HOUSE FINANCE COMMITTEE February 12, 1998 1:40 P.M. TAPE HFC 98 - 29, Side 1 TAPE HFC 98 - 29, Side 2 TAPE HFC 98 - 30, Side 1 TAPE HFC 98 - 30, Side 2 CALL TO ORDER Co-Chair Gene Therriault called the House Finance Committee meeting to order at 1:40 p.m. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative Davies Representative Martin Representative Davis Representative Moses Representative Grussendorf Representative Mulder Representative Foster was absent from the meeting. ALSO PRESENT Jeff Meucci, Mayor, City of Petersburg; Bob Doll, General Manger, Alaska Marine Highway System, Department of Transportation and Public Facilities; Berne Miller, Executive Director, Southeast Conference; Bob Ward, City Manager, Skagway; Bob Provost, Regional Director, Inlandboatmen's Union; William Church, Division of Retirement and Benefits, Department of Administration; Glen Godfrey, Colonel, Alaska State Troopers, Department of Public Safety. The following testified via the teleconference network: Larry West, Haines; Daisy Stevens, Administrative Liaison Officer, Tanana Chiefs Council, Fairbanks; Craig Persson, Public Safety Employees Association, Fairbanks; Jim Grimes, Bristol Bay Native Association; Johnny Evans, Dillingham Police Department; Chief Brent Moody, Dillingham Police Department; John Waldron, Village Public Safety Officer, Yakutat. SUMMARY HB 206 "An Act relating to credit under the Public Employees' Retirement System for service as a village public safety officer." HB 206 was REPORTED out of Committee with a "do pass" recommendation and a revised fiscal impact note by the Department of Administration. HB 328 "An Act making appropriations for continued maintenance and operation of the Motor Vessel Malaspina; and providing for an effective date." HB 328 was Held in Committee for further discussion. HOUSE BILL NO. 328 "An Act making appropriations for continued maintenance and operation of the Motor Vessel Malaspina; and providing for an effective date." JEFF MEUCCI, MAYOR, CITY OF PETERSBURG testified in support of HB 328. He observed that, over the past three years, Southeast Alaska communities have struggled to keep the Alaska Marine Highway System operating with diminished state dollars. He maintained that the Malaspina is a vital part of the overall transportation system and is crucial to the economic wellbeing of Southeast Alaska. He asserted that operation of the Malaspina as a dayboat is the first stage in a plan to improve the transportation system in Southeast Alaska. He noted that the legislation has wide support in Southeast Alaska. He stressed the need for dependable, safe and economic travel within Southeast Alaska. He maintained that the Alaska Marine Highway System should be treated the same as roads or highways in other parts of Alaska. In response to a question by Representative Martin, Mr. Meucci stressed the legislation would be economical to the local communities. He observed that large quantities of seafood are transported out of Petersburg via the Alaska Marine Highway System. HOUSE BILL NO. 206 "An Act relating to credit under the Public Employees' Retirement System for service as a village public safety officer." JOEL LOUNDSBURY, STAFF, REPRESENTATIVE PORTER testified in support of HB 206. He read the sponsor statement (copy on file). House Bill 206 would allow village public safety officers (VPSO) to obtain retirement credit for service rendered under the VPSO program. The eligible participant could receive credit for up to 5 years of service in the VPSO program. WILLIAM CHURCH, RETIREMENTS SUPERVISOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION explained that participants would be required to pay the full actuarial costs of benefits for the period of service. Participants would buy the employee and employer portion. The amount would be based on the benefit at the time of the claim and the individual's vesting years' salary. Co-Chair Hanley referred to the fiscal note by the Department of Administration. He observed the bill is estimated to have an unmeasureable impact on the Public Employee Retirement System (PERS) funding ratio. There is an increase to the unfunded liability of approximately $450 thousand dollars, which would result in an employer contribution increase of approximately $40 thousand dollars a year. Mr. Church explained that the full actuarial cost is based on the entire population that could be eligible to claim the service. He noted that there are some individuals that will not claim the service. Co-Chair Hanley summarized that other state employees will end up paying more to allow this group to buy their retirement. Mr. Church was uncertain if there would be a measurable cost. Co-Chair Hanley noted that, if the full actuarial cost is not covered, the system would not be as sound in the future. He observed that each state employee could have his or her contribution reduced by $2 dollars a year. In response