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 Commissioner, Dept. of Administration, came before committee. She explained that the bill contains a lower cost of living than presently being paid state employees who are not represented by a union or covered by collective bargaining. A relatively small group would initially be impacted. However, union contracts now before the Legislature contain reopener clauses that would allow the state to negotiate a new pay differential for union members, based on passage of the proposed bill. Ms. Elgee next directed attention to a handout demonstrating differences between existing and proposed differentials. She explained that the current differential is tied to other statutes. In developing the proposed bill, the Governor attempted to impact only state employees. Sec. 1 maintains magistrates at the existing statutory level. Ms. Elgee said the court has been conducting a review of magistrate salaries "and does not believe this section is any longer necessary." Co-chairman Halford asked if the cost to the state would be raised or lowered by removal of Sec. 1. Ms. Elgee responded that costs would be lower if the new differential was applied to magistrates. However, the fiscal note does not represent "any of the court system employees." It covers only the executive branch. The Legislature would have to indicate its desire to apply the bill to court system employees as well. In response to a question from Co-chairman Frank, asking how the court system proposed to handle the differential, Ms. Elgee termed the magistrates "a real unique little bunch." The court is conducting salary review of "just the magistrates." They are the only group specifically tied by statute to the existing differential. As a practice, the court system has followed the statutory differential for non-covered employees as well. Ms. Elgee explained that Sec. 2 makes clear that the revenue sharing calculation currently tied to the existing area cost differential would continue. That would ensure that taking action on the proposed bill would produce no unintended reduction of revenue sharing to municipalities. The Governor did not want to complicate the legislation by bringing in issues such as aid to municipalities. That should be dealt with separately. Sec. 3 applies specifically to the minimum payment level in revenue sharing statutes. Sec. 4 lays out the proposed differential. It has been ten years since a complete cost-of-living differential study was conducted for Alaska. The 1985 study resulted in what is known as the "union differential." Two years ago, the courts dictated that the state abide by existing statutory language that requires an annual salary survey. Since there was no funding for the survey, the department used $20.0 to contract with the Runzheimer Group to prepare a cost-of- living differential study. Ms. Elgee noted that the study produced odd results. In preparing the proposed bill, the administration used Runzheimer's work as an indication that the cost-of-living differential across the state is coming down but did not utilize it as the basis for the administration's proposal. Ms. Elgee cited study figures for cost-of-living differentials at Nome and Ketchikan as evidence of apparent inaccuracies. In developing SB 152, the administration utilized House districts and looked for geographic similarities among the districts and common modes of transportation. Base levels (areas in which no geographic differential would apply) are Anchorage, Juneau, the Kenai Peninsula, Matanuska Valley, and the Fairbanks area. For coastal communities with ferry access but no road access, the bill proposes a 5 percent differential. For interior communities on the road system, the proposal is a 10 percent differential. The proposed differential is 20 percent for western and northwestern communities. The out-of-state differential has also been modified. In the past, the differential applied to all out-of-state workers. The bill proposes that it apply only to Washington state, and that the state adopt an approach similar to that used for foreign offices for other locations. That approach is specific to information relative to the cost of living in each location. Ms. Elgee cited need for flexibility to deal with unique circumstances such as salaries for state employees in Washington, D.C., where the cost of living is extremely high, as well as those temporarily stationed in Louisiana pending construction of the new state ferry. Co-chairman Halford asked if the proposed bill would increase pay for employees in Seattle by 20 percent. Ms. Elgee concurred that it would increase pay for non-covered employees, but it would reduce pay for union members residing in Seattle by approximately 10 percent. Co- chairman Halford voiced his understanding that the factor change increases Seattle from 79.1 percent to 100 percent for non-covered and 13 percent for union employees. Ms. Elgee clarified that the bill proposes a zero differential for Washington state. She concurred that should unions, through collective bargaining, adopt the factor, the foregoing would be the case. Co-chairman Halford questioned reduction of pay at Alaskan locations while increasing it for employees in