Legislature(1999 - 2000)
04/07/1999 01:40 PM Senate CRA
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* first hearing in first committee of referral
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+ teleconferenced
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SB 131-ADMIN COSTS VILLAGE PUB SAFETY OFFICERS
MIKE MORTER, legislative aide to Senator Parnell, explained the
intent of SB 131 is to further the discussion of an appropriate
level of cost associated with administering the Village Public
Safety Officer (VPSO) program. VPSOs serve as the first line of
defense in the villages, providing law enforcement, search and
rescue, emergency medical services, and other duties as needed.
The program started in 1979 as a federal demonstration grant that
funded 19 officers. Since 1981, the program has been funded
entirely with state general funds which pass through the Department
of Public Safety (DPS) to non-profit regional corporations. In
turn, the non-profit corporations recruit and hire VPSOs. Last
year's budget funded 84 VPSOs in 82 villages. SB 131 proposes a 15
percent cap on overhead costs which would generate approximately
$750,000 in savings.
SENATOR MACKIE asked if the $750,000 in savings would be rolled
back into the direct costs of the program to hire more VPSOs.
MR. MORTER replied that is Senator Parnell's intent, however he
could not speak for other Senate Finance Committee members.
SENATOR HOFFMAN asked if the sponsor contacted any of the regional
non-profit corporation employees who administer the program to ask
whether they would continue to administer the grant if the 15
percent limit takes effect.
MR. MORTER said he has not.
SENATOR HOFFMAN stated he contacted several VPSO operators in his
region and they plan to turn the program back to the state if SB
131 is enacted. He questioned whether DPS could administer the
program if that occurs.
CHAIRMAN KELLY asked who prepared the spreadsheet of VPSO program
contract comparisons.
MR. MORTER replied it was prepared by DPS.
Number 96
CHAIRMAN KELLY took teleconference testimony.
CAL KENNEDY, Tanana Chiefs Conference (TCC), testified in
opposition to SB 131. He explained every year the indirect rate is
resubmitted to a cognizant agency, usually federal, for an audit
and rate approval. The purpose of the indirect rate is to ensure
that one grant program does not pay more than its fair share of the
overall rate. When the cognizant agency reviews the rate, it does
not include in the calculation any inappropriate expenditure. He
suggested continuing to use the negotiated federal rate rather than
capping the rate at 15 percent.
SENATOR MACKIE asked how many VPSOs are in the TCC region. MR.
KENNEDY replied TCC is authorized to hire 25 VPSOs but only 19
positions are filled.
SENATOR MACKIE asked the amount of TCC's VPSO grant. MR. KENNEDY
replied the amount for 1998 was just under $700,000. SENATOR
MACKIE asked what amount is held for administration of the program.
MR. KENNEY stated $108,000 was used for indirect costs.
CHAIRMAN KELLY asked what is considered an indirect cost. MR.
KENNEDY replied indirect costs include the administration costs
charged to all programs based on the expenditures for the program,
and the coordinator's salary. The accounting clerk's salary is
also included in the indirect costs because the clerk positions are
shared among the grant programs.
SENATOR MACKIE asked what a VPSO's salary is in the TCC region.
MR. KENNEDY replied it is about $40,000 per year.
SENATOR MACKIE questioned what percentage of the $700,000 grant is
used for administrative costs and what percentage is used to pay
VPSO salaries and benefits. MR. KENNEDY said in 1998, the actual
amount spent for salaries and benefits for VPSOs and the
coordinator totaled $510,200.
CHAIRMAN KELLY asked what the coordinator's salary was in 1998.
MR. KENNEDY was unsure, but estimated it was in the $35,000 to
$40,000 range.
Number 219
SENATOR MACKIE asked how much was spent for travel, training and
other expenses incurred by VPSOs. MR. KENNEDY answered $24,000 was
spent on travel, $34,000 on supplies, and about $3,000 on telephone
and fax costs. He added the amount spent on VPSO salaries was
about $475,000.
SENATOR MACKIE asked if the accounting clerks' salaries are
included in the $510,000. MR. KENNEDY said they are not, they are
included in the indirect cost allocations. The cost of those
positions are divided up between all the programs based on the
cognizant agency's rate.
MR. KENNEDY stated TCC's indirect rate is very reasonable and
conservative. CHAIRMAN KELLY noted of the seven programs compared,
TCC's indirect rate of 9.24 percent is by far the lowest; the
second lowest is 14.46 percent and the highest is 22.5 percent.
Number 293
CHAIRMAN KELLY asked if the VPSO program operates with general
funds only.
