HOUSE FINANCE COMMITTEE MARCH 6, 1996 8:15 A.M. TAPE HFC 96 - 62, Side 1, #000 - end. TAPE HFC 96 - 62, Side 2, #000 - end. TAPE HFC 96 - 63, Side 1, #000 - #337. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 8:15 A.M. PRESENT Co-Chair Hanley Representative Martin Co-Chair Foster Representative Mulder Representative Brown Representative Kohring Representative Grussendorf Representative Parnell Representative Kelly Representative Therriault Representative Navarre was not present for the meeting. ALSO PRESENT Representative Jerry Mackie; Mike Greany, Director, Division of Legislative Finance; Arthur Snowden II, Administrative Director, Alaska Court System; Stephanie Cole, (Testified via teleconference), Deputy Administrative Director, Alaska Court System; Anne Hays, (Testified via teleconference), International Brotherhood of Electrical Workers (IBEW) Union, Anchorage; Bob Larsen, (Testified via teleconference), International Brotherhood of Electrical Workers (IBEW), Anchorage; Chris Christensen, Staff Counsel, Alaska Court System; Mark Boyer, Commissioner, Department of Administration; Mila Doyle, Labor Relations, Office of the Commissioner, Department of Administration; Dianne Corso, Labor Relations Section, Office of the Commissioner, Department of Administration; Dan Spencer, Budget Analyst, Office of Budget and Management. SUMMARY CONTRACT LABOR AGREEMENTS & COMPENSATION INCREASES: Court System Covered Non-Covered Legislature Exempt 1 ALASKA COURT SYSTEM ARTHUR SNOWDEN II, ADMINISTRATIVE DIRECTOR, ALASKA COURT SYSTEM, provided the Committee with a committee substitute work draft for HB 144, an act relating to salaries for officers and employees who are not members of a collective bargaining unit. He provided a brief overview of that legislation. STEPHANIE COLE, (TESTIFIED VIA TELECONFERENCE), DEPUTY ADMINISTRATIVE DIRECTOR, ALASKA COURT SYSTEM, testified regarding the negotiated Court System contract with the International Brotherhood of Electrical Workers (IBEW) Union. The Court System bargaining unit consists of 300 non-supervisory court employees, statewide, amounting to half of the Court Systems work force. Most of the employees in that Union are range 12 and under. These employees voted to be recognized by IBEW in July, 1994. Ms. Cole pointed out that the negotiated contract was fair to the employees. Ms. Cole presented a summary of terms of the contract. The benefits package would not change. Employees would continue to receive PERS retirement, health coverage and State Benefit System (SBS) benefits with the same conditions of the non-covered employees. The contract provides that the bargaining unit would receive the same geographic differential as the uncovered employees. Overtime is paid only after 40 hours of work. The employees have not had a salary increase since 1991. Under the agreement within the contract terms, the employee would receive a 5.2% raise for the first year of the contract and would begin July, 1996. The first component of the raise would be a 3.6% increase, bringing employees up to 1992 parity. The second component would be additional 1.5% increase, and that would bring employees up to parity for next year's proposals currently before the Legislature. ANNE HAYS, (TESTIFIED VIA TELECONFERENCE), INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (IBEW), ANCHORAGE, reiterated the major concern that IBEW has regards the differential lost during the past four years by the Court System. That loss will not be recoverable. The contract would bring employees in line with parity. Ms. Hayes noted approval of the contract language that outlines the economic impact. Ms. Hays added, the $590 request represented the cost of the 5.2% pay raise. Co-Chair Hanley pointed out that the spread sheet provided by Legislative Finance Division indicated 1.5% increase for all employees and was not reflective of 2 the contract before the Committee. He requested current figures demonstrating costs for FY97, FY98, and FY99. Mr. Snowden commented that the total package would cost $1.7 million dollars. He reiterated that would bring the Court System employees equal to what the unions are requesting this year. Co-Chair Hanley asked if privatization had been considered. Mr. Snowden replied that there was no ban on privatization. Transcript production will soon be privatized. There are no formal break times included in the contract. Co-Chair Hanley questioned the system used for health care. Mr. Snowden noted that the Court System uses the same health care system, leave, SBS and retirement as other State employees. The Court System also uses the same five step plan for merit raise and longevity. He stressed that Court System employees enter the work force at two range levels lower than the Executive Branch employees. Ms. Cole spoke to the geographical differential. She noted specific contract provisions which would allow that concern to be taken into consideration. Salaries including merit raises