HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE February 25, 1999 8:03 a.m. MEMBERS PRESENT Representative Andrew Halcro, Co-Chairman Representative John Harris, Co-Chairman Representative Lisa Murkowski Representative Fred Dyson Representative Reggie Joule Representative Albert Kookesh MEMBERS ABSENT Representative Carl Morgan COMMITTEE CALENDAR *HOUSE BILL NO. 76 "An Act relating to an exemption from and deferral of payment on municipal taxes on deteriorated property; and providing for an effective date." - MOVED CSHB 76(CRA)OUT OF COMMITTEE *HOUSE BILL NO. 1 "An Act relating to collective bargaining agreements and arbitration awards of class (a)(1) municipal employees." - HEARD AND HELD HOUSE BILL NO. 19 "An Act relating to the maintenance of certain access structures." - BILL HEARING POSTPONED (* First public hearing) PREVIOUS ACTION BILL: HB 76 SHORT TITLE: MUNICIPAL TAXES ON DETERIORATED PROPERTY SPONSOR(S): REPRESENTATIVES(S) HALCRO, Dyson Jrn-Date Jrn-Page Action 2/03/99 132 (H) READ THE FIRST TIME - REFERRAL(S) 2/03/99 132 (H) COMMUNITY AND REGIONAL AFFAIRS 2/05/99 147 (H) COSPONSOR(S): DYSON 2/25/99 (H) CRA AT 8:00 AM CAPITOL 124 BILL: HB 1 SHORT TITLE: MUNICIPAL COLLECTIVE BARGAINING CONTRACTS SPONSOR(S): REPRESENTATIVES(S) BRICE Jrn-Date Jrn-Page Action 1/19/99 18 (H) PREFILE RELEASED 1/8/99 1/19/99 18 (H) READ THE FIRST TIME - REFERRAL(S) 1/19/99 18 (H) CRA, LABOR & COMMERCE 2/25/99 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER MARC MARLOW Marlow Development Corporation 2600 Railroad Avenue Anchorage, Alaska 99501 Telephone: (907) 258-9662 POSITION STATEMENT: Discussed HB 76 and the McKay Building project. STEVE VAN SANT, State Assessor Department of Community & Regional Affairs 333 West 4th Anchorage, Alaska 99501 Telephone: (907) 269-4605 POSITION STATEMENT: Discussed concerns with HB 76. REPRESENTATIVE BRICE Alaska State Legislature Capitol Building, Room 426 Juneau, Alaska 99801 Telephone: (907) 465-3466 POSITION STATEMENT: Testified as Sponsor of HB 1. KEVIN RITCHIE Alaska Municipal League 217 2nd Street Juneau, Alaska Telephone: (907) 586-1325 POSITION STATEMENT: Discussed the Alaska Municipal League's position on binding arbitration in general and requested more time to have a specific response to HB 1. DON ETHERIDGE District Council of Laborers 710 West 9th Street Juneau, Alaska 99801 Telephone: (907) 586-3707 POSITION STATEMENT: Supported HB 1. MARK DRYGAS, Business Agent Fairbanks Firefighters Association Captain, Fairbanks Fire Department PO Box 71739 Fairbanks, Alaska 99707 Telephone: (907) 488-6001 POSITION STATEMENT: Supported HB 1. DAN HOFFMAN, Sergeant Fairbanks Police Department 656 7th Avenue Fairbanks, Alaska 99701 Telephone: (907) 459-6500 POSITION STATEMENT: Supported HB 1. MATT SODEN, Sergeant Fairbanks Police Department 656 7th Avenue Fairbanks, Alaska 99701 Telephone: (907) 459-6500 POSITION STATEMENT: Supported HB 1. RANDY COFFEY, Detective Fairbanks Police Department 656 7th Avenue Fairbanks, Alaska 99701 Telephone: (907) 459-6500 POSITION STATEMENT: Supported HB 1. DAVE MAITLEN, Police Officer Fairbanks Police Department 656 7th Avenue Fairbanks, Alaska 99701 Telephone: (907) 459-6500 POSITION STATEMENT: Supported HB 1. PERRY WILLIAMSON, Police Officer Fairbanks Police Department 1221 Lois Lane Fairbanks, Alaska 99712 Telephone: (907) 459-6500 POSITION STATEMENT: Discussed binding arbitration. LEONARD BROWN, Detective Fairbanks Police Department 656 7th Avenue Fairbanks, Alaska 99701 Telephone: (907) 459-6500 POSITION STATEMENT: Supported HB 1. ACTION NARRATIVE TAPE 99-9, SIDE A Number 0001 CO-CHAIRMAN HARRIS called the House Community and Regional Affairs Standing Committee meeting to order at 8:03 a.m. Members present at the call to order were Representatives Halcro, Harris, Murkowski, Dyson, Joule and Kookesh. Representative Morgan was absent. HB 76 - MUNICIPAL TAXES ON DETERIORATED PROPERTY CO-CHAIRMAN HARRIS announced the first order of business before the committee would be HOUSE BILL NO. 76, "An Act relating to an exemption from and deferral of payment on municipal taxes on deteriorated property; and providing for an effective date." CO-CHAIRMAN HALCRO, Sponsor of HB 76, stated that HB 76 makes technical changes to HB 399 which was passed last year. HB 399 authorized municipal governments to exempt or defer municipal property taxes on deteriorated property in the hope that developers would redevelop deteriorated properties into productive properties ultimately placed on the tax rolls. Co-Chairman Halcro explained that HB 76 clarifies the following areas: whether a municipality may either partially or totally exempt a property from property taxes; provide an exemption that may begin any time on or before substantial rehabilitation begins; and prohibit an exemption and deferral of property taxes from being in effect simultaneously. CO-CHAIRMAN HALCRO noted that Representative Dyson had signed on as a co-sponsor of HB 76. The legislation has also been introduced in the Senate. The packet includes letters of support from the Anchorage Assembly, the Downtown Partnership, and the United Brotherhood of Carpenters and Joiners of America Local Union 1281. The intent of HB 399 was to allow municipalities to renovate or encourage development of dilapidated properties. One much discussed such property is the McKay Building. The packet includes photos of the proposed renovation of the McKay Building(ph). Number 0337 REPRESENTATIVE JOULE noted that when HB 399 left Senate Rules last year, the language "totally" was deleted. He asked if Co-Chairman Halcro knew why "totally" was deleted. CO-CHAIRMAN HALCRO pointed out that the committee packet contains testimony from Attorney Margaret Rawitz, who helped draft HB 76. There is confusion as to why "totally" was deleted. If a developer is allowed to have a total exemption or deferral of property taxes, then the developer does not pay taxes on the dilapidated property while doing rehabilitation. CO-CHAIRMAN HARRIS asked if the exemption would exempt the building or would it include the property as well. CO-CHAIRMAN HALCRO said that the exemption would