Legislature(2021 - 2022)ADAMS 519

03/08/2021 01:30 PM FINANCE

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Audio Topic
01:34:34 PM Start
01:36:18 PM HB69 || HB71
01:36:24 PM Presentation: Central Services and Rates Overview by the Office of Management and Budget
02:32:37 PM Presentation: Procurement and Hr Consolidation by the Department of Administration
03:43:17 PM Presentation: Division of Facilities Services by the Department of Transportation and Public Facilities
03:55:07 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 69 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
+= HB 71 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Heard & Held
+ Presentation: Rate Changes, Procurement TELECONFERENCED
Consolidation, HR Consolidation, & Lease
Transfers by
- Office of Management and Budget
Neil Steininger, Director
Paloma Harbour, Fiscal Management Practices
Analyst
- Dept. of Administration
Commissioner Kelly Tshibaka
Leslie Isaacs, Administrative Service Director
Alvarez & Marsal, Management Consulting
Ian Smith, Managing Director
- Dept. of Transportation & Public Facilities
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 8, 2021                                                                                            
                         1:34 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:34:34 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:34 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick, Co-Chair                                                                                          
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Bryce Edgmon                                                                                                     
Representative DeLena Johnson                                                                                                   
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen                                                                                                   
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Neil Steininger, Director, Office  of Management and Budget,                                                                    
Office of  the Governor;  Paloma Harbour,  Fiscal Management                                                                    
Practices Analyst,  Office of Management and  Budget, Office                                                                    
of the Governor.                                                                                                                
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Kelly Tshibaka, Commissioner,  Department of Administration;                                                                    
Kate  Sheehan, Director,  Division of  Personnel, Department                                                                    
of  Administration;  Thor  Vue, Chief  Procurement  Officer,                                                                    
Procurement   and   Property   Management,   Department   of                                                                    
Administration;   Leslie   Isaacs,  Administrative   Service                                                                    
Director,   Department   of    Administration,   Office   of                                                                    
Management and  Budget, Office of  the Governor;  Ian Smith,                                                                    
Managing   Director,  Alvarez   and  Marsal;   Dom  Pannone,                                                                    
Administrative    Services     Director,    Department    of                                                                    
Transportation and  Public Facilities, Office  of Management                                                                    
and Budget, Office of the Governor.                                                                                             
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 69     APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
                                                                                                                                
          HB 69 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
HB 71     APPROP: MENTAL HEALTH BUDGET                                                                                          
                                                                                                                                
          HB 71 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
PRESENTATION:  PROCUREMENT  AND   HR  CONSOLIDATION  BY  THE                                                                    
DEPARTMENT OF ADMINISTRATION                                                                                                    
                                                                                                                                
PRESENTATION:  CENTRAL SERVICES  and RATES  OVERVIEW BY  THE                                                                    
OFFICE OF MANAGEMENT and BUDGET                                                                                                 
                                                                                                                                
PRESENTATION:  DIVISION   OF  FACILITIES  SERVICES   BY  THE                                                                    
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES                                                                              
                                                                                                                                
Co-Chair  Foster reviewed  the  agenda for  the meeting.  He                                                                    
indicated  there  were  several presentations  on  the  same                                                                    
topic.  He  explained that  the  material  was technical  in                                                                    
nature.  There  were some  actions  that  would normally  be                                                                    
taken up at the  subcommittee level. However, because action                                                                    
taken by  one subcommittee required corresponding  action in                                                                    
another  subcommittee, he  was  pulling them  into the  full                                                                    
finance committee.  He elaborated  that in the  past, issues                                                                    
had  arisen because  subcommittees took  conflicting actions                                                                    
that had  to be corrected  later. He reviewed the  topics of                                                                    
the  presentations. He  invited Neil  Steininger and  Paloma                                                                    
Harbour from  the Office of  Management and Budget  (OMB) to                                                                    
the table to begin their presentation.                                                                                          
                                                                                                                                
HOUSE BILL NO. 69                                                                                                             
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain   programs;    capitalizing   funds;   amending                                                                    
     appropriations;    making   reappropriations;    making                                                                    
     supplemental   appropriations;  making   appropriations                                                                    
     under art.  IX, sec.  17(c), Constitution of  the State                                                                    
     of  Alaska,  from  the  constitutional  budget  reserve                                                                    
     fund; and providing for an effective date."                                                                                
                                                                                                                                
HOUSE BILL NO. 71                                                                                                             
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive    mental    health    program;    making                                                                    
     supplemental  appropriations;  and   providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
1:36:18 PM                                                                                                                    
                                                                                                                                
^PRESENTATION: CENTRAL  SERVICES and  RATES OVERVIEW  BY THE                                                                  
OFFICE OF MANAGEMENT and BUDGET                                                                                               
                                                                                                                                
1:36:24 PM                                                                                                                    
                                                                                                                                
NEIL STEININGER, DIRECTOR, OFFICE  OF MANAGEMENT AND BUDGET,                                                                    
OFFICE   OF   THE   GOVERNOR,  introduced   the   PowerPoint                                                                    
presentation:  "Central  Services  and Rates  Overview."  He                                                                    
began  by  providing  an overview  of  central  services  on                                                                    
slide 2.  He relayed  that any  organization, regardless  of                                                                    
size, had  to manage how  they performed and paid  for back-                                                                    
office  functions  for  indirect  costs.  Often,  they  were                                                                    
referred   to  as   indirect  overhead   costs,  back-office                                                                    
function  costs, or  general administrative  costs. Although                                                                    
the services were required, they  were not considered direct                                                                    
or  core services  of an  organization    the services  were                                                                    
functions that made core services possible.                                                                                     
                                                                                                                                
Mr. Steininger  continued that  the slide  showed a  list of                                                                    
areas  within the  state budget  and within  state functions                                                                    
that  helped   with  the  role   of  central   services.  He                                                                    
highlighted  the  management   of  state  facilities,  state                                                                    
procurement,   accounting,   human   resources   (HR),   and                                                                    
information  technology  (IT)  as examples.  They  were  not                                                                    
primary functions but were necessary  in order for the state                                                                    
to  perform its  duties.  He noted  a  usual tension  around                                                                    
allocating costs  to state  programs that  were core  to the                                                                    
functioning  of  state  government. His  presentation  would                                                                    
discuss a smaller subset of services.                                                                                           
                                                                                                                                
Mr.  Steininger relayed  that  each  state agency  performed                                                                    
many  of the  back-office functions  in-house. For  example,                                                                    
each agency  had a finance  officer, a  procurement officer,                                                                    
and  an HR  manager. He  explained that  when OMB  looked at                                                                    
rates  managed  by OMB  and  certain  central functions,  it                                                                    
focused  on  functions  that  had  been  taken  out  of  the                                                                    
agencies' hands and centralized  within one of the following                                                                    
departments  to  provide  service   for  all  agencies:  the                                                                    
Department  of  Administration   (DOA),  the  Department  of                                                                    
Transportation and  Public Facilities (DOT),  the Department                                                                    
of Education  and Early  Development (DEED),  the Department                                                                    
of Law, the Department of  Revenue (DOR), and the Department                                                                    
of Health  and Social  Services (DHSS).  The slide  showed a                                                                    
list of central services provided  to all state agencies and                                                                    
the department that was providing each service.                                                                                 
                                                                                                                                
Mr.  Steininger continued  that each  service fell  within a                                                                    
certain department  because of  there being  a nexus  to the                                                                    
core  service for  that  agency.  He pointed  to  DOT as  an                                                                    
example.  The Department  of  Transportation and  Facilities                                                                    
Maintenance, whose core service  was to maintain facilities,                                                                    
was  responsible  for  maintaining the  facilities  for  all                                                                    
agencies. He  would provide additional details  later in the                                                                    
presentation.                                                                                                                   
                                                                                                                                
1:39:42 PM                                                                                                                    
                                                                                                                                
PALOMA HARBOUR, FISCAL  MANAGEMENT PRACTICES ANALYST, OFFICE                                                                    
OF   MANAGEMENT  AND   BUDGET,  OFFICE   OF  THE   GOVERNOR,                                                                    
reiterated  that there  was a  natural tension  with central                                                                    
services based on how their  costs were allocated to various                                                                    
programs. The Office of Management  and Budget had oversight                                                                    
of the  cost allocation methods  in order to  understand the                                                                    
impacts of central services on  program budgets. In managing                                                                    
a  central  service,  a  pressure  existed  between  service                                                                    
levels and  the level of  cost effectiveness. The  Office of                                                                    
Management and Budget was responsible  for ensuring that the                                                                    
costs were contained while  adequate services were provided.                                                                    
She reported that OMB had  met with central service agencies                                                                    
and  the departments  to help  find  a balance  and to  work                                                                    
through issues as they arose.                                                                                                   
                                                                                                                                
Ms. Harbour  continued that OMB  aligned the budget  for the                                                                    
central service agencies with what  the agencies or programs                                                                    
would be charged to cover  a certain level of service. Since                                                                    
the  information would  be  known at  the  beginning of  the                                                                    
budget process, the  departments could make a  plan in which                                                                    
all parties could have a say.                                                                                                   
                                                                                                                                
Ms. Harbour  discussed the current  rate system on  slide 4.                                                                    
She explained that  the central service costs  for the state                                                                    
were  allocated  to  programs via  rates.  They  were  often                                                                    
referred  to as  "charge-back  rates"  because the  programs                                                                    
were being charged  for the services. She noted  there was a                                                                    
lack  of transparency  on the  impact  of the  rates to  the                                                                    
programs.  The lack  of  transparency  was not  intentional.                                                                    
Rather,  the  rates  had  been  developed  over  time,  were                                                                    
cumbersome, and  appeared in a  number of  different places.                                                                    
She suggested  that unless  a person  was a  bit of  a nerd,                                                                    
they would  not dedicate  the time  to understanding  all of                                                                    
the various rates and the complexities behind them.                                                                             
                                                                                                                                
Ms.  Harbour  moved  to  slide   5  which  demonstrated  the                                                                    
complexity  of the  rate system.  There were  many different                                                                    
rates  across the  state. She  pointed to  the box  labeled,                                                                    
"Other  agency fee-based  rates." She  explained that  there                                                                    
were  varying  fees  across different  state  agencies.  She                                                                    
thought the slide  was a good representation  of the largest                                                                    
rates  impacting all  agencies.  She  highlighted that  risk                                                                    
management   was  spread   in  two   different  ways.   Risk                                                                    
management  for Worker's  Compensation was  spread based  on                                                                    
salary, and risk management for  property and other coverage                                                                    
was  spread based  on the  property owned  by agencies.  One                                                                    
rate might be  spread in different ways.  For example, there                                                                    
were  3  rates  spread  by position  control  number  (PCN).                                                                    
However, the  3 rates counted positions  differently. It was                                                                    
a  convoluted   system  which  she  had   been  tasked  with                                                                    
simplifying.                                                                                                                    
                                                                                                                                
