HOUSE STATE AFFAIRS STANDING COMMITTEE April 6, 2000 8:09 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Joe Green Representative Jim Whitaker Representative Bill Hudson Representative Beth Kerttula Representative Hal Smalley Representative Scott Ogan MEMBERS ABSENT All members present OTHER HOUSE MEMBERS PRESENT Representative Jerry Sanders COMMITTEE CALENDAR CONFIRMATION HEARING: Alaska Commission for Human Rights Lisa Fitzpatrick - Anchorage - CONFIRMATION ADVANCED HOUSE BILL NO. 438 "An Act permitting certain emergency medical personnel in police or fire departments or employed by the state troopers to convert their credited service under the public employees' retirement system to credited service as peace officers; and providing for an effective date." - MOVED CSHB 438(STA) OUT OF COMMITTEE CS FOR SENATE BILL NO. 247(FIN) "An Act relating to eligibility of certain veterans for longevity bonus payments; and providing for an effective date." - MOVED CSSB 247(FIN) OUT OF COMMITTEE HOUSE JOINT RESOLUTION NO. 49 Proposing an amendment to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation proofing, and to require a vote of the people before changing the statutory formula for distribution that existed on January 1, 2000. - MOVED CSHJR 49(STA) OUT OF COMMITTEE HOUSE BILL NO. 439 "An Act relating to the compensation of certain public employees and officials not covered by collective bargaining agreements; and providing for an effective date." - MOVED CSHB 439(STA) OUT OF COMMITTEE PREVIOUS ACTION BILL: HB 438 SHORT TITLE: PERS BENEFITS FOR EMERGENCY MEDICAL TECHS Jrn-Date Jrn-Page Action 3/24/00 2686 (H) READ THE FIRST TIME - REFERRALS 3/24/00 2686 (H) STA, FIN 4/04/00 (H) STA AT 8:00 AM CAPITOL 102 4/04/00 (H) Heard & Held 4/04/00 (H) MINUTE(STA) 4/06/00 (H) STA AT 8:00 AM CAPITOL 102 BILL: SB 247 SHORT TITLE: VETERANS' ELIGIBILITY FOR LONGEVITY BONUS Jrn-Date Jrn-Page Action 2/04/00 2196 (S) READ THE FIRST TIME - REFERRALS 2/04/00 2196 (S) STA, FIN 3/02/00 (S) STA AT 3:30 PM BELTZ 211 3/02/00 (S) Heard & Held 3/02/00 (S) MINUTE(STA) 3/16/00 (S) STA AT 3:30 PM BELTZ 211 3/16/00 (S) Moved CS(STA) Out of Committee 3/16/00 (S) MINUTE(STA) 3/20/00 2659 (S) STA RPT CS 2DP 1NR NEW TITLE 3/20/00 2659 (S) DP: WARD, WILKEN; NR: ELTON 3/20/00 2659 (S) FISCAL NOTE (ADM) 3/28/00 (S) FIN AT 9:00 AM SENATE FINANCE 532 3/28/00 (S) Moved CS(Fin) Out of Committee 3/28/00 2757 (S) FIN RPT CS 5DP 2NR 1AM NEW TITLE 3/28/00 2757 (S) DP: TORGERSON, PARNELL, ADAMS, WILKEN, 3/28/00 2757 (S) LEMAN, NR: PHILLIPS, PETE KELLY; 3/28/00 2757 (S) AM: GREEN 3/28/00 2757 (S) PREVIOUS FISCAL NOTE (ADM) 3/29/00 (S) RLS AT 11:30 AM FAHRENKAMP 203 3/29/00 (S) MINUTE(RLS) 3/29/00 2776 (S) RLS TO CALENDAR 03/29/00 3/29/00 2777 (S) READ THE SECOND TIME 3/29/00 2777 (S) FIN CS ADOPTED UNAN CONSENT 3/29/00 2778 (S) ADVANCED TO THIRD READING UNAN CONSENT 3/29/00 2778 (S) READ THE THIRD TIME CSSB 247(FIN) 3/29/00 2778 (S) COSPONSOR(S): MACKIE, ELLIS, DONLEY 3/29/00 2778 (S) PASSED Y20 N- 3/29/00 2778 (S) EFFECTIVE DATE(S) SAME AS PASSAGE 3/29/00 2782 (S) TRANSMITTED TO (H) 3/30/00 2778 (H) READ THE FIRST TIME - REFERRALS 3/30/00 2779 (H) STA, FIN 3/30/00 2797 (H) CROSS SPONSOR(S): KERTTULA 4/04/00 2862 (H) CROSS SPONSOR(S): MULDER 4/06/00 (H) STA AT 8:00 AM CAPITOL 102 BILL: HJR 49 SHORT TITLE: CONST AM: PERM FUND INCOME DISTRIBUTION Jrn-Date Jrn-Page Action 1/31/00 2044 (H) READ THE FIRST TIME - REFERRALS 1/31/00 2044 (H) STA, JUD, FIN 2/02/00 2075 (H) COSPONSOR(S): DYSON 2/11/00 2188 (H) COSPONSOR(S): MASEK 2/21/00 2259 (H) COSPONSOR(S): KOTT 4/04/00 (H) STA AT 8:00 AM CAPITOL 102 4/04/00 (H) Scheduled But Not Heard 4/06/00 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 439 SHORT TITLE: PAY RAISE FOR NON-UNION STATE EMPLOYEES Jrn-Date Jrn-Page Action 3/28/00 2728 (H) READ THE FIRST TIME - REFERRALS 3/28/00 2728 (H) STA, FIN 3/28/00 2728 (H) FISCAL NOTE (GOV/ALL DEPTS) 3/28/00 2728 (H) GOVERNOR'S TRANSMITTAL LETTER 4/06/00 Text (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER LISA FITZPATRICK, Appointee to the Alaska Commission for Human Rights 2822 Iliamna Avenue Anchorage, Alaska 99517 POSITION STATEMENT: Testified as appointee to the Alaska Commission for Human Rights. BILL CHURCH, Retirement Supervisor Division of Retirement & Benefits Department of Administration PO Box 110203 Juneau, Alaska 99811-0203 POSITION STATEMENT: Answered questions regarding HB 438. MARIE MARKS, Legislative Secretary to Senator Loren Leman Alaska State Legislature Capitol Building, Room 115 Juneau, Alaska 99801 POSITION STATEMENT: Presented sponsor statement for SB 247. NANCY WELLER, Division of Medical Assistance Department of Health & Social Services PO Box 110660 Juneau, Alaska 99811-0660 POSITION STATEMENT: Answered questions regarding SB 247. LADDIE SHAW, Coordinator Veterans' Affairs Department of Military and Veterans' Affairs PO Box 5800 Fort Richardson, Alaska 99505-0800 POSITION STATEMENT: Testified in support of SB 247. MARY GRISWOLD PO Box 1417 Homer, Alaska 99603 POSITION STATEMENT: Testified in opposition to HJR 49. MARY RAYMOND Homer, Alaska 99603 POSITION STATEMENT: Testified in opposition to HJR 49. ALISON ELGEE, Deputy Commissioner Department of Administration PO Box 110200 Juneau, Alaska 99811-0200 POSITION STATEMENT: Presented HB 439. JEFF JESSEE, Executive Director Alaska Mental Health Trust Authority 3601 C Street, Suite 742 Anchorage, Alaska 99503 POSITION STATEMENT: Commented on HB 439. DON ETHERIDGE AFL-CIO 710 W 9th Street Juneau, Alaska 99801 POSITION STATEMENT: Testified in support of HB 439. CHRIS CHRISTENSEN, General Counsel to the Judicial Branch of Government Alaska Court System 820 West 4th Avenue Anchorage, Alaska 99501-2005 POSITION STATEMENT: Commented on HB 439. ACTION NARRATIVE TAPE 00-29, SIDE A Number 0001 CHAIR JEANNETTE JAMES called the House State Affairs Standing Committee meeting to order at 8:09 a.m. Members present at the call to order were Representatives James, Whitaker, Smalley and Ogan. Representatives Green, Hudson and Kerttula arrived as the meeting was in progress. Number 0033 CONFIRMATION HEARING Alaska Commission for Human Rights CHAIR JAMES announced that the committee would consider one nominee for the Alaska Commission for Human Rights. Committee members would not vote for the nominee but would pass the nominee's name out of committee for consideration of the full House and Senate. Number 0087 LISA FITZPATRICK, Appointee to the Alaska Commission for Human Rights, came forward to testify. She said she felt that everyone had a duty to fulfill some sort of public service, which she feels is within her capabilities. As a lawyer, she believes she is certainly capable of understanding the statutory scheme. Furthermore, she has been a hearing officer and is familiar with the administrative process. It is a good time in her life to take on this kind of commitment because she is not on a full-time job right now and has young children. She can commit to this undertaking, she is comfortable with it, she is interested in the substantive law, and she thinks it would be a fine thing to do. CHAIR JAMES mentioned that she is happy that there are people like Ms. Fitzpatrick who are willing to do this kind of job. She said she knows that sometimes it can be quite emotional. Number 0210 REPRESENTATIVE OGAN inquired as to Ms. Fitzpatrick's attitude about affirmative action. MS. FITZPATRICK replied that she thinks the law about affirmative action has become quite confusing. She indicated that she is not really up to speed on the state of the law. She recognized that it is a great concept; beyond that, she thinks it has taken so many twists and turns in its evolutionary process that it is hard to comment on it at this point. REPRESENTATIVE OGAN asked Ms. Fitzpatrick if she thinks that someone should be hired based on his or her qualifications and experience or other criteria. MS. FITZPATRICK said she does not have an opinion, other than to say that whatever the state of the current law is with respect to affirmative action, the law should be followed. Number 0348 REPRESENTATIVE KERTTULA moved to forward the confirmation of Ms. Fitzpatrick to the full body. There being no objection, the confirmation of Ms. Fitzpatrick was advanced. HB 438-PERS BENEFITS FOR EMERGENCY MEDICAL TECHS CHAIR JAMES announced the next order of business would be HOUSE BILL NO. 438, "An Act permitting certain emergency medical personnel in police or fire departments or employed by the state troopers to convert their credited service under the public employees' retirement system to credited service as peace officers; and providing for an effective date." [A proposed committee substitute (CS), version 1-LS1574\G, Cramer, 4/5/00, was in committee packets.] Number 0417 CHAIR JAMES called for an at-ease at 8:14 a.m. and called the meeting back to order at 8:15 a.m. Number 0496 BILL CHURCH, Retirement Supervisor, Division of Retirement & Benefits, Department of Administration, said he has worked with Mr. Harman from Representative Kott's office and Ms. Cotting from Representative James' office regarding the proposed CS. He noted that based on the comments of testimony on Tuesday (4/4/00), there was some concern that there would be groups of people that should be covered under the proposed CS, and that the intent was to cover them; however, because of the organization's makeup and title designation, they would not be covered. For example, in the Matanuska-Susitna (Mat-Su) Borough, they are considered a public safety