Legislature(2017 - 2018)BARNES 124

01/23/2017 03:15 PM LABOR & COMMERCE

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Audio Topic
03:16:36 PM Start
03:16:48 PM Discussion: Governor's Fy 18 Budget Pertaining to the Dot&pf
04:54:53 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Dept. of Transportation & Public Facilities by: TELECONFERENCED
Commissioner Marc Luiken, Dept. of
Transportation & Public Facilities; Jim Duncan,
ASEA; Steve Bradford; David Epstein;
Mark Morris
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                        January 23, 2017                                                                                        
                           3:16 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Adam Wool, Co-Chair                                                                                              
Representative Sam Kito, Chair                                                                                                  
Representative Andy Josephson                                                                                                   
Representative Louise Stutes                                                                                                    
Representative Chris Birch                                                                                                      
Representative Gary Knopp                                                                                                       
Representative Colleen Sullivan-Leonard                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bryce Edgmon (alternate)                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
DISCUSSION: GOVERNOR'S FY 18 BUDGET PERTAINING TO THE DOT&PF                                                                    
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
STEVE BRADFORD                                                                                                                  
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to Governor Bill                                                                 
Walker's proposal to outsource DOT&PF's design work.                                                                            
                                                                                                                                
DAVID EPSTEIN                                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of himself in                                                                        
opposition to Governor Bill Walker's budget.                                                                                    
                                                                                                                                
MARK MORRIS, Owner                                                                                                              
Morris Engineering Group, LLC                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in opposition to Governor Bill                                                                 
Walker's budget outsourcing DOT&PF's design work.                                                                               
                                                                                                                                
MARC LUIKEN, Commissioner                                                                                                       
Department of Transportation & Public Facilities (DOT&PF)                                                                       
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Testified  in support  of  Governor  Bill                                                             
Walker's proposed budget.                                                                                                       
                                                                                                                                
JIM DUNCAN, Executive Director                                                                                                  
Alaska State Employees Association (ASEA), Local 52                                                                             
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Testified in  opposition to  Governor Bill                                                             
Walker's proposed budget.                                                                                                       
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:16:36 PM                                                                                                                    
                                                                                                                                
CHAIR  SAM KITO  called  the House  Labor  and Commerce  Standing                                                             
Committee meeting  to order at  3:16 p.m.   Representatives Wool,                                                               
Josephson, Stutes, Birch, Knopp,  Sullivan-Leonard, and Kito were                                                               
present at the call to order.                                                                                                   
                                                                                                                                
^DISCUSSION: GOVERNOR'S FY 18 BUDGET PERTAINING TO THE DOT&PF                                                                   
  DISCUSSION: GOVERNOR'S FY 18 BUDGET PERTAINING TO THE DOT&PF                                                              
                                                                                                                                
3:16:48 PM                                                                                                                    
                                                                                                                                
CHAIR KITO announced  that the only order of business  would be a                                                               
discussion about  Governor Bill Walker's Fiscal  Year 2018 budget                                                               
and decision to outsource design engineering services.                                                                          
                                                                                                                                
CHAIR KITO explained that the purpose  of the meeting was to hear                                                               
from a  number of individuals  concerning Governor  Bill Walker's                                                               
2018  budget and  the decision  to  outsource design  engineering                                                               
services.  He read from the governor's budget, as follows:                                                                      
                                                                                                                                
     The  Department  of   Public  Transportation  &  Public                                                                    
     Facilities is  embarking on an  aggressive plan  to get                                                                    
     more  projects  completed  from the  available  federal                                                                    
     transportation   funding   by   shifting   to   private                                                                    
     contractors  not  only  for construction  but  for  the                                                                    
     design  phase as  well.   The department  will increase                                                                    
     work  to the  private sector  while shrinking  internal                                                                    
     design  staff.    This  has   the  added  advantage  of                                                                    
     bolstering the  private sector  economy.   By operating                                                                    
     with   more   contract   staff   and   fewer   in-house                                                                    
     engineering staff,  the department will  balance public                                                                    
     and private  sector specialized  expertise and  be able                                                                    
     to quickly scale  up and scale down  based on available                                                                    
     funding.                                                                                                                   
                                                                                                                                
     Including   this  budget   component,   there  are   11                                                                    
     Department  of  Transportation  [&  Public  Facilities]                                                                    
     components with design staff.   Among the 11 components                                                                    
     there  are  76  design  positions  eliminated  in  this                                                                    
     budget.   These reductions represent the  initial phase                                                                    
     of  the plan  to  maximize the  use  of private  design                                                                    
     contractors  while reducing  the  proportion of  design                                                                    
     work done in-house  to among the lowest  in the nation.                                                                    
     The department  currently contracts over 55  percent of                                                                    
     all  design work  and will  strive to  send all  design                                                                    
     work  to  contractors  by  FY   2019.    Department  of                                                                    
     Transportation  [&  Public Facilities]  positions  that                                                                    
     remain after  this initiative  will be  responsible for                                                                    
     project management and  contractor oversight as opposed                                                                    
     to hands-on  engineering work.   During  the governor's                                                                    
     FY 2018  amended submission,  and in  subsequent budget                                                                    
     cycles, more  design positions  will be  identified for                                                                    
     deletion.                                                                                                                  
                                                                                                                                
CHAIR KITO  opined that  DOT&PF has worked  well for  many years,                                                               
and the  proposed changes raise  a red  flag.  He  indicated that                                                               
this  action will  not save  the state  money, but  could end  up                                                               
costing  more  money  due  to  less  experience  at  the  project                                                               
management level  and no plan  to train engineers to  be adequate                                                               
owners, representatives, and project managers.                                                                                  
                                                                                                                                
3:19:55 PM                                                                                                                    
                                                                                                                                
CHAIR KITO,  in response to Representative  Birch, explained that                                                               
what he  had read was language  from the budget submitted  by the                                                               
governor in December [2016].                                                                                                    
                                                                                                                                
3:20:44 PM                                                                                                                    
                                                                                                                                
STEVE  BRADFORD  introduced himself  as  an  Alaskan resident  of                                                               
nearly  42 years.    He  stated that  his  qualifications are  as                                                               
follows:   over 30 years  of design and  construction experience;                                                               
10 years with the Federal  Highway Administration (FHWA), most of                                                               
that within  Alaska; 17  years with  DOT&PF; and  upon retirement                                                               
from DOT&PF,  the next 8 years  with CH2M Hill, Inc.  (CH2M), the                                                               
national consulting firm,  as a flex employee.   He elaborated by                                                               
saying that  of his 10 years  with DOT&PF, 7 of  those were spent                                                               
as a  design group chief  where he supervised 6  project managers                                                               
and  developed up  to  50-60 projects  at any  given  time.   Mr.                                                               
Bradford estimated  that during his  time as design  chief, about                                                               
30  percent of  DOT&PF  projects were  delivered by  consultants.                                                               
Mr. Bradford stated  that he retired from DOT&PF  as chief bridge                                                               
engineer, after 7 years of  overseeing the state's bridges in all                                                               
capacities   including  design,   inspection,  and   construction                                                               
assistance.   He related  he worked as  a senior  bridge engineer                                                               
while with CH2M.  He explained  to the committee his reasoning in                                                               
detailing   his  professional   career   is   to  exemplify   his                                                               
familiarity with  how consultant  teams are assembled  to utilize                                                               
their  engineering  specialists  and  staff  located  in  various                                                               
offices in  the Lower 48.   He offered further  details regarding                                                               
his background.                                                                                                                 
                                                                                                                                