MR. KEN BISHOFF, Director of the Department of Public Safety (DPS),
said that is correct, no federal funding is provided.
CHAIRMAN KELLY asked why the federal government is involved in
setting rates if it is not contributing any money. MR. BISHOFF
explained when the program was initially developed, some method of
dealing with the administrative costs had to be established. The
regional corporations receive federal funding and are audited
annually. DPS accepted, by contract, the federally approved
indirect cost rates for other federal grant programs to relieve DPS
from setting up its own auditing system.
Number 317
CHAIRMAN KELLY asked if the federal government can be as generous
as it wants in setting the rates for the VPSO program because
federal money is not involved. SENATOR MACKIE noted the non-profit
corporations manage grants from several federally funded programs.
The VPSO program is the only general fund program that the State
has asked the non-profits to administer because they can do it
cheaper.
CHAIRMAN KELLY said it is no longer clear that the non-profit
corporations can administer the program for less money than DPS.
SENATOR HOFFMAN pointed out that TCC recommended, as an alternative
to a flat rate of 15 percent, that SB 131 mandate the use of the
federally set rate for administrative costs.
CHAIRMAN KELLY asked if regulations governing the indirect costs of
the VPSO program are brought forward by the federal government.
MR. BISHOFF responded DPS has accepted the federally approved
rates, but is not required to do so.
CHAIRMAN KELLY stated that his goal is to get more money into the
villages. Because the distinction between indirect costs and
administrative costs is unclear he feels any funds not spent on
VPSOs, including travel, supplies, and benefits, are suspect.
Number 357
CHAIRMAN KELLY asked for examples of indirect costs. MR. BISHOFF
explained indirect costs are those costs that are shared among all
programs of the corporation, i.e. the executive director's and
staff salaries, and buildings shared by multiple programs. He
pointed out that is standard practice.
CHAIRMAN KELLY asked if indirect costs, above and beyond the
coordinator's salary, the clerk's salary, and travel expenses,
exist. MR. BISHOFF said that is correct.
CHAIRMAN KELLY stated any money spent outside of the villages
should be considered as administrative costs.
SENATOR MACKIE asserted it is necessary to investigate those costs
as it may be cheaper to continue administering the program through
the non-profit corporations. He noted of the $5.5 million, $4
million is spent on salaries, benefits, overtime and travel. He
asked if the $.5 million Administration Direct costs are for
coordinators' salaries. MR. BISHOFF said that is correct.
SENATOR MACKIE asked what costs, other than the proportional
services being purchased from the non-profit corporation, such as
accounting and rent, are included in the indirect cost recovery
increment. MR. BISHOFF stated if a program occupies a shared
building, space, heat, and lighting costs would be prorated.
SENATOR PHILLIPS asked who shares those costs. MR. BISHOFF said
the costs are shared with the non-profit corporation.
SENATOR PHILLIPS asked what percentage of the State Troopers'
budget is used for administrative costs. MR. BISHOFF explained the
State Troopers do not have an approved indirect cost plan.
Number 417
CHAIRMAN KELLY acknowledged that the non-profit corporations should
be able to spend some of the grant on administrative costs, but he
contended that the federal cognizant agency is being too generous
with the State's money when setting the rate for indirect and
administrative costs.
SENATOR PHILLIPS asked how the grants are awarded. MR. BISHOFF
explained an exception to the state procurement code allows
contracts to be entered into with cognizant non-profit corporations
in certain geographic areas of the state without using the bid
process. The contracts are awarded on an annual basis.
Number 433
SENATOR HOFFMAN asked the average salary of an Alaska State
Trooper. MR. BISHOFF replied an entry level salary equals
approximately $65,000 per year plus benefits.
SENATOR PHILLIPS asked if the qualifications are the same for VPSOs
and State Troopers. MR. BISHOFF said they are not. CHAIRMAN KELLY
asked if the training is the same. MR. BISHOFF said it is not.
SENATOR PHILLIPS asked if the non-profits can get any price they
want to run the VPSO program since the program does not go out to
bid. MR. BISHOFF said Senator Phillips was technically correct,
but in a practical sense, the non-profit corporations have a keen
awareness of the budget situation. The precedence and the past
practice were set over a decade ago, so the program has been
subject to the same budget rigor that other state agencies have
been all along.
SENATOR MACKIE asked Mr. Lown to later clarify which expenses are
covered under the "administration direct" category, and which
expenses are covered under the "indirect costs" category.