organization and yet have no police activities under their organization. Therefore, what was done was to change the title by removing from the proposed CS "employed by the state troopers". MR. CHURCH commented that also the original line 8 talks about "a state emergency medical service (EMS) officer or an emergency medical technician (EMT) in a state trooper office or in a police or fire department"; removal of that makes the proposed CS broad enough to cover these other potential agencies, but it keeps the proposed CS focused on these specific job qualifications of only the EMS and EMT. He indicated the key was to make sure that the proposed CS only applied to that group, which certainly addresses the concerns of Representative Ogan. Number 0691 CHAIR JAMES asked if the [EMS and EMT groups] are included wherever they work. REPRESENTATIVE HUDSON made a motion to adopt the proposed CS for HB 438, version 1-LS1574\G, Cramer, 4/5/00, as a work draft. There being no objection, Version G was before the committee. REPRESENTATIVE OGAN said he is concerned that a trend has been started. He explained that he could think of a lot of different groups that have high stress that do not usually retain 30 years of service. He commented that probably all state employees could be allowed to retire after 20 years if they want to pick up the cost. He is not entirely satisfied that there is not going to be a long-term cost that is not reflected in the fiscal note. He mentioned that as these additional people get into the retirement system at a young age, especially if someone goes to work as an EMT right out of high school or shortly after some technical training, they can retire at 38 years old and start drawing on the PERS. He indicated that life expectancy is high, so these young people could live a long time. Therefore, he would like to hear a discussion on how longevity affects the PERS over the long run. Number 0860 CHAIR JAMES stated that the retirement system is considered to be appropriate based on certain guidelines as to how many retirees there are and what the life span is. Originally, she also had a problem with a 20-year retirement as opposed to a 30-year retirement. However, she observed, retirement then was not the same as retirement now: today, retirement is not retirement. Therefore, she remarked, if Representative Ogan is talking about people going to work in their 20s and retiring in their 50s, that is not necessarily the case. She indicated her belief that the retirement income that young people would be receiving on the 20- year plan is not going to keep them for the rest of their lives because it is too small. REPRESENTATIVE JAMES said the amount is not known. Looking at her own life, she has had four careers. She envisions that the future will generate a different lifestyle. People are going to be living and working longer. She said "retirement" is not a good term for the proposed CS; rather, "a savings account" would be better. She noted that she is comfortable with the proposed CS. As soon as the committee started talking about people who had stress on their jobs and wanted to get out in 20 years instead of 30 years, then everybody came forward with all the stresses that they had on their jobs. She explained that living is a stress these days, and she does not know anybody that does not have stress on the job. She said learning to live with stress is better. She thinks the committee has to be flexible. If there is no direct cost to the state, she thinks that it is the same idea as putting money into an individual retirement account (IRA). She reiterated that the proposed CS is an option, not mandatory. Number 1103 REPRESENTATIVE OGAN asked what the effect is of the proposed CS. He said surely when people retire ten years earlier, they are going to be drawing on that retirement system, because a person does not just get the money that he or she paid into the retirement system. He reminded the committee that other people in investments and everything else help to support that payout. He asked Mr. Church to address the [20-year payout impact]. MR. CHURCH replied that the retirement system is based on the actuarial principle that a benefit is funded each year. In other words, each year that he is an employee of the state, money is being set aside to pay his benefits down the road when he retires. The retirement system is based on pre-funding retirement benefits, as opposed to the Social Security model that pays as it goes. The funding process has three components: employee contributions, employer contributions, and investment earnings on that money. Each year, an actuarial firm reviews the money that comes in to determine if enough money was earned and contributed to fund that year of service. He mentioned that [because of the actuarial review], various employers notice that employer rates go up and down year by year. He indicated that his division is always reviewing the actual five-year history of the fund, and so it is updating actuarial assumptions based on real experience. He informed the committee that actuarial projections are also adjusted by mortality. He said Representative Ogan is correct that mortality is increasing. The division is taking that into consideration as it predicts the cost of benefits. Number 1282 MR. CHURCH agreed that HB 438 is very expensive because a person belonging to a 30-year retirement program may choose to go to a 20-year program. He emphasized that a 20-year program is inherently more expensive to fund. He remarked that his division does a calculation when an employee requests a 20-year retirement of what the difference will be from the 30-year to the 20-year retirement. He reminded the committee that the person who chooses a "20 and out" retirement is going to have to pay the difference in those costs; the person can either pay the cost up front or he/she can take a lifetime reduction to pay for the difference. He added that depending on the person's age and what tier he/she is, these costs may also include the present value of health insurance that the system is required to pay. He observed that the division does try to take in the true value of these costs. He stated that the division has also built in an anti- selection factor on the theory that only those who are advantaged will take advantage of the benefit. He reiterated that actuarial science calls this factor anti-selection. He said that the division tries to take in all of these known and unknown factors into the process. REPRESENTATIVE OGAN asked if it costs more to others who are contributing to PERS when people opt out early. MR. CHURCH replied that there is no additional cost to either employees or employers for affording an individual this type of an option. Number 1365 REPRESENTATIVE OGAN asked if it costs more to the PERS because these people are going to be drawing upon the PERS ten years longer. Therefore, he asked if Mr. Church was saying that all of the costs of drawing ten years longer are borne by the employer and the employee. Number 1391 MR. CHURCH answered that the costs are borne by the employee taking advantage of a "20 and out" program. He said that the division had done a workup on "20 and out" through its actuary, and it was found that a Tier I employee who has worked 20 years in employment addressed by one of these "20 and out" bills will pay a total of $282,000 to fund their 20-year benefits. He noted that non-peace officer "20 and out" retirement liability is $107,700 so the employee would have to pay the difference of what has been funded versus the money necessary to fund the 20-year peace officer benefit. He reiterated that the employee either has to pay the difference up front or take a lifetime reduction and explained that his example was based on someone who had an average salary of $50,000 because each one of these calculations is individual specific based on their age, service accruals, and salary. REPRESENTATIVE HUDSON asked if the actuarial value of the PERS program was about 108 percent at the present time. Number 1491 MR. CHURCH replied that on the next report to come out the actuarial value will be a little higher. REPRESENTATIVE HUDSON pointed out for the benefit of Representative Ogan that investment earnings on monies that have been collected from employees and employers are now greater than what it would take to literally pay off every single employee in the state of Alaska. He mentioned that this is very unusual because, typically, most actuarially-based retirement funds rest at about 80 percent across the nation. He indicated that here in Alaska investment earnings have done quite well, and in fact, there is extra money in the program to actually expand benefits or for other purposes. REPRESENTATIVE HUDSON informed the committee that the money in PERS belongs to the employees; that is important because when speaking about cost, there are no costs to HB 438. He remarked that he differs from Chair James because he would not want to see the entire state program rolled over to a "20 and out." He added that he thinks there are some big disadvantages to having every state employee be able to literally opt out at 20 years. He recognized that in the particular case of HB 438, where employees have working conditions and stress relationships similar to peace officers, he thinks that it is probably a reasonable thing to consider; that is the reason he is supporting HB 438. Number 1612 CHAIR JAMES said career employees are needed, but she does not know