HB 71-NO ST. EMPLOYEE PAY INCREASE FOR 2 YRS  3:05:24 PM CHAIR KREISS-TOMKINS announced that the first order of business would be HOUSE BILL NO. 71, "An Act relating to compensation, merit increases, and pay increments for certain public officials, officers, and employees not covered by collective bargaining agreements; and providing for an effective date." 3:06:30 PM SHELDON FISHER, Commissioner, Department of Administration (DOA), presented HB 71 on behalf of the House Rules Standing Committee, sponsor, by request of the governor. Mr. Fisher used a PowerPoint presentation, titled "Salary Freeze for Nonunion Employees," for his presentation. He referred to Slide 1, titled "What Does the Bill do?" and relayed that the governor's budget included a pay freeze for employees not covered by collective bargaining agreements. He noted that the governor also requested the Department of Administration (DOA) to negotiate similar language [as in HB 71] with each of the bargaining units, as agreements come up for negotiation. He maintained HB 71 was introduced to respond to the state's fiscal challenges. He stated that the governor expressed that it was appropriate to freeze the automatic employee salary increases for a period of time, considering he has asked citizens of the state to accept a reduced permanent fund distribution. The proposed legislation freezes the Cost of Living Allowance (COLA) for the nonunion employee group, and he added that no COLAs have been given in the current administration. The proposed legislation also freezes merit increase pay increments and any bonuses. He stated that HB 71 would reduce the governor's salary by one-third. He explained that the governor could gift a portion of his salary back to the state treasury but would have to pay taxes on the full salary. Through HB 71, the governor would avoid paying taxes on the amount he returns to the treasury. 3:08:51 PM MR. FISHER, in response to Representative Wool's request for clarification, reiterated that the governor would receive a reduced salary and would only pay taxes on the reduced amount. He said that absent HB 71, the governor would be forced to receive and pay taxes on the full amount, then return some portion. REPRESENTATIVE JOHNSON asked if the "net" would be the same. MR. FISHER responded, "The net could be orchestrated to be the same," but the governor wished to reduce his salary by a third, and if he wants his take-home pay to be the same, it would have to be "something less than a third," and he doesn't feel he should be paying the federal government taxes on some amount of money that he is not receiving. REPRESENTATIVE TUCK asked, "What is the governor's salary?" MR. FISHER answered he believed it to be $150,000 per year. REPRESENTATIVE BIRCH asked if HB 71 would affect future governors. MR. FISHER responded that HB 71 would sunset in two years; therefore, it would not last beyond the governor's term of office. MR. FISHER continued his presentation with Slide 2, titled "Who Does the Bill Include?" He said HB 71 would include employees not covered by a collective bargaining agreements in the executive branch, and employees of boards, commissions, and authorities. He added that it would include employees in the legislative branch, employees at the University of Alaska not covered by collective bargaining agreements, the governor, lieutenant governor, department heads, and legislators. He stated that it would not include the court system, citing the separation of powers as the reason. MR. FISHER turned to Slide 3, titled "Why is the Bill Needed?" and offered that merit pay and pay increments are included in statute; therefore, DOA does not have the flexibility to implement the freezes absent legislation. He said, as well, that these freezes were part of the governor's budget package and are intended to address the [fiscal] shortfalls the state is facing. MR. FISHER concluded with Slide 4, titled "Estimated Savings," and said that HB 71 would affect approximately 5,000 state employees, or 23 percent of the workforce, and over the two-year period save about $4.2 million. 3:12:46 PM REPRESENTATIVE LEDOUX asked why including the courts was a separation of powers issue, but including the legislature was not. MR. FISHER explained that HB 71, if enacted, would be a law that was adopted by the legislature and signed by the governor; therefore, both the legislative and executive branches would have accepted the legislation. Since the court system is outside this process, he said, the legal view is that it would be an impermissible intrusion into their operations to include them in the legislation. REPRESENTATIVE LEDOUX asked Mr. Fisher if he was saying that the legislature has no say in employee compensation for the court system. MR. FISHER said that since the legislature is the appropriating body, appropriating the court system's budget is subject to its discretion. He said he believed that under the separation of powers, there are limitations on the extent to which the legislature and governor can collectively work together to manage or dictate salaries in the court system. REPRESENTATIVE LEDOUX asked, "If you chose not to freeze the merit increases, would there be anything that would keep you from simply changing the range[s] of people?" She cited that the legislature capped the salary of legislative staff to a range 22, with a few exceptions, in the Twenty-Ninth Alaska State Legislature, 2015-2016. 