Legislature(2017 - 2018)SENATE FINANCE 532

03/23/2017 09:00 AM Senate FINANCE

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09:15:54 AM Start
09:16:22 AM SB31
10:00:41 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled: TELECONFERENCED
Scheduled but Not Heard
<Pending Introduction & Referral>
Scheduled but Not Heard
                 SENATE FINANCE COMMITTEE                                                                                       
                      March 23, 2017                                                                                            
                         9:15 a.m.                                                                                              
9:15:54 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair MacKinnon called the Senate Finance Committee                                                                          
meeting to order at 9:15 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Mike Dunleavy                                                                                                           
Senator Peter Micciche                                                                                                          
Senator Natasha von Imhof                                                                                                       
MEMBERS ABSENT                                                                                                                
Senator Donny Olson                                                                                                             
ALSO PRESENT                                                                                                                  
Sheldon Fisher, Commissioner,  Department of Administration;                                                                    
Kate  Sheehan, Director,  Division  of  Personnel and  Labor                                                                    
Relations, Department of  Administration; Bill Milks, Office                                                                    
of the Attorney General, Department of Law.                                                                                     
HB 57     APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
          HB 57 was SCHEDULED but not HEARD.                                                                                    
HB 59     APPROP: MENTAL HEALTH BUDGET                                                                                          
          HB 59 was SCHEDULED but not HEARD.                                                                                    
SB 31     NO ST. EMPLOYEE PAY INCREASE FOR 2 YRS                                                                                
          SB 31 was HEARD and HELD in committee for further                                                                     
SENATE BILL NO. 31                                                                                                            
     "An Act relating to  compensation, merit increases, and                                                                    
     pay increments for  certain public officials, officers,                                                                    
     and  employees  not  covered by  collective  bargaining                                                                    
     agreements; and providing for an effective date."                                                                          
9:16:22 AM                                                                                                                    
SHELDON FISHER, COMMISSIONER,  DEPARTMENT OF ADMINISTRATION,                                                                    
discussed  the  presentation,  "Salary Freeze  for  Nonunion                                                                    
Employees" (copy on file). He  turned to slide 2, "What Does                                                                    
the Bill Do?":                                                                                                                  
     • Addresses pay increases in the form of:                                                                                  
          o Cost of Living Allowance (COLA)                                                                                     
          o Merit increases (3.5% every year for five                                                                           
         o Pay increments (3.25% every other year)                                                                              
          o Bonuses                                                                                                             
     • Allows the Governor to reduce his salary                                                                                 
     • Effective July 1, 2017 - June 30, 2019                                                                                   
Commissioner Fisher  explained the legislation  would freeze                                                                    
pay  increases for  two years,  would affect  the governor's                                                                    
pay, and apply to exempt and partially-exempt employees.                                                                        
9:18:18 AM                                                                                                                    
Commissioner  Fisher showed  slide 3,  "Understanding Exempt                                                                    
and Partially Exempt":                                                                                                          
    •Can only be exempt through statute (AS 39.25.110)                                                                          
     •Exempt from Personnel Act and statutory pay plan                                                                          
     •Examples: Governor's Office, Legislative staff                                                                            
     Partially Exempt                                                                                                           
     •Through statute or Personnel Board                                                                                        
     •Subject to Personnel Act and statutory pay plan                                                                           
     •Examples: Deputy Commissioners, Directors                                                                                 
Commissioner Fisher  noted that the group  referred to those                                                                    
employees who set policy.                                                                                                       
9:19:00 AM                                                                                                                    
Commissioner Fisher displayed slide 4, "Who Does the Bill                                                                       
     (1)   Employees   not   covered  under   a   collective                                                                    
     bargaining   agreement   in   the   executive   branch,                                                                    
     including:    employees    of   boards,    commissions,                                                                    
     authorities, and executive officers;                                                                                       
     (2) Employees in the legislative branch;                                                                                   
     (3)   Employees   not   covered  under   a   collective                                                                    
     bargaining agreement of the University of Alaska;                                                                          
