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 again be brought before committee and referenced a draft committee substitute (0-GS0049\F, Cramer, 3/29/96). ALISON ELGEE, Deputy Commissioner, Dept. of Administration, came before committee and provided the following review of the draft: Secs. 1, 2, and 3 are from the original bill. Sec. 4 was redrafted to include committee amendments to place the Fairbanks area in the 5 percent geographic differential and employees in Washington State at -20. Sec. 4 (b) reflects amendment of the base salary amount from $30.0 to $50.0. Sec. 4(c) allows for premium pay situations for those practicing law or medicine in rural districts 37 through 40. Sec. 5 remains the same as in the earlier version. Secs. 6, 7, 8, and 9 contain technical amendments to reflect the renumbering of the geographic differential section. Sec. 10 contains transition provisions. It has been amended to reflect a hold harmless period in year one, a limited reduction of no more than 5 percent of salary in year two, and full implementation in year three. Ms. Elgee directed attention to a handout (copy on file in the Senate Finance Committee master file for SB 152) and explained that it sets forth figures under both the current and new differential for a $60.0 employee in Fairbanks and an employee at the same pay level in Nome. Senator Randy Phillips questioned the repeal date of July 1, 1998, set forth in Sec. 12, suggesting that it should reflect 1997. Ms. Elgee explained that 1997 would be correct in the event of a one-year hold harmless and no transition. July 1, 1998, allows for the second year of transition per the proposed draft. Discussion followed between Senator Rieger and Ms. Elgee regarding operation of hold harmless provisions. In response to a scenario presented by the Senator, Ms. Elgee said the department would freeze the salary of an employee who is overpaid based on the new differential. Freezing the salary would not preclude award of merit increases or cost- of-living adjustments. Those amounts would be calculated against the revised salary. The employee is frozen at the current salary, or transitioned down to the 5 percent, and the bookkeeping entries are applied against what the new salary would be. At the point that the adjusted salary meets or exceeds the frozen salary, the employee would begin to realize "some benefit from those increases." Senator Sharp referenced Sec. 10(a)(2) and suggested that it would appear to produce a savings, yet none is shown on the fiscal note. Ms. Elgee agreed that there would be savings, in FY 98, as employees turn over or relocate out of their current geographic differential areas. It is impossible to project what those savings might be. The fiscal note represents application of this legislation upon full implementation in FY 99. Senator Sharp MOVED for adoption of the draft CSSB 152 (Finance) as a mark-up vehicle. No objection having been raised, CSSB 152 (Finance) was ADOPTED. Senator Zharoff voiced concern for election districts 5 through 9 and asked how the index and union differential work. Ms. Elgee explained that the index reflects the statutory schedule applied to non-covered employees. It has been in place since 1972. In 1985 an extensive cost-of- living study was conducted. As a result of that study, new cost-of-living indices were adopted through the collective bargaining process with unions. That union differential, in place since 1986, applies to the bulk of unionized employees. Co-chairman Halford asked how many employees fall under the statutory index. Ms. Elgee responded, "I think in the executive branch we're talking about 1,200 people." Co- chairman Halford voiced his understanding that approximately 15 percent of state employees would be directly impacted by the proposed bill. The remainder would be negotiated into the system. Ms. Elgee concurred. She added that not all non-covered employees would be impacted because those in Anchorage and Juneau will see no change since they do not now receive a differential. The bill would affect approximately 93 people in the Fairbanks area. Senator Sharp MOVED for passage of CSSB 152 (Finance) with individual recommendations and accompanying fiscal notes. Senator Zharoff OBJECTED. He said that testimony indicates arbitrary decisions were made in changing the index. He reiterated concern for election districts 5 through 9, saying that he was not comfortable with possible impact. He expressed his belief that employees in those districts would experience reductions because backup information indicates the cost of living in those areas is much higher than what is reflected in the proposed legislation. Co-chairman Halford called for a show of hands on the motion for passage. The motion CARRIED on a vote of 5 to 1, and CSSB 152 (Finance) was REPORTED OUT of committee with a zero fiscal note from the Office of the Governor, covering all departments. Co-chairmen Frank and Halford and Senators Rieger and Sharp signed the committee report with a "do pass" recommendation. Senators Donley and Phillips signed "no recommendation." Senator Zharoff signed "do not pass."