1:44:13 PM                                                                                                                    
                                                                                                                                
Ms. Harbour turned  to the spreadsheet on slide  6: "Rates                                                                      
Current System." She  noted that the slide was  not meant to                                                                    
pick on  DOA, DOT,  or the  Public Building  Fund. It  was a                                                                    
good example  of a very  complicated rate. The state  had to                                                                    
manage all of the public  owned facilities within the Public                                                                    
Building   Fund  taking   into   account  operating   costs,                                                                    
depreciation  costs,  and  spreading  costs  over  occupying                                                                    
agencies. She also mentioned the  transition from DOA to DOT                                                                    
for  dual  management.  Because  of  the  complications  she                                                                    
mentioned, the  rate for FY  19 was not released  until June                                                                    
2019,  the  last  month  of  the  fiscal  year.  It  took  a                                                                    
significant  effort by  both agencies  to  work together  to                                                                    
understand  the  costs  and  rates  and  to  distribute  the                                                                    
information to  the other agencies.  She reiterated  that it                                                                    
had been  a transition  year that resulted  in complications                                                                    
and a late impact to programs.                                                                                                  
                                                                                                                                
Mr.  Steininger furthered  that internal  management of  the                                                                    
rates  and  costs had  been  an  internal challenge.  Direct                                                                    
service delivery had caused friction  and challenges for all                                                                    
agencies of the  state. As Ms. Harbour had  pointed out, not                                                                    
knowing the  rate until the  end of the fiscal  year created                                                                    
uncertainty  for those  actually  trying  to provide  direct                                                                    
services  the public  relied  on. The  idea  was to  provide                                                                    
direct services  to the public  and to create  certainty for                                                                    
program  managers by  identifying  the  cost of  maintaining                                                                    
their  operations.   The  last   few  slides   attempted  to                                                                    
illustrate  the current  state  of  the centralized  service                                                                    
efforts. As  more services  were transferred  to centralized                                                                    
operating  services, the  state  needed  to address  certain                                                                    
problems.                                                                                                                       
                                                                                                                                
Ms. Harbour reviewed the principles  for moving forward with                                                                    
rates on slide 7. The governor  was proposing to fix some of                                                                    
the  existing   problems  by  transitioning   management  of                                                                    
certain  services   to  one  agency  rather   than  multiple                                                                    
agencies.  Overall, the  goal was  to  simplify rates;  have                                                                    
fewer  rates,  make  the  processes  for  distributing  them                                                                    
across  agencies easier  to understand,  and  to make  rates                                                                    
more  predictable  for  planning  purposes.  The  Office  of                                                                    
Management  and Budget  planned to  base rates  on a  3-year                                                                    
average  to  increase   predictability.  She  provided  some                                                                    
examples of  predictability and the benefits  of the change.                                                                    
The new plan would result  in a more transparent system. She                                                                    
noted that in  the coming year certain  services were slated                                                                    
for transfer.                                                                                                                   
                                                                                                                                
1:50:02 PM                                                                                                                    
                                                                                                                                
Mr. Steininger  advanced to slide  8 listing the  impacts of                                                                    
the budget  under consideration. Many  of the ways  in which                                                                    
OMB managed  rate structures was  internal to  the executive                                                                    
branch in  its management  of the services  and interactions                                                                    
between  departments. One  area impacting  the FY  22 budget                                                                    
had to do with completing  the transition of some additional                                                                    
centralized  services  including  personnel  management  and                                                                    
procurement.  Both  were  being   transferred  to  DOA.  All                                                                    
procurement officers  and HR managers  would be  included in                                                                    
the transfer. He indicated  that Commissioner Tshibaka would                                                                    
be  providing  the  committee with  more  detail  about  the                                                                    
change.  He   noted  that   OMB  was   looking  at   how  to                                                                    
successfully  transfer services  over to  DOA and  to ensure                                                                    
the  departments  paid their  fair  share  of the  costs  of                                                                    
procurement and HR. The Office  of Management and Budget was                                                                    
also responsible  for making sure  DOA had the  resources it                                                                    
needed  to  provide  procurement   and  HR  services  at  an                                                                    
appropriate level.                                                                                                              
                                                                                                                                
Mr. Steininger  indicated that  OMB was  transferring public                                                                    
buildings  and leasing  from DOA  to  DOT. Centralizing  all                                                                    
facilities  services  within  DOT   would  be  a  multi-year                                                                    
transition.  He reported  that as  OMB transitioned  leasing                                                                    
services to DOT, it discovered  that DOT had been paying for                                                                    
the direct cost  of leases for several agencies.  As part of                                                                    
the transition,  OMB was  placing the money  to pay  for the                                                                    
leases  directly into  programs in  order to  charge a  fair                                                                    
rate for leasing by square  footage. By doing so, it ensured                                                                    
that agencies had  the money to pay for it.  It also ensured                                                                    
that the cost  of the service was paid for  by the consuming                                                                    
program.   The  budget   document  contained   some  true-up                                                                    
adjustments to  costs that had  not been in  the appropriate                                                                    
place.                                                                                                                          
                                                                                                                                
Mr.   Steininger  offered   that  OMB   was  expanding   the                                                                    
utilization  of lapsing  general fund  balances for  some of                                                                    
the rates. One  of the challenges that agencies  had was the                                                                    
large  peaks  and valleys.  The  department  was looking  to                                                                    
smooth out  the rates over  time. Several rates  already had                                                                    
built-in  smoothing  mechanisms.   Ms.  Harbour  noted  risk                                                                    
management  which had  a smoothing  mechanism that  utilized                                                                    
lapsing  general fund  dollars  to capitalize  the fund.  It                                                                    
allowed  insurance costs  to  level out  based  on a  3-year                                                                    
average. The Office of Management  and Budget was looking to                                                                    
expand the option  to smooth out additional  rates. He noted                                                                    
the  importance  of  smoothing the  funding  over  a  3-year                                                                    
period. In  the instance  of a peak  year, the  smoothing of                                                                    
the budget  would occur  over the  interim after  the budget                                                                    
year ended.  He provided an  example. He noted that  a spike                                                                    
in a  central service rate  would require an agency  to look                                                                    
at   direct  services.   Smoothing  ensured   that  agencies                                                                    
providing  services   to  the  public  would   not  have  to                                                                    
accommodate a spike  through a reduced level  of service. He                                                                    
relayed that OMB was looking  to smooth out rates to provide                                                                    
some predictability.                                                                                                            
                                                                                                                                
Mr.   Steininger   reported   there  would   be   additional                                                                    
transparency in  the state's budget  system by  showing some                                                                    
of  the rates  with additional  granularity. He  provided an                                                                    
example. The  system would allow for  more detailed scrutiny                                                                    
of the budget.                                                                                                                  
                                                                                                                                
1:55:51 PM                                                                                                                    
                                                                                                                                
Mr. Steininger reviewed the use  of lapsed appropriations on                                                                    
on slide 9. One of the proposals  in the FY 22 budget was to                                                                    
utilize  more   of  the   lapsed  appropriations   for  rate                                                                    
smoothing. The  table showed the  4 areas OMB  was proposing                                                                    
to provide  lapsed funding  to benefit  rates. Three  of the                                                                    
areas  (the Working  Reserve Account,  the Group  Health and                                                                    
Life Benefits Account, and  the State Insurance Catastrophic                                                                    
Reserve  Account) had  utilized  lapsed funding  previously.                                                                    
The  Group Health  and Life  Benefits had  not required  the                                                                    
funding  for  a couple  of  years.  However, the  other  two                                                                    
accounts had  used some in the  past. The numbers for  FY 21                                                                    
reflected the  maximum amount  allowed. The  Working Reserve                                                                    
Account, for example,  could use up to $5  million in lapsed                                                                    
balances. He  reported that, based on  history, the accounts                                                                    
did  not  come  close  to the  maximum  amounts.  The  State                                                                    
Insurance Catastrophe  Reserve Account  could use up  to $10                                                                    
million.  He  highlighted  the  grey  bar  representing  the                                                                    
smoothing of centralized services. It  was a new addition to                                                                    
the waterfall - the lapsed  funding going to rate funds. The                                                                    
Office of Management and Budget  was proposing to utilize up                                                                    
to $5  million for rate smoothing.  He hoped the use  of the                                                                    
money  would  not  be  necessary  in  subsequent  years.  He                                                                    
concluded his presentation and was available for questions.                                                                     
                                                                                                                                
1:57:47 PM                                                                                                                    
                                                                                                                                
Representative  Wool   reiterated  what  he  heard   in  the                                                                    
presentation.  He hoped  that by  centralizing services  the                                                                    
state  would  see  a  savings. He  believed  he  heard  that                                                                    
certain  tasks  from  DOA  and   DOT  would  go  to  central                                                                    
services. He  did not  believe central  services would  be a                                                                    
department and  asked for clarification about  the different                                                                    
terms being  used such as departments,  agencies, divisions,                                                                    
and  central  services.  He  mentioned  the  notion  that  a                                                                    
department might  pay more for centralized  services than if                                                                    
they  remained within  individual  departments. He  recalled                                                                    
hearing  in the  subcommittee process  that each  department                                                                    
would be  billed 1.5  percent of  whatever was  procured for                                                                    
procurement  services fees.  He wondered  if the  change was                                                                    
designed  to  save  individual departments  money.  He  also                                                                    
wondered if there was an  administrative cost that would add                                                                    
to a procurement expense.                                                                                                       
                                                                                                                                
Mr.  Steininger responded  that  centralized services  could                                                                    
mean services  centralized within  one agency  but providing                                                                    
services  to all  agencies, one  entity within  a department                                                                    
provided accounting  for all of  its divisions, or  it could                                                                    
be a reference to services provided by DOA.                                                                                     
                                                                                                                                
Mr.  Steininger  addressed  Representative  Wool's  question                                                                    
about  potential savings  for  the state.  He reported  that                                                                    
efficiency was a consideration when  it came to centralizing                                                                    
services.  By bringing  all of  the procurement  staff under                                                                    
one roof, employees  could share work. One  agency might not                                                                    
require  a  full-time  employee   to  do  their  procurement                                                                    
resulting in slack capacity. The  slack capacity would allow                                                                    
for the same amount of work  to be done with less people. He                                                                    
explained that  reductions were not  reflected in  the state                                                                    
budget  because  it was  unclear  where  the slack  capacity                                                                    
resided.  It  would  become  apparent  once  employees  were                                                                    
centralized.  One  of  the  pitfalls  OMB  experienced  with                                                                    
previous  centralization initiatives  was that  it tried  to                                                                    
take the  savings prior to centralizing  employees. By doing                                                                    
so, it  set an expectation  of savings,  created significant                                                                    
friction,  and slowed  the transfer  of people  to different                                                                    
areas. The Office of Management  and Budget was allowing for                                                                    
the transition of centralized  services with the expectation                                                                    
that over time more work would be done with less.                                                                               
                                                                                                                                
2:04:00 PM                                                                                                                    
                                                                                                                                
Representative Wool  wondered about  a person  spending half                                                                    
of their time doing tasks  related to the Department of Fish                                                                    
and Game (DFG) and the other  half on tasks related to DHSS.                                                                    
He asked how the work load  would be dispersed. He could not                                                                    
see the potential savings.                                                                                                      
                                                                                                                                
Mr. Steininger responded  that issues would be  handled on a                                                                    
case-by-case   basis.    He   noted   that    with   several                                                                    
centralization initiatives  occurring at the same  time, OMB                                                                    
was  actively working  with agencies  to determine  how many                                                                    
positions would be  needed and how to dispense  the work. He                                                                    
admitted   there  were   challenges  that   complicated  the                                                                    
transition.                                                                                                                     
                                                                                                                                
