Legislature(2001 - 2002)
05/11/2002 10:52 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE CS FOR HOUSE BILL NO. 300(STA)
"An Act relating to the procurement of certain travel
services."
This was the first hearing for this bill in the Senate Finance
Committee.
REPRESENTATIVE JOE HAYES, the bill's sponsor, stated that this bill
would allow the State to exempt certain types of travel services,
including airplane travel, hotel accommodations, and travel agency
services, from the State procurement code. He explained that Alaska
Airlines and other major airline companies have travel agency
commissions from five percent of the total ticket price to ten
dollars for a one-way ticket and $20 for a round-trip ticket, and
that in March of 2002, airline companies notified travel agents
that commissions would be completely phased out. He stated that to
offset the loss of the airline commission revenues, travel agencies
have implemented agency service fees.
Representative Hayes furthered that by exempting specified travel
services from the procurement regulations; the State could foster a
competitive travel service environment by allowing "administrative
agencies to choose travel providers on a case-by-case basis." He
stressed that this competition is important to the State because it
would assure the State of the best possible service fee rate and
prevent a travel service monopoly from occurring in the State.
Representative Hayes noted that travel agencies have received a
letter, dated April 5, 2002 from the Department of Administration
Commissioner Jim Duncan [copy on file] that explains the
Department's support of this legislation.
SALLY HUNTLEY, Owner, Frontier Travel, testified via teleconference
from Anchorage, and informed the Committee that her agency has been
providing travel services to various State agencies since 1982, and
that she supports the fact that State agencies would be permitted
to choose which travel services they wish to use, on a Statewide
basis. She stated that this legislation would "level the playing
field" whereby all agencies could compete for the State's business
and that due to the competitive nature of the industry, service
fees would remain reasonably priced.
Ms. Huntley asserted that once fair fee rates are established, the
State could choose travel agencies based on quality of service. She
noted that a Request for Proposals (RFP) has been issued by the
State; however, the industry considers it confusing because the
details are not specific. She opined that the RFP's line item
format "is a reconciliation nightmare." She stressed that a
competitive atmosphere would be more beneficial to the State than a
"sole source provider."
Senator Olson asked the testifier how many travel agencies are
Alaskan-owned.
Ms. Huntley replied that some of the larger agencies are owned by
out-of-State entities; however, Alaskans own the majority of travel
agencies.
Senator Wilken asked the testifier the amount her agency charges
for issuing airline tickets for State employee travel.
Ms. Huntley responded that her agency provides this service free-
of-charge.
Senator Wilken reminded the Committee that the original version of
this bill included language that prohibited awarding sole-provider
contracts; however, that language is not included in this committee
substitute. He surmised from Ms. Huntley's testimony that she
preferred the original bill's language.
Ms. Huntley stated she does not support language allowing for sole-
source contracting; however, she noted that were the bill not
adopted, agencies would be required to submit competitive fee bids
to the State, and a contract would be awarded.
Senator Olson asked for further clarification as to the intent of
the bill.
Representative Hayes clarified that the original bill contained
intent language; however, the intent language was omitted in the
Senate State Affairs Committee committee substitute. He stated that
the Procurement Section, Division of General Services, Department
of Administration Department, "understands the intent" of the bill;
however, if desired, that language could be reinstated.
Senator Leman voiced support for the Senate State Affairs committee
substitute language, as sometimes "too much intent language" is
included in a bill. Although it is sometimes necessary, he stated
that in this case, the intent has been "clearly established" in the
Legislative record.
Senator Green asserted that Section 1 of the current legislation
identifies that these services would not be required to go through
the competitive bid process.
Representative Davies agreed with Senator Green's comment.
BILL BECK, Owner, Airlines-Online Travel Agency, testified via
teleconference from Anchorage and noted that he attended the RFP
travel management services workshop held before the introduction of
this legislation. He stated that the State has established two
options for travel services: one being this bill and the other
being a sole-source RFP. He continued that the accompanying fiscal
note indicates that in the event this bill is not adopted, the RFP
would require a travel agency to submit a bid in each of the
seventeen identified local areas where its offices are located, and
in addition, each invoice must specify individual line item
descriptions and the corresponding fee for each transaction such as
tickets, hotel rooms, and car rental reservations. He stated that
this line item requirement would demand additional reconciliation
time of State employees, and he opined that it would be more
economical for the State to develop a simple fee structure that
agencies could either agree or not agree to honor. He stated that
this approach would allow for continuing competition between travel
agencies.