     (4)  The  governor,   lieutenant  governor,  department                                                                    
     heads, and legislators.                                                                                                    
Commissioner Fisher noted that the bill did not include the                                                                     
court system.                                                                                                                   
9:19:32 AM                                                                                                                    
Commissioner Fisher discussed slide 5, "Why is the Bill                                                                         
     This  legislation   was  introduced  as  part   of  the                                                                    
     Administration's  ongoing efforts  to  lead by  example                                                                    
     • Reduce state expenditures                                                                                                
     • Address serious budget shortfalls                                                                                        
Commissioner   Fisher   relayed   that  the   governor   had                                                                    
considered that it was appropriate  to ask employees to lead                                                                    
by example for this two-year  period as other Alaskans saw a                                                                    
reduction in their Permanent Fund Dividend.                                                                                     
9:20:09 AM                                                                                                                    
Commissioner Fisher reviewed slide 6, "Estimated Savings":                                                                      
     EMPLOYEES AFFECTED                                                                                                         
     This  bill   will  affect  approximately   5,000  state                                                                    
     employees in the executive and legislative branches.                                                                       
     This  represents  23% of  the  state  employees in  the                                                                    
     executive and legislative branches.                                                                                        
     The Office of Management & Budget estimates the                                                                            
     following savings in the executive branch:                                                                                 
     FY 18 = $2.3 million ($1 million UGF)                                                                                      
     FY 19 = $1.9 million ($.8 million UGF)                                                                                     
     Total = $4.2 million ($1.8 million UGF)                                                                                    
Commissioner Fisher stated that  some had questioned why the                                                                    
administration had  first selected  the group  designated in                                                                    
the  bill.  He  specified  that it  represented  the  second                                                                    
largest group of state employees.  He noted that the savings                                                                    
over two  fiscal years would  be about $4.2 million.  It did                                                                    
not  reflect the  University as  it had  already implemented                                                                    
similar policies.                                                                                                               
9:21:26 AM                                                                                                                    
Senator  Micciche  stated that  he  was  in support  of  the                                                                    
effort.  He inquired  about  Commissioner Fisher's  comments                                                                    
pertaining to why the particular  group was chosen first. He                                                                    
commented  that  essentially  the   bill  was  freezing  the                                                                    
salaries of non-covered employees  only. He wondered how the                                                                    
state would get  to the point where the  salary freeze would                                                                    
affect also those employees who were covered.                                                                                   
Commissioner Fisher asserted that  it was necessary to start                                                                    
somewhere. He thought  that if the legislation  was not used                                                                    
as a  foundation for negotiating  with covered  employees it                                                                    
would  be difficult  to  bargain. He  believed  that it  was                                                                    
appropriate to  start with  non-covered employees,  and with                                                                    
the passage of  the legislation the state was  in a stronger                                                                    
position to negotiate  with bargaining units to  apply it to                                                                    
covered employees.                                                                                                              
9:23:46 AM                                                                                                                    
Co-Chair Hoffman  asked if the  3.5 percent  merit increases                                                                    
beginning  July 1,  2019 were  based  on employees'  current                                                                    
salaries. He clarified he wanted  to know the starting point                                                                    
on July 1, 2019.                                                                                                                
Commissioner  Fisher   stated  that  with  passage   of  the                                                                    
legislation,  the salary  of the  employees would  be frozen                                                                    
for two  years, and  then employees would  receive increases                                                                    
based on the frozen income.                                                                                                     
9:24:38 AM                                                                                                                    
Senator  Micciche remarked  that  merit  increases were  not                                                                    
based on a  consumer price index (CPI). He  wondered how the                                                                    
state had  arrived at  a 3.5  percent merit  increase rather                                                                    
than an indexed percentage.                                                                                                     
Commissioner  Fisher stated  that  the logic  of the  salary                                                                    
