Legislature(2001 - 2002)
05/11/2002 10:52 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.