Legislature(1999 - 2000)

04/20/1999 08:01 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB 33-TASK FORCE ON PRIVATIZATION                                                                                               
Number 687                                                                                                                      
CHAIR JAMES announced the next order of business is CSSB 33(FIN)                                                                
"An Act relating to contracts for the performance of certain state                                                              
functions previously performed by state employees and to the                                                                    
Commission on Privatization and Delivery of Government Services;                                                                
and providing for an effective date."                                                                                           
Number 695                                                                                                                      
MARK HODGINS, Legislative Assistant to Senator Ward, presented SB
33 on behalf of the Senator.  He pointed out that SB 33, version                                                                
LS0317\S, sets up a commission which looks into the aspects of                                                                  
contracting out, privatizing, or redistributing State services to                                                               
the municipalities and to the federal government and reports back                                                               
in one year [to the legislature and the governor].  He said this                                                                
commission would not make any horrendous changes in the delivery of                                                             
services.  Mr. Hodgins said, "We have to look at how we deliver                                                                 
government.  And if there are better ways of delivering services,                                                               
we need to look at what needs to be done - and some of the                                                                      
alternatives."  He further stated that there are portions of State                                                              
government which should never be privatized, there are porions of                                                               
state government that should be run more efficiently, and there are                                                             
possibly portions of state government that we need to add more                                                                  
revenues and more staff.                                                                                                        
Number 728                                                                                                                      
MR. HODGINS indicated that Governor Knowles vetoed similar                                                                      
legislation for three reasons, one was that the Governor felt that                                                              
it was a separation of powers issue.  A legal opinion from Legal                                                                
Services said they feel that separation of powers was not a valid                                                               
reason.  Mr. Hodgins said it was the fact that the Governor was                                                                 
going to be mandated to appoint a certain individual as one of his                                                              
representatives, representing a certain faction of the society.                                                                 
Mr. Hodgins further stated, "We feel in that the opinion that came                                                              
out, to guess that as long as there's no legislation coming out of                                                              
this committee, that there is not the question of separation of                                                                 
powers."  The second reason is the Governor felt that it should be                                                              
presented as a resolution and not as a bill.  Mr. Hodgins said, "We                                                             
feel that the bill does demand a certain time and does put a little                                                             
bit of teeth into the information that will be gathered and the                                                                 
recommendations that will come forward.  Again, those will simply                                                               
be recommendations that the legislature can decide on, decide the                                                               
policy and move forward with."  The last point Governor Knowles                                                                 
made was that it had a power to administer an oath.  Mr. Hodgins                                                                
said SB 33 does not have that power because it's simply a                                                                       
commission.  He pointed out that SB 33 was originally a task force                                                              
and was changed to a commission by the Senate Finance Committee.                                                                
He said, "There is no difference between a commission and a task                                                                
force because their duties are laid out specifically in the body of                                                             
the bill and that's what gives a task force or a commission the                                                                 
appropriate powers to do its findings."                                                                                         
Number 762                                                                                                                      
CHAIR JAMES asked, what is the net result of the work of this                                                                   
commission, if they find areas that would be beneficial to either                                                               
privatize or contract out, that they make that report to the                                                                    
legislature and that the legislature makes those decisions.  What                                                               
happens as a result of their decision making process?                                                                           
MR. HODGINS replied the commission's report is given to the                                                                     
Governor and to the legislature and there is nothing binding on                                                                 
REPRESENTATIVE OGAN said he supports SB 33, however, he would like                                                              
to offer a conceptual amendment which would expand the task force                                                               
[commission] to include, "looking at functions of state government                                                              
that need to go away."  He suggested that the panel also be a                                                                   
"reprioritization commission" which makes recommendations of things                                                             
that the State has provided in the past, but that we possibly can't                                                             
afford to do it any longer, "so we can do the things that we're                                                                 
supposed to do well."                                                                                                           
MR. HODGINS responded that, "The sponsor [Senator Ward] agrees that                                                             
there are probably some areas of state government that we should                                                                
not be in, there's some services that we deliver that maybe we                                                                  
