Most state employees will give up some, but not all, pay increases in the latest round of union contracts before the Legislature for approval.

Nearly 75 percent of executive branch employees will forgo cost of living allowance, or COLA, raises under the three-year agreements negotiated with the Labor, Trades and Crafts, Alaska State Employee, Confidential Employee and Mount Edgecumbe Teachers bargaining units.

However, annual merit pay increases averaging 3.5 percent for an employee’s first five years of service and biannual “step” increases of about 3.25 percent for long-term employees remain under the proposed new contracts.

The current bunch of contracts expire June 30, the end of the current fiscal year.

The Department of Administration also is negotiating with the Alaska Public Employees Association, sometimes referred to as the supervisors union, which covers about 2,300 of the roughly 16,600 State of Alaska executive branch employees covered by collective bargaining.

Administration Commissioner Sheldon Fisher said to the House Finance Committee April 19 that he feels the agreements are fair to both sides given the state’s $4.1 billion budget deficit. The total payroll for executive branch workers is roughly $1.2 billion per year, he said.

“I do feel like each of these bargaining units came to the table prepared to make concessions,” Fisher said. “We as the state gave very little in turn to get those concessions.”

The contracts, which generally have similar frameworks for the major components, also require employees covered by the contracts up for approval to take 15 hours of furlough time, which is equivalent to two working days per year. State workers will have the option to cash in accrued leave time to offset the furloughs, which will likely reduce the final savings.

In a March 14 presentation to the House Finance Committee, the Department of Administration calculated the net savings per year from the furloughs minus the use of leave time spread over about 7,100 employees would be $1.4 million.

Additionally, they require employees on the “economy” health insurance plan — about half of eligible state employees, according to Administration — to begin paying a portion of their premium costs. Those contributions gradually increase from 5 percent to 9 percent of premium costs over the three years of the contract.

Health insurance for the nearly 9,000 employees in the State Employees Association, also known as the general government unit, is paid through a health trust and the state’s contribution to that trust is reduced for fiscal year 2017.

The 27 Mount Edgecumbe state boarding school teachers are exempt from the furlough and insurance contribution changes.

All told, Fisher said the health care contribution changes and furloughs should save the state about $6.5 million in 2017 over the previous contracts.

If the contracts are rejected by the Legislature, the existing agreements remain in place and the projected savings would be lost, he said.

Republicans on the committee questioned why the state agreed to continue the merit and step raises, which cost upward of $20 million per year, given the budget situation.

Fisher said the contract changes are usually incremental; the unions agreed to kill the COLAs, add furloughs and increase insurance payments in this round of contracts.

He conceded, though, that the state needs to scrutinize who receives merit-based raises, which are awarded to all employees that achieve at least “acceptable” work performance reports.

“This is an area (where) as an administration we need to do better,” Fisher said. “The reality is that as a state we’re not very effective in our performance management of our employees and it tends to be that a very, very high percentage of our employees — and I don’t know what it is, but I would guess it’s over 95 percent of our employees — earn their merit and step increases.”

Still, Fisher noted that the state has succeeded in “flattening the curve” of pay increases above inflation.

COLA, merit and step raises increased an average state employees’ pay by two-thirds under the contracts approved over the last 10 years, while inflation increased about 30 percent over that time. 

Without the COLAs — that are eliminated in the new contracts — average pay would have increased about 40 percent over the same period, according to the department.

Fisher also emphasized that the general pay for state employees, particularly highly skilled or specialized employees, is below the market rates. More generous benefit packages tend to bring overall state compensation in line with market conditions, he said.

Rep. Les Gara, D-Anchorage, said most everyone understands the state can’t be “very generous” with raises right now, but contended that just keeping up with inflation would likely drive away the state’s best workers.

Anchorage Republican Rep. Craig Johnson introduced legislation April 18 that would eliminate merit and step raises until the price of Alaska North Slope crude oil averages $90 per barrel for a full fiscal year and subsequently limit the raises only to employees who receive “good” or higher performance ratings from their supervisors.

A March 12 memo from Legislative Legal Services responding to a question from Finance co-chair Rep. Steve Thompson, R-Fairbanks, examining the role of the Legislature in collective bargaining, states that both the Alaska and U.S. constitutions limit the Legislature’s ability to insert itself into executive branch employee contract negotiations, likely making Johnson’s bill unconstitutional if passed.

Union leaders have sent letters to their labor groups asking employees to speak out against the proposal, House Bill 379. Minority legislators have also said the do not believe the bill will move.

“It is the Legislature’s role to review monetary terms agreed on by the parties and presented to the Legislature and either fund or not fund those monetary terms. If the Legislature does not fund the terms, the parties must renegotiate and present new terms at a later date,” the memo states.

“Beyond this, there are legal and constitutional limitations on the Legislature’s role in collective bargaining. The state and federal constitutional prohibition of impairment of contracts may be the most substantial limitation. There may be other legal obstacles as well.”

The funding of COLAs was a topic of debate during last year’s marathon series of special budget sessions. The Legislature ultimately agreed to fund the raises but cut state department budgets by roughly the same amount, $30 million.