MR. BRADFORD voiced his opposition  to the governor's proposal to                                                               
outsource 100 percent  of DOT&PF's design work.    He opined that                                                               
the  action  is  unnecessary  and  damages  local  and  statewide                                                               
economies.   He  stated that  DOT&PF has  demonstrated competency                                                               
over many years by successfully  delivering capital projects, and                                                               
he said  the department  currently outsources  55 percent  of its                                                               
work,  which he  opined is  a substantial  amount.   He explained                                                               
that under the governor's proposal,  approximately 300 jobs would                                                               
be eliminated statewide, with 133  coming from Anchorage, 91 from                                                               
Fairbanks, and 76  from Juneau.  Mr.  Bradford further elaborated                                                               
that  those numbers  are  in  addition to  the  76 mostly  vacant                                                               
positions  that  are  slated  for  elimination  in  FY  18.    He                                                               
clarified  that  those  positions   are  vacant  because  of  the                                                               
governor's current hiring freeze.                                                                                               
                                                                                                                                
MR. BRADFORD  shared his  belief that the  deletion of  those 300                                                               
positions would  amount to  approximately $30  million a  year in                                                               
wages.   He illustrated  that outsourcing  100 percent  of design                                                               
work  means money  would be  concentrated largely  with Anchorage                                                               
consultants, such as  CH2M, whose staff are  primarily located in                                                               
the Lower 48, and that  equates to less money circulating through                                                               
the  local economy.   He  offered a  figure of  50-70 percent  of                                                               
outsourcing to the Lower 48.                                                                                                    
                                                                                                                                
MR. BRADFORD explained  that federal funding sources  - FHWA, the                                                               
Federal Aviation  Administration (FAA),  and the  Federal Transit                                                               
Administration (FTA) -  are stable or increasing,  with over $500                                                               
million per year in construction  contracts.  Mr. Bradford opined                                                               
that  there is  no  need  to trim  DOT&PF  staff  levels, and  he                                                               
reminded  committee  members  that the  department  is  currently                                                               
outsourcing 55 percent of its design work.                                                                                      
                                                                                                                                
3:25:23 PM                                                                                                                    
                                                                                                                                
MR. BRADFORD  said President  Donald Trump  is proposing  a large                                                               
infrastructure  program  to   modernize  America's  highways  and                                                               
airports;  therefore, he  opined  that  now is  not  the time  to                                                               
disrupt a time-tested  organization such as DOT&PF.   He said the                                                               
DOT&PF  program is  built almost  entirely on  federal funds  and                                                               
very  few state  funds  - the  state match  is  generally only  9                                                               
percent.   Mr. Bradford noted  that studies done by  other states                                                               
found that  outsourcing results in  no savings to the  state, but                                                               
showed increases in design costs of 20 to 50 percent.                                                                           
                                                                                                                                
MR. BRADFORD reiterated his concern  that the governor's proposal                                                               
would damage the  state's economy by sending  $15-$20 million per                                                               
year out of  state.  He said state design  engineers have already                                                               
started  looking  for jobs  in  the  Lower  48, and  worker  loss                                                               
equates to  fewer consumers  in state.   Mr. Bradford  noted that                                                               
the state  has already  invested millions  of dollars  in hiring,                                                               
training, and equipping  these employees.  He  voiced his concern                                                               
that the governor's proposal would  leave a design, construction,                                                               
and maintenance organization  without a cadre of  designers.  Mr.                                                               
Bradford questioned where  the experience was going  to come from                                                               
to hire and  manage consultant designers, since he  said he feels                                                               
an  experienced staff  is necessary  to manage  consultants.   He                                                               
stressed  that  DOT&PF  managers,   who  lack  hands-on  personal                                                               
experience, will not be able  to adequately direct or competently                                                               
review  consultant  work  projects.     He  noted  that  DOT&PF's                                                               
designers have  a significant amount  of local knowledge  and are                                                               
able to produce designs that reflect that knowledge.                                                                            
                                                                                                                                
MR.  BRADFORD  suggested that  consultants  have  to worry  about                                                               
liability  so  their  designs are  more  conservative  and  often                                                               
result  in  more expensive  projects.    He disclosed  that  many                                                               
consultants  are not  familiar with  Alaska's short  construction                                                               
seasons, remote locations, and permafrost, et cetera.                                                                           
                                                                                                                                
MR. BRADFORD opined  that the governor's proposal is  not a sound                                                               
proposal for  improving [Alaska's] economy, but  would negatively                                                               
impact  the  Alaska's  local  and   state  economies  by  sending                                                               
additional  money south  and spending  more for  project designs.                                                               
He  warned that  the  governor's proposal  will destroy  DOT&PF's                                                               
ability  to  respond  to  emergencies  and  retain  institutional                                                               
memory, technical knowledge, and capability.   He also raised his                                                               
concern as  to why the  state would  outsource 55 percent  of its                                                               
design work and send 50-70  percent of the outsourced funding out                                                               
of the state when that money would be better spent in Alaska.                                                                   
                                                                                                                                
3:28:30 PM                                                                                                                    
                                                                                                                                
CHAIR KITO asked Mr. Bradford to  confirm that he had worked both                                                               
for DOT&PF and private engineering firms within Alaska.                                                                         
                                                                                                                                
MR.  BRADFORD confirmed  that  is correct.    He elaborated  that                                                               
during his seven years with  CH2M, he helped to develop proposals                                                               
for  projects throughout  Alaska,  which  included putting  teams                                                               
together and submitting proposals to DOT&PF.                                                                                    
                                                                                                                                
3:29:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH asked how Mr.  Bradford's mention of the 100                                                               
percent outsourcing  of DOT&PF's  design work reconciles  with "a                                                               
personal  service decrement  of $200,000  and two  permanent full                                                               
time positions" from the governor's budget.                                                                                     
                                                                                                                                
MR.  BRADFORD  noted  that the  governor's  proposal  stated  the                                                               
intent  to shift  to 100  percent  outsourcing.   He offered  his                                                               
understanding that  the only positions  that would  remain within                                                               
the department would be consultant managers.                                                                                    
                                                                                                                                
3:30:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KNOPP asked  if Mr. Bradford was  a civil engineer                                                               
by trade.                                                                                                                       
                                                                                                                                
MR.  BRADFORD answered  yes.   He stated  that he  graduated from                                                               
Oregon State University in 1971  and has been a licensed engineer                                                               
in Alaska since 1975.                                                                                                           
                                                                                                                                
