HOUSE FINANCE COMMITTEE MARCH 5, 1996 1:38 P.M. TAPE HFC 96 - 60, Side 1, #000 - end. TAPE HFC 96 - 60, Side 2, #000 - end. TAPE HFC 96 - 61, Side 1, #000 - #565. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 1:38 p.m. PRESENT Co-Chair Hanley Representative Martin Co-Chair Foster Representative Mulder Representative Brown Representative Kohring Representative Grussendorf Representative Parnell Representative Kelly Representative Therriault Representatives Navarre was not present for the meeting. ALSO PRESENT Mark Boyer, Commissioner, Department of Administration; Representative Con Bunde; Mila Doyle, Labor Relations, Department of Administration; Lee Palsen, Labor Relations, Department of Administration; Robert Stalnaker, Director, Division of Retirement and Benefits, Department of Administration; Michael McMullen, Personnel Manager, Division of Personnel, Department of Administration; Diane Corso, Labor Relations Manager, Department of Administration; Gretchen Pence, Special Assistance, Department of Public Safety; Bruce Ludwig, Alaska Public Employees Association; Wendy Redman, Vice President, University of Alaska; Mary Lou Burton, Director of Budget, University of Alaska; Ralph McGrath, Alaska Community College Federation of Teachers; Margaret MacKinnon, Alyeska Correspondence School Education Association. SUMMARY CONTRACT LABOR AGREEMENTS & COMPENSATION INCREASES: SUPERVISORY UNIT (SU) PUBLIC SAFETY EMPLOYMENT ASSOCIATION (PSEA) ALYESKA CORRESPONDENCE SCHOOL EDUCATION ASSOCIATION (ACSEA) UNIVERSITY OF ALASKA CONTRACT LABOR AGREEMENTS & COMPENSATION INCREASES: 1 ALASKA COMMUNITY COLLEGE FEDERATION OF TEACHERS CLASSIFIED EMPLOYEES ASSOCIATION NON-COVERED EMPLOYEES MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION noted that the General Government Unit contract was negotiated in the spring of 1995. He pointed out that this contract formed the blue print of further contract negotiations. He emphasized the absence of Legislative action regarding the GGU contract. He noted that absent an indication that the terms and conditions of the GGU contract were not acceptable that the Administration assumed that they were on the right track in contract negotiations. Six subsequent contracts were negotiated along the same terms. He observed that the GGU contract provides a one year zero wage increase and a subsequent increase of one-half of the Anchorage Consumer Price Index (CPI) capped at 1.5 percent for each year of the contract, limited to 4.5 percent over the life of the contract. He stressed that the Legislature acts as a Board in respect to negotiations between the Administration and employee groups. He observed that negotiations are occurring with 7 of 11 bargaining units. Commissioner Boyer noted that AS 23.40.215 requires the Department of Administration to submit the monetary terms and conditions of contracts by the 10th legislative day. The Legislature can reject the monetary terms by passage of a current resolution. The reasons for rejection would be stated in the current resolution. He maintained that the Legislature had opportunities within the 60 day time frame to send a signal if the Legislature did not accept the terms and conditions of the GGU contract negotiations by the Administration. SUPERVISORY UNIT (SU) Commissioner Boyer discussed the terms of the SU contract. He noted that the contract calls for a one year zero wage increase with a subsequent yearly increase of one-half of CPI, not to exceed 1.5 percent, capped at 4.5 percent. He observed that 90 percent of the employees in this group are not overtime eligible. These persons would receive a flat 1.5 percent increase after the first year. He stressed that this is the professional management group. He noted that the contract allows $50.0 thousand dollars for training each year. In addition, a flexible benefit plan would be adopted. He maintained that flexible benefit plans will save the employer money. He added that the Administration will propose a flexible benefit plan to cover all non- covered employees. 2 BOB STALNAKER, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION discussed flexible benefit plans. He explained that a flexible benefit plan provides a defined employer cost and allows employees to select from an array of benefits. Employees could pay less than the current insurance premium of $423.50 dollars. The difference between the allowed state health insurance premium and the cost of the plan selected by the employee would go into a flexible spending account that could be applied to deductibles. Employees that want more expensive options could select further coverage. Employees would be responsible for additional costs. He noted that labor management groups can assure that the right options are being offered and that the appropriate costs are charged for each option. Commissioner Boyer asserted that the flexible benefit plan is a major cost containment initiative that the Administration hopes to expand. BRUCE LUDWIG, ALASKA PUBLIC EMPLOYEES ASSOCIATION explained that SU employees are above a foreman and below a political appointee. He observed that the average longevity in this unit is 13 years. The majority of this unit work