HB 71-NO ST. EMPLOYEE PAY INCREASE FOR 2 YRS  3:52:54 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." [Before the committee was Version O.] 3:53:43 PM CHAIR KREISS-TOMKINS opened public testimony on HB 71. After first determining no one wished to testify, Chair Kreiss-Tomkins closed public testimony on HB 71. 3:54:07 PM REPRESENTATIVE BIRCH echoed his comments from the prior hearing on HB 71, noting he was disappointed to see the wage freeze component removed from the bill. He recalled that when the provision was placed in the bill and a floor amendment was subsequently pulled. He assumed that since the language was no longer in the bill that a floor amendment could be considered during operating budget deliberations. 3:54:58 PM The committee took a brief at-ease. 3:55:50 PM REPRESENTATIVE KNOPP asked for clarification on what the bill does. He did not have any issue with the pay dates proposed; however, he was unsure of the goal of the bill. 3:56:30 PM CHAIR KREISS-TOMKINS related his understanding that currently if a governor wanted to donate a portion of his/her salary, the governor would receive the salary and be taxed for the full amount. This bill would give the governor an option to waive a portion of the salary and not be taxed for the entire salary. REPRESENTATIVE KNOPP asked whether the legislature wanted to limit the option to one individual or should it extend to anyone who would like that option. CHAIR KREISS-TOMKINS stated that there was some discussion at the last committee hearing [on 3/8/18] to potentially allow commissioners to do so. REPRESENTATIVE KNOPP offered his belief that doing so for one individual would set a bad precedent. 3:58:16 PM LESLIE RIDLE, Commissioner, Department of Administration (DOA), stated that the bill could be extended to the lieutenant governor, the commissioners and legislators but not to other state employees. 3:58:42 PM KATE SHEEHAN, Director, Division of Personnel & Labor Relations, Department of Administration (DOA), stated that because certain salaries were set through legislation or the State Officers Compensation Commission (SOCC) there would need to be legislation to waive a portion of the salary in order not to be taxed on it. That was not the same for other employees, so this would be limited to the positions that the commissioner just read. 3:59:10 PM REPRESENTATIVE LEDOUX stated that the committee was currently considering HB 71, so the bill could include everyone. COMMISSIONER RIDLE answered that job classes she just listed were set by the SOCC and included commissioners, legislators, governor and lieutenant governor. She reported that everyone else's salaries are set via collective bargaining and the State Personnel Act; therefore, they are in a different class of employees. REPRESENTATIVE LEDOUX said she did not understand why all employees cannot donate their salary back. MS. SHEEHAN responded that under the Fair Labor Standards Act the employer must pay for all hours worked; even salaried employees are subject to some requirements; therefore, it was not an option for some employees to donate their time. REPRESENTATIVE LEDOUX asked for further clarification that a federal law restricts the donation. 4:01:10 PM REPRESENTATIVE WOOL suggested that if the governor wanted to donate to a nonprofit that he would need to accept the money and donate it and obtain a tax credit. This bill would allow the governor to reduce his/her salary without incurring a tax penalty. COMMISSIONER RIDLE answered yes. She related her understanding that the state is not a charity in terms of tax deductions, noting she was not a tax attorney. She acknowledged that it would be foregoing a salary and just not receiving it at all. REPRESENTATIVE LEDOUX asked why it was not written to include all the people it could include. COMMISSIONER RIDLE answered that Governor Walker was interested in doing so. REPRESENTATIVE LEDOUX acknowledged that he could legally donate the salary, but for the tax issue. COMMISSIONER RIDLE answered yes. 4:03:06 PM REPRESENTATIVE BIRCH offered his belief that the bill was about avoiding federal income tax on salary. If one were to decline the salary the person could not redirect it. He recalled that he had seen newscasts that indicated Governor Walker wanted to redirect the salary to police dogs and a myriad of other things. He related his understanding that this bill allows for tax avoidance. COMMISSIONER RIDLE, with respect to redirecting the governor's salary, advised that the funds would not be remitted to the governor but would remain in the general fund. He stated that Governor Walker wanted to be able to reduce his income and not pay tax on something he did not receive, which would not be an avoidance of tax. 4:04:39 PM CHAIR KREISS-TOMKINS suggested that currently, as a legislator, if he wanted to donate his salary to the state, he would pay taxes on his $50,000 salary. He expressed an interest in opening it up for legislators to waive their salaries. COMMISSIONER RIDLE answered yes. 4:05:14 PM REPRESENTATIVE BIRCH offered his belief that it was bad form to do "one-offs" on legislation. He suggested that people could write a check to a charitable organization. 