to a question by Representative Davies, Mr. Church clarified that, under retirement law, a lifetime actuarial reduction is calculated for an individual who has claimed service and has indebtedness owed at retirement. If the retirement value for the service is greater than the lifetime actuarial reduction than it is to the member's advantage to buy back their service. He clarified that money paid into the retirement system is paid to the beneficiaries upon the individual's death. Representative Davies pointed out that some individuals would pay the money in anticipation of 25 years of benefits, but would not receive 25 years of benefits due to death. He questioned if the cost is over estimated. Mr. Church noted that costs are based on the interest assumptions of the fund and mortality rates. In response to a question by Representative Martin, Mr. Church clarified that village public safety officers are not state employees. They are under contract to Native Corporations. Representative Martin maintained that village public safety officers deserve to be covered as employees of the state of Alaska. He emphasized the danger of their job. Mr. Church clarified that in order to claim five years of service in the VPSO program an individual must first be vested in the state retirement system. Officers can purchase up to five years. Co-Chair Therriault observed that the proposal is similar to provisions for military service. He expressed concern that Village public safety officers be encouraged to remain in their positions. He provided members with an amendment requiring that applicants have a minimum of three years service in the VPSO program (copy on file). He noted that military service is generally for a three-year term of duty. In response to a question by Representative Davies, Mr. Church explained that approximately 125 village public safety officers would be eligible. He did not know if the assumption concluded that all 125 would take advantage of the provision. He noted that 8 of 10 VPSO contracts provide some form of retirement. He noted that the Legislature does not allow double dipping for military service. JOHN WALDRON, VILLAGE PUBLIC SAFETY OFFICER, YAKUTAT testified via teleconference in support of HB 206. He maintained that village public safety officers are the rural arm of the Department of Public Safety. Village public safety officers handle limited law enforcement, fight fires, do search and rescue, provide alcohol and drug enforcement training in schools and are agents for the state medical examiner. He noted that village public safety officers are the lowest paid law enforcement officers in the state of Alaska. He observed that most village public safety officers have minimal retirement programs. He noted that there are no geographical pay differentials for village public safety officers living in rural areas. Overtime pay is limited. His family is not covered by his health insurance. JIM GRIMES, VPSO PROGRAM MANAGER, BRISTOL BAY NATIVE ASSOCIATION testified via teleconference in support of HB 206. He added that he is a retired State Trooper. He stressed the importance of the VPSO program as a stepping- stone to a career in law enforcement. He observed that village public safety officers are not well paid. He noted that village public safety officers receive credit with the Alaska Police Standards Council for their time as a village public safety officer. Co-Chair Therriault asked if Mr. Grimes would support a restriction allowing only those that move into law enforcement to buy their retirement. Mr. Grimes stated that he would support limitation to law enforcement, police or fire service. Representative Martin questioned why village public safety officers are not state employees. Mr. Grimes spoke in support of making village public safety officers state employees. He noted that they are employees of one of the ten Native Corporations. He noted that legislative action would be needed to allow them to participate in PERS. He observed that the State decided that it would be less expensive to contract public safety officers with a nonprofit corporation where they are only paid $12.50 dollars an hour. Representative Davies stated that village public safety officers could be hired through municipalities. Mr. Grimes noted that a qualified municipality could hire half of the 12 village public safety officers in his region. He emphasized that the Department of Public Safety does not want to negotiate individual memorandums of agreements and contracts with every village in the state. JOHNNY EVANS, DILLINGHAM POLICE DEPARTMENT testified via teleconference in support of HB 206. He maintained that village public safety officers deserve more than they are getting. Village public safety officers are unarmed and have no backup. He observed that village public safety officers handle domestic violence and alcohol related crimes. They even handle felony crimes until