Representative  LeBon thought  he  understood  what OMB  was                                                                    
attempting  to  accomplish.  He relayed  that  the  bank  he                                                                    
worked  for previously  spread out  the different  functions                                                                    
such  as  HR,  accounting,  buildings  and  properties,  and                                                                    
marketing among  the branches. In  the banking  business the                                                                    
bank reviewed  the allocations  annually. He  encouraged the                                                                    
state to do the same. He  commented that he was befuddled by                                                                    
the  last  bullet   on  slide  8.  Ms.   Harbour  asked  for                                                                    
clarification  about  Representative  LeBon's  befuddlement.                                                                    
Representative  LeBon  did  not fully  comprehend  the  last                                                                    
bullet.                                                                                                                         
                                                                                                                                
Ms.  Harbour  responded   to  Representative  LeBon's  first                                                                    
remarks.  She indicated  that the  review of  rates and  the                                                                    
allocation  methods   used  for  rates  would   be  reviewed                                                                    
annually.  It  would  occur as  OMB  developed  the  state's                                                                    
budget   so  that   programs  would   be   aware  of   their                                                                    
allocations.                                                                                                                    
                                                                                                                                
Mr. Steininger responded  that the last bullet  [on slide 8]                                                                    
addressed the  utilization of lapsing general  fund balances                                                                    
at the  end of  each fiscal year.  Agencies were  budgeted a                                                                    
certain  amount  of  dollars in  unrestricted  general  fund                                                                    
dollars.  Agencies did  not always  spend  the full  amount.                                                                    
There  were  a couple  of  areas  in  the budget  where  the                                                                    
unspent money  was utilized. The  last bullet  indicated OMB                                                                    
was proposing  to use  some of the  lapsing UGF  balance for                                                                    
rate  smoothing  purposes.  He was  suggesting  that  up  to                                                                    
$5 million could be used for unforeseen events.                                                                                 
                                                                                                                                
Representative LeBon  admitted there were no  lapse funds in                                                                    
the private sector banking business  which he admitted could                                                                    
be the root of his confusion.                                                                                                   
                                                                                                                                
2:09:45 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz   noted  there  had  been   an  effort  to                                                                    
centralize services  that had occurred over  the past couple                                                                    
of years  or more particularly  with IT services.  There was                                                                    
also  an  effort  taking   place  to  centralize  facilities                                                                    
management under  DOT. He wondered  if that effort  had been                                                                    
going  on for  the  previous several  years. Mr.  Steininger                                                                    
replied  that the  centralization of  facilities maintenance                                                                    
within the Division of Facilities  Services had been ongoing                                                                    
for 4 or 5 years.                                                                                                               
                                                                                                                                
Vice-Chair  Ortiz asked  if the  same  timeframe applied  to                                                                    
centralizing   procurement   within  DOA.   Mr.   Steininger                                                                    
responded, "Correct."                                                                                                           
                                                                                                                                
Vice-Chair  Ortiz  asked  if   there  had  been  an  ongoing                                                                    
analysis about the effectiveness  of delivering services. An                                                                    
agency might want  to have more direct say  and control over                                                                    
their  particular facilities  they  had managed  previously.                                                                    
For example, the  Department of Fish and Game  might see the                                                                    
need  for repairs  to a  particular facility  but would  not                                                                    
have input  if the management  of the facility  resided with                                                                    
DOA. He  asked if the  department would lose the  ability to                                                                    
effectively  manage  a  facility   that  it  was  previously                                                                    
responsible for.                                                                                                                
                                                                                                                                
Mr.  Steininger reported  that one  of the  things that  had                                                                    
been  an issue  with the  previous  system was  that it  was                                                                    
difficult  to assess  the  area of  highest  need among  all                                                                    
departments.  For example,  an  individual department  might                                                                    
view its specific facility as  having the highest need. With                                                                    
a decrease  in the  amount of  available funding,  the state                                                                    
needed  to be  able  to prioritize  the maintenance  demands                                                                    
across  agencies.  Each agency  would  still  have money  in                                                                    
their   operating   budget   for   normal   operations   and                                                                    
maintenance  of facilities.  However, having  the management                                                                    
centralized would  help in being  able to assign the  use of                                                                    
statewide pots  of money. In  terms of an  individual agency                                                                    
having   some  control   over   the   management  of   their                                                                    
facilities,  it   was  important   that  the   agencies  and                                                                    
centralized  services  had   a  customer  service  attitude.                                                                    
Centralized services  would be  accountable to  the agencies                                                                    
and  the  program managers.  He  admitted  there was  direct                                                                    
tension in the model being proposed.                                                                                            
                                                                                                                                
Ms. Harbour  clarified that  the governor's  proposed budget                                                                    
was  taking   an  already  centralized  service   of  public                                                                    
building fund  management and lease management  from DOA and                                                                    
moving it  to DOT. Currently,  the public building  fund was                                                                    
split between DOA and DOT  which caused difficulties because                                                                    
of  management being  shared between  the  two agencies.  In                                                                    
terms of leasing management, some  leases were being managed                                                                    
by DOA  and some  by DOT.  She opined that  it did  not make                                                                    
sense for them  to be managed in two  places. She reiterated                                                                    
that the services were already centralized.                                                                                     
                                                                                                                                
Co-Chair  Foster   reminded  the  committee  of   the  other                                                                    
presentations for the afternoon.                                                                                                
                                                                                                                                
2:17:09 PM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz  asked if monies were  already appropriated                                                                    
for the  different agencies to  manage their  facilities. He                                                                    
wondered  if OMB  was talking  about  different monies  that                                                                    
were for statewide use.                                                                                                         
                                                                                                                                
Mr. Steininger  replied that  the money  sitting in  a state                                                                    
agency  such  as  DEED  for the  maintenance  of  the  state                                                                    
library would remain  in the agency. The state  wanted to be                                                                    
able to track the costs  to run its facilities. Employees of                                                                    
DOT would perform  the work, and DEED would pay  DOT for its                                                                    
services. There  were several areas  in which the  state had                                                                    
smaller facilities  near each other.  It was  more efficient                                                                    
to have someone  managing the maintenance of  a portfolio of                                                                    
properties  even  though  they that  might  cross  different                                                                    
agencies.  The  money  to  pay  for  the  work  sat  in  the                                                                    
respective agency's  budget. However,  DOT would  manage and                                                                    
perform the  work. There were  additional pots of  money for                                                                    
statewide deferred maintenance that  could be applied across                                                                    
agencies.                                                                                                                       
                                                                                                                                
Co-Chair Foster acknowledged  Representative Thompson at the                                                                    
table.                                                                                                                          
                                                                                                                                
Representative Josephson  referred to  slide 9  which stated                                                                    
that the total  FY 21 projected UGF lapse  was $110 million.                                                                    
At the bottom of the  slide the actual lapsed funding figure                                                                    
was $45 million. He asked for clarification.                                                                                    
                                                                                                                                
Mr.  Steininger  replied  that the  $45.7  million  was  the                                                                    
difference  of $110.7  million in  projected lapse  less the                                                                    
maximum amount in lapse funding  that could be used for rate                                                                    
smoothing as well as a  proposal for Medicaid. He noted that                                                                    
the  projected  UGF  lapse  of $110  million  was  from  the                                                                    
March 4, 2021  lapse report  from OMB.  It did  not consider                                                                    
things such  as additional  COVID-19 support money  from the                                                                    
federal  government  which  would dramatically  change  what                                                                    
might lapse in programs like Medicaid.                                                                                          
                                                                                                                                
2:21:16 PM                                                                                                                    
                                                                                                                                
Representative  Josephson did  not  understand why  Medicaid                                                                    
Support was included on the slide.                                                                                              
                                                                                                                                
Mr. Steininger responded that  Medicaid support was included                                                                    
to reflect  all of the  areas OMB had proposed  using lapsed                                                                    
funding  - not  just areas  for rate  support. He  clarified                                                                    
that  the presentation  showed four  items: Working  Reserve                                                                    
Account Lapse Contributions, Group  Health and Life Benefits                                                                    
Fund Lapse  Contributions, Central Services  Rates Smoothing                                                                    
Appropriation  Lapse  Contributions,   and  State  Insurance                                                                    
Catastrophe Reserve  Account Lapse Contributions.  The total                                                                    
amount for rate support was $30 million.                                                                                        
                                                                                                                                
Representative  Josephson asked  whether employees  who were                                                                    
part  of the  centralization  of services  would  be in  one                                                                    
central place in Juneau or  whether they would remain housed                                                                    
in  their respective  departments -  essentially making  the                                                                    
centralization   an   accounting   change.   He   used   the                                                                    
legislature's IT and HR divisions as examples in his query.                                                                     
                                                                                                                                
Mr. Steininger responded that employees  remained on site at                                                                    
their agencies  for certain services  such as IT.  While the                                                                    
services were  still done on  site, employees reported  to a                                                                    
central office. For some areas,  such as procurement, it was                                                                    
helpful to  have the network effect  of procurement officers                                                                    
reporting back to a central  procurement agency to help with                                                                    
standards.  The  model  worked   for  IT  as  well  applying                                                                    
consistent policies and standards.  The central agency could                                                                    
apply  standards  and  resources  moving  resources  between                                                                    
agencies when  needed. Employees  sat in their  agencies but                                                                    
received support and standards from a central organization.                                                                     
                                                                                                                                
Representative  Josephson  commented  that it  sounded  like                                                                    
Federalism.  He  was not  sure  the  agencies supported  the                                                                    
model.                                                                                                                          
                                                                                                                                
2:24:44 PM                                                                                                                    
                                                                                                                                
Representative Carpenter thought he  had heard a significant                                                                    
amount  of  confusion. He  asserted  that  the word  complex                                                                    
inferred waste. He  was unaware of any  other private sector                                                                    
business  or enterprise  that  would  tolerate a  management                                                                    
system where the  complexity of the system did  not allow an                                                                    
understanding  of costs.  He asserted  that only  government                                                                    
would mismanage $700,000. He asked  what authority was given                                                                    
to reduce complexity  with a smoothing of  costs with lapsed                                                                    
funds. He asked whether OMB  would be submitting a report to                                                                    
the legislature  in the  next session  about how  it reduced                                                                    
complexity to  better understand costs.  He did not  want to                                                                    
perpetuate a problem.                                                                                                           
                                                                                                                                
Mr.  Steininger responded  that  OMB  was seeking  authority                                                                    
through  an  appropriation  in  the  governor's  budget.  He                                                                    
explained that  the smoothing was  related to  the potential                                                                    
for  an unanticipated  cost. The  Office  of Management  and                                                                    
Budget was attempting  to set rates in  advance. When trying                                                                    
to set  rates during the  budget development process  in the                                                                    
summer of  each year (a year  and a half out  from the start                                                                    
of the budget being  developed), there was some uncertainty.                                                                    
Determining  a cost  base and  the number  of employees  was                                                                    
constructed with certain assumptions  in mind that could end                                                                    
up being wrong. Changes might  be adopted in the legislative                                                                    
process; the  labor market  in the  state might  change; and                                                                    
the  way  in  which  programs were  actually  managed  could                                                                    
change. All of these things  could contribute to a change in                                                                    
the cost base.                                                                                                                  
                                                                                                                                
Mr.   Steininger   continued   that   if   the   state   had                                                                    
significantly more or significantly  less employees to apply                                                                    
the  rate to,  it  would  change how  much  an agency  would                                                                    
collect. He  used IT as an  example. If the IT  rate was set                                                                    
based on an  assumption of 17,000 employees,  but the actual                                                                    
number of  employees was 16,500  employees, IT  would under-                                                                    
collect its rate. It would  result in IT either being unable                                                                    
to provide  services in the  twelfth month of a  fiscal year                                                                    
or  significantly  increasing  its  costs  to  agencies.  He                                                                    
suggested  that  a variable  billing  rate  would force  the                                                                    
direct service agencies  to have to deal  with the resulting                                                                    
shortfall. The  smoothing effect  would allow  certainty for                                                                    
agencies,  and  agencies  would  be  able  to  provide  good                                                                    
information   to   the   legislature   during   the   budget                                                                    
development process.                                                                                                            
                                                                                                                                