3:16:09 PM BILL MILLS, Assistant Attorney General, Department of Law (DOL), said that by statute, the State of Alaska does have a salary cap, and the ranges are determined by the salary schedule that is established by the legislature. The administration determines what jobs fit into what ranges through classification analyses. He said, "Just saying we want to save money and we'll change a range, I'm not really sure if that's something that the executive could do." He reiterated that a statute does establish the salary ranges. REPRESENTATIVE LEDOUX asked, "So nobody who's ever been ... at a range 23 has ever gone to a range 22 or a range 21?" MR. FISHER responded he is sure that has happened, but offered his understanding that what Mr. Mills is saying is that in cases where it has happened, it is consistent with the merit principles, such as, the job function changed. He stated what he believed to be the real question: "Could there be a wholesale direction to reduce salaries or cap and would that be consistent with the merit principle established in the constitution?" He added, "That would be the analysis that we'd have to think more seriously about." 3:19:40 PM REPRESENTATIVE KNOPP stated he had a serious level of discomfort with HB 71. He opined there were serious inequalities: House staff at ranges 23 and 24 have been moved down to range 22; Senate staff ranges have not been lowered; and some departments have negotiated wages with no step and COLA increases. He asked if the 5,000 employees that would be affected by HB 71 include those across the university system and all departments. MR. FISHER responded yes, the 5,000 employees that would be affected are in the executive branch, the legislature, the other corporations, and the university, but the court system would not be included. REPRESENTATIVE KNOPP identified other inequalities: teachers, represented by bargaining units, would continue to receive COLA and merit increases, but under HB 71, university teachers would not. He offered, "This is not a bad concept, but the problem is it's not shared equally ...." He mentioned that the administration has discussed negotiating freezes in future collective bargaining agreements, but he opined that there are no guarantees. He asked if the House could enact that there would be no negotiated merit or COLA increases in the collective bargaining agreements for two years. MR. FISHER said DOA negotiates about one-third of the collective bargaining agreements each year. He said that any change takes a number of years to be adopted across the spectrum of bargaining units. He opined, "It's important to start somewhere and ... it's not unreasonable to start with our uncovered employees, as the governor has proposed." He stated his belief that the legislature could dictate, by statute, prohibiting DOA from negotiating increases. He added that DOA brings all of the collective bargaining agreements to the legislature for its approval. 3:23:41 PM REPRESENTATIVE WOOL queried why fiscal year 2019 (FY 19) savings were less than those of FY 18 [as shown on Slide 4.] MR. FISHER said the reason was that pay increments are awarded every year but merit increments every other year. REPRESENTATIVE WOOL requested clarification that HB 71 would result in a freeze and not range reductions, as mentioned by Representative LeDoux. MR. FISHER responded yes, under HB 71, there would be a freeze of their salaries. REPRESENTATIVE WOOL asked if other groups of state employees have been subject to a salary freeze since the current fiscal crisis began. MR. FISHER answered no, this is the first salary freeze that DOA has introduced. REPRESENTATIVE WOOL asked if the group of employees referred to in HB 71 was the only group not subject to collective bargaining. He also asked if other state employees, such as teachers and university professors, are under collective bargaining agreements; therefore, imposing a salary freeze on them would be harder. MR. FISHER said yes, the majority of state employees are subject to collective bargaining; therefore, DOA has been instructed by the governor to negotiate a comparable freeze as collective bargaining agreements are up for re-negotiation. 