apply to the land as well as the building. Number 490 REPRESENTATIVE MURKOWSKI referred to the inserted language "beginning on or any time" which she understood from Ms. Rawitz's letter that the language was inserted in order to provide the municipality flexibility. Does this language provide the municipality the option to grant a referral three years after the beginning of renovation? CO-CHAIRMAN HALCRO explained that most municipalities are required to begin tax referrals/exemptions on the first day of the year. If the rehabilitation does not begin until June, six months is lost. This language provides the municipality with the flexibility to begin the tax deferral any time during the calendar year. REPRESENTATIVE MURKOWSKI believed that the language left it very open. The language does not limit the referral/exemption to any time in that given tax year. CO-CHAIRMAN HALCRO referred to Ms. Rawitz's testimony which says, "The new language would allow a municipality to delay the exemption and/or deferral until the renovation work has been substantially completed." He noted that there is a tremendous amount of local control in this area. The technical changes in HB 76 would allow the municipality the flexibility, but approval at the city council or assembly level would be necessary. REPRESENTATIVE MURKOWSKI expressed the need to make Ms. Rawitz's comments clear in the language of the legislation. Representative Murkowski understood that this is an option given to the municipalities, but she expressed concern that this language is an open-ended provision. CO-CHAIRMAN HALCRO referred to page 1, lines 8 through 10 which reads: "A municipality may by ordinance permit deferral of payment of taxes on all or some types of deteriorated property for up to five years beginning on or any time after the day substantial rehabilitation, renovation, or replacement of any structure on the property begins." Co-Chairman Halcro said although the state statute may be open-ended, the municipalities are the local control in this case. Number 0876 MARC MARLOW, Marlow Development Corporation, informed the committee that last year HB 399 received 11-0 resolutional support from the Anchorage Assembly, passed the House of Representatives 40-0, passed the Senate 19-0, and subsequently the Governor signed it into law. The Anchorage Assembly passed an ordinance amending Municipal Code to reflect HB 399. Mr. Marlow explained that the municipal attorney requested clarification of some points which resulted in HB 76. Mr. Marlow noted that he originally requested that HB 76 be considered due to his opinion that Alaska has buildings that are deteriorating and aging. This law, which many states have in order to facilitate redevelopment of areas that would not otherwise be redeveloped, is patterned after a Pennsylvania law. The McKay Building is an example of the benefit of passing HB 76. Mr. Marlow acknowledged that it could be some time before this law would be utilized again since there are not a tremendous amount of older buildings, but dealing with just the McKay Building would be worth the effort. With regards to the McKay Building, the design is finished, the plans have been turned into building safety, the building permit number has been assigned to the project, and the plan review should require eight to ten weeks in the process. Mr. Marlow expressed appreciation in making these amendments to afford the municipal attorney more comfort with the language. Number 1109 MR. MARLOW explained that the McKay Building could not move forward as a straight business deal without this law. Even with the property tax exemption and deferral, the McKay Building project is having difficulties. This will help the municipality have more funds in the treasury for property taxes long-term. Currently, the McKay Building does not provide any revenue and would cost approximately $3 million of tax payer money to tear down the building. Under this scenario, the McKay Building would create many jobs and in 10 years the municipality would receive approximately $200,000 per year in property taxes. The area surrounding the building would increase in value; this would be the beginning of a renewal on the east end of downtown Anchorage. REPRESENTATIVE MURKOWSKI mentioned her specific interest in the McKay Building since it is a blight in her personal skyline. She asked if the July 1, 1999 effective date of HB 76 would affect the development process. Number 1221 MR. MARLOW replied no. He explained that the property tax exemption and deferral that any municipality may pass does not go into effect until there is performance. This prevents municipalities from extending property tax exemptions and deferrals on property that is never renovated. Mr. Marlow said that the performance on the McKay Building would not be completed until well into 2000. MR. MARLOW said that it does not matter when the exemption and deferral begin. The language was inserted to allow the exemption and deferral to begin the next tax year after completion of the project, after the performance was accomplished. Mr. Marlow pointed out that if the exemption and/or deferral began three years after the completion of the project, the property would be paying property taxes in between. MR. MARLOW, in further response to Representative Murkowski, reiterated that the redevelopment design for the McKay Building is complete and has been turned into Building Safety in Anchorage and that process would take approximately eight weeks. The financing vehicle is in the third phase of a four phase period of consideration which would not be completed any earlier than 60 days from now. Mr. Marlow hoped the renovation would be started in July or early August and would require approximately 11 months to complete. By the summer of 2000, people should be able to move into a safe and renovated McKay Building. MR. MARLOW informed the committee that last year a market study by a Seattle research firm concluded that the McKay Building's 123 unit apartments would be filled within four months of its completion. The target market for these apartments is anyone, but