SENATE FINANCE COMMITTEE February 24, 2016 9:08 a.m. 9:08:07 AM CALL TO ORDER Co-Chair MacKinnon called the Senate Finance Committee meeting to order at 9:08 a.m. MEMBERS PRESENT Senator Anna MacKinnon, Co-Chair Senator Pete Kelly, Co-Chair Senator Peter Micciche, Vice-Chair Senator Click Bishop Senator Mike Dunleavy Senator Lyman Hoffman Senator Donny Olson MEMBERS ABSENT None ALSO PRESENT Sheldon Fisher, Commissioner, Department of Administration; Kate Sheehan, Director, Division of Personnel and Labor Relations. SUMMARY ^SHELDON FISHER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION: CONTRACTS 9:09:01 AM SHELDON FISHER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, discussed the PowerPoint, "Understanding Labor Contracts" (copy on file). Commissioner Fisher addressed slide 2, "Bargaining 101": •Negotiations are mandated by the Public Employment Relations Act (PERA) AS 23.40.070-23.40.250. •The State begins bargaining successor agreements between October and December; start date may be accelerated if both parties agree. •Wages, hours and other terms and conditions of employment are mandatory subjects of bargaining. •The State may, but is not required to, negotiate permissive subjects of bargaining. -Classification, retiree benefits, representation of non-permanent employees •Monetary terms must be approved by the Legislature. -Provided that monetary terms of agreements are submitted to the Legislature by the 60th day, PERA requires legislative session consideration during that calendar year. -If rejected by the Legislature, then it is as if there is no agreement. The parties must renegotiate to impasse or agreement. •If negotiations do not lead to agreement and mediation fails, employees have the right to strike. -Exception: protective service personnel do not have the right to strike but must enter binding arbitration after impasse. •Employees who are on strike do not get paid, but may not be terminated because they choose to lawfully strike. •Striking employees may be replaced - either temporarily for the duration of the strike, or permanently under certain circumstances. Co-Chair MacKinnon handed the gavel to Co-Chair Kelly. Commissioner Fisher highlighted slide 3, "Monetary Terms": Marine Units (IBU, MEBA, MMP) •Cost of living differential (COLD) •Travel pay •Training funding •Pass privileges •Non-watch pay Correctional Officers •Uniform allowance •Duty station incentive pay (Spring Creek) •Education incentive pay •Prisoner transportation officer cert pay •CDL Cert pay Public Safety •Uniform allowance •State provided medical exams •Pilot, diver, and canine pay Mt. Edgecumbe Teachers •Family night pay •Activities and extracurricular pay General Government Unit •Sea duty pay •Uniform provision •Life, Travel, and Accident insurance •Travel and per diem Labor Trades and Crafts •First Aid training •Subsistence pay •Tool allowance •Bunkhouse and housing rentals Supervisory Union •Hazard pay •Supervisory differential •Sea duty pay •Physicals Alaska Vocational Technical Center Teachers •Initial Teacher Placement and Step Advancement •Department Head Pay •Sabbatical Leave 9:13:39 AM Commissioner Fisher discussed slide 4, "Range of Options to Reach Resolution": Impasse and Implement •Sometimes described as the "nuclear option." Arbitrate •Arbitrator will determine. -Interest Arbitration: "split-the-baby" and give each side something. -Baseball Arbitration: Must choose one proposal Negotiate - Settle •Both sides get something out of negotiations. 9:16:43 AM Commissioner Fisher highlighted slide 5, "Bargaining Unit (BU) Detail." The slide showed the bargaining units; the number of employees; and the negotiation schedule. He stated that, currently, there were negotiations with five of the bargaining units. He shared that LTC-Public Employees, Local 71 had been negotiating for over a year. He remarked that the five bargaining units plus the non- covered employees that follow the terms of the bargained agreement, then 87 percent of the employees were impacted by the current round of negotiations. Vice-Chair Micciche queried when the costs associated with the 2015-2016 negotiations impact the state budget. Commissioner Fisher replied that the five BUs were intended for the FY 16 budget. Vice-Chair Micciche wondered whether the five would be completed by the end of the current fiscal year. Commissioner Fisher replied that there was a slide pertaining to that question. He stated were two more units that he believed would be completed by the sixtieth day. He stated that the APEA would not be completed by the sixtieth day. He was optimistic that negotiations would be complete by the end of the legislative session. Co-Chair MacKinnon wondered what unit had not closed their contract negotiations. Commissioner Fisher replied that LTC [Labor, Trades, and Crafts] Local 71 had not completed their negotiations. He furthered that there