SENATE BILL NO. 152 An Act relating to geographic differentials for the salaries of certain state employees who are not members of a collective bargaining unit; relating to periodic salary surveys and preparation of an annual pay schedule regarding certain state employees; relating to certain state aid calculations based on geographic differentials for state employee salaries; and providing for an effective date. Co-chairman Halford directed that SB 152 be brought on for discussion. ALISON ELGEE, Deputy Director, Dept. of Administration, came before committee to speak to the bill. She explained that the legislation was introduced to amend the statutory geographic differential that covers non- covered employees of the executive branch and the legislature. The existing differential has been in statute since 1972. The majority of the state's union contracts contain differentials amended on the basis of a 1985 study. However, differentials for non-covered employees were not brought current. The proposed bill also establishes $30.0 as the limit of total compensation to which the differential would apply. That threshold would be annualized throughout the year rather than applied to the first few months of the year and then shut off. The legislation also amends current requirements for annual salary and cost of living surveys to require the conduct of a cost of living survey every five years, subject to appropriation. These surveys are extraordinarily expensive if conducted in the same manner as the 1985 study. That survey cost $375.0. No funding has been provided to conduct a comparable survey since that time. The proposal for transition of employees from the old index to the new involves a twelve-month freeze for current salaries. Portions of the proposed bill relate to other statutory sections such as revenue sharing which has traditionally been tied to the old geographic differential. Bill provisions maintain the historical tie for those programs. Amendments contained within the legislation would thus not impact anything but the employee salary base. Ms. Elgee directed attention to a spread sheet (copy attached to these minutes) and explained that the column entitled "1972 index" shows the current differential applied to non-covered employees. The next column displays the union differential in place since 1986. The column entitled "Runzheimer" evidences the result of a study conducted by the Dept. of Administration last fall. There was limited funding for the review and results "look a little weird." The department has thus not relied on the study in establishing the proposal in pending legislation, except to the degree that it demonstrates that the cost of living in Alaska has come down significantly. The proposal in SB 150 represents a broad-band approach that looks at geographic similarities, the type of transportation available to areas, and, in a few cases, other cost of living information. As an example, Ms. Elgee noted that because of its size, Fairbanks is showing up on national studies. Those studies indicate a cost of living in Fairbanks similar to that in Anchorage. Ms. Elgee acknowledged questions concerning applicability of the legislation to the university and the court system. The university has already eliminated the differential for Fairbanks, effective in January. At the time that was done, the university indicated interest in revising the differential for other parts of the state but was awaiting the administration's proposal for those areas. The court system has traditionally followed the statutory differential. Referencing the spread sheet, Senator Zharoff noted an increase from 0.791 to 1.0 for employees stationed in Seattle. Ms. Elgee explained that national surveys indicate that the cost of living in Seattle is comparable to Anchorage. Senator Phillips suggested that lack of sales tax in Anchorage and a sizable tax in Washington causes the cost of living to appear similar. Senator Sharp voiced his understanding that the legislation proposes to increase the pay for Seattle-based employees by 21% on the first $30.0. Ms. Elgee responded that it would bring them up to the same base as Anchorage employees. The state presently has six employees in Seattle. Senator Donley asked how the bill might be modified so that Seattle employees maintain the status quo. Ms. Elgee recommended that if the committee modifies pay for Seattle employees, it "go to the union differential which is currently 0.870% of the base. The 1972 index is 0.791%. Senator Donley referenced page 3, line 1, and MOVED to maintain Seattle employees at their present level. In response to an inquiry from Co-chairman Halford, Ms. Elgee explained that in order to retain current levels of pay for employees in Seattle, the bill would have to reflect a percentage below the basic salary schedule. Senator Donley then MOVED to change the zero for Washington State to -10 at page 3, line 1. No objection having been raised, the motion CARRIED and the AMENDMENT was ADOPTED. Co-chairman Halford also noted need to conform percentage language at page 2, line 26, to conform to the minus number. He suggested that language read "Percentage Above or Below" rather than merely "Percentage Above." No objection having been raised, the CONFORMING AMENDMENT was ADOPTED. Senator Zharoff asked how the proposed bill would impact Alaska's foreign offices. Ms. Elgee advised that the bill makes no change for Alaska employees in foreign countries. She noted that the director of personnel would be establishing salaries for Alaska employees outside the State of Washington. Problems have arisen concerning Alaska employees in Washington, D.C., which has a substantially different cost of living. The administration thus suggests that these employees be treated similar to