shouldn't be delivering."  He said the first section of SB 33 kind                                                              
of lays out the territory and states that if government shouldn't                                                               
be doing this, maybe private enterprise should be, that maybe other                                                             
organizations should be doing some of the services.  He indicated                                                               
that (before the oil money started coming in) it seemed like the                                                                
churches and other organizations did most of the social services                                                                
type work by helping individuals and their neighbors.  Mr. Hodgins                                                              
stated, "And then when we got a lot of money it seemed like there                                                               
was a faceless, nameless person that sent checks ... to help rather                                                             
than personal assistance. ... Because people expect those services,                                                             
it's quite traumatic to make a change."  He added that he                                                                       
wholeheartedly agrees with Representative Ogan that there are areas                                                             
that the state should not be involved with, whether they should go                                                              
away and that maybe this commission can give us some insight on                                                                 
Number 821                                                                                                                      
CHAIR JAMES said she totally disagrees with the term                                                                            
"privatization" because true privatization means that the State                                                                 
goes out of business and that the private sector has the option of                                                              
picking it up or not.  We just say, "This is not a proper thing for                                                             
the government to be doing anymore and someone else should pick it                                                              
up, it's not something we should be spending public funds on."  She                                                             
said it may be better managed and done more efficiently if someone                                                              
else were to do it because we have our rules and (indisc.) that                                                                 
keep us from doing it the way it ought to be done.                                                                              
CHAIR JAMES stated that she doesn't call it contracting out or                                                                  
outsourcing privatization because we're still doing it, we're just                                                              
not having state employees do it and so that's really not                                                                       
privatization at all.  Chair James further stated, "I'm not                                                                     
convinced that the decision to determine whether we should contract                                                             
out or not should be based on just the cost of it.  If it's                                                                     
something that we've determined that we as a State should be doing,                                                             
we should be doing it well, and we should be doing it as                                                                        
inexpensively as possible. ... And the most important times that we                                                             
should do outsourcing is when we have a blip in the need and we                                                                 
don't have a steady workforce to provide that need."                                                                            
Number 856                                                                                                                      
CHAIR JAMES added, "I think that the agencies should have an                                                                    
opportunity to put their own costs together and they might find                                                                 
that they're wasting their funds in getting the job done because I                                                              
think there is an ability to cut the costs if we go out, but it                                                                 
needs to be costs over the long-term.  There's no point in putting                                                              
something out for a bid to the private sector, and somebody comes                                                               
in with a low-bid, and you give it to him, and a year later you                                                                 
know you have to pick it back up again, now you..."                                                                             
TAPE 99-27, SIDE A                                                                                                              
CHAIR JAMES continued.  "...Privatization, and I think this task                                                                
force should find those kinds of things even though it doesn't say                                                              
that in this piece of legislation.  And I think that would kind of                                                              
respond to Representative Ogan's concerns."                                                                                     
Number 010                                                                                                                      
REPRESENTATIVE COGHILL said he resists task forces because quite                                                                
often the foregone conclusion is just to be substantiated.  He said                                                             
the title is more simplified than the actual title (Section 8, page                                                             
4), "The Commission on Privatization and Delivery of Government                                                                 
Services."  He said that if he understands it correctly that would                                                              
be the whole intent of it and that efficiency is going to be just                                                               
as important as whether we contract out or actually do go out of                                                                
business on it and let the private sector take care of it.  He said                                                             
he is in favor of doing that.  Representative Coghill further                                                                   
stated that, "I know that there's some discussion ... on how should                                                             
we deliver services (and with the people that we have already hired                                                             
to do that) I think other states also have had to wrestle with this                                                             
and this bill says that that commission would look at other state                                                               
policies.  So it would be, to me a tremendous resource to see the                                                               
comparison and what a commission might do in gathering information                                                              
from around Alaska.  Then I think the legislature can ask them real                                                             
serious questions on, 'Should we do this anymore,' and I think the                                                              
argument would be framed, not only by pinpointing whether it is                                                                 
actually happening, but how it's done.  So I am going to favor the                                                              