Number 473
STEVE GOMEZ, VPSO Program Director for Manillaq Manpower, Inc.,
testified via teleconference in opposition to SB 131 and made the
following comments. The current method of administering the VPSO
program is very cost effective. VPSOs provide law enforcement to
rural communities as well as fire protection, emergency medical
services, and help to coordinate search and rescue operations, at
about one-third of the cost of the Alaska State Troopers. With the
possibility of the elimination of municipal assistance and revenue
sharing, the VPSO will take on greater importance in providing
public safety in rural Alaska.
MR. GOMEZ pointed out Manillaq's indirect rate is 24 percent which
covers administrative staff salaries and fringe benefits,
accounting, auditing, and legal services, office supplies and
utilities, insurance, equipment rental, maintenance, publication
memberships and subscriptions, administrative staff travel, and
telephone and workshop costs. Should Manillaq Manpower be forced
to limit its indirect rate to 15 percent, it would lose money and
quite probably be forced to drop the VPSO program.
SENATOR MACKIE asked if the 24 percent rate is for administrative
costs. MR. GOMEZ said the administrative costs include the
coordinator's salary, benefits, travel and per diem.
SENATOR MACKIE asked the number of VPSO positions within Manillaq.
MR. GOMEZ answered Manillaq was initially authorized to hire ten
positions but only seven are funded.
SENATOR MACKIE referred to the comparison spreadsheet prepared by
DPS and asked Mr. Gomez if Manillaq spent $240,158 on salaries and
$74,257 for benefits. MR. GOMEZ said that is correct, and that no
overtime was paid last year, but the FY00 proposal includes a small
amount of overtime. SENATOR MACKIE asked if the total spent on
travel was $8,000 and the total direct costs were $322,000. MR.
GOMEZ said that was correct. SENATOR MACKIE asked what the $60,381
in administration direct costs represents. MR. GOMEZ said that
represents his salary, fringe benefits, travel and per diem, and
certain incidentals.
SENATOR MACKIE asked what costs are included in the $91,871 of
indirect cost recovery. MR. GOMEZ said that amount represents the
equal cost sharing of the salaries and benefits of the executive
director, staff, accounting, legal, and auditing services, office
supplies and utilities.
SENATOR MACKIE asked how much is spent on the executive director's
salary. MR. GOMEZ replied approximately one quarter of the
executive director's salary, or $20,000, is paid from those
indirect costs. SENATOR MACKIE asked Mr. Gomez to specify the
amounts that are paid for the other administrative services. MR.
GOMEZ was unable to provide those amounts and explained Manillaq
operates on a cost reimbursement basis.
JOSEPHINE STILES, VPSO Program Director for Kawerak, Inc.,
testified via teleconference in opposition to SB 131. She pointed
out in FY 98, Kawerak had five line items for administration, in FY
99 it had one. Kawerak believes the VPSO program director's
salary, benefits, travel and administrative support should be
separate from the indirect line item. In FY 99 all were included
in one line item and Kawerak's 26 percent indirect rate now
includes her salary and benefits. She has no travel or office
supply money this year. If SB 131 is adopted, it is unlikely that
Kawerak will continue to administer the VPSO contract.
Number 581
SENATOR MACKIE questioned what costs are included in Kawerak's
indirect cost recovery amount of $130,729.
GINNY MORGAN, Comptroller for Kawerak, Inc., explained the indirect
cost recovery is determined by adding all administrative costs,
including: the salaries of all administrative staff, depreciation
of equipment, interest expenses on loans, rent, board of directors'
costs, office supplies, copying, postage, telephone, training and
tuition costs, dues and publications, advertising, heat, utilities,
office furniture and equipment, equipment maintenance, leases,
insurance, vehicle expenses, accounting and auditing costs, the
annual report, property tax report, and building maintenance. The
total of those costs are divided among the grant programs. MS.
MORGAN stated $130,000 is a percentage of the direct costs, based
on that calculation. That money is not collected unless it is
spent.
SENATOR MACKIE noted he wants to see more VPSOs in the field. He
added if the 15 percent limitation means more VPSOs will be hired,
he is inclined to support it until someone can show him that all of
the indirect costs are justified and that the State is not paying
unjustifiable costs associated with the non-profit corporation.
MS. MORGAN responded the indirect costs are spread among all of the
programs and equal each program's fair share.
Number 511
SENATOR PHILLIPS asked if DPS has a definition of indirect costs
and standard accounting procedures for state grants. MR. BISHOFF
said the answer is a "qualified yes." He referred the committee to
a letter from the Division of Legislative Finance to Senator
Donley, dated January 29, 1998, and stated all state grant programs
pay indirect cost recovery but that the definition of indirect cost
recovery may differ with every legislator. The generally accepted
accounting practice is indirect cost recovery. The costs
themselves will vary among the non-profits, but they follow the
same methodology of federal auditing and approval.
