Legislature(1999 - 2000)
04/11/2000 08:05 AM House STA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 11, 2000
8:05 a.m.
MEMBERS PRESENT
Representative Jeannette James, Chair
Representative Joe Green
Representative Jim Whitaker
Representative Bill Hudson
Representative Beth Kerttula
Representative Hal Smalley
Representative Scott Ogan
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 85(RLS)
"An Act relating to credited service in the public employees'
retirement system for temporary employment."
- MOVED CSSB 85(RLS) OUT OF COMMITTEE
HOUSE BILL NO. 444
"An Act relating to nongovernmental activities of state agencies,
including the University of Alaska; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: SB 85
SHORT TITLE: CREDITED SERVICE FOR TEMP EMPLOYEES:PERS
Jrn-Date Jrn-Page Action
2/22/99 325 (S) READ THE FIRST TIME - REFERRAL(S)
2/22/99 325 (S) L&C, FIN
3/04/99 (S) L&C AT 1:30 PM FAHRENKAMP RM 203
3/04/99 (S) -- MEETING POSTPONED TO 3/9
3/09/99 (S) L&C AT 1:30 PM FAHRENKAMP 203
3/09/99 (S) MOVED CS (L&C) OUT OF COMMITTEE
3/09/99 (S) MINUTE(L&C)
3/10/99 463 (S) L&C RPT CS 1DP 3NR SAME TITLE
3/10/99 463 (S) DP: MACKIE; NR: TIM KELLY, DONLEY,
LEMAN
3/10/99 463 (S) FISCAL NOTE (ADM)
3/31/99 (S) FIN AT 8:00 AM SENATE FINANCE 532
3/31/99 (S) HEARD AND HELD
3/31/99 (S) MINUTE(FIN)
1/21/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
1/21/00 (S) Heard & Held
1/21/00 (S) MINUTE(FIN)
2/07/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
2/07/00 (S) -- Meeting Postponed 2/11/00 --
2/11/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
2/11/00 (S) Moved CS(Fin) Out of Committee
2/11/00 (S) MINUTE(FIN)
2/11/00 2270 (S) FIN RPT CS 5DP 1NR NEW TITLE
2/11/00 2271 (S) DP: TORGERSON, ADAMS, PETE KELLY,
2/11/00 2271 (S) WILKEN, LEMAN; NR: PHILLIPS
2/15/00 2301 (S) FISCAL NOTE (ADM)
3/09/00 (S) RLS AT 11:30 AM FAHRENKAMP 203
3/09/00 (S) MINUTE(RLS)
3/29/00 (S) RLS AT 12:15 PM FAHRENKAMP 203
3/29/00 (S) MINUTE(RLS)
3/30/00 2796 (S) RLS TO CALENDAR W/CS 03/30 NEW TITLE
3/30/00 2797 (S) PREVIOUS FISCAL NOTE (ADM)
3/30/00 2797 (S) READ THE SECOND TIME
3/30/00 2797 (S) RLS CS ADOPTED UNAN CONSENT
3/30/00 2798 (S) ADVANCED TO THIRD READING UNAN
CONSENT
3/30/00 2798 (S) READ THE THIRD TIME CSSB 85(RLS)
3/30/00 2798 (S) PASSED Y19 N- A1
3/30/00 2800 (S) TRANSMITTED TO (H)
3/31/00 2801 (H) READ THE FIRST TIME - REFERRALS
3/31/00 2801 (H) STA, FIN
4/11/00 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 444
SHORT TITLE: STATE GOVERNMENT ACTIVITIES
Jrn-Date Jrn-Page Action
4/06/00 2889 (H) READ THE FIRST TIME - REFERRALS
4/06/00 2889 (H) STA, FIN
4/06/00 2889 (H) REFERRED TO STATE AFFAIRS
4/11/00 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
JEAN SMITH, Legislative Administrative Assistant
to Senator Jerry Mackie
Alaska State Legislature
Capitol Building, Room 427
Juneau, Alaska 99801
POSITION STATEMENT: Presented sponsor statement for SB 85.
EARL CLARK
9163 Parkwood
Juneau, Alaska 99801
POSITION STATEMENT: Commented on SB 85.
CLARKE DAMON
PO Box 455
Douglas, Alaska 99824
POSITION STATEMENT: Commented on SB 85.
VERNON MARSHALL, Executive Director
National Education Association-Alaska
114 Second Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified in opposition of SB 85.
GUY BELL, Director
Division of Retirement & Benefits
Department of Administration
PO Box 110203
Juneau, Alaska 99811-0203
POSITION STATEMENT: Answered questions regarding SB 85.
JEFF BARNHART
Kodiak, Alaska
POSITION STATEMENT: Testified in support of SB 85.
JOE DINNOCENZO
Kodiak, Alaska
POSITION STATEMENT: Testified in support of SB 85.
LOUIS BENCARDINO
Seward, Alaska
POSITION STATEMENT: Testified in support of SB 85.
MICHAEL DEAN
Alaska Department of Fish and Game
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 85.
ANNETTE DEAL, Staff
to Representative John Cowdery
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
POSITION STATEMENT: Presented sponsor statement for HB 444.
BARBARA COTTING, Staff
to Representative Jeannette James
Alaska State Legislature
Capitol Building, Room 102
Juneau, Alaska 99801
POSITION STATEMENT: Answered questions regarding HB 444.
REPRESENTATIVE JOHN COWDERY
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
POSITION STATEMENT: Testified as sponsor of HB 444.
PAMELA LABOLLE, President
Alaska State Chamber of Commerce
217 Second Street, Suite 201
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of HB 444.
MARCO PIGNALBERI, Legislative Assistant
to Representative Cowdery
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
POSITION STATEMENT: Answered questions regarding HB 444.
JACK KREINHEDER, Senior Policy Analyst
Office of Management & Budget
PO Box 110020
Juneau, Alaska 99811-0020
POSITION STATEMENT: Provided information on HB 444.
ANDREE MCLEOD
Anchorage, Alaska
POSITION STATEMENT: Commented on HB 444.
ACTION NARRATIVE
TAPE 00-31, SIDE A
Number 0001
CHAIR JEANNETTE JAMES called the House State Affairs Standing
Committee meeting to order at 8:05 a.m. Members present at the
call to order were Representatives James, Whitaker, Kerttula, and
Smalley. Representatives Green, Hudson, and Ogan arrived as the
meeting was in progress.
SB 85-CREDITED SERVICE FOR TEMP EMPLOYEES:PERS
Number 0099
CHAIR JAMES announced the first order of business is CS FOR
SENATE BILL NO. 85(RLS), "An Act relating to credited service in
the public employees' retirement system for temporary
employment."
JEAN SMITH, Legislative Administrative Assistant to Senator Jerry
Mackie, Alaska State Legislature, presented the sponsor statement
for SB 85 on behalf of Senator Mackie. She said SB 85 is a
familiar piece of legislation that has actually been around
several times since 1992; it became more important as departments
tried to minimize impact of downsizing because it is a simple
mechanism to cut personnel costs. She explained that currently
temporary employees in the Public Employees' Retirement System
(PERS) can buy back their temporary time; however, it does not
count toward their minimum service needed for retirement. She
stated that SB 85 amends the statutes that would allow employees
to buy up their temporary time and have it credited.
MS. SMITH commented that SB 85 also amends the statutes by adding
a public service benefit that entitles a person to a retirement
benefit if he/she had at least two years of paid-up PERS service
and a total of at least five years of combined PERS and Teachers
Retirement System (TRS) service. When the Department of
Education switched from PERS to TRS years ago, the employees that
were in PERS were not able to count that time toward their
retirement, so they got caught in the middle. Temporary service
under the retirement system provides that the full actuarial cost
of using this temporary service be paid by the employee, and
there are absolutely no general funds involved in the proposal.