Seattle. Ms. Elgee responded, "This is just a reflection of what we're seeing in the American Chamber of Commerce studies on cost-of-living differentials." It appears that the cost of living in the Seattle area is comparable to the cost of living in Anchorage. Senator Rieger presented a handwritten amendment to change the factor for Seattle to -10 percent. Co-chairman Frank asked that the committee be provided a copy of the Runzheimer report. Ms. Elgee agreed to do so, but stressed that it has little value since it does not accurately reflect community-by-community cost of living differentials for Alaska. She said she would also make available information developed by the American Chamber of Commerce research group, which relates to specific communities in Alaska. In response to a question from Co-chairman Frank, Ms. Elgee explained that upon passage of the proposed bill, the administration and unions would go back to the bargaining table to renegotiate the cost-of-living differential applicable to union members. Each contract currently contains its own area cost differential. With the exception of PSEA, they all reflect the differential outlined on the handout. Members questioned the administration's ability to engage unions in such negotiations without giving up something and suggested that the differential should be set in statutes and applied to all, union and non-union alike. Senator Donley directed attention to Senator Rieger's amendment and noted ASMI claims that it pays its employees in Washington state 18 percent below the rate in Alaska and continues to obtain quality workers. He then suggested that the reduction in the amendment should be -20 rather than -10 percent. Senator Donley further directed attention to page 3, line 3, and voiced need to change the salary portion ($30.0) to which the differential applies so that it applies to the whole salary range. In response to earlier comments regarding renegotiations with unions, Ms. Elgee said that the unions are "all very well aware of this legislation." The administration made clear its intent to conform area cost differentials to statutory changes. Reopeners were negotiated with that understanding. Co-chairman Frank referenced the $30.0 set forth at page 3, subsection (b) and asked if the current differential is applicable to the entire salary. Ms. Elgee responded affirmatively, advising that bill language would modify application to cover only "that portion of salary that we would deem to be for the actual basic cost of living and not the discretionary portion of any individual salary." Senator Sharp suggested that the $30.0 appears arbitrary in light of current low income and poverty numbers. Co-chairman Frank raised questions concerning lack of a differential for Fairbanks, citing the cost of heating fuel as an example of costs higher than those in Anchorage or Ketchikan. Ms. Elgee explained that differentials reflect a market basket survey. She cited offsetting factors between communities. Fairbanks is included in national chamber of commerce surveys. Information provided by that group indicates that the cost of living in Anchorage and Fairbanks is "almost identical." Senator Sharp voiced interest in reviewing the federal CPI for Seattle compared to Anchorage and Fairbanks. Senator Donley requested an assessment of Alaska pay for employees residing in Washington state versus salaries paid state workers by the state of Washington. Discussion among members followed regarding numbers cited for North Pole, Alaska. Co-chairman Frank inquired regarding the dynamics associated with achieving parity between covered and non-covered workers when reducing differentials. Ms. Elgee pointed to a one-year transition. At the time of passage of the legislation, the department would notify all impacted employees who would be frozen in current salaries for a year. Thereafter the salaries would be reduced to the new differential. The feeling was that a year's notice would give people an opportunity to readjust their financial circumstances or look for other employment. The state cannot afford a freeze, forever, given cutbacks in operating budget funding. Co-chairman Frank asked why new differentials rather than merely reopeners were not negotiated in union contracts. Ms. Elgee said that the state has no substantive information allowing for renegotiation. Passage of the proposed legislation would put the administration in a position to do so. Otherwise, absent expenditure of $300.0 to $400.0 for an area-cost-differential study, the state has no basis. In response to further comments from Co-chairman Frank, Ms. Elgee said that for ten years non-covered employees have enjoyed a differential that far exceeds that of union employees. Unions are not interested in "continuing to lead that particular action without modification of this schedule." Contracts have been ratified by employees with the reopener in place. Senator Zharoff raised a question regarding differentials for coastal communities with ferry service. He noted lack of service by the TUSTUMENA from October through April and asked that the administration review the consistency of service for individual communities. ADJOURNMENT The meeting was adjourned at approximately 11:05 a.m.