the state troopers arrive. He urged passage of the legislation. BRENT MOODY, CHIEF, DILLINGHAM POLICE DEPARTMENT testified via teleconference in support of HB 206. He helped to run the VPSO program for Tlingit and Haida. He asserted that village public safety officers deserve the legislation. He stated that the legislation should be limited to law enforcement or fire service. He observed that he hires village public safety officers as policemen. Out of 7 officers in Dillingham, 3 were village public safety officers. In response to a question by Co-Chair Therriault, Chief Moody noted that the VPSO officers that he has employed have had 1 to 5 years' experience. He stated that a one-year requirement would be acceptable. He stressed that village public safety officers are the law enforcement heroes of the state of Alaska. DAISY STEVENS, ADMINISTRATIVE LIASION OFFICER, TANANA CHIEFS COUNCIL (TCC), FAIRBANKS testified in support of HB 206. She is a former VPSO coordinator for TCC. She urged passage of the legislation. CRAIG PERSSON, PUBLIC SAFETY EMPLOYEES ASSOCIAITON, FAIRBANKS testified in support of HB 206. He emphasized that the legislation is an incentive for village public safety officers that want to continue their law enforcement careers. He did not object to limiting the legislation to a police officer, fire fighter or correctional officer. He did not object to a one-year limitation. In response to a question by Co-Chair Therriault, Mr. Persson stated that Village public safety officers should be able to count years that were applied to another retirement system for PERS credit. Co-Chair Therriault noted that military personnel cannot buy military service if they are already getting a retirement from the United States government for the same five years. GLEN GODFREY, COLONEL, ALASKA STATE TROOPERS, DEPARTMENT OF PUBLIC SAFETY testified in support of HB 206. He was involved in the creation of the VPSO program while he was stationed in Bethel in 1979. He stressed that the VPSO program is a tremendous asset to the citizens of Alaska and the Alaska State Troopers. He acknowledged the high turnover rate in the program. He noted a progression from VPSO officer - to municipal police officer - to the Alaska State Troopers. He did not object to a one-year requirement. Colonel Godfrey observed that the original intention of the VPSO program was to hire people from a community to provide law enforcement to their constituents. He acknowledged that there are many non-native VPSO officers. Some villages have found that it is a problem for individuals to be law enforcement officers in their own communities. He supported restricting the program to individuals continuing in a public safety field. He did not support restrictions on "double dipping". In response to a question by Representative Martin, Colonel Godfrey observed that of 79 Alaska State Trooper field positions: - 26 were VPSO officers for 5 - 18 years - 3 were VPSO officers for 18 years, - 1 was a VPSO officer for 17 years, - 1 was a VPSO officer for 15 years, - 1 was a VPSO officer for 12 years, - 1 was a VPSO officer for 11 years, - 4 were VPSO officers for 9 years, - 3 were VPSO officers for 8 years, - 1 was a VPSO officer for 7 years, - 6 were VPSO officers for 6 years, and - 5 were VPSO officers for 5 years. Representative Martin questioned if the legislation would encourage Native Corporations to drop their retirement plans. (Tape Change, HFC 98 - 29, Side 2) Co-Chair Therriault explained that the intent of his proposed amendment is to allow officers that are not vested in their VPSO retirement system to count their time in PERS. Officers that are vested in a VPSO retirement plan would not be allowed to count the same years in the state system. Representative Davis asked if the legislation would discourage retention of VPSO officers. He noted the need to encourage VPSO officers to remain in their positions. Colonel Godfrey stressed that the best way to attract officers is by providing role models. He stated that VPSO officers cannot be expected to last on the job for 15 - 20 years. He stated that it is natural for good officers to progress to another police department or the Alaska State Troopers. Co-Chair Therriault provided members with Amendment 1. He amended Amendment 1 to reference the definition of a police officer or fire fighter under AS 39.25.200(28). Co-Chair Therriault MOVED to ADOPT Amendment 1. Representative Davies OBJECTED. He clarified that five years of an individual's vested years in PERS would have to be as a police officer or fire fighter. Representative Davies spoke against the amendment. He stressed that the amendment would limit the possible career choices of a VPSO officer. He observed that a public official could not buy his VPSO service. He emphasized that 99 percent of the cost is paid by the individual not the state of Alaska. He stressed that VPSO officers are under- paid. Representative