Senator Wilken asked the testifier the amount of the surcharge his
company places on non-State employee travel.
Mr. Beck responded that fees are based on the complexity of the
travel arrangements; however, typical fees range between $20 and
$35.
VERN JONES, Chief Procurement Officer, Division of General
Services, Department of Administration, stated that historically,
the State has not been required to pay service fees as travel
agents were compensated for their services by airlines, hotels, and
car rental companies; however, recent declines or/and elimination
of these commissions fees has placed hardships on travel agents,
and that consumers including the State must absorb these expenses.
Mr. Jones explained that because there are no fee-free travel
services in communities such as Juneau, Petersburg, Wrangell,
Haines and Cordova, the State has awarded, in compliance with the
State's competitive procurement code, a contract for travel
services in each of these locations. He stated that this bill does
not prevent the State from procuring travel service contracts;
however, the intent of the bill is to establish benchmark rate
structures for services that would allow State employees to use any
travel agency that provides its services at or below those
benchmark rates. He stated that were this bill adopted, this
process would begin, and a list of travel agencies who comply with
the State's benchmark rates would be supplied to State employees.
He clarified that existing State contracts would continue through
their specified time commitment.
Mr. Jones confirmed that this bill would incur expenses as
identified in the fiscal note. He explained the fee components of
the fiscal note, and stated that when Alaska Airlines terminates
its commissions to travel agencies, the State would be required to
pay average fees of $20 to $23 per ticket. He noted that the State
of Washington recently transitioned to a non-competitive fee
structure that has resulted in fees ranging from $15 to $45 per
ticket. He stressed that the State of Washington is paying more
than the amount projected using the proposed procurement process
stipulated in this legislation. He estimated that the annual
service fee cost to the State, based on the annual volume of ticket
that State employees use, would be $500,000 per year.
Mr. Jones stated that if this bill fails to be adopted, the State
would continue with the procurement process, which he stressed,
would not result in a single sole-source Statewide contract, as
contracts are awarded on a per-location basis.
Senator Ward asked whether the State would be allowed to solicit a
proposal from the Alaska Airlines Mileage Program to accumulate all
State employee travel mileage credits in a single State account to
assist in reducing State travel costs.
Mr. Jones responded that there is no legal restriction that would
prohibit the State from making this request.
Senator Ward asked the testifier to investigate this option.
Mr. Jones agreed.
Senator Austerman asked for further information about the service
contracts awarded in such locations as Juneau, Petersburg and
Wrangell.
Mr. Jones gave as an example, the contract awarded to US Travel
Agency in Juneau that specifies the service fee for a ticket from
Juneau to Anchorage is five dollars and an eight dollar service fee
for tickets to other destinations; however, he reminded the
Committee that this fee is paid in addition to the commission the
agency currently receives from Alaska Airlines. He continued that
when Alaska Airlines ceases to pay commissions, the fees would
probably increase to approximately $23.
Senator Austerman asked whether the State has investigated
transitioning to electronic ticketing as a means of lowering
service fees.
Mr. Jones stated that currently the State purchases approximately
11,000 out of 50,000 tickets directly from an airline via Internet
access. He stated that purchasing a ticket electronically exempts
it from being subject to any procurement code or service fee, and
that this would remain an option if this bill were adopted.
Senator Austerman asked whether the Department encourages employees
to use electronic ticketing.
Mr. Jones responded that the Department does not anticipate
pressuring employees to make travel arrangements via the Internet,
as this could require a "high-paid state employee" to spend time
online researching travel options. He stated that paying a travel
professional for this service is often a better decision; however,
he asserted that employees would not be prohibited from this course
of action.
Senator Wilken asked the reason for an indeterminate fiscal note to
accompany this bill, and he noted how unusual it is for a fiscal
note to specify that department agencies would absorb expenses.
Senator Wilken voiced concern that a total service fee of $350,000
has been calculated based on a projected minimal service fee of $12
per ticket; however, he stressed, the actual fee amount could incur
expenses as high as $750,000. He stressed that the fiscal note does
not appear to realistically present the possible costs, and he
asked whether a statewide limit could be considered in order to
more accurately project the expense.
Mr. Jones stated that if this bill fails to be adopted, procurement
procedures would be implemented and the lowest travel service bid
per location would be awarded a contract. He noted that if the bill
were adopted, "a cap" might be negotiated. He continued that when
Alaska Airlines discontinues its commission fees, the average
service fee charged for State employee travel would be
approximately $23 per ticket, which he reiterated is ten to fifteen
dollars lower than fees being paid in the State of Washington,
where a competitive procurement procedure was not implemented.