that just because they can retire at 20 years does not mean that they will. She explained that she thinks that if some people have the [20-year] option then everybody should have the option. She agreed that there is a benefit for long-term employees. She noted that since the retirement system actuarial account is over 100 percent she thinks that employer and employee charges should be equally reduced. MR. CHURCH commented that at the last [PERS] board meeting employer rates were adjusted down because of the very favorable funding ratio that the division is experiencing now. Therefore, employers (including the state) are receiving a benefit similar to the one that was given a number of years ago. REPRESENTATIVE GREEN asked if the division had considered what would happen when someone wants to share his or her retirement with a spouse. Number 1784 MR. CHURCH replied that the division actually starts from one point when figuring all of its benefit structures. He stated that the one point is a normal retirement benefit calculation and noted that every other benefit or option available under the retirement system is the actuarial equivalent of the normal benefit. Therefore, he reiterated, when the division does its calculations, it just uses the normal retirement benefit because it would make no difference whether retirement benefit was calculated on a normal benefit, an early benefit, or one of the survivor options. He said that all calculations go back to the actuarial equivalent of the normal benefit. REPRESENTATIVE HUDSON noted that the member who is retiring must pay for a widow's benefit if the member chooses that option. Number 1850 MR. CHURCH explained that even if a member chooses a survivor option, there is no need to change the calculation because every calculation is figured from the normal benefit base calculation. REPRESENTATIVE GREEN asked if the survivor option needed to be considered in the shorter retirement plan. MR. CHURCH replied no. REPRESENTATIVE HUDSON made a motion to move CSHB 438, version 1- LS1574\G, Cramer, 4/5/00, out of committee with the attached zero fiscal note and individual recommendations; he asked for unanimous consent. There being no objection, CSHB 438(STA) moved from the House State Affairs Standing Committee. SB 247-VETERANS'ELIGIBILITY FOR LONGEVITY BONUS Number 1928 CHAIR JAMES announced the next order of business is CS FOR SENATE BILL NO. 247(FIN), "An Act relating to eligibility of certain veterans for longevity bonus payments; and providing for an effective date." MARIE MARKS, Legislative Secretary to Senator Loren Leman, Alaska State Legislature, presented the sponsor statement for SB 247. She said that during the interim, Senator Leman was contacted by several constituents regarding veterans entering nursing homes and subsequently losing their longevity bonus checks because their stay in the nursing home was to be paid for by veterans' benefits. She explained that the crux of the problem is the Division of Longevity Bonus' interpretation of the definition of "private" versus "funding." She noted that under current law an individual who enters a nursing home and pays for his/her care does not lose his/her longevity bonus check. She commented that veterans' benefits were included in the interpretation of a non- private source since anything that is not paid for directly by the individual is considered a non-private source. MS. MARKS mentioned that SB 247 restores the eligibility to receive longevity bonus payments of certain veterans who are being cared for in nursing homes. She indicated that veterans' benefits are federal benefits earned by those who have served our country in the armed forces. It is not fair to include veterans' benefits in the same category as needs-based state benefits such as Medicaid, the receipt of which disqualifies a nursing home patient from receiving longevity bonus payments. She emphasized that SB 247 is not retroactive. She remarked that persons who had been disqualified solely because they are paying for nursing care with veterans' benefits may re-apply beginning July 1, 2000; then they would receive their longevity bonus check from the time of qualification until such time as they are disqualified for other reasons. She added that between Legislative Audit and the Department of Administration, it is estimated that about six veterans will be affected by SB 247. She acknowledged that there is a fiscal note of $12,000 attached to SB 247 as the department's best guess of how much this change to the program would cost, but it could be less. Number 2060 REPRESENTATIVE HUDSON asked if there was a correlation between this proposal and the Alaska Longevity Bonus (ALB) "hold harmless" proposal. NANCY WELLER, Division of Medical Assistance, Department of Health & Social Services, replied that the ALB "hold harmless" is paid through the Medicaid program when a person becomes ineligible due to too high of an income; veterans' benefits actually has nothing to do with the ALB "hold harmless." MS. MARKS said that as soon as a veteran receives even one penny of other benefits, Medicaid or Medicare, the veteran is no longer eligible for longevity bonus. Number 2129 REPRESENTATIVE OGAN asked Ms. Marks to explain Title 47, Section 2. MS. WELLER replied that Section 2 applies to people who were bounced off the longevity bonus program because they received veterans' benefits and would now be able to reapply and get back into the program. Section 2 states that a person who was receiving veterans' benefits, then entered a nursing home and subsequently was disqualified from receiving a longevity bonus, which the person had previously been receiving, can reapply for the longevity bonus. She said that longevity bonus program benefits are $250 and have been pared down to $100 so with SB 247 the division is just trying to reinstate what the veteran had before he/she had been denied the longevity bonus. She noted that in Section (b) a person who applies will be eligible for the amount that the person would have received had he/she qualified when he/she first applied for longevity bonus. She explained that all longevity bonus applications are filed and kept with the division. She commented that if a veteran living in a nursing home had never received a longevity bonus he/she can apply now and will receive the amount that he/she would have originally received had the application been filed. LADDIE SHAW, Coordinator, Veterans' Affairs, Department of Military and Veterans' Affairs, testified via teleconference from Anchorage in support of SB 247. Number 2330 CHAIR JAMES stated that SB 247 is straightforward and she apologized for leaving these veterans out of the loop. She said she hoped that the damages had not been too severe. Number 2344 REPRESENTATIVE WHITAKER made a motion to move CSSB 247(FIN) out of committee with the attached fiscal note and individual recommendations. There being no objection, CSSB 247(FIN) moved from the House State Affairs Standing Committee. HJR 49-CONST AM: PERM FUND INCOME DISTRIBUTION Number 2419 CHAIR JAMES announced the next order business is HOUSE JOINT RESOLUTION NO. 49, Proposing an amendment to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation proofing, and to require a vote of the people before changing the statutory formula for distribution that existed on January 1, 2000. REPRESENTATIVE OGAN presented the sponsor statement for HJR 49. He had a sponsor substitute [1-LS1340\H, Cook, 4/3/00] that he would like to put on the table for discussion, but right now he would discuss HJR 49 itself. He explained that HJR 49 was introduced after the September 14, 1999, advisory vote regarding spending the permanent fund (PF) earnings and the plan that a bipartisan group of legislators had put forth last year, which he said was endorsed by Republicans, Democrats and the governor. He commented that in all his 25 years of living in the state, he does not recall any vote that was as overwhelmingly negative as the September 14 vote. He acknowledged that there has been a great deal of discussion about what "no" means since then, and a number of plans have been brought forward. REPRESENTATIVE OGAN remarked that he had come to the conclusion that the earnings of the PF were intended at some point to be a rainy-day account for the state. However, it is a policy call whether or not the rainy day has arrived or clouds are just gathering in the sky. He recognized that regardless of how the committee feels about that particular issue, he believes that the public will have neither confidence in the legislature nor trust that the permanent fund dividend (PFD) program is safe until the legislature constitutionally protects the PFD. Therefore, he stated that HJR 49 enshrines the existing formula for distributing and inflation proofing the PF into the Alaska State Constitution. REPRESENTATIVE OGAN said that the opponents of HJR 49 - and the concept of HJR 49 - believe that there is a stake driven into the heart of this issue by saying that implementation of HJR 49 will result in federal taxation of the PF itself. He suggested that if the PF is not taxable now, it would not be taxable then, so he had come up with a possible solution [to the federal PF taxation threat]. He said that is why he would like to possibly move a proposed CS to HJR 49 at this time and put that before the committee. He explained that his proposed sponsor substitute does exactly the same thing as the original HJR 49 except that Section 3 adds the "Effective Date of Permanent Fund Amendment." Number 2561 CHAIR JAMES suggested that the sponsor substitute could be offered instead as an amendment. REPRESENTATIVE OGAN replied that he would like to offer it as an amendment to HJR 49. CHAIR JAMES said the committee could do that, but first she would like to discuss the issue. She noted that she will take testimony on the original HJR 49. She explained that she thinks it is worthwhile to talk about all the different long-term plan changes, but believes the legislature ought not to pass anything this year. She commented that on the surface, she would agree with Representative Ogan's concern that the public at this point is demanding - or would demand if it were asked to vote again - some protection for the dividend over the long term before the legislature spends one cent out of the PF. However, she also believes that the legislature has a huge education process that needs to be done, and the legislature is saved by the bell in the form of high-priced oil this year which is going to extend the value of the constitutional budget reserve (CBR) for a few years. Therefore, she indicated that the legislature has time to discuss the PF issue with the public, and she has been doing that in her district. CHAIR JAMES informed the committee that the day after the September 14 vote she had done a little survey to find out what the "no" vote meant and published it in the Fairbanks paper. She emphasized that the results of the survey were very, very enlightening, and she had found that the top reason why people voted "no" was because they do not trust the legislature. She agrees with the people and does not trust the legislature either. Yet she does believe that every legislator is sincere and honest in their ability and desire to do the right thing, but when 40 different districts are being represented, 40 different ideas will be presented. She recognized that to get anything done, the legislators representing the 40 different districts have to come to an agreement. Number 2660 CHAIR JAMES said whatever [fiscal] plan she supports must include a healthy, long-term PFD for the public because she thinks a PFD is needed to protect the fund itself. She never has any intention of spending one cent of the fund. However, she is hearing people talk out of both sides of their mouths since they say they want more spending done on one hand, and on the other hand, they do not want the legislature to spend PF earnings. She has said consistently that to balance the budget over the long term (and she does not know what long term means, it may be five or six years from now) and provide services that the public demands without continuing to make efficiencies in government, there will have to be some combination of taxes and use of earnings (not any particular amount) of the PF. She said that the legislature should not foolishly jump to a quick conclusion this year in reaction to such a convoluted vote because the question was too vague and advertising on both sides was so misleading in many ways. Number 2808 CHAIR JAMES commented that she understood the purpose behind HJR 49 and certainly agrees that the amendment under discussion does something to close the door on the opportunity for the Internal Revenue Service (IRS) to determine that the PF is not currently being used for a public purpose. She noted that HJR 49 does allow some room in the Alaska State Constitution for a public purpose, nevertheless, it is still very vague. She is not sure it would work, but it is moving in the right direction. Number 2845 REPRESENTATIVE HUDSON asked if he could speak about Representative Ogan's amendment or if it could be brought before the committee for discussion purposes. REPRESENTATIVE OGAN offered Amendment 1, which would change Section 3 and add Section 4 of what he has written as a sponsor substitute to HJR 49. The change read as follows: Sec. 3. Article XV, Constitution of the State of Alaska, is amended by adding a new section to read: Section 30. Effective Date of Permanent Fund Amendment. The 2000 amendment to the Alaska permanent fund (art. IX, sec. 15) takes effect on the day after the date of a final decision by the Internal Revenue Service deciding that, under the language of the 2000 amendment, the income of the permanent fund will not be subject to federal taxation while it is under the control of the State or an entity of the State. In this section, "final decision" means a ruling, order, or decision that cannot be appealed to the agency, all possible appeals to the agency have been taken, or the time for taking an appeal to the agency has expired without appeal. Number 2897 REPRESENTATIVE HUDSON objected. He said he reads the amended version in such a way that everything that exists in statute today would be embodied constitutionally when adopted by the public. He noted that essentially the formula that predicates the PFD is the earnings of the PF or half of the earnings reserve account (ERA) minus unrealized gains in the PF (whichever is less). He explained that the problem some of the legislators had with the existing language is now embodied in the constitution, and the concern he has is that if the legislature embodies HJR 49 in the constitution, the legislature is asking the people to vote on elimination of the PFD. He commented that this is so because income in the ERA is accessible by 21 votes even now and would continue to be available, but the dividend would be gone by the year 2007 at the earliest and by 2010 at the latest. REPRESENTATIVE HUDSON mentioned that he has tried to recognize all along that the current PFD formula deals with inflation proofing and distribution of income for the dividend but does not discuss the balance of the PF. Nevertheless, he indicated that the balance of the PF is left available. He informed the committee that by passing HJR 49 the legislature would be constitutionally leaving those monies available, and he thinks that it would almost guarantee elimination of the PFD all with the understanding that maybe the legislature was fixing the PF by putting it in the Alaska State Constitution. He emphasized that unless the PF formula is changed and something is done similar to what he was talking about in HB 411, he thinks the PFD will be eliminated by the HJR 49 constitutional fix. TAPE 00-29, SIDE B Number 2984 CHAIR JAMES said she thinks [Representative Hudson's reasoning] is an assumption. She acknowledged that if no taxes were imposed and no budget cuts were made, then Representative Hudson is speaking truly but she still thinks the legislature needs to look for efficiencies in government. She noted that there are many things on which the legislature is not spending money but should be; during the interim this year she is going to work on producing a zero-based budget to find out just exactly what she thinks a reasonable amount for state spending should be. She explained that the legislature could be spending PF earnings as they come in if the legislature had the appropriation to do that. Consequently, she commented that half of the earnings of the PF would be less than the dividend calculation so it could certainly affect the dividend, but it takes many assumptions to come to that conclusion. She mentioned that one of the problems with this whole [budget] situation is assumptions; yet the legislature has to base its decisions on something. She inquired as to Representative Ogan's response to the [assumptions] issue. Number 2900 REPRESENTATIVE OGAN indicated that he would support using some of the PF earnings if some PF earnings were re-deposited into the PF, which the legislature has not done in the last few years, and constitutionally protect the PFD. He reiterated that he would support some use of PF earnings if the PFD program was off the table. He said that anybody that thinks that the legislature is going to be able to use those PF earnings without constitutionally protecting them is fooling themselves because he does not think that the public will allow it. He noted that HJR 49 is the key to opening discussion of what the legislature is going to use for money after the PFD program is protected. Number 2821 CHAIR JAMES noted that the PF is currently managed so that all earnings (including unrealized gains) of the fund go into the ERA and the dividend is calculated on a five-year average (thus lowering the average) of the income. The reason is so that current income, which is probably a lot higher than it was five years ago, would not be the determining dividend calculation factor. She said she believes that [investments] are going to go down because she is just waiting for somebody to tell her that the bubble has burst. She stated that she sees a whole different investment concern on the stock market - where it is not necessarily tied to income and/or dividends - as the reason why people are willing to pay more for shares. She noted that when [the stock market] starts going [up], the high income brings the average of the income this year up, yet the PF is being paid out of the current income stream, which could be a problem. CHAIR JAMES explained that calculating the PFD on an average in conjunction with the overall system as an endowment percentage that is good over time certainly does a couple of things. She commented that first, it would make the dividend more stable because she thinks people do count on the dividend. She mentioned that people know how much the dividend was last year, and they think it will be at