and longevity are established in contract. Mr. Snowden addressed pay privileges recommended for the non-covered employees. Those employees work hard and often long hours. There are approximately 300 people in the non- covered status, and 200 of those employees are paid under Range 15. These employees have not received a pay raise in five years. He emphasized that those employees deserved to be treated fairly and equally to those employees in the unions. Judges would also be included for the recommended pay raises. The Alaskan judges rank between 34 - 37th nationwide in monthly pay. These judges deserve a cost-of- living allowance. Mr. Snowden concluded that law clerks should also receive a raise. The State changes law clerks every year and they are hired directly out of law school. When the pay scale is not changed for five years, the Alaska salary does not entice new law clerks to hire on. Mr. Snowden emphasized that the Court System request is reasonable. He pointed out that the committee substitute for HB 144 would reflect a new pay scale in statute for judicial employees and would amount to a 5.2% increase. BOB LARSEN, (TESTIFIED VIA TELECONFERENCE), INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (IBEW), ANCHORAGE, reiterated that the union has sought interests of parity and that through arbitration a partnership for both union members and the State was achieved. 3 Co-Chair Hanley questioned the accuracy of the national judicial status average quoted by the Court System. Mr. Snowden responded that national salaries were averaged with the local cost-of-living index of that area. The figures provided the Committee include that adjustment. LEGISLATURE Co-Chair Hanley pointed out that the spread sheets reflect a 1.5% increase each year for the non-covered employee in the Legislature. Representative Brown asked for further information regarding the total number of legislative employees and the number of staff working on contract. MIKE GREANY, DIRECTOR, DIVISION OF LEGISLATIVE FINANCE, noted that he would check with the Director of the Legislative Affairs Division to provide that information. DISCUSSION AND COMMENTS Representative Grussendorf questioned the Chair's intent regarding the proposed contracts. Co-Chair Hanley responded that it was his intent, and that if the contracts were granted, all of them would be included and the non-covered employee status also. He reiterated that all contacts should be dealt with as a whole unit. He recommended that a reclassification salary study should be undertaken by the Legislature before the next session. Co-Chair Hanley spoke to the unidentified costs that will increase with the new wage schedule. He suggested that the Legislature undertake a long-term planning schedule and fund that cost this year. That study would provide that information be available for the next session to address the parity issues. The intent for this year would be to either approve or deny all the contracts. Representative Mulder asked the true costs of the contracts. MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, stated that the numbers provided the Legislature reflected the known costs. Merit pay is not a contract driven cost, regardless, if the contracts are passed or not. He advised that the health care costs were reflected in FY97 costs. Personal Early Retirement System (PERS), Teacher Early Retirement System (TERS), and State Benefit System (SBS) costs were not included in the figures. Those costs would be shown in the personal services budget and are not new costs. Co-Chair Hanley agreed that the merit pay and the health benefits could decrease because of the negotiated sharing. However, the SBS and PERS would be increased; that information is not shown in the existing contracts. 4 Commissioner Boyer stated that the PERS system was more complex. There are many factors used to determine the employer contribution. The contracts would not drive that issue. Co-Chair Hanley disagreed. DAN SPENCER, BUDGET ANALYST, OFFICE OF BUDGET AND MANAGEMENT, noted, based on the budget calculations, if the PERS rate decreases, then the State's contribution would decrease. The contribution rate established in PERS is not determined by the salary. That number would be determined by investment and actuarial levels. Co-Chair Hanley noted that the percentages do not change and are an investment related percentage, but the relative amount based on the contracts negotiated would be increased. (Tape Change, HFC 96-62, Side 2). Representative Mulder asked if the FY97 general fund contribution total would be $9.7 million dollars. Co-Chair Hanley referenced the handout distributed previously by Legislative Finance Division and the figures included. He summarized, the final numbers will include $2-$3 million dollars more than the estimate of $9.7 million dollars, assuming the negotiated pay raises to the union and the non- covered employees. Representative Mulder voiced concern with the general