She informed the committee that there is a $4,000 designated PERS
fund source for computer modification, and the legislation will
allow the state to realize immediate cost savings by enabling
employees to meet retirement eligibility thresholds sooner.
Employees prone to use SB 85 are in the Tier I system, and
employees replacing Tier I employees generally would be Tier II
and III. She acknowledged that not only are their steps lower,
but the supplemental benefits cost to the state is substantially
lower too.
MS. SMITH remarked that SB 85 was introduced at the request of
several Kodiak constituents, has received support from several
Alaskan workers, has many support letters, and has letters from
the AFL-CIO and the Teamsters Union. She reminded the committee
that SB 85 is a responsible piece of the puzzle in the
development of Alaska's long-term budget system and it is an
easy, simple remedy. She added that SB 85 is a responsible
economic tool that can be used to minimize the impact of
downsizing state government.
Number 0417
EARL CLARK said he was recruited late in his career to come to
the University of Alaska to help develop the University of Alaska
Juneau. He explained that after five and one half years, he left
the University and sought a career at the state level. He had a
little difficulty getting jobs for one reason or another. He has
about three and one half years of part-time service and three
years, four months of full-time, permanent service with the
state. He has approximately 11 years of service to the state but
does not qualify for a retirement program; SB 85 will assist him
in qualifying for a retirement which he would like to have. He
is a good example of how a person can get caught in the middle
between two retirement systems, and SB 85 would attempt to
rectify that.
CLARKE DAMON indicated that in 1972 he accepted a position at the
Department of Education. Besides having various training
positions, he was the Veterans' Affairs (VA) recruiting officer
for the Veterans' Administration. A number of committee members
had asked him if he knew the rules of retirement, why did he not
stick around. The way the question is phrased means that the
government program is probably more of a disincentive than an
incentive for people to progress and work with the state. He
understood that the state has six different retirement programs,
and transferability between programs is quite impossible in many
cases. He had left the Department of Education after three and
one half years because at that point the department was
reorganized, and the manpower training function was moved to the
Department of Community and Regional Affairs. He said that the
VA recruiter's responsibilities were moved to the new
Postsecondary Commission. Before the move, two employees were
doing the student financing under VA approval; shortly after the
Postsecondary Commission was established, it had 20 people doing
what two people had done before. He explained that is an example
of reorganization.
Number 0823
MR. DAMON commented that then he took a position with the
Department of Highways as a training officer, and during that
phase the Department of Public Facilities and the Department of
Highways merged. As training officer, he had the responsibility
of 135 state employees, and thus witnessed retirement programs in
action. He indicated that a number of people had many years in
service, and they had to stick it out so to speak because they
could not afford to make a move. He recalled that production
probably could have been greater. When he realized that the
state was exempt from the U.S. Employment Retirement Income
Security Act (ERISA), which requires the private sector to vest
employees within five years [it was too late for him to make
adjustments]. He had assumed that [ERISA] would apply to the
state too so he did not think about it. He informed the
committee that in his lifetime, he had managed to get involved in
six different retirement programs, and Section 39.35.375 of SB 85
seems to affect him.
MR. DAMON said that in a study that he had conducted, he analyzed
and researched the contributions that he and the state had made.
He had researched the fund earnings over the 20 some years and
compounded these contributions through fund earnings until 1997
when he would have been eligible for retirement. He assumed that
he was to receive a $606 benefit each month, which consists of
$348 of health benefits and $258 cash. He projected that figure
into the future, assuming the funds would have eight percent
earnings, and found that his contributions would pay 217 months
of his benefit at which time he would be switching over to the
state contribution, and that value was over $500,000 earning
about $4,000 each month.
MR. DAMON noted that he went a step further as a result of
discussion with legislative staff people who had asked why did he
not stick it out. He explained that he had decided to assume
what would have happened if he had invested his [retirement
contribution] money in the same way as the state. He explained
that if he had not taken a pension and had left the money to be
invested his heirs would have had $1 million if he had died at
250 months as projected by mortality tables. If SB 85 passes, he
would receive a benefit of about $151,000. If that is the case
when he passes away, the [state retirement] fund still would have
approximately three quarters of a million dollars left over based
on contributions made on his behalf.
MR. DAMON had evaluated retirement programs after the fact, and
he should have done so when he first interviewed. When he
interviewed for his job, he had been told how great the
retirement program was in Alaska compared with any place else,
but now he is finding out that is not the case. As he evaluates
his experience with school districts' and state departments'
retirement programs, he notes that there are numerous
disincentives built right into the programs. Mr. Clark had
alluded to the fact that he had a little less than 13 years'
experience with the state and still does not receive benefits.
Mr. Damon emphasized that he believes that if other retirement
programs were to be compared, a person could work an entire state
career and still probably have nothing.
MR. DAMON gave an example of how disincentives are built into the
retirement system. He asked the committee to assume that there
is a teachers' aide who has less than five year's experience in
the aide job [covered by PERS] but then acquires a teaching
degree and has the opportunity to take a teaching position
[covered by TRS]. He asked the committee if it would suggest
that the teachers' aide move into the profession under TRS,
wherein two or three years' probation is required and another
eight years to reach vesting, or would it recommend that the
teachers' aide stay as a teachers' aide for another year just so
that he/she can get that magical five years of retirement.
MR. DAMON said that as a taxpayer, the example is a disincentive
that stifles personal goals, ambitions, training, development,
improvement, and experience because people are locked into a
retirement system by official barriers.
Number 1227
VERNON MARSHALL, Executive Director, National Education
Association-Alaska (NEA), spoke in support of SB 85.
GUY BELL, Director, Division of Retirement & Benefits, Department
of Administration, said that SB 85 allows employees to use their
temporary service toward either 20- or 30-year-out depending upon
which branch of service they contributed toward. He explained
that SB 85 also has to do with legislative employees who worked
temporary service before 1979 but have not yet claimed that
service, and it allows them to claim that service toward a
conditional retirement benefit by paying the full cost. A very
small number of former employees were affected by SB 85, and
their inclusion was the result of an addition that the Senate had
made to SB 85. Further, SB 85 deals with the public service
benefit which Mr. Clarke and Mr. Damon have discussed. The
public service benefit would allow a person with at least two
years of paid-up PERS service to add that with TRS service to get
to the five-year vesting requirement in PERS to receive a
benefit. He indicated that SB 85 is basically made up of those
three components, and there is a very small fiscal note which has
to do with some relatively modest computer modifications funded
with non general fund retirement system money.
Number 1348
REPRESENTATIVE OGAN informed the committee that he is amazed at
how many people the committee has seen this year regarding
retirement benefits. He asked if Mr. Bell was getting concerned
that the retirement system was experiencing a run and setting a
precedent. He asked if it does not cost anything, why not just
allow people to make a choice of whether they want to retire at
20 or 30 years of work with the state. He acknowledged that
people pay more [to opt out at 20], so why not retire them out
earlier. He continues to be amazed at the benevolence of state
government in caring for people from cradle to grave. He asked
Mr. Bell to comment about that.