least that much and maybe a little bit more next year. CHAIR JAMES indicated that second, it gives the PF board more flexibility in its investment policy because it knows how much money is going to be drained off. She informed the committee that one of the things that the legislature has done consistently and will probably do again this year is put some more money back into the PF from the ERA. She emphasized that one of the advantages of putting money back into the PF, which is protected from ever being spent, is it gives PF managers more opportunities to make money with longer investments and different kinds of investments. She recognized that putting money back into the PF is one of the reasons why the PF has been so successful. She acknowledged that she is not convinced at this time that the current PF system is what the state ought to have over the long term, but she thinks the legislature needs to spend much time thinking about it. She remarked that she is convinced, however, that the state does need to have a healthy dividend over the long term, but she does not know what the long term is; that is yet to be discussed in the whole concept of everything. She reiterated that she thinks that it would be a huge mistake to put everything into law today. CHAIR JAMES reminded the committee that she does have a bill in the [House] Finance Committee that would first inflation-proof [the PF]. She'd presented her bill because the PF should be inflation proofed first before anything is calculated. She recognized that some people argue that the PF has already been inflation proofed, but she contends that it is not because the way the PF is designed, inflation is not taken into account at all unless the legislature puts inflation proofing in the PF. She said she would have no problem making a constitutional amendment, but the PF must be inflation proofed before the legislature does any spending whatsoever because she thinks that the value of the money there needs to be protected over the long term. Number 2714 CHAIR JAMES noted that there needs to be a "fence" around state spending. She inquired as to how much the budget can be increased each year without obtaining a "supermajority" vote to cover emergencies and/or special projects. She acknowledged that with 21 votes only so much can be done; the issue under discussion today is not simple. She reminded the committee that the legislature had tried to solve the issue in a simple way last year, and that did not work, but the legislature did get some ideas out there. She explained that now the people are tuned in, and the legislature needs to concentrate seriously on coming up with a plan that will work over the long term. REPRESENTATIVE OGAN said he agreed with much of what Chair James had stated, especially regarding putting a fence around state spending, since that is another piece of the puzzle not yet under consideration. He noted that he'd heard Chair James say a number of times that she'd moved things she did not support, but she needed to get the bill to the Finance Committee so that it could have tools to build a solution; without at least HJR 49 being moved on to Finance, this committee would not be giving Finance a full tool box. Number 2561 CHAIR JAMES reminded the committee that she had a tax bill in this committee and had not moved that either because she had no intention of her bill passing this year. She added that she had moved HB 137, the Municipal Dividends bill, because there is an interest in it, and a number of folks thought it might be something they wanted to do. She observed that she moved HB 411 not because she liked it but because she had promised some people that she would move it. She stated that she does not think that HJR 49 has any chance, but she could put it to Finance, but she does not want to unless she gets permission from Finance Committee due to the pressure it might get with HJR 49 in the committee. Number 2490 MARY GRISWOLD testified via teleconference from Homer in opposition to HJR 49. She read her testimony as follows: I am opposed to HJR 49. HJR 49 is a poor idea from a policy perspective because it takes away the legislature's authority to appropriate funds. HJR 49 is a poor idea from a financial perspective for all the reasons that changing to a percentage of market value distribution is a better idea. Although there are no performance guarantees with the market value approach, it does remove the dependence on volatile realized earnings and offers a more stable dividend distribution based on the real return of the Permanent Fund investments. By guaranteeing the dividend in the Constitution, this bill may also trigger a federal income tax assessment on the Permanent Fund's earnings. However, the most important consideration of HJR 49 is a philosophical one: whether decreasing our Permanent Fund dividend should be an option to help bridge our growing fiscal gap. I support a healthy dividend distribution. I think a long range fiscal plan including better control of government spending and a combination of reasonable taxes should be developed before the dividend program or the fund's undistributed income is tapped. However, adjusting the dividend should remain a legislative option for balancing personal benefit and the common good for all Alaskans as other general fund revenue sources are depleted. Shortchanging funding for essential public services or raising exorbitant taxes in order to sustain a large personal dividend does not serve our best interests or the purposes for which the Permanent Fund was established. Many people who support HJR 49 believe it will preserve the value of their dividend. There are no guarantees for a continued high dividend, no matter what formula is applied. Other people want the government to keep its hands off the dividend program no matter how much essential public services must be cut. I hope that with continued discussion the public will come to understand the real fiscal picture and agree to a well- reasoned long-term financial plan that controls spending, taps additional sources of revenue including a combination of taxes, and then uses Permanent Fund earnings to balance personal and common good for the benefit of all Alaskans. I think you have your work cut out for you to develop this plan and sincerely hope you are willing to tackle it soon. Number 2352 MARY RAYMOND testified via teleconference from Homer in opposition to HJR 49. She said she thinks it would be folly to tie into such an agreement, and she does not think that the people of Alaska really put their PFDs ahead of services, ahead of the importance of the whole, and goodness to the state because Alaskans are reasonable. She noted that in referring to the vote of September 14, one of the committee said it best "they are going to say no because they do not trust us", and people did not understand what this was all about. She commented that a plan was referred to, but there was no plan offered to the people; they had no idea of what that meant just to say "yes, do whatever." She mentioned that if the committee wanted to listen to its constituents and believes that citizens do want to further and better the life of everyone in Alaska, she thinks the committee will do alright. Number 2260 CHAIR JAMES asked if there was any further objection to Amendment 1. There being no objection, Amendment 1 was adopted. REPRESENTATIVE OGAN made a motion to move HJR 49 [as amended] out of committee. REPRESENTATIVE HUDSON objected. A roll call vote was taken. Representatives Green, Ogan, Whitaker, and James voted in favor of moving the bill. Representatives Hudson, Kerttula, and Smalley voted against it. Therefore, CSHJR 49(STA) moved from the House State Affairs Standing Committee by a vote of 4-3. HB 439-PAY RAISE FOR NON-UNION STATE EMPLOYEES Number 2171 CHAIR JAMES announced the next order business is HOUSE BILL NO. 439, "An Act relating to the compensation of certain public employees and officials not covered by collective bargaining agreements; and providing for an effective date." ALISON ELGEE, Deputy Commissioner, Department of Administration, explained that HB 439 is the statutory amendment to the pay schedule that governs non-covered employees. She explained that these are employees in the court system, the legislature, and non-covered employees in the executive branch. She explained that HB 439 proposes amendments that correspond to agreements that the department has reached with groups with whom the department has collectively bargained new contracts, and the new contracts are presently before the legislature for consideration. MS. ELGEE said she envisions that in fiscal year (FY) July 2001, the department would propose paying all non-covered employees a one-time lump-sum payment up to $1200, prorated at $50 for each pay period that the employee was in pay status in FY 2000. She mentioned that there is a special provision for legislative session employees to recognize the peculiar time frame of that particular employment. She indicated that she had requested an amendment to the section with the lump sum to clarify the fact that the lump-sum payments are intended to be reduced by mandatory employer and employee deductions. She informed the committee that the amendment would be in keeping with provisions that are in collectively bargained agreements. She remarked that the department is proposing two-percent and three-percent adjustments to the pay schedule in FY 2002 and FY 2003 respectively. She added that