REPRESENTATIVE  KNOPP asked  about  CH2M's origins.   He  offered                                                               
that  it started  up originally  as an  environmental engineering                                                               
firm,   then   got   into   the   oil   field   service   sector.                                                               
Representative Knopp asked if, during  Mr. Bradford's seven years                                                               
with CH2M, there  were ever any heavy  highway civil construction                                                               
projects undertaken, and whether any  of those were contracted by                                                               
the state.                                                                                                                      
                                                                                                                                
MR.  BRADFORD  answered  yes;  CH2M  has  a  full  transportation                                                               
business group that did a lot  of work for DOT&PF, in the Central                                                               
and Northern regions  of Alaska.  He indicated the  company did a                                                               
lot of "number structures," which  would have been designed "down                                                               
south."  He  speculated that the company may have  done the Parks                                                               
and Glenn Highway interchange.                                                                                                  
                                                                                                                                
3:32:34 PM                                                                                                                    
                                                                                                                                
DAVID EPSTEIN emphasized that although he is an employee of                                                                     
DOT&PF, he is using approved personal leave in order to testify                                                                 
on behalf of himself.  He remarked:                                                                                             
                                                                                                                                
     The  focus of  my testimony  concerns a  representation                                                                    
     made  in  a  recent briefing  on  the  administration's                                                                    
     proposal  to  outsource   [DOT&PF]  design  engineering                                                                    
     positions.   Our management explained that  the goal of                                                                    
     the proposed budget  is not to save  money, but rather,                                                                    
     reduce the  size of  the State  Government.   Given the                                                                    
     state's enormous  fiscal shortfall, I believe  that the                                                                    
     focus should be  on saving money rather  than proving a                                                                    
     point  characterized by  the privatization  of hundreds                                                                    
     of Alaskan jobs, without regard  to cost-savings.  This                                                                    
     is unfortunate  because there aren't any  cost savings.                                                                    
     Consultants are selected  based on their qualification,                                                                    
     after which  the fee is  negotiated.   Oftentimes, it's                                                                    
     not the lowest price.                                                                                                      
                                                                                                                                
     I'm  testifying  because  I've  had  a  different  work                                                                    
     experience  than many  of my  colleagues and  believe I                                                                    
     can add a different dimension to the conversation.                                                                         
                                                                                                                                
     I came to [DOT&PF] following  a career with the Federal                                                                    
     Aviation   Administration,  during   which  I   managed                                                                    
     program area  budgets for Alaska and  the western third                                                                    
     of the  country.  FAA  faced serious  fiscal challenges                                                                    
     that,  like  ours,  involved  budget  shortfalls.    We                                                                    
     developed remedies  based on evaluating the  work to be                                                                    
     done  and   finding  better  ways   to  do  it.     The                                                                    
     administration  is  seeking  to   reduce  the  size  of                                                                    
     government  without  regard   to  budget  implications,                                                                    
     impacts  on  the  travelling  public,  or  the  state's                                                                    
     ability  to acquire  and  spend federal  transportation                                                                    
     funds.                                                                                                                     
                                                                                                                                
     That the  department's performance dashboard  metric on                                                                    
     project  administrative and  engineering cost  shows we                                                                    
     are in  the green  is entirely pertinent  and something                                                                    
     that should  not be  overlooked.  It's  in the  green -                                                                    
     not the yellow, not the red  - the green.  Yes, there's                                                                    
     always room  for improvement, and  "If it  ain't broke,                                                                    
     don't fix it!"                                                                                                           
                                                                                                                                
     In  FAA,  we managed  our  way  through the  crises  by                                                                    
     optimizing  work  processes   and  maximizing  customer                                                                    
     service.  DOT is doing  the same thanks to Commissioner                                                                    
     Luiken's   prescient  view   of  fiscal   storm  clouds                                                                    
     gathering  on the  horizon, leading  to  the advent  of                                                                    
     strategic  planning  in  2011 and  more  recently,  the                                                                    
     Results Based Alignment (RBA) initiative.   I heard Mr.                                                                    
     Luiken speak to  strategic planning six years  ago.  In                                                                    
     2015,  I  helped  to  frame  the  development  of  RBA.                                                                    
     Neither were  intended to bring  about a  mass transfer                                                                    
     of work to the private sector.                                                                                             
                                                                                                                                
     3:36:07 PM                                                                                                               
                                                                                                                                
     Our  consultants, many  of whom  are employed  by firms                                                                    
     based in  the Lower 48,  know of this  budget proposal.                                                                    
     Some  of the  work they're  currently doing  for us  is                                                                    
     performed  down south.    Additional  taskings will  be                                                                    
     accomplished Outside,  to the detriment of  the Alaskan                                                                    
     economy.  As  you well know, money spent  locally has a                                                                    
     multiplier effect.   The dollars  that would  have been                                                                    
     spent in  Alaska by  our resident  design professionals                                                                    
     will  instead benefit  distant economies.   We  will be                                                                    
     left to discover what many  other states already have -                                                                    
     that  contracting  out   provides  no  clear  financial                                                                    
     benefit versus  allowing a carefully  re-engineered DOT                                                                    
     to  carry  on.   You've  already  heard Mr.  Bradford's                                                                    
     testimony  regarding  the consequences  of  outsourcing                                                                    
     project  design  in other  states  -  costs rose  by  a                                                                    
     minimum of 20 percent.   Alaska is different from other                                                                    
     states in many respects, but this is not one of them.                                                                      
                                                                                                                                
     To be  clear, I  agree that the  department is  in line                                                                    
     for  measured  organizational  changes in  addition  to                                                                    
     those  already made  based  on  strategic planning  and                                                                    
     RBA.    The  collective  bargaining  agreement  of  the                                                                    
     supervisory  unit, of  which I  am  a member,  requires                                                                    
     that decisions to  contract out be made  only after the                                                                    
     affected  agency has  conducted  a written  feasibility                                                                    
     study determining  potential costs and benefits.   This                                                                    
     process must not be violated.                                                                                              
                                                                                                                                
     I  have  heard that  the  legislature  cannot stop  the                                                                    
     administration from  implementing the  proposed budget.                                                                    
     That may  or may not be  true.  But whether  or not you                                                                    
     have  control, you  most certainly  have influence.   I                                                                    
     urge you to  apply it - with the other  body as well as                                                                    
     Mr. Walker.   Help keep  jobs that are over  90 percent                                                                    
     funded  by  the  federal  government  here  in  Alaska,                                                                    
     supporting Alaskan families and Alaskan businesses.                                                                        
                                                                                                                                
     There is much at stake, and the cure need not be more                                                                      
      harmful than the disease.  Again, thank you for this                                                                      
     opportunity.                                                                                                               
                                                                                                                                
                                                                                                                                
3:38:34 PM                                                                                                                    
                                                                                                                                
CHAIR  KITO  asked   how  long  Mr.  Epstein  has   been  in  the                                                               
engineering profession.                                                                                                         
                                                                                                                                
MR. EPSTEIN responded since November 11, 1976.                                                                                  
                                                                                                                                
