SENATE BILL NO. 95 "An Act relating to the compensation, allowances, geographic differentials in pay, and leave of certain public officials, officers, and employees not covered by collective bargaining agreements; relating to certain petroleum engineers and petroleum geologists employed by the Department of Natural Resources; relating to increased pay for certain partially exempt employees of the state in specific circumstances; making conforming amendments; and providing for an effective date." 10:02:51 AM Vice-Chair Fairclough MOVED to ADOPT the proposed committee substitute for CS SB 95 (FIN), Work Draft 28-GS1101\U (Wayne, 4/7/13). Co-Chair Meyer OBJECTED for discussion. 10:04:01 AM Ms. Marasigan noted that her office worked to create the work draft before the committee. She requested that the department provide a bill overview for the committee. 10:04:43 AM CURTIS THAYER, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION (DOA) introduced himself and the director of labor relations, Nicki Neal. He noted two changes to the bill. The first addressed section 20 and a change that did not comply with current law. The change included salary adjustments for certain exempt officers and employees of the executive branch. He noted that the employees received COLAs, but when the bill was drafted the option was omitted for exempt employees. The second piece would allow judges to receive the geographic differential language. He would discuss the issue further in his overview of the bill. 10:06:01 AM Co-Chair Meyer WITHDREW his OBJECTION. There being NO OBJECTION, it was so ordered. 10:06:22 AM Mr. Thayer presented the PowerPoint, "Alaska Department of Administration, Overview of HB 195 and SB 95, State Employee Condensation and Benefits" (copy on file). Mr. Thayer began with slide 2: "What are HB 195 and SB 95 About?" · Consistency with cost of living, reduction of leave accrual, cap on leave amount and decreases in the pay increment · Enhance ability to recruit and retain highly-skilled professionals · Implementation of Geographical Pay Differential for last phase of remaining employees Mr. Thayer continued with slide 3: "Overview of the Bill Sections." · Section 1-4: Leave Accrual and Cap · Section 5: Petroleum Engineers/Geologists · Section 6-8: Cost of Living Increases · Section 9: Pay Increments · Section 10: Partially-Exempt Salaries · Section 11-14: Geographic Pay Differentials Mr. Thayer discussed slide 4, "New Leave Accrual and Cap." He stated that the accrual rates were negotiated by the General Government Employees Union and the confidential employees to reduce leave accrual for new-hires beginning July 1, 2013. The new accrual rating required 16 years of service to receive 270 hours of leave. He mentioned the new mandatory leave usage requiring an employee to use two weeks of leave annually if they had less than 400 hours in their leave balance. If an employee had greater than 400 hours of leave as of December 16th, they must use three weeks of leave annually. Mr. Thayer pointed out the new maximum accrual limit of 1000 hours for executive, judicial and legislative branch employees. The department discovered, prior to drafting the bill that without a cap the department faced a $164 million liability in employee's leave. The top ten state employees would cost the state $1.6 million at retirement. The legislation would reduce the state's leave liability by two-thirds. 10:09:22 AM Vice-Chair Fairclough appreciated the administration's efforts. She asked about the survey provided by the McDowell Group. She wondered how the mandatory leave usage compared to the average accrual for state employees. Mr. Thayer explained that the study addressed the geographic pay differential, which was located in a different portion of the bill. The study established the cost of living. 10:11:00 AM Vice-Chair Fairclough wondered if the sick leave had been rolled into paid time off. Mr. Thayer responded that the state utilized Paid Time Off (PTO), which encompassed all forms of leave. 10:12:20 AM Vice-Chair Fairclough wondered about a study or survey comparing sick leave with PTO for best practice. 10:12:36 AM Nicki Neal, Director, Division of Personnel, Department of Administration explained that a survey of that nature had not been commissioned in Alaska. Prior to the 2013 collective bargaining, a survey of other states was performed. The department received responses from approximately 15 states that had annual and sick leave programs. The responding states reported a cap of 450 hours. 10:13:08 AM Vice-Chair Fairclough appreciated the compromises. She wondered how robust the benefits provided by the state were. She hoped that the administration would continue to work with the union contractors to communicate the dynamics facing the state. She asked about a comparison of leave accrual among other states and the federal government. 10:14:56 AM Ms. Neal was not sure about comparisons with the federal government, but she offered to provide the information to the committee. Regarding other states, Alaska compared appropriately with leave accrual. She pointed out that the other states had both annual and sick leave, whereas Alaska had PTO. 10:15:12 AM Mr. Thayer looked at slide 5, "Petroleum Engineers/Geologists." Section 5: · Removes exclusion of in Division of Geological and Geophysical Surveys (DGGS). · Only 1 position - DGGS, Energy Section Manager (currently SU Geologist V) - vacant since March 17, 2012. o Position requires complete understanding of petroleum systems analysis and exploration that is obtained primarily through industry experience o Industry salaries are approximately 50 percent higher than current authorized salary (data from Assoc of Petroleum Geologists 2011 Survey) o Two national searches failed - No qualified applicants after 45 days of recruitment and advertising in national trade publications · Amendment applicable to DNR, DGGS only 10:16:16 AM Mr. Thayer discussed slide 6, "Cost of Living Increases." Sections 6-8: · Effective 7/1/13 - 1 percent · Effective 7/1/14 - 1 percent · Effective 7/1/15 - 2.5 percent · Consistent with terms of recently negotiated collective bargaining agreements · Applies to noncovered classified and partially exempt (PX) and many exempt employees of the executive branch, employees of the legislature (AS 24.10.011), and the judicial branch. 