fund increase projected over the next three years which would be needed to substantiate the requested amounts. Representative Mulder questioned the effect of not funding the contracts. Commissioner Boyer stated that the FY97 budget has these increases built into it. They have been financed into the budget provided by each affected department, while at the same time all departments have proposed $40 million dollars in reductions. Co-Chair Hanley confirmed that the budget only accounts for $8.43 million contract negotiation dollars. Mr. Spencer stated that the health increases negotiated with the unions are included in the FY97 budget. The projections would provide for a 1.5% increase step-up. He commented that the proposed figures were not an attempt to quantify every single cost associated with the increased wages. Co-Chair Hanley requested an updated spread sheet indicating all areas covered in the union negotiations. Representative Mulder reiterated, what would happen if the contracts were not funded. Commissioner Boyer replied: "I think we are all here in June, Mr. Chairman. The Governor has made a commitment to these contracts and the Governor has made a commitment 5 to funding the contracts upfront and not making reductions in an across the board fashion to essentially, internally require the departments to eat these new costs." Co-Chair Hanley asked what would happen if the contracts were rejected. Commissioner Boyer replied: "You are here in June, Mr. Chairman. I can't make a commitment on what the Governor will or won't do at the end of the Session. When the dust settles, the Governor will do what he needs to do. But he has suggested that it is like the American Express phrase: 'You don't leave home without it'. I would recommend to him that we call you back into Special Session to fund the contracts." Commissioner Boyer continued that two of the contracts which were not funded last year have expedited processes for getting to impasse with strike votes. He emphasized that there could be a shut down on the ferry system and airports until a court injunction was implemented. Representative Martin expounded on the Department's obligation to provide the correct costs of the contracts to the Legislature. Commissioner Boyer advised that the costs proposed reflect the three year cost of the contracts and pointed out that the negotiation process was open to the public. Discussion followed regarding the bargaining process. Mr. Spencer responded to Representative Martin's question regarding merit raise, stating that in FY97, it amounted to 1.5% of an employees salary and any variable benefits associated with that. Health benefits would be the variable area. There is merit in the existing system. He added that if the cost of the contracts were calculated with step increases, the number included would be $3.5 million dollars. That system currently exists. Representative Brown interjected that the Committee must consider the cost of not approving the contracts. She noted that our current system clearly states that there will be bargaining, and that system has been applied in good faith. She stressed that the contract negotiations were reasonable and should be honored. Members of these unions have not had a wage increase in several years. She mentioned the disruption that would occur if the contracts were not accepted, both in lost productivity as well as the potential of a strike. The Administration has built the anticipated costs into the budget. Representative Brown agreed that the merit system should be studied in greater detail. Currently, merit appears as a 6 perfunctory obligation and is rarely denied. She thought perhaps a "true" merit system should be implemented. The Legislature is in control of that aspect of the determination and that it could be changed. She reiterated that concessions have been made relative to where the Legislature was last year, and that these concessions appear to be reasonable. She added, that the disparity will cause more and more employees to go toward unions, not the most desireable situation from managements point of view. Representative Brown encouraged members to approve the contracts. Representative Kelly asked for the list of unions which do not include step increases. Commissioner Boyer stated that the LTC, IBU, teachers and marine units each use a different system. MILA DOYLE, LABOR RELATIONS, OFFICE OF THE COMMISSIONER, DEPARTMENT OF ADMINISTRATION, responded that the marine contracts do not have merit, longevity or any step increases. Any changes in pay result from negotiating wage increases or promotions within the system. Co-Chair Hanley asked if the promotions were based on evaluations and seniority. Ms. Doyle pointed out that it would depend on the actual classification. Minimum qualifications must be met to progress into a new classification and that it is not an automatic progression. Merit increases are steps A through E within the salary schedule. Step F