overtime hours without compensation. Mr. Ludwig noted that labor management committees attempt to find efficiencies in government and reduce travel costs. Mr. Ludwig discussed issues of concern. He maintained that the loss of jobs through outside contracting should represent real savings to the State after accounting for actual costs. He discussed geographic pay differentials. He noted that the Legislature contracted for a study in 1984. He asserted that the 1984 study resulted in real geographical pay cost differentials. He urged the Committee to change geographical differentials to reflect the 1984 study. He observed that there is a perception that state employees are overpaid. He noted that employees can only bargain the state pay schedule. The Alaska Personnel Act provides that the employer place positions on the pay schedule depending on the market. He noted that the Department of Administration is required by statute to do an annual salary survey. He questioned if the salary survey had been completed since 1984. He noted that positions have been down graded along the schedule. Mr. Stalnaker stated that the impact of contract salary changes to PERS and SBS will be provided to the Committee. Commissioner Boyer noted that SBS and PERS are set in statute. DIANE CORSO, LABOR RELATIONS MANAGER, DEPARTMENT OF ADMINISTRATION explained that the SU contract changes 3 standby pay from .75 hours per day to 1.25 hours per day for overtime ineligible employees. She pointed out that overtime ineligible employees recalled to work do not receive additional compensation. Commissioner Boyer noted that the monthly health insurance premium provided by the State would be raised to $450 dollars as an inducement to adopt a flexible benefit plan. Mr. Stalnaker explained that an employee could elect a minimal benefit plan at $385 dollars or a plan for maximum coverage at $500 dollars. Any benefits over $450 dollars would be paid one hundred percent by the employee. PUBLIC SAFETY EMPLOYMENT ASSOCIATION (PSEA) Commissioner Boyer noted that this contract was not negotiated until December, 1995. The contract lapsed at the end of December and was extended until June 30, 1996. The salary schedule would include a 1.5 percent increase effective January 1, 1996 to December 31, 1998. He observed that this group has a health trust. The State's contribution to the Trust would be increased to $495 dollars effective July 1, 1996 and to $520 dollars effective July 1, 1997. A lump sum payment to the Trust was eliminated. Commissioner Boyer provided members with a spreadsheet of the approximate cost of bargaining unit contracts and other non-covered employee compensation (Attachment 1). He noted that merit increases and longevity increases are not covered in Attachment 1. He stressed that TRS, PRS, longevity and merit increases are internally financed by the personal services line in every department. In response to a question by Co-Chair Hanley, Commissioner Boyer noted that there are geographical cost differentials and merit and longevity steps in the PSEA agreement. He observed that PSEA has binding arbitration. Co-Chair Hanley noted that it would be helpful to see area cost differentials for the different bargaining groups. Commissioner Boyer observed that non-covered classified employees have a 14 percent area cost differential in Fairbanks. He noted that the Administration is proposing legislation which would return the area cost differential to zero and allow this to be part of future contract negotiations. ALYESKA CORRESPONDENCE SCHOOL EDUCATION ASSOCIATION (ACSEA) MILA DOYLE, LABOR RELATIONS, DEPARTMENT OF ADMINISTRATION noted that ACSEA recently reached a contract agreement with the Administration. She characterized negotiations as quick 4 and friendly. She stated that the contract would be provided for annual wage increases of half of the CPI, capped at 1.5 percent for each year of the contract. The contract was changed to run along the fiscal year. There will be six months without a pay increase. Increases in health insurance premiums will be split 50/50 between the State and employees for up to $50 dollars. The leave schedule was internally adjusted with no overall gain. Commissioner Boyer noted that some employees will receive less leave accrual and some will receive more. He added that the entire contract will be financed through the school education foundation formula. He pointed out that this unit previously had a $75.0 thousand dollar general fund component. He clarified that the previous general fund portion will not be deducted from school districts. The Department made some internal shifts within the BRU to accommodate the increased cost of $10 - $20 thousand dollars and the previous $75.0 thousand dollar genearl fund component. Ms. Doyle added that ACSEA employees are in the TRS system. They are not eligible to participate in SBS or PERS. MARGARET MACKINNON, BARGAINING TEAM MEMBER, ALYESKA CORRESPONDENCE SCHOOL EDUCATION ASSOCIATION spoke in support of the ACSEA agreement. She pointed out that these teachers accepted less leave than other employees in order to keep the work flow going. She noted that there are 24 teachers in the unit. Ms. Doyle