3:38:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STUTES asked  how long Mr. Epstein  has worked for                                                               
the State of Alaska.                                                                                                            
                                                                                                                                
MR. EPSTEIN responded since August of 2009.                                                                                     
                                                                                                                                
3:39:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL  confirmed that  the reason for  the proposed                                                               
outsourcing  was not  to save  money but  simply to  decrease the                                                               
size of  government.  He  stated that  if the projects  are still                                                               
being  done, whether  in  house or  outsourced,  then the  budget                                                               
wouldn't  be reduced.   He  asked if,  from a  budget standpoint,                                                               
outsourcing would make the department smaller.                                                                                  
                                                                                                                                
MR.  EPSTEIN replied  that  he was  repeating  statements from  a                                                               
management  "out brief."  He stated  his  understanding that  the                                                               
meaning  of  those  statements  was   to  reduce  the  number  of                                                               
positions.                                                                                                                      
                                                                                                                                
3:39:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH  asked  if  Mr.  Epstein  holds  a  Capital                                                               
Improvement Plan  (CIP) funded  position - if  his work  ebbs and                                                               
flows   with  the   capital  project   -  or   if  he   holds  an                                                               
administrative role in the department.                                                                                        
                                                                                                                              
MR. EPSTEIN answered  that he is the Regional  Traffic and Safety                                                               
Engineer  for  the  south  coast  region.    He  stated  that  he                                                               
administers  the Highway  Safety Improvement  Program (HSIP)  for                                                               
the region;  does consulting work, answers  questions about speed                                                               
limits, stop signs, et cetera; and manages some projects.                                                                       
                                                                                                                                
REPRESENTATIVE  BIRCH asked  if  Mr. Epstein's  salary is  funded                                                               
half through  the capital budget  and half through  the operating                                                               
budget.                                                                                                                         
                                                                                                                                
MR. EPSTEIN  responded his  salary is mostly  capital, but  he is                                                               
involved in maintenance activities.                                                                                             
                                                                                                                                
3:41:31 PM                                                                                                                    
                                                                                                                                
MARK  MORRIS,  Owner,  Morris   Engineering  Group,  LLC,  stated                                                               
approximately 30  percent of the  work his  electrical consulting                                                               
engineering  firm  has done  has  been  as  a consultant  to  the                                                               
DOT&PF.  He conveyed that his  consulting firm in Juneau has felt                                                               
the drop in oil prices and dropped  from 12 employees to 4, so he                                                               
is familiar  with the pain the  state is facing.   He stated that                                                               
Draconian  cuts in  state  budget departments  as  an attempt  to                                                               
solve a  fiscal issue  will hurt  many things in  the state.   He                                                               
offered an  example of  a working couple  of a  household tapping                                                               
the earnings of their retirement  in response to a temporary drop                                                               
in income.   He implored that the political  leadership should be                                                               
doing the same thing with the  permanent fund.  He challenged any                                                               
representative  to  show   how  much  money  in   each  of  their                                                               
community's budget comes  from the state.  He  stated that Alaska                                                               
has a government-dependent  economy.  Any major  budget cuts will                                                               
put  the state  into an  economic  recession, and  will create  a                                                               
domino effect.   He  urged the legislature  to take  the earnings                                                               
from  the  Permanent  Fund Dividend  (PFD)  through  legislation,                                                               
index  the  earnings  to  the   prices  of  oil,  and  cap  state                                                               
government  based on  the Anchorage  Consumer  Price Index  (CPI)                                                               
index or something similar.                                                                                                     
                                                                                                                                
3:46:49 PM                                                                                                                    
                                                                                                                                
MR. MORRIS  stated his friend  worked with him on  the electrical                                                               
portion   of   the   Ketchikan   International   Airport   runway                                                               
reconstruction  as  a DOT&PF  employee  while  Mr. Morris  was  a                                                               
private consultant  on the project.   Design engineers  develop a                                                               
vast  knowledge of  existing state  infrastructure through  their                                                               
design work.   He  stated that  his friend  and his  coworkers at                                                               
DOT&PF have  the requisite perspective and  experience to oversee                                                               
the  work.     He  projected  that  if  all  the   work  went  to                                                               
consultants,   the   years   of  perspective,   experience,   and                                                               
understanding would  be lost:  "You cannot  outsource perspective                                                               
or  institutional  knowledge."    He testified  as  a  consultant                                                               
against the  state's putting  out more work  to consultants.   He                                                               
stated  that  consultants  are  not  incompetent,  but  lack  the                                                               
consistency  of  DOT&PF  engineers,  and it  is  unreasonable  to                                                               
expect   a   few   administrators  to   have   an   institutional                                                               
understanding of  the conditions  of Alaska's  infrastructure and                                                               
oversee  all  the  consultants' applications.    He  stated  that                                                               
shifting all work to consultants  is "exceedingly dangerous."  He                                                               
recalled  from  his  experience   on  the  Board  of  Architects,                                                               
Engineers,  and  Land Surveyors  that  the  board considered  the                                                               
impacts  on health,  safety and  welfare of  the public  with any                                                               
impact  on  Alaska's  engineering  profession.   He  offered  his                                                               
belief that  institutional knowledge  will be  lost if  much more                                                               
than 55 percent of the work is offered to private consultants.                                                                  
                                                                                                                                
3:51:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH stated that it's  hard to be critical of the                                                               
administration  for   taking  initiative  regarding   the  budget                                                               
crisis.   He stated that  [the legislature] should be  looking at                                                               
ramping  down  the government's  footprint.    He recognized  the                                                               
value of senior  employees managing contracts.  He  asked for Mr.                                                               
Morris's thoughts on a transition to a smaller footprint.                                                                       
                                                                                                                                
MR. MORRIS referenced  the governor's FY 18  budget, which states                                                               
that the  department currently contracts  over 55 percent  of all                                                               
design  work  and  will  strive   to  send  all  design  work  to                                                               
contractors  by FY  19.   He offered  his understanding  that the                                                               
administration is trying  to get rid of the  entire design staff.                                                               
He  identified that  the  majority of  the  department's work  is                                                               
civil structural work  which requires a large  support staff, and                                                               
if  the amount  of  work done  by the  department  in the  design                                                               
section  is   reduced,  then  the   supporting  staff   can't  be                                                               
justified.   This  leads  to dysfunction  and  inefficiency.   He                                                               
referenced the governor's budget  for engineering is $11 million,                                                               
which mostly comes from projects.   The department manages a half                                                               
billion dollars of work.                                                                                                        
                                                                                                                                
3:55:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL  stated that the  balance right now  is about                                                               
55  percent  private, and  45  percent  is  done  in house.    He                                                               
recognized that  the governor's proposed  budget is good  for Mr.                                                               
Morris's business.   He asked if Mr. Morris  believes the balance                                                               
now is good  - if it provides some advantage  to bring in private                                                               
consultants.                                                                                                                    
                                                                                                                                