follows after a one year duration moving to step J. Steps J, K, L, and M are the longevity steps. Those steps are based on time. Merit steps are based on merit and can be denied. Longevity steps tend to be automatic but do include a few variables. Co-Chair Hanley asked for a spread sheet indicating the number of years to move from step A through M and the financial obligation associated with those moves. DIANNE CORSO, LABOR RELATIONS SECTION CHIEF, OFFICE OF THE COMMISSIONER, DEPARTMENT OF ADMINISTRATION, explained that the contracts provide basic guidelines for how merit increases are supposed to be granted. These are called performance incentives which distinguishes them from the statutory provisions. The major contracts share a basic format that the employee be acceptable and be of "progressively greater value" with each evaluation. Co-Chair Hanley reiterated that the merit system needs to be changed. Implementation of a motivational aspect would change peoples attitude in State government. Ms. Corso noted that to change the interpretation of what was acceptable, would require changing options within the 7 statutory venue. However, the language change would require negotiation changes. Co-Chair Hanley stressed that the Legislature could change that language and then establish the standard. Commissioner Boyer suggested that would be the preferred way for the Legislature to provide guidance. (Tape Change, HFC 96-63, Side 1). Commissioner Boyer noted that the work environment has changed dramatically over the years. A much higher qualified employee is now required. Representative Therriault commented that upgrading employee skills has resulted in large costs to the State. Commissioner Boyer countered that the employees often pay "out of pocket" or from personal services for further training. Representative Grussendorf voiced concern that repercussions would be suffered by not ratifying the contracts. He asked the Chair's intent. Co-Chair Hanley pointed out that the Governor has introduced a pay differential bill; and that a bill also exists for a Tier III level retirement system. He stated that his preference would be to place the geographic differential into statute which would then require the Administration to negotiate that consideration in the contracts. Commissioner Boyer recommended that the proposed legislation include funds for a fiscal note to cover costs of preparing an analysis. Representative Brown inquired about the sixty day statutory deadline for the contract ratification. Ms. Corso referenced A.S. 23:42:15, stating that the Legislature is suppose to adopt a resolution either approving or disapproving the contract within sixty days of having it submitted. Commissioner Boyer added that the contracts were submitted on the eighth day of the session and that the Legislature would have seventy days from that time. Commissioner Boyer added that in the absence of approval, the courts have suggested, or in the absence of language in the budget rejecting the contracts, the contracts would be approved. The law allows that the parties involved may re- enter negotiation. Co-Chair Hanley distributed a legal memo dated, 2/06/95, addressing legislative action with respect to the monetary terms of collective bargaining contracts. [Attachment #1]. "The provisions in AS 23.40.215(b) suggest that the legislature must adopt a resolution within 60 8 days of submission of the monetary terms to the legislature. The statute is not clear as to what happens if the legislature fails to meet the 60- day deadline. The requirement for funding by the legislature is subsection (a) does not state that if the legislature fails to act within a 60-day period, the money is considered to have been appropriated. And, since a resolution can only be viewed as a nonbinding statement, failure to make such a statement should not be given more weight than the making of the statement would hold. Therefore, I believe that the 60-day time period should be viewed as a goal, not a legal requirement. Failure to adopt a resolution within the 60 days does not preclude the legislature from acting later." He added that the Legislature can include language even after the sixty day deadline which rejects the contracts. The Legislature could also approve the contracts after the sixty day time limit. The other option would be not to address the contracts, which would make the contracts approved without appropriating the departmental funding to support them. Co-Chair Hanley reiterated the request for up-dated spread sheets. He asked if the State was required to use the SBS system. Commissioner Boyer replied, they were not. Co- Chair Hanley asked the State's flexibility in not using that system or in decreasing the percentage that the State pays toward the SBS system. Commissioner Boyer noted that Bob Stalnaker, Director of Retirement and Benefits could address that concern at the next meeting. ADJOURNMENT The meeting adjourned at 9:55 A.M. HOUSE FINANCE COMMITTEE MARCH 6, 1996 8:15 A.M. TAPE HFC 96 - 62, Side 1, #000 - end. TAPE HFC 96 - 62, Side 2, #000 - end. TAPE HFC 96 - 63, Side 1, #000 - #337. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 8:15 A.M. PRESENT 9 Co-Chair Hanley Representative Martin Co-Chair Foster Representative Mulder Representative Brown Representative Kohring Representative Grussendorf Representative Parnell Representative Kelly Representative Therriault Representative Navarre was not present for the meeting. ALSO PRESENT Representative Jerry Mackie; Mike Greany, Director, Division of Legislative Finance; Arthur Snowden II, Administrative Director, Alaska Court System; Stephanie Cole, (Testified via teleconference), Deputy Administrative Director, Alaska Court System; Anne Hays, (Testified via teleconference), International Brotherhood of Electrical Workers (IBEW) Union, Anchorage; Bob Larsen, (Testified via teleconference), International Brotherhood of Electrical Workers (IBEW), Anchorage; Chris Christensen, Staff Counsel, Alaska Court System; Mark Boyer, Commissioner, Department of Administration; Mila Doyle, Labor Relations, Office of the Commissioner, Department of Administration; Dianne Corso, Labor Relations Section, Office of the Commissioner, Department of Administration; Dan Spencer, Budget Analyst, Office of Budget and Management. SUMMARY CONTRACT LABOR AGREEMENTS & COMPENSATION INCREASES: Court System Covered Non-Covered Legislature Exempt ALASKA COURT SYSTEM ARTHUR SNOWDEN II, ADMINISTRATIVE DIRECTOR, ALASKA COURT SYSTEM, provided the Committee with a committee substitute work draft for HB 144, an act relating to salaries for officers and employees who are not members of a collective bargaining unit. He provided a brief overview of that legislation. STEPHANIE COLE, (TESTIFIED VIA TELECONFERENCE), DEPUTY ADMINISTRATIVE DIRECTOR, ALASKA COURT SYSTEM, testified regarding the negotiated Court System contract with the International Brotherhood of Electrical Workers (IBEW) Union. The Court System bargaining unit consists of 300 non-supervisory court employees, statewide, amounting to 10 half of the Court Systems work force. Most of the employees in that Union are range 12 and under. These employees voted to be recognized by IBEW in July, 1994. Ms. Cole pointed out that the negotiated contract was fair to the employees. Ms. Cole presented a summary of terms of the contract. The benefits package would not change. Employees would continue to receive PERS retirement, health coverage and State Benefit System (SBS) benefits with the same conditions of the non-covered employees. The contract provides that the bargaining unit would receive the same geographic differential as the uncovered employees. Overtime is paid only after 40 hours of work. The employees have not had a salary increase since 1991. Under the agreement within the contract terms, the employee would receive a 5.2% raise for the first year of the contract and would begin July, 1996. The first component of the raise would be a 3.6% increase, bringing employees up to 1992 parity. The second component would be additional 1.5% increase, and that would bring employees up to parity for next year's proposals currently before the Legislature. ANNE HAYS, (TESTIFIED VIA TELECONFERENCE), INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (IBEW), ANCHORAGE, reiterated the major concern that IBEW has regards the differential lost during the past four years by the Court System. That loss will not be recoverable. The contract would bring employees in line with parity. Ms. Hayes noted approval of the contract language that outlines the economic impact. Ms. Hays added, the $590 request represented the cost of the 5.2% pay raise. Co-Chair Hanley pointed out that the spread sheet provided by Legislative Finance Division indicated 1.5% increase for all employees and was not reflective of the contract before the Committee. He requested current figures demonstrating costs for FY97, FY98, and FY99. Mr. Snowden commented that the total package would cost $1.7 million dollars. He reiterated that would bring the Court System employees equal to what the unions are requesting this year. Co-Chair Hanley asked if privatization had been considered. Mr. Snowden replied that there was no ban on privatization. Transcript production will soon be privatized. There are no formal break times included in the contract. Co-Chair Hanley questioned the system used for health care. Mr. Snowden noted that the Court System uses the same health care system, leave, SBS and retirement as other State employees. The Court System also uses the same five step 11 plan for merit raise and longevity. He stressed that Court System employees enter the work force at two range levels lower than the Executive Branch employees. Ms. Cole spoke to the geographical differential. She noted specific contract provisions which would allow that concern to be taken into consideration. Salaries including merit raises