3:26:07 PM REPRESENTATIVE BIRCH said that if 5,000 employees represent 23 percent of the total employment population, then the total employee population would be about 21,700. He went on to say that if a salary freeze for 23 percent of employees would yield $4.2 million in savings, then a freeze applied to all employees would save an amount approaching $20 million. He urged DOA to negotiate a salary freeze for all of the labor contracts. He asked if the eleven collective bargaining agreements have all been negotiated, or if they are coming up for negotiation. MR. FISHER answered that DOA is currently in negotiations with the Public Safety Employees Association (PSEA), the three Alaska Marine Highway bargaining units, the Alaska Vocational Technical Center Teachers' Association (AVTECTA), and the Teacher Education Association of Mt. Edgecumbe (TEAME). He said there will be more agreements negotiated next year. 3:27:25 PM REPRESENTATIVE TUCK asked how the court system's wages and benefits are determined. MR. FISHER responded that the court system adopts its own rules and policies for wages and benefits. REPRESENTATIVE TUCK asked if the rules and policies were set by regulation. MR. FISHER said he didn't know and would provide the committee with information as to whether it is through a handbook or a formal regulatory process. REPRESENTATIVE TUCK cited Article XII, Section 6, of the Alaska State Constitution and read, "The legislature shall establish a system under which the merit principle will govern the employment of persons by the State." He stated, "The question I have is the definition of merit." He offered that if employees are not under a collective bargaining agreement, then merit means a salary could "go up or go down." He asked, "How is it that you wouldn't be able to do that already based on the constitution?" MR. FISHER stated his understanding that the question was: "Could we freeze people at a particular level?" He brought up an example of a highly skilled doctor whose range 29 salary is frozen at a range 20, which is comparable to someone with much less education and skill. He said the question implied by the clause Representative Tuck read is: "Are we being consistent with the merit principle if we treat those two people at a range 20 and don't acknowledge the additional education, skill, and capabilities of that doctor, in this example?" Mr. Fisher relayed that he is not denying that DOA could do what Representative Tuck suggested but reiterated Mr. Mills's point regarding a more sophisticated analysis to determine if the merit principle is being followed. REPRESENTATIVE TUCK offered that the legislature would have to look to case law definition on merit principle. He acknowledged the separation between the legislative branch and the executive branch. He asked since the legislature oversees the budget for all three branches, why under the merit system general provision court system employees would be excluded, when the constitution says "will govern the employment of persons by the State." MR. FISHER gave an example to explain the basic principle of separation of powers as it related to the court. He asked the committee to imagine a scenario where the legislature did not like the opinions that were being issued by the Alaska Supreme Court and concluded that Alaska Supreme Court justices should be paid a dollar per year. He said even though the legislature has appropriated ample money to the court system, the court system still needs to have flexibility to manage its own affairs in order to remain independent of the legislative and executive branches. He added that the court system has aggressively managed costs, including reduced salary and hours. REPRESENTATIVE TUCK conceded that a similar situation has occurred between the executive and legislative branches, wherein the legislature, not liking a governor's appointment, tried to "zero out" the appointee's position control number (PCN). He wondered aloud how the separation can be made between the judicial and legislative branches but not between the executive and legislative branches. 3:34:04 PM REPRESENTATIVE JOHNSON asked what portions of HB 71, in regard to salary freezes and salary reduction, are already under the governor's control. MR. FISHER answered that the governor cannot institute a salary freeze without proposed legislation. REPRESENTATIVE JOHNSON asked if the governor could accomplish what is proposed in HB 71 internally, because the merit pay can go "up or down." MR. FISHER responded that the merit pay is a defined amount based on employee performance, and there is no discretion as currently structured. 3:36:14 PM REPRESENTATIVE LEDOUX referred to Mr. Fisher's example about the Alaska Supreme Court justices and expressed her belief that judges' salaries are constitutionally guaranteed for the time of their service. MR. FISHER repeated the basic principle of separation of powers, as it relates to HB 71. If passed, HB 71 would be adopted by the legislature and signed by the executive branch; therefore, application of HB 71 to those two branches of government is appropriate and doesn't offend the separation of powers principle in the constitution. He added that to extend the statute to include the court system would be viewed as troublesome, because the court system is not part of the legislative process and has no way to protect itself. [HB 71 was held over.]