MINUTES  SENATE FINANCE COMMITTEE  April 26, 2000  9:12 A.M. TAPES SFC-00 # 104, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:12 AM PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Al Adams, Senator Dave Donley, Senator Lyda Green, Senator Pete Kelly, Senator Loren Leman, Senator Gary Wilken, Senator Phillips. Also Attending: SENATOR TIM KELLY; ALISON ELGEE, Deputy Commissioner, Department of Administration; PAUL GROSSI, Director, Division of Workers' Compensation, Department of Labor and Workforce Development; DON ETHERIDGE, Lobbyist, AFL-CIO, Juneau; PAT DAVIDSON, Legislative Auditor, Legislative Audit Division. Attending via Teleconference: PAUL LYLE, Fairbanks; JOHN ATHENS, Fairbanks; KEVIN DOUGHERTY, Alaska Labor Union, Anchorage. SUMMARY INFORMATION SB 298-PAY RAISE FOR NON-UNION STATE EMPLOYEES SB 219 was HELD in Committee for further consideration. HB 419-WORKERS' COMPENSATION SCS CS HB 419 (FIN) was reported out of Committee with "individual recommendations" and with fiscal notes by the University of Alaska dated 4/24/00 and the Office of Management and Budget dated 4/24/00. SENATE BILL NO. 298 "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, stated that SB 298 was introduced to provide non covered employees of the Executive Branch, the Legislature and the Judicial Branch similar increases to the collectively bargained contracts before the Committee. She noted that the legislation would provide employees in FY 2001, a benefit of $1200 dollars payable on a $50 dollar per pay period to employees employed in the year prior to 2000 for each pay period that they were employed. In FY 2002, the bill includes a wage increase of 2%; FY 2003, an increase of 3%. She referred to the sectional analysis included in member's packets. Senator Adams inquired if the work draft was supported by the Administration. [Copy on File]. Ms. Elgee commented that she had just received a copy of the committee substitute. It appears that there are substantive changes. The draft proposes a 2% increase in FY 2003 rather than the 3% recommended. The draft also proposes a benefit payment of $800 dollars instead of $1200. The draft version appears to limit the employee contribution to health insurance in FY 2003 from $630 proposal to $600 dollars. Co-Chair Parnell referenced Section 8, Page 4, which addresses the lump sum payment. He asked if the Governor, Lt. Governor, and legislators would be included in the increase for health benefits. Ms. Elgee explained that health benefits were set for all members of the select benefits plan by the Commissioner and included everyone that participates. It is necessary that there is a statutory change regarding pay increases. SB 298 does provide for pay increases for legislators in future years. Co-Chair Parnell questioned when pay increases would take affect. Ms. Elgee reiterated that the first pay raise would be July 1, 2001 at 2%; the next would be at 3% in July 2002. Co-Chair Parnell stated that the "lump sum distribution" was not considered a pay raise. PAUL LYLE, (Testified via Teleconference), Fairbanks, advised that the committee substitute was not available through the Legislative Information Office. He noted that he did not object to any of the changes proposed, however, requested information on changes made to the work draft. JOHN ATHENS, (Testified via Teleconference), Fairbanks, inquired if the work draft had been adopted by the Committee. He requested time to give testimony on that version. Co-Chair Torgerson indicated that the work draft had just been faxed to all Legislative Information Offices. DON ETHERIDGE, Lobbyist, AFL-CIO, Juneau, spoke in favor of the proposed legislation. He noted that the AFL-CIO believes that all public employees should receive the proposed increases. He acknowledged that Legislator's should also receive the proposed increase. SENATOR TIM KELLY spoke to the proposed committee substitute. He commented that the work draft was a counter proposal to that submitted by the Governor. Senator Kelly pointed out that the work draft proposes five changes. The first change would be to the salaries of department heads with an effective date of January 2003. In relationship to monetary terms, the work draft would lower the bonus from $1200 dollars to $800 dollars, and it would lower the rate in the third year from 2% to 3%. It would also cap health care benefits in the third year, from $630 to $600. He added that the proposed draft does not include the Legislature, Governor or Lt. Governor in the lump sum pay out. He proposed that the effective date occur during the next administration. Senator T. Kelly pointed out the cost analysis of the bid. [Copy on File]. The analysis indicates that there would be a savings from the Governor's bill of $1.8 million dollars, with a $2.8 million dollar savings over the three-year course of the bill. He voiced concern that the total cost would be $100.5 million dollars over a three-year period, and that would increase the fiscal gap. Senator Adams questioned how the work draft would affect the other contracts, asking if those twelve contracts would be separate. Senator Tim Kelly replied that the contracts all call for a $1200 dollar signing bonus. Additionally, they