Legislature(2017 - 2018)BARNES 124
01/23/2017 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Discussion: Governor's Fy 18 Budget Pertaining to the Dot&pf | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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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