was progress in the negotiations, and was optimistic that it would be complete by the sixtieth day of session. Vice-Chair Micciche wondered whether the Marine Highway System union was completed, but not yet ratified by the member. Commissioner Fisher responded in the affirmative and explained that a negotiation was reached in the summer of 2014. The negotiation was approved by the legislature in the previous session, but it had not yet been submitted for ratification. He explained that it was currently stuck in mediation, and was ongoing. He shared that the status quo continued, and was, in some respects, more favorable for the state. He explained that the status quo was less costly to the state, than the approved negotiation. He remarked that he was confused why the union would resist the approved negotiation. 9:21:18 AM Co-Chair MacKinnon wondered if there was a cost of living allowance (COLA) in the group. Commissioner Fisher replied in the affirmative and explained that the COLA was zero in the first year. The contract was now in the second year, at a time for an agreed 1 percent COLA. Without the ratification, the state was not paying the COLA. Co-Chair MacKinnon noted that there was a bill to remove or reduce COLA. She wondered whether the legislation referred to the terms in the contract. She explained that there was a state statute with some COLA. Senator Dunleavy shared that the legislation was about the geographic differential. Co-Chair MacKinnon wondered whether the group benefitted from the geographic differential. Commissioner Fisher replied that it depended on different terms. Co-Chair Kelly asked for a restatement. Commissioner Fisher explained that the group had both a COLA and geographic differential provision. There were other terms, which were sometimes used, such as subsistence pay to address geographic cost differential. He was not aware of the legislation, and whether it would impact the group. Senator Dunleavy surmised that the group had not received the one percent COLA. He remarked that often, the final settlement, would retroactively pay the COLA. He wondered if that was part of the plan. Commissioner Fisher replied that he had not planned for retroactive pay. He stressed that the COLA would be distributed, as long as the units were agreed on schedule. Co-Chair Kelly queried the timeframe on ratification of the negotiation. He wondered if there was a statutory limit. 9:24:20 AM KATE SHEEHAN, DIRECTOR, DIVISION OF PERSONNEL AND LABOR RELATIONS, replied that there was no timeframe for ratification in neither statute nor collective bargaining agreement. Co-Chair Kelly queried provisions in the contract or statute, which protected the state from paying a retroactive lump sum. Ms. Sheehan responded that there was no retroactive payment requirement. Senator Dunleavy surmised that the situation existed in the current contract. Commissioner Fisher agreed. Senator Dunleavy announced that retroactive payments only occurred upon approval. Commissioner Fisher agreed. Senator Dunleavy wondered whether the imposition of terms and conditions was considered in the negotiations. Commissioner Fisher replied that he assumed that negotiating impasse and implementing the best finals. Senator Dunleavy agreed. Co-Chair Kelly for a restatement of the question. Senator Dunleavy explained that there was a concept called "imposition of terms and conditions" when reaching an impasse in negotiations. He wondered whether that was a tool in the process. He asked if that concept was excluded from the process. Commissioner Fisher replied in the negative. Co-Chair Kelly encouraged the commissioner to resist retroactive COLA payments. He felt that the legislature would look unfavorably on a retroactive payment. Vice-Chair Micciche wondered whether there was a sense of willingness of flexibility in negotiations with the five units. Commissioner Fisher replied in the affirmative. He remarked that the bargaining units were different from one another. He shared that the two bargaining units who had been given terms included GGU, who had recognized that they needed to make concessions. He shared that the employees could not solve the fiscal crisis, but there was a recognition of the budget problem. Co-Chair MacKinnon noted that the Marine Engineers Beneficial Association (MEBA) had 103 bargaining unit members with an overtime cost exceeding $1 million. She assumed that it was an average of approximately $9800 overtime paid to each individual. She wondered how someone can reside in a separate port than they worked. Ms. Sheehan surmised that Co-Chair MacKinnon was wondering how one person could be paid from a different port than their home port. 9:29:42 AM Co-Chair MacKinnon replied in the affirmative, and also queried the reason for high overtime for MEBA. Ms. Sheehan deferred to the Alaska Marine Highway on overtime. She announced that there