MR. BELL replied he would categorize the legislation this year in
two or three pieces. The Division of Retirement & Benefits did
submit a retirement system clean-up bill that just had to do with
administering efficiencies of the system, and that bill had been
waiting for a long time. The other aspect of it is the ability
of certain categories of employees to pay to go from a "30 and
out" to a "20 and out" program. He recognized that the "20 and
out" category would include police dispatchers, non-certificated
correctional officers, and some other categories. The "20 and
out" program requires employees to pay full actuarial cost; so
from the retirement system's perspective, there is no cost to the
retirement system whether the employees are city or state
employees. There is no cost to the system because it is up to
the employee to pay the full cost, either by paying up front or
by paying over time through reduction in their benefits. Those
are the two general types of legislation, whereas SB 85 is
slightly different, but the only section that would have a fiscal
impact has been addressed by requiring the employee to pay full
cost. He noted that temporary service is certainly service for
the employer whether it be the state or another employer in the
PERS, and the employee has worked 20 or 30 years, but it just
happens that part of that time was temporary. He explained that
SB 85 allows employees to pay the costs to attribute that
temporary time toward "20 and out" or "30 and out" and the
employees have certainly put in the years.
Number 1528
REPRESENTATIVE OGAN commented that he is concerned from a policy
level that the committee is getting "easy." One of the
testifiers had made a decision to change careers, and now the
testifier is asking the committee to retroactively vest him in
his first retirement. He asked Mr. Bell if that was a fair
characterization.
MR. BELL replied that it was a fair characterization.
REPRESENTATIVE OGAN inquired if Mr. Bell had any idea how many
people SB 85 could affect, because there have to be more people
who maybe made career decisions early on and worked for one
outfit in TRS and then switched over to the PERS later on.
MR. BELL indicated that his division did do a count by accessing
the division's computer system in order to review records of
people with paid-up service in PERS who had less than five years
and who also had TRS service but with combined service had a
total of five years. The division had counted 22 people out of
70,000 members in the system.
Number 1729
CHAIR JAMES reminded Representative Ogan that Mr. Damon had taken
his own retirement contributions and the matching state
contributions and projected those contributions to ascertain what
the contributions on deposit would have earned. She added that
Mr. Damon's and the state's contributions would have earned a
huge amount of money, and the retirement kept that money of what
she considers was his money if he is not able to use it for
retirement. Maybe the state wants to keep people's money, but
she has a little problem with the whole procedure if people do
not remain on the job long enough, all the money the people paid
in goes away.
MR. BELL stated that Mr. Damon could have had his retirement
contribution refunded, but he chose not to do so because he feels
that he would get a much more valuable benefit through passage of
SB 85. If SB 85 passes, then Mr. Damon would get the benefit of
a defined benefit formula, which is funded not only by his
contribution but also by employer contributions.
CHAIR JAMES asked if it was true that part of the contributions
that the employer makes is considered to be part of the
employee's wages.
MR. BELL replied that the employee contribution is a deduction
from the employee's salary.
Number 1749
REPRESENTATIVE WHITAKER asked if it was correct that employer
contributions would stay in the system if the employee chose to
take the employee contribution plus interest out.
MR. BELL answered in the affirmative.
REPRESENTATIVE WHITAKER said that benevolence has an inherent
notion of cost associated with it, and he thinks that the word
"benevolence" may be inappropriately used here because it appears
to him that there is no cost to the system or state. He asked
Mr. Bell to please clarify that point.
Number 1801
MR. BELL noted that SB 85 is a public service benefit. When a
person leaves early and cashes out, then the system gains from
those contributions that the employee made. Those gains are used
to fund benefits of other people who are vested in a benefit, so
it is like a windfall. If the windfall increases investments
greater than anticipated, the windfall can bring employer rates
down, and that is to the benefit of employers. He indicated that
SB 85 is reducing the windfall by a small amount because these
people are going to get a benefit who otherwise would not have
received one. He agreed that a portion of the windfall will be
wiped out by passage of SB 85.
REPRESENTATIVE WHITAKER inquired if there was an estimate as to
the amount of the windfall reduction as it relates to the 22
people.
MR. BELL replied that the fiscal note does provide an estimate,
and the division had reviewed it between the PERS and the TRS
because the division would draw money from both PERS and TRS.
The division had measured the windfall reduction at less than
$700,000. He recognized that $700,000 might sound like a lot,
but it is taken out of a fund asset liability of $12 billion so
the windfall reduction is 7/1000ths of one percent. He
acknowledged that yes, there is a very small cost, but it has no
impact on the funding status of the system or on employer rates
because it is such a small portion of the total fund.
Number 1893
REPRESENTATIVE WHITAKER inquired as to the percentage of the
benevolence cost.
MR. BELL answered 7/1000ths of one percent.
REPRESENTATIVE HUDSON remarked that the trigger in the PERS and
TRS programs is the period of vesting, and both employer and
employee contribute to the investment portfolio. When an
employee leaves prematurely, he/she has an opportunity to
withdraw his/her funds plus interest accrued, thus no longer
being affiliated with the trust fund. He asked Mr. Bell what
happens to the employers' contribution at that point.
Number 2042
MR. BELL answered that the contributions made by each employer
(there are 100 and some employers in the retirement system) go
through the employer's separate account in the PERS, and those
contributions stay with that employer's account.
REPRESENTATIVE HUDSON asked if the contributions offset the
employer's contributions.
MR. BELL replied that over time the division actuaries compare
the assets (how much money has built up) of the employer with its
expected liabilities and that comparison results in a rate for
that employer. Employee contributions are credited to the
appropriate employer's account to be used for future benefits,
and obviously the employer's contribution for the employee is not
the employee's money, but is used for some other employee who in
the future will receive retirement benefits.
REPRESENTATIVE HUDSON stated that the committee will be
establishing a precedent wherein any future employee fitting into
the same category as described in SB 85 will benefit from SB 85
if the committee passes SB 85. The precedent applies to 22
people today, but it does mean that from here on out anybody else
who falls under the SB 85 category will have legal recourse to
benefit from SB 85. He asked Mr. Bell if that was a correct
understanding.
Number 2113
MR. BELL answered in the affirmative because there is no sunset
clause in SB 85, so SB 85 would be permanent. He said that in
the past some people did not know the impact of the decisions
that they had made on their potential benefit, or they thought
they might come back into PERS and gain the five years. He
noted that now people can make their plans based on SB 85 because
it would become a permanent part of the law.
REPRESENTATIVE HUDSON explained that he had pointed out the
precedent because it is a policy question beyond the people who
are in it right now since SB 85 will be effective from here on
out.
Number 2149
CHAIR JAMES agreed with Representative Hudson's point about
precedent and commented she has been thinking that if the people
are not vested they can take their money out while the rest of
the money remains in the fund. The time required for vesting is
to encourage people to stay. If they do not stay, then they do
not get the benefit. She reiterated that vesting is like a
carrot to encourage people to stay because if they stay long
enough, they will be vested.
MR. BELL indicated that Chair James was correct in her
explanation. Another issue is that if immediate vesting were
offered in a system, it would be very costly because a person
could stick around for one day and then show up at age 65 to
collect benefits.
REPRESENTATIVE OGAN asked Mr. Bell if he thought it was the
state's responsibility to retroactively vest an employee who
worked for the state but was not vested.
MR. BELL replied that the theory behind SB 85 is that if a person
has five years or more total paid-up service combined between
PERS and TRS, sufficient money has been contributed to the system
by the employee and the employer to provide a deserved benefit
for the employee. It should be called a public service benefit
because it is a benefit that is paid for by both systems. Having
worked for five years, the person should be entitled to receive
some benefit, and that is the policy question raised in SB 85.
Number 2277
REPRESENTATIVE OGAN said that he is looking at people who did not
make a decision to move on to a higher paid job in a different
bureaucracy but did not get vested for some reason. He remarked
that he thinks there is an issue of fairness here. He added that
maybe a person took a job in the private sector. Again, he asked
if the state is going to go back and retroactively pick up five
years for that person. He supposed that the state could do that
so then the person would be vested in the system. He reiterated
that he just sees this trend coming where everybody will [try to
get in], and he thinks the committee is heading down a real
slippery slope.