committee members have received a sectional analysis in their packets, and there is a fiscal note on HB 439. Number 2018 REPRESENTATIVE HUDSON said yesterday (4/5/00) he had heard from the co-chairman of the Senate Finance Committee regarding elements in the employee pay package presented for legislative consideration. He surmised that whatever has been done on the collective bargaining side is being offered now by the Department of Administration to non-covered employees. He stated that one of the elements that was brought to his attention was that apparently the administration has agreed to prevent an employee from selling all of his/her sick leave or transferring it over as regular leave and cashing it in. He asked if it were true that some of those cash-ins could be up into the $50,000 bracket. MS. ELGEE replied that what he is referring to is a provision of the agreement that the department bargained with the general government unit (GGU). She said that GGU is the only large employee group still remaining on an annual sick-leave accrual instead of a personal-leave accrual, and what is included in the collective bargaining agreement is a conversion to a personal- leave environment. She noted that the personal-leave environment provides for a sick-leave balance to be converted to personal leave at a rate of 50 percent of what that balance is. In the past when other employee groups have converted from the sick- leave-and-annual-leave environment, there has also been a conversion of sick leave so that the entire amount of sick-leave accrual is not lost to an employee in making that switch. She commented that there are a variety of benefits to a personal- leave accrual environment, not the least of which is that the total amount of accrual is actually less than what is seen in a sick-leave-and-annual-leave accrual. She mentioned that the sick-leave switch is a specific provision in the GGU contract because everybody else is on the personal-leave system now. Number 1892 REPRESENTATIVE HUDSON asked if any employee covered by HB 439 would fall under the new leave provision. MS. ELGEE replied no. She stated that non-covered employees have been in a personal-leave environment since 1978 and any conversion that occurred has already occurred back when the statute was amended in 1978. CHAIR JAMES asked if an employee's sick- and annual-leave days would be totaled together and half put into personal leave, or is half of the sick leave put into personal leave. MS. ELGEE answered that at present, annual-leave accrual has a cash value, and the accrual is not amended. She said that HB 439 amends sick-leave accrual and proposes converting 50 percent of sick-leave accrual to a personal-leave environment. In the future, the accrual rate on an on-going monthly basis is also amended to reflect a personal-leave accrual rate which represents both annual and sick leave. She explained that the employee has discretion as to how personal leave is used. Number 1802 CHAIR JAMES inquired what happens to the other half of the sick leave that has been accrued. MS. ELGEE replied that the other half of the sick leave is put into basically a catastrophic medical bank which is maintained on behalf of the employee. She commented that the employee has to be ill for a threshold number of days before he/she can access the medical leave bank. If the employee terminates, the medical leave bank goes away at no cost to the state. She reiterated that the employee's medical leave only remains on the books as long as the employee is consistently employed. CHAIR JAMES inquired as to how accrued sick leave was funded into the reserve account. Number 1795 MS. ELGEE answered that the department funds leave on basically a cash flow basis rather than on approved liability basis, and it is funded through the department's working reserve account. She said that the factor to generate those monies is part of the personnel services budgeting factors. She noted that there are two accounts: 1) a leave cash-in account and 2) a terminal leave account. She explained that the leave cash-in account is calculated for each department based on their own historical cash-in usage by employees, and that account is funded annually in $10 million. She commented that the terminal leave account is used when an employee actually terminates service and at that time receives whatever the cash value is of accrued leave that has not been used. She mentioned that the terminal leave account also is $10 million. The two accounts are constantly being refilled because they are part of the department's personnel services budgeting factor. CHAIR JAMES asked if the two accounts are funded by money that is appropriated or is the money just a number. Number 1685 MS. ELGEE replied that the two accounts are funded by money that is appropriated for personnel services expenses and included in that budget line. REPRESENTATIVE OGAN noted that HB 439 covers legislative employees and asked if it also covers legislators. MS. ELGEE answered that as drafted, HB 439 does cover legislators, governor and lieutenant governor. She said legislators are no longer tied to the pay scale and are addressed separately with a set salary, but HB 439 would adjust those salaries in future years. REPRESENTATIVE OGAN asked if a vote for HB 439 would give legislators a raise. CHAIR JAMES replied yes. REPRESENTATIVE GREEN asked what would happen if in the bargaining process a problem arises with funding. He added that the bargainers would go back to the drawing board and subsequently could remove the benefits now under discussion from bargaining unit contracts. He observed that if HB 439 passes then non-union people might have a better deal than bargaining unit people. Number 1569 MS. ELGEE acknowledged that the outcome as described by Representative Green could happen, but she anticipates that HB 439 would be a part of the larger decision relative to the collective bargaining agreements as those continue to be considered. She noted that the reverse has also been true in past years when the department has collectively bargained agreements, and legislation has not subsequently passed to amend non-covered pay schedules. REPRESENTATIVE GREEN asked if that meant yes. MS. ELGEE replied that all things are possible, yes. REPRESENTATIVE GREEN asked if Ms. Elgee thought there was any possibility that passing HB 439 would have a tendency to box in negotiations between the legislature and the administration in regard to funding bargaining unit contract increases. MS. ELGEE requested clarification. REPRESENTATIVE GREEN explained that there is an ongoing negotiation between 12 bargaining units very similar to HB 439, and there has been some agreement made without the benefit of funding. The legislature is reviewing negotiated agreements and may not fund the agreements, in which case a problem arises with passing HB 439. He asked if, in her opinion, passing HB 439 would have any influence on what happens with those bargaining unit negotiated contracts. He asked if HB 439 is placing "the cart before the horse." Number 1496 MS. ELGEE answered that the department did not request introduction of HB 439 until agreements had been negotiated with all the collective bargaining units because the department was sensitive to not trying to box in the bargaining negotiations by suggesting something for non-covered employees that was different from what was being discussed at the table. She commented that agreements have been reached with all the bargaining units, and many contracts have been ratified; so now HB 439 can be brought before the committee. She stated that she does not think that passage of HB 439 would, in essence, box people in. She emphasized that the first-year provision of the lump-sum payment proposed in HB 439 is subject to appropriation; so the funding decisions were made in such a way as to not include money for any of these agreements. Number 1372 REPRESENTATIVE HUDSON said he had heard that the governor has signed off on all of the negotiated contracts at the present time so all of the contracts have been duly negotiated, and now it is up to the legislature to fund or not to fund. He noted that those contracts have gone to the Finance Committee. He explained that because the administration does not negotiate directly with non-covered employees, HB 439 is essentially a parity bill to present to the Finance Committee just as negotiated contracts have been presented to Finance so that both covered and non- covered employees would be considered. He said that it is still up to the legislature to determine whether or not the legislature agrees with increases in the collective bargaining contracts and those presented in HB 439. He asked Ms. Elgee if his understanding was correct. MS. ELGEE replied in the affirmative. REPRESENTATIVE GREEN agreed that what Representative Hudson said was true, but HB 439 has a fiscal note, and the governor was instructed not to increase bargaining unit costs. He stated that funding for the bargaining units has not been approved so if the committee approves HB 439, the committee also approves the fiscal note. Therefore, he reiterated that if the committee passes HB 439, the fiscal note is approved whereas no approval has been given for bargaining unit contracts, yet HB 439 has been presented as a parity bill. He said HB 439 is getting "the cart before the horse." Number 1300 REPRESENTATIVE HUDSON explained that he thought that fiscal notes for the bargaining unit contracts were