MR. MORRIS answered  that it absolutely benefits  DOT&PF; he does                                                               
think  it's  a good  balance.    His  experience in  the  private                                                               
industry  with   other  clients  can   bring  in  ideas   to  the                                                               
department.  He developed a  technique that has become a standard                                                               
for the  department.  He  stated that there  is a benefit  to the                                                               
department using consultants, but they  both help each other; the                                                               
department  taught him  a new  method on  the last  project.   He                                                               
noted  that he  is not  an  expert on  DOT&PF, but  the ratio  of                                                               
outside work seems about right the  way it is now.  He referenced                                                               
a project  built by  consultants that  worked initially,  but was                                                               
not managed  by experts in  the field and the  consultant's error                                                               
shortened the  service life of the  infrastructure significantly.                                                               
He   stated  that   if   federal  tax   dollars   fund  a   large                                                               
infrastructure project  and a consultant's error  results in half                                                               
the expected service  life, then the state budget  will cover the                                                               
repairs and  maintenance.  The  savings in the budget  plan would                                                               
be outweighed by fixing in  mistakes that would occur without the                                                               
department's perspective.                                                                                                       
                                                                                                                                
3:59:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON commented that he  has met Mr. Morris in                                                               
Point Thomson,  after Mr. Morris  designed the  electrical system                                                               
for  the runway.    He  noted that  the  fact  that he  testified                                                               
against  his  own  professional   self-interest  makes  for  very                                                               
compelling testimony.                                                                                                           
                                                                                                                                
4:00:22 PM                                                                                                                    
                                                                                                                                
MARC LUIKEN, Commissioner, Department  of Transportation & Public                                                               
Facilities   (DOT&PF),  testified   on  Governor   Bill  Walker's                                                               
proposed budget.  He remarked:                                                                                                  
                                                                                                                                
     Like all  State of  Alaska government  agencies, DOT&PF                                                                    
     is  reducing in  size in  light of  the state's  fiscal                                                                    
     crisis.                                                                                                                    
                                                                                                                                
     Over  the last  two years  the department  has absorbed                                                                    
     the impact  of sizeable  funding cuts in  those mission                                                                    
     areas primarily funded by general funds.                                                                                   
                                                                                                                                
     In   keeping  with   our  department   core  value   of                                                                    
     excellence - which drives  continuous improvement - and                                                                    
     in light  of the state's  fiscal crisis as  so strongly                                                                    
     emphasized  by  Governor Walker  in  his  State of  the                                                                    
     State address, we are seeking  to optimize the delivery                                                                    
     of  our  capital program.    A  key component  of  that                                                                    
     optimization  is  continuous   careful  review  of  our                                                                    
     workforce size and capabilities.                                                                                           
                                                                                                                                
     Therefore,  we  have  been  looking  at  mission  areas                                                                    
     funded by the Capital  Improvement Program and have now                                                                    
     embarked  on  a more  focused  effort  to optimize  the                                                                    
     department's workforce  responsible for  delivering our                                                                    
     capital project program.                                                                                                   
                                                                                                                                
     We  are  currently   analyzing  our  operations,  which                                                                    
     includes   identifying  cost-savings   and/or  improved                                                                    
     services.  This analysis  includes the consideration of                                                                    
     contracting  out work.   However,  we are  committed to                                                                    
     doing  our due-diligence  and the  state has  bargained                                                                    
     collectively with  the unions  - the  Supervisory Unit,                                                                    
     the General Government Unit,  and Local 71 representing                                                                    
     Labor,  Trades,  and Crafts  -  that  a feasibility  or                                                                    
     efficiency study  will be conducted prior  to any final                                                                    
     decisions.    The  department intends  to  honor  those                                                                    
     agreements.   We  are currently  planning on  issuing a                                                                    
     request  for  proposal   for  a  feasibility/efficiency                                                                    
     study  to  be  completed.   After  completion,  if  the                                                                    
     initial  determination is  made to  contract out  work,                                                                    
     the  applicable  union will  be  notified  and have  an                                                                    
     opportunity  to respond  to  the  feasibility study  as                                                                    
     outlined in the collective bargaining agreement.                                                                           
                                                                                                                                
     Best  practice shows  that setting  a stretch  goal can                                                                    
     help   teams  perform   better   and  realize   greater                                                                    
     innovation.  Analyzing an  established practice such as                                                                    
     our  current  capital  project program  to  identify  a                                                                    
     potential  new business  model  is  a very  challenging                                                                    
     stretch.  It  is also a responsible  and prudent action                                                                    
     to take in today's fiscal climate.                                                                                         
                                                                                                                                
     This   direction  reflects   our  governor's   view  of                                                                    
     Alaska's  current fiscal  crisis and  is a  responsible                                                                    
     and  prudent action  given the  state's ongoing  fiscal                                                                    
     position.                                                                                                                  
                                                                                                                                
     The   end-state  of   our  capital   program  workforce                                                                    
     optimization  review will  be a  DOT&PF team  with core                                                                    
     competencies  that can  ensure contracted  program work                                                                    
     meets current quality  standards and federal regulatory                                                                    
     requirements.                                                                                                              
                                                                                                                                
     DOT&PF is a critical economic  driver for our state and                                                                    
     we  must keep  federal  transportation program  funding                                                                    
     flowing to  our state.   An optimized  DOT&PF workforce                                                                    
     that reflects  smaller government and  highly effective                                                                    
      partnering to best leverage every taxpayer dollar is                                                                      
     good for our state and good for our nation.                                                                                
                                                                                                                                
4:04:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STUTES  asked what  the cost  savings would  be to                                                               
the state.                                                                                                                      
                                                                                                                                
MR. LUIKEN  stated that the  department is still in  the analysis                                                               
process, so it's premature to identify cost savings.                                                                            
                                                                                                                                
REPRESENTATIVE STUTES asked if the  layoffs would not occur prior                                                               
to completion of the feasibility study.                                                                                         
                                                                                                                                
MR. LUIKEN stated  that's exactly what would happen  based on the                                                               
bargaining agreements with all three unions.                                                                                    
                                                                                                                                
4:06:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  asked how many positions  within DOT&PF are                                                               
funded, and how many positions are occupied.                                                                                    
                                                                                                                                
MR.  LUIKEN stated  that he  would follow  up with  more accurate                                                               
information.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH  mentioned  that  it would  be  helpful  to                                                               
understand the aggregated cost of the positions with benefits.                                                                  
                                                                                                                                
MR. LUIKEN stated that is the intent of the feasibility study.                                                                  
                                                                                                                                
4:08:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SULLIVAN-LEONARD stated  that with  an incredible                                                               
budget  deficit facing  the state,  it's commendable  to look  at                                                               
efficiency within  the department.   She asked  him to  expand on                                                               
the results-based  accounting and  the efficiencies  being sought                                                               
in this area.                                                                                                                   
                                                                                                                                
MR. LUIKEN stated that results-based  alignment is a framework to                                                               
measure   the   contribution   of  all   employees   toward   the                                                               
accomplishment of the department's mission.   The process is just                                                               
beginning, performance  data is being collected  to determine how                                                               
well the  department is  delivering their  service to  the state.                                                               
He noted  that preservation, operation,  or modernization  of the                                                               
system are  all being considered.   The department is  looking at                                                               
an optimized workforce to deliver the capital program.                                                                          
                                                                                                                                