were different provisions for the different vessel assignments: home port and home vessel. She remarked that, depending on the quarterly schedule, one may be assigned to a vessel outside of the home port. She agreed to provide more information. Co-Chair MacKinnon wondered if the employees were on four- hour cycles on board ship. Ms. Sheehan replied that she believed that marine engineers on the Southwest system worked 8.4 hours on some vessels. She furthered that some worked 12 hour days on the Southeast system, with two weeks on and two weeks off. Co-Chair MacKinnon queried more information about $10,000 of overtime per individual annually. She felt the overtime could be better managed. Commissioner Fisher completed discussing slide 5. Commissioner Fisher displayed slide 6, "Negotiating Framework: Cash Compensation": •Cash Component of Compensation -Below Market •High income professional employees tend to be below market •New employees tend to be below market -Above Market •Low income employees tend to be at or above market •More tenured employees tend to be above market Vice-Chair Micciche requested a full-burden comparison. Commissioner Fisher agreed to provide that information. Co-Chair MacKinnon surmised that in 2014 the combined COLA and merit increases in the 10-year cycles was nearly 62 percent. Commissioner Fisher agreed. Co-Chair MacKinnon queried the classification of the "low income" workforce. Commissioner Fisher replied that "lower" may be a better term. He shared that those employees were generally class 15 and below. Their compensation would be between $40,000 to $45,000 and less. Senator Bishop requested a slide that showed the number of employees by range. Co-Chair MacKinnon stated that there was an average pay scenario. She wanted to see how each unit was populated, and the salaries that the employees were moving through. Commissioner Fisher agreed to provide that information. 9:36:48 AM AT EASE 9:38:28 AM RECONVENED Co-Chair Kelly asked about the merit system, and wondered if the commissioner had explored the possibility of switching to every two years for new employees. He remarked that it could possibly save the state $19 million in two years. He queried the pitfalls of that possibility. Commissioner Fisher replied that he had also analyzed that possibility. He explained that the presentation showed that, given that overall cash compensation was below market, and benefits were above market. Therefore, the negotiations focused on attempting to bring the benefits in line. The cash compensation was not a focus of the negotiations. Co-Chair Kelly interjected that there could be a statute change for new employees. He wondered if that change would affect the negotiations. Commissioner Fisher believed that the change would be negotiated in the bargaining unit. Ms. Sheehan echoed Commissioner Fisher's response, and explained that it would be negotiated for the classified employees. 9:40:28 AM Senator Dunleavy asked about the spread between the red and green lines on the graph. He wondered why the red line was assigned 44 percent, when it appeared to be above the 60 percent mark. Commissioner Fisher replied that he would need to confirm those numbers. He explained that the blue line represented the COLA. Senator Dunleavy queried the actual percent. He wondered what was causing the spread, or whether the spread actually existed. He noted that after 2004 the lines did not converge. Commissioner Fisher explained that the lines represented a brand new employee from 2004. He stated that, by definition, everything started at a zero point. He remarked that the lines represented the COLA and merit increments. Senator Dunleavy asked about the green line as compared to the red line, and wondered why there was such a spread between the two. Commissioner Fisher stated that the COLA increases were roughly comparable to the CPI. The merit increases drove the additional growth. He referred to the salary schedule that the state had created. Senator Dunleavy noted that the state created the salary schedule. He wondered if it was a negotiation process or another framework. Commissioner Fisher replied that it was a combination of the two. Senator Dunleavy stressed that the framework was created within the negotiations. He wondered if the requirements were in statute or by negotiation. Commissioner Fisher responded that it was not required by statute. He stated that it was either through negotiation or through a unilateral decision to add increases in an un-bargained sense. He stressed that any changes must be bargained. Senator Bishop queried the benefits of above and below market, and which benefit was the biggest driver. Commissioner Fisher replied with slide 7. 