call for a $515 dollar health benefit in the first year, and a $575 health benefit in the second year. All twelve contracts max out with a $630 dollar health benefit in the third year. He continued that all contracts call for a 2% increase in the second year and a 3% increase in the third year. He outlined the differences. Senator Adams understood the only changes made would be to the Executive and Legislative Branches. Senator Tim Kelly acknowledged that was true and that the legislation would not address the twelve contracts now before the Legislature. Co-Chair Parnell asked the effect of Section 11. Senator T. Kelly stated that section indicates that the legislation, a pay raise for non-union State employees, would not go into effect until a majority of the Unions contract with them. Co-Chair Parnell MOVED that work draft 1-GS208\H, Lauterbach, 4/25/00, be the version of the bill before the Committee. Senator Adams OBJECTED. Following a brief at-ease, Senator Adams explained his objection. He pointed out that the work draft would treat State employees differently. Senator T. Kelly responded that if in fact the twelve negotiated contracts were approved by the Legislature, he believed that the bill would revert back to the Governor's position. At this time, he did not believe that there was sufficient support in the Legislature to pass the negotiated contracts. Senator T. Kelly suggested that the proposed legislation could be available to the Unions to help avert a public employees strike. He argued that such a strike would be counter productive. Senator Adams recommended that the contracts be placed on the floor so that the full Legislature could vote on them. At that time, there would be something substantial to negotiate. He noted that action would publicly indicate each legislator's position. A roll call vote was taken on the motion to adopt the work draft. IN FAVOR: Donley, Leman, Wilken, P. Kelly, Green, Phillips, Parnell, Torgerson OPPOSED: Adams The MOTION PASSED (8-1). Co-Chair Torgerson advised that the bill would be HELD in Committee for further discussion. SB 219 was HELD in Committee for further consideration. SENATE CS FOR CS FOR HOUSE BILL NO. 419(JUD) "An Act relating to the weekly rate of compensation and minimum and maximum compensation rates for workers' compensation; specifying components of a workers' compensation reemployment plan; adjusting workers' compensation benefits for permanent partial impairment, for reemployment plans, for rehabilitation benefits, for widows, widowers, and orphans, and for funerals; relating to permanent total disability of an employee receiving rehabilitation benefits; relating to calculation of gross weekly earnings for workers' compensation benefits for seasonal and temporary workers and for workers with overtime or premium pay; setting time limits for requesting a hearing on claims for workers' compensation, for selecting a rehabilitation specialist, and for payment of medical bills; relating to termination and to waiver of rehabilitation benefits, obtaining medical releases, and resolving discovery disputes relating to workers' compensation; setting an interest rate for late payments of workers' compensation; providing for updating the workers' compensation medical fee schedule; and providing for an effective date." Co-Chair Torgerson asked what the impact of the legislation would be on private employers throughout the State. PAUL GROSSI, Director, Division of Workers' Compensation, Department of Labor and Workforce Development, commented that the legislation would increase the premium rates between 7.7% and 8.9%. Co-Chair Torgerson asked how much that would amount to. Mr. Grossi replied that the expense would amount to approximately $15 million dollars per year. Co-Chair Torgerson suggested that action appears to be an additional tax. Senator Donley interjected that the rates had dropped over 43% over the past twelve years. Mr. Grossi corrected that the overall premium rate had decreased over 30% since 1988. Senator Green asked if the premium tax would increase. Mr. Grossi advised that the premium tax rate was set at 2.7%. If the overall premium increases, there will be additional funds. Senator Green argued that the premium tax increases as the premium rate increases. Co-Chair Torgerson asked the reference on Page 9, Sub- paragraph (Q). Mr. Grossi replied that section was an amendment added in the Senate Judiciary Committee. The amendment stipulates that the check must be drawn on a state or federal financial institution, which it is hoped would provide an assurance policy. Co-Chair Torgerson asked if checks were being issued which were not drawn on federal or state financial institutions. Senator Donley explained that in the Senate Judiciary Committee, testimony was received that some insurers were paying benefits to workers with checks drawn on very slow paying banks. The Division has been trying to regulate this concern through various policies. The addition of that language makes it clear that they must be drawn on United States (U.S.) banks. Co-Chair Torgerson referenced Page 9, Subsection 15 and asked if that information had been analyzed out past one year. st Mr. Grossi