Legislature(1995 - 1996)
04/13/1996 10:04 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 482 - STATE PROCUREMENT PRACTICES & PROCEDURES The next order of business to come before the House State Affairs Committee was CSHB 482(L&C) (9-GH2020/C). Number 0900 CHAIR JAMES explained her biggest concern regarding HB 482 was the single-source procurement practice. She was concerned about eliminating the chance for competition. Number 0959 DUGAN PETTY, Director, Central Office, Division of General Services, Department of Administration, explained current law required that there was clear and convincing evidence that only one source was available, and that evidence had to be cleared by the chief procurement officer. A strict interpretation of that provision in some cases required an agency to expend a lot of time to demonstrate that there was only one source. The provision allowed for accountability and a public process. It further allowed for a determination to be made using criteria that was less stringent than in current law. In other words, it would streamline the process. Number 1111 CHAIR JAMES asked Mr. Petty to respond to the additional provision inserted by the Senate. She read, "(e) except for procurement of supply services, professional services, or construction services that do not exceed the amount for small procurement under AS 36.33.20(a) as applicable. The authority to make a determination required by this section may not be delegated even if the authority is to contract is delegated." She asked Mr. Petty if he had a problem with that language? Number 1145 MR. PETTY replied the department accepted the language in the Senate version, and would find that language acceptable in the House version as well. He explained the House version barred the chief procurement officer from delegating that determination, except for small procurement. Number 1200 REPRESENTATIVE PORTER explained a consideration surrounding the single-source procurement issue was, if the state had a large investment in a particular manufacturing brand, it could have to change brands. He wondered if there was enough justification to stay with the initial brand or to change. Number 1245 REPRESENTATIVE WILLIS said he agreed with Representative Porter. Number 1253 REPRESENTATIVE GREEN asked Mr. Petty if the determination of why a single-source was chosen would be available to the public? Number 1271 MR. PETTY replied that determination would be available as public information. A report was kept of alternative procurement. Number 1311 CHAIR JAMES asked Mr. Petty how the department would handle the concerns of Representative Porter? Number 1325 MR. PETTY said Representative Porter made a good point. His concerns were seen more in the leasing arena. A competitive process would be initiated even though there was a clear indication of a single-source. Unfortunately, this could result in higher prices than what could be negotiated. Number 1416 CHAIR JAMES said she understood that process. She wondered how HB 482 would change that process. MR. PETTY replied HB 482 would allow for the interjection of common sense. It would allow for the determination if a bid process was not practical in written format. The information would be a matter of the public record. Number 1463 CHAIR JAMES said she had seen many times people manipulate the system to get what they wanted. There was a problem when the public perceived a transaction that benefited a friend, for example. According to Mr. Petty there would be documentation on file to clear any mis-perception, however. Number 1535 MR. PETTY stated the language in the Senate version held the chief procurement officer accountable for that determination. If he knowingly made a false statement, he was guilty of a class A misdemeanor. The intent was to include accountability. Number 1595 CHAIR JAMES said it was important that the state get the best deal possible while at the same time protect the public process. CHAIR JAMES asked the committee members if the same provision that the Senate included should also be included in the House bill? Number 1628 REPRESENTATIVE PORTER said it was not an unreasonable requirement to have the person in charge of the process be accountable. Number 1678 REPRESENTATIVE PORTER moved to inserted the same language as in the Senate bill as subsection (e). Hearing no objection, it was so inserted. (Amendment 1) Number 1737 CHAIR JAMES announced she had one more concern. She referred the committee members to Sections 6 and 7, the lease-purchase option. She said a lease-purchase would cost the state more money because it would pay over a period of time for the purchase of the property. Therefore, she suggested including a length of time provision. She was not concerned about the maintenance during the lease, but rather after the purchase. The state was not willing to fund deferred maintenance. Number 1808 MR. PETTY said he shared the concerns of Chair James regarding the deferred maintenance situation in the state. The Administration was working on a solution. It was beyond the scope of HB 482, however. He also believed the state did not handle leasing well. He cited the Department of Labor building was leased in 1982 at $1.95 per s.f., and in 1996 at $2.32 per s.f., including full service. The state had paid in total in excess of $22,000,000 for the building. Moreover, in Juneau a new school would cost approximately $165 per s.f., and the capital cost would be $9,811,000. Therefore, the state could have bought the Department of Labor building a couple of times. The state could have owned that building and saved money. If a lease-purchase agreement was entered into appropriately, it could save the state money. Number 1986 CHAIR JAMES said she agreed with everything Mr. Petty said. However, no one wanted to pay the on-going maintenance charges. She was willing to move the bill forward, however. She stated there was over $1 billion of deferred maintenance for public facilities that was not being addressed. Number 2027 REPRESENTATIVE GREEN asked if the problem could be avoided if the language "including maintenance" was added? Number 2038 CHAIR JAMES said the language was not necessary because lease- purchase agreements almost always