HOUSE FINANCE COMMITTEE May 17, 1999 7:50 P.M. TAPE HFC 99 - 147, Side 1. TAPE HFC 99 - 147, Side 2. CALL TO ORDER Vice-Chair Bunde called the House Finance Committee meeting to order at 7:50 P.M. PRESENT Co-Chair Mulder Representative Foster Co-Chair Therriault Representative Grussendorf Vice Chair Bunde Representative Kohring Representative Austerman Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Mike Tibbles, Staff, Representative Gene Therriault; Alison Elgee, Deputy Commissioner, Department of Administration; Don Etheridge, Alaska Laborers Union, Juneau; Vincent O'Connor, Alaska State Employee Association, Anchorage; Chris Christenson, General Council, Judicial Branch, Alaska Court System. TESTIFIED VIA TELECONFERENCE Paul Lyle, Assistant Attorney General, Department of Law, Fairbanks; John Athens, Assistant Attorney General, Department of Law, Fairbanks; Karol Alderman, Assistant Attorney General, Department of Law, Fairbanks; Leone Hatch, Assistant Attorney General, Department of Law, Fairbanks; Richard Keck, Assistant Attorney General, Department of Law, Fairbanks. SUMMARY HB 199 An Act relating to compensation for certain state employees; and providing for an effective date. CS HB 199 (FIN) was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Department of Administration and the Alaska Court System. HOUSE BILL NO. 199 An Act relating to compensation for certain state employees; and providing for an effective date. MIKE TIBBLES, HOUSE FINANCE STAFF, REPRESENTATIVE GENE THERRIAULT, explained the changes made to the work draft version "K", committee substitute for HB 199. He noted that the new version would establish: 1. A new pay differential for statutory employees. The bill provides that if there is a change or a reduction in employee's pay because of the change in pay differential, the employee would be frozen at their current pay due to cost of living allowances (COLA's) or longevity increases until the pay catches up to them. From there, they will continue to move up the scale. For the record, Representative Bunde clarified that current employees would not be asked to take a reduction in salary, but would remain in their current place until the schedule catches up with them. Mr. Tibbles agreed unless an employee moved from one region to another locale. 2. The new version would remove the recommended reduction contained in the State Affairs version for commissioners and judges. 3. The new version would remove the limit and cap for longevity steps, returning it as is. 4. The new version would modify the Supplemental Benefits System (SBS) for new employees. 5. The new version would place a cap on the amount of wages contributions could be made, a floating number. The current statute places the cap at 1998 social security wage. For new employees, the State's contribution would be reduced from 6.13% to 3.065%. ALISON ELGEE, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION, commented that the geographic differential schedule included in the committee substitute is in fact the same schedule currently in place for the general government unit employees and the supervisory employees throughout the State. The Department of Administration has in the past proposed legislation to amend the statutory geographic pay differential in line with those schedules that have been negotiated through the collective bargaining agreements. She continued, collective bargaining schedules are a result of a cost of living differential study provided in 1986. At that time, new contracts were negotiated to reflect information resulting in a reduction of the geographic differential for a number of places in the State. It has been problematic to modify that schedule. Ms. Elgee commented that the Department of Administration supports the committee substitute including the freeze provision to guarantee that no employee will loose anything from their current pay. However, the Department strongly recommends the deletion of Section 1, which indicates that the geographic differential could not be negotiated through collective bargaining. She emphasized that language does a disservice to the State of Alaska. In response to Representative Bunde, Ms. Elgee pointed out that the language in Section 5 is in existing statute. DON ETHERIDGE, ALASKA LABORERS UNION, JUNEAU, commented that the concern of the Laborers Union is with the SBS portion of the proposed legislation. He emphasized that it would not be good to create a two-tier system amongst employees. That will be difficult on the morale of new hires and could make it difficult to recruit qualified people. PAUL LYLE, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF LAW, FAIRBANKS, questioned if there would be a new schedule reducing current pay status. Mr. Tibbles advised that all reductions have been eliminated from the bill. Representative J. Davies explained that pay would be frozen at one's current level until that person catches up with the new proposal. Mr. Tibbles pointed out that the pay scale would be calculated first on the current area cost pay differential and then on the newly established pay differential. Given the result on the new schedule, the employee's salary would be decreased and that person's salary would be frozen until COLA's or longevity annual increases bring them up to the current level, at which point, they would continue to increase. Mr. Lyle asked if freezing pay would mean that workers would not receive longevity pay increases. Representative J. Davies commented that with the longevity plus inclusion of the new differential less than the current salary, the employee would not receive a pay increase. Ms. Elgee clarified that in the past when modifications were made to the geographic differential schedule, a freeze was the approach taken. For merit increase eligibility, the individual is calculated as if they had not been frozen for the purpose of each adjustment, measured by when frozen. It is at that point with the new salary schedule and if that movement exceeds the frozen salary schedule, they would receive an increase. It is assumed that an individual loosing 10% for a geographic differential, that a combination of events could leave a 3% per year improvement in the pay base. During year four, that employee would actually receive more money in their check. Mr. Lyle agreed that the legislation was better with the changes proposed in the work draft. He believed that the cuts would have the greatest impact on career professionals who have worked the longest for the State. Those employees experience the fewest pay increases, and those increases are extended over longer periods of time. He suggested that freezing pay