Mr. Marlow believed that it would be appealing to the young, 20 something person, who works downtown. The marketing will take place in the newspaper and the Internet. In response to Co-Chairman Harris, Mr. Marlow felt the McKay Building would be renamed. Number 1475 STEVE VAN SANT, State Assessor, Department of Community & Regional Affairs, testified via teleconference from Anchorage. He noted that he did not have a chance to testify on HB 399 last year and had not talked with Representative Halcro about HB 76, but had discussed SB 54 with Senator Kelly. Mr. Van Sant directed the committee to the language on page 1, lines 9-10 which Co-Chairman Halcro said was intended to allow the exemption to begin any time during the year. To date, all exemptions in Alaska begin the first day of the tax year, January 1, and the supreme court has ruled on that matter. Therefore, Mr. Van Sant expressed concern with allowing partial year exemptions. With regard to the McKay Building, Mr. Van Sant would recommend to Anchorage that the exemption begin January 1 which seemed to be what Mr. Marlow indicated. MR. VAN SANT referred to page 1, lines 13-14 which does not indicate that the municipality may collect interest on deferred taxes. Currently, only one statute allows deferment of taxes which is the agricultural exemption and deferment. The agricultural exemption and deferment allows the municipality to collect deferred taxes with interest at eight percent. Mr. Van Sant suggested language specifying that the municipality would not lose interest on deferred taxes should be added. He believed it would be almost administratively impossible to as lines 13-14 say, "if ownership of only part of the property is transferred, all tax payments attributable to that part are immediately due ...." If ownership is transferred, Mr. Van Sant wanted all deferred tax payments to be due and payable at that time, including the eight percent interest. Mr. Van Sant noted that as a state assessor he is typically opposed to exemptions and deferments. However, in the case of the McKay Building, Mr. Van Sant applauded Mr. Marlow's plans and reluctantly backed down from his usual stance understanding this would be for the good of the community and would like for the project to move forward. Number 1689 CO-CHAIRMAN HARRIS asked if Mr. Van Sant suggested on page 1, line 13 after "immediately due" insert "interest". MR. VAN SANT clarified that on page 1, line 13 delete "only" and insert "any" and on line 14 after "payments" insert "including interest at eight percent" and delete "to that part". On page 2, line 1 delete "attributable to that part". In further response to Co-Chairman Harris, Mr. Van Sant explained that eight percent interest is desirable because that is consistent with the statutes for agricultural deferments. Number 1800 MR. MARLOW agreed with Mr. Van Sant that once the property is transferred, the deferred portion of the taxes should be paid. However, the interest on this type of exemption or deferral was specifically avoided. Mr. Marlow explained, "When a person applies for and receives a farm deferral, what they are saying is: I have a piece of property that in the open market place might be worth many, many more dollars than than what I'm using it for. And so, I want that, you know, it might be assessed at a value that's much higher than its use as a farm. And so, a person applies for the farm deferral and the taxes back seven years are counted at the lower rate, but the interest that -- the interest accrues so that when that farmer decides I'm going to sell my property now on the open market place and collect all this money that I wasn't paying taxes for here; kind of recompensates the municipality for the taxes that they weren't paying on a higher value back seven years." In this case, Mr. Marlow explained this addresses property that without this incentive would have no hope of being renovated. Such a property would then be placed back in the market place and made taxable at its highest value. Mr. Marlow emphasized that applying interest to a deferred portion would be a disincentive to those goals. REPRESENTATIVE MURKOWSKI asked if the issue regarding interest had surfaced during prior discussions. MR. MARLOW could not testify if the issue of interest publicly surfaced in the past. Certainly, the issue of interest was considered during the creation of the legislation. Interest was specifically avoided with respect to the deferred portion. Number 1992 CO-CHAIRMAN HARRIS restated Mr. Van Sant's point that state statute only allows tax deferrals to begin January 1 which would seem to be at odds with the language on page 1, line 9. Co-Chairman Harris asked if Mr. Marlow would have a problem with including language indicating the deferral would begin at the beginning of the tax year. MR. MARLOW believed that the language in HB 76 was used in order to allow the municipality to begin the deferral and/or exemption the following tax year after performance to be compliant with state law. Mr. Marlow did not recall any discussion or intent to allow the exemption in July or August. Mr. Marlow said that whatever would be necessary to ensure clarity on that issue would be fine. CO-CHAIRMAN HALCRO noted that Ms. Rawitz drafted an ordinance for the Municipality of Anchorage which created a tax exemption and deferral program. Co-Chairman Halcro read the following from Ms. Rawitz's testimony: "Since most municipalities would prefer to (or are required to) begin a period of exemption or deferral on the first day of the tax year, it is appropriate to permit an exemption to begin at any time on or after the beginning of renovation, since renovation is not likely to begin on the first day of the tax year." CO-CHAIRMAN HARRIS inquired as to the legality of the language. MR. MARLOW said that he believed that was the intent. MR. VAN SANT stated that he was comfortable with the language, as long as the record reflects that the intent of the committee was not to change the manner in which exemptions are attached as of January 1. From working with the municipality and its attorney on this ordinance, the