noted that movement across a teacher's salary schedule pay columns is based on education qualification. Co-Chair Hanley summarized that there is some movement for longevity. (Tape Change, HFC 96-60, Side 2) Commissioner Boyer noted that negotiations are in progress with the Confidential and Alaska Vocation Technical Center units. The Mt. Edgecumbe Teacher unit will begin negotiations in Spring 1996. He noted negotiations will be based on similar packages. In response to a question by Representative Martin, Commissioner Boyer emphasized that there are approximately 2,000 employee movements each year. This results in new hires at lower levels and movement between steps. He summarized that there is a mature work force that is approaching the end of the longevity scale. He stressed that it would be difficult to define future costs associated with merit increases. Representative Martin asserted that employees' wages are increasing every year through merit and longevity increases. 5 Commissioner Boyer acknowledged that there is a merit and longevity system. Co-Chair Hanley questioned if merit and longevity increases could be averaged for the different units to compare increases against the Anchorage Consumer Price Index. Commissioner Boyer asserted that PSEA is the only unit that has actually kept pace with the CPI due to binding arbitration. Co-Chair Hanley observed that some units have negotiated increases in health benefits in lieu of salary increases. He noted that merit increases are covered by retiring employees that are replaced by employees that are not as far on the merit scale. Representative Therriault questioned if the CPI overstates inflation. Commissioner Boyer noted that the value of the Consumer Price Index is being debated. He observed that the federal Department of Commerce uses a chain weighted price index that better reflects consumer spending. EXEMPT EMPLOYEES Commissioner Boyer referred to the 1994, Salary Survey Report, by the Department of Administration (copy on file). He noted the Department is requesting that the statutory requirement for salary surveys be changed to every five years due their expense. He noted that the 1994 survey findings focused on external comparison and internal consistency. He noted that the statutes require like pay for like work. There are approximately 3,000 employees that are not covered by bargaining agreements, including 600 legislative employees. These employees are covered by the statutory salary schedule. The Report observes that this group is currently behind by 3.6 percent. If GGU contracts are adopted they could be behind by 6.2 percent. He noted that this class of employees is not keeping up with employees in bargaining units. He asserted that employees will seek representation if disparity continues. He noted that the Department of Administration recommends that non- covered employees be treated similarly to other groups. He anticipated a proposal to include non-covers under a flexible benefit plan. UNIVERSITY OF ALASKA Commissioner Boyer noted that $1,750.0 million dollars was front loaded in the University's budget request to include non-covered employees. The contract costs of covered units were not included. Co-Chair Hanley noted that the spreadsheet shows $1,750.0 for all university employees. Commissioner Boyer restated 6 that covered employees are not on the spreadsheet. WENDY REDMAN, VICE PRESIDENT, UNIVERSITY OF ALASKA clarified that the Governor included 1.5 percent for all permanent full time employees at the University. She observed that bargaining unit and non-bargaining unit employees were included with a 1.5 percent wage increase. ALASKA COMMUNITY COLLEGE FEDERATION OF TEACHERS (ACCFT) Ms. Redman reviewed the ACCFT contract. She noted that all faculty at extended campuses, vocational and technical faculty and all faculty that teach without a research component are included in this unit. The contract was negotiated in 1992 and expired in 1994. A successor agreement has not been negotiated. Contract provisions require that these faculty be treated similar or identical to other non-organized faculty. The contract refers back to the Board of Regents' policy for promotion, tenure, faculty rank, compensation and leave time. The contract states that the Board policy will be the policy that was in place at the time of the contract. She emphasized that the issue before the Legislature is an arbitration of an existing contract. She noted that the contract states that the ACCFT will get a salary increase consistent with the Board policy that was in place at that time. At that time the Board policy required a 3 percent annual increase. Under the terms of the contract the University is required to present the Legislature with a request for an annual 3 percent pay increase. The Board subsequently suspended this policy for all other faculty in 1994. The Arbitrator ruled that the University must maintain this provision. In response to a question by Co-Chair Hanley, Ms. Redman explained that the ACCFT is under the same provisions for pay increases as other faculty with the exception of COLA. There are no annual increases. Pay follows rank promotions which take