9:46:25 AM Co-Chair Kelly felt uncomfortable with the notion of the state recruiting the best people. He stressed that the private sector was in competition with the state, and felt it was difficult for the private sector to keep up with the state. He remarked that he did not see people moving from state government to the private sector, rather he sees people moving from the private sector to state government. He shared that many businesses had a difficult time retaining personnel, because most employees wanted a state job. He preferred that the best engineer was working for the company building the bridge, rather than the one who was making the regulation. Senator Bishop queried the level retention and recruitment of state employees. Commissioner Fisher responded that he did not have numbers for the tier 4 employees. He surmised that the retention was probably below average for an employer. He stated that there was early turnover in the life cycle of an employee, which was not unusual and supported the hypothesis that the employees entered below market. He felt that there was a struggle to find qualified employees for the higher skilled positions. Co-Chair Kelly observed that many university employees moved to other agencies, rather than to the private sector. Vice-Chair Micciche expressed respect for the commissioner's experience in the private sector. He shared the comparisons of actual cash calls across the state. He remarked that it was difficult to determine the actual salary increases, including COLA and geographic differential. He shared that there were some departments that had difficulty retaining employees. He felt that there was enough Department of Labor and Workforce Development (DOLFD) to evaluate the average private sector increase from 2004 to 2014. He requested that information. He did not want an increase that seemed higher than the private sector. Commissioner Fisher responded that he would provide specifics. He agreed that the growth was higher than traditions in the marketplace. 9:52:49 AM Vice-Chair Micciche remarked that there could be the same comparison at an entry level position in the private sector. He queried further information. Commissioner Fisher agreed to provide some of the requested information. Vice-Chair Micciche restated that his request may give the public a more realistic view. He did not believe that the public employees were dramatically overcompensated. Co-Chair Kelly shared that he had been in a previously legislature that provided a study showing that the lower level employees were overcompensated, and the higher level employees were undercompensated. He stressed that many employees believed that the state was a more secure environment than and oil company. He shared that BP had expressed that they wanted similar support to the state. Senator Bishop requested a 10-year analysis of how many employees had left state service. 9:55:49 AM Co-Chair MacKinnon asked that all state contributions be examined. She remarked that she wanted to look at SBS and the viability of social security. She noted that the state currently faced an unfunded pension liability. She felt that a ten year examination would help to understand whether the employees were undervalue entering the system, the cost to carry forward, and how quickly the employees meet their peers in the private sector or federal government. She remarked that the federal government was often taking the state employees than the private sectors, specifically in the natural resources section. She wondered if the Court System was a 15-year retirement. She stressed that there were fixed numbers with long-term implications. Co-Chair Kelly remarked that he would like to continue with the presentation. 9:59:53 AM Commissioner Fisher addressed slide 7, "Negotiating Framework: Benefits": Employee Benefits: Overall tend to be above market. •Health Benefit: •Economy Plan - zero employee premiums •Low deductible options across plans •Flat rate for dependents •Retiree health insurance with 10 years of service •Retiree premium percentage lowers with longer term of service •Pension: Alaska Public Employees' (PERS) and Teachers' Retirement (TRS) Systems are hybrid defined benefit and defined contribution plans providing: •Contribution amounts structured to reach retirement goals •PERS: 8 percent employee + 5 percent employer + 12.26 percent SBS totaling: 25.26 percent •TRS: 8 percent employee + 7 percent employer +12.26 percent SBS totaling: 27.26 percent •Most private plans offer employer match of 3-4 percent •Leave accrual (even with negotiated caps) •Accrue 270 hours per year (36 days) •After 10 years, if hired before 7/1/13 •After 15 years, if hired on or after 7/1/13 •Job Flexibility •Alternative work weeks •Hours worked: 37.5 hours 10:05:47 AM Co-Chair MacKinnon requested the total liability of outstanding accrued leave. Commissioner Fisher agreed to provide that information. Commissioner Fisher looked at slide 8, "Negotiating Framework: State and National Trends": National: •2007-2015 saw little to no pay increases •Current