schedule contemplated  that as  employees grew in  each job,                                                                    
the experience warranted an increase  over time. He remarked                                                                    
that  certain professional  positions such  as attorneys  or                                                                    
technical professionals  tended to  start low and  grow with                                                                    
experience. Also  built in  to the logic  was the  idea that                                                                    
there  should  be  cost of  living  adjustments  (COLA).  He                                                                    
reminded that the current  administration had not negotiated                                                                    
any CPI  increases due to  the fiscal situation.  He thought                                                                    
the curve was too steep  and that salaries grew too quickly.                                                                    
He thought the administration  would welcome the opportunity                                                                    
to  work collaboratively  to rethink  the  percentage if  it                                                                    
were deemed appropriate.                                                                                                        
9:27:18 AM                                                                                                                    
KATE  SHEEHAN, DIRECTOR,  DIVISION  OF  PERSONNEL AND  LABOR                                                                    
RELATIONS,   DEPARTMENT  OF   ADMINISTRATION,  referred   to                                                                    
statutes regarding salary  schedules. The percentage between                                                                    
merit  increases  and pay  increments  was  set in  statute.                                                                    
Merit  increases  dated  back  to the  1970s.  Original  pay                                                                    
increments  of 3.75  percent was  in  the longevity  statute                                                                    
which also dated  to the 1970s. In 2013 that  was reduced in                                                                    
legislation to 3.25 percent.                                                                                                    
9:27:47 AM                                                                                                                    
Senator Micciche  asked Commissioner  Fisher if  he believed                                                                    
that  every employee  grew at  the same  rate and  should be                                                                    
compensated as such.                                                                                                            
Commissioner  Fisher stated  that  he  shared the  senator's                                                                    
private  sector  experience   and  believed  that  employees                                                                    
contributed   differently   and    should   be   compensated                                                                    
Senator Micciche  asked if  there was  any potential  in the                                                                    
future  to  have  an incremental  reward  system  for  those                                                                    
employees that were growing at a quicker rate than others.                                                                      
Commissioner Fisher  thought it  would be necessary  to work                                                                    
collaboratively on  the matter.  He remarked that  there had                                                                    
been discussion in that regard  but there was no legislation                                                                    
prepared to address it.                                                                                                         
9:29:17 AM                                                                                                                    
Senator   Dunleavy  asked   if  Commissioner   Fisher  could                                                                    
estimate the ballpark figure for all state employees.                                                                           
Commissioner Fisher thought that it was near $1.5 billion.                                                                      
9:29:52 AM                                                                                                                    
Senator von  Imhof understood  that there was  not a  cap to                                                                    
pay increments, and wondered what happened over time.                                                                           
Commissioner Fisher relayed that  an employee received merit                                                                    
steps for  the first five  years, and afterwards  received a                                                                    
pay  increment  step  increase  every  other  year  for  the                                                                    
duration of their employment.                                                                                                   
Senator  von  Imhof  asked  how,   considering  the  law  of                                                                    
compounding, what happened after about eight or nine years.                                                                     
Commissioner Fisher  stated that  the amount  would continue                                                                    
to grow.                                                                                                                        
9:30:59 AM                                                                                                                    
Vice-Chair Bishop thought it was  true to a point, but noted                                                                    
that step increases only went as far as the alphabet.                                                                           
Ms.  Sheehan confirmed  that there  was not  an "end  to the                                                                    
alphabet" but  there was not  currently anyone at  the final                                                                    
Vice-Chair  Bishop expressed  a  desire to  see  all of  the                                                                    
ranges  and  steps  within  the   employees  that  would  be                                                                    
affected by the bill.                                                                                                           
9:32:08 AM                                                                                                                    
Senator von  Imhof asked when an  employee could effectively                                                                    
double their salary.                                                                                                            
Commissioner Fisher  did not recall, and  offered to provide                                                                    
the  answer  at  a  later date.  He  believed  that  certain                                                                    
categories started  below market  salary and ended  up above                                                                    