CHAIR JAMES expressed a concern with the language in Section 2,                                                                 
page 2, is amended to read:                                                                                                     
     Sec. 23.40.075. Items not subject to bargaining.  The parties                                                              
     may not negotiate terms contrary to the                                                                                    
Number 079                                                                                                                      
CHAIR JAMES emphasized that she is not happy with that language                                                                 
because she believes bargaining should not exclude any type of                                                                  
contracting out, or privatization of their job.  She stated, "I                                                                 
think they are entitled to job security, in some language so that                                                               
it is not done flippantly or without good cause."  Chair James said                                                             
she is not sure how she would like to amend this, but that it can                                                               
be discussed later.                                                                                                             
Number 103                                                                                                                      
JUANITA HENSLEY, Administrator, Division of Motor Vehicles,                                                                     
Department of Administration, came forward noting that the                                                                      
Administration feels that (any time that a function is out for a                                                                
study) that it should be done to make sure that it can be done                                                                  
wiser, cheaper, better, and more efficiently.  She said the State                                                               
currently has that in the collective bargaining process, in                                                                     
contracts that have been negotiated in good faith.  She explained                                                               
that, "We have language in there that allows the State to contract                                                              
out services providing that feasibility studies are completed, and                                                              
that we can show just cause as to why those functions should be                                                                 
outsourced."  For example the Division of Motor Vehicles closed                                                                 
offices when they made a determination that it would be cheaper to                                                              
outsource it to a private entity.                                                                                               
MS. HENSLEY also noted that the Administration has real concerns                                                                
with Sections 2, 3, and 4, and requested that this committee delete                                                             
that language.  She mentioned that this language was added by                                                                   
Senate Finance Committee, which adds to the list of items that "we"                                                             
cannot bargain for the collective bargaining process, that                                                                      
contracting out language cannot be put in the collective bargaining                                                             
process.  They believe that changing those sections in PERA (Public                                                             
Employees' Relation Act), that this magnitude is going to affect                                                                
the collective bargaining process, and that they currently have 11                                                              
more contracts to negotiate and their first priority in the                                                                     
negotiating process (has been what the legislature has asked for)                                                               
is coming in with zero cost contracts and cost containment.  Ms.                                                                
Hensley said the Administration believes that they've done that                                                                 
with the agreements that they have currently negotiated for.  For                                                               
example PSEA (Public Safety Employee Association), came in with a                                                               
zero contract cost containment for the State which she believes is                                                              
good.  She emphasized that they believe changing PERA at this time                                                              
could jeopardize their negotiation process and they would hate to                                                               
see that happen because they too believe that cost effective                                                                    
government is a good way to go.                                                                                                 
REPRESENTATIVE OGAN indicated that privatizing some of the                                                                      
functions in the Division of Motor Vehicles (DMV) were done by                                                                  
Number 180                                                                                                                      
MS. HENSLEY replied no, there have been no statute changes                                                                      
mandating privatization.  She said a bill was previously introduced                                                             
that mandated the privatization of the DMV, however that                                                                        
legislation did not move and that was several years ago.                                                                        
REPRESENTATIVE OGAN remarked that he wasn't sure if it passed or                                                                
CHAIR JAMES said she doesn't believe there is anything on the                                                                   
books, short of collective bargaining, that would keep this                                                                     
Administration from outsourcing and that the Administration can't                                                               
go to true privatization, go out of doing business without                                                                      
statutory change.  She said, as far as outsourcing is concerned,                                                                
except for collective bargaining agreements, she doesn't think                                                                  
there is anything that would stop this Administration from being                                                                
able to do that.                                                                                                                
MS. HENSLEY replied that is correct, even in the current contracts                                                              
and collective bargaining contracts that the Administration has, it                                                             
allows them to outsource, or to go out and look at oursourcing, and                                                             
do the feasibility studies.  She noted that the feasibility studies                                                             
cost in the range between $20,000 and $50,000 to do full intensive                                                              
study depending on what function you want to outsource.  However,                                                               