replied that it was established during the 1 year effect on the premium. He acknowledged that the average change has been 2% or less for the past four or five years. Co-Chair Torgerson inquired the current anticipated rate change. Mr. Grossi explained that the rates would change from $700 to $772. He pointed out that the change would address one of the audit concerns. The Legislative Budget and Audit Committee (LBA) recommended that the benefit be indexed. He noted that it was indexed at the Alaska average equal wage, which is a more accurate reflection of the change for the wages than the overall cost of products. Co-Chair Torgerson referenced Page 4, Line 17, and asked if that was tied into the previous section. Senator Donley agreed it did apply back to that section. Co-Chair Torgerson questioned the 105%. Mr. Grossi explained that in current law, the maximum for worker's compensation benefits has been established at $700 dollars and for retraining benefits, it was set at $750 dollars. The proposed language provides the same ratio. Co-Chair Torgerson clarified that the language would only apply to the re-training portion. He asked if benefits had been included in Section 15. Mr. Grossi advised that the calculation in Section 15 was divided by all the jobs, thus, providing the average. Co-Chair Torgerson asked if that meant there were no benefits. Mr. Grossi interjected that wages had been calculated into that number. Senator Green questioned why Section 5 provided a different formula than the rest of the bill. Mr. Grossi responded that Section 5 was not based on wages but instead based on the cost of education and for re- training purposes. The audit did recommend that language. Senator Green inquired if there was a formula in statute that would be more appropriate than figures determined on a maximum. Co-Chair Parnell referenced Section 13 and asked its purpose. Mr. Grossi commented that section resulted from a court case. The statute is present in current law, however, it was interpreted by the Supreme Court. The purpose of that section resulted from a failure to prosecute. Discussion followed between Co-Chair Parnell and Mr. Grossi regarding the amount of time that it takes the average claim to move through the system. Senator Phillips indicated that he had two amendments to the bill, which resulted from an audit request a couple months ago. Co-Chair Torgerson asked if a flat rate index had been a part of the audit recommendations. PAT DAVIDSON, Legislative Auditor, Legislative Audit Division, advised that in the audit, a deterioration was seen of the flat amount in statute. The audit recommended that it be increased to something reflecting a more current purchasing power. She commented that it is up to the Legislature to periodically update those or establish a mechanism that automatically allows for some indexing. Senator Donley MOVED to adopt Amendment #1, 1-LS1418\N.1, Ford, 4/20/00. [Copy on File]. He noted that the amendment would address how the surviving widow is paid. He emphasized that the increase would be significant to those families that have lost a worker on the job. The amendment would change the current ten-year rule to twelve years. Senator Green OBJECTED for the purpose of a question. Senator Adams noted his support of the amendment. He asked why "20 years" had been changed to "12 years". Senator Donley replied that "10 years" in existing statute was totally an arbitrary number. He wanted to make an incremental increase. Senator Green WITHDREW her OBJECTION to Amendment #1. There being NO further OBJECTIONS to Amendment #1, it was adopted. Senator Donley MOVED to adopt Amendment #2, which would add a benefit to families that suffer the death of a worker. Currently, the only benefit paid is $2500 dollars for funeral expenses. Senator Green suggested that there probably would be other insurance coverage available to the family. Senator Donley advised that Amendment #2 would not affect the funeral coverage in any way and that the two concepts were not related. Co-Chair Torgerson clarified that with passage of the amendment, $5000 dollars would be given for the funeral expenses and a $5000 dollars additional payment would be given to the family of the deceased. Co-Chair Parnell questioned if the concept was being implemented in the appropriate manner. Under current statute, the family receives $2500 dollars for the costs associated with reasonable funeral expenses; that amount would be raised to $5000 dollars. If there is a widow or widower, they will receive 80% of the weekly wage of the deceased in addition to the funeral benefits. He recommended that the weekly wage be further adjusted rather than disbursing a lump sum. Senator Donley stated that the proposed amendment would provide for better public policy. If the worker had not died, the family would continue to receive 100% of the worker's salary. Under the current system, the family would receive a reduced percentage of that salary. He emphasized that is not a gift, it is part of that worker's employment package. At this time, only the funeral costs are being recovered. He emphasized that with a catastrophic loss, there are a lot of immediate costs incurred by the family and