market, while some never reached market salary levels.                                                                          
Senator von Imhof thought the  bill seemed like a short-term                                                                    
fix for  what she  considered to  be a  structural framework                                                                    
that needed more scrutiny. She  mentioned the possibility of                                                                    
a  salary  comparison  with the  private  sector  to  create                                                                    
reasonable  ranges for  each employee  level. She  thought a                                                                    
ten year  re-evaluation of that  made sense. She  thought it                                                                    
was   important  to   be  fairly   competitive  within   all                                                                    
categories.  If the  state was  allowing  employees with  no                                                                    
extra  responsibilities  to  price  themselves  out  of  the                                                                    
market, it  could be problematic going  forward. She thought                                                                    
that it  would fairer  to pay new  employees at  market rate                                                                    
from the start.                                                                                                                 
9:34:58 AM                                                                                                                    
Senator Micciche spoke to the  3.25 percent salary increase.                                                                    
The spending  limit was  based on  Anchorage CPI,  which was                                                                    
around half  of that. He  thought that in order  to maintain                                                                    
that  rate,   other  parts  of   the  government   would  be                                                                    
continuously  cut. If  there  was not  a  better system  for                                                                    
analyzing  what the  market should  pay  for positions,  and                                                                    
reducing the steps after the  sunset of the legislation, the                                                                    
state could not catch up.                                                                                                       
Commissioner Fisher  thought it was important  to understand                                                                    
that the  department did not  receive a budget  increase for                                                                    
salary increases.  Theoretically, the salary  increases were                                                                    
managed through  the ebb and  flow of employee new  hire and                                                                    
retirement.   He   thought   that   most   departments   had                                                                    
successfully managed  the fixed amount of  personal services                                                                    
dollars.  He  did  not  disagree   that  the  matter  needed                                                                    
examination, but  reiterated that  salary increases  did not                                                                    
require an annual appropriation.                                                                                                
9:37:31 AM                                                                                                                    
Vice-Chair Bishop asked if the  commissioner had evidence of                                                                    
an attrition rate for the affected employees.                                                                                   
Commissioner  Fisher  did  not   have  rate  for  the  5,000                                                                    
employees in question.                                                                                                          
Ms. Sheehan offered  to provide a number for  the group, but                                                                    
all separation was seeing a 13 percent separation rate.                                                                         
9:38:17 AM                                                                                                                    
Co-Chair MacKinnon asked for a walk-through of the                                                                              
sectional analysis.                                                                                                             
BILL MILKS, OFFICE OF THE ATTORNEY GENERAL, DEPARTMENT OF                                                                       
LAW, went through the sectional analysis:                                                                                       
     Section 1 Outlines intent of  bill is to reduce state's                                                                    
     Section  2   of  the  bill  amends   AS  39.25.140,  AS                                                                    
    39.25.150 and AS 39.27.011 by disallowing for merit                                                                         
     increases  and   pay  increments  for   classified  and                                                                    
     partially exempt employees in  the executive branch who                                                                    
     are not  covered by  a collective  bargaining agreement                                                                    
     during the period of July 1, 2017 and June                                                                                 
     30, 2019.                                                                                                                  
     Section  3   of  the  bill  disallows   general  salary                                                                    
     increases,  merit  steps,   pay  increments,  bonus  or                                                                    
     comparable  salary  increases   for  employees  in  the                                                                    
     exempt   service  under   AS  39.25.110   (9),  persons                                                                    
     employed  in   a  professional   capacity  to   make  a                                                                    
     temporary or special inquiry, study or examination as                                                                      
     authorized  by  the  governor, (11)  the  officers  and                                                                    
    employees of the following boards, commissions, or                                                                          
     authorities; Alaska Permanent  Fund Corporation; Alaska                                                                    
     Industrial Development and Export                                                                                          
     Authority;    Alaska    Commercial   Fisheries    Entry                                                                    
     Commission; Alaska Commission on Postsecondary                                                                             
     Education;   Alaska   Aerospace   Corporation;   Alaska                                                                    