the current contracts have the contracting-out language in them and                                                             
that providing (indisc.) come back and show that there is                                                                       
definitely a cost-savings, it can be done.                                                                                      
Number 220                                                                                                                      
CHAIR JAMES remarked, let's talk about the feasibility studies                                                                  
because there are a lot of things that don't require a feasibility                                                              
study.  For example, if you have a blip and have a large amount of                                                              
work that needs to be done and it's something that's quite simple,                                                              
you could contract that out rather than hiring new employees.  She                                                              
said she believes that's available under existing law and you won't                                                             
need to do a feasibility study to determine that.                                                                               
MS. HENSLEY replied, you are correct.  However, if you are going to                                                             
displace any current employee that's when the feasibility study                                                                 
needs to be done and the whole process needs to be looked at.                                                                   
CHAIR JAMES said she also agrees with that because, if you're                                                                   
contracting out, and if that doesn't work, then you would have to                                                               
hire new employees so that needs to be checked thoroughly before                                                                
you do that.                                                                                                                    
REPRESENTATIVE OGAN said he agreed that a feasibility study should                                                              
probably be done in every case.  He remarked, "I guess ... this                                                                 
bill is a policy call, whether or not a feasibility study will be                                                               
done, totally within the Administration or within more of a broad                                                               
spectrum of people that might not be quite as biased and protective                                                             
of the bureaucratic function."                                                                                                  
Number 273                                                                                                                      
REPRESENTATIVE SMALLEY noted that there are no numbers on the                                                                   
fiscal note.  He asked if a fiscal note will be attached for                                                                    
meetings at various times during the year and perhaps various                                                                   
MS. HENSLEY explained that it is an "asterisk fiscal note" which                                                                
means that they have no way of determining what those costs are at                                                              
this time.                                                                                                                      
CHAIR JAMES asked Ms. Hensley if she could estimate how often the                                                               
commission is going to meet in order to figure out the per diem and                                                             
travel expenses.                                                                                                                
MS. HENSLEY said she doesn't know how the sponsor envisioned the                                                                
commission meeting and how often they expected these meetings.                                                                  
Number 292                                                                                                                      
MR. HODGINS responded, "We took a fiscal note off of SB 68                                                                      
[COOPERATION WITH FEDERAL AGENCIES] which was the one that Governor                                                             
had vetoed, and we came up with a $26,000 fiscal note, and then                                                                 
here at the continuation of the fiscal note, as to how it would be                                                              
spent as far as meetings and travel, and what not."                                                                             
CHAIR JAMES stated that fiscal note should be filed with this bill.                                                             
MS. HENSLEY remarked, "This is done by the Legislative, Executive                                                               
Director's Office."                                                                                                             
REPRESENTATIVE SMALLEY said he thinks that there is merit into                                                                  
looking at long-term cost savings and privatization may in fact                                                                 
assist in that.  He referred to a recent comment made in the House                                                              
about a "long-term-strategic-plan for the State."  Representative                                                               
Smalley said he believes this is something that would probably help                                                             
tie into that because in a long-range strategic plan you could look                                                             
at other situations such as other future potential consolidations                                                               
rather than ... piecemeal them together in 120 days, or whatever                                                                
the legislature tries to do it in.  He said he would support that                                                               
effort in its self.                                                                                                             
Number 321                                                                                                                      
REPRESENTATIVE SMALLEY further stated, "In looking at this                                                                      
particular document, it doesn't necessarily give you what's on page                                                             
2.  And, in reference to the Oregon report assessed successful                                                                  
privatization in some areas it was successful, and I know in some                                                               
areas it was a disaster because it was short-term-cost-savings, but                                                             
on the third year the hammer came down and it ended up the                                                                      
privatized custodial work actually went back to the school district                                                             
and they ended up purchasing brand new equipment and, et cetera, et                                                             
cetera, et cetera, because nobody else would pick up the contract                                                               
when it was advertised.  So long-term potential is what I would                                                                 
definitely be interested in, and I think the committee in a                                                                     
strategic plan could in fact give us that information."                                                                         
CHAIR JAMES cited how the folks from British Columbia explained how                                                             
