Legislators getting effective pay cut with new treatment of office accounts

Lisa Demer

A state legislative panel reversed course Thursday and voted that the extra money lawmakers receive for office expenses shouldn't be treated as income but instead must be fully accounted for through receipts processed by the state.

State House members receive $16,000 a year and senators $20,000 for what's called an office allowance. State law says the money is for "postage, stationery, stenographic services, and other expenses." Lawmakers have used it for mailings and cell phone bills, pizza parties for constituents and coffee for the office, televisions for watching legislative programs on Gavel-to-Gavel and travel for themselves and staff members.

Lawmakers also receive an annual salary of $50,400 and payments for living expenses during the legislative session of $234 a day.

Last December, the Legislative Council, a joint Senate-House group that manages the Legislature's business, changed what had been a system allowing wide discretion in what can be reimbursed to one that required each legislator to take their office allowance in a lump sum as income at the January start of the session.

The decision was controversial because it effectively gave most legislators a big bump in pay. (Some already had been taking allowance money as income.) Democrats filed legislation to require that each legislator account for the money and that any leftovers revert to the state.

On Thursday, the Legislative Council ruled that would be the new policy -- effectively cutting every legislator's income. Starting in January, legislators must submit receipts or have the state direct-billed for office expenses. Any leftover money from each legislator's allowance will now revert to the state general fund.

State Rep. Mike Hawker, who wasn't on Legislative Council in 2012 and became chairman in January, said another look was necessary because the state law providing an office allowance doesn't actually allow it to be transformed into income.

"That allowance was intended to be office expenses. It was not intended to be compensation to the Legislature no matter how that might be structured. Even though our allowance accounts have been structured since I've been in the Legislature to have some element of compensatory nature, I think it was a real push interpreting the law in that manner," Hawker, R-Anchorage, said Thursday.

The meeting was held in temporary office space on Fourth Avenue because of the extensive renovations just getting under way of the downtown Anchorage legislative building.

State Rep. Les Gara, D-Anchorage and a co-sponsor of the House bill that sought accountability for office accounts, said the allowances never should have been used to boost legislative income.

"It was obviously illegal and it should have been fixed before this legislative session," Gara said after the meeting. He has been complaining about it since December 2012.

He provided his allowance check stubs from January 2013, showing that $980.80 went into his retirement account, $2,876.16 was withheld for income taxes and $232 for Medicare. Of the $16,000 allowance, he received $11,991.04, split into two checks because the state payroll system doesn't allow checks above $10,000.

Not all legislators on the council liked the new direction though they all voted in support of it.

Sen. Donny Olson, D-Golovin, represents a huge, rural district that stretches from the Yukon Delta to the North Slope and includes Nome, Barrow and villages in between.

Many parts of his district still run on a cash economy, he said.

In his district, "legitimate receipts are at best not available because people don't have credit card machines out there," he said. "I feel like I'm being put at a disadvantage."

Sen. Kevin Meyer, R-Anchorage, said he always spends more out of his own pocket than the allowance because mailings to constituents are so expensive. Senators, he said, should get double the allowance of House members because their districts are twice as big. Taking the money as income was a simpler system, though either way works for him, he said.

"It is an extra step now that you have turn your receipts into your staff," he said.

Rep. Lance Pruitt, R-Anchorage, said the system now will have changed three times in the three years since he was elected.

"Let's set our policy and be through with it," Pruitt said. "Because it's incredibly frustrating."

Before the change made last year, legislators could take the money as income, have it administered by the state, or use a combination of the approaches.

Proposed Internal Revenue Service regulations appear to preclude allowing legislators to pick the method they like best, said Hawker, a retired certified public accountant.

He spent about $6,500 in state funds for professional guidance on the issue from Deloitte Tax LLP and provided the tax adviser's detailed report to the council.

Jessica Geary, finance manager for the Legislative Affairs Agency, said the agency has four accounting staff members and will be able to handle the allowances without adding more.

Legislators will need training to make sure they understand the new rules, Rep. Craig Johnson, R-Anchorage, stressed.

Pam Varni, executive director of the Legislative Affairs Agency, suggested a brown bag lunch.

No, Johnson said. It needs to be mandatory, perhaps as part of ethics training.

Reach Lisa Demer at ldemer@adn.com or 257-4390.

Contact Lisa Demer at LDemer@adn.com or on