and longevity are established in contract. Mr. Snowden addressed pay privileges recommended for the non-covered employees. Those employees work hard and often long hours. There are approximately 300 people in the non- covered status, and 200 of those employees are paid under Range 15. These employees have not received a pay raise in five years. He emphasized that those employees deserved to be treated fairly and equally to those employees in the unions. Judges would also be included for the recommended pay raises. The Alaskan judges rank between 34 - 37th nationwide in monthly pay. These judges deserve a cost-of- living allowance. Mr. Snowden concluded that law clerks should also receive a raise. The State changes law clerks every year and they are hired directly out of law school. When the pay scale is not changed for five years, the Alaska salary does not entice new law clerks to hire on. Mr. Snowden emphasized that the Court System request is reasonable. He pointed out that the committee substitute for HB 144 would reflect a new pay scale in statute for judicial employees and would amount to a 5.2% increase. BOB LARSEN, (TESTIFIED VIA TELECONFERENCE), INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (IBEW), ANCHORAGE, reiterated that the union has sought interests of parity and that through arbitration a partnership for both union members and the State was achieved. Co-Chair Hanley questioned the accuracy of the national judicial status average quoted by the Court System. Mr. Snowden responded that national salaries were averaged with the local cost-of-living index of that area. The figures provided the Committee include that adjustment. LEGISLATURE Co-Chair Hanley pointed out that the spread sheets reflect a 1.5% increase each year for the non-covered employee in the Legislature. Representative Brown asked for further information regarding the total number of legislative employees and the number of staff working on contract. MIKE GREANY, DIRECTOR, DIVISION OF LEGISLATIVE FINANCE, noted that he would check with the Director of the 12 Legislative Affairs Division to provide that information. DISCUSSION AND COMMENTS Representative Grussendorf questioned the Chair's intent regarding the proposed contracts. Co-Chair Hanley responded that it was his intent, and that if the contracts were granted, all of them would be included and the non-covered employee status also. He reiterated that all contacts should be dealt with as a whole unit. He recommended that a reclassification salary study should be undertaken by the Legislature before the next session. Co-Chair Hanley spoke to the unidentified costs that will increase with the new wage schedule. He suggested that the Legislature undertake a long-term planning schedule and fund that cost this year. That study would provide that information be available for the next session to address the parity issues. The intent for this year would be to either approve or deny all the contracts. Representative Mulder asked the true costs of the contracts. MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, stated that the numbers provided the Legislature reflected the known costs. Merit pay is not a contract driven cost, regardless, if the contracts are passed or not. He advised that the health care costs were reflected in FY97 costs. Personal Early Retirement System (PERS), Teacher Early Retirement System (TERS), and State Benefit System (SBS) costs were not included in the figures. Those costs would be shown in the personal services budget and are not new costs. Co-Chair Hanley agreed that the merit pay and the health benefits could decrease because of the negotiated sharing. However, the SBS and PERS would be increased; that information is not shown in the existing contracts. Commissioner Boyer stated that the PERS system was more complex. There are many factors used to determine the employer contribution. The contracts would not drive that issue. Co-Chair Hanley disagreed. DAN SPENCER, BUDGET ANALYST, OFFICE OF BUDGET AND MANAGEMENT, noted, based on the budget calculations, if the PERS rate decreases, then the State's contribution would decrease. The contribution rate established in PERS is not determined by the salary. That number would be determined by investment and actuarial levels. Co-Chair Hanley noted that the percentages do not change and are an investment related percentage, but the relative amount based on the contracts negotiated would be increased. (Tape Change, HFC 96-62, Side 2). 