day Mr. Marlow broke ground would be the day the exemption would begin. Mr. Van Sant further understood the intent was to have a delay of a year until more substantial completion was accomplished which is what Mr. Van Sant understood the reasoning to be for this language. Number 2182 MR. MARLOW agreed. The exemption should not be initiated until the performance or substantial completion has been accomplished and the next tax year begins. Mr. Marlow agreed with Mr. Van Sant's assessment of the intent of the language regarding the beginning of the exemption or deferral. CO-CHAIRMAN HALCRO said that HB 76 is a win-win situation for all communities. Co-Chairman Halcro used the McKay Building project as an example of how this legislation would be beneficial. This legislation would allow a developer to invest money in the McKay Building which once on the property tax rolls would reduce everyone's property taxes in Anchorage, employ people, and create a foundation in the neighborhood. Co-Chairman Halcro said he would appreciate support on HB 76. Number 2310 REPRESENTATIVE DYSON moved to report HB 76 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered. The committee took a brief at-ease from 8:37 a.m. to 8:40 a.m. REPRESENTATIVE MURKOWSKI moved that the committee rescind its action on HB 76 for the purposes of an amendment. There being no objection, HB 76 was before the committee. Number 2350 REPRESENTATIVE MURKOWSKI moved the committee adopt the following amendment: Page 1, line 13 Delete "only" Insert "any" Page 1, line 14 Delete "to that part" Page 2, line 1 After "due", delete "and the deferral attributable to that part ends." Therefore, the language on page 1, lines 13-14 would read: "if ownership of any part of the property is transferred, all tax payments attributable are immediately due." CO-CHAIRMAN HALCRO pointed out that deleting "to that part" would mean that the taxes would be due on the whole property not just the sole portion. REPRESENTATIVE MURKOWSKI understood from Mr. Marlow's testimony that if any part of the ownership was transferred, at that time any deferred taxes would be due. MR. MARLOW indicated that was correct. CO-CHAIRMAN HARRIS asked if there was objection to the amendment. There being no objection, the amendment was adopted. Number 2490 REPRESENTATIVE DYSON moved to report CSHB 76(CRA) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered. HB 1 - MUNICIPAL COLLECTIVE BARGAINING CONTRACTS Number 2523 CO-CHAIRMAN HARRIS announced that the next order of business before the committee would be HOUSE BILL NO. 1, "An Act relating to collective bargaining agreements and arbitration awards of class (a)(1) municipal employees." REPRESENTATIVE BRICE, Sponsor of HB 1, stated that HB 1 puts meaning back into collective bargaining. During negotiations employees generally have the following two tools: the right to strike and binding arbitration. Within the Public Employees Relation Act, Class(a)(1) employees such as firemen, policemen, and hospital staff do not have the right to strike. Since Class(a)(1) employees do not have the right to strike to ensure finality within the negotiating process their negotiated contracts are submitted to binding arbitration. The situation can become problematic if during the negotiation process, the employers and the employees agree on a contract which is subsequently disapproved by a city council. The employee organization has no means by which to compel good faith bargaining in the future. Problems also arise when the employee and employer have the negotiations submitted to binding arbitration and the arbitrator's decision is not funded by the council or assembly. Once again the firemen and policemen are left in limbo with no venue to compel good faith negotiation in the future. This legislation, HB 1, would reestablish the "binding" in binding arbitration. Number 2680 CO-CHAIRMAN HALCRO expressed concern with the broadness of Class(a)(1) employees, specifically regarding hospital employees. REPRESENTATIVE BRICE asked if the employees of a hospital where life-dependent functions occur should be allowed to strike. The public policy has been not to allow hospital employees to strike. If hospital employees want to be included under the Public Employees Relations Act (PERA) those employees must negotiate under binding arbitration as well. Representative Brice pointed out that hospital employees do provide life-saving services. REPRESENTATIVE KOOKESH asked if there had been a group of employees that did not have a venue for redress. REPRESENTATIVE BRICE replied yes. The Fairbanks Police Department had a contract go to binding arbitration. The decision was made to fund the incremental increases to pay as well as food and clothing allowance requirements which were not funded. When the case was submitted to superior court, the court ruled that the council did not have to honor the binding arbitration. REPRESENTATIVE KOOKESH inquired as to the general rule in the United States regarding Class(a)(1) employees. REPRESENTATIVE BRICE said that he could provide that information. In response to Representative Murkowski's question, Representative Brice said that since no effective date is specified the legislation would become effective 90 days after signature. Number 2953 KEVIN RITCHIE, Alaska Municipal League, apologized to Representative Brice since the Alaska Municipal League had not completed discussion of HB 1. The Alaska Municipal League discusses public policy issues with its legislative committee which on this issue resulted in many questions. Mr. Ritchie noted the complexity of binding arbitration and labor law as well as the delicate balance between binding arbitration and a local council/assembly with the ability to set a tax rate without mandated issues. He identified the later as perhaps what HB 1 addresses. TAPE 99-9, SIDE B Number 2983 MR. RITCHIE pointed out that when two parties reach the final offer through a collective bargaining process, the offers could be close or very far apart. When the decision goes to an arbitrator, the arbitrator chooses something in between the two final