for state professionals statewide would be counter productive. Career professional and administrative staff working for the State of Alaska are underpaid in relation to their counterparts in the private sector. Mr. Lyle stressed that there should be a grandfather clause included for existing employees since they can not negotiate for higher wages. He concluded that taking money from a few state employees in the form of cuts or no pay increase is nothing more than a "disguised income tax". He urged that everyone in the State be treated equally. JOHN ATHENS, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF LAW, FAIRBANKS, echoed the comments of Mr. Lyle. Additionally, he questioned the need to "rush" the legislation. He stressed that many people are concerned with the proposed legislation and asked why the Department of Administration was intent on changing the cost of living differential from the 1986 study. KAROL ALDERMAN, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF LAW, FAIRBANKS, voiced concern with the "unfriendly" provisions of the legislation toward the long-term employee. In days of budget cuts, she suggested that the long-term employees are essential and should be compensated through longevity. LEONE HATCH, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF LAW, FAIRBANKS, testified regarding how the legislation would effect the quality of the State work force and stability. She believed that the proposed legislation would make state service a training ground for inexperienced people who do not have a commitment to the value of their work. Additionally, Ms. Hatch believed that the legislation would result in increased litigation. RICHARD KECK, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF LAW, FAIRBANKS, echoed concerns previously expressed in testimony of the other speakers. He urged the Legislature not to single out State employees. Mr. Lyle asked if Section 8 would constitute a reduction in what is presently being interpreted by the State. Representative Bunde replied that the employee contributions would continue as they currently are, however, the State contribution would be reduced for future employees. Ms. Elgee discussed the two parts included in Section 8. That section would reduce for the immediately hired employees and employees first hired after the effective date of the legislation, the employer contribution to its present level. The $68,400 savings figure is a reference to the social security wage base in effect for calendar year 1998. Employees that reach that wage base generally do so late in the fall and the social security base is adjusted at the federal level. It increases on an annual basis, which would freeze the contribution at the level in place last year. The contributions for current employees would not continue to escalate. VINCENT O'CONNOR, PRESIDENT, ALASKA STATE EMPLOYEE ASSOCIATION (ASEA), LOCAL 52, ANCHORAGE, stated that he represented clerks, social workers and labor economists. There are 7,500 members that provide various State services throughout Alaska. He urged that the legislation not be passed, as it would provide an unfair change to current and future public employees throughout Alaska. Public employees are professionals and are dedicated to their jobs and provide a good service to their communities. He asked members of the Committee to consider ways to raise benefits for all Alaskans. Representative Bunde MOVED to adopt work draft 1-LS0823\K, Cramer, 5/17/99, as the version before the Committee. There being NO OBJECTION, it was so ordered. Representative Austerman MOVED to delete Section #1. Ms. Elgee agreed that the Administration would like to see Section #1 eliminated from the legislation which would provide more flexibility when negotiating cost of living differentials. There being NO OBJECTION, it was deleted from the bill. Co-Chair Mulder asked if the bill was prospective. Ms. Elgee explained that the amendments would effect employees that are first hired after July 1, 1999 and would not impact anyone that is currently employed or was previously employed by the State. The changes to the geographic differential do have an impact on current employees. Those employees would not see a diminishment of their current salary. Representative J. Davies foresaw a negative change would be that the social security wage base frozen at the 1998 level. Ms. Elgee noted that the legislation would only effect new employees to State service that start after July 1, 1999. Co-Chair Therriault added that the legislative intent is to take care of seasonal employees and women in the work force who need to take time off following pregnancy. The changes would allow those returning to state service, return at the pay rate they left off at. In response to questions by Co-Chair Mulder, Ms. Elgee explained the current tier system. Under the public employees retirement system (PERS) and the teacher retirement system (TERS), the State has three tiers. The last modification made, created Tier #3, to the vesting retirement length of service. Modifications to that program have been made prospectively. The SBS program has not been modified since its inception, making this a first time change to the SBS system. (Tape Change HFC 99 - 147, Side 2). Co-Chair Therriault focused on the fiscal note. He asked how a 5% turnover rate had been determined. Ms. Elgee replied that was a factor that the actuaries look at in determining any kind of future projections on the PERS system because of the tiered structure of that program. Ms. Elgee advised that she had very little time to create the fiscal note and asked that the Committee allow the Department to prepare a more accurate number. The note represents the savings for all the employees going through the state payroll system. CHRIS CHRISTENSEN, GENERAL COUNCIL TO THE JUDICIAL BRANCH, ALASKA COURT SYSTEM, explained that the Court System has assumed a 10% turnover rate, which is double the rate that the Executive Branch experiences. The rate is high because Court System employees tend to be low paid and low paid employees tend to turn over at a higher rate. Co-Chair Mulder MOVED to report CS HB 199(FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. Representative J. Davies OBJECTED for the purpose of a comment. He objected to reducing employee benefits to balance the budget. Representative J. Davies WITHDREW the OBJECTION. There being NO further OBJECTION, it was so ordered. CS HB 199 (FIN) was reported out of Committee with a "do pass" recommendation and with fiscal notes by Department of Administration and the Alaska Court System. ADJOURNMENT The meeting adjourned at 8:50 P.M. H.F.C. 7 5/17/99 p.m.