already in Finance Committee. CHAIR JAMES said the fiscal notes did not come to the House State Affairs Standing Committee. REPRESENTATIVE GREEN stated the fiscal notes have not been approved. Number 1287 CHAIR JAMES noted that this committee is the first committee of referral on HB 439 before it goes to the House Finance Committee, because this is a policy issue. She commented that she is not passing anything out of committee that has the legislature getting a raise. She explained that she does not have any problem sending HB 439 up to the Finance Committee because House State Affairs Standing Committee does not approve fiscal notes, but the committee could send HB 439 without a fiscal note. She indicated that she does not have a problem sending HB 439 up to Finance not knowing what it might do about the contracts, but she told the committee that if the legislature does anything with the contracts, she thinks the legislature ought to do the same thing for non-covered employees. She mentioned that the committee is not going to make that decision in this committee because that decision is a finance issue more than it is a policy issue. She informed the committee that if improvement of state benefits for state workers was a policy issue and not a finance issue, this committee could make policy decisions here. REPRESENTATIVE WHITAKER agreed that HB 439 is a policy issue, but there is a broader policy issue which is a balanced budget. He said that the legislature does not have a balanced budget and until the legislature comes to grips with that, it is incredibly disingenuous of this committee to pass HB 439 as a matter of policy. Number 1184 MS. ELGEE asked if she could clarify the money issue. She explained that the administration had included the cost of implementing HB 439 in the budget amendments that were presented to Finance in February [2000] in order to meet the budget amendment deadline along with all the rest of the collectively bargained agreement funding. She stated that Finance was aware at that time of what the complete picture would be. She commented that the administration cannot simply implement [pay changes] with non-covered employees without legislation. MS. ELGEE mentioned that Section 1 implements pay raises for legislators in years two and three. She indicated that Section 8 would need to be amended to strike the word "legislators" from line 5. Number 1100 REPRESENTATIVE HUDSON informed the committee that HB 439 is a $40 increase for legislators. REPRESENTATIVE OGAN moved to adopt conceptual Amendment 1, to eliminate the word "legislators" from HB 439. CHAIR JAMES noted that technically removal of "legislators" is Section 1; on page 4, line 5, [conceptual Amendment 1] would remove the word "legislators." REPRESENTATIVE OGAN asked if that would be acceptable. CHAIR JAMES called it Amendment 1 and asked if there were any objections. REPRESENTATIVE GREEN objected. He asked if Amendment 1 would adversely affect legislative aides. CHAIR JAMES replied no. MS. ELGEE answered no, because legislators are specifically addressed in a section of statute reference in Section 1, and legislative aides are covered by a pay schedule. Number 0955 REPRESENTATIVE HUDSON admitted that getting $40 more a month is up to his constituents. He said that he had never been embarrassed to accept range 10 legislative pay. even though the lowest paid position in his office is a range 15 and in some cases range 19. He noted that he for one is willing to stand up and say that he is worth $40 more. He commented that he cannot support Amendment 1 to take the word "legislators" out of HB 439. CHAIR JAMES explained that she has another bill which takes 10 percent off of legislators' salaries, but this committee has not heard the bill. She mentioned that she thinks the salary gives each legislator ability to have someplace to offset their health insurance and an opportunity to have a little retirement, but the salary is so small that it is almost nonexistent in her life as to what it provides. CHAIR JAMES indicated she does not have any problem [with legislative pay] as long as she gets paid for what it costs her to do the job, and that is why she is so protective of per diem because she could not [be a legislator] without it. She informed the committee that she could not do this job if per diem were not at its current rate and even that hardly reaches from payday to payday. She agreed that legislators are paid what people believe legislators are worth, and people do not believe that legislators are worth much. She emphasized that legislators ought not to change their pay until people believe legislators are worth more, and she thinks that the legislature's biggest challenge is to convince people that legislators are worth more. Number 0670 REPRESENTATIVE KERTTULA remarked that she is really torn about HB 439 because she thinks the public perception is that legislators are all overpaid and perhaps do not deserve their pay. One of the ways to fight that perception is to pay a decent salary in order to attract diverse people to become legislators. She reminded the committee that with decent pay, a legislator could work all year long and participate in interim committees. She added that she is going to vote with Representative Hudson because she thinks "you pay peanuts, you get monkeys." REPRESENTATIVE OGAN stated that he thinks removing the word "legislators" from HB 439 is a small, symbolic gesture and is leading by example. He recognized that the state is asking state workers to do more with less money, and he thinks it is disingenuous for legislators to give themselves a raise. He said that he would rather people vote on whether or not legislators could have a raise because he thinks it is an inherent conflict. He reiterated that every year he gets beat up [by constituents] for anything that happens to legislator pay because there is this perception that legislators can vote to line their pockets. He said that it is appropriate that the committee remove the word "legislators" from HB 439 because it is just not worth bleeding for him to get $40 a month. REPRESENTATIVE WHITAKER noted that legislators do not deserve an extra $40 a month until, in a body as a whole, the legislature steps forward and deals with the budget. Number 0381 REPRESENTATIVE HUDSON offered that if legislators refuse or fail to honor the negotiated labor contracts and HB 439 for non- covered employees then legislators will get nothing. He commented that he is not suggesting that legislators get something and his constituents get nothing. He emphasized that he does not want anything if his constituents are not first of all treated similar to what is agreed for all other employees because he is for parity and treating employees of the state with dignity. He stated that he did not want one dime if the legislature does not approve the contracts for all other employees. In fact, he added, he would vote for Chair James' 10 percent reduction. CHAIR JAMES called for the vote on conceptual Amendment 1. A roll call vote was taken. Representatives Green, Ogan, Whitaker, and James voted for the amendment. Representatives Hudson, Kerttula, and Smalley voted against it. Therefore, conceptual Amendment 1 was adopted by a vote of 4-3. Number 0086 JEFF JESSEE, Executive Director, Alaska Mental Health Trust Authority, testified via teleconference from Anchorage. He said that the Trust has an amendment to present which would basically correct an oversight in the drafting of the Mental Health Trust Settlement legislation. He explained that the oversight was in failure to explicitly direct that Trust Authority employees are in the exempt service sector. He noted that Trust Land office employees in the Department of Natural Resources (DNR) were placed in the exempt service, but due to an oversight, Mental Trust Authority employees were not placed in the exempt service. He commented that the reason the trustees feel this oversight is important to them is because the Trust does have a very small staff and has found that having to follow all of the various complex personnel rules dramatically limits the Trust's flexibility. He indicated that the Trust is requesting that this amendment be placed in HB 439, but the Trust does not have a particular position on the bill itself. TAPE 30, SIDE A Number 0024 CHAIR JAMES remarked that she does not think HB 439 is a good bill on which to tack Mr. Jessee's amendment. She added that the amendment sounds like it could stand on its own as a separate piece of legislation and have a better chance of getting passed. She does not know what is going to happen to HB 439 even if the committee moves it on. MR. JESSEE said he felt that trying to place the amendment in a separate piece of legislation and going through the whole process would be perhaps more trouble than the amendment would be worth. He said that he did understand that his amendment would be tied to the ultimate fate of HB 439. Number 0122 CHAIR JAMES noted that the committee could have accepted the amendment if it had been presented sooner. REPRESENTATIVE HUDSON asked if Mr. Jessee's amendment just lies on the table and is not attached to HB 439. CHAIR JAMES replied yes. DON ETHERIDGE, AFL-CIO, said he is here to speak in favor of HB 439 and against Amendment 1 which just passed. He noted that many union leaders are speaking out in different public forums on this very issue. He explained that legislators should have more of a living salary than what they have now