they privatized their road maintenance, and the net result of that                                                              
wasn't that they saved money, the costs were smaller but there was                                                              
more division of that money.  More people in the smaller                                                                        
communities had jobs and they had more control in making decisions                                                              
at a local level.                                                                                                               
Number 363                                                                                                                      
CHUCK O'CONNELL, Member, General Government Bargaining Unit,                                                                    
testified in opposition to SB 33 via teleconference from Anchorage.                                                             
He stated that:                                                                                                                 
     I am here in firm opposition to SB 33.  You have heard                                                                     
     testimony already from Ms. Hensley about the fact that we do                                                               
     currently have language in our collective bargaining                                                                       
     agreements involving contracting out what is currently                                                                     
     recognized as State work.  That language works well.  We in                                                                
     the classified service work for the executive branch and this                                                              
     commission is composed in majority from people being appointed                                                             
     from the legislative branch and we have some significant                                                                   
     problems with that.                                                                                                        
     In the disputes that we have had with our employer, over the                                                               
     issue of contracting out, the major area of disagreement that                                                              
     we have had is that the contracting out, that we have                                                                      
     questioned the propriety of in all cases cost the State a                                                                  
     considerable sum of money.  Let me give you a couple of brief                                                              
     examples, the Division of Public Health contracted out                                                                     
     audiology services and laid off the State audiologist, his                                                                 
     salary at the time was about $55,000 a year.  In the first                                                                 
     year of that contract the division paid to private sector                                                                  
     audiologist $350,000 to do Mr. (Indisc.) work; that does not                                                               
     represent good management or any kind of a cost-savings to the                                                             
     State.  I agree with the Chair that sometimes cost savings may                                                             
     not be paramount, but in most instances that we are talking                                                                
     here, it is important that economies enter into whatever                                                                   
     decisions are made.  Another example of contracting out where                                                              
     we can't accomplish cost savings is at API (Alaska Psychiatric                                                             
     Institute) for example the State has been attempting to hire                                                               
     a psychiatrists for a number of years and nobody will apply,                                                               
     therefore, they must contract out to the private sector at                                                                 
     great costs to the State of Alaska.                                                                                        
     Another example, at DOT (Department of Transportation and                                                                  
     Public Facilities) right now with the airport project, you've                                                              
     heard a lot about the cost overruns there.  Currently we have                                                              
     six of our members working at the airport expansion project                                                                
     and they're earning a wage of about $22.00 an hour.  Along                                                                 
     side of our six members are 22 private project engineers doing                                                             
     exactly the same work and they are earning a wage 40-hours a                                                               
     week of $110.00 to $125.00 an hour.  That is not good                                                                      
     government that is not efficient operation and expenditure of                                                              
Number 436                                                                                                                      
CHAIR JAMES asked what is the time frame for the airport expansion.                                                             
MR. O'CONNELL said he believes there are different phases, it may                                                               
be 2002.                                                                                                                        
CHAIR JAMES said if they were to hire State employees, for example,                                                             
to take the place of the highly paid engineers, the State employees                                                             
would have to be hired on a temporary-basis.                                                                                    
MR. O'CONNELL responded that that depends on what legal counsel                                                                 
finds out as to the IRS definition.  He said he believes Chair                                                                  
James is correct.  Mr. O'Connell added that they would also be                                                                  
saving $2,200 an hour [22 private engineers].                                                                                   
CHAIR JAMES remarked, if you can find somebody to work that, doing                                                              
MR. O'CONNELL agreed with Chair James comment.                                                                                  
CHAIR JAMES indicated that he might be precluded from hiring                                                                    
somebody because they [State engineers] wouldn't work for $22.00 an                                                             
hour and you don't have a provision in law to give them any more                                                                
than that.                                                                                                                      
MR. O'CONNELL added that they would also have a retirement program                                                              
and social security.                                                                                                            
Number 470                                                                                                                      
DON ETHERIDGE, District Council Laborers, Testified on behalf of                                                                