4:10:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KNOPP stated  that  the  Kenai Peninsula  Borough                                                               
contracts out all design and project  management.  He asked if 55                                                               
percent of  the design work  includes surveying,  electrical, and                                                               
civil components.                                                                                                               
                                                                                                                                
MR.  LUIKEN  stated  that  he  will  follow  up  for  a  specific                                                               
response.                                                                                                                       
                                                                                                                                
REPRESENTATIVE KNOPP  asked if the  intent of the budget  is cost                                                               
savings or  maximizing the amount of  dollars on the street.   He                                                               
asked  if design  work is  outsourced  to save  40 percent,  then                                                               
would the 40 percent get "put out in the project."                                                                              
                                                                                                                                
MR. LUIKEN stated  that the department is  attempting to optimize                                                               
delivery of  the program.   The feasibility study will  show what                                                               
the optimized organization should be.                                                                                           
                                                                                                                                
4:13:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL asked  if  the planning  is  under the  same                                                               
formula - 90 percent federal - as other DOT&PF money.                                                                           
                                                                                                                                
MR. LUIKEN answered yes.   The planning, design, and construction                                                               
efforts are  funded with federal  capital receipts; the  ratio is                                                               
roughly 90:10.                                                                                                                  
                                                                                                                                
REPRESENTATIVE   WOOL  asked   for   clarification  whether   the                                                               
optimization  is for  the remaining  10 percent  and whether  the                                                               
balance of outsourced work can  be ascertained after the study is                                                               
completed.   He  asked  if the  department is  ready  to look  at                                                               
outsourcing jobs without knowing if it would be optimal.                                                                        
                                                                                                                                
MR.  LUIKEN  stated that  is  the  department's intent  with  the                                                               
feasibility study.                                                                                                              
                                                                                                                                
4:15:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked why the governor  would recommend                                                               
deletions before a study was done.                                                                                              
                                                                                                                                
MR.  LUIKEN  stated  that  the language  in  the  budget  doesn't                                                               
clearly  represent  the  administration's intention,  and  a  new                                                               
version of the FY 18 budget will have different language.                                                                       
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked  if the target for  savings is the                                                               
10 percent  general fund or  the 90 percent  match.  He  asked if                                                               
the goal  is to repurpose  the 90  percent to hire  10 Oklahomans                                                               
rather than  7 Alaskans, and if  the department is allowed  to do                                                               
that.                                                                                                                           
                                                                                                                                
MR. LUIKEN  stated the department  is trying to find  the optimum                                                               
balance  and  organizational  structure to  deliver  the  capital                                                               
program.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  JOSEPHSON indicated  his appreciation  that there                                                               
would be  some vacating  of positions due  to the  fiscal crisis.                                                               
He  asked if  some  deletions  are due  to  the shrunken  capital                                                               
budget  or are  an  attempt to  shift some  work  to the  private                                                               
sector.                                                                                                                         
                                                                                                                                
MR. LUIKEN  stated that from  2014 to today, the  capital program                                                               
has gone from $2 billion to  $750 million.  He asserted that it's                                                               
reasonable to expect a requisite  adjustment to the number of the                                                               
folks delivering the capital program.                                                                                           
                                                                                                                                
4:17:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STUTES asked  if there has been  any research done                                                               
to  know if  the  private sector  can  provide the  professionals                                                               
needed for  the outsourced positions  as opposed to going  out of                                                               
state to look for qualified individuals.                                                                                        
                                                                                                                                
MR.  LUIKEN stated  that is  what the  feasibility study  will be                                                               
looking at.                                                                                                                     
                                                                                                                                
4:18:51 PM                                                                                                                    
                                                                                                                                
CHAIR KITO asked whether the  revised language in the budget will                                                               
keep the 76 positions eliminated in the current language.                                                                       
                                                                                                                                
MR.  LUIKEN stated  that it  would be  best [to  answer] to  wait                                                               
until  the state  has a  settlement with  the General  Government                                                               
Union based on the filed grievance.                                                                                             
                                                                                                                                
CHAIR  KITO asked  when the  feasibility study  "would be  on the                                                               
street" and when the committee would see the study results.                                                                     
                                                                                                                                
MR. LUIKEN responded that the  department is developing a request                                                               
for proposal, is expecting to advertise  by the end of the month,                                                               
and  will  have  an  award  by  the  beginning  of  March.    The                                                               
department wants  a third party to  look at what is  asked for in                                                               
the  study.   He  stated  that the  target  is  six months  until                                                               
results would be available.                                                                                                     
                                                                                                                                
CHAIR KITO  asked for  confirmation that the  study would  not be                                                               
complete before the  legislature completes its work on  the FY 18                                                               
budget.                                                                                                                         
                                                                                                                                
MR. LUIKEN stated that is correct.                                                                                              
                                                                                                                                
CHAIR KITO expressed his concern  that action is taking place and                                                               
all of  the design division  is expected  to be outsourced  by FY                                                               
19, when the  study won't be available until the  FY 19 budget is                                                               
addressed.  He asked if  federal funding for capital projects has                                                               
been stable in the last five years.                                                                                             
                                                                                                                                
MR. LUIKEN stated that it has  been stable and is increasing.  He                                                               
noted that with  the "Fast Act," Alaska is  now receiving roughly                                                               
$500 million  in federal highway  apportionment, and  that amount                                                               
will go up 3 percent every year.                                                                                                
                                                                                                                                
CHAIR KITO asked if Alaska  receives a similar match with federal                                                               
aviation funds.                                                                                                                 
                                                                                                                                
MR. LUIKEN said  the federal aviation funds are  fairly steady or                                                               
possibly decreasing and are around the $160-million range.                                                                      
                                                                                                                                
4:22:05 PM                                                                                                                    
                                                                                                                                
CHAIR KITO asked if Mr.  Luiken anticipates any swings in capital                                                               
funding for highways or aviation.                                                                                               
                                                                                                                                
MR. LUIKEN answered that he does not.                                                                                           
                                                                                                                                
CHAIR KITO asked,  with the steady funding, how  much of DOT&PF's                                                               
design  or construction  work is  encompassed within  the federal                                                               
highway and federal  aviation sectors.  He asked how  much of the                                                               
work that DOT&PF does is federal  aviation and highway.  He asked                                                               
if there are general fund  projects happening and what percentage                                                               
of the capital work is with the two federal programs.                                                                           
                                                                                                                                
MR. LUIKEN stated the vast majority of the work is federal.                                                                     
                                                                                                                                
CHAIR  KITO clarified  that  the  work is  close  to 100  percent                                                               
federal work.   He  asked if  the decline  in the  capital budget                                                               
would be a reason for a decrease in staffing levels.                                                                            
                                                                                                                                
MR. LUIKEN answered it would not.                                                                                               
                                                                                                                                
