Contracts get funded

Special session ends after Legislature approves pay raises

Posted: Sunday, May 07, 2000

There won't be a state employees' strike this summer.

Gov. Tony Knowles' administration scrounged up some previously unidentified money during a special session last week and legislators agreed to spend it to pay for the first year of three-year contracts with a dozen state labor unions.

Legislation approving the spending passed the House on Friday night by a 32-4 vote and the Senate on Saturday by a 19-1 vote. There was little debate in either body.

The $32.2 million spending bill also pays for labor contracts for University of Alaska employees, as well as increases for non-union workers in all three branches of government and the university.

Members of the largest of the unions, the Alaska State Employees Association, had already authorized a strike if the contracts weren't funded, and other unions were talking of striking.

``No strikes, thank God,'' Don Etheridge, a lobbyist for the AFL-CIO, said shortly after the Senate vote.

``It's a big relief,'' said Juneau Rep. Beth Kerttula, a Democrat. ``It's a good day, and I think it's going to help morale and all the people that work for the state.''

Knowles called the special session Thursday after the Legislature adjourned its regular session without funding the contracts.

The Knowles' administration negotiated contracts that call for most union members to receive $1,200 bonuses in July, 2 percent raises during the next year and 3 percent raises the following year. The deals also call for additional state spending on health care benefits.

The quick and overwhelming votes in favor of the contract funding contrasted with reluctance expressed for months by Republican majority members during this year's regular session.

Majority members had said there wasn't enough money to pay the overall costs of the contracts while meeting a goal of cutting $30 million in general fund spending.

GOP lawmakers also questioned several specific provisions, in particular a deal allowing employees of one union, the Alaska State Employees Association, to cash out part of their accumulated sick leave.

Sen. Sean Parnell, co-chairman of the Senate Finance Committee, said a couple of factors changed minds in the Senate majority.

One was unions stipulated to two points that addressed some legislators' concerns. The ASEA agreed to cap the amount of sick leave members could cash in for the next two years at 75 hours a year. Also, all unions agreed savings that might accrue in health care costs would be split 50-50 between the workers and the state, relieving some lawmakers' fears the state would see none of the savings.

``Those two important clarifications meant a cost savings to us,'' said Parnell, an Anchorage Republican.

The other key factor that changed minds was the administration's identification of enough money to pay for the contracts without busting the majority's goal of a $30 million cut.

The biggest chunk of money was about $8.1 million generated through a federal program called Proshare. The program passes state and federal money on to small community hospitals, which return 90 percent of it to the state, which can then use the money as the state's match for federal Medicaid funding.

The effect is community hospitals receive some financial support and the state doesn't have to spend as much of its own money to match federal Medicaid funds. Legislators had already planned to use some money from that source in next year's budget.

Office of Management and Budget Director Annalee McConnell estimated another $8.1 million could be budgeted from that source to offset the cost of contracts.

When questions emerged late Friday night about whether that plan would leave the state short of money in the Medicaid program, a new source of money was laid on the table: $4.1 million from the Investment Loss Trust Fund.

That is money the state placed in a reserve account in the early 1990s to protect employees' retirement accounts from losses when the company that had been handling the funds ran into financial trouble. As claims relating to that issue are settled, money from the reserve can be released to be spent on other things, McConnell said.

``We will be speeding up the process of closing out the reserves that are not needed,'' she said.

Among other sources of funds: leftover money from water and sewer projects; lower than anticipated costs for school bond debt reimbursement; anticipated lower costs fuel costs in the Department of Transportation budget; and lower than anticipated costs for the Longevity Bonus program.

And Republicans, who said they cut $38 million in general fund spending this year, put about $4.7 million of it back in the budget.

``They cut more than they needed to get to their target,'' McConnell said.

Sen. Randy Phillips, an Eagle River Republican, expressed concern about the funding sources during a Senate Finance Committee meeting Saturday morning.

``My fear is that next year you'll come back with a supplemental (funding request) and say, `We didn't quite make it,' '' he told McConnell.

``It's always hard to tell,'' she replied, but she said she believes the administration is less likely to need to request extra money in the coming year's budget than it did this year because the budget is more adequate to begin with on formula-driven programs such as Medicaid.

Parnell said he believes the spending plan is sound. ``I think the money's all available,'' he said.

McConnell said it's not unusual for money to surface at the end of the session because the closer the state comes to the end of the fiscal year June 30, the more accurate spending projections for the current year become, and the more confident the administration can be that leftover funds will be available.

Senate President Drue Pearce, an Anchorage Republican, rejected the administration's assertions that the additional Proshare funding had only recently been identified.

``Frankly, they had been lying to us all along,'' she said.

McConnell said that's not the case. It took time to sort out with confidence how much could be generated from that source, she said, noting this is the first year the state has used the complex program.

``We were very hesitant to say there would be more money available until we were absolutely sure how the mechanics would operate,'' she said.

Administration officials were also reluctant to continue trying to identify sources of money for the contracts during the regular session because some sources they did identify were spent elsewhere as the operating and capital budgets were being crafted.

Those involved in the negotiations said a similar battle may loom when a new session begins next year, since lawmakers will have to approve funding during each of the contract's remaining two years.

``This will be a yearly responsibility and concern for legislators and public employees,'' Parnell said.

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