Number 2345
REPRESENTATIVE WHITAKER agreed that SB 85 is a question of
fairness and acknowledged that these individual employees have
contributed, employers have contributed on their behalf, and the
system is receiving a windfall rather than the individual
accruing the benefit. He emphasized that it truly is a question
of fairness and these individuals deserve fairness. He stated he
supports SB 85 and would like to see it move.
REPRESENTATIVE OGAN said that people who work for a PERS or TRS
employer and do not stay five years also contribute to
retirement, but they never get their money. He asked Mr. Bell if
that also was a windfall.
MR. BELL inquired if Representative Ogan was talking about people
in TRS who just stay in the system for less than the vesting
period.
REPRESENTATIVE OGAN replied yes or he said PERS too. He noted
that his wife had worked for the state for three years and
contributed. He commented that she has about $12,000 in the
retirement system, but she is not vested because she does not
continue to work for the state. He asked if she could get her
money and is her money a windfall.
CHAIR JAMES inquired if Representative Ogan's wife had received
her contributed money back.
REPRESENTATIVE OGAN explained that his wife did take her money
out of the supplemental benefits system (SBS) but not PERS.
Number 2419
MR. BELL mentioned that Representative Ogan's wife could withdraw
her PERS contribution at any time, or she could return to a PERS
position and eventually become vested and be eligible for
benefits. He indicated that there is the future "carrot" if a
person returns to a PERS position and becomes vested.
REPRESENTATIVE OGAN reiterated that the state [employer]
contribution becomes a windfall to the PERS.
Number 2438
MR. BELL replied yes, because of all those people who do not
reach the vesting requirement and that factor is built in to the
funding of the system. The division expects that some people
will leave state employment [before reaching vesting] and that
will reduce overall costs to the benefit of everyone else.
REPRESENTATIVE OGAN asked if one of the testifiers could have
taken his contribution out of PERS at any time.
MR. BELL answered yes.
REPRESENTATIVE OGAN remarked that the testifier chose not to.
MR. BELL answered yes.
MS. SMITH reminded the committee that this whole thing started
back in 1980 when the Blue Ribbon Commission on Personnel did a
report and made the decision that the state was ripping off its
employees. She added that the Blue Ribbon Commission demanded
equity. She asked the committee to remember back to legislature
days when some legislative employees were temporary [range] 19s
and 15s and permanent 21s and 15s. She recognized that there was
no fairness because an employee could work all year and still be
temporary. She acknowledged that management did allow employees
to be temporary all year so that people could get a paycheck and
more people could keep working. She reiterated that it was the
Blue Ribbon Commission that originally recommended this change.
Number 2518
REPRESENTATIVE HUDSON inquired where in SB 85 the inequity is
corrected.
MS. SMITH answered that it is partially there where employees are
allowed to buy back their temporary time, but in the past,
employees were not allowed to use that time to count toward
retirement eligibility. She explained that the buy-back part had
been the part that was fixed originally.
Number 2518
REPRESENTATIVE HUDSON asked if there was something in SB 85 that
takes care of the temporary service.
MS. SMITH replied that the whole intent behind SB 85 is the next
layer after the first layer was already laid. She said the first
layer was allowing employees to buy back their benefits whereas
SB 85 allows them to buy back their eligibility threshold.
CHAIR JAMES noted that it also allows employees to put PERS and
TRS together.
MS. SMITH agreed that combining PERS and TRS was another
increment. She had researched the history of what is now SB 85
and found that it is a downsizing tool being used all across the
country. She commented that SB 85 is a way to minimize the
impact [of downsizing] and many personnel systems are doing what
SB 85 does.
Number 2617
JEFF BARNHART testified via teleconference from Kodiak in support
of SB 85. In 1999 the legislature had asked the people of Alaska
to bring forth ideas that would provide cost savings for the
state, and SB 85 does exactly that. He had one and a half years
of temporary time that he had worked in the 70s, and this bill
would allow him to claim that temporary time toward his
retirement eligibility. The administration also has determined
there are no costs associated with SB 85, and it does in fact
provide a cost savings to the state. He urged the committee to
support SB 85 and pass it out of committee today due to the
shortness of the legislative session. In the words of the bill's
sponsor, Jerry Mackie, "It is the right thing to do."
JOE DINNOCENZO testified via teleconference from Kodiak in
support of SB 85. He is a state employee and works in Kodiak.
He said he is not sure if SB 85 would benefit him or not, but it
definitely will provide an incentive for some long-time employees
to retire early with an increased retirement benefit which they
have already paid. He reiterated that he thinks that SB 85 is
the right thing to do morally, and it will save the state money.
The legislature has been looking for ideas to save money, and he
thinks SB 85 is a good positive way to do it. He urged the
committee to get SB 85 passed this year.
Number 2710
LOUIS BENCARDINO testified via teleconference from Seward in
support of SB 85. He explained that back in 1975 and 1976 the
city of Seward had chosen to become a member of PERS but the city
did not include temporary employees' back time even though the
employees had worked 40 hours a week. He commented that the city
of Seward has five employees that have temporary time ranging
from three months to two years still hanging out there. He
really would like to have a way to pick up those employees' back
time in SB 85.
CHAIR JAMES asked Ms. Smith if SB 85 would affect the people Mr.
Bencardino is talking about.
MS. SMITH answered yes and indicated that there are a couple of
vendors that are cities and municipalities who are under the
PERS. She informed the committee that SB 85 is not just for
state employees but is also a mechanism for municipalities to
realize savings in city budgets by letting some of their long
term employees retire.
Number 2792
CHAIR JAMES said that she believes that when people are around
longer they are better at what they do, and other people benefit
from the older workers. She acknowledged that it is the general
trend to get more expensive workers to quit and hire in some less
expensive people under a different, not-so-generous tier of
retirement. This trend does generate cost savings although that
cost savings cannot be measured in relation to the cost of
training new employees. Training costs are not recognized, but
she is not going to oppose SB 85 for that reason. She does not
necessarily agree that getting rid of expensive employees and
hiring cheaper ones is a savings.
Number 2845
MS. SMITH stated that it is up to the employee to make the
decision, since SB 85 is not a mechanism that forces the employee
to retire.
MICHAEL DEAN, Alaska Department of Fish and Game, testified via
teleconference from Anchorage in support of SB 85. He has been a
state employee for over 23 years. He explained that SB 85 would
allow him to take two years of temporary time that he had bought
back in the early 80s and use it to reach his eligibility
threshold for retirement. He urged the committee to expedite SB
85 as quickly as possible to get it through the House.
REPRESENTATIVE HUDSON commented that he had reviewed all of the
fiscal implications and found that there is no cost to the
employer. One policy in SB 85, Section 1, that he really
appreciates, which the Senate had added, is the application to
all temporary credited service. He indicated that temporary
credited service is an area where jobs are taken by dedicated
people. He recognized that those employees could get a refund
from PERS, but they could never use the time put in on those jobs
as an accrual toward retirement. From a policy perspective,
since SB 85 has a very limited application, he has some sympathy
toward the 22 people who are in between two systems. He noted
that those people had contributed money and time to both PERS and
TRS.
REPRESENTATIVE HUDSON stated that he is inclined to support SB 85
because it takes care of temporary employees by allowing them to
accrue retirement benefits. If SB 85 becomes law, the
legislature is setting in motion an opportunity for employees for
the next 50 years. He acknowledged that for people who are
already in PERS, SB 85 is great and he can support that, although
he might have preferred to have a sunset date on SB 85. With a
sunset date all employees now caught betwixt and between would be
taken care of and future employees would be advised that they had
to choose one or the other. However, he will not hold it up for
that reason.