CHAIR  KITO  noted that  the  state  had  a design  program  that                                                               
capitalized  on work  that other  states could  not complete  and                                                               
drew in millions of dollars  on top of the regular apportionment.                                                               
He asked if that has historically been the case.                                                                                
                                                                                                                                
MR. LUIKEN  affirmed that the  department has been  successful at                                                               
having   enough  design   work   ready  to   accept  the   August                                                               
reapportionment by  FHWA.   He clarified  that those  funds don't                                                               
come from other  states, they come from other  programs funded by                                                               
federal  highways and  are distributed  to the  states that  have                                                               
additional  capacity.   Alaska has  been successful  at garnering                                                               
chunks of that money.                                                                                                           
                                                                                                                                
CHAIR  KITO asked  if  Mr.  Luiken would  agree  that the  DOT&PF                                                               
design program, with  the current split of  55 percent contracted                                                               
out, has  been successful in  completing and  advancing projects.                                                               
He added  that to  his knowledge,  Alaska has  never had  to turn                                                               
money  back  to  the  federal government  for  not  completing  a                                                               
project.                                                                                                                        
                                                                                                                                
MR. LUIKEN  stated that is right.   He attributed the  success to                                                               
the organization  and how well it  does its job.   He stated that                                                               
[the budget] is not about the efficacy of the department.                                                                       
                                                                                                                                
CHAIR KITO  added that the  department is  able to draw  money in                                                               
that was  not originally  allocated, and  it is  efficient enough                                                               
that that money  is never turned back to  the federal government,                                                               
He concluded  that this is a  strong testament to the  success of                                                               
the setup of the system right now.                                                                                              
                                                                                                                                
4:25:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH asked  if  the  department is  entertaining                                                               
proposals for  operating the bar  and lounge areas of  the marine                                                               
highway system.                                                                                                                 
                                                                                                                                
MR. LUIKEN  answered that  the proposal  before the  committee is                                                               
more  oriented to  the  operating  budget.   He  stated that  the                                                               
department  hasn't  found  anyone   who  expects  to  make  money                                                               
operating [the bar and lounge].                                                                                                 
                                                                                                                                
4:26:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL asked  if federal  funding is  determined by                                                               
how much the state can offer or on a project by project basis.                                                                  
                                                                                                                                
MR. LUIKEN outlined that the  funding apportionment is based on a                                                               
formula.   In Alaska,  the apportionment is  $5 for  every dollar                                                               
the  state  commits  to  the  federal  trust  fund.    The  state                                                               
contributes approximately $90 million  to the highway trust fund,                                                               
and based on the formula, $500 million returns to the state.                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL clarified  that the  feasibility study  will                                                               
determine if  the department  will outsource all  or part  of the                                                               
design program.   He asked  if the  76 positions [proposed  to be                                                               
eliminated] were determined by a negotiation with the union.                                                                    
                                                                                                                                
MR.  LUIKEN noted  that those  positions were  identified through                                                               
position  management   -  looking   at  unfilled   positions  and                                                               
positions filled  by seasonal workers  or people soon  to retire.                                                               
The  positions wouldn't  have  been  filled by  the  end of  this                                                               
fiscal  year.   He stated  that this  was the  initial effort  to                                                               
identify the positions.                                                                                                         
                                                                                                                                
4:29:34 PM                                                                                                                    
                                                                                                                                
JIM   DUNCAN,   Executive   Director,  Alaska   State   Employees                                                               
Association  (ASEA),   Local  52,  testified  on   Governor  Bill                                                               
Walker's proposed  budget.  He  stated that the  union represents                                                               
7,800  employees.     He   noted  that   actions  taken   by  the                                                               
administration and  the legislature have reduced  government over                                                               
the past 18 months.   He acknowledged that part of  his job is to                                                               
oversee  the  implementation  and  enforcement  of  a  collective                                                               
bargaining agreement with the state.   The current agreement goes                                                               
from July  1, 2016, to  June 30, 2019.   He stated that  when the                                                               
governor  introduced  his budget  it  was  clear it  contained  a                                                               
violation  of the  contract and  that  a grievance  needed to  be                                                               
filed.  He  stated his respect for the governor,  and opined that                                                               
it shows courage to take strong actions.                                                                                        
                                                                                                                                
MR. DUNCAN recognized that the  governor and departments have the                                                               
right  to manage  operations  as  they see  fit  to best  deliver                                                               
services.    They  also  have  a  responsibility  to  follow  the                                                               
collective bargaining  agreement, which is clear  about procedure                                                               
for  outsourcing positions.   He  referred to  article 13  of the                                                               
bargaining agreement, and quoted: "The  employer has the right at                                                               
all  times   to  analyze  its   operation  for  the   purpose  of                                                               
identifying  cost savings  opportunities." He  referenced another                                                               
portion of the  agreement, saying "the decisions  to contract out                                                               
should be  made only  after the effected  agency has  conducted a                                                               
written   feasibility  study."   He  noted   that  the   language                                                               
previously read [in the governor's  budget] says the decision has                                                               
already  been  made  -  76   positions  will  be  eliminated  for                                                               
outsourcing in  FY 18, and  another 300 positions  in FY 19.   He                                                               
noted the  language contained no  reference to cost savings  as a                                                               
basis for  making that decision,  but mentioned the need  to prop                                                               
up the  private sector.   He stated  that the  administration has                                                               
the responsibility to follow  the collective bargaining agreement                                                               
and proper processes  for outsourcing positions.   He pointed out                                                               
there was no mention of doing  a feasibility study, and the first                                                               
mention  of  a feasibility  study  was  after the  grievance  was                                                               
filed.                                                                                                                          
                                                                                                                                
4:33:40 PM                                                                                                                    
                                                                                                                                
MR.  DUNCAN   reminded  the  committee  that   according  to  the                                                               
agreement, a feasibility study must  be done before a decision is                                                               
made.  The  union filed a class action grievance  to protect jobs                                                               
of the  members and ensure that  the method of the  department is                                                               
in the  best interest  of the  State of Alaska.   He  offered his                                                               
opinion that  outsourcing DOT&PF  is not in  the interest  of the                                                               
State of  Alaska.   He mentioned that  after being  questioned by                                                               
the  committee  about  cost-savings,   the  commissioner  had  no                                                               
answer.   He  concluded  that  this is  because  the decision  to                                                               
outsource  was made  without any  consideration or  analysis cost                                                               
savings.                                                                                                                        
                                                                                                                                