Local 71, noting that they are opposed to SB 33 in its current                                                                  
form.  He said Local 71 came out in support of the bill which was                                                               
vetoed by the Governor.  Mr. Etheridge emphasized that they don't                                                               
have a problem with being compared to the private sector on a fair-                                                             
basis.  He said, "Our main concern is that it's on a fair-basis                                                                 
that they are compared with.  And we do believe that we can prove                                                               
... that we are very competitive."                                                                                              
MR. ETHERIDGE cited examples of Local 71 work being handed over to                                                              
private sectors or to the local governments to do street and                                                                    
airport maintenance (three different instances).  He stated that in                                                             
the first year the State gave away the equipment and facilities to                                                              
take care of these projects, and when it came back to the State (in                                                             
the third-year) they'd already destroyed all the equipment.   He                                                                
said, "And now they were realizing how much it really is going to                                                               
cost them to do this, so now they wanted to triple the price (in                                                                
the third year) and now DOT[/PF] now has those areas back."  He                                                                 
explained that while those projects were under the operation of                                                                 
local governments, DOT personnel had to go in and do the                                                                        
maintenance because nobody at those locations had the experience to                                                             
take care of the airports properly.  He further stated that they                                                                
were made unsafe for landings and DOT had to come back and fix                                                                  
MR. ETHERIDGE noted that Local 71 is strongly opposed to removing                                                               
the language on their subcontracting and that they believe that                                                                 
legislature should also be opposed to this language because their                                                               
main interest in the contracts is that the State can prove that                                                                 
they can do it cheaper and better, and if they can't then it                                                                    
shouldn't be outsourced.                                                                                                        
Number 510                                                                                                                      
CRAIG PERSSON, Representative, Public Safety Employees Association                                                              
(PSEA), said he agrees with Mr. Etheridge.  He noted that PSEA                                                                  
opposes SB 33 in its current form and that they do not oppose                                                                   
looking at long-term costs.  However SB 33 takes that out of                                                                    
collective bargaining.  He added that, "We believe that it should                                                               
stay in collective bargaining.  We do have feasibility studies in                                                               
our contracts right now that are basically the same as some of the                                                              
other unions have that says that if the state can save money and do                                                             
a better job, then they can go ahead and contract out."                                                                         
MR. PERSSON further stated that, "There is a real danger in                                                                     
contracting out.  I believe public safety systems in Alaska is an                                                               
example; I know there is a big push right now in Delta for the                                                                  
Delta Prison to go through with private guards and everything down                                                              
there.  I think there's a real danger when you're going to pay                                                                  
people $7.00 or $8.00 an hour to take those jobs.  Right now we                                                                 
have a hard time recruiting folks to work in the correctional                                                                   
facilities and there's a high turn-over-rate of correctional                                                                    
officers based on the fact.  Once they get the job and they are in                                                              
the facility, a lot of times they just don't last, they get burned                                                              
out; they work seven days a week at a time, in 12-hour shifts.  And                                                             
I'm glad I have the job I have.  I work in Fairbanks as a Public                                                                
Safety Officer there.  Every time I take somebody to jail, I just                                                               
shake my head and thank God I don't work here because I wouldn't                                                                
want to."                                                                                                                       
Mr. PERSSON pointed out the other concern they have is that this                                                                
commission is only made up of one person from labor.  He said he                                                                
believes there ought a few more people on the commission from labor                                                             
and some of the best people you can have on the committee, or even                                                              
testify in front of the commission, would be folks that are                                                                     
directly involved with these jobs and know the system.  Mr. Persson                                                             
stated that, "I don't know if I trust somebody from the Alaska                                                                  
Chamber of Commerce making decisions that are going to have                                                                     
long-term impacts on public safety of the state.  That is not to                                                                
say that they can't bring other specialists in to testify, and I                                                                
hope they plan on doing that."                                                                                                  
Number 554                                                                                                                      
PAM LaBOLLE, President, Alaska Chamber of Commerce, asked if SB 33                                                              
was going to be held over because she didn't want to rush through                                                               
her testimony.                                                                                                                  
CHAIR JAMES announced SB 33 will be held over until Thursday.                                                                   

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