10:16:32 AM Mr. Thayer highlighted slide 7, "Pay Increments." Section 9: · Effective 7/1/15 the percentage between pay increments (J and above) will decrease from 3.75 percent to 3.25 percent · Consistent with terms of recently negotiated collective bargaining agreements · Applies to noncovered classified and PX employees - also applies to many exempt employees through policy · Applies to legislative branch if a policy has been adopted (AS 39.27.011(j)) 10:17:06 AM Mr. Thayer displayed slide 8, "Partially-Exempt Salaries." Section 10: · Partially Exempt (PX) positions are subject to classification and pay plans which limits flexibility · State often not competitive for top talent - need some flexibility for mission critical positions · Governor or designee on case-by-case basis: o serves critical governmental interest of state o employee possesses exceptional qualifications o recruitment difficulties exist; or o necessary to compete with labor market · Applies to executive branch Partially Exempt (PX) employees only 10:18:36 AM Mr. Thayer discussed slide 9, "Geographical Pay Differentials." He noted that sections 11-14 addressed the survey conducted by McDowell Group in 2008 and completed in 2009. The study set the base at zero for Anchorage and South Central Alaska. Based on the outcome of the survey, Fairbanks would see a 3 percent pay differential, while Juneau and Sitka would see 5 percent. Kodiak, Cordova and Valdez would see 11 percent. Dillingham, Nome, and the Roadless Interior would receive 37 percent. Barrow, Bethel, Aleutians, and South West small communities would see 50 percent. Kotzebue, Unalaska/Dutch Harbor would receive 60 percent. Mr. Thayer furthered that the change would affect the executive branch with an increase for 483 employees, while 122 would see no loss in pay and 727 would see no change at all. The legislative branch would have 154 employees with an increase, 24 without a loss in pay, and 204 without change. He noted that the study was performed every five years depending on appropriations. 10:20:34 AM Co-Chair Meyer looked at slide 9 and opined that the Tok and Glennallen Regions would be more expensive than Anchorage. Mr. Thayer raised the same question initially, and was told that the survey viewed the cost of living, housing, utilities, food and transportation when making the recommendations. 10:21:27 AM Co-Chair Kelly wondered if the percent above the base was considered in the retirement calculations. Ms. Neal responded that a Tier One employee was considered, otherwise a person must work 50 percent of time in the location to receive the geographical pay differential on retirement. 10:22:15 AM Co-Chair Meyer wondered if the geographical pay differentials were budgeted into the operating budget. Co-Chair Kelly replied that the bill's cost was included in the fiscal note. Co-Chair Meyer CLOSED public testimony. 10:23:28 AM Mr. Thayer discussed the fiscal notes, which were prepared by the Office of Management and Budget (OMB) and would implement changes in the first year of the contract, which is when the geographic differential would take effect. In FY 15 a decrease would be seen. The 2.5 percent increase would be seen in FY 16. Co-Chair Kelly wondered if the total amount of the contracts was less than originally anticipated. Mr. Thayer concurred. He explained that various union negotiations altered the projected figures. 10:25:14 AM Co-Chair Kelly opined that the fiscal note fit well within the expectations. 10:25:49 AM Co-Chair Meyer pointed out that the fiscal note would change with the CS's inclusion of the courts. Mr. Thayer stated that the court sought geographic differential pay for 23 judges, which would affect the fiscal note minimally. Vice-Chair Fairclough addressed the fiscal notes individually. She noted that the first fiscal note affected OMB in FY 14 by $8,171,900, in FY 15 by $4,821,800 and FY 16 by $10,644,000. The bill related to compensations, allowances, geographic differentials in pay and leave for certain public officials, employees not covered by collective bargaining and related to certain petroleum engineers and geologists employed by the Department of Natural Resources (DNR). Beginning in FY 14, salaries were increased by 1 percent, same for FY 15, but an increase of 2.5 percent was anticipated for FY 16. The salary schedule matched the recent negotiated agreement reached between the state and the supervisory and general government units. Vice-Chair Fairclough continued with the second fiscal note for the Legislative Branch. In FY 14, $1,281,200, FY 15, $410,400 and FY 16, $1,039,300 was stated. The final fiscal note was for the Alaska Court System that would be amended by the 23 judges as explained earlier. The third fiscal note showed $741,900 for FY 14, $749,100 for FY 15 and $1,890,900 for FY 16. 10:28:30 AM Senator Hoffman remarked that legislators would not see pay increases as a result of the legislation. Co-Chair Meyer asked if the bill pertained to staff. [Response was indecipherable]. He understood that the total dollar amount was less than anticipated. Co-Chair Kelly replied yes. Co-Chair Meyer stated that the fiscal note was large, but so was the number of employees. He appreciated the negotiation process. He was unsure about whether the deal was ratified. Mr. Thayer replied that the supervisory unit was in the process of ratification and expected the wrap up to occur later in the month. The general services expected ratification in the later part of May, due to the size of their bargaining unit. He clarified that 23 judges would be eligible for the geographical pay differential. 10:30:15 AM Co-Chair Kelly MOVED to REPORT CS SB 95 (FIN) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS SB 95 (FIN) was REPORTED out of committee with a "do pass" recommendation and with a new fiscal impact note from the Legislature; new fiscal impact note from the Court System; and previously published fiscal impact note: FN1 (GOV). 10:31:53 AM AT EASE 10:32:09 AM RECONVENED