Martin spoke against the amendment. He observed that there is no restriction for buy back of military service. Representative Davis noted that teachers transfer time within the same occupation. Private teaching service can be transferred to the state Teachers Retirement System. Representative Davies noted that there is no restriction on the purchase of municipal service under PERS. Representative Kelly pointed out that the question is whether the intent is to create an incentive or an award. He spoke against the amendment. Co-Chair Therriault noted that there is a natural progression in law enforcement. He stated that he would like to encourage a continuation in law enforcement. Representative Davies stressed that the intent of the legislation is to reduce the turnover rate of VPSO officers. He did not think that the intent was to encourage transfer to the upper ranks. He maintained that the "primary purpose of the bill is to look at a class of citizens that are serving us very well and to figure out someway to add some incentive to become a VPSO in the first place." Representative Martin agreed that the intent is to encourage participation in the VPSO program. A roll call vote was taken on the motion. IN FAVOR: Kohring, Mulder, Davis, Therriault OPPOSED: Grussendorf, Kelly, Martin, Moses, Davies, Hanley Representative Foster was absent from the vote. The MOTION FAILED (4-6). Co-Chair Therriault provided members with Amendment 2 (copy on file). He amended Amendment 2 by changing 3 years to one year. Amendment 2 would clarify that: "An employee is not entitled to credited service for employment as a village public safety officer unless the employee was employed as a village public safety officer for at least one year." Co-Chair Therriault MOVED to ADOPT Amendment 2. There being NO OBJECTION, the motion was adopted. There being NO OBJECTION, it was so ordered. Co-Chair Therriault MOVED to ADOPT Amendment 3. Amendment 3 would add a new subsection to read: "An employee is not entitled to credited service under this section if the employee is entitled to receive retirement benefits from another employer for the same service." Representative Davies OBJECTED. Co-Chair Therriault noted that the language is similar to restrictions of credited military service. Representative Davies stressed that village public safety officers deserve the additional benefit. He noted that the majority of the cost would be born by the officer. There is a small cost to the state of Alaska. Representative Davis spoke against the amendment. A roll call vote was taken on the motion. IN FAVOR: Kelly, Kohring, Martin, Mulder, Hanley, Therriault OPPOSED: Moses, Davies, Davis, Grussendorf Representative Foster absent from the vote. The MOTION PASSED (6-4). Co-Chair Hanley questioned the fiscal impact. He suggested that the fiscal note should reflect the fiscal impact. Mr. Church clarified that any cost would be born by the employer. Representative Davies requested that the impact of Amendment 3 be taken into account by the fiscal note. He added that some reduction should be taken to reflect the expectation that not everyone that is eligible would take advantage of the program. In response to a question by Representative Martin, Mr. Church observed that the actuarial account is 98 percent funded. Co-Chair Hanley noted that the amount of the indebtedness is equal to the full actuarial cost of providing benefits based on the service. Mr. Church clarified that the full actuarial cost is determined on an individual basis based on the individual's age and their salary in their vesting years. Co-Chair Hanley observed that the fiscal note assumes that the individual does not cover the full cost. Mr. Church reiterated that the there will always be some margin of additional cost. Representative Davies summarized that the full actuarial cost is based on the assumption that individuals will remain in the system. The legislation allows employees to select in the future. The selection will be based on the benefit to the individual. The actuarial cost is based on calculations further back in time. The actual cost is based on a future self-selection. Mr. Church stressed that the employee would be vested in PERS. Previous VPSO service could be purchased. They would add to their credited service. There is a lifetime adjustment on any indebtedness owed at retirement. Co-Chair Hanley noted that a determination is made at the time an individual purchases their previous service. He did not understand what would result in the additional cost outlined in the fiscal note. Co-Chair Therriault noted that the a new fiscal note would be prepared to reflect adopted amendments. Representative Davies reiterated that the fiscal note should address Amendment 3 and the assumption of how many are expected to take advantage of the provision. Representative Martin MOVED to report CSHB 206(FIN) out of Committee with the