offers. Currently, councils and assemblies have the ability to appropriate or not appropriate because what is best for a community must be determined. Mr. Ritchie read the Alaska Municipal League's position on binding arbitration which follows: The League opposes imposing binding arbitration on local governments and school districts. Binding arbitration hinders local elected officials' ability to determine their personnel costs and prevents local governments from having complete control of determining the local tax rate. The scope of decisions with regard to what local government can afford, is best left to the local bodies possessing that knowledge. Mr. Ritchie stated that he would continue work on this issue as well as talk with the sponsor on this issue. CO-CHAIRMAN HALCRO noted that HB 1 has been on file for quite some time. He was surprised that there was not one letter of opposition from any local governments. Is this not an issue for the local governments? MR. RITCHIE acknowledged that there have not been a lot of bills this year, but the League has not completed discussion on all of the bills. This issue was not brought to the League during the interim as it could have been. Currently, Mr. Ritchie estimated that the League is tracking 20 or 30 bills. Number 2852 CO-CHAIRMAN HARRIS said that he could see both sides of this issue, especially having experience with local government and being a member of a labor union. Where are essential emergency personnel left if they do not have the right to strike and cities are not bound by the terms of any agreement with those employees? Co-Chairman Harris indicated that these employees seem to be left in limbo in many cases. MR. RITCHIE said that in most cases contracts are an agreement between two parties, but that is not so with binding arbitration. Mr. Ritchie also saw both sides of the issue. There may be a better solution. Mr. Ritchie emphasized that this is a very complex area that would require much analysis and discussion which has not yet been returned from the municipal attorneys and councils. CO-CHAIRMAN HARRIS stated that he would not be reporting HB 1 from committee today in order to receive more information from various groups. REPRESENTATIVE DYSON concurred. Representative Dyson was surprised that HB 1 did not result in comments from many local governments. What would be a reasonable time frame to receive responses from local governments? MR. RITCHIE estimated that two weeks would be a reasonable time frame. Number 2715 DON ETHERIDGE, District Council of Laborers, supported HB 1. Binding arbitration is designed to reach an agreement, to determine the balance of the various sides. This legislation would make municipalities work harder to reach an agreement that everyone could live by. With regard to a previous question about Class(a)(1) employees, Mr. Etheridge informed the committee that Alaska Labor Relations determines which public employees are classified as Class(a)(1). Mr. Etheridge said that once an agreement is reached that agreement should be followed. CO-CHAIRMAN HARRIS noted that school teachers do not fall under this classification. MR. ETHERIDGE replied no. In order to fall under this classification, the employee must work in the area of life or property protection. CO-CHAIRMAN HARRIS cited AS 23.40.200 Classes of public employees; arbitration subsection(b), "... If an impasse or deadlock is reached in collective bargaining between the public employer and employees in this class, and mediation has been utilized without resolving the deadlock, the parties shall submit to arbitration to be carried out under ...." He asked if that section refers to municipalities. MR. ETHERIDGE said that portion of statute would refer to municipalities that are under PERA. Number 2544 MARK DRYGAS, Business Agent, Fairbanks Firefighters Association and Captain, Fairbanks Fire Department, testified via teleconference from Fairbanks. Mr. Drygas supported HB 1. The Fairbanks Fire Department has had an expired contract since 1995. Negotiations have been ongoing for over three years. In the past, the Fairbanks Council has not funded the arbitrators award. The Fairbanks firefighters are at disadvantage and not playing on a level field. Mr. Drygas explained that the firefighters are compelled by law to utilize binding arbitration if an impasse is reached and they are compelled to abide by binding arbitration. If an arbitrator found that the firefighters were overpaid or ruled that a change in the contract be made which would negatively impact the employees, the employees are bound by that ruling. However if the arbitrator found that wage increases were necessary, the city would have the opportunity not to fund that. The Class(a)(1) employees are bound by the negative impacts of the binding arbitration without the advantage of the positive impacts. Mr. Drygas noted that the Fairbanks firefighters had not received a wage increase since 1990. MR. DRYGAS said this situation only recently occurred due to a court decision. Under previous contract negotiations, the Fairbanks firefighters and the municipality felt that binding arbitration was an option during an impasse. The Fairbanks firefighters have never gone to arbitration in the five or so contracts with the city. In each instance, negotiations and agreements on a collective bargaining agreement have occurred. Mr. Drygas said that all contracts do not go to binding arbitration and that is not the hope. In the specific case of the firefighters in Fairbanks, Mr. Drygas did not foresee any resolution to contract negotiations without HB 1 or something similar. Number 2340 REPRESENTATIVE JOULE asked if he understood Mr. Drygas correctly. Representative Joule understood that if negotiations reach an impasse, the parties go to arbitration. If there are negative impacts in the decision of the arbitrator, the employees must abide by those recommendations while if the arbitrator's decision has negative impacts to the municipality, the municipality is not required to abide by that decision. MR. DRYGAS said Representative Joule's assessment was correct. The arbitrator's