Legislature(1999 - 2000)
04/20/1999 08:01 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 that. 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 that. 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 bill." 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 statute. 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 not. 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 locations. 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 funds. 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 that. 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 them. 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.