Senator Austerman asked whether the US Travel service fee procured
for Juneau would be honored by the US Travel agency in Kodiak.
Mr. Jones stated that agencies are not obligated to offer the
location-specific rates throughout their service areas, and he
noted that travel agencies, including US Travel, are not currently
charging service fees in Anchorage. He informed the Committee that
current Department policy mandates that State employees must use an
agency that does not charge a service fee, and in communities where
fees are charged, the Department would award a contract to a
specific agency through the competitive bid process.
Senator Austerman stated that he recently paid a $25 service fee in
Kodiak.
Mr. Jones surmised that there must be a travel agency in the City
of Kodiak that does not charge a service fee, as a contract has not
been negotiated for Kodiak, and he reiterated that State employees
should use that agency when making travel arrangements.
Senator Ward asked the Department to provide the Committee with the
total dollar amount the State has paid to Alaska Airlines for State
travel in order to further a consolidated State mileage plan
proposal with the airline.
Mr. Jones expressed that approximately $11 million has been spent
on travel with Alaska Airlines.
Senator Ward calculated that this would equal approximately 15
million mileage credits. He reiterated his request for the
Department to investigate whether negotiating with Alaska Airlines
to establish a mileage agreement "would be legal."
Co-Chair Kelly asked Mr. Jones to provide the requested information
to Senator Ward.
Senator Wilken reiterated his concern that the fiscal note does not
specify whether travel fees would amount to $228,000 or $1 million.
Representative Hayes responded that this bill proposes to establish
specific service fees, and that State employees could use any
travel agency agreeing to provide their services at the determined
levels. He stated that this bill would allow all travel agencies an
opportunity to compete for State travel business, and he asserted
that it would be "dangerous" to have only one agency handle all the
State business.
Senator Olson asked why motor vehicle rentals are excluded from
this legislation.
Representative Hayes responded that the State has "already secured
contract agreements" for motor vehicle rentals.
Senator Wilken clarified that if this bill fails to be adopted,
procurements would be solicited, and contracts would be awarded to
a single travel agency in each of the seventeen identified regions
in the State, as determined by best value and fees.
Senator Wilken continued that if the bill is adopted, the State
would establish fee structures by location, and State employees
could use any travel agency agreeing to honor those fees.
[Discussion ensued to clarify the various processes based on
whether or not the bill was adopted.]
Senator Wilken asked whether a travel agency could choose to
provide travel services at lower rates than those established by
the State.
Mr. Jones responded that employees would not be obligated to use an
agency offering services at less than the negotiated rates;
however, a listing of any agencies offering lower fees would be
distributed, and employees could decide which agency to use.
Senator Wilken asked what would occur if a State employee used an
unapproved agency.
Mr. Jones responded that if the bill fails to be adopted, State
employees would not have an option, as only one agency in each
community would have the ability to write State travel tickets.
Senator Hoffman asked how travel arrangements are handled in remote
areas of the State where no contracts exist.
Mr. Jones stated that the intent of bill is to establish rates for
services in areas "that have more than negligible amounts" of
travel traffic. He stated that if the bill fails to be adopted, the
Department intends to establish contracts in all locations.
Senator Hoffman asserted that, currently, there are no contracts in
remote areas.
Mr. Jones clarified that contracts are not being established in
communities where agencies are providing fee-free services. He
reiterated that if one or more travel agencies in a community
provides fee-free services, State employees are required to use
those agencies. He continued that in communities where no fee-free
agencies exist, the State would award a contract to one agency
through the procurement process.
Senator Hoffman responded that the lone travel agency in the City
of Bethel has informed him that, "the State is unwilling to pay
those fees in Bethel."
Co-Chair Kelly announced that due to the amount of questions
concerning this bill; he would be holding the bill in Committee
until additional information could be provided.
Senator Wilken summarized that the State does not currently pay a
significant amount for travel service fees; however, the
forthcoming changes in the travel industry would require the State
to pay significantly more for services. He continued that the
question is which method would have the least fiscal impact to the
State.
Mr. Jones responded that the competitive procurement method would
be "cheaper."
SFC 02 # 96, Side A 12:33 PM
Senator Wilken clarified that this would be the method established
if the bill were not adopted.
Mr. Jones concurred.
Senator Leman suggested that the Division of General Services
should provide State agencies with a list of travel agencies that
would honor the State's established level of service rates, and
indicate which agencies on that list would provide services at
lower fees.
Mr. Jones responded that this is the intention.