Mr. Steininger  commented that the process  was complicated.                                                                    
He noted the significant  amount of uncertainty looking into                                                                    
the future. The  Office of Management and  Budget was trying                                                                    
to  address  the  issue  in  a  way  that  protected  direct                                                                    
services to  constituents while at  the same  time providing                                                                    
visibility  into the  true costs  of providing  services. At                                                                    
the end of the day, he wanted  to make sure that the cost of                                                                    
IT services  for the state  was not exorbitant. A  year from                                                                    
now he  would like to be  able to provide an  update on rate                                                                    
setting,  how rate  smoothing funds  were  applied, and  how                                                                    
management practices  were applied. He hoped  there would be                                                                    
less  unanticipated  supplemental  requests  in  the  future                                                                    
because of setting rates in advance.                                                                                            
                                                                                                                                
Co-Chair Foster thanked the presenters.                                                                                         
                                                                                                                                
^PRESENTATION:  PROCUREMENT  AND  HR  CONSOLIDATION  BY  THE                                                                  
DEPARTMENT OF ADMINISTRATION                                                                                                  
                                                                                                                                
2:32:37 PM                                                                                                                    
                                                                                                                                
KELLY TSHIBAKA,  COMMISSIONER, DEPARTMENT  OF ADMINISTRATION                                                                    
(via teleconference), introduced herself.                                                                                       
                                                                                                                                
KATE  SHEEHAN, DIRECTOR,  DIVISION OF  PERSONNEL, DEPARTMENT                                                                    
OF ADMINISTRATION (via teleconference), introduced herself.                                                                     
                                                                                                                                
THOR  VUE,   CHIEF  PROCUREMENT  OFFICER,   PROCUREMENT  AND                                                                    
PROPERTY  MANAGEMENT,  DEPARTMENT   OF  ADMINISTRATION  (via                                                                    
teleconference), introduced himself.                                                                                            
                                                                                                                                
LESLIE ISAACS,  ADMINISTRATIVE SERVICE  DIRECTOR, DEPARTMENT                                                                    
OF ADMINISTRATION,  OFFICE OF MANAGEMENT AND  BUDGET, OFFICE                                                                    
OF THE GOVERNOR (via teleconference), introduced himself.                                                                       
                                                                                                                                
IAN  SMITH,  MANAGING  DIRECTOR,  ALVAREZ  AND  MARSAL  (via                                                                    
teleconference), introduced himself.                                                                                            
                                                                                                                                
Commissioner    Tshibaka     introduced    the    PowerPoint                                                                    
presentation:  "Procurement   and  HR   Consolidation."  She                                                                    
indicated she  would move through a  briefing on procurement                                                                    
in each  consolidation. She would  leave some of  the slides                                                                    
for member's information in the  interest of time. She began                                                                    
with   slide  2   which  contained   the   status  of   four                                                                    
consolidations  currently happening  within the  department.                                                                    
She reported procurement and HR  were already completed. The                                                                    
Office  of Information  and  Technology (OIT)  consolidation                                                                    
and the  consolidation of shared services  accounting (SSOA)                                                                    
were in process.                                                                                                                
                                                                                                                                
2:34:25 PM                                                                                                                    
                                                                                                                                
Commissioner Tshibaka  turned to slide 3.  She provided four                                                                    
reasons why  the consolidation  efforts were  different from                                                                    
previous consolidations.  First, the department  invested in                                                                    
pre-consolidation  assessments developed  by subject  matter                                                                    
experts. In  particular, the department  received assistance                                                                    
from Alvarez and Marsal  with the procurement consolidation.                                                                    
They had  a long  history with  other states  and companies.                                                                    
They had  worked with  70 of the  Fortune 100  companies and                                                                    
had done  work with  Oregon, Rhode  Island, the  U.S. Postal                                                                    
Service, the City of Seattle, Kansas, and Wyoming.                                                                              
                                                                                                                                
Commissioner  Tshibaka  reported  DOA had  also  employed  a                                                                    
government  structure.  She  explained  that  prior  to  the                                                                    
present day it was unclear  who made the decisions regarding                                                                    
things pertaining  to DOA. Usually,  DOA made  decisions and                                                                    
imposed them  on the rest  of the departments which  had not                                                                    
gone  over  very  well.  Currently,  the  department  had  a                                                                    
governance  structure   within  DOA  that  gave   the  other                                                                    
departments   a   decision-making  role   in   consolidation                                                                    
decisions that  affected them. Going forward,  regardless of                                                                    
who the  commissioner was, the other  departments would have                                                                    
a say in the decisions that DOA made that affected them.                                                                        
                                                                                                                                
Commissioner Tshibaka  relayed that the department  had also                                                                    
established  service level  agreements  - contracts  between                                                                    
DOA and  each of the  other departments. The  contracts were                                                                    
customized  between  the  Office   of  Procurement  and  the                                                                    
Division of  Personnel in each  of the departments,  so they                                                                    
knew  what  to  expect  from  DOA  adding  clarification  to                                                                    
expectations.   She   indicated  the   consolidations   were                                                                    
designed  through  a  collaborative  and  inclusive  process                                                                    
involving  staff, stakeholders,  and  leaders  in the  other                                                                    
departments.                                                                                                                    
                                                                                                                                
Commissioner Tshibaka  explained how decisions were  made on                                                                    
slide  4. Over  300 formal  meetings had  occurred over  the                                                                    
last  2  years  just  for the  consolidations.  It  did  not                                                                    
include all of  the informal phone calls,  emails, and chats                                                                    
between  departments.  She   reported  that  the  governance                                                                    
structure was  led by  the Alaska  Administrative Governance                                                                    
Counsel,  five   commissioners,  and  OMB.   The  governance                                                                    
counsel had  been making some  of the decisions at  a higher                                                                    
level.  Under the  Alaska Administrative  Governance Counsel                                                                    
there were  four advisory  committees: HR,  Procurement, IT,                                                                    
and   SSOA.  Each   advisory   committee   had  high   level                                                                    
representatives  from  each  of  the  departments  who  were                                                                    
making  some of  the key  decisions as  consolidations moved                                                                    
forward.                                                                                                                        
                                                                                                                                
Commissioner Tshibaka  elaborated some of the  key decisions                                                                    
included  determining  the  way   in  which  the  state  did                                                                    
procurement and  the HR policies moving  forward. There were                                                                    
working  groups  under  each of  the  governance  committees                                                                    
consigned to  hammer out plans  and policies.  They informed                                                                    
the advisory  committees allowing the information  to bubble                                                                    
up to  the governance  counsel of  commissioners and  OMB to                                                                    
make final decisions.  Everyone had visibility and  a say in                                                                    
what was happening.                                                                                                             
                                                                                                                                
2:37:43 PM                                                                                                                    
                                                                                                                                
Commissioner  Tshibaka  moved to  slide  5.  She turned  the                                                                    
presentation over to  Mr. Vue to discuss the  details of the                                                                    
procurement  consolidation.  She  relayed  that  procurement                                                                    
consolidation had  its authority in  AO 304 calling  for the                                                                    
statewide  consolidation  of   purchasing  procurement.  The                                                                    
State of Alaska previously  used a decentralized procurement                                                                    
model. While  that practice might provide  some just-in-time                                                                    
flexibilities for  small organizations with little  need for                                                                    
oversight,  the   industry  norm  in  standards   for  large                                                                    
organizations   was  a   centralized   purchasing  model   -                                                                    
especially for those organizations the size of Alaska.                                                                          
                                                                                                                                
Mr. Vue  reported the  state's previous  decentralized model                                                                    
presented some  challenges. For example, there  were several                                                                    
redundancies.  There were  multiple employees  spending time                                                                    
purchasing the same thing. He  suggested it would be similar                                                                    
to two members of the same  household running out to buy the                                                                    
same item. There was significant waste in effort.                                                                               
                                                                                                                                
Mr.   Vue  also   conveyed  that   there  were   significant                                                                    
difficulties in sharing lessons  learned and best practices,                                                                    
which  were coupled  with  the lack  of  leverage in  volume                                                                    
spending.  Consolidation for  procurement  into one  central                                                                    
division   provided  various   opportunities  in   terms  of                                                                    
tangible  hard cost  savings. There  was the  elimination of                                                                    
some  of  the redundancies  he  had  already mentioned,  the                                                                    
ability  to  leverage  total   spending  power  through  the                                                                    
state's   volume  purchasing,   and  better   allocation  of                                                                    
personnel   resources.   For    example,   each   department                                                                    
previously had  an employee  doing procurement  training for                                                                    
their  respective  department. By  centralizing  procurement                                                                    
only  one  full-time  employee  (FTE)  would  be  needed  to                                                                    
provide  statewide  procurement  training  for  all  of  the                                                                    
departments.                                                                                                                    
                                                                                                                                
2:40:05 PM                                                                                                                    
                                                                                                                                
Mr.  Vue  advanced  to  slide  6.  Consolidation  activities                                                                    
started  with an  independent  third-party assessment  which                                                                    
was  the Alaska  Administrative Productivity  and Excellence                                                                    
(AAPEX) project. The assessment  was a review of purchasing,                                                                    
warehousing,   supply   chain,  and   inventory   management                                                                    
activities within the  state. As part of  the review process                                                                    
the   department  looked   for  ways   to  achieve   greater                                                                    
efficiencies in  costs. It  examined job  classifications of                                                                    
employees  using industry  and  best  practices and  lessens                                                                    
learned  from   comparable  spend   states  like   Ohio  and                                                                    
Louisiana.                                                                                                                      
                                                                                                                                
Mr.  Vue summarized  some of  the operational  challenges of                                                                    
the previous decentralized procurement model on slide 7.                                                                        
                                                                                                                                
Mr. Vue moved  to slide 8. He reported there  was a detailed                                                                    
and  meticulous  procurement consolidation,  implementation,                                                                    
and  communications  strategy   which  considered  effective                                                                    
change   of  management   best  practices   by  looking   at                                                                    
behavioral   norms   through   change  and   obtaining   key                                                                    
stakeholder inputs.  The slide  showed the  high-level phase                                                                    
strategy  the  department  implemented. He  assured  members                                                                    
there was a great deal of  detail that went into each of the                                                                    
phases.                                                                                                                         
                                                                                                                                
Mr.  Vue  turned  to slide  9:  "Procurement  Consolidation:                                                                    
Early Adopters."  He reported the  department had  been very                                                                    
mindful of  unknown variables  that might  negatively impact                                                                    
the consolidation. The department  took every opportunity to                                                                    
learn   the  landscape   ahead  of   time.  The   department                                                                    
identified  known   issues  and  concerns  to   avoid  large                                                                    
mistakes during  consolidation. He wanted any  mistakes that                                                                    
were made  to be  manageable. He also  wanted to  reduce the                                                                    
risk to  the State of  Alaska. The state  transitioned three                                                                    
of its smaller procurement departments  early as part of the                                                                    
early  adoption program.  The  phased  approach allowed  the                                                                    
state  to  obtain  a  real-world  knowledge  on  all  things                                                                    
related  to  consolidation  including technical  issues  and                                                                    
concerns;  and  emotional,   psychological,  and  behavioral                                                                    
models that could impact change  and consolidation. The goal                                                                    
was to learn  from the process making the  transition of the                                                                    
rest of the executive branch more streamlined.                                                                                  
                                                                                                                                
