Legislature(2001 - 2002)

05/11/2002 10:52 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE CS FOR HOUSE BILL NO. 300(STA)                                                                                      
     "An Act relating to the procurement of certain travel                                                                      
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
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                                                            
Ms. Huntley  replied that some of  the larger agencies are  owned by                                                            
out-of-State entities;  however, Alaskans own the majority of travel                                                            
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-                                                               
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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
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                                                                      
[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                                                            
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                                                            
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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