accompanying revised fiscal note. HB 206 was REPORTED out of Committee with a "do pass" recommendation and with a revised fiscal impact note by the Department of Administration. HOUSE BILL NO. 328 "An Act making appropriations for continued maintenance and operation of the Motor Vessel Malaspina; and providing for an effective date." BOB DOLL, GENERAL MANGER, ALASKA MARINE HIGHWAY SYSTEM, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES testified in support of HB 328. Mr. Doll read from his prepared statement to the House Finance Committee. He noted that the timing of this improved service was prompted in large part by two imperatives, which required prompt action. The first was the need to publish the summer 1998 schedule no later than early January. Earlier publication was desirable, but at the latest, the schedule had to be available for the travel trade shows which take place following the holidays. The advertisers who had purchased space in the schedule book, the show attendees, and individual travelers depend upon early publication in order to make their plans. Schedules were to be provided to the printer on September 7th, but events following the Prince Rupert blockade caused a delay. The schedule is now available. Mr. Doll noted that the second requirement was to provide for the contingency that the introduction of the M/V Kennicott might be delayed or interrupted by the kinds of breakdowns typical of a new ship. In the spring of 1997 the Marine Highway Advisory Board had cited a requirement for a backup ship. "We agreed that a backup ship was needed. The logical ship for that purpose, and the only one with a capability approaching that of Kennicott, is the Malaspina. Neither of the other mainline ships has the speed or capacity to meet the backup requirement, and in any case, both would be fully employed on other demanding routes." Mr. Doll observed that: "Like all of our ships, Malaspina must hold a US Coast Guard Certificate of Inspection, issued each year. The Certificate in the case of the Malaspina expired on 31 October. If she is to operate at all in 1998, either as a temporary replacement for the Kennicott or in the Lynn Canal, she must be dry-docked and inspected. In addition, her engines and generators have reached their maximum operating hours and require overhaul. We have already begun this work, which is not intended to do anything more than to make it legally possible for her to carry passengers in 1998." Mr. Doll stressed that a significant, capital asset would not earn any income in the summer of 1998 if the Malaspina was not required as a substitute for the Kennicott and she were left alongside the pier. He asserted that: "The most prudent choice of a site for the Malaspina to operate this summer is the Lynn Canal, where her revenues can be maximized. That choice is based on the results of studies, which show a 7.3 annual growth rate in the Juneau-Skagway city pair. The same studies show that, in calendar year 1995, ridership wholly within Lynn Canal exceeded 96,000 passengers and 27,000 vehicles, and generated nearly $3.4 million in revenue. Additional traffic demand to/from ports of call south of Juneau generated an additional 43,000 passengers and more than 11,000 vehicles, adding another $1.7 million in marginal fare revenue attributable to the Lynn Canal segments of these trips. Operating seven days per week this summer, I believe the Malaspina can pay her way. She will bring to the Marine Highway something that it has not had until now; daily, predictable service, on a high-demand route. Passengers, and their servicing travel agents, will be confident that they can move north or south in the Lynn Canal every day, at reasonable hours. Daily service will help move, to areas north of Juneau, those visitors who, each year, spend some $7.4 million in the Interior and northern regions and $11.4 million in Southcentral. The small business, "Mom and Pop," owners who depend upon those summer travelers will be among the beneficiaries. It's the kind of service that individuals and businesses served by the Marine Highway have been seeking for years. Now the opportunity is in our grasp." Mr. Doll noted that: "Earlier efforts to develop a Lynn Canal service had foundered on the issue of labor agreements. While we were not successful in reducing manning levels as much as had once been hoped, we were able to obtain agreement that if the ship's hotel services did not earn revenue adequate to justify the initial employment levels, those shipboard positions might be reduced proportionally. In other words, we are able to monitor revenue and if that income is not sufficient, adjust the crew level in the hotel area." Mr. Doll pointed out that the Malaspina labor agreement is the first example of a labor-management document that does not increase shipboard labor costs in the entire history of the Alaska Marine Highway System, and perhaps in the history