2:43:00 PM                                                                                                                    
                                                                                                                                
Mr. Vue  advanced to  slide 10:  "Procurement Consolidation:                                                                    
PCNs  were Selected  Working with  Departments." He  relayed                                                                    
the department  started with 185  FTEs that  were identified                                                                    
from the  AAPEX Assessment  showing employees  who performed                                                                    
some  form  of  procurement  functions.  The  Department  of                                                                    
Administration    looked    through     the    duties    and                                                                    
responsibilities   related  to   each   of   the  PCNs   and                                                                    
subsequently  excluded  some  FTEs that  only  had  marginal                                                                    
connections to  procurement. They also looked  at situations                                                                    
where administrative officers  and administrative assistants                                                                    
happened  to  make  purchases  with   a  credit  card  as  a                                                                    
government purchase card holder.                                                                                                
                                                                                                                                
Mr.  Vue reported  that after  conducting the  analysis, the                                                                    
state was left  with 113 employees, 18 of  whom were already                                                                    
DOA  employees. From  a list  of 113  FTEs, DOA  sent out  a                                                                    
survey for  each specific PCN  and asked the  departments to                                                                    
analyze   and  provide   an   initial   allocation  of   the                                                                    
percentages  of  duties  that   each  PCN  spent  conducting                                                                    
procurement  functions.  The  Department  of  Administration                                                                    
followed up  with one-on-one  meetings with  each department                                                                    
to come  up with  the finalized employee  count of  62 state                                                                    
employees dedicated strictly  to procurement and procurement                                                                    
related  functions. Excluding  DOA's existing  18 employees,                                                                    
the  remaining 44  positions were  transferred  into DOA  as                                                                    
part of the consolidation effort.                                                                                               
                                                                                                                                
Mr.  Vue  addressed  the question  of  how  the  procurement                                                                    
consolidation would  save money on slide  11. Consolidations                                                                    
had cost savings implications on  multiple fronts. First, he                                                                    
noted   personnel  reductions   as   a   result  of   better                                                                    
efficiencies. He also noted savings  resulting from a better                                                                    
utilization of  time and  labor through  improved processes.                                                                    
There was  also a real  cost savings opportunity  related to                                                                    
spending   and  strategic   sourcing.   He  explained   that                                                                    
strategic  sourcing  was a  form  of  volume purchasing.  He                                                                    
mentioned that  the Alvarez and Marshal  assessment prior to                                                                    
consolidation found an opportunity  for cost savings through                                                                    
strategic  sourcing  which ranged  from  a  low end  of  $98                                                                    
million to  a high  end of $230  million over  the following                                                                    
5 years.  Some of  the detail  could  be seen  later in  the                                                                    
slide set.  He relayed  that the various  types of  spend in                                                                    
Alaska could be lumped  into several categories. By reducing                                                                    
the ad  hoc department  purchases of  the same  products and                                                                    
leveraging them through category  management, Alaska had the                                                                    
potential  to achieve  significant  savings through  various                                                                    
forms and procurement methods.                                                                                                  
                                                                                                                                
Mr. Vue continued  that the same analysis  accounted for the                                                                    
fact that  some products were  more difficult and  costly to                                                                    
source  in Alaska  due to  the state's  geographic location.                                                                    
Generally,  some  products  had  high  transportation  costs                                                                    
coupled  with low  market resale  value. He  mentioned sand,                                                                    
lubricant, and certain types of foods as examples.                                                                              
                                                                                                                                
Mr. Vue  continued to slide 12:  "Procurement Consolidation:                                                                    
Methodology: In-Scope  Spend." He  reported that  there were                                                                    
things that  were excluded from  the cost savings  model. He                                                                    
noted  instances in  which procurements  or purchases  where                                                                    
competition would  not provide  better value for  the state.                                                                    
Another  example was  a  situation in  which  a product  was                                                                    
specifically  excluded from  having to  go through  a formal                                                                    
competitive  process.  There  were  also  things  that  were                                                                    
exempt such as items purchased with pass-through grants.                                                                        
                                                                                                                                
Mr. Vue turned  to slide 13 which provided a  summary of the                                                                    
potential   savings   that   could   be   achieved   through                                                                    
procurement consolidation  by leveraging the  category spend                                                                    
model. He was available for questions from members.                                                                             
                                                                                                                                
2:47:52 PM                                                                                                                    
                                                                                                                                
Representative  Wool referred  to  slide 10  where 185  PCNs                                                                    
were  analyzed  and   113  PCNs  were  found   to  be  doing                                                                    
procurement. The  department reduced the number  to 62 PCNs.                                                                    
He asked if 51 PCNs were eliminated.                                                                                            
                                                                                                                                
Mr. Vue replied that the  113 employees were doing some form                                                                    
of  procurement-related work.  However,  some  of them  were                                                                    
also doing  administrative tasks such as  checking the mail.                                                                    
He noted that it was not  fair for the gaining department to                                                                    
take  personnel and  leave everything  else for  the loosing                                                                    
department to  figure out. He  reported that when  he looked                                                                    
at the 113 employees, he  considered all of the other things                                                                    
an employee  might be doing  outside of procurement  - tasks                                                                    
that did not simply disappear  as a result of consolidation.                                                                    
He talked directly with departments  to determine the proper                                                                    
resource allocation  as far as their  needs for procurement.                                                                    
The remaining  positions were left within  the department to                                                                    
be reallocated for the additional remaining tasks.                                                                              
                                                                                                                                
Mr. Vue  continued that  the 18  existing DOA  employees and                                                                    
the  44   employees  that  were   transferred  to   the  new                                                                    
centralized procurement  organization, made up the  62 PCNs.                                                                    
He indicated  51 PCNS would remain  within their departments                                                                    
to perform tasks of one form or another.                                                                                        
                                                                                                                                
Representative  Wool   clarified  that  the  51   PCNs  that                                                                    
remained within their departments  would be given additional                                                                    
work or  would be  lost or reduced  to parttime.  He thought                                                                    
that would  be the way to  gain efficiency. He asked  if the                                                                    
goal related to  billing out each department was  based on a                                                                    
percentage  (1.5 percent)  of the  procurement purchase.  In                                                                    
other words,  he wondered if  billing would be based  on how                                                                    
much was procured rather than hourly wages related to PCNs.                                                                     
                                                                                                                                
Mr. Vue  thought the confusion  regarding the  percentage of                                                                    
costs  associated with  procurement activities  was more  in                                                                    
line with  DOA's administrative fee charged  to vendors when                                                                    
the department organized  and structured statewide contracts                                                                    
for use by all departments.  He was not under the impression                                                                    
in his  discussions with departments  that there would  be a                                                                    
surcharge   per  employee   for  the   cost  of   conducting                                                                    
procurement. However, he  was not entirely in  tune with all                                                                    
of the budgetary  aspects that occurred on the  back end. He                                                                    
would have to get back to the committee.                                                                                        
                                                                                                                                
Representative Wool  recalled the  term, "Vendor  fee" being                                                                    
added  onto the  billing invoice.  He was  not sure  how the                                                                    
process worked.                                                                                                                 
                                                                                                                                
2:53:49 PM                                                                                                                    
                                                                                                                                
Representative  Rasmussen referred  to slide  13. She  asked                                                                    
about  the average  of  the  in-scope spend  for  FY 18  and                                                                    
FY 19.  She  wondered  why  the  information  was  not  more                                                                    
recent. She  also noted that in  the grid he had  listed the                                                                    
scope-spend average.  The sample annual savings  ranges were                                                                    
listed above. She  wondered how he arrived at  his number of                                                                    
possible savings. Mr. Vue replied  that the data provided in                                                                    
the report  was what was most  current at the time  when the                                                                    
department initially provided the information to the third-                                                                     
party  consultant.  He was  sure  subsequent  data could  be                                                                    
provided.   However,   the   third  party's   analysis   had                                                                    
concluded.  He  asked  the  representative  to  restate  her                                                                    
second question.                                                                                                                
                                                                                                                                
Representative Rasmussen was trying  to understand the range                                                                    
and whether it was a savings.  She wondered how the range of                                                                    
savings   was   determined.   Mr.  Vue   deferred   to   the                                                                    
representative from Alvarez and Marshal.                                                                                        
                                                                                                                                
Mr. Smith  answered that  there was an  extra column  on the                                                                    
original presentation  that had  estimated savings  for each                                                                    
of the  in-scope spending averages  across FY 18 and  FY 19.                                                                    
The column was removed at  the last minute. The last comment                                                                    
regarding sample  annual savings  ranges by  category should                                                                    
have  been removed  from the  slide. Based  on the  in-scope                                                                    
analysis that the company did  in terms of addressable spend                                                                    
-  spend that  could  be influenced  through aggregation  or                                                                    
disaggregation if  centralized spend had been  with a single                                                                    
vendor for too long. Through the  analysis he came up with a                                                                    
range of  $25 million  to $45  million in  potential savings                                                                    
per year.  Over 5 years  the range of savings  was estimated                                                                    
between $98 million  to $230 million. The  analysis had been                                                                    
completed about a year prior.                                                                                                   
                                                                                                                                
Representative Carpenter asked if  the projected savings was                                                                    
within DOA  or across all  agencies. Mr. Smith  replied that                                                                    
it was  statewide spend. Representative  Carpenter suggested                                                                    
he  should  expect  to  see   the  savings  across  multiple                                                                    
department budgets. Mr. Smith responded, "Correct."                                                                             
                                                                                                                                
2:58:40 PM                                                                                                                    
                                                                                                                                
Representative  Johnson had  gone through  something similar                                                                    
with the  city [City  of Palmer].  One of  the goals  was to                                                                    
allow for different programs to  be charged. She wondered if                                                                    
it  was  a  goal  of the  centralization.  She  provided  an                                                                    
example.                                                                                                                        
                                                                                                                                
Mr.  Vue clarified  that Representative  Johnson was  asking                                                                    
whether  there  was a  way  to  capture various  grants.  He                                                                    
commented  that  grant  funding and  the  sources  of  grant                                                                    
funding were  not necessarily  captured in  procurement. The                                                                    
legislature had  specifically excluded grants as  defined in                                                                    
statute. He  believed that there  was a model  for capturing                                                                    
grants  but   could  not   speak  to   it.  He   turned  the                                                                    
presentation over to Ms. Sheehan.                                                                                               
                                                                                                                                
Ms. Sheehan moved to the  discussion of the HR consolidation                                                                    
and provided  a history beginning  on slide 14.  The state's                                                                    
procurement  consolidation was  done through  Administrative                                                                    
Order  (AO)   305  mandating  that   all  HR   positions  be                                                                    
transferred  from  the  agencies to  centralized  operations                                                                    
within  the  Division  of   Personnel  and  Labor  Relations                                                                    
(DOPLR).  Human  Resources  was  partially  centralized  and                                                                    
partially  decentralized. She  relayed that  mostly employee                                                                    
relations  and   recruitment  were   in  the   agencies  and                                                                    
centralized payroll  fell within  the Division  of Personnel                                                                    
and Labor Relations. What the  administration found was that                                                                    
there were  inconsistencies among agencies.  Sometimes there                                                                    
were  14  different  ways  of  doing  things  which  created                                                                    
inefficiencies. As a result, the  AO consolidated HR in four                                                                    
phases.                                                                                                                         
                                                                                                                                