     Gasline  Development  Corporation and  subsidiaries  of                                                                    
     the  Alaska Gasline  Development Corporation,  (12) the                                                                    
     executive secretary and legal counsel of the                                                                               
     Alaska Municipal  Bond Bank  Authority, (13)  the state                                                                    
     medical examiner, deputy medical examiner,                                                                                 
     and  assistant  medical  examiners appointed  under  AS                                                                    
     12.65.015  and pharmacists  and physicians  licensed to                                                                    
     practice in  this state and employed  by the Department                                                                    
     of Health and  Social Services or by  the Department of                                                                    
     Corrections,  (14)  petroleum engineers  and  petroleum                                                                    
     geologists employed  in a professional capacity  by the                                                                    
     Department of  Natural Resources and by  the Alaska Oil                                                                    
     and Gas                                                                                                                    
     Conservation  Commission, (17)  officers and  employees                                                                    
     of the state who reside in foreign countries,                                                                              
     (18)   employees  of   the  Alaska   Seafood  Marketing                                                                    
     Institute, (20) employees of the Office of the                                                                             
     Governor  and the  office of  the lieutenant  governor,                                                                    
     including the staff of the governor's mansion,                                                                             
     (26) investment officers in  the Department of Revenue,                                                                    
     (30)  a  person employed  as  an  actuary or  assistant                                                                    
     actuary by the division  of insurance in the Department                                                                    
     of Commerce, Community,  and Economic Development, (34)                                                                    
     the  chief  executive  officer  and  employees  of  the                                                                    
     Alaska Mental Health Trust  Authority employed under AS                                                                    
     47.30.026 (b),  (35)the assistant adjutant  general for                                                                    
     space   and   missile   defense  appointed   under   AS                                                                    
     26.05.185,  (36)  the   victims'  advocate  established                                                                    
     under  AS 24.65.010  and  the  advocate's  staff,  (37)                                                                    
     employees of the Alaska mental health trust land unit                                                                      
     established  under  AS  44.37.050, (38)  the  executive                                                                    
     director of the Council on Domestic Violence and                                                                           
     Sexual  Assault established  under  AS 18.66.011,  (39)                                                                    
     the executive director and employees of the Knik                                                                           
     Arm Bridge  and Toll  Authority under AS  19.75.051 and                                                                    
     19.75.061, (40) the chair  of the Workers' Compensation                                                                    
     Appeals  Commission  (AS  23.30.007), (41)  the  Alaska                                                                    
     Gasline Inducement  Act coordinator appointed  under AS                                                                    
     43.90.250, (42)  oil and gas audit  masters employed in                                                                    
     a professional  capacity by  the Department  of Revenue                                                                    
     and the Department of Natural  Resources to collect oil                                                                    
     and  gas  revenue   by  developing  policy,  conducting                                                                    
     studies, drafting proposed regulations, enforcing                                                                          
     regulations,  and  directing  audits  by  oil  and  gas                                                                    
    revenue auditors, (43) the in-state gasline project                                                                         
     coordinator  appointed under  AS 38.34.010,  during the                                                                    
     period of July 1, 2017 and June 30, 2019.                                                                                  
     Section  4  of the  bill  prevents  the State  Officers                                                                    
     Compensation Commission  from increasing the  salary of                                                                    
     the  Governor,  Lieutenant Governor,  Department  Heads                                                                    
     and members of the  legislature through operation of AS                                                                    
     Section  5   of  the  bill  disallows   general  salary                                                                    
     increases, merit steps, pay increments, bonus or                                                                           
     comparable   salary   increases   for   permanent   and                                                                    
     temporary employees of the legislative branch of the                                                                       
     state government, including employees  of the house and                                                                    
     senate receiving compensation under AS                                                                                     
     24.10.210,  the employees  of  the  office of  victims'                                                                    
    rights and victims' advocate, and the employees of                                                                          
     the office of the ombudsman  and the ombudsman, who are                                                                    
     not  covered  by   a  collective  bargaining  agreement                                                                    
     during the period of July 1, 2017 and June 30, 2019.                                                                       
     Section  6   of  the  bill  disallows   general  salary                                                                    
     increases,  merit  steps,   pay  increments,  bonus  or                                                                    
     comparable  salary  increases   for  employees  of  the                                                                    