SENATOR MACKIE asked if the percentages fall within a particular
range. MR. BISHOFF said he was not aware of any upper or lower
limits in the federal guidelines.
SENATOR PHILLIPS indicated the definition of "indirect costs" from
the Division of Legislative Finance is "onsite overhead and offsite
overhead" but neither term is defined. MR. BISHOFF noted Senator
Donley, as the DPS Finance Subcommittee Chair, prefers to combine
both administration and indirect cost recovery, which increases the
rate. DPS provided the summary in that format, however the
Division of Legislative Finance pointed out that was an incorrect
format according to other normally accepted governmental accounting
standards.
SENATOR HOFFMAN thought insurance costs should be considered a
direct cost.
CHAIRMAN KELLY stated he is concerned about the administration
direct and indirect costs because he perceives those as
administration expenses. He added a few of the rates for the
combined categories are at about 19 percent, and the remainder are
in the high 20's or low 30's.
SENATOR MACKIE stated that while he can appreciate the need to
share non-profit overhead expenses among the programs, he questions
whether the amount of money charged to the VPSO program is
appropriate.
SENATOR MACKIE asked if the TCC grant is based upon the number of
VPSO positions authorized in that region. MR. BISHOFF said that is
correct. SENATOR MACKIE asked if the money TCC saves in
administrative costs allows it to hire more VPSOs. MR. BISHOFF
said the practice is to try to provide continuation level funding
so if its other costs are lower, it can apply money into direct
personal services.
Number 415
SENATOR MACKIE asked if DPS would sign a contract with a non-profit
corporation whose administrative costs were 50 percent and whether
those costs would decrease the number of VPSOs hired. MR. BISHOFF
replied fewer VPSO positions would be filled because other cost
areas would be higher. If the existing practice continues, and the
federal agency approved an indirect cost rate of 50 percent based
on its regulations, DPS would approve it although it would
certainly be cause for concern.
SENATOR MACKIE noted if the indirect rate is limited to 15 percent,
then 85 percent of the general fund dollars would be used for VPSO
positions. MR. BISHOFF said that is correct, however the non-
profits would feel no obligation to contract with DPS to administer
the VPSO program.
MR. BISHOFF said the program requires a coordinator position, and
the commonplace practice in most state grant pass-through programs
is to charge some indirect cost recovery.
SENATOR MACKIE asked what other grant programs, such as Head Start,
charge for indirect cost recovery. MR. BISHOFF replied other grant
programs charge between 18 and 22 percent, according to the letter
from the Division of Legislative Finance.
CHAIRMAN KELLY said the problem is definitional in that the
Legislature believes that administrative costs include both
administration direct costs and indirect cost recovery. He noted
his rough calculations show the non-profits are charging 18.5 to 41
percent for both.
SENATOR MACKIE maintained the percentage will vary among the non-
profits because each must have a coordinator whether the program
has five VPSOs or 28 VPSOs.
TERRY HOEFFERLE, Bristol Bay Native Association (BBNA), informed
committee members its approximately $700,000 VPSO program funds
comprise about six percent of its total program budget.
Consequently, the VPSO program carries with it the associated cost
at that proportionate rate. One reason TCC's cost rate is so low
is that it is the largest non-profit organization in the State so
it is able to spread its administration cost over more programs.
He stated if the number of program coordinators was reduced to save
money, VPSOs would become state employees and cost the state more
money. He maintained that if the rate is limited to 15 percent,
the BBNA will most likely give up the VPSO program.
CHAIRMAN KELLY asked Mr. Hoefferle why, if the VPSO program
comprises about six percent of BBNA's total budget, BBNA claims
22.5 percent for indirect cost recovery.
MR. HOEFFERLE explained BBNA receives a 24 to 30 percent rate from
each of the 50 programs it operates. BBNA has made certain
concessions for the VPSO program because DPS pleads poverty at
every opportunity. He added the VPSO program size is six percent,
compared to the other programs BBNA operates.
Number 275
JACK HOFSTAD, representing the Association of Village Council
Presidents (AVCP), stated opposition to SB 131.
MARCIE SHERER, AVCP, discussed AVCP's budget of which program
expenses are about 78 percent. The direct administrative cost for
the coordinator salary is about 6.5 percent. The indirect cost
rate was budgeted at 19 percent, but AVCP anticipates it will
actually be 15.2 percent. AVCP opposes SB 131 because all programs
must be taken into account when AVCP negotiates its indirect cost
rate. The federal government will not negotiate a rate if any
program is excluded.