those in foreign offices. Discussion of the Runzheimer study followed between Senator Phillips and Ms. Elgee. Senator Zharoff asked what impact the proposed bill would have in terms of getting people to serve in rural Alaska. Ms. Elgee acknowledged that the department anticipates a combination of effects. She attested to past criticism regarding "very high differentials in rural Alaska" that make service in rural areas so attractive that people are recruited from Anchorage and Fairbanks when jobs could be made available to local residents. At the same time, there sometimes are no local residents to fill specific professional qualifications. The administration will have to explore other options (advanced step placement) to encourage individuals to accept jobs in rural Alaska. The department does not feel the geographic differential should be utilized to solve recruitment difficulties. As an example of operation of the proposed legislation, Senator Sharp cited a road grader operator in Fairbanks making $40.0 a year and asked if the new index would reduce his pay by $6.0. Ms. Elgee explained that the salary schedule is set as a base salary schedule. It is then adjusted relative to recognition of an area cost of living differential. All road grader operators throughout the state start with the same basic level of pay. She then acknowledged that the operator in Fairbanks would experience the above-noted reduction. That impact, however, would be implemented one year from the effective date of the legislation to give employees adequate notice of the change. Senator Sharp remarked that the reduction would require considerable adjustment for someone with mortgage payments and other financial obligations. Co-chairman Halford voiced his understanding that the bill addresses two issues: 1. The first limits the geographic pay differential to the first $30.0. 2. The second adjusts the schedule. He then suggested the changes would entail a less significant adjustment for individuals at lower pay scales if the existing schedule remains in place for a couple of years, the $30.0 threshold is held harmless for three years, and the schedule change is thereafter adopted. Ms. Elgee advised that Sec. 8 of the bill contains the twelve-month transition period. Should the committee wish a longer period to mitigate impact on employees, that is the section that should be amended. Co-chairman Halford suggested that changing July 1, 1996, to July 1, 1997, would extend the period one year. In response to a question from Co-chairman Frank, Ms. Elgee advised that the legislation proposes that the differential apply only to that portion ($30.0) of the salary that actually "goes to cost of living instead of to the entire salary of the individual as in the past." Co-chairman Frank questioned the fact that the current differential for Valdez is greater than for interior villages and suggested that the two do not deserve the same differential. Ms. Elgee concurred. She added that if the committee is interested in splitting election districts, that could be done at page 2. line 30, by excepting Valdez and Cordova from the listing of districts 34, 35, and 36. Valdez and Cordova could then be included within districts at line 29. Past geographic differential schedules have been written in that fashion. Co-chairman Frank voiced reluctance to do so without review of supporting data for both existing and suggested differentials. Senator Sharp noted a similar problem for Delta. In response to further concerns, Ms. Elgee advised that rural state employees are primarily located in regional centers. In response to a question from Senator Zharoff, Ms. Elgee explained that the legislation impacts non-covered employees in the executive branch including the Dept. of Law, Office of the Governor, Public Defender, Office of Public Advocacy, Pioneer Home Administrators, and AHFC rural housing offices. Senator Phillips asked if there was a difference between union coverage and that proposed for non-union employees. Ms. Elgee responded affirmatively. She added that the recent ASEA agreement contains a reopener clause that would be triggered by passage of the legislation. Senator Phillips voiced a preference for treating all employees the same. In response to a further question, Ms. Elgee advised that at the present time non-covered employees are higher in most districts than union employees. That has been the case for the past ten years. The proposal would make the majority of the districts lower, but there are a couple of exceptions. Senator Donley commented that most of the non- covered employees are top level, management positions which benefit from larger salaries. In response to comments regarding potential cost savings, Ms. Elgee advised of savings of $1.2 million, when fully implemented. Senator Donley MOVED for passage of CSSB 152 (Fin) with individual recommendations. GREGG McDONALD, representing Public Safety Employee's Association (PSEA), came before committee. He acknowledged that the bill would not directly effect PSEA employees but advised of several concerns. The first is that it establishes various classes of employees working in the same area. Further, it sets the cap at $30.0 gross. Mr. McDonald noted that while it would not presently impact PSEA employees, it would become a factor in future negotiations. Prior studies upon which the differential was based were scientific. There is no such evidence to support the current proposal. Mr. McDonald expressed a preference for maintaining the current differential based on its accountability. Co-chairman Frank voiced need to further review possible impacts of the proposed legislation. The bill was thus held in committee for additional consideration. ADJOURNMENT The meeting was adjourned at approximately 11:05 a.m.