     University  of   Alaska  who  are  not   covered  by  a                                                                    
     collective  bargaining agreement  during the  period of                                                                    
     July 1, 2017 and June 30, 2019.                                                                                            
     Section  7  of  the  bill amends  Provides  that  merit                                                                    
     increases can be awarded on  the merit anniversary date                                                                    
     of the employee between July  1, 2019 and June 30, 2020                                                                    
     and accounts  for time  worked before  July 1,  2017 to                                                                    
     count toward  the next merit  step. Also  provides that                                                                    
     the merit increase may not be awarded retroactively.                                                                       
     Section 8 of the bill  Provides that pay increments can                                                                    
     be  awarded  on  the  merit  anniversary  date  of  the                                                                    
     employee between  July 1,  2019 and  June 30,  2020 and                                                                    
     accounts for time  worked before July 1,  2017 to count                                                                    
     toward the  next pay increment. Also  provides that the                                                                    
     pay increment may not be awarded retroactively.                                                                            
     Section 9  of the  bill states that  this act  does not                                                                    
     apply to  individual employment contracts  entered into                                                                    
     before July 1, 2017.                                                                                                       
     Section 10 of the  bill provides transition language to                                                                    
     allow for  the personnel  board to adopt  any necessary                                                                    
     regulation changes.                                                                                                        
     Section  11 of  the  bill provides  that any  necessary                                                                    
     regulation changes can be adopted immediately.                                                                             
     Section 12  of the bill  provides an effective  date of                                                                    
     July 1, 2017                                                                                                               
9:44:44 AM                                                                                                                    
AT EASE                                                                                                                         
9:45:25 AM                                                                                                                    
Vice-Chair  Bishop   referred  to  a  question   by  Senator                                                                    
Dunleavy about what the total  dollar amount of gross salary                                                                    
wages of the 5,000 employees affected.                                                                                          
Commissioner Fisher  had misunderstood the question.  He was                                                                    
not aware if OMB had the total number but would follow up.                                                                      
Vice-Chair Bishop asked for follow up.                                                                                          
9:46:21 AM                                                                                                                    
Co-Chair  MacKinnon stated  that there  were two  questions.                                                                    
Senator  Dunleavy  had  asked  for  the  total  number,  and                                                                    
Senator  Bishop  wanted to  know  the  total for  the  group                                                                    
affected by the legislation.                                                                                                    
Senator Dunleavy  asked if having an  automatic pay increase                                                                    
incentivize or disincentivize retirement.                                                                                       
Commissioner Fisher thought  that at some level  it might be                                                                    
beneficial  to stay  another year  and  receive another  pay                                                                    
increase prior to retirement. He  wondered what might be the                                                                    
Senator  Dunleavy asked  if the  executive  branch would  be                                                                    
able to perform salary overrides under the legislation.                                                                         
Commissioner  Fisher   did  not  know  the   answer  to  the                                                                    
9:48:10 AM                                                                                                                    
AT EASE                                                                                                                         
9:48:51 AM                                                                                                                    
Ms.  Sheehan  stated that  it  would  depend on  how  salary                                                                    
overrides  were   defined.  She   noted  that   many  salary                                                                    
overrides  regarded  geographic  differential in  which  the                                                                    
salary went down, the salary  of those employees was frozen.                                                                    
Additionally,  if an  employee  is reclassified  to a  lower                                                                    
range  under   collective  bargaining  agreements,   pay  is                                                                    
frozen.  Those would  be  considered  salary overrides.  Any                                                                    
type of advance step placement  at hiring due to exceptional                                                                    
qualifications or recruitment difficulties  is also done via                                                                    
a salary override.                                                                                                              
Senator  Dunleavy  asked  if  it   was  the  policy  of  the                                                                    
governor's office to freeze hires.                                                                                              
Commissioner Fisher  stated that  the governor's  office had                                                                    
implemented  a  hiring  restriction. He  stated  that  every                                                                    