Ms. Sheehan turned to slide 15  to discuss Phase I of the HR                                                                    
consolidation. Phase  I was  a heavy  lift, as  the division                                                                    
had work groups that looked  at all of HR's functional areas                                                                    
including    employee    relations,   investigations,    and                                                                    
recruitment. Agency  HR staff and administrative  staff came                                                                    
together to  map workflow processes and  find inefficiencies                                                                    
and  inconsistencies. Next  the  group  identified the  best                                                                    
practice,  workflow,  and   process.  A  new  organizational                                                                    
structure started  to evolve. The  group created  centers of                                                                    
expertise, operation centers, and HR business partners.                                                                         
                                                                                                                                
Ms. Sheehan advanced  to slide 16 to review Phase  II of the                                                                    
consolidation. Phase  II was developed by  a leadership team                                                                    
which  included  HR  staff,  Division  of  Personnel  staff,                                                                    
agency  administrative  staff,  an  administrative  services                                                                    
director,  a division  operations  manager,  and the  deputy                                                                    
commissioner  of DOA.  Together,  the  group made  decisions                                                                    
about the structure,  the work that belonged in  each of the                                                                    
operations centers and centers  of expertise. The group also                                                                    
completed  a survey  for all  HR staff  regarding their  top                                                                    
three preferences of work and  the department they wanted to                                                                    
work in. The group was able  to place over 90 percent of the                                                                    
employees into one of their preferences.                                                                                        
                                                                                                                                
3:03:40 PM                                                                                                                    
                                                                                                                                
Ms.  Sheehan   continued  to  slide  17:   "Human  Resources                                                                    
Consolidation:  Phase III:  Implementation Phase  (Completed                                                                    
February  8, 2021)."  Phase III  was  completed on  February                                                                    
8th.  Phase III  involved assigning  employees to  their new                                                                    
positions  and  was  a   transition  phase.  Employees  were                                                                    
reporting  to the  Division of  Personnel. The  division had                                                                    
service  level  agreements  in place  with  each  department                                                                    
after having multiple meetings to  review them. The division                                                                    
also  had  town  hall  meetings to  keep  everyone  informed                                                                    
through the transition.                                                                                                         
                                                                                                                                
Ms.  Sheehan  provided an  overview  of  how the  department                                                                    
selected  certain  PCNs  on  slide 18.  She  met  with  each                                                                    
department   and   talked   to   commissioners   about   the                                                                    
consolidation  process and  the advantages  that accompanied                                                                    
the project. She  had many meetings to  determine which PCNs                                                                    
would be brought  to the division and which  ones would stay                                                                    
in  the  different  agencies. The  service  agreements  were                                                                    
crucial, as  they clearly defined  the work the  Division of                                                                    
Personnel  would provide,  the  work  each department  would                                                                    
provide, and  which PCNs were  needed to get the  work done.                                                                    
Because  the state  had  human  resource business  partners,                                                                    
there was at  least one PCN in each  department belonging to                                                                    
the department  rather than the  Division of  Personnel. She                                                                    
explained that  while the division  did not end  up bringing                                                                    
over every  PCN as  originally planned,  the majority  of HR                                                                    
PCNs were  brought over. She  reiterated that  the decisions                                                                    
were made in discussions with each agency.                                                                                      
                                                                                                                                
Ms. Sheehan  reviewed why the proposed  HR consolidation was                                                                    
different  than prior  consolidation attempts  on slide  19.                                                                    
She had been  in a leadership role in DOPLR  since 2007. She                                                                    
started    with   the    department   shortly    after   the                                                                    
HR consolidated    in   2003.    In   2012    the   division                                                                    
decentralized. Presently, the  division was consolidating HR                                                                    
again.  She explained  that the  difference had  to do  with                                                                    
learning  several  lessons  over  the years.  In  2003,  DOA                                                                    
wanted   more   control,   but    the   change   came   with                                                                    
inconsistencies.  In  2012,  it   was  determined  that  the                                                                    
Division  of Personnel  did not  understand the  mission and                                                                    
needs of each department and  did not have anyone physically                                                                    
sitting  in the  departments to  consult. She  thought DOPLR                                                                    
was taking a better approach in the current consolidation.                                                                      
                                                                                                                                
Ms. Sheehan explained that in  the current consolidation the                                                                    
division  clearly articulated  the  duties of  each PCN  and                                                                    
would  assign  a human  resource  business  partner in  each                                                                    
department  to take  on new  jobs the  division had  not had                                                                    
time  to  complete  before.  The  human  resources  business                                                                    
partner  would   start  doing   things  such   as  strategic                                                                    
workforce planning and leadership  development - things that                                                                    
DOPLR  had previously  let fall  to the  wayside because  of                                                                    
being busy  with day-to-day  issues. She  also noted  the HR                                                                    
staff assigned  to each  department could  physically remain                                                                    
within their department.                                                                                                        
                                                                                                                                
Ms.  Sheehan  reported  other  differences  in  the  current                                                                    
consolidation  process  including  the division  looking  at                                                                    
best practices  throughout the country and  paying attention                                                                    
to  how  other  large   corporations  were  structured.  The                                                                    
division  also  got  input and  feedback  from  stakeholders                                                                    
including HR  staff and  the departments.  The consolidation                                                                    
felt significantly different to her  as someone who had been                                                                    
a   part   of  several.   She   was   encouraged  that   the                                                                    
consolidation would be successful.                                                                                              
                                                                                                                                
3:08:14 PM                                                                                                                    
                                                                                                                                
Ms. Sheehan discussed the improved  HR services on slide 20.                                                                    
She relayed  that the HR  business partners would  do things                                                                    
that were not being done  in every department currently. The                                                                    
division  also  had  an  HR  investigations  unit  and  more                                                                    
onboarding. The division would  have a strategic recruitment                                                                    
unit that  would do  talent acquisition  management actively                                                                    
recruiting  specifically where  the division  had difficulty                                                                    
finding staff.  The improved HR  services also  included key                                                                    
performance indicators  which had  not been used  prior. She                                                                    
was available for questions.                                                                                                    
                                                                                                                                
Co-Chair Foster  invited the commissioner to  make comments.                                                                    
Commissioner   Tshibaka  indicated   Mr.  Isaacs   would  be                                                                    
presenting the remainder of the presentation.                                                                                   
                                                                                                                                
Representative Johnson  asked if the funds  would lapse back                                                                    
into the general  fund or whether they would be  tied to the                                                                    
reverse  sweep.  Mr.  Steininger  asked  the  representative                                                                    
which  funds she  was referring  to. Representative  Johnson                                                                    
asked if  the savings  resulting from efficiencies  would go                                                                    
into the general fund or whether  the funds would be tied to                                                                    
the reverse  sweep. She wondered if  the consolidation would                                                                    
help with the state's budget deficit.                                                                                           
                                                                                                                                
Mr. Steininger replied that it  depended on the appropriated                                                                    
source  of  money.  He  indicated that  any  savings  of  an                                                                    
unrestricted general fund appropriation  for an agency would                                                                    
lapse back  into the  general fund. If  there was  a savings                                                                    
for an  appropriation for a  specific fund, the  money would                                                                    
lapse back into that specific  fund. Looking forward, as the                                                                    
initiatives  matured over  time and  truly saved  money, the                                                                    
state would  adjust its appropriation request.  If the state                                                                    
was able  to purchase something for  significantly less, the                                                                    
administration would  look to make strategic  budget changes                                                                    
to be  in line  with actual expenditures.  In order  to make                                                                    
changes in the state budget,  the savings had to be realized                                                                    
first. Any savings  that were implemented in  the current or                                                                    
following fiscal  year would lapse  back into the  fund from                                                                    
which it  was appropriated. Funds  would not get tied  up in                                                                    
the reverse  sweep unless they  were already subject  to it.                                                                    
If the  state saved  money in a  federal program,  the money                                                                    
would  either  get returned  to  the  federal government  or                                                                    
create more room within the federal grant.                                                                                      
                                                                                                                                
Representative Carpenter  referred to slide 13  and the list                                                                    
of  potential  savings.  He wondered  if  the  numbers  were                                                                    
reflected  in each  of the  department's budgets  or whether                                                                    
the  funds were  being  requested in  the  hopes of  finding                                                                    
savings.                                                                                                                        
                                                                                                                                
Mr.  Steininger   could  not  speak  to   the  specifics  of                                                                    
slide 13.  The  Office  of Management  and  Budget  was  not                                                                    
reflecting savings as a  result of procurement consolidation                                                                    
in  the FY  22 budget.  The  savings would  not be  included                                                                    
until they were actually realized.                                                                                              
                                                                                                                                
 3:14:03 PM                                                                                                                   
                                                                                                                                
Commissioner Tshibaka  commented that she had  another slide                                                                    
that  talked about  the budget  impacts for  the procurement                                                                    
and  HR consolidation.  It detailed  how  the PCN  transfers                                                                    
would  be  affected.  The administrative  services  director                                                                    
wanted to  walk the  committee through  slide 22  related to                                                                    
the topic.                                                                                                                      
                                                                                                                                
Mr. Isaacs  moved to slide 22:  "F 22 DOA Budget  Impacts of                                                                    
OPPM and  HR Consolidation." The  overall impact of  the two                                                                    
consolidations  on  DOA's  budget would  be  an  interagency                                                                    
authority  increase  of  $11.1  million.  It  represented  a                                                                    
duplicative fund  source where  the other  departments would                                                                    
retain  their budget  and pay  DOA for  the services  rather                                                                    
than  paying for  them  directly. The  middle  of the  slide                                                                    
showed  the  breakdown of  the  two  different sections.  He                                                                    
stressed  that through  the reimbursable  services agreement                                                                    
(RSA) process the other departments  would be paying DOA via                                                                    
interagency receipts. He  noted that 45 rather  than 44 PCNs                                                                    
were being transferred  over. He elaborated that  due to the                                                                    
timing  of  the  proposals  one  PCN was  left  out  of  the                                                                    
governor's originally proposed numbers  but was reflected in                                                                    
the governor's  amended budget proposal. Netting  all of the                                                                    
PCNs  together,  the  Office  of  Procurement  and  Property                                                                    
Management  would  receive 45  PCNs  and  40 PCNs  would  be                                                                    
assigned to the Division of Personnel.                                                                                          
                                                                                                                                
Representative  Rasmussen asked  Mr.  Isaacs  to review  the                                                                    
PCNs  that  were  not  being rolled  into  DOA.  Mr.  Isaacs                                                                    
clarified that Representative  Rasmussen was referencing the                                                                    
51 PCNs. Representative  Rasmussen responded, "Correct." Mr.                                                                    
Isaacs indicated  the PCNs would remain  in their respective                                                                    
departments.                                                                                                                    
                                                                                                                                
3:17:50 PM                                                                                                                    
                                                                                                                                
Representative Wool  referenced people  who stayed  in their                                                                    
departments  and enterprise  employees whose  positions were                                                                    
being centralized. He asked if  the same process would occur                                                                    
within  procurement.  He  queried  about  the  51  PCNs.  He                                                                    
suggested  that for  some departments  procurement was  very                                                                    
unique.  He wondered  whether procurement  was analogous  to                                                                    
OIT regarding enterprise and line of business.                                                                                  
                                                                                                                                