4:05:45 PM REPRESENTATIVE LEDOUX said her problem was that [Governor Walker's] donation last year was highly publicized. She suggested that passing this would be like "having your cake and eating it, too." She suggested that most people who declined their salaries would not be able to direct it to specific [programs] and the declined salaries would remain in the general fund. She surmised the governor would have more authority to redirect the funds. 4:07:01 PM REPRESENTATIVE JOHNSON stated that the governor could set his own salary as long as it fell below a certain threshold. COMMISSIONER RIDLE answered yes, that the governor could waive a portion of his/her salary. REPRESENTATIVE JOHNSON asked whether the salary could be waived by month or must it be for a year. COMMISSIONER RIDLE referred to page 1, line 7, of HB 71, which read, " ... governor may waiver a portion of the annual salary ...." 4:08:02 PM REPRESENTATIVE JOHNSON confirmed the governor would waive his/her salary at the beginning of the year or fiscal year. COMMISSIONER RIDLE responded that logistically it would be figured out and accomplished through payroll. In further response, she agreed it would likely be administered as an annual request and waiver. REPRESENTATIVE JOHNSON related her understanding that the bill's goal would be to waive a portion of the income and not to redirect the salary to a specific program. COMMISSIONER RIDLE answered yes; that the salary would not be received by the governor and would remain in the general fund. 4:10:08 PM REPRESENTATIVE TUCK related his understanding that there would be a cap, so that the governor would determine his/her salary. COMMISSIONER RIDLE answered yes; the bill would allow the governor to waive but not increase his/her salary. 4:10:35 PM REPRESENTATIVE TUCK asked for further clarification on the mechanics of the waiver and if the governor could choose to stop the waiver. COMMISSIONER RIDLE answered that she assumed the administration would initiate it at beginning of year. She surmised it would be harder but not impossible for different scenarios; however, the department has not considered the mechanics yet. She added that the administration preferred continuity in its processes. 4:11:47 PM REPRESENTATIVE KNOPP referred to the explanation of changes and time period and it appeared to sunset on June 30, 2019 and asked for further clarification. MS. SHEEHAN answered that that the original bill was for a two- year period consistent with the two-year pay freeze. Version O removed the section that limited it to the two-year period. In further response, she stated that the explanation of changes attempted to explain that the bill could extend past 2019. REPRESENTATIVE KNOPP asked for further clarification on the Section 3 of HB 71 and the reason for the two-week rather than biweekly salary. MS. SHEEHAN answered that a semi-monthly pay period payroll is on the first or fifteenth of each month and the hours vary for each pay period. A biweekly pay was more consistent since it contains 75 hours for each pay period, spans two work weeks so it was clearer. Some employees fall within semi-monthly and others in biweekly. 4:14:13 PM REPRESENTATIVE BIRCH asked for further clarification on the organization that sets the governor's salary. He suggested it might be helpful to hear from that organization. He remarked that the 24 versus 26 weeks for semi-monthly or bi-monthly seemed fine. COMMISSIONER RIDLE pointed out that this bill was brought up last year, that the State Officers Compensation Commission (SOCC) met last fall but did not comment on bill. 4:15:57 PM REPRESENTATIVE TUCK referred to Section 2 of the explanation of changes for HB 71, which read as follows [original punctuation provided]: 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. REPRESENTATIVE TUCK referred to deleted language was in Section 2 of HB 71, which read, "[SALARY RATES ESTABLISHED UNDER AUTHORITY OF THEIS SECTION DO NOT AFFECT THE SALARIES OF EMPLOYEES PROVIDED FOR BY A COLLECTIVE BARGAINING AGREEMENT ...." He offered his belief that the deleted language should be left in the bill. MS. SHEEHAN answered that the language was still in the bill but was under Section 3 in proposed [Alaska Statute] AS 39.27.012(c), which Section 2 would also amend. She related her understanding that the Legislative Legal and Research Services attorney used this bill as the vehicle to move to the bi-weekly pay schedule, so they rearranged the bill. The intent was not to change the provisions in AS 39.27.012. 4:17:30 PM REPRESENTATIVE JOHNSON asked for further clarification on the non-union exempt employees and wage freeze. She asked for further clarification on the exempt employees who would be affected by the pay freeze. COMMISSIONER RIDLE, after confirming the question, answered that the original bill would have affected anyone not in the union, including the executive branch, the legislature, and the university. 4:18:51 PM REPRESENTATIVE JOHNSON related her understanding that this was the language Representative Birch wanted included in the bill, but it was removed in Version O. COMMISSIONER RIDLE offered her belief that was correct. 4:19:23 PM REPRESENTATIVE LEDOUX asked for further clarification on how the federal government accomplishes salary waivers for presidents. COMMISSIONER RIDLE was unsure but offered to research it for the committee. CHAIR KREISS-TOMKINS announced that HB 71 would be held over.