13 Representative Mulder asked if the FY97 general fund contribution total would be $9.7 million dollars. Co-Chair Hanley referenced the handout distributed previously by Legislative Finance Division and the figures included. He summarized, the final numbers will include $2-$3 million dollars more than the estimate of $9.7 million dollars, assuming the negotiated pay raises to the union and the non- covered employees. Representative Mulder voiced concern with the general fund increase projected over the next three years which would be needed to substantiate the requested amounts. Representative Mulder questioned the effect of not funding the contracts. Commissioner Boyer stated that the FY97 budget has these increases built into it. They have been financed into the budget provided by each affected department, while at the same time all departments have proposed $40 million dollars in reductions. Co-Chair Hanley confirmed that the budget only accounts for $8.43 million contract negotiation dollars. Mr. Spencer stated that the health increases negotiated with the unions are included in the FY97 budget. The projections would provide for a 1.5% increase step-up. He commented that the proposed figures were not an attempt to quantify every single cost associated with the increased wages. Co-Chair Hanley requested an updated spread sheet indicating all areas covered in the union negotiations. Representative Mulder reiterated, what would happen if the contracts were not funded. Commissioner Boyer replied: "I think we are all here in June, Mr. Chairman. The Governor has made a commitment to these contracts and the Governor has made a commitment to funding the contracts upfront and not making reductions in an across the board fashion to essentially, internally require the departments to eat these new costs." Co-Chair Hanley asked what would happen if the contracts were rejected. Commissioner Boyer replied: "You are here in June, Mr. Chairman. I can't make a commitment on what the Governor will or won't do at the end of the Session. When the dust settles, the Governor will do what he needs to do. But he has suggested that it is like the American Express phrase: 'You don't leave home without it'. I would recommend to him that we call you back into Special Session to fund the contracts." 14 Commissioner Boyer continued that two of the contracts which were not funded last year have expedited processes for getting to impasse with strike votes. He emphasized that there could be a shut down on the ferry system and airports until a court injunction was implemented. Representative Martin expounded on the Department's obligation to provide the correct costs of the contracts to the Legislature. Commissioner Boyer advised that the costs proposed reflect the three year cost of the contracts and pointed out that the negotiation process was open to the public. Discussion followed regarding the bargaining process. Mr. Spencer responded to Representative Martin's question regarding merit raise, stating that in FY97, it amounted to 1.5% of an employees salary and any variable benefits associated with that. Health benefits would be the variable area. There is merit in the existing system. He added that if the cost of the contracts were calculated with step increases, the number included would be $3.5 million dollars. That system currently exists. Representative Brown interjected that the Committee must consider the cost of not approving the contracts. She noted that our current system clearly states that there will be bargaining, and that system has been applied in good faith. She stressed that the contract negotiations were reasonable and should be honored. Members of these unions have not had a wage increase in several years. She mentioned the disruption that would occur if the contracts were not accepted, both in lost productivity as well as the potential of a strike. The Administration has built the anticipated costs into the budget. Representative Brown agreed that the merit system should be studied in greater detail. Currently, merit appears as a perfunctory obligation and is rarely denied. She thought perhaps a "true" merit system should be implemented. The Legislature is in control of that aspect of the determination and that it could be changed. She reiterated that concessions have been made relative to where the Legislature was last year, and that these concessions appear to be reasonable. She added, that the disparity will cause more and more employees to go toward unions, not the most desireable situation from managements point of view. Representative Brown encouraged members to approve the contracts. Representative Kelly asked for the list of unions which do not include step increases. Commissioner Boyer stated that the LTC, IBU, teachers and marine units each use a different system. 