department had continued hiring. It  had not been a complete                                                                    
salary  freeze, just  a greater  degree  of scrutiny  around                                                                    
Senator Dunleavy asked  if it was a  restriction rather than                                                                    
a freeze. Commissioner Fisher answered in the affirmative.                                                                      
Senator Dunleavy asked if,  under the legislation, employees                                                                    
could be appointed at a range  or step in excess of what the                                                                    
salary  schedule  would  dictate,  commensurate  with  their                                                                    
accrued  time  and grade  at  that  step. He  asked  whether                                                                    
someone could  be appointed  a range 23-B  if they  had less                                                                    
than three or four years of service.                                                                                            
Ms.  Sheehan answered  that  in order  to  appoint a  person                                                                    
above step A, it was necessary  for the employee to be a re-                                                                    
hire to  the position, or  it would have to  be demonstrated                                                                    
recruitment  difficulties. There  was  also  a provision  in                                                                    
statute that allows the governor  to make appointments above                                                                    
F step.                                                                                                                         
9:52:04 AM                                                                                                                    
Senator  Dunleavy  asked if  Ms.  Sheehan  could define  the                                                                    
Ms. Sheehan specified  that it was in Senate  Bill 92 [Note:                                                                    
invalid bill  reference]. The  governor's office  would have                                                                    
to demonstrate  extreme difficulties in filling  a position,                                                                    
or requirements  for a  position not  in the  pay structure.                                                                    
She gave  the example of  oil and gas expertise.  She stated                                                                    
that it had only occurred a couple of times.                                                                                    
9:52:53 AM                                                                                                                    
AT EASE                                                                                                                         
9:53:11 AM                                                                                                                    
Ms. Sheehan  continued that the  provision was  contained in                                                                    
AS 39.27.011, Section K:                                                                                                        
     (k)  Notwithstanding (a)  - (j)  of  this section,  the                                                                    
     governor or a designee of  the governor may, on a case-                                                                    
     by-case  basis,   authorize  for  a   partially  exempt                                                                    
     employee  in the  executive branch  a  higher pay  than                                                                    
     Step  F.   The  authorization   must  be  based   on  a                                                                    
     determination  that   the  action  serves   a  critical                                                                    
     governmental  interest  of   the  state,  the  employee                                                                    
     possesses   exceptional   qualifications,   recruitment                                                                    
     difficulties exist,  or the action is  necessary due to                                                                    
     competitive salaries  in the  relevant labor  market. A                                                                    
     determination  made under  this subsection  must be  in                                                                    
Senator Dunleavy thought the provision could be construed                                                                       
by some as fairly large.                                                                                                        
Co-Chair MacKinnon OPENED and CLOSED public testimony.                                                                          
Co-Chair MacKinnon stated that amendments to the bill were                                                                      
due to her office by Friday at 5:00 p.m.                                                                                        
9:55:15 AM                                                                                                                    
Vice-Chair Bishop read from FN1:                                                                                                
     1. Increases for exempt  and partially exempt positions                                                                    
     eligible  for  merit  and   pay  increment  steps  were                                                                    
     calculated  and  compared  to  the  current  base.  Two                                                                    
     increases   were  identified:   a)   costs  of   FY2017                                                                    
     increases  incurred for  12  months  in FY2018  (versus                                                                    
     less months at the higher  merit step in FY2017). These                                                                    
     costs  are  unavoidable  in FY2018  despite  a  statute                                                                    
     change  but  are used  as  the  estimated avoided  cost                                                                    
     increase for the second merit  step in FY2019. b) Costs                                                                    
     of new increases  that would have been  paid in FY2018.                                                                    
     Positions  in merit  steps  were considered  separately                                                                    
     than those in pay increments.                                                                                              
     2. Positions  of certain  corporations, such  as Alaska                                                                    
     Housing Finance  Corporation and Alaska  Permanent Fund                                                                    
     Corporation, and positions that  appeared to be outside                                                                    
     of  the   "normal"  salary  rules   (Commissioners  and                                                                    
     positions that have  had no pay increases  for a number                                                                    