of the state of Alaska. The agreement creates an ongoing relationship between shipboard manning and the vessel's success as a business venture. He stressed that this is a rare provision, which establishes a relationship between the profitability of a Marine Highway operation and the number of jobs it supports. Mr. Doll asserted that the Malaspina labor agreement is unique. It is intended only for the special circumstances surrounding the Malaspina in the Lynn Canal setting. He maintained that it is in the best interests of the State to encourage imaginative approaches to labor issues and to welcome the profitability concepts embodied in the proposed Malaspina operations. Mr. Doll observed that the Malaspina/Lynn Canal proposal provides an opportunity to test, at minimum cost, one approach to a possible future System, namely the "dayboat." "If our operational experience so indicates, it is possible that the Malaspina could be replaced by a purpose-built ship, one designed for the Lynn Canal and offering even greater economic advantages. The conceptualization and design of that ship could be accomplished using the data we have gained from operating the Malaspina for a time in this role. This proposal will collect real data, in a controlled environment, in a kind of clinical setting." Mr. Doll concluded after reviewing recent studies of the Alaska Marine Highway System operations that a dayboat makes both economic and operational sense. In summary, the Malaspina/Lynn Canal proposal offers an opportunity to: - Obtain maximum use of a capital asset. - Provide long-sought daily service on a heavy demand route. - Establish a profit-related basis for AMHS operations. - Implement an innovative, lower-cost labor agreement. - Test and evaluate the potential for dayboat operations. - Operate the ship on a revenue-neutral basis. Mr. Doll acknowledged concerns regarding the proposal. He emphasized that the proposal is consistent with the legislature's stated objectives to reduce AMHS costs while augmenting service. "Those objectives cannot be met unless we alter our current operating concepts. The Malaspina/Lynn Canal proposal can point the way to the future. I hope the legislature will make a start in that direction by approving this legislation and I look forward to cooperating with both houses as you examine this proposal." (Tape Change, HFC 98 -30, Side 1) LARRY WEST, HAINES testified in support of HB 328. He stressed that the use of the Malaspina as a dayboat would provide significant opportunities to generate additional revenues. BERNE MILLER, EXECUTIVE DIRECTOR, SOUTHEAST CONFERENCE testified in support of HB 328. He observed that the municipalities and chambers or commerce of Southeast Alaska formed the Southeast Conference over 40 years ago to support the creation of the Alaska Marine Highway System. He emphasized that the Alaska Marine Highway System has become the lifeblood of Southeast Alaska's economic and social well being. He maintained that it would be irresponsible not to keep the Malaspina as a backup to the Kennicott ferry until the Kennicott is reliably in service. He asserted that keeping the Malaspina in service represents a prudent use of a valuable resource. The use of the Malaspina would help meet transportation needs that are going unmet during a time of economic vulnerability and uncertainty. He emphasized that the Alaska Marine Highway System cannot stand the kind of schedule chaos that would result if the Kennicott were to drop out of service. He noted that coastal communities have long been clamoring for better service. Hr observed that there is a bottleneck in North Lynn Canal. He noted that Commissioner Perkins stated that he would be willing to keep the Malaspina operating as a dayboat in Lynn Canal for a period of time. He referred to remarks by Mr. Doll. Mr. Doll stated that he would try to keep the Malaspina as a dayboat, providing that it is revenue neutral. Mr. Doll also indicated his intent to stop the service if it turns out to be a "revenue hemorrhage". Mr. Miller observed that Mr. Doll estimates that there would be a $1.1 million dollar operating deficit for the summer of 1998. Mr. Miller expressed confidence that the operating deficit could be eliminated by the end of the summer. He suggested that it would be better to run the Malaspina and earn revenue while the ship remains a backup of the Kennicott. He pointed out that summer travelers are leery of the Alaska Marine Highway System after the Canadian blockade. He stressed that schedule stability needs to be maximized. He concluded that the operation of the Malaspina is a bold experiment that will take cooperation and creativity. He stressed that the experiment can be terminated with minimum loss. Co-Chair Hanley noted that customers will be displaced from the Malaspina if it is taken off day service to replace the Kennicott. Mr. Miller observed that if the Malaspina is used to