trends include pay increases, elimination of furloughs State: •Municipality of Anchorage: 1.5 percent COLA per year for 3 years •Anchorage School District: 1 percent COLA + $1,000 bonus through 2017 •Juneau School District: 2 percent COLA, 1 year agreement Commissioner Fisher highlighted slide 9, "Bargaining Priorities": Cash Component: -Overall below market -Current Fiscal climate requires modest reductions -0-0-0 percent -15 hours of furlough per employee per fiscal year -Modest changes to other monetary terms of the CBAs •Benefits: -Overall above Market -Healthcare costs are growing at a multiple of inflation making cost containment a critical objective of these negotiations -Ask Employees to accept plan design changes and contribute to monthly health care premiums in order to control costs and align interests in minimizing future cost increases. -For employees that are not part of AlaskaCare, we want to right-size health trust reserves •Other Priorities -Performance Evaluations: Create a meaningful performance view system -Consistency -Create consistency in our contracts -For example: Leave, administrative manual, travel rules, pay procedures -Flexibility -Create flexibility in our contracts. -For example: contracting out, promotional rules -Leave Terms - continue the progress of prior negotiations to address leave accruals 10:10:47 AM Commissioner Fisher discussed slide 10, "Status of Contracts Before the Legislature": TEAME (27 Employees) •Contract expired June 30, 2015 •Agreement reached December 2015, ratified by members •Contract pending Legislative approval Terms Include: •0-0-0 •Addition of coordinators to improve student activity sponsorship •Improvements and clarifications to the grievance process •Additional time for management to complete annual evaluations •Contract language improvements regarding leave use, cash-in, and donation ASEA (GGU, 8,795 Employees) •Contract expires June 30, 2016 •Agreement reached February 2016, pending ratification by members •Contract pending Legislative approval. Terms Include: •0-0-0 •Reduced health care contribution rate in FY17 •Furloughs •Improvements to the grievance and complaint process •Performance tied geographic limitation for layoffs •Contract language improvements for finance and payroll processing •Transition fully to the Administrative Manual for Travel and Per Diem Co-Chair MacKinnon noted a contentious closeout during the previous session. She valued all state employees and appreciated the terms and concessions for both parties; and the willingness to work together. She thanked the committee members who reached out to the individuals that would benefit from the agreement. Commissioner Fisher addressed slide 11, "FY 2017 Savings": •Healthcare contribution: Reduced payment in FY 17, growing in FY 19. •Furlough Savings -$3.3m Gross Employee Savings •Forecasted 2.6m will be cashed in by Employees -$763k Employer Savings •22 percent Pension Contribution •1.15 percent Term Leave Rate 10:17:07 AM Co-Chair Kelly queried the number on the graph. Commissioner Fisher replied that the number was in the lower right hand column of the upper chart. Vice-Chair Micciche queried the process for valuing accrual. Commissioner Fisher agreed to provide that information. He stressed that the state had previously negotiated changes and caps to the accrual rates. He stressed that the state was above market, and he hoped that the BUs would become in line with the other BUs in the private sector and the market. Commissioner Fisher discussed slide 12, "Update on Other Negotiations": •Labor Trades and Crafts (LTC) - 1,772 Employees -On-going -Likelihood of reaching agreement by sixtieth Day •Supervisor's Union(SU) - 2,317 Employees -On-going -Challenging negotiations -Possibility of not reaching agreement by sixtieth Day •Confidential Employees Association - 204 Empl. -On-going -Likelihood of reaching agreement by sixtieth Day •Marine Engineers' Beneficial Association (MEBA) - 103 Employees -Tentative agreement July 2014 (0 percent- 1 percent- 2 percent). Legislature approved contract in 2015. MEBA has yet to send contract for a vote. Mediation pending 10:20:47 AM Senator Dunleavy noted that there was a tentative agreement, but the members would not send the contract for a vote. Commissioner Fisher agreed. He explained that MEBA had felt that there was a misunderstanding of the terms. The administration was negotiating a resolution. Co-Chair MacKinnon wondered if the MEBA contract was currently zero. Commissioner Fisher replied in the negative. Co-Chair MacKinnon surmised that MEBA saw a misunderstanding. Commissioner Fisher replied that there were good faith negotiations, and any deviation would imply that there would be an examination of new terms. Senator Dunleavy wondered if the misunderstood items were the only reevaluated items. Commissioner Fisher replied that MEBA wanted the administration