that a worker's compensation check does not make allowance for all those costs. Senator Donley stressed that $5000 dollars was a reasonable amount. Senator Green asked the consequences of adding on the employer's costs and how it would impact the rate. Tape: SFC - 00 #104, Side B 10:05 A.M. Senator Green assumed that the concern should be addressed in the employee's contracts rather than through the proposed amendment. Co-Chair Torgerson responded that the amendment would include more than just the employees of the State of Alaska. Senator Wilken asked the approximate number of employees lost on the job each year. Senator Donley replied that between 20-30 people die on the job each year. Co-Chair Parnell voiced a conflict of interest as he is an employer in private practice that would be impacted by the amendment. Senator Green OBJECTED to the adoption of Amendment #2. A roll call vote was taken on the motion. IN FAVOR: Wilken, P. Kelly, Phillips, Donley, Leman, Adams, Parnell, Torgerson OPPOSED: Green The MOTION PASSED (8-1). Senator Phillips MOVED to adopt Amendment #3, 1-LS1418\N.2, Ford, 4/26/00. [Copy on File]. Co-Chair Torgerson OBJECTED for the purpose of discussion. Ms. Davidson explained that the audit recommended various issues to help the Worker's Comp Division to streamline and become more efficient. One item noticed by Legislative Audit, which was causing some inefficiencies was that either the insurers and/or the insure adjusters were not filing notices in a timely manner. Currently, there is nothing in place to encourage them to file in a timely manner. The Division's intent in encouraging them to enhance reporting was to allow the agency to develop a sanction or impose a fine to encourage the adjusters to get the information into the office in a more timely manner. Ms. Davidson noted that the amendment would address that concern. She asked if the Board should define it or if the Division should attend to that. Senator Green indicated a conflict of interest. Mr. Grossi believed that the language would work fine as written in the amendment. He agreed that it would be simpler if the Department could issue the penalty. Senator Green stated that a 10-day grace period was a very short period of time for an insurer to get established if the person was not going to renew their policy. Co-Chair Torgerson asked how long the 10-day policy had been in law. Mr. Grossi replied that it has been in place since the inception of the law. Senator Green countered that it is not in existing law and that the 10-day currently applies only to the employer. Mr. Grossi agreed. The insurance company would have the best information on that situation. There are arrangements that allow for the cancellation of a policy. Co-Chair Parnell questioned what the problem was that the amendment intended to fix. Ms. Davidson replied that during the course of the audits, it was found that adjusters and insurers were notifying the Division in an untimely manner regarding whether or not the employer remained insured. Co-Chair Parnell asked current law. Ms. Davidson noted that there is no sanction if it is not reported timely and that currently, it is the employer's responsibility to report. Co-Chair Parnell pointed out that at this time, they are not required to report under that section. He asked if there was another section that required the reporting. Ms. Davidson stated there is under Section AS 27.30.030, Subsection 5. Co-Chair Parnell repeated that if currently, there is no requirement for insurers to give notice of every cancellation in the State, then what problem is being fixed. Ms. Davidson responded that currently, the people who are doing the annual reporting are the adjusters and/or the insurers on behalf of the employer. The responsibility is the employers, but it tends to be the insurance agency that does it. In response to Co-Chair Parnell, Ms. Davidson explained that AS 23.30.0305 stipulates that the termination of the cancellation policy is not effective as the insured employees care covered until 20 days after receiving written notice of the termination. Co-Chair Parnell asked if that would be the employers duty. Ms. Davidson replied it was, however, it is ultimately the insurer's responsibility. Co-Chair Parnell asked why the insurance companies were not doing the reporting. He voiced caution in establishing a dual system and penalty. Ms. Davidson interjected that under AS 23.30.085(a), the employer is subject unless exempted, and shall initially file evidence of compliance with the insurance provisions of that chapter in a form prescribed by the Board. She noted that the two recommendations were: · Filing the notices in a timely manner; and · Sanctions for uninsured workers. She continued that the Division has been recommending that AS 23.30.085 impose sanction. Co-Chair Parnell pointed out that AS 23.30.085, already contains a provision that if an employer fails, refuses or neglects to comply with that section, they would be subject to consequences listed in AS 23.30.070. Ms. Davidson pointed out that reference does not impose a penalty unless a compensable injury has occurred. Co-Chair Parnell asked if there was in law, a requirement that an employer