place between 3 to 7 years. There is a 10 percent pay increase when a faculty member moves between ranks. This cost is funded internally. She noted that the health care premium was reduced in 1993 for non-organized employees. Non-organized employees are under a co-pay plan. She observed that ACCFT employees are not under a co-pay plan. She added that $370.00 dollars is the average health insurance premium for university employees. RALPH MCGRATH, PRESIDENT, ALASKA COMMUNITY COLLEGE FEDERATION OF TEACHERS (ACCFT) testified via the teleconference network. He provided members with written testimony (Attachment 2). He clarified that most faculty are hired at an assistant professor position. Most faculty receive 2 promotions to associate professor and full 7 professor. Faculty increases over the life of their career would be 20 to 30 percent. He observed that the contract has been in dispute for 4 years. The contract was approved by the Legislature in May 1992. The Board of Regents' policy was put in place calling for a 3 percent annual compensation increase. The University of Alaska decided to suspend the policy a year and a half ago. The issue was taken to arbitration. The Arbitrator decided this issue in favor of ACCFT. He noted that the University holds that the Legislature rejected the FY 95 and FY 96 requests. He stressed that ACCFT does not agree with the University's position. He pointed out that the Governor's budget submission should contain the ACCFT's negotiated increase for FY 97. Ms. Redman agreed that most faculty receive two 10 percent increases during their career, absent any COLA increase. She observed that the ACCFT moved from an annual step increase to a tenure and rank system which applies to other university faculty members. Representative Brown referred to a spreadsheet provided to members regarding FY 95 - FY 96 costs of UA\ACCFT COLA adjustments (Attachment 3). Ms. Redman noted that the Governor's budget includes a 1.5 percent increase for all full-time permanent employees, bargaining and non- bargaining, at a cost of $1,750.0 million dollars. The University of Alaska submitted a budget amendment to include the ACCFT and CEA contracts. Attachment 3 shows the cost of including the ACCFT negotiated increase. She explained that the University was under negotiation with ACCFT when the budget was submitted. The total FY 97 request for a 3 percent increase to fund the ACCFT contract is $499,108.0 thousand dollars. The Governor's budget submission included $215.5 thousand dollars. (Tape Change, HFC 96-61, Side 1) Ms. Redman noted that the University of Alaska's budget amendment includes an additional $80.0 thousand dollars for CEA and $280.0 thousand dollars for ACCFT. Co-Chair Hanley noted that this would be in addition to the $1,750.0 thousand dollars requested in the Governor's original submission. Representative Brown asked how funding for ACCFT's FY 95 and FY 96 increase would be addressed. Co-Chair Hanley stated that if the Legislature decided to fund these increases that they would be appropriately included in a supplemental. They could be added into HB 468 in the Senate or into a new a new supplemental bill. 8 In response to a question by Representative Brown, Co-Chair Hanley explained that if ACCFT wins the lawsuit the University would have to pay for the increase within their budget, since the Legislature did not specifically address the issue. If the Court rules that the University is not obligated to pay the increase it would not be paid. Ms. Redman observed that the lawsuit is not anticipated to settle until after the current legislative session. CLASSIFIED EMPLOYEES ASSOCIATION (CEA) Ms. Redman noted that the CEA contract is new. Negotiations were finished in December of 1994. The contract covers system wide employees in the trades and craft unions. She observed that the provisions are consistent with renegotiated state contracts. Increases are one half of CPI. The Legislature did not fund this contract in the prior year. She stressed that the contract represents the best that can be negotiated. She pointed out that this is the only group in the University that has not received any pay increase since FY 93. In January of 1994 all other employees received a 3 percent salary increase. She explained that salaries of CEA employees were frozen during negotiations when the FY 94 increase became effective. She noted that new CEA employees are hired at higher wages than employees currently employed. The contract is a step and lane grid. Many provisions mirror provisions in other groups. University employees do not receive an area pay differential in Fairbanks. She observed that the University is moving toward a new flexible benefit program. Mr. Ludwig added that when compared to other state workers this group is paid substantially less. He noted that custodial employee pay was reduced in an effort to prevent contracting out. He observed that new employees are hired at a higher rate under the negotiated salary schedule. Health care benefits are not co-paid. A flexible benefits plan would be implemented. He clarified that this group is composed of maintenance, trade, craft and custodial workers. The contract