decisions are subject to legislative approval, therefore a spending increase. The city basically can pick and choose what it wants to fund or agree to from the arbitrator's decision. The employees, however are bound by the arbitrator's decision. CO-CHAIRMAN HALCRO inquired as to the number of times Mr. Drygas had been to binding arbitration in the last 15 years. MR. DRYGAS said that in the 25 years of contracts with the city, the Fairbanks firefighters have never gone to binding arbitration. Until the supreme court case, previous negotiations between the city and the Fairbanks Firefighters Association felt that binding arbitration was binding. Mr. Drygas wanted the option of binding arbitration in order to foster the spirit of good faith bargaining. Number 2187 DAN HOFFMAN, Sergeant, Fairbanks Police Department, testified via teleconference from Fairbanks. Mr. Hoffman supported HB 1. He said that Co-Chairman Harris crystallized this issue with his earlier question: where are Class(a)(1) employees left if these employees cannot strike and the city does not have to fund an arbitrated award under a contract? Mr. Hoffman pointed out that arbitration is a fair and objective process. If Class(a)(1) employees are bound by the arbitrator's awards to the agency, the negative side, then the city should be bound by the awards to the employees. MR. HOFFMAN informed the committee that the Fairbanks Police Department is under the contract that expired in 1993. During the last contract that went to binding arbitration, the city failed to award one of the arbitrator's findings which has halted all of the contract negotiations and collective bargaining. He indicated that the city could keep the police department under the old contract forever. The police officers do not have any recourse. Mr. Hoffman emphasized the need for contracts to be negotiated in good faith and that the option of binding arbitration truly be binding. REPRESENTATIVE MURKOWSKI had the impression that there are not many situations that lead to binding arbitration. She was concerned with the selective process that allows a municipalitiy to pick and choose which of the arbitrator's decisions to fund. How much of a problem is this? Number 1950 MR. HOFFMAN said, in his opinion, this is the largest labor problem facing the state. This situation has only arisen from a recent court decision. Prior to the court decision, municipal bodies or local governments felt that binding arbitration was binding. Therefore, the local government worked as hard as possible to come to an agreement and in the case of an impasse an arbitrator's award was considered binding. In the fine print of PERA, the phrase "subject to legislative funding" was discovered and used so that local governments did not have to fund an arbitrator's award. Mr. Hoffman believed that if this situation is not remedied, every local government in a position to bargain will use this phrase to take away any meaning to binding arbitration. REPRESENTATIVE MURKOWSKI asked if there have been other instances in which a municipality has selectively funded an arbitrator's decision since the Fairbanks case. MR. HOFFMAN was not sure, but reiterated that this is a recent problem. The problem is occurring now, after the court case, because local governments are currently coming to the table to negotiate new contracts. Mr. Hoffman said this is why there are attempts to put a stop to the problem before it becomes a big problem. MR. HOFFMAN, in response to Representative Dyson, said that a Sergeant in the Fairbanks Police Department receives an annual salary of $55,000-$70,000 with a total salary and benefit package of 34 percent above the salary. Number 1784 CO-CHAIRMAN HALCRO noted that the information in the committee packet says that the council did fund pay raises, but did not fund the four percent increase in meal and clothing allowances. He asked if that was correct. MR. HOFFMAN replied no. After the expiration of the 1993 contract, the attempts to negotiate a new contract have been unsuccessful. Mr. Hoffman agreed that the Fairbanks Police Department has not received a wage increase in six years. MATT SODEN, Sergeant, Fairbanks Police Department, testified via teleconference from Fairbanks. Mr. Soden supported HB 1. With regards to the Fairbanks Police Department's contract, the police department did go to binding arbitration on the wage issue as well as the clothing and meal allowance. The arbitrator ruled that the Fairbanks Police Department should receive a 12 percent increase in wages spread over about a four year period. The city council refused to fund that ruling and exercised the "subject to legislative approval" language in PERA. That issue went to the supreme court where the court supported the council's decision not to fund the wage increase. Mr. Soden believed that HB 1 would correct that discrepancy and allow true binding arbitration. He believed that the scale is currently tipped heavily in favor of the city. With regard to the previous question about the prevalence of this problem, Mr. Soden did not see any reason why local governments and such would not take advantage of the situation in the future. Number 1575 RANDY COFFEY, Detective, Fairbanks Police Department, testified via teleconference from Fairbanks. Mr. Coffey supported HB 1. He informed the committee that he was a past president of the association and has been around for 18 years under the city ordinance, collective bargaining, and binding arbitration. Mr. Coffey said that binding arbitration has worked in the past. The arbitrator is utilized in order to help move the process along and narrow down the points of contention. DAVE MAITLEN, Police Officer, Fairbanks Police Department, testified via teleconference from Fairbanks. He supported HB 1. Mr. Maitlen said, "The Public Employees Relations Act, under the Declaration of Policy states in part, 'The legislature declares that it is the public policy of the state to promote harmonious and cooperative relations between government and its employees and to protect the public by assuring effective and orderly operations of