maintain insurance coverage, indicating nothing that would impose a penalty without compensable injury. Ms. Davidson acknowledged that was true. Co-Chair Parnell asked how Amendment #3 would address that. Ms. Davidson replied that motion would be referenced in Amendment #4. [Copy on File]. A roll call vote was taken on the motion to adopt Amendment #3. IN FAVOR: Phillips, Donley, Leman OPPOSED: P. Kelly, Green, Adams, Wilken, Parnell, Torgerson The MOTION FAILED (3-6). Senator Phillips MOVED to adopt Amendment #4, 1-LS1418\N.3, Ford, 4/26/00. [Copy on File]. He indicated that the amendment would address Recommendation #5 provided in the audit. Ms. Davidson stated that the amendment would move toward the statutory construction that would prevent the Board from issuing sanction against the uninsured employer without a compensable injury having to occur. She stated it was intended to eliminate that and allow the Board to place penalties on an uninsured employer prior to a claim being filed. Co-Chair Parnell OBJECTED for the purpose of discussion. Current statute indicates in AS 23.30.080(b) that if an employer fails to insure or provide security, the Board may issue a "stop order" prohibiting the use of employee labor by the employer until the employer provides the security. He noted that there are penalties for avoiding a stop order in place. Ms. Davidson commented that she was not sure that the amendment was addressing the recommendation being made by the Legislative Budget and Audit Committee. She agreed that it was focused more on the compensation to a worker, which would imply that there had been an injury. Ms. Davidson offered to work with the Legislative Legal office to address the concerns of the Audit Division. Senator Donley recommended that when working with the amendment to word it so that it not require a title change. Co-Chair Torgerson agreed. The Committee had an at-ease from 10:30 A.M. until 10:55 A.M. in order to confer with the Legislative Legal Division on Amendment #4. KEVIN DOUGHERTY, (Testified via Teleconference), Alaska Labor Union, Anchorage, stated that he supported the bill. He noted that it would have benefits for all State workers. He did not comment on the amendments. Senator Phillips MOVED an amendment to Amendment #4. Following "shall" on Line 8, delete "Board" and insert "may access a civil penalty of up to $1000 dollars per day". Senator Green OBJECTED. She asked if that language would be more appropriate in AS 28.30.085. Ms. Davidson explained that the intent of the audit was to give the Board more options so as to deal with uninsured employers. Currently, there exist some penalties if an employer avoids a stop order. The drafter recommended using "may" rather than "shall" to help bring employers into compliance. Co-Chair Torgerson asked if that would satisfy the requirement of the audit. Ms. Davidson replied it would. Mr. Grossi noted that at this time, the agency could investigate and prosecute only through the Department of Law. The proposed language would give the Board more authority to penalize against an uninsured employer. Co-Chair Parnell asked if it was necessary, given that there already exists a civil penalty. Mr. Grossi explained that a stop order occurs once the person has gone to the Board. If they still fail to comply with that order, then the $1000 dollar penalty would apply. The penalty could be assessed for failure prior to the stop order. Co-Chair Parnell asked how the provision would be implemented. Mr. Grossi responded that the potential uninsured employer would still have to be investigated, which is currently happening. When the Board finds someone that does not have insurance, they comply at that point. Co-Chair Parnell asked what the Department of Labor and Workforce Development does in that situation. Mr. Grossi commented that the Department then goes through various records that help to identify employers that might be out of compliance. The investigator then writes the necessary letters. The amendment would allow for an employer not in compliance, so that the Board could implement a penalty. A roll call vote was taken on the motion to adopt the amendment to the Amendment #4. IN FAVOR: Donley, Wilken, Phillips, Torgerson OPPOSED: Green, Leman, P. Kelly, Parnell Senator Adams was not present for the vote. The MOTION FAILED (4-4). Senator Wilken asked if the legislation would address controverted claims. He asked that the Department report back to the Legislature next year regarding the concern of controverted claims. Senator Phillips WITHDREW Amendment #4. There being NO OBJECTION, it was withdrawn. In response to Senator Green, Co-Chair Torgerson asked the Department of Labor and Workforce Development if fringe benefits were included in the compensation rate. Mr. Grossi answered that they are based strictly on wages. Senator Donley MOVED to report SCS CS HB 419 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. SCS CS HB 419 (FIN) was reported out of Committee with "individual recommendations" and with fiscal notes by the University of Alaska dated 4/24/00 and the Office of Management and Budget dated 4/24/00. ADJOURNED  Senator Torgerson RECESSED the meeting at 11:05 AM to Call of Chair.