would implement a 2 percent annual step increase. Ms. Redman emphasized that the step increase has not been implemented. This group's pay has been frozen for 2 years. The step plan if implemented would allow increases from 0 - 3 percent. Co-Chair Hanley clarified that the increase would be annual. Ms. Redman observed that this would be the same increase schedule as non-organized classified employees. Mr. Redman noted that the University has not had a longevity or merit system in place for over 10 years. There have only been COLA raises. She explained that the University will 9 implemente a new lane and step provision that will provide some longevity increases on July 1, 1996. Representative Brown observed that the CEA contract creates a retroactive adjustment to January 1, 1995. Ms. Redman noted that the contract is new. She observed that this provision was front loaded. She observed that the University assumes that HB 305 will appropriate $864.0 thousand dollars to cover the cost of implementation. She acknowledged that this may be optimistic. NON-COVERED EMPLOYEES Ms. Redman noted that 85 percent of university employees are non-covered. These employees had a total increase of 24 percent over 10 years. This includes merit, COLA and longevity increases. During the same period of time increases for state employees have been close to 47 percent. She observed that classified employees are moving to a lane and step program modeled on the State's plan. Non-organized faculty are in an organizing drive. She maintained that faculty salaries are not keeping up with the national average. The Board of Regents is committed to funding increases. She observed that there is concern that the University's best faculty are leaving for outside jobs. The cost to cover pay increases for non-organized faculty would be an additional $2,041.4 million dollars. Representative Martin pointed out that the Governor's submission includes a 1.5 percent wage increase but provides an overall decrement of over $2.0 million dollars. Co-Chair Hanley asked if there is language in any of the contracts that prohibits contracting out. Ms. Redman observed that the CEA contract allows the State to pursue contracting out if it saves the State money. Mr. Ludwig clarified that the contract requires notice and does not require a savings. He stated that this is a problem. He emphasized that the State is contracting out work and laying off employees without a savings. Ms. Redman noted that contracting out in the area of building maintenance has not been successful. In response to a question by Co-Chair Hanley, Ms. Redman explained that the Board of Regents' request included funding for non-organized employees to implement the new pay scale for classified employees and a faculty pay raise. She observed that the University is implementing a new faculty pay raise for non-organized employees. It will be a traditional real merit system based on objective criteria. Performance will be reviewed and there will be a limit on how many faculty can receive the increase. The Governor's 10 submission did not fully fund this request. The budget amendment includes an additional $2,041.4 million dollars for this request. MARY LOU BURTON, DIRECTOR OF BUDGET, UNIVERSITY OF ALASKA explained that the University's budget amendment was based on 2 percent movement across the wage scale. Step increases would be from 0 to 3 percent. Ms. Redman added that the increase is for all University faculty and classified and professional staff. Ms. Burton clarified that $1.1 million dollars of this number would cover the difference of a 2.6 percent faculty increase. Representative Brown referred to the tripartite system. She noted that the time of a tripartite faculty member is divided into five parts; 2 parts teaching, one part research and one part public service. Ms. Redman observed that the five part workload is still the norm in higher education. She explained that ACCFT members do not perform research. These employees have four parts teaching and one part public service. She observed that some faculty at the higher divisions and graduate level perform 2 parts research, 2 parts teaching, and one part public service. She noted that the University is moving to balance tripartite and bipartite faculty. Representative Brown questioned if there has been discussion regarding substituting an additional teaching part for public service. Ms. Redman discussed public service time. She noted that service on university committees has been included as public service. She observed that faculty are involved in the running of the University. She pointed out that it would be difficult for the University to cover the costs associated with work performed by faculty. She maintained that five classes for a faculty member would be excessive. Bipartite faculty do not perform research. Representative Martin referred to public service. He maintained that public service have been abused. Ms. Redman emphasized that union activities are not claimed as public service. She asserted that faculty are significantly engaged with the communities that they serve in their academic studies. ADJOURNMENT The meeting adjourned at 3:37 p.m. 11