15 MILA DOYLE, LABOR RELATIONS, OFFICE OF THE COMMISSIONER, DEPARTMENT OF ADMINISTRATION, responded that the marine contracts do not have merit, longevity or any step increases. Any changes in pay result from negotiating wage increases or promotions within the system. Co-Chair Hanley asked if the promotions were based on evaluations and seniority. Ms. Doyle pointed out that it would depend on the actual classification. Minimum qualifications must be met to progress into a new classification and that it is not an automatic progression. Merit increases are steps A through E within the salary schedule. Step F follows after a one year duration moving to step J. Steps J, K, L, and M are the longevity steps. Those steps are based on time. Merit steps are based on merit and can be denied. Longevity steps tend to be automatic but do include a few variables. Co-Chair Hanley asked for a spread sheet indicating the number of years to move from step A through M and the financial obligation associated with those moves. DIANNE CORSO, LABOR RELATIONS SECTION CHIEF, OFFICE OF THE COMMISSIONER, DEPARTMENT OF ADMINISTRATION, explained that the contracts provide basic guidelines for how merit increases are supposed to be granted. These are called performance incentives which distinguishes them from the statutory provisions. The major contracts share a basic format that the employee be acceptable and be of "progressively greater value" with each evaluation. Co-Chair Hanley reiterated that the merit system needs to be changed. Implementation of a motivational aspect would change peoples attitude in State government. Ms. Corso noted that to change the interpretation of what was acceptable, would require changing options within the statutory venue. However, the language change would require negotiation changes. Co-Chair Hanley stressed that the Legislature could change that language and then establish the standard. Commissioner Boyer suggested that would be the preferred way for the Legislature to provide guidance. (Tape Change, HFC 96-63, Side 1). Commissioner Boyer noted that the work environment has changed dramatically over the years. A much higher qualified employee is now required. Representative Therriault commented that upgrading employee skills has resulted in large costs to the State. Commissioner Boyer countered that the employees often pay "out of pocket" or from personal services for further training. 16 Representative Grussendorf voiced concern that repercussions would be suffered by not ratifying the contracts. He asked the Chair's intent. Co-Chair Hanley pointed out that the Governor has introduced a pay differential bill; and that a bill also exists for a Tier III level retirement system. He stated that his preference would be to place the geographic differential into statute which would then require the Administration to negotiate that consideration in the contracts. Commissioner Boyer recommended that the proposed legislation include funds for a fiscal note to cover costs of preparing an analysis. Representative Brown inquired about the sixty day statutory deadline for the contract ratification. Ms. Corso referenced A.S. 23:42:15, stating that the Legislature is suppose to adopt a resolution either approving or disapproving the contract within sixty days of having it submitted. Commissioner Boyer added that the contracts were submitted on the eighth day of the session and that the Legislature would have seventy days from that time. Commissioner Boyer added that in the absence of approval, the courts have suggested, or in the absence of language in the budget rejecting the contracts, the contracts would be approved. The law allows that the parties involved may re- enter negotiation. Co-Chair Hanley distributed a legal memo dated, 2/06/95, addressing legislative action with respect to the monetary terms of collective bargaining contracts. [Attachment #1]. "The provisions in AS 23.40.215(b) suggest that the legislature must adopt a resolution within 60 days of submission of the monetary terms to the legislature. The statute is not clear as to what happens if the legislature fails to meet the 60- day deadline. The requirement for funding by the legislature is subsection (a) does not state that if the legislature fails to act within a 60-day period, the money is considered to have been appropriated. And, since a resolution can only be viewed as a nonbinding statement, failure to make such a statement should not be given more weight than the making of the statement would hold. Therefore, I believe that the 60-day time period should be viewed as a goal, not a legal requirement. Failure to adopt a resolution within the 60 days does not preclude the legislature from acting later." 17 He added that the Legislature can include language even after the sixty day deadline which rejects the contracts. The Legislature could also approve the contracts after the sixty day time limit. The other option would be not to address the contracts, which would make the contracts approved without appropriating the departmental funding to support them. Co-Chair Hanley reiterated the request for up-dated spread sheets. He asked if the State was required to use the SBS system. Commissioner Boyer replied, they were not. Co- Chair Hanley asked the State's flexibility in not using that system or in decreasing the percentage that the State pays toward the SBS system. Commissioner Boyer noted that Bob Stalnaker, Director of Retirement and Benefits could address that concern at the next meeting. ADJOURNMENT The meeting adjourned at 9:55 A.M. 18