     of  years) were  excluded  from the  calculation in  #1                                                                    
     above. Agencies provided the  estimated savings for the                                                                    
     positions outside of "normal" salary schedule.                                                                             
     The estimated savings that may  be realized is $4,165.6                                                                    
     over  two  fiscal  years   for  the  executive  branch.                                                                    
     Estimates  for the  Alaska Permanent  Fund Corporation,                                                                    
     the  University,  and   the  Legislative  and  Judicial                                                                    
     Branches  are not  included in  this  fiscal note.  The                                                                    
     University  is  not  included   because  the  Board  of                                                                    
     Regents  already  implemented  similar actions,  so  no                                                                    
     additional   savings  would   be   realized  from   the                                                                    
     University  for  this  bill.   Total  savings  are  not                                                                    
     realized  in  one  year   because  individuals  in  pay                                                                    
     increments receive a salary increase every other year.                                                                     
     In  addition,   individuals  in  merit   steps  receive                                                                    
     increases at  various times during the  fiscal year. It                                                                    
     takes two years  to get the full  savings because merit                                                                    
     steps  increases don't  happen  on July  1,  but on  an                                                                    
     employee's  hire  date.  Additional savings  in  fiscal                                                                    
     years  beyond FY2019  are anticipated  because salaries                                                                    
     will  be lower  in those  years than  if the  temporary                                                                    
     freeze  was not  implemented,  however  that amount  is                                                                    
     The  FY2018  Governor's   budget  includes  an  initial                                                                    
     estimate  in  the  branch-wide component  of  $1,817.9.                                                                    
     This  updated estimate  of  $2,205.5 includes  entities                                                                    
     where data  was not  yet available at  the time  of the                                                                    
     initial  estimate. This  estimate may  be reflected  in                                                                    
     each   component's  budget   versus   in  a   statewide                                                                    
     component at the legislature's discretion.                                                                                 
     In  addition to  the $2,205.5  reduction for  the merit                                                                    
     and pay increment freeze, a  $64.0 reduction in general                                                                    
     funds  in FY2018  is included  for  a one-third  salary                                                                    
     reduction for the Governor of  Alaska. The total FY2018                                                                    
     reduction is $2,269.5.                                                                                                     
9:57:17 AM                                                                                                                    
Vice-Chair Bishop addressed a second fiscal note that was                                                                       
indeterminate [FN2]. Estimated savings for the legislative                                                                      
branch were $407,600 for FY 18 and $1,179,200 for FY 19.                                                                        
9:57:48 AM                                                                                                                    
Co-Chair  Hoffman  asked  why  the  Alaska  Housing  Finance                                                                    
Corporation   (AHFC)   and   the   Alaska   Permanent   Fund                                                                    
Corporation (APFC)  were outside of the  normal salary rules                                                                    
[in FN1]. He  noted that the wording of the  fiscal note was                                                                    
"appeared to be outside of the "normal" salary rules."                                                                          
Ms. Sheehan believed that AHFC  had a separate pay plan with                                                                    
separate payroll. The APFC also had a unique pay plan.                                                                          
Co-Chair   Hoffman  understood   that.   He  asserted   that                                                                    
ultimately  the  legislature  had appropriation  powers  and                                                                    
could choose to include them.                                                                                                   
Commissioner Fisher  agreed and stated that  the legislation                                                                    
did include the  two agencies. He continued  that the fiscal                                                                    
note was  prepared by the OMB  and did not include  what was                                                                    
in the legislation.                                                                                                             
Co-Chair Hoffman asked  if the calculations were  not in the                                                                    
fiscal note but did  appear in the legislation. Commissioner                                                                    
Fisher answered in the affirmative.                                                                                             
9:59:52 AM                                                                                                                    
Co-Chair MacKinnon  reiterated that amendments were  due the                                                                    
following Friday  at 5:00 p.m.  She stated her  intention to                                                                    
bring  the  bill back  before  the  committee the  following                                                                    
SB  31  was   HEARD  and  HELD  in   committee  for  further                                                                    
10:00:41 AM                                                                                                                   
The meeting was adjourned at 10:00 a.m.                                                                                         

Document Name Date/Time Subjects
SB 31_DOA Presentation_SFIN 3.23.17 FINAL.pdf SFIN 3/23/2017 9:00:00 AM
SB 31