government. The legislature further finds that the enactment of positive legislation establishing guidelines for public employment relations is the best way to harness and direct the energies of public employees eager to have a voice in determining their conditions of work, to provide a rational method of dealing with disputes and work stoppages, to strengthen the merit principle where civil service is in effect and to maintain a favorable political and social environment.'" This language makes the legislative intent clear, however the legislative intent is not reflected in AS 23.40.215, Funding and legislative approval with regards to Class 1 employees. Currently, a municipal employer is not compelled to fund an arbitrator's binding award while the employee is bound by the arbitrator's decision. The City of Fairbanks has refused to fund arbitrated wages for police and fire departments under the aforementioned statute. Therefore, the wages for police officers have not changed since 1992 and the contract for police officers expired June 30, 1993. The wages for firefighters have not changed since 1990. How can one be assured that binding arbitration is binding on both parties? Mr. Maitlen believed that HB 1 would resolve this issue and urged the committee's support of HB 1. Number 1300 PERRY WILLIAMSON, Police Officer, Fairbanks Police Department, testified via teleconference from Fairbanks. He informed the committee that he has been a Fairbanks police officer for the past 17 years. Mr. Williamson echoed prior comments that the Fairbanks Police Department employee's union and the City of Fairbanks felt binding arbitration bound both sides. Binding arbitration has worked in the past. This "loophole" took away the city's commitment to binding arbitration. Mr. Williamson did not believe that the legislative intent of PERA was to allow the city that "loophole." Mr. Williamson said that he was present to inform the committee of the situation in order to change the language to commit both sides in binding arbitration. Number 1186 LEONARD BROWN, Detective, Fairbanks Police Department, testified via teleconference from Fairbanks. He informed the committee that he had been with the police department for 23 years. Mr. Brown supported HB 1. Mr. Brown believed that the local governments have not commented on this issue because the local governments know this is wrong. MR. BROWN posed the following scenario as an example. What if suddenly legislators were required to pay their own travel expenses which the legislator would believe to be unfair. What if that issue was taken to binding arbitration and the arbitrator ruled that the state should pay for travel expenses, but the state did not fund the travel expenses. That is a similar situation to the Fairbanks Police Department which has not had a contract with the city for six years. MR. BROWN said that this situation has come down to dollars with the city council which cannot do its job in finding the funding when necessary. The legislature is in the same position facing cutting budgets, but when an arbitrator has decided the budget should be funded the legislature has done so or negotiated. He stated that the cities believe they do not have to fund contracts. For the first 15 years of Mr. Brown's experience with the police department, working out the issues together was the approach. Mr. Brown emphasized that employees such as himself have no avenue for recourse if the city does not fund a negotiated contract. Mr. Brown wanted what is fair and equitable for all involved. REPRESENTATIVE DYSON mentioned that legislative travel home for Representatives has been reduced from five visits to one visit. Representative Dyson shared Mr. Brown's consternation. MR. BROWN said that the travel scenario could be any number of issues such as pay. Mr. Brown believed it sad for the transition to the "them vs. us" attitude which has not been the case in the past. REPRESENTATIVE KOOKESH pointed out that the Minority has only received one paid visit home each year. Number 539 CO-CHAIRMAN HALCRO surmised from Mr. Brown's testimony that this problem of not funding an arbitrator's award has happened in the case of the Fairbanks Police Department only once. Co-Chairman Halcro also understood Mr. Brown to indicate that over the last couple of years the city council has become miserly and refused to negotiate; is this attitude due to the lack of available funds or the general dislike of the Fairbanks Police Department? MR. BROWN believed that the city council is probably in the same position as the legislature as far as down-sizing and funding is difficult. However, it is the job of the city council to find the funding for a decision from an arbitrator. Mr. Brown did not believe the city council hated the police department. The Fairbanks Police Department has not received a wage increase in six years. He pointed out that the rest of the country has caught up to Alaska's pay scale. In conclusion, Mr. Brown said the city should be held accountable to the arbitrator's decisions. REPRESENTATIVE MURKOWSKI noted that she too had received the impression from Mr. Brown's testimony that the city was retaliating against the police department. Representative Murkowski understood Mr. Brown's response to Co-Chairman Halcro to be that the situation basically comes down to fiscal concerns. REPRESENTATIVE JOULE reminded the members that much legislation is passed due to a single incident; just two weeks ago this committee passed legislation in response to a single incident. Sometimes it is necessary to get behind a single incident to avoid multiple incidents. Number 0123 CO-CHAIRMAN HARRIS asked if binding arbitration is utilized and communities are making decisions based on a lack of funds, will an arbitrator's wage increase award result in the laying off of employees to pay for the service. MR. BROWN said, "I guess you could always say that they could say well, if we have to pay you money then we're going to have to lay off people. I certainly wouldn't put that past the city to do that, instead of trying to find a reasonable way to find funding." TAPE 