to accept terms that would increase cost. He stated that the administration was pushing back on that request, which caused all items to blend together. Senator Hoffman wondered if DOA must reach terms by the sixtieth day of session. Commissioner Fisher replied that DOA would not bring the contract for legislative approval, if MEBA agreed to the terms. Senator Hoffman asked if the complete package would be up for approval by the legislature. Commissioner Fisher replied in the affirmative. Senator Hoffman asked if the timeframe was in the 60 day rule. Commissioner Fisher replied in the affirmative. Senator Hoffman wondered if the legislature could withdraw the terms of the agreement. Commissioner Fisher replied that there was no progress with MEBA, so he did not believe that the agreement would be made by the sixtieth day. He deferred to Ms. Sheehan. Ms. Sheehan deferred to a legal position regarding whether the legislature could withdraw the terms of the agreement. 10:26:47 AM Senator Olson queried any plans to continue with the Marine Highway System, should a strike take place. Commissioner Fisher responded that both parties had filed an unfair labor practice claim against the other. He explained that a strike was not entitled during that claim. Senator Olson queried the administration's plan to continue service. Commissioner Fisher deferred to the marine highway. Commissioner Fisher addressed slide 13, "Next Steps" •The Legislature decides whether to fund the monetary terms. -The monetary terms of a collective bargaining agreement are subject to funding by legislative appropriation. (AS 23.40.21) -If the Legislature fails to fund the monetary terms of an agreement, the next steps vary by bargaining unit and may be affected by whether a tentative agreement was reached with sufficient time to permit submittal by the sixtieth day of session. •A contract submitted to the Legislature after the sixtieth day does not prevent the Legislature from either considering or funding the contract. •If a union fails to ratify the agreement, then the funding is reduced proportionately, and we operate under status quo and return to negotiations. Commissioner Fisher looked at slide 14, "Rejection of Monetary Terms: CBA Terms": If the monetary terms of an agreement are rejected the following contractual provisions apply: ASEA: Re-enter negotiations for 10 days; if no agreement, Class 2 and Class 3 employees may take a strike vote APEA: Not required to enter negotiations; impasse exists and members may call for a strike vote CEA: Must re-enter negotiations upon demand by either party; negotiations last for 10 days but may be extended by mutual agreement; if no agreement, impasse exists and members may call for a strike vote IBU: Must re-enter negotiations within five days MEBA: Must re-enter negotiations immediately MMP: Must re-enter negotiations immediately PSEA: Upon written request, immediately negotiate a mutually satisfactory supplemental agreement ACOA: Must re-enter negotiations immediately LTC: Impasse exists and parties agree to pursue reasonable efforts to obtain a mutually satisfactory resolution AVTECTA: Must re-enter negotiations TEAME: Must re-enter negotiations immediately *Note: No definition of "immediately" is provided for in the collective bargaining agreements. 10:30:28 AM Senator Dunleavy noted that there had been increases in pay, but there was still difficulty in retaining personnel. He wondered whether the state could make nonmonetary efforts to retain personnel. He felt that there was a similar situation with teachers in rural Alaska. He remarked that the pay was decent, but there were other factors that pushed those teachers away such as working conditions. Commissioner Fisher responded that there was an attempt to maintain a constructive and balanced approach to the negotiations. Senator Dunleavy requested some legislative remedy suggestions that could enhance the tools. Commissioner Fisher agreed to provide that information. Co-Chair MacKinnon expressed appreciation for the appendix document. She queried the administration's management of overtime. She stressed that there were extreme overtime costs to the state in the marine highway system. Commissioner Fisher agreed to provide that information. He stated that overtime was managed at the department level. 10:36:38 AM Co-Chair MacKinnon felt that there were some issues related to the equal furlough across the board. Commissioner Fisher replied that there was work to ensure that there was equity in the furlough participation. Senator Bishop felt that overtime must be examined by bargaining unit. He remarked that there were situations that caused the overtime. Senator Hoffman looked at slide 19, and queried the details about the hiring levels. He requested details about those hired above the exemption rule. ADJOURNMENT 10:40:05 AM The meeting was adjourned at 10:40 a.m.