CHAIRMAN KELLY noted from the comparison figures provided by DPS,
AVCP and TCC are closest to the 15 percent figure, however they are
the largest non-profit corporations.
SENATOR MACKIE clarified that the intent of his questions are to
get a clearer picture of how the VPSO program works, not to
minimize the importance of the program.
ZACK BRINK, Vice President of Operations of AVCP, stated AVCP
opposes SB 131 and is prepared to terminate the program if SB 131
passes.
BRAD ANGASAN, BBNA VPSO Program Manager, offered to answer
questions.
SENATOR MACKIE asked how the administrative costs of the non-profit
corporations will be paid if SB 131 passes and the program is given
back to the State.
MR. ANGASAN replied if SB 131 becomes law and BBNA is forced to
return the program to the State, the indirect rate will have to be
increased for the other programs. He pointed out that rather than
use extra funds to put more VPSOs in the field, it is more
important to take care of the officers in the field to reduce the
turnover rate.
CHAIRMAN KELLY said excess administrative costs could be divided
between increasing the salary and benefits of existing VPSOs and
hiring more.
MR. ANGASAN maintained that if the VPSO program reverts to the
State, VPSOs will have to be paid a minimum of $17 to $18 per hour
plus benefits.
CHAIRMAN KELLY noted over one-third of BBNA's grant goes to
benefits. MR. ANGASAN stated BBNA's retirement system is a generic
one and amounts to five percent of wages.
RICHARD KRAUSE, representing the Aleutian Island Pribilof
Association, testified via teleconference in opposition to SB 131.
ROBIN LOWN, VPSO Coordinator for the Tlingit Haida Central Council
(THCC), and former Alaska State Trooper, stated THCC absolutely
opposes SB 131 in its current form. SB 131 does not define
"administration costs" even though it limits those costs to 15
percent. Coordinators' salaries and benefits can be considered
indirect or administrative costs.
SENATOR PHILLIPS asked Mr. Lown if he could define what
"administration costs" are. MR. LOWN read the following from the
Legislative Budget and Audit Committee memo, "A more traditional
approach would be to include the direct administrative costs with
direct costs, and break out only the indirect costs." MR. LOWN
stated the coordinator's salary, benefits and travel would be
considered a direct cost of the program. He disagreed that the
coordinator's salary, benefits, and travel costs, and indirect
costs should be considered as part of the administrative costs.
SENATOR PHILLIPS questioned what the coordinator does. MR. LOWN
explained the coordinator hires, disciplines, transfers and
evaluates employees, and coordinates training which is a direct
cost of running the program.
Number 024
CHAIRMAN KELLY cautioned that unless a limit is imposed, the
numbers will be played with. MR. LOWN said although the full
benefit amount is provided, the non-profits submit a reimbursement
request and receive only the amount paid out.
CHAIRMAN KELLY questioned how the excess benefit money is used.
MR. LOWN said sometimes a particular non-profit fills more
positions and overruns its personal services budget.
SENATOR HOFFMAN asked whether the Alaska State Troopers could
administer the VPSO program for less. MR. LOWN said no.
CHAIRMAN KELLY asked if the VPSO program was privatized, whether
retired State Troopers could administer it for $1.4 million. MR.
LOWN said possibly, however he noted last year, THCC paid $10,000
for a VPSO lawsuit for which it was not reimbursed. He stated the
program is not easy for non-profits to run.
CHAIRMAN KELLY questioned whether the VPSO program could be
competitively bid. MR. LOWN said at present, DPS determines the
number of positions that will be hired and the salaries.
CHAIRMAN KELLY noted he will request a committee substitute be
drafted that will limit administrative and indirect expenses to 20
percent and include a definition so that the coordinator expenses
are rolled into the direct costs. Insurance costs will not be
included in the 20 percent limit.
MR. LOWN noted THCC purchased computers for VPSOs and cautioned
about "nickel and diming" the non-profits as they contribute to the
program.
CHAIRMAN KELLY stated he is trying the get the most for the dollar
and more money to the villages.
SENATOR MACKIE asked Mr. Lown how many VPSO positions THCC has.
MR. LOWN replied he is in the process of recruiting for a seventh
position. The starting salary is $1900 per month, and that salary
is set by DPS.
CHAIRMAN KELLY asked about the benefit package for those employees.
MR. LOWN replied they are provided with health insurance and a 12
percent retirement plan.
SENATOR HOFFMAN asked if the wages vary in different areas of the
State. MR. LOWN said they do.
CHAIRMAN KELLY announced SB 131 would be scheduled before the
committee at a later date and adjourned the meeting.
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