MR.  DUNCAN  mentioned  that  over   the  years,  the  state  has                                                               
increased contracts with  consultants without feasibility studies                                                               
or  cost analysis.   The  union  found that  the average  "loaded                                                               
rate"  for  DOT&PF  engineers is  $100-120  per  hour,  including                                                               
benefits,  and the  minimum contract  with  consultants has  been                                                               
$200 per hour  and up to $450.   He stated that it  costs more to                                                               
outsource  work  than  to  use competent  state  employees.    He                                                               
expounded that  it is not  in the best  interest of the  State of                                                               
Alaska  to  privatize just  for  the  sake  of privatizing.    He                                                               
conveyed that some folks feel  that "how you reduce government is                                                               
not to  reduce cost, you just  get rid of people."  He noted that                                                               
fewer state employees  can increase the cost to  provide the same                                                               
service through the private sector.   He emphasized that the main                                                               
issue is:  "Does this  make sense because  it's going  to benefit                                                               
the State of Alaska and the people  of the State of Alaska, or is                                                               
it being done only because there  are those who would like to see                                                               
less  state employees  on the  payroll?" He  maintained that  the                                                               
answer is the latter.                                                                                                           
                                                                                                                                
4:37:12 PM                                                                                                                    
                                                                                                                                
MR. DUNCAN stated that the union  has filed a grievance and is in                                                               
step  two of  three  in the  process.   The  state responded  and                                                               
denied the grievance  without any explanation.   He informed that                                                               
he instructed  his staff to  advance the grievance to  step three                                                               
and  ask for  expedited arbitration.   He  is confident  that the                                                               
grievance will  prevail, but  by then  the budget  decisions will                                                               
have  been made  and the  department will  follow the  budget [as                                                               
planned].   He stated  that in  a meeting  with the  governor, he                                                               
noted  his preference  to  have  a settlement.    He mentioned  a                                                               
settlement  should   go  back  to  ground   zero:  the  positions                                                               
eliminated  in 2017  and  2018  would not  be  eliminated in  the                                                               
governor's  budget, the  language  "completely outsource  design"                                                               
would disappear from the budget.   He stated the other problem is                                                               
that any study conducted by  DOT&PF after the administration made                                                               
the  decision to  outsource isn't  credible.   The study  must be                                                               
done by an  independent, neutral third party, who  has no ongoing                                                               
or close relationship with anyone  in the administration in order                                                               
to  have an  objective  outcome.   He  mentioned  that the  union                                                               
should be able to  comment on those who respond to  the RFP.  The                                                               
study should  be as  independent and as  credible as  possible to                                                               
give the administration more insight.                                                                                           
                                                                                                                                
4:41:15 PM                                                                                                                    
                                                                                                                                
MR.  DUNCAN maintained  that the  study must  clearly define  the                                                               
cost  of providing  services from  the public  sector verses  the                                                               
private sector.   He asserted that  it's a roll of  the dice, but                                                               
he is  willing to bet  that it's  more expensive to  provide this                                                               
service  in the  private  sector  than to  do  it with  competent                                                               
public employees.   He stated from  experience that privatization                                                               
studies can  list a cost  for the  first year, and  decisions are                                                               
made  on that,  but  the  costs increase  year  after  year.   He                                                               
instructed  not to  do just  a one-year  study, but  a three-  or                                                               
five-year projection  of costs.   He stated that any  action must                                                               
ensure the money  going to the private firms must  stay in Alaska                                                               
to  benefit  the private  sector.    He  opined that  he  doesn't                                                               
believe that the department was  going to do a feasibility study.                                                               
He reemphasized that a study must  be done and done in accordance                                                               
with guidelines.   He stated  that although it is  a management's                                                               
right to  determine how to  manage and explore  privatization, he                                                               
does not advocate privatizing the  design function of DOT&PF.  He                                                               
offered his  belief that the answer  may be of great  benefit for                                                               
other privatization efforts coming along.                                                                                       
                                                                                                                                
4:44:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH  asked  whether  there is  a  term  in  the                                                               
agreement related to financial exigency.                                                                                        
                                                                                                                                
MR.  DUNCAN stated  there is  no financial  exigency term  in the                                                               
contract.   There is a  possibility to negotiate provisions  in a                                                               
contract  to  reopen  under certain  circumstances,  such  as  if                                                               
revenues went to a certain level.   He stated his belief that the                                                               
members of  the union  recognized the  state's situation  and did                                                               
their part by giving up pay increases and taking furlough hours.                                                                
                                                                                                                                
REPRESENTATIVE BIRCH stated that the approximate cost of $200-                                                                  
$400 per hour for a consultant is a good deal.                                                                                  
                                                                                                                                
4:47:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KNOPP  noted that most testifiers  today mentioned                                                               
work and  money leaving the state.   He agreed that  the study is                                                               
necessary  and  that  a  study  conducted by  a  third  party  is                                                               
appropriate.   He  asked how  much  of the  55 percent  currently                                                               
being outsourced is going to out-of-state firms.                                                                                
                                                                                                                                
MR. DUNCAN stated  he doesn't know the figures of  what work goes                                                               
outside the  state.  He noted  that DOT&PF should be  asking that                                                               
of any  new contractor.  He  conveyed that the 45  percent of in-                                                               
house work  is staying in  Alaska, and  he asked, "Why  should we                                                               
worry about 10 or  15 percent of the 45 percent  ... when we know                                                               
that  100 percent  of that  45 percent  is staying  in the  state                                                               
right now?"                                                                                                                     
                                                                                                                                
REPRESENTATIVE KNOPP  asked if  Mr. Duncan  would agree  that the                                                               
per hour  figure for a  state employee verses a  contractor's bid                                                               
is a fair comparison, considering salary and hours worked.                                                                      
                                                                                                                                
MR. DUNCAN stated  his belief that it is a  fair comparison.  The                                                               
$100-120 figure  is a "loaded  rate"; it's  a lot more  costly to                                                               
use  contractors.     He  expressed  that   state  employees  are                                                               
committed to  doing the job  and can  accomplish the task  in the                                                               
same number of hours as a private consultant.                                                                                   
                                                                                                                                
4:51:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL asked if the  55 percent currently outsourced                                                               
used to be 25 percent and how it's  changed.  He asked if this is                                                               
a point of contention between the union and the state.                                                                          
                                                                                                                                
MR.  DUNCAN answered  that  it is  a point  of  contention.   The                                                               
contracts  are  negotiated  every   three  years,  and  at  every                                                               
negotiation  this  is  an  issue.   The  state  has  been  slowly                                                               
contracting out services  and not doing feasibility  studies.  He                                                               
mentioned that a  slow trickle-out of jobs has been  going on for                                                               
years.   The union has asked  the state to stop,  but the current                                                               
budget brought  it to the  point where  a grievance needed  to be                                                               
filed.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  WOOL  asked  for  Mr. Duncan's  response  to  Mr.                                                               
Luiken's  comments   that  the  76  positons   were  unfilled  or                                                               
seasonal.                                                                                                                       
                                                                                                                                
MR. DUNCAN stated that he is  not surprised they are unfilled due                                                               
to  the governor's  hiring freeze.    He emphasized  that if  the                                                               
budget  recovers, those  positions may  be needed,  and once  you                                                               
move  those  76 positions  out,  getting  them  back in  will  be                                                               
difficult.   The department is  removing positions of  staff that                                                               
can do design work.                                                                                                             
                                                                                                                                
4:54:53 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor  & Commerce  Standing Committee  meeting  was adjourned  at                                                               
4:55 p.m.                                                                                                                       
                                                                                                                                

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