TAPE 00-31, SIDE B
Number 2907
REPRESENTATIVE HUDSON made a motion to move CSSB 85(RLS) out of
committee with individual recommendations and the attached fiscal
note; he asked unanimous consent. There being no objection, CSSB
85(RLS) moved from the House State Affairs Standing Committee.
CHAIR JAMES called for a brief at-ease at 8:55 a.m. and called
the meeting back to order at 8:56 a.m.
HB 444-STATE GOVERNMENT ACTIVITIES
Number 2874
CHAIR JAMES announced the next order of business is HOUSE BILL
NO. 444, "An Act relating to nongovernmental activities of state
agencies, including the University of Alaska; and providing for
an effective date."
ANNETTE DEAL, Staff to Representative John Cowdery, Alaska State
Legislature, read the sponsor statement for HB 444 as follows:
House Bill 444 requires state agencies to annually list
which of their activities are "not inherently
governmental." Inherently governmental function is
defined as "a function that is so closely related to
the public interest that it requires performance by
state governmental employees." Section 2(c) of the
bill contains several paragraphs of elaboration for
this definition.
What does that mean? Two things ... and let us use the
court system as an example. Obviously our judicial
branch is inherently governmental because they make
decisions that bind our state, our lives, our liberty.
However, the support staff that collects the fees,
records the transcripts, and gathers information are
non-inherently governmental.
House Bill 444 first of all requires each state agency
to identify activities that are not inherently
governmental in nature. Secondly, upon decision to out
source an activity by the agency, it requires
consideration of all realistic and fair costs of
government agency performance when comparisons are made
with private sector costs.
Interested persons may challenge the inclusion or
omission of an activity on a list. A challenge and
appeal process is defined in the bill.
While a modest requirement, making a list is an
important first step. House Bill 444 does not mandate
any type of privatization, but does provide the basis
for long-term, consistent efforts toward cost effective
government.
Also provided for you is Public Law 105-270. It is the
"Federal Activities Inventory Reform Act" (FAIRA). It
passed congress in 1998 and was signed into law by
President Clinton in October of that year.
House Bill 444 is a mirror of this law, only it applies
on a state level.
Since 1998 federal departments have complied with this
requirement. These lists are available on line to the
public. There have been challenges to the list by
employees, private industry, and unions. These
challenges and appeals work through the process and
often the decision is reversed upon gathering of new
information.
I recently spoke with an individual in Washington, D.C.
from the Office of Management and Budget (OMB). The
Office of Management and Budget is currently working on
an amendment in congress that would take the FAIRA
legislation one step further. This amendment would
list all activities and categorize them either as
inherent or not. This allows the private sector to
make informed decisions. There is currently no easy
way for individuals to figure out what the omissions
from the list are.
House Bill 444, however, does not go that far, it
simply requires a list be made of the non inherently
governmental activities. This allows future policy
makers to become more informed. It is merely the first
step in making intelligent decisions about government
services.
Number 2704
REPRESENTATIVE SMALLEY asked Ms. Deal if she had any idea what
the fiscal note might be.
MS. DEAL replied that she had not heard from the administration
what the fiscal note may be.
CHAIR JAMES asked if Ms. Deal had any idea what the fiscal note
was on the federal law.
MS. DEAL answered that she is not positive about that, but she
does know that HB 444 only requires a listing. She said that in
missions and measures some departments are already identifying
which services are non governmental. She explained that HB 444
provides access for the public to the information that
departments are gathering and allows unions and employees to
challenge a decision.
Number 2660
REPRESENTATIVE OGAN asked if the fiscal note was requested in a
timely manner.
BARBARA COTTING, Staff to Representative Jeannette James, Alaska
State Legislature, replied that the fiscal note was requested
last Friday (4/7/00).
REPRESENTATIVE OGAN said the chair has the authority to issue a
fiscal note if administration drops the ball.
REPRESENTATIVE OGAN moved that the committee issue a zero fiscal
note.
CHAIR JAMES asked if there was any objection.
Number 2628
REPRESENTATIVE WHITAKER requested a two-minute at ease to think
about the motion.
CHAIR JAMES said it was her prerogative as chair to issue a
fiscal note, but she believes that the committee can mandate or
tell the chair what it wants her to do.
REPRESENTATIVE OGAN withdrew his motion. He informed the
committee that HB 444 does have a House Finance Committee
referral, and that would give the administration adequate time to
come up with a fiscal note at the next hearing.
MS. DEAL said she does not have any evidence that the
administration is against HB 444. As far as she knows, the
administration was very cooperative when the Commission on
Privatization did its studies. She explained that the
administration had also worked with the House Finance Committee
on a regular basis in performing missions and measures, which do
include some government core activities.
Number 2573
REPRESENTATIVE KERTTULA asked Ms. Deal where attorneys and the
Department of Law fit into HB 444. She mentioned that HB 444 is
bothering her because she sees the section about the
interpretation or execution of the laws, and then the section on
page 3, line 14, talks about gathering information for providing
advice, opinion, recommendations, or ideas. It looks to her as
if attorneys fit in both places.
MS. DEAL replied that each department is responsible for making
the decision on its own, and then the attorneys have the right,
if they do not agree with the department, to challenge the
decision. Those are the checks and balances that are built into
HB 444. However, she thinks that if an attorney makes a decision
that binds the state in an economic matter, military action, or
it affects life, liberty, or property, then that is an inherently
governmental function.
Number 2511
REPRESENTATIVE KERTTULA asked what about a legal assistant under
HB 444 who is gathering information that is necessary for the
attorney to provide advice.
MS. DEAL answered that there is authority to delegate. The
person responsible for ultimately making a decision is the person
who is inherently governmental; that person can delegate
authority to somebody to gather information without giving away
his/her inherently governmental authority to make a decision.
REPRESENTATIVE KERTTULA reiterated that a legal assistant would
not be inherently governmental.
MS. DEAL replied that she did not believe that a legal assistant
would be inherently governmental.
REPRESENTATIVE KERTTULA said she envisioned that a situation
could arise in the Department of Law whereby attorneys for the
department were designated governmental but everybody who worked
with them would not be inherently governmental.
Number 2465
CHAIR JAMES said that private industry who provide staff
sometimes are very successful and have specific types of people.
The problem with private industry is that the staff change jobs
quite often, and there is no job guarantee for those folks
because the company can decide that it is going to do something
differently. She agreed that there certainly is a benefit in
hiring temporary people because all of the benefits are paid for
by the company they work for as opposed to this company. She
indicated that over the years [businesses] have used those kinds
of companies quite a bit, and they are still being used. She
remarked that the North Slope very often contracted work out to
temporary-hire companies. She added that if contracting out is
what is under discussion here, and she thinks it might be, then
there certainly is an advantage in identifying both kinds of jobs
which could be provided by some manpower company.
Number 2346
REPRESENTATIVE GREEN stated that he had read lines 14 and 15 on
page 2 in answer to Representative Kerttula's concern. He said
it seems those statements would remain in the judgment of the
agency; therefore, legal assistants would be considered non-
inherently or inherently governmental as the agency judged, so he
does not think the problem would be created that Representative
Kerttula foresees.
REPRESENTATIVE KERTTULA said HB 444 defines what inherently
governmental activities means, which she thinks is just going to
be extremely difficult to figure out. She sees how HB 444 is
going to go in big circles, and she thinks the sponsor is trying
to get correct information from the agencies. If HB 444 means
staff versus decision-making responsibilities, then it should be
stated clearly. She commented that she thinks that HB 444 is
going to cause big internal arguments about what is or is not
inherently governmental. She mentioned that HB 444 just will not
work with attorneys being hired by the state but not staff
because a big problem will be created of people coming on and off
the job. She was just seeking clarity and is afraid that HB 444
will cause confusion for the agencies.
