HB 71-NO ST. EMPLOYEE PAY INCREASE FOR 2 YRS    3:24:01 PM CHAIR KREISS-TOMKINS announced that the next 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." 3:24:18 PM The committee took a brief at-ease at 3:24 p.m. 3:24:59 PM CHAIR KREISS-TOMKINS referred to the forthcoming committee substitute (CS) for HB 71, [labeled 30-GH1018\O, Wayne, 2/28/18, and referred to as "Version O"]. 3:25:21 PM The committee took a brief at-ease at 3:25 p.m. 3:25:48 PM CHAIR KREISS-TOMKINS requested a synopsis of Version O from the Department of Administration (DOA) staff. 3:26:09 PM LESLIE RIDLE, Commissioner Designee, Department of Administration (DOA), commented that the changes to HB 71 resulted from collaboration between DOA and the House State Affairs Standing Committee. 3:26:43 PM KATE SHEEHAN, Director, Division of Personnel and Labor Relations (DPLR), Department of Administration (DOA), paraphrased from the document, entitled "CS HB 71 Explanation of Changes," included in the committee packet, which read as follows: Section 1: Modified from original bill. This section maintains that the Governor may waive a portion of his annual salary but no longer restricts the waiver during the period of July 1, 2017 through June 30, 2019. Section 2: New section. Removes language that temporary salary schedules do not affect salaries of employees in a bargaining unit represented by a labor union established under the Public Employment Relations Act and adds the term "pay period" to the title. Language that was removed is now found in section 3 of the bill. Section 3: New section. Allows the Director of the Division of Personnel to establish a two-week pay period for biweekly payment of a monthly salary. It sets forth the manner in which the Director shall determine the amount paid biweekly. Recognizes that this section does not apply to employees in a bargaining unit represented by a labor union established under the Public Employment Relations Act. MS. SHEEHAN added that currently the pay period is semi-monthly, and the hours are variable; under the biweekly pay period the hours would be consistent at 75 hours per every two weeks. She referred to Section 3(b)(1)-(5) [page 2, lines 8-19, of Version O] and explained that the five paragraphs in the section show the calculations for figuring the hourly, daily, and biweekly rates. 3:29:05 PM MS. SHEEHAN referred to Section 3(c) [page 2, lines 20-22] to point out the language removed from Section 2 and put into Section 3. It states that Section 3 would not apply to employees covered by collective bargaining agreements; their pay periods would be subject to negotiated bargaining agreements. MS. SHEEHAN referred to Section 4 [page 2, lines 23-27] and stated that it is a new section which clarifies that the proposed legislation would expressly modify pay provisions applicable to the governor. She explained that this is included because by statute, legislation is needed to expressly provide for the change in salary. MS. SHEEHAN relayed that Sections 5-7 address effective dates: Section 5 states that the governor's ability to waive some of his salary would be retroactive to January 1, 2018; Section 6 states that Sections 1, 4, and 5 would take effective immediately; and Section 7 states that Sections 2 and 3 would be effective July 1, 2018. 3:30:17 PM REPRESENTATIVE LEDOUX asked whether Section 1(b) of Version O [page 1, lines 6-8] has anything to do with the deductibility of charitable contributions under federal tax law. COMMISSIONER RIDLE asked for clarification of the question. REPRESENTATIVE LEDOUX explained that her question is: If the governor does not want to take part of his salary, why wouldn't he write a check back to the State of Alaska? Why is a law necessary unless he wished to take a charitable donation deduction for federal tax purposes? COMMISSIONER RIDLE answered that under Version O, the portion of salary that the governor does not receive would not be considered a charitable donation for tax purposes; the intent of Version O is to preclude the governor from paying federal tax on money he will not receive. She said that if the governor writes a check back to the state, it would be necessary for him to pay taxes on it, because it would be paid salary. She opined that she doubts that the money could be considered a charitable donation. REPRESENTATIVE LEDOUX relayed that she wanted to clarify that the proposed legislation was regarding federal tax law. CHAIR KREISS-TOMKINS restated that the governor would be liable for paying tax on his entire salary even if he writes a check back to the state for the portion of the salary he does not choose to take. COMMISSIONER RIDLE responded, that's correct. Under Version O, he would accept the smaller amount and not have to write a check back to the state for the balance and, therefore, not be required to pay taxes on salary he did not receive. 