replace the Kennicott that there are other ships in North Lynn Canal to accommodate some of the displacement. Co-Chair Hanley pointed out that the Malaspina cannot stop in Prince Rupert. BOB WARD, CITY MANAGER, SKAGWAY testified in support of HB 328. He referred to a letter from the Mayor of Skagway to Senator Mackie. He noted that the city of Skagway expressed interest in the operation of the Malaspina as a dayboat. The city of Skagway offered to berth the Malaspina for free during the winter. Mr. Ward acknowledged that a winter berth in Skagway would not offer as good a deal as the city originally anticipated. He emphasized that the message is that the community and region is interested and willing to look at ways to reduce the fiscal impact to the state of Alaska. He stressed that independent travel to Skagway is diminished. He maintained that consistent day travel would increase individual travelers, which spend more money in Alaskan communities. Co-Chair Therriault asked if Mr. Ward had an interest in whether the service is provided by the state of Alaska or private enterprise. Mr. Ward replied that he is more interested in the service than who provides the service. He expressed concern that private enterprise would only provide summer service, which contributes the greatest revenues. The Alaska Marine Highway System would loose summer revenues and be forced to provide more expensive winter service. BOB PROVOST, REGIONAL DIRECTOR, INLANDBOATMEN'S UNION OF THE PACIFIC (IBU) testified in support of HB 328. He noted that he has extensive experience working on ferries. He emphasized that the IBU is committed to making the operation of the Malaspina in the Upper Lynn Canal work. The Alaska Marine Highway System and the IBU agreed to specific contractual accommodations that allow the state of Alaska to operate the Malaspina more cost effectively. Some savings are the result of day operation. He noted that sick employees can get off on a daily basis without costing a whole week of work. He asserted that the Malaspina would prove to be a valuable asset to the Alaska Marine Highway System. He maintained that operation of the Malaspina would result in expanded fleet operation, better service and less general fund monies needed for operations. Mr. Provost expressed certainty that the operation would be successful. In response to a question by Co-Chair Hanley, Mr. Provost reviewed concessions by the union. He observed that if someone is sick or takes vacation under normal provisions they would be gone for a whole week. Under the agreement, employees can take a single day off. Under federal laws merchant seamen must be paid for the entire voyage if they are injured on the vessel. A dayboat would reduce pay to injured employees. He observed that wages of sick or injured employees that are not replaced are normally split between the other employees on duty that cover for the injured or sick employee. Under the agreement the Alaska Marine Highway System can operate for 24 hours without paying replacement wages. He observed that, under normal provisions, employees with seniority can be flown to the port of origin. He noted that the agreement restricts employees from being flown at state expense to begin work on the Malaspina. Juneau will be the Malaspina's homeport. Co-Chair Therriault asked for a written list of the contractual concessions. Representative Martin asked what concessions are made for delays and what are the overtime limitations on 40-hour workweek. He also asked for more information on the benefits of daily leave evaluations. Mr. Provost explained that the crew would maintain the current week on/week off schedule. Personnel will be utilized at night to clean the ship. He emphasized that it is easier and more efficient to clean the ship without passengers. Crew will work an 84 hour week of seven, twelve-hour days. Crew do not receive overtime. In response to a question by Representative Mulder, Mr. Provost clarified that work goes on around the clock. The Coast Guard requires a certain number of deck hands and engine room personnel to be on board at all time. Steward hours would be altered to correspond to the hours passengers are on board. Most stewards would work from 7 a.m. to 10 p.m. Some cleaning would occur at night. In response to a question by Co-Chair Hanley, Mr. Provost noted that discussions occurred regarding the elimination of hotel services. He maintained that the hotel service would be profitable. Crew specifically related to hotel service would be eliminated if hotel service is not profitable. The method of evaluation has not been determined. He observed that daily service of the Malaspina would continue until September 1998, unless it is extended. He emphasized that hotel service could be evaluated from week to week. Mr. Doll noted that the Alaska Marine Highway System needs approximately $30 million dollars in deferred maintenance. Co-Chair