99-10, SIDE A [RECORDER MALFUNCTION; APPROXIMATELY ONE MINUTE OF TESTIMONY WAS MISSED, DURING WHICH TIME MR. BROWN AND CO-CHAIRMAN HARRIS SPOKE.] Number 0003 MR. BROWN stated, "We've always given back to the city; in every situation where they said, 'We're going to lay people off,' our officers have gotten together and said, 'Okay, we'll give this up.' But it's not all just about total money or dollars. It just comes down to an entire contract. If they don't fund one item, you have no items. And then they go back to - like here we are - a contract that's six years old." He said they gave up 3 percent one time, and perhaps 4 percent another time, for at least a three-year period, so that the city wouldn't lay off officers. He emphasized that with no contract, they are at the city's beck and call. Number 0329 REPRESENTATIVE DYSON requested that the next hearing be delayed until hearing from the Alaska Municipal League, in which case he would defer his questions. He then told members he had misspoke, and that he believes he was reimbursed for three trips; however, none of the trips he had wanted to make this year to conferences were being funded. Number 0422 CO-CHAIRMAN HALCRO asked whether there have been contract talks or ongoing discussions. REPRESENTATIVE BRICE said there are. CO-CHAIRMAN HALCRO recalled that in Anchorage there had been a situation for years with the firefighters, with a delay because the city had appealed the binding arbitrary award, taking issue with how the determination was made. When the supreme court ruled recently that the city had to abide by the final terms and conditions, the taxpayers were left to foot the bill, including interest. Co-Chairman Halcro noted that the committee had heard from only one side on the Fairbanks situation. He inquired whether the city council had done cost studies or surveys that showed that the Fairbanks Police Department officers were paid more than the national average, for example. He asked what the feeling is in Fairbanks. REPRESENTATIVE BRICE replied that the bill has been out for a month, and there was talk about it for a number of months before that. However, there has been no feedback. He said he cannot speak to the city council's response, then suggested Mr. Drygas or Mr. Soden could address the issue. He stated his own understanding that there are regular Tuesday meetings where the negotiations have been fruitless. Number 0750 MR. DRYGAS explained their contract expired at the end of 1995. Since November of that year, they have tried to negotiate weekly. The city has a proposal on the table that would decrease wages for firefighters; starting firefighters now make $11.69 per hour, the same wage as in 1990. Although arbitration had been discussed, the city has indicated they may not fund an arbitrator's decision. Mr. Drygas emphasized that his association has tried to negotiate in good faith and has made many changes to the contract. However, anything that deals with economics or benefits is at a stalemate. There is neither a right to strike nor arbitration, and without some method of resolution, he foresees this continuing for some time. Mr. Drygas pointed out that even if the firefighters had the right to strike, he could not do so because of the nature of the job. MR. DRYGAS told members that with binding arbitration, a third party could resolve these differences in a fair manner. The city could bring up lack of funding and wage rates, for example, and the arbitrator would come up with an equitable decision. It would be a way to resolve the dispute without a work stoppage. Used by many municipalities around the country, arbitration is both a good way to resolve disputes and to maintain a harmonious relationship. Number 0894 PATRICK COLE, Attorney, City of Fairbanks, testified via teleconference. He indicated that two weeks ago, the city council passed a resolution opposing HB 1 unless the city could opt out of PERA [Public Employees Relations Act]. Both he and the city have great respect for the firefighters and police officers. He believed financial problems are not due to any attempt to punish employees; most of their nonbargain unit employees are in the same financial situation that the unions are in. Years ago, the city negotiated contracts and was able to make pay increases frequently. However, Mr. Cole believed the tax revenues today are roughly equal to what those 20 years ago. The city has been under a financial crunch, and has lost many employees to layoffs, RIPs [retirement incentive programs] and nonreplacement over the past 15 years. Luckily, in the past five years some employees have been replaced, but the city is still very short of prudent levels of service for the community, not only in police and fire protection, but also in other areas. MR. COLE told members that five years ago the city, in reviewing the law, noticed that since the passage of PERA the state has been able to "nonfund" contracts, which it has done many times with police contracts. Nothing forbade cities from having the same ability, and the current situation is the result of the city invoking that law, trying to use the same tools to save money that the state can use. Mr. Cole said his ground rules prevent him from saying anything about what has gone on at the bargaining table, and therefore he cannot comment on Mr. Drygas's assertions. However, they have been negotiating. Their contracts have a so-called evergreen clause, so that contracts do not expire, therefore there are contracts negotiated in the early '90s which still exist. The city has struggled with the ability to provide services within its budget. He noted that a tax cap in Fairbanks prevents raising taxes beyond a very tight formula, and revenues are a significant problem. Number 1119 CO-CHAIRMAN HALCRO announced that the committee would hold HB 1 over; it would probably be addressed again in a couple of weeks after a response from the Alaska Municipal League and others. ADJOURNMENT There being no further business before the committee, the House Community and Regional Affairs Standing Committee meeting was adjourned at 10:00 a.m.