Mr.  Vue  responded  that  Representative  Wool  was  fairly                                                                    
accurate.  He   indicated  the   employees  that   would  be                                                                    
transferring  from  the  departments   would  still  be  the                                                                    
primary  point of  contacts for  their departments,  as they                                                                    
understood  the  unique  challenges,  needs,  products,  and                                                                    
services  for their  departments.  The overall  goal was  to                                                                    
maintain the  designated teams  to support  their respective                                                                    
department. He  noted there was the  overarching enterprise,                                                                    
the  State of  Alaska, and  its statewide  team which  would                                                                    
manage  statewide contracts,  training, policies,  oversight                                                                    
of  contracts, and  auditing  of  contracts. The  enterprise                                                                    
would ensure uniformity and  consistency of procedures being                                                                    
implemented throughout  all departments  which was  the goal                                                                    
of the plan.                                                                                                                    
                                                                                                                                
3:20:12 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon asked  about  the  potential loss  of                                                                    
jobs and whether  Juneau would be hit the  hardest given the                                                                    
percentage of jobs in the capital city.                                                                                         
                                                                                                                                
Mr. Vue  responded that  the reduction of  jobs was  not the                                                                    
intent of  the consolidation effort related  to procurement.                                                                    
Rather, the  purpose was to leverage  the state's expertise,                                                                    
resources, and processes. He would  depend on a department's                                                                    
expertise and  their unique  understanding of  their mission                                                                    
to  best allocate  and  distribute  personnel resources.  He                                                                    
reemphasized that  the intent of  the consolidation  was not                                                                    
to  cut  jobs. He  suggested  that  natural attrition  could                                                                    
occur  upon an  employee's retirement  or a  job change.  It                                                                    
would be  up to each  department to determine if  a position                                                                    
was needed to meet its  mission. The intent on reducing jobs                                                                    
was not part of the effort.                                                                                                     
                                                                                                                                
Representative   Edgmon   supported   making   things   more                                                                    
efficient  and  providing  services   in  a  timely  manner.                                                                    
However, he thought there would  be a reduction in personnel                                                                    
with  the consolidation.  He commented  that the  change fit                                                                    
neatly  into  the  confines  of   executive  orders  and  an                                                                    
appropriation bill. He wondered if  a policy bill was needed                                                                    
in order to make the change.                                                                                                    
                                                                                                                                
Mr. Vue suggested the need  for whether there should be some                                                                    
policy  directives from  the legislature  was not  necessary                                                                    
from  his reading  of the  administrative order.  He thought                                                                    
the  administrative order  made  the responsibilities  clear                                                                    
and  that  the  implementation   strategy  fell  within  the                                                                    
executive   branch.  The   administrative  order   laid  out                                                                    
objectives including  a cost savings  and a  streamlining of                                                                    
redundancies. He  argued that  the administrative  order and                                                                    
the authority  to implement  it fell  within the  purview of                                                                    
the order.                                                                                                                      
                                                                                                                                
3:24:12 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  thought  the change  was  a  massive                                                                    
undertaking. He wondered  why it had not been  done prior to                                                                    
the present.  Mr. Vue indicated discussions  had occurred in                                                                    
past administrations.  He could not speculate  the intent of                                                                    
previous   administrations  and   why  a   change  was   not                                                                    
implemented  earlier.  Representative  Edgmon asked  if  the                                                                    
change  was   incentivized  with  COVID  funding.   Mr.  Vue                                                                    
responded in the negative.                                                                                                      
                                                                                                                                
Representative LeBon  referred to slide 13  which he thought                                                                    
provided a  list of potential  savings categories.  He asked                                                                    
for  examples   of  savings  already  achieved   within  the                                                                    
categories. Mr.  Vue relayed that the  administration wanted                                                                    
to capture immediate  savings. However, it was  early in the                                                                    
consolidation.  There  were  certain  contracts  related  to                                                                    
freight and  shipping the administration was  pursuing for a                                                                    
cost savings.  There were other source  contracts related to                                                                    
IT equipment such as laptops.  He indicated that the list of                                                                    
savings were  informed projections related  to consolidation                                                                    
efforts  in the  out years.  Representative LeBon  commented                                                                    
that the  administration likely  already experienced  a cost                                                                    
savings in travel in the past year.                                                                                             
                                                                                                                                
3:27:10 PM                                                                                                                    
                                                                                                                                
Representative   Carpenter   turned   to  the   subject   of                                                                    
contracts. He wondered if  contracts were being renegotiated                                                                    
or whether  the administration  was finding  efficiencies in                                                                    
contracts as they  had been written. He asked,  if the state                                                                    
were  to find  a savings  in  a contract,  whether it  would                                                                    
appear as  a reduction in  the budget. Mr. Vue  replied that                                                                    
if  there was  an  immediate renegotiation  of a  particular                                                                    
contract  and an  immediate  reduction in  the  cost of  the                                                                    
contract, there  would likely  be a  corresponding reduction                                                                    
in the budget. He deferred to a budget expert.                                                                                  
                                                                                                                                
Representative Carpenter noted that  someone had predicted a                                                                    
large amount of potential  savings. He suggested that either                                                                    
the budget  would reflect the anticipated  savings through a                                                                    
reduction in  the budget,  or there  would be  a significant                                                                    
amount of lapsed  funds at the end of the  year. He wondered                                                                    
about  the  budget process  and  how  the savings  would  be                                                                    
handled   either though lapsed funds  at the end of the year                                                                    
or  through budget  reductions. He  thought the  legislature                                                                    
would  be  encouraging  the cost  savings  by  reducing  the                                                                    
budget. He  was not  understanding the process  of projected                                                                    
savings and asked for clarification.                                                                                            
                                                                                                                                
Commissioner  Tshibaka  explained  that  since  savings  was                                                                    
projected out  into the future,  the administration  did not                                                                    
expect to see $98 million to  $230 million in savings in the                                                                    
following  year. There  would be  a glide  path up  that the                                                                    
administration  anticipated   based  on  what   Alvarez  and                                                                    
Marshal had  provided. She further explained  that DOA would                                                                    
be capturing  and monitoring the  savings by  department and                                                                    
spend  category.  However, DOA  did  not  have control  over                                                                    
other department budgets.  As DOA was reducing  the spend in                                                                    
other department budgets,  departments would still determine                                                                    
their budgets. If  a department did not  have a commensurate                                                                    
reduction,  it  could spend  the  money  DOA saved  them  on                                                                    
something  else. She  had  seen such  a  pattern within  the                                                                    
federal  government.   She  suggested   that  it   would  be                                                                    
something to watch for in the future.                                                                                           
                                                                                                                                
Representative Carpenter  indicated he would like  to see an                                                                    
assessment  of  the projections  on  the  slide compared  to                                                                    
actual  savings  in  the  following   year  broken  down  by                                                                    
department.  He   wondered  if  the  information   would  be                                                                    
available prior to the next budget cycle.                                                                                       
                                                                                                                                
Commissioner    Tshibaka    expected   close    coordination                                                                    
throughout the  year between  the chief  procurement officer                                                                    
and   OMB  regarding   actual  realized   savings  and   the                                                                    
development of budget proposals going forward.                                                                                  
                                                                                                                                
3:33:20 PM                                                                                                                    
                                                                                                                                
Representative Edgmon  pointed out the projected  savings in                                                                    
the far right-hand column on  slide 13. He asked what period                                                                    
of  time  the  numbers  encompassed.  He  wondered  if  they                                                                    
reflected multi  years. Commissioner Tshibaka could  not see                                                                    
what  column Representative  Edgmon  was  referring to.  She                                                                    
asked  him to  tell her  the numbers  in the  far right-hand                                                                    
column.                                                                                                                         
                                                                                                                                
Representative  Edgmon was  referring to  the column  on the                                                                    
right of slide 13.  Commissioner Tshibaka asked what numbers                                                                    
Representative Edgmon was  looking at. Representative Edgmon                                                                    
responded that  he was looking  at $416.8 million  and $80.2                                                                    
million down  the column.  The total  of the  column equaled                                                                    
approximately  $800   million  which   he  remarked   was  a                                                                    
significant number. He  wondered if the numbers  were over a                                                                    
3-year  period,  a  5-year  period,  or  a  10-year  period.                                                                    
Commissioner Tshibaka deferred to Mr. Smith.                                                                                    
                                                                                                                                
Mr. Smith  explained that edits  had been made to  the slide                                                                    
and did not think it was as  clear as it could have been. He                                                                    
clarified that  the words "sample  annual savings  ranges by                                                                    
categories included" was not  removed. Previously, there had                                                                    
been  a column  that was  removed. The  remaining right-hand                                                                    
column was the  average spend over the periods of  FY 18 and                                                                    
FY 19. In  other words, it was spending he  thought he could                                                                    
influence  with  improved  sourcing practices.  He  was  not                                                                    
talking about saving $700 million.  He clarified that out of                                                                    
approximately   $800   million   he   might   be   able   to                                                                    
conservatively   achieve  an   annual  savings   of  between                                                                    
$25 million to $45 million.                                                                                                     
                                                                                                                                
Representative  Edgmon commented  that about  70 percent  of                                                                    
agency spending was tied to  personnel. He had heard earlier                                                                    
that  the   effort,  which  was  encouraging   in  terms  of                                                                    
achieving  savings and  efficiencies,  was  not intended  to                                                                    
reduce personnel.  Rather, it was  intended to  reduce other                                                                    
costs. He asked if he was correct.                                                                                              
                                                                                                                                
Commissioner Tshibaka  responded that when she  talked about                                                                    
targeting  $98  million to  $230  million  in reduced  spend                                                                    
through strategic sourcing over 5  years, it did not include                                                                    
reducing a single  PCN. It was simply from  changing the way                                                                    
the  state  did  procurement.  If the  legislature  were  to                                                                    
receive  a full  analysis from  Alvarez and  Marshal on  how                                                                    
they   developed  their   methodology,   it  was   extremely                                                                    
conservative.  She was  looking at  about 3  percent of  the                                                                    
state's overall procurement spend.  She reemphasized she was                                                                    
not looking at eliminating a single PCN.                                                                                        
                                                                                                                                
3:36:31 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  noted  having heard  a  presentation                                                                    
from the  department a few  days prior that  about one-third                                                                    
of the state's workforce  could be teleworking. He suggested                                                                    
that  by  combining  such  an  effort  with  the  effort  by                                                                    
Commissioner Tshibaka  there was  a quiet  revolution taking                                                                    
place.  He noted  the potential  for  reduced leasing  costs                                                                    
with people working from home  and the efforts being made by                                                                    
DOA.  He asked  the commissioner  how she  would sum  up the                                                                    
efforts to an audience such as the chamber of commerce.                                                                         
                                                                                                                                
Commissioner Tshibaka  was compelled  to move home  to serve                                                                    
Alaskans by addressing some of  the crisis' that many people                                                                    
were trying  to tackle. One of  the ways she could  help was                                                                    
to apply  her skill set  to making government  work. Members                                                                    
were seeing the  results of the efforts by the  staff at DOA                                                                    
working diligently  over the prior two  years. She continued                                                                    
that there  were different ways  of modernizing  the state's                                                                    
business practices  where cost savings could  be found along                                                                    
with  performance improvements  transforming  how the  state                                                                    
did business.  The state  would also  improve how  it served                                                                    
Alaskans   without    gutting,   thrashing,    or   slashing                                                                    
hard-working   Alaskans.  The   efforts  were   intended  to                                                                    
radically improve  how Alasa government performed  its work.                                                                    
Over  time, costs  would drop  and  services would  improve.                                                                    
Some  of   the  presentations   were  showing   glimpses  of                                                                    
improvements which was really exciting.                                                                                         
                                                                                                                                