Hanley questioned if the legislation is revenue neutral. Mr. Doll noted that the original objective was to operate the Malaspina 4-days a week with a bare bones crew. The Department of Transportation and Public Facilities was unable to obtain labor agreements to implement a 4-day schedule. In order to generate the maximum ridership, the Department of Transportation and Public Facilities intends to market and publicize day service of the Malaspina. The Department intends to have the minimum crew necessary for operations. A labor management committee meeting would be held the end of June to review room and cafeteria sales. Revenue estimates are based on previous operations. It is difficult to determine how much will be saved by the labor concessions. There will be a reduction of 11 positions. There will be no cost to fly crew to or from Juneau. Co-Chair Therriault noted that two boats would stop in Juneau on a number of days. Mr. Doll emphasized that the operation of the Malaspina is uncertain. Passengers on the mainliners that also stop in Juneau would have embarked south of Juneau. He noted that adjustments will have to be made if the Malaspina is not operating in the summer of 1998. If the Malaspina continues operations in the summer of 1999, the Kennicott and the Columbia would be the only other boats providing service from Juneau. Fifteen of the 38 positions on the Malaspina would be related to hotel service. Representative Martin clarified that it would cost $32.5 dollars to travel one-way. He referred to the fiscal note. Mr. Doll explained that the Malaspina would operate for 18.1 weeks. Many of the costs are for the entire year. He expressed hope that a successful summer operation could result in extended operation of the Malaspina 4 days a week during the rest of the year. There will be costs associated with mooring the ship. There will also be some employee costs regardless of operation. Co-Chair Hanley noted that there is an estimated service demand of 96,000 passengers annually in the Lynn Canal with a 5 - 7 percent annual growth. He asked what percentage of the passenger increase would be due to increased service. He noted that there would be a decrease in passengers on some of the other vessels. He asked if the net cost of reduce ridership of other vessels as been included in revenue estimates. (Tape Change, HFC 98 - 30, Side 2) Co-Chair Hanley referred to the Alaska Marine Highway System Fund summary. He expressed concern that the Fund is being reduced. He observed that there is an approximately $30 million dollar annual state subsidy in addition to revenues earned by the system. The estimated 1999 Fund balance is $34 million dollars. The balance was $44 million dollars in 1997. He observed that the endowment principle is being reduced. Co-Chair Therriault asked if negotiations occurred for operations without hotel service. He questioned the level of demand for hotel service. Mr. Doll noted that the Department began negotiations with a proposal for the lowest possible crew. Figures demonstrated that there is a demand for greater service. The agreement is based on an estimation of what crew is actually required to provide a minimum level of hotel services. There is an opportunity to lower service to the level of actual demand. Co-Chair Therriault suggested that service be specialized on different boats. Mr. Doll pointed out that it would be difficult to market which boats have services. Co-Chair Therriault noted that some boats already have different level of services. Mr. Doll observed that all but 3 boats provide a full range of services. Representative Davies noted that a potential market would not be developed if service is not available. He suggested that a passenger that is getting up at 5 a.m. may want cafeteria service. Co-Chair Therriault pointed out that if the number of people booking rooms is low that the service will be reduced. He noted that people will have made reservations for a ship they thought provided rooms. Mr. Doll anticipated that some rooms would be sold on board at a discount. Co-Chair Therriault asked how many additional positions will be associated with the operation of the Malaspina. Mr. Doll noted that there would be no additional positions in the terminals. There may be a little overtime in terminal operations. An auditor position is the only new position that would be added. Co-Chair Therriault asked for the amount of maintenance money spent on the Malaspina over the last year. Mr. Doll explained that the only maintenance funds applicable to the legislation would be $750 thousand dollars to restore the ship's certificate and the amount proposed as a capital expenditure of $2.4 million dollars. The capital expense does not include any remodeling on the ship. The ship has had little maintenance since the previous year. HB 328 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 4:09 p.m. House Finance Committee 18 2/12/98