due to the fact that it is difficult to get candidates who can do the job without receiving a living wage. Number 0290 CHAIR JAMES replied that she wants to get a living salary for the next legislators who come in and not for legislators of today. She commented that she does not want to argue about Amendment 1. MR. ETHERIDGE mentioned that when reviewed from her point of view, there is never going to be change of all 60 legislators, therefore, it cannot be viewed from her point because there is always going to be a next guy. He indicated he gets real frustrated when listening to people talk about the wages of legislators. He emphasized that when legislators review how much of the state falls under their responsibility - budget wise, operational wise and everything - legislators should recognize that the responsibility upon their shoulders matches more than most executives in any large company in this country. He reminded the committee that company executives make much more money than legislators. Number 0401 CHAIR JAMES acknowledged that maybe company executives numbers should be included in a consideration of exactly what the state should be spending. She agreed that Amendment 1 does eliminate many good people from being able to come down here because coming here as a legislator is a big challenge, and people do not understand what it is like to move away from home for four months and still try to care for things at home. She remarked that maybe the legislature does want to open the door so that more people can be able to do legislative work. She has the same argument about foster care; she is not doing well on that one either because she believes people should only be reimbursed their cost for providing foster care. She added that she believes people should provide foster care because they are dedicated to the cause and not for the money. She is a legislator because she is dedicated to the cause, and she would not put herself through this if it were a way to make a living. MR. ETHERIDGE reiterated that the AFL-CIO believes it is only fair that non-covered employees get benefits and wages that everybody is getting because they deserve it and are working just as hard as the rest of the public employees. Number 0595 CHRIS CHRISTENSEN, General Counsel to the Judicial Branch of Government, Alaska Court System, said HB 439 was drafted to apply to all non-covered employees of the state, not just the executive branch, and was intended to give all judicial and non-judicial employees of the judicial branch a cost-of-living adjustment (COLA). He noted that judge and magistrate salaries are set out in statute differently than salaries of other non-covered employees. He explained that four years ago a bill similar to this had worked its way through the legislature and during the process it was realized that there was a way to read language in the bill so that judges could get two pay raises instead of one. MR. CHRISTENSEN commented that in memory of that situation, HB 439 was very tightly drafted to make sure that such an argument could not be made this year; unfortunately he thinks the opposite has occurred. He mentioned that the better way to read HB 439 language is to say that judges and magistrates get the exact same COLA as other non-covered employees. He indicated that while the fiscal note certainly provides funding, there is a way to read HB 439 language to say that judges and magistrates do not get a COLA at all. He informed the committee that he has prepared some language which would clarify the intent of HB 439 to provide the same COLA for judges and magistrates as that provided to other non-covered employees. Number 0720 REPRESENTATIVE HUDSON asked if the proposed amendment would amend the fiscal note as well. MR. CHRISTENSEN replied that the fiscal note does provide for COLA. CHAIR JAMES said that the committee had reduced the fiscal note just a tad with Amendment 1. REPRESENTATIVE HUDSON moved to adopt Amendment 2, which read: Page 4, line 24, after "BRANCH." insert: "a)" Page 5, following line 1, insert a new paragraph: "b) Justices of the supreme court, judges of the court of appeals and the superior and district courts, and magistrates are entitled to receive salary adjustments provided for in sec. 5 and 6 of the Act, in accordance with AS 22.05.140(d), AS 22.07.090(c), AS 22.10.190(d), AS 22.15.220(b), and AS 22.15.220(3)." REPRESENTATIVE OGAN objected. He said the state cannot afford it. A roll call vote was taken. Representatives Hudson, Kerttula, Smalley, Whitaker, and James voted for the amendment. Representative Ogan voted against it. Representative Green was absent. Therefore, Amendment 2 was adopted by a vote of 5-1. CHAIR JAMES announced that now the committee had before it Amendment 3 as presented by Mr. Jessee. Number 0852 REPRESENTATIVE HUDSON objected. CHAIR JAMES said Amendment 3, Cramer, A.1, had not been moved yet and asked for a motion. REPRESENTATIVE HUDSON explained that he does not support Amendment 3 because he thinks it is mixing apples and oranges. He commented that the committee has before it HB 439, which deals with non-covered employees in the state minus the legislature and another amendment that changes the conditional status of the Mental Health people. He agrees that Amendment 3 ought to be put into a bill, but he thinks putting the two together could sink the designation if the legislature does not approve the pay raises. He suggested that Amendment 3 be a stand-alone bill. CHAIR JAMES asked Mr. Jessee if the committee could wait on Amendment 3 and do it next year. MR. JESSEE replied yes. He indicated that the Trust was just trying to take what it thought was a simple approach to do what it wanted. He agreed that if it is determined that the best thing to do is wait and submit a separate bill then the Trust will certainly do so. Number 0920 CHAIR JAMES remarked that she could have a bill drafted for next year. MR. JESSEE answered that the committee could do as it wished. Number 0960 REPRESENTATIVE KERTTULA said she would commit to helping with the bill, but she agrees with Representative Hudson at this point that it is probably best not to mix the two topics; however, she is supportive of Mr. Jessee's idea. CHAIR JAMES announced that now the committee will go on to Ms. Elgee's amendment, which is now Amendment 3. It read: Section 7(a) Pg. 3, line 26: Following "in pay status in fiscal year 2000." Add a new sentence: The lump sum payment will be reduced by amounts necessary to pay mandatory employee and employer deductions. She mentioned that Amendment 3 includes mandatory deductions from the lump sump payment. Number 1017 REPRESENTATIVE HUDSON made a motion to adopt Amendment 3 to HB 439. There being no objection, Amendment 3 was so adopted. CHAIR JAMES announced that she would get HB 439 re-drafted into a proposed CS and bring it up at the next meeting. REPRESENTATIVE OGAN said he shakes his head in amazement at the cavalier irresponsibility of the administration in continuing to ratchet up the cost of government in light of the fiscal situation. He stated he will not support HB 439, and he thinks it is like funding a lifestyle on a credit card. He reiterated that HB 439 is basically credit-card spending; it appears that the legislature views the CBR as the fund from which the legislative/administrative credit card is paid. He emphasized that he would not run his household finances that way, and he thinks it is irresponsible of the administration to do so. Number 1133 REPRESENTATIVE WHITAKER acknowledged that he also has a problem with HB 439. He remarked that parity and dignity certainly are important words and concepts. He added that he does not think that Alaska should be the land of the lowest paid employees but, nonetheless, trust was discussed earlier in this meeting and the lack of trust or the disconnect between the electorate and the legislature [is apparent]. He observed that the legislature refuses to deal with the looming, ominous problem of an incredibly out-of-balance budget which should embarrass all legislators, and yet legislators exacerbate the problem by adding to the cost. REPRESENTATIVE WHITAKER stated that he is not an advocate of mindless cuts; rather. he is an advocate of sound fiscal and budgetary policy. He reiterated that Alaska's budget is out of balance, and HB 439 adds to the imbalance; then legislators wonder why the public lacks trust. He said it is not too difficult to answer why legislators are not trusted and asked from which side of its face is the legislature speaking. He asked if the legislature was saying that it needed to balance the budget or was it saying proceed with more imbalance. Furthermore, he refused to be part of the [doublespeak]. He stated that the legislature should balance its budget and then deal with parity and dignity but first deal with responsibility. He reiterated that it is the legislature's responsibility to balance the budget. REPRESENTATIVE HUDSON made a motion to move HB 439, as amended, out of committee. REPRESENTATIVE OGAN objected. A roll call vote was taken. Representatives Hudson, Kerttula, Smalley and James voted in favor of moving the bill. Representatives Ogan and Whitaker voted against it. Representative Green was absent. Therefore, CSHB 439(STA) moved from the House State Affairs Standing Committee by a vote of 4-2. ADJOURNMENT Number 1312 There being no further business before the committee, the House State Affairs Standing Committee meeting was adjourned at 10:00 a.m.