3:32:51 PM REPRESENTATIVE BIRCH asked, "What happened to the bill I actually kind of liked which had to do with ... freezes for unrepresented employees?" He maintained that the original version of HB 71 would have accomplished that. He stated that he attempted to make a motion on the House floor to enact the cost savings that would have been realized by a freeze, and this version represents a significant change from the original version. REPRESENTATIVE BIRCH asked whether his interpretation of Version O is correct: the governor wants to avoid being taxed on his income, and Version O would permit the employer - the state - to waive that portion of his salary as income. COMMISSIONER RIDLE replied that Version O was not introduced because the governor does not want to pay taxes; the dates have been removed so that the provision could apply to any governor. Version O would remove the necessity to pay taxes on money that the governor is not keeping; if the governor receives the salary then returns it, he would have to pay taxes on it. REPRESENTATIVE BIRCH asserted that he finds it ironic that an administration that has been working to impose income taxes on working Alaskans is advancing legislation that would permit the governor of that administration to avoid federal income taxes on his pay. He said that most people who want to make charitable donations, receive the pay, then write a check to their church or charity of choice. He maintained that if the governor chooses to redirect his compensation to a charity of his choice - the State of Alaska or any other - he is permitted to do that currently. He expressed his dissatisfaction with the changes in HB 71, which was intended to freeze salaries to unrepresented state employees, and now is a federal tax avoidance measure for the governor. COMMISSIONER RIDLE answered that the original version of HB 71 had the same provision for the governor's salary as does Version O; the only difference is the elimination of dates restricting the waiver to a certain period. She maintained that the governor is not trying to avoid paying income tax, but rather does not want to take a full salary. He or any governor who wishes to take advantage of this provision, will pay income tax on all the salary he/she receives. The intent is for the governor to be able to reduce his/her salary. COMMISSIONER RIDLE conceded that the portion of HB 71, which called for pay freezes for state employees, was removed from the proposed legislation. She maintained that DOA has not been successful in negotiating such a provision with any of the bargaining units. She added that even with that elimination, Version O retains the provision addressing the governor reducing his/her salary and adds the new section - transitioning to biweekly pay - which is something that the unions and employees have requested for quite some time. It is a more efficient system for payroll. 3:37:07 PM REPRESENTATIVE BIRCH stated that he agrees with the provision simplifying payroll; however, he expressed that he is deeply disappointed that the proposed legislation does not retain the provision on pay freezes. He maintained that his constituents and the public support restrictions on spending and new state government hires. 3:37:47 PM REPRESENTATIVE WOOL restated that Version O allows the governor to not take a paycheck and not pay taxes on money not received. COMMISSIONER RIDLE confirmed that the governor's end-of-year Internal Revenue Service (IRS) Form W2 would reflect the amount of salary that he takes. REPRESENTATIVE WOOL continued by saying that Version O changes payroll to every other Friday, rather than the first and fifteenth of the month. He asked for confirmation that to retain the pay freezes in the original version of HB 71, DOA and the bargaining units would have to come to an agreement. COMMISSIONER RIDLE explained that the original version of HB 71 only applied to unrepresented employees; for anyone under contract, the provision would have to be negotiated; and DOA has attempted to do that. 3:39:08 PM REPRESENTATIVE JOHNSON asked whether there was any reason for not offering that option [reduced salary] to any state employee - not just the governor. She suggested that there are other reasons a person might want to take advantage of the provision, such as to avoid being in a higher tax bracket. COMMISSIONER RIDLE replied that she is not sure it could be offered to every class of employee because of federal law. She maintained that the governor is in a different category in state statute than other employees. She offered to pose that possibility to DOA's attorney. 3:40:00 PM CHAIR KREISS-TOMKINS agreed that adding other classifications to the proposed legislation may be logical. COMMISSIONER RIDLE offered to find out and reiterated that federal law may interfere with that possibility. 3:40:48 PM REPRESENTATIVE WOOL referred to a proposal by the governor that if "something didn't happen by a certain day," the governor would forego his pay and the legislature would as well. He asked hypothetically: If the legislators' pay was suspended after day 120 of the legislative session for failure to pass a budget, would they be liable for federal tax on the salary they were not receiving if they are not included in the HB 71 waiver. COMMISSIONER RIDLE offered that the governor's proposal [HB 283 and SB 141] only applied to per diem, and legislators are not currently taxed on per diem. REPRESENTATIVE WOOL expressed his understanding that different proposals were introduced. He suggested that if there was legislation resulting in a reduction to legislators' pay for some reason, they would be liable for federal tax, unless a provision such as in Version O was in place to include them. 3:42:40 PM REPRESENTATIVE JOHNSON suggested that possibly he was referring to a bill she introduced eliminating per diem after 90 days [of the legislative session]; however, per diem does not get taxed. 3:43:11 PM REPRESENTATIVE LEDOUX moved to adopt the CS for HB 71, Version 30-GH1018\O, Wayne, 2/28/18, as the working document. REPRESENTATIVE BIRCH objected. A roll call vote was taken. Representatives Wool, LeDoux, and Kreiss-Tomkins voted in favor of adopting the CS for HB 71. Representatives Birch and Johnson voted against it. Therefore, Version O was adopted as a work draft by a vote of 3-2.