Number 2267
REPRESENTATIVE HUDSON remarked that he has reviewed Section
44.64.050 on page 4, line 29, as the principle purpose behind HB
444 in that it would provide, contrary to almost every signed
labor contract with the unions, an alternative way of privatizing
positions in state government. He recognized that HB 444 directs
the administration, and OMB as its backup, to list every position
that works for it following the description in legislation.
Every job is to be listed that does not fit within this inherent
government activity, and then it will be declared a free position
outside the labor contract's control.
REPRESENTATIVE HUDSON directed the committee to page 4, line 9,
where it can be seen that there is a challenge and an appeal
section wherein individuals can appeal the fact that their job
has been listed outside of the governmental realm and is
susceptible to be literally bid out. He directed the committee
to go on down to the procurement-listed activity because in his
way of thinking that is the nut of HB 444. Now that government
has this list of non-inherently governmental employees, all of
those positions are no longer in a protected class if the
administration, the legislature, or anybody else wanted to
contract out the positions. He asked if he is reading HB 444
correctly.
Number 2147
CHAIR JAMES agreed that Representative Hudson is reading HB 444
correctly. It seems to her as if that is the issue, and as
painful as it might be to discuss this issue, she thinks it is
extremely important. She acknowledged that whenever dealing with
people, their lives, and their ability to make a living, it is
very sensitive; therefore, the committee needs to make sure that
it is doing its job in that respect.
MS. DEAL remarked that unions are generally opposed when services
are transferred to the private sector. However, when unions have
the chance to bid at the same level and with the same criteria as
private industry, they do not oppose. She added that HB 444
creates more efficient, effective government and the quality of
service that is being performed goes up.
Number 2067
REPRESENTATIVE JOHN COWDERY, Alaska State Legislature, said last
year the U.S. Army came down [to Juneau] and gave a briefing to
legislators [regarding FAIRA]. He said that HB 444 is not going
to take everything away and all union contracts are going to be
off. He did not want to sound like he was into privatization
here and reiterated that what the Army did was allow anybody who
had been displaced by FAIRA to have first right of refusal to
work for the new entity who was now taking over the federal job.
He said that all HB 444 does is to identify non-inherently
governmental jobs, but it is not saying that [those jobs have to
be privatized]. He is just asking the agencies to identify
within their own agency what is inherently governmental.
MS. DEAL explained that the gist of HB 444 is to have non-
governmental activities listed; that is all it is so it is not
[targeting] any one person's job, but it lists a type of activity
that is performed. She commented that no out source or
privatization is required rather it is the agency's decision if
it would like to take building maintenance or electrical work and
out source it.
Number 1966
REPRESENTATIVE HUDSON mentioned that the explanation is nothing
novel or new because he out sourced when he was commissioner of
the Department of Administration. He indicated that much work
temporary in nature was put out to contract, and that provision
is in labor contracts. He remembered writing that provision into
the contract, and the unions did not like it. The administration
had written into the contract that management could contract out
services anytime it wanted, and the union agreed, providing that
management could show that contracting out cost less than having
a state employee do the work. He remarked that the level of
privatization that already goes on in state government is fairly
large. If HB 444 is only trying to identify what government is
doing, then that goes along with what the legislature does every
year in examining every line of the budget. Every budget that
comes before each subcommittee requires a mission and measurement
provided by the director of that budget. He assumed that if
there are things in the budget that should be privatized, nothing
in the labor contracts (and the committee can ask the union
people here) would deny the state's opportunity to do that. He
said that the state already has the power requested by HB 444.
Number 1879
CHAIR JAMES stated that it is very difficult to find job
qualifications to compare what and how people do their jobs. She
said that HB 444 would provide the job qualifications, and as
painful as it might be, this would be a good idea. It is her
personal belief and opinion that a private industry could not be
found to provide the services that many state employees currently
do at the same wages. She explained that HB 444 [information]
would be available to the general public, whereas the public does
not have a clue as to what goes on in government now. She
commented that all the public knows is that government is a big
bureaucracy that costs a heck of a lot of money, and the public
thinks it is unnecessary. If HB 444 did nothing more than inform
the general public about what goes on in government, it would be
worth the money.
Number 1792
MS. DEAL said that the basis for HB 444 is to create a list of
activities and to provide it to the public for them to review.
She indicated that OMB on the federal level wants all government
activities on a list because the public does not know where to go
to figure out what the government is doing or where to go for
information. She agreed that it is almost impossible for a
layman to read the budget even when missions and measurements are
provided by departments.
PAMELA LABOLLE, President, Alaska State Chamber of Commerce,
testified that the Chamber is in support of HB 444. Over the
interim the Privatization Commission reviewed a number of issues
regarding privatization, and it was unanimous among all the
subcommittees that understanding what is involved in state
agencies (who does what jobs and what the costs are) is very
difficult to find out. She noted that lack of knowledge made it
really impossible for the Commission to determine what the costs
were and what could be privatized and what could not or even what
the jobs were.
MS. LABOLLE explained that HB 444 would go a long way toward
creating understanding and making knowledge available to the
public about what jobs state agencies do, and which of those can
only be done by state agencies. She commented that HB 444 leaves
it up to state agencies if they want to procure other sources for
doing the job. In answer to Representative Kerttula's concern,
the federal government is listing its job activities, and Ms.
LaBolle considers the state to be a microcosm compared to the
federal government. If the federal government can figure it out,
she would think that the state could figure it out; it is better
to do it now while the state is relatively small than to wait 20
years when the state has become a much larger government trying
to wrestle with this problem.
Number 1552
CHAIR JAMES said that there is definitely a difference in the way
things are done between the private sector and government jobs.
She noted that leaders in government bureaucracy are elected and
are politically motivated; therefore, being politically motivated
they want to do a good job because that gives them credibility.
Government leaders change every four years or at the maximum
eight years, so there is no real interest in getting to the
bottom line of these issues because it never appears on the radar
screen. She commented that with HB 444 the legislature can set
in motion rules and regulations that the administration would
follow which would naturally give the needed information to make
those decisions, as well as let the rest of the state know. She
mentioned that she thinks that HB 444 is one of the best pieces
of legislation that has come before the committee, and she is
very impressed.
REPRESENTATIVE GREEN asked the sponsor if he saw HB 444 as having
potential to produce many time-consuming activities for
departments or would HB 444 provoke litigation.
Number 1351
MS. DEAL indicated that she saw that in federal reorganization
alone, the federal government immediately saw a cost savings.
She recognized that there is always the chance of possible
litigation, and that is what the appeal process hopefully would
take care of. The example she has been tossing around in her
head is about legislative staff. She asked if legislative staff
are inherently governmental or not. Some people would say that
legislative staff are inherently governmental because they gather
information to help elected officials who are core governmental
units. Other people would say that legislative staff are non-
inherently governmental because they do not make decisions or
push the buttons. Therefore, she does not know the answer to
Representative Green's litigation question, but she does
acknowledge that litigation can occur.
REPRESENTATIVE GREEN said he was not thinking as much of making a
list as defending the list. He noted that the first pass through
is done through the OMB and the department, and then an appeal
can be made to the department on the decision. His concern is
whether HB 444 ties up somebody in the department and asked Ms.
Deal if she had seen any indication of that on the federal
review.
Number 1233
MS. DEAL commented that challenges are made by unions and by the
private sector.
