that would be impacted by this bill, that is correct. There is no overtime compensation." REPRESENTATIVE HUDSON asked what percentage of our reduction would this represent - approximately. MS. ELGEE replied there is no one percentage reduction, because you're impacting people in the commissioner's offices that are anywhere from a range 23 to a 28. You're impacting directors that are at a range 26 but in a variety of incremental steps. So, the percentage reduction would be different for each employee. REPRESENTATIVE HUDSON asked if it would be 15 percent, 20 percent, 25 percent. MS. ELGEE said she would provide that information. Number 0310 REPRESENTATIVE HUDSON referred to the fiscal note saying that it provides for a cost savings of about $3.1 million. He said he presumed that was made according to the specific position and step that these affected members have at the present time. He said that he believes the actual fiscal note would be many, many, many, millions of dollars for this reason that you do not reduce the salary of the boss without going down through the scales and reducing the salaries of everybody that works for the boss. CHAIR JAMES stated legislative staff is paid more than the legislator at a range 10. REPRESENTATIVE OGAN gave the governor's and his chief of staff's salary. CHAIR JAMES explained there's a lot of unfairness out there. She said in her first job that she took was with the Department of Motor Vehicles and she made $166 a month, which included vacation time and holidays. By the time she paid the babysitter, she couldn't work for $166 a month so she went to work in the private sector and made $1.26 per hour or approximately $2600 a year. The private sector provided her with all the same benefits as the state and more pay. She said the reason she says this is, at that time, in 1950s, is people said that - especially women going back to work after their families are gone, they could go to work for the state, because you didn't have to have any special skills. So people would go to work for the state for the benefits and assumed that they would be making less money in their paycheck than what they earned in the private section, that's the choice they made. Over the years that has turned around, where working for the state, or any kind of government, provides more pay plus great benefits. Now, state jobs are much more sought after than private sector jobs. Number 0392 DON ETHERIDGE District, Local 71, appeared before the committee. He stated, "None of our folks are effected by this bill directly, but indirectly they all will be. And, I too, when I started with state government was making a whole lot less than the private sector, but we've worked to get it up, comparable. During pipeline days, the state jobs weren't that well paid and the industry went skyrocketing and ours held pretty much level. Now it's going the other way, they took a big cut, our private sector folks, but our state folks have been able to hold the line. One of our major concerns if we start cutting state salaries then everybody else is going to start losing also. And that's a major concern out there because we don't need another 86 (1986) here, because there's too many houses that were walked away from - and giving the keys back to the banks and so forth." MR. ETHERIDGE further stated, "First of all, I believe that all of you deserve higher pay, I would do what you guys go through for the pay you get and I don't know why you do. ... In response also to the comment made that every time the Administration changes, directors change, I know that's not true, I worked under a director of the 'Highways Department' [Department of Highways] that was there for over 20 years. He stayed on and on, through not only different administrations but a different party - taking over the Administration and he just kept right on going. And, if you get some of these directors that get entrenched in there and they can't afford to get rid of them because they know too much to do that. I think that we need to protect these folks that are making the decisions. When we're talking to people that are out spending our state dollars, I want somebody that's qualified out there to spend our state dollars. ... I want somebody that's got the responsibility and will stay there and has an incentive to stay there and do the job." MR. ETHERIDGE continued, "When I worked for 'Marine Highways', I made more money than the director. I made more money than the governor did at certain times, but I also worked an excess of 1,000 hours a year of overtime in those years in order to do it because we were so shorthanded we couldn't afford to hire help to give me the break - which I would loved to have had. When you look out there, there's many instances where the people are going to make more money because of the hours they have to put in." MR. ETHERIDGE further stated, "The comment of one of the gentlemen testifying earlier, that you don't find directors and commissioners in the offices on weekends, I've got news for him. I find lots of them in here. I spend a lot of time in my office over the weekends, especially when you guys are in session, and I have no problem getting a hold of those people. I know that when you dial the phone numbers for their switchboards, there is nobody at the switchboards to answer them, but if you have the direct number to their offices, you can get those folks, because they are there. I spend a lot of time on the phone with them over the weekends. I even call them at home at night, or whatever I have to do, if I've got an issue that I need to work on - they are available. I've never had one yet tell me, no matter what time of day or night I call him, that he isn't going to talk to me." Number 0456 MR. ETHERIDGE said, "I believe that you're going backwards in the idea of equality here. Instead of trying downgrade the folks that are doing these jobs, I believe the staff for the legislators - they're underpaid, they're overworked, they put in so many more hours than should be called for, but they deserve more and I'll be the first one to stand here and argue it. If we could organize them and bring them up - I'd love for the chance to do that. But you guys don't let us do that for some reason. I also see a lot of staffers here that are using this as a stepping-stone. ... And, I would hate to see anything taken away from them - just to bring them down to somebody else's level. I don't believe that's the fair way to do this." Number 0476 REPRESENTATIVE OGAN asked Mr. Etheridge, "Is it your position that there shouldn't be any salary reductions at all -- of the pain of this budget shortfall should be more on the backs of the taxpayers?" MR. ETHERIDGE replied, "Yes, I believe that everybody in the state should have to foot the bill of running the government. I see that right now were talking of cutting public employees, commissioners, and all these folks, wages on the facts that - well, we got less oil dollars. People are getting laid off in the industry. The pay cuts in the industry, and so forth. The state does not go up when the product price goes up. State salaries don't do that. We have to negotiate the prices to get them up and we have to work at them to get them up. The oil industry, when the prices go up, their executive get raises. ... But, our public employees - they've got the same job every day and they're doing more with less out there every day." [HJR 7 and HB 74 were heard and held].