Representative Edgmon  replied that as a  policy maker, part                                                                    
of his  job was to ensure  that the changes were  not coming                                                                    
at the  cost of  providing equitable services.  He mentioned                                                                    
reducing  DMV   offices  and  privatizing  services   as  an                                                                    
example.  He wanted  to have  a  balanced perspective,  know                                                                    
more about  the changes, and  be able to provide  a balanced                                                                    
perspective for folks that wanted more information.                                                                             
                                                                                                                                
Commissioner Tshibaka  responded that the proposals  for the                                                                    
DMV were  offered in  an attempt to  help provide  a savings                                                                    
and an  idea for consideration.  It was an idea  she thought                                                                    
could be offered without  substantially reducing services to                                                                    
Alaskans. She  had been  asked to  present several  ideas of                                                                    
ways to bridge  the budget gap the state faced.  The way the                                                                    
administration  offered  proposals  to  the  legislature  as                                                                    
policy  makers  for  consideration was  through  the  budget                                                                    
proposal.                                                                                                                       
                                                                                                                                
Co-Chair   Foster  thanked   the   commissioner  and   other                                                                    
presenters.   He  suggested   recessing   until  7:00   p.m.                                                                    
Representative Josephson noted he  would not be available at                                                                    
7:00  p.m. due  to a  subcommittee meeting.  Co-Chair Foster                                                                    
was trying to avoid interfering with subcommittee meetings.                                                                     
                                                                                                                                
3:41:43 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:42:57 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Merrick  called  the  meeting back  to  order  and                                                                    
indicated  the  committee  would   be  continuing  with  the                                                                    
presentation by DOT.                                                                                                            
                                                                                                                                
^PRESENTATION:  DIVISION  OF   FACILITIES  SERVICES  BY  THE                                                                  
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES                                                                            
                                                                                                                                
3:43:17 PM                                                                                                                    
                                                                                                                                
DOM  PANNONE, ADMINISTRATIVE  SERVICES DIRECTOR,  DEPARTMENT                                                                    
OF   TRANSPORTATION  AND   PUBLIC   FACILITIES,  OFFICE   OF                                                                    
MANAGEMENT  AND   BUDGET,  OFFICE   OF  THE   GOVERNOR  (via                                                                    
teleconference), introduced  himself. He indicated  he could                                                                    
proceed with the presentation.                                                                                                  
                                                                                                                                
3:44:12 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:44:56 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Merrick invited Mr. Pannone to continue.                                                                               
                                                                                                                                
Mr.   Pannone   introduced  the   PowerPoint   presentation:                                                                    
"Division  of Facilities  Services." He  would discuss  some                                                                    
upcoming changes proposed for FY  22. He began with slide 2:                                                                    
"Division  of  Facilities  Services." The  division  was  an                                                                    
enterprise service that  had been around since  FY 19. There                                                                    
were  two  parts  to  the   division.  The  first  part  was                                                                    
statewide public  facilities which  had to do  with vertical                                                                    
construction,   largely  capital   building  projects,   and                                                                    
included  mechanical   engineers,  professional  architects,                                                                    
engineers,  and project  managers.  The second  part of  the                                                                    
division  was  facilities  maintenance and  operations.  The                                                                    
section was  responsible for  keeping the  state's buildings                                                                    
running  including  day-to-day  repairs  and  large  repairs                                                                    
across  the  state.  The  state's  Computerized  Maintenance                                                                    
Management  System   (CMMS)  was  also  housed   within  the                                                                    
division. He would discuss the  system in more detail in the                                                                    
following slide.                                                                                                                
                                                                                                                                
Mr.  Pannone moved  to  slide  3: "Computerized  Maintenance                                                                    
Management System (CMMS)." He explained  that at the core of                                                                    
the  Division  of  Facilities  Services  was  the  CMMS.  It                                                                    
codified the  division's business processes and  allowed all                                                                    
of  the  information  of the  division's  activities  to  be                                                                    
captured up  front and  automatically. He  further explained                                                                    
that when  the division had maintenance  technicians working                                                                    
on a building,  they entered the work orders  from the CMMS.                                                                    
Building occupants  entered orders  into the system  and the                                                                    
information   arrived    automatically   on    devices   for                                                                    
maintenance  personnel.  When  a maintenance  person  bought                                                                    
parts or  serviced an appliance, the  information was logged                                                                    
into the  system and  the cost was  captured and  applied to                                                                    
the  building,   the  location,  and  all   of  the  related                                                                    
activity.  The  system  allowed for  the  division  to  have                                                                    
intelligence  and  reporting  on   what  it  was  doing.  It                                                                    
provided  visibility  and  was  a  big  driver.  There  were                                                                    
several modules within  the system that had  not always been                                                                    
available in the past. The  division used the system when it                                                                    
was   trying  to   allocate  small   portions  of   deferred                                                                    
maintenance. The  information helped  to determine  the best                                                                    
way to  spend funding across  the state. The  system allowed                                                                    
for  efficiencies such  as doing  maintenance projects  that                                                                    
were similar at the same  time. For example, the state could                                                                    
use one contractor  and one contract for both  sites. As the                                                                    
division  on-boarded other  departments,  it captured  their                                                                    
data  to have  all of  the information  centralized allowing                                                                    
for a central enterprise decision-making product.                                                                               
                                                                                                                                
3:48:44 PM                                                                                                                    
                                                                                                                                
Mr.  Pannone  advanced  to  slide  4:  "Current  and  Future                                                                    
Service."  He  relayed  that the  department  was  currently                                                                    
providing services to several  departments. The division had                                                                    
service  level  agreements  with  each  of  the  departments                                                                    
listed including the Alaska Court  System. In the agreements                                                                    
the division  negotiated what kind of  services the division                                                                    
would  provide and  the corresponding  expectations of  each                                                                    
entity.  As  a centralized  service,  the  division did  not                                                                    
remove  the   decision-making  process  from   the  customer                                                                    
agencies. They still made a  significant number of decisions                                                                    
about what happened  to their buildings and  about the level                                                                    
of services they  needed based on their  budget and business                                                                    
requirements.                                                                                                                   
                                                                                                                                
Mr.  Pannone  continued  that   the  division  provided  for                                                                    
carve-outs and  off-ramps for facilities that  might not fit                                                                    
the enterprise  service model.  For example,  specialty labs                                                                    
or a remote  cabin belonging to DFG might not  be good fits.                                                                    
The division  allowed carve-outs for departments  to be able                                                                    
to continue  managing their line  of business  and specialty                                                                    
facilities.  The  division  was looking  at  onboarding  two                                                                    
additional  departments by  the  beginning of  FY  22 -  the                                                                    
Department of Natural Resources  (DNR) and the Department of                                                                    
Environmental  Conservation  (DEC).  The division  was  also                                                                    
continuing to  define what a  service model would  look like                                                                    
for DFG,  the Department  of Military and  Veterans' Affairs                                                                    
(DMVA),  and  the  Department   of  Corrections  (DOC).  The                                                                    
division wanted the enterprise to work for all parties.                                                                         
                                                                                                                                
Mr. Pannone reported that in  FY 22 the division was looking                                                                    
to  consolidate another  centralized  function, leasing  and                                                                    
public  building  functions  from  DOA  that  OMB  discussed                                                                    
earlier. He  would provide further  detail on  the following                                                                    
slide.                                                                                                                          
                                                                                                                                
Mr. Pannone turned to slide  5: "Lease Management and Public                                                                    
Building Fund Facilities." The slide  provided an outline of                                                                    
the  budgetary components  as they  existed  in the  current                                                                    
fiscal year:  2021. In  FY 22 the  division would  be moving                                                                    
the  single  budgetary  component  that  was  currently  the                                                                    
Division  of  Facilities  Services  into  its  own  separate                                                                    
results  delivery   unit  or  separate   appropriation.  The                                                                    
division would  then combine  the budgetary  components from                                                                    
DOA  creating  one  cohesive   division.  The  change  would                                                                    
provide  enterprise-wide visibility  of  the operations  and                                                                    
maintenance  of   the  state's  buildings,   leases,  leased                                                                    
buildings,  and space  management as  a whole.  He suggested                                                                    
that as the state moved  into a post-pandemic time the state                                                                    
needed to evaluate the space  it required and the most cost-                                                                    
effective options.                                                                                                              
                                                                                                                                
3:51:54 PM                                                                                                                    
                                                                                                                                
Mr.   Pannone  moved   to   slide   6:  "Facilities   Budget                                                                    
Alignment."  He explained  that another  group of  transfers                                                                    
took  place in  the  FY 22  budget with  the  advent of  the                                                                    
Division   of   Facilities   Services  and   the   increased                                                                    
accountability  of  funds.  The division  had  identified  a                                                                    
handful of  buildings that  DOT no  longer occupied  but was                                                                    
paying  for  their  maintenance  and  operations.  Doing  so                                                                    
provided no  benefit to  the mission  of the  department and                                                                    
did  not house  any of  DOT's programs.  The buildings  were                                                                    
housing other  agencies' programs because  historically they                                                                    
had  occupied  the  space. In  identifying  the  space,  the                                                                    
division had no decision-making  ability to determine if the                                                                    
agencies  needed  the  space.   To  resolve  the  issue  the                                                                    
division transferred  the historical  UGF from  DOT's budget                                                                    
to the  occupying agencies in the  FY 22 budget in  order to                                                                    
charge  the occupants  the  DOT lease  rates.  The group  of                                                                    
buildings  he  was  referring  to would  become  part  of  a                                                                    
consistent charging  model. The occupying  agencies' budgets                                                                    
would reflect the  true costs of their  programs. They could                                                                    
make decisions into the future  as to whether they continued                                                                    
to need  the space  and whether their  dollars needed  to be                                                                    
spent  on the  space. He  relayed that  $1.1 million  of the                                                                    
costs   and   funds   being  moved   paid   for   utilities.                                                                    
Historically, if the cost of  utilities went up and DOT bore                                                                    
those  costs, it  ate into  other portions  of DOT's  budget                                                                    
lowering service. In the future  if utility rates increased,                                                                    
the agencies would  have control over who  turned the lights                                                                    
on and off. It would  be the responsibility of the occupying                                                                    
agencies  to manage  within their  budgets.  The rates  were                                                                    
based  on  actuals from  2  years  prior  and was  a  tested                                                                    
methodology for rents of DOT buildings.                                                                                         
                                                                                                                                
Co-Chair Merrick  reviewed the agenda for  the following day                                                                    
and thanked the presenters.                                                                                                     
                                                                                                                                
HB  69  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HB  71  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:55:07 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:55 p.m.                                                                                          

Document Name Date/Time Subjects
HFIN OMB FY22 Central Services Rates Overview 3.8.21.pdf HFIN 3/8/2021 1:30:00 PM
OMB HFIN supporting document 030821.pdf HFIN 3/8/2021 1:30:00 PM
DOT - HFIN 03.08.2021 DFS.pdf HFIN 3/8/2021 1:30:00 PM
DOA-HFIN HR Proc A&M Sample Client Testimonials 3-8-21.pdf HFIN 3/8/2021 1:30:00 PM
DOA-HFIN HR and Procurement 3-8-21.pdf HFIN 3/8/2021 1:30:00 PM