CHAIR JAMES mentioned that the difference between inherently
governmental and non is a little cloudy to her because what
really is important is who is doing the job and how much time it
takes to learn the position. If the activity is not core
government activity, the state could stop doing it; if it needs
to be done, the private sector will pick it up. She acknowledged
that HB 444 does not just identify job classifications but also
identifies what the position does and net result of the activity.
She remarked that a service activity or an informational position
can be identified and then it can be ascertained if someone in
the private sector could do the same thing. She added that HB
444 is not about contracting out necessarily, but it could be
part of that, and she thinks it gives people who are managing the
government a much better handle on what government should be
doing. The legislators would also have a better understanding of
whether or not they would want to make policy regarding
activities listed under HB 444. Therefore, HB 444 is not really
a privatization issue, but it certainly opens the door to decide
what is the best way to do a job.
Number 1070
MS. DEAL stated that HB 444 is a road map. She reiterated that
HB 444 starts the process here and can go into many different
directions. She said that privatization is a broad word, and
there are many forms of privatization such as transferring a job
to a different level, department, putting it on a volunteer
basis, or putting it out to the private sector. She explained
that out sourcing or contracting out is totally up to the agency
who is the policy maker.
REPRESENTATIVE OGAN assumed that the committee is in the stage of
deliberating HB 444.
CHAIR JAMES said there was one more person to testify.
REPRESENTATIVE OGAN commented that he would hold off.
REPRESENTATIVE HUDSON mentioned that historically the big battle
in government has always been between union and non-union exempt
service employees because exempt service employees can be hired
off the street at the will of the person who is doing the hiring.
Every department head, including himself when he was
commissioner, wanted to have as many exempt positions as
possible. He indicated that having exempt positions meant that
he did not have to go through the union list, and the union knows
this. The manager wants to have flexibility, and HB 444 will go
one major step further because it will potentially produce a list
of people throughout state government who are not really in a
protected service whatsoever. He emphasized that the people will
be in the union and in a job but when they take the job they will
have to know that the job is up for bid anytime someone wants to
come along. If HB 444 becomes law, many government jobs will be
at risk of out sourcing without any union protection.
REPRESENTATIVE HUDSON stated he is nervous about the fact that
every time the legislature meets, it gives departments new
responsibilities, takes away old ones, moves responsibilities
around, and gerrymanders how government is supposed to function
by virtue of the budgeting process. He noted that if HB 444
passes, many jobs that people thought were stable will now be at
risk because they will fall into the non-inherently governmental.
In the meantime employees bought their houses, committed to their
children's education and everything else, thinking they had
stable jobs.
REPRESENTATIVE HUDSON agreed with Ms. Deal that HB 444 lists the
jobs at this time but the list is not being prepared just to have
something to do. He informed the committee that the list is
being prepared so that government has a definition and many
defined jobs will be susceptible to page 5, line 6 "when a state
agency decides to obtain a private person to perform a listed
activity they use competitive sealed bidding." At that point,
the job comes under the purview of a sealed bidding process,
which might be good or not. He acknowledged that some elements
of HB 444 are good, but page 5, line 6, makes him think about
many of his neighbors who are going to be in jobs that are
potentially at risk.
Number 0709
CHAIR JAMES remarked that she does not think that every line in
HB 444 is perfect but she is not judging that at this point in
time. She is looking at HB 444 strictly from a policy point of
view. Passage of HB 444 is very remote, however, she thinks that
the discussion taking place is very good and the idea is good.
Any idea like HB 444 so far afield from where government is right
now takes much time and deliberation to figure out what the
consequences would be, but she thinks the theory is excellent.
Government does not shrink very well by itself; rather it has a
tendency to grow over time because the right hand does not know
what the left hand is doing. State government is not large like
the federal government, but there are similar things that happen
in state government as in federal government wherein the state
does not know what is happening in every department. If she were
governor, she would love to have HB 444 as a mandate because it
would tell her exactly who is on her payroll, who should continue
to do what they are doing and who should not, and what better
ways there might be to do that job. She noted that she thinks
that HB 444 is an excellent tool, and she can understand that the
unions would have some trepidation; however, when the time comes
for union negotiations, the legislature would not be fighting the
battle over union contracts if HB 444 was in place. She
explained that HB 444 is an eye opener for the public, the
legislature, and the administration. She commented again that
the theory of HB 444 is excellent.
Number 0473
MARCO PIGNALBERI, Legislative Assistant to Representative
Cowdery, Alaska State Legislature, mentioned that he wanted to
address Representative Hudson's concern about subparagraph (D) on
page 5, lines 6-11. He indicated that it was superfluous
language, and it has already been discussed to take it out. What
that subparagraph says (and it has been misconstrued) is that if
the agency is going to go out to contract, it must follow the
procurement statute as it is. He emphasized that the
subparagraph adds no additional burden on labor contracts or
anything else. If the paragraph is taken out, the content of HB
444 would not be changed.
CHAIR JAMES remarked that the subparagraph is talking about
replacing what is being done by government with private sector,
but to do that a comparison must be done and cost savings must be
demonstrated. She asked if it was true that these requirements
are part of union contracts.
MR. PIGNALBERI replied in the affirmative. He added that
language in union contracts requires feasibility studies and cost
analysis prior to privatizing state jobs.
REPRESENTATIVE HUDSON asked what line that was on.
MR. PIGNALBERI said he was looking at subparagraph (D) and HB 444
does not change the requirement to follow the union contracts
rather the sponsor is saying that if an agency contracts out it
must follow the state procurement code. He noted that agencies
have to follow the code anyway, so the subparagraph could be
taken out because it really is redundant.
Number 0336
REPRESENTATIVE KERTTULA asked why (a) was on page 4, line 29,
referring to a "listed activity."
MR. PIGNALBERI replied that the reason "listed activity" is in
there is to do cost comparison of all reasonable and fair costs
because what the private sector always wants, and what the
legislature wants, is to know what it costs to perform a certain
activity. He explained that when something goes out for bid, the
manager knows what the private sector is going to charge because
that is listed in the bid response. What is not known is how
much it is costing the state; also the question of how to deal
with indirect costs must be solved. He mentioned that HB 444
will require that fair and reasonable costs, or most people will
interpret it as indirect costs, must be considered when putting
something out for bid.
Number 0236
CHAIR JAMES indicated that she wanted to provide an example of
what Mr. Pignalberi was talking about by relating what happened
when she tried to get the Taylor Highway opened this year. She
related that there is a very aggressive person who lives in her
area who does road work, so she asked him to get money to open
the highway because there was no money in the city budget to do
it. She said that the man did talk with the Department of
Transportation (DOT) people, found out what was in the budget to
open the highway, and came back and told her that he could not do
the work for the amount of pay that was budgeted. Because of
that experience, she thinks the result of HB 444 will be that the
state will find that many jobs cannot be contracted out, whereas
some jobs that the state is doing now really should be done by
the private sector. She really likes the concept of HB 444, is
excited about it, and sees it as a management tool that could
maximize public confidence in state government.
Number 0042
MR. PIGNALBERI stated that the difference in views expressed by
people on this committee is exactly the strength of HB 444
because it will generate state and public discussion about
activities that ought to be on or off the list. Healthy
discussion is desirable, and there will be debate because HB 444
is a debate-generating bill.
TAPE 00-32, SIDE A
Number 0056
JACK KREINHEDER, Senior Policy Analyst, Office of Management &
Budget (OMB), said that the administration does support
considering privatization of state functions where appropriate,
but the question is whether HB 444 is a good way to go about it.
He had looked through HB 444 and compared it to the federal
legislation, and HB 444 appears to be a copy of the federal
statute. However, the OMB would question whether this process of
doing annual lists of what is inherently a government function is
the best way to go about privatization. He directed the
committee members to page 2, line 21, where it defines
"inherently governmental activity" as an activity that has to be
done by a state government employee. He asked the committee who
is going to agree on "inherently governmental activity." He just
does not see even people in administration, much less the
legislature, the public, and so on agreeing on what functions
have to be done by state employees.