Senator Hoffman reiterated that as airline agencies eliminate the
current commission structure, the level of service fees the State
pays would increase. He stated that is it appropriate for the State
and people who use travel agencies to absorb these costs as the
travel agents are providing a service. He surmised the State would
benefit from utilizing a travel agency rather than State employee
time in making those arrangements. He voiced support for the bill.
Co-Chair Kelly ordered the Bill to be HELD in Committee. [This bill
is re-addressed later in the meeting.]
RECESS TO CALL OF THE CHAIR 12:36 PM / 8:15 PM
[Note: The remainder of Tape SFC 02 #96, side A, and all of side B
are blank; however, the recording of the meeting continues on Tape
SFC 02 #97 Side A and no portion of the meeting is unrecorded.]
SFC 02 # 97, Side A, 8:15 PM
Vice-Chair Ward called the Senate Finance meeting back to order.
SENATE CS FOR HOUSE BILL NO. 300(STA)
"An Act relating to the procurement of certain travel
services."
[This bill was addressed earlier in this meeting.]
Representative Hayes clarified that this bill would allow the State
to negotiate with travel agencies to establish equitable fees for
travel services rendered to the State. He continued that if this
bill fails to be adopted, a single travel agency in each community
would be selected, through the RFP process, to handle State travel
arrangements. He opined that the agency awarded the State's
business would be the only agency "still open for business" at the
end of the contract period, and that higher service fees could
result from this "monopoly" situation.
Representative Hayes noted that Committee members received a list
of twenty-two travel agencies [copy not provided] that currently do
not charge a service fee for State travel arrangements. He
contended that if this bill fails to be adopted, eighteen of those
twenty-two agencies would be forced out of business.
Senator Wilken asked whether the Committee could mandate a
Statewide service fee of, for example, $15, and allow each travel
agency to determine whether or not to honor that fee. He stated
that identifying a specific fee would provide for an accurate
fiscal note.
Representative Hayes responded that Alaska Airlines currently pays
a $20 commission to travel agencies, and that the State has
determined that any level below that amount would not provide an
agency with sufficient operational revenue.
Senator Wilken asserted that a pre-determined fixed fee rate would
simplify the situation and provide for an accurate fiscal note.
Representative Hayes affirmed that the State supports establishing
a specified fee, but declared that this would continue to result in
an indeterminate fiscal note, as the State is unsure of the number
of agencies who would adhere to the specified amount.
Senator Wilken expressed his continuing concern with the fiscal
impact, and noted that the Senate Finance Committee Co-Chairs have
not been present during discussions regarding the bill's fiscal
impacts. He calculated that a $20 transaction fee, based on State
travel patterns, would create an annual fee expense of $600,000. He
continued that the fiscal note specifies that this amount would be
absorbed within each Department's annual budget; however, he
commented that this could create a hardship for State agencies. He
avowed that while he understands that the travel industry supports
this bill, as a Member of the Finance Committee, he "is charged
with looking out for the general fund."
Representative Hayes expressed that the indeterminate fiscal note
reflects the intent that the $600,000 travel fee expenses would be
absorbed "in each agency's current travel budget," and no increases
in department travel expenses would be incurred.
Senator Ward clarified that absorbing $600,000 in this manner would
essentially remove that amount from the agencies' budgets for
actual travel.
Representative Hayes affirmed that this could be the case; however,
suggested that the resources of a professional travel agency could
provide the best values in travel options.
Senator Ward contended that analysis supporting this has not been
provided to the Committee.
Senator Hoffman surmised that lower fares might result if Alaska
Airlines utilizes the savings resulting from the elimination of its
travel agency commission fees to offset the service fees charged to
the State by travel agencies.
Senator Olson, referencing earlier testimony that the State has
spent $11 million on travel, stated that five percent of that
amount would be approximately half a million dollars.
Representative Hayes estimated that the fiscal cost to the State to
absorb the travel fee expenses would range between $500,000 and
$600,000.
Senator Olson voiced that Senator Wilken's concern that the State
would incur a substantial fiscal impact is valid.
Representative Hayes, responding to Senator Hoffman's comment,
stated that departments would continue to pay the same amount of
money for travel; however, the question is whether the money would
be paid to Alaska Airlines or as a fee to a travel agency.
Senator Wilken offered a motion to report "HB 300 from Committee
with individual recommendations and attached indeterminate fiscal
note."
There being no objections, SCS CS HB 300 (STA) was REPORTED from
Committee with a previous indeterminate fiscal note, dated February
7, 2002 from the Department of Administration.
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