included maintenance. REPRESENTATIVE GREEN said the language would do away with the term "almost." CHAIR JAMES said the issue could not be fixed in HB 482. It was a problem after the state purchased the facility. Number 2077 REPRESENTATIVE OGAN asked Mr. Petty how the bill changed the authority of the department regarding the lease-purchase authority? Number 2087 MR. PETTY replied the Department of Administration was currently granted authority under AS 36.30.085 to enter into a lease-purchase agreement. The amount was not restricted, except for real property that required the Administration to notify the legislature. Number 2129 REPRESENTATIVE OGAN said he was the author of a lease-purchase bill this year, therefore, he was hesitant to stray from the current policy. He did not want to lose the legislative approval. The language was included for good reasons. Otherwise it was a capital expenditure without the vote of the people. Number 2161 REPRESENTATIVE GREEN asked Mr. Petty if the state had ever exercised a lease option? Number 2168 MR. PETTY replied, "yes." He cited the Seward Skill Center, the Spring Creek Prison, the Court Plaza Building, and the Anchorage Times Building. REPRESENTATIVE GREEN asked Mr. Petty if the state had purchased any of the above cited buildings of which repair maintenance was required? Number 2197 MR. PETTY replied the Court Plaza Building was under lease to the state of which a portion was transferred to the Department of Transportation and Public Facilities to maintain it. Number 2228 REPRESENTATIVE GREEN said liability was another issue to address before purchasing a facility. Number 2243 REPRESENTATIVE PORTER wondered if the state was precluded from entering into an agreement if it was based on legislative approval during the interim. Number 2264 MR. PETTY replied the state was not precluded from entering into a congenial purchase agreement. There was the possibility of loosing a lease due to timing, however. It would turn into a political issue. Number 2289 CHAIR JAMES said there were always two parties in a lease-purchase agreement. Timing was critical so it was possible that legislative approval would stall a deal. Moreover, if the state was ever going to control its spending, a cooperative effort between the Administration and the legislature was necessary. She did not want to give up everything, however. Number 2355 REPRESENTATIVE GREEN wondered if the rent would be higher to the state in a lease-purchase option. Number 2379 MR. PETTY replied that was not always the case. A lessor could take advantage of tax exemptions if the state occupied most of the building, for example. Number 2400 REPRESENTATIVE GREEN said he was concerned about the state entering into a lease-purchase option during the interim. MR. PETTY said a contingent offer was not popular for a seller. There were some that would work and probably some that would not work. It was hard to say, however. Number 2461 REPRESENTATIVE OGAN moved to delete the underlined language in Sections 6 and 7, "with an annual rent to the department, University of Alaska, legislative council, or supreme court that is anticipated to exceed $500,000, or with total lease payments that exceed $2,500,000 for the full term of the lease-purchase agreement." He was not comfortable giving the department, Board of Regents, legislative council, or supreme court a "blank check" to purchase property without legislative approval. Number 2494 MR. PETTY said the Sections gave the Administration the ability to take advantage of a good business opportunity. The motion would restrict the Administration and the opportunity to reduce the cost of government operations. TAPE 96-52, SIDE B Number 0023 REPRESENTATIVE GREEN said he opposed the motion. Number 0030 REPRESENTATIVE OGAN reiterated he was the author of a lease- purchase bill this year. It passed the House and was now in the Senate. He explained the bill was committing this legislature and the budget in the future to spend a certain amount of money on a capital purchase. He was not against the state entering into a good deal. He reiterated the legislature should not be left out of the approval process. Number 0096 REPRESENTATIVE IVAN wondered if the Department of Administration would notify the legislature through the budget process if it was to enter into a purchase agreement. Number 0111 CHAIR JAMES said the state would enter into a lease-purchase agreement to obtain different space, for example, of which would be presented in the budget process. The state would also enter into a lease-purchase agreement to obtain additional space, of which would also be presented in the budget process. However, there were times when the legislature was not included in the decision. She visualized there would be times that an opportunity would be missed during the interim period. She also agreed with the concerns of Representative Ogan. She could see both sides. Number 0240 REPRESENTATIVE PORTER wondered if by reducing the numbers the issue would be resolved. Number 0251 MR. PETTY said the Administration selected the numbers because they were the threshold requirements for notice on the operating side. They were on the minimal side now. The larger lease-purchase agreements would still come to the legislature for approval. Number 0316 MR. PETTY further stated that any lease-purchase transaction must have a subject to funding clause included. CHAIR JAMES replied that clause had a different meaning for different people. A subject to funding clause scared some, and for others it was considered a boiler plate. CHAIR JAMES called for a roll call vote. Representatives Green, Ivan, Porter and Willis voted against the motion. Representatives Ogan and James voted in favor of the motion. The motion failed. Number 0396 REPRESENTATIVE PORTER moved to adopt CSHB 482(L&C) (9-GH2020/C) for consideration. Hearing no objection, it was so adopted. The previous Amendment was included creating CSHB (STA). Number 0412 REPRESENTATIVE IVAN moved that CSHB 482(STA) move from the committee with individual recommendations and attached fiscal notes. Hearing no objection, it was so moved from the House State Affairs Committee.
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