MR. KREINHEDER cited the example of the legislature having its
own staff that does payroll, computer services, building
maintenance, and print shop and acknowledged that any of those
activities could probably be privatized, but legislative
leadership and executive management have made the decision that
those are core essential functions that the legislature prefers
to have done by its own employees for reasons of timeliness or
cost effectiveness. Trying to reach agreement and spending much
time arguing about what is an inherently governmental activity is
a questionable investment of time in the view of the OMB.
MR. KREINHEDER said that snow plowing could be contracted out to
the private sector. He asked if snow plowing was an inherently
governmental activity; probably not. He cited what had happened
on the Seward Highway after the avalanche this winter. He noted
that DOT did attempt to contract for some private snowplow
assistance to come in and it was able to rent the equipment, but
it could not find any operators willing to risk their lives to
get the highway open. Those are some of the factors that come
into this consideration.
MR. KREINHEDER commented that one of the sections that is also of
concern here is on page 3, line 14, paragraph 2, where it talks
about functions that are not inherently governmental activities.
He sees that this is modeled exactly after or very close to the
federal statute, so apparently the federal sponsor made its own
determination from the get go of what was not inherently
governmental activity. He mentioned that subparagraph (A) which
is about "gathering information or providing advice, opinions,
recommendations... to government employees" seems like a very odd
one to him because really that is management. He indicated that
certainly managing and running state government would fall into
that category.
MR. KREINHEDER said that one of the previous speakers had
mentioned legislative staff that do provide information and
recommendations to legislators. He certainly could not envision
legislative staff being privatized, but conceivably the
legislature could contract out for non-government employees but
managing and running state government is clearly a governmental
function. He acknowledged that management cannot be contracted
out but there are a number of employees who provide information
and recommendations.
MR. KREINHEDER reminded the committee that subparagraph (B) is a
list of functions that apparently the federal bill sponsor
decided were not government functions and (reading between the
lines here) should be privatized. He added that building
security, mail operations, facilities operations, and motor
vehicle fleet management were listed as areas that need to be
reviewed but OMB would object to saying that, for example,
facilities operation and maintenance is not a government
function. He said that his view of this is that such operations
would have to be considered on their merits and not by default by
tossing it into this definition. He reiterated that OMB is
supportive of looking into privatization where it makes sense,
but questions whether HB 444 is a good way to do it.
MR. KREINHEDER apologized that the committee did not get a fiscal
note for HB 444. He promised to provide a fiscal note by this
afternoon. He thought the fiscal note would probably be an
asterisk because the lists themselves will be done by departments
under varied time commitments. He said that once the lists are
put together, he does not know that they would vary much from
year to year, so the major time commitment would be the first
year. The challenge and appeal section is a little uncertain
because anybody can challenge and appeal the list. Naturally, it
is hard to say how many challenges and appeals there will be. He
explained that challenges and appeals could be very time
consuming, so he thinks there will probably be an asterisk on the
fiscal note.
Number 0719
REPRESENTATIVE GREEN acknowledged that the fiscal note will
probably have to be an asterisk because OMB does not know how
many challenges there will be. He commented that he understands
that OMB will review the first pass [on the list] and either it
would not agree and there could be a problem, or subsequently
somebody else could appeal and there would be a review. He asked
Mr. Kreinheder if he was familiar with what is happening in the
federal government, so that he can be guided as to what the
probability of appeals and how strenuous those appeals might be.
MR. KREINHEDER replied that he will certainly review federal
government results; however, he is not sure that the federal
experience would necessarily match Alaska. He remarked that he
had never heard of this federal act (FAIRA), and he does not know
how many of the committee had heard of it before it came to their
attention. He did not envision many citizens petitioning the
federal government about FAIRA, whereas at the state level it is
a little more visible.
Number 0814
CHAIR JAMES said that she does not see HB 444 as being
privatization in view of her understanding that privatization is
not the same as out source. She added that she thinks
privatization and out source are two different issues. She
stated that she does not see HB 444 as out source, but she might
see it as what she calls true privatization in that the state
might identify some things that it ought not to be doing and
somebody else should pick it up. However, that it would require
statutory change to privatize because the state has already
dictated by statute that many jobs must be done by state
employees, so it would take cooperation between the
administration and the legislature. She sees HB 444 as opening a
door to cooperation between the administration and the
legislature, but she is not sure about the language in this bill.
She noted that she thinks the thought and theory in HB 444 is
really a good idea, and the committee needs to discuss it more.
Number 0930
ANDREE MCLEOD testified via teleconference from Anchorage. She
noticed that the public has been absent from this discussion, and
as a member of the public, she would appreciate any and all
efforts to define what her state government provides. She
explained that the list that would come forth from HB 444 would
give the public a clue as to what is going on, then the public
could make a better informed decision about its role in providing
revenues in the form of taxes. She commented that generating
discussion is nice, but the state's fiscal future demands action,
and the public will be asked to pony up and pay taxes in the
future. She asked the committee to do whatever it takes to
provide the public with the most succinct information.
CHAIR JAMES indicated that Ms. McLeod's testimony is exactly what
many other folks all over Alaska would say, including her
district, and that is why she thinks that putting the whole issue
on the table in the best way should be the goal of the
legislature. She emphasized that then the legislature could go
from there with informed folks, including legislators and the
administration, on how best to deal with these issues.
Number 1020
REPRESENTATIVE OGAN asked if he was hearing correctly that Chair
James does not want to move HB 444 out.
CHAIR JAMES replied that she thinks there are problems with some
of the language, and the committee should review it a little
more.
REPRESENTATIVE OGAN noted that if the committee reviews it any
more, HB 444 is not going to go anywhere this year.
CHAIR JAMES answered that she does not think that HB 444 is going
to go anywhere anyway.
Number 1066
REPRESENTATIVE HUDSON recommended that Representative Cowdery and
Mr. Pignalberi seriously review page 5 at the B provision because
he thinks that "competitive sealed bidding" should be removed and
replaced with language as written in union contracts. He
explained that if that change is made, HB 444 will face much less
concern from labor unions.
CHAIR JAMES asked if Representative Hudson was asking the
committee to put a union contract in a statute.
REPRESENTATIVE HUDSON replied that the union contract speaks to
privatization, and it simply is a series of standards. He
commented that he thinks it is already in paragraph (A) anyway
for the most part and he is just saying that as long as
"competitive sealed bidding" is in HB 444, he is not going to be
interested in this legislation. He does not think that the
lion's share of state employees will have any interest in HB 444
either. He indicated that paragraph (A) is one area wherein some
common ground could be found.
Number 1147
CHAIR JAMES told the sponsor that if he is really interested in
passing HB 444 on to Finance, the committee can bring it up again
on Thursday (4/13/00), and the committee can work on it between
now and then to see if there is any language that needs to be
changed, however, it is up to the sponsor. She asked if the
sponsor was disappointed that she is not going to move HB 444
today.
REPRESENTATIVE COWDERY replied no.
CHAIR JAMES informed the committee that HB 444 has resulted in a
good discussion and it is a great idea. She emphasized that
legislators should do whatever they can to make the general
public understand what government is all about. She remarked
that legislative jobs would be much better if the public knew
exactly what was happening, so that they could weigh their
decisions based on the same information that legislators have.
She acknowledged that in many cases legislative information is
not fully available [to the public] and she thinks that HB 444
would make it available. [HB 444 was held over.]
ADJOURNMENT
Number 1249
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 9:55
a.m.
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