Legislature(1997 - 1998)

03/06/1997 09:55 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                          March 6, 1997                                        
                            9:55 A.M.                                          
                                                                               
                                                                               
  TAPES                                                                        
                                                                               
  SFC-97, # 49, Side 1 (000-547)                                               
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator  Bert  Sharp,  Cochair,  Senate  Finance  Committee,                 
  convened the meeting at approximately 9:55 A.M.                              
                                                                               
  PRESENT                                                                      
                                                                               
  In  addition  to  COCHAIR  SHARP,  COCHAIR  PEARCE, SENATORS                 
  DONLEY, PHILLIPS, TORGERSON, PARNELL  and ADAMS were present                 
  when the meeting was convened.                                               
                                                                               
  Also Attending:                                                              
  SENATOR JERRY WARD; Sponsor, CRAIG JOHNSON, Legislative Aide                 
  to  Senator  Ward;  DON  ETHERIDGE,  Union  Local  71;  MIKE                 
  MCMULLEN,    Division    of    Personnel,   Department    of                 
  Administration;  PAM  LA  BOLLE,  President,  Alaska   State                 
  Chamber of Commerce; and aides to committee members.                         
                                                                               
  SUMMARY INFORMATION                                                          
       SB 68  TASK FORCE ON PRIVATIZATION                                      
                                                                               
       SENATOR WARD  testified on behalf  of the bill.   CRAIG                 
       JOHNSON answered questions  of committee members.   DON                 
       ETHERIDGE spoke in  favor, but  expressed concern  over                 
       fair  representation.     MIKE  MCMULLEN  had  concerns                 
       regarding  feasibility  study provisions  of collective                 
       bargaining  contracts.    PAM  LA  BOLLE  testified  in                 
       support  of the bill.   After  a brief  recess, COCHAIR                 
       SHARP announced SB 68 would be HELD for changes.                        
                                                                               
                                                                               
  SENATE BILL NO. 68                                                           
  "An Act  relating to the  Task Force  on Privatization;  and                 
  providing for an effective date."                                            
                                                                               
  SENATOR JERRY WARD, Sponsor, called attention to the sponsor                 
  statement  and  back-up   information  in  committee  files.                 
  Privatization  has  been   discussed  over  the  years   and                 
  currently, there is consideration for privatizing the Alaska                 
  Railroad, prisons, Marine Highway system, and other portions                 
  of state government.   He contacted other states to  see how                 
  they  handled it.   There  were two approaches.   One  was a                 
  piecemeal fashion,  picking out weak portions  of government                 
                                                                               
                                                                               
  to privatize.   Sometimes it works and provides initial cost                 
  savings, but it can create a monopoly that rises to the same                 
  level of  funding.  The approach of SB 68  is to form a task                 
  force  for  the purpose  of looking  at  government.   It is                 
  broken  into two  parts  because  of  the  extreme  size  of                 
  government.  Even  though there are only  four components in                 
  the  first  year's  review of  Health  and  Social Services,                 
  Transportation  and  Public   Facilities,  Corrections   and                 
  Contracting, the  total  dollar volume  represented is  $1.5                 
  billion.  The following year the  rest of government will be                 
  looked at.  Other privatization task forces were not so much                 
  for an in-depth look  at where dollars go, but  to establish                 
  guidelines regarding  whether it is in the  best interest of                 
  serving the public and whether it saves money.  Just because                 
  it saves money doesn't  necessarily mean it would be  in the                 
  best  interest of the public.  The  intention of the bill is                 
  to look at every dollar in state government and whether they                 
  are  being properly spent or could be better spent somewhere                 
  else.   It provides for a systematic way to look at it via a                 
  committee  process.    SENATOR  WARD  introduced  his  staff                 
  person, CRAIG JOHNSON, who had researched privatization, and                 
  indicated they were both available for questions.                            
                                                                               
  SENATOR  PHILLIPS  asked   what  the   total  sum  was   for                 
  implementing SB 68.   SENATOR WARD  replied it was  $26,000,                 
  which he believed  was a modest  amount that could save  the                 
  state more than that  figure.  MR. JOHNSON added  that there                 
  are  studies that  are required  by some  of  the collective                 
  bargaining agreements that probably  would not be  addressed                 
  in  the  bill.   Some  of  the fiscal  notes  have asterisks                 
  indicating they are forthcoming.  Depending how many studies                 
  are coming and how they are  lumped together, it would be  a                 
  different number.  SENATOR PHILLIPS stated for clarification                 
  that  they  would  first be  doing  DOT&PF,  Corrections and                 
  Health  and  Social  Services.    SENATOR  WARD  added  that                 
  Contracting was also included.   They selected those because                 
  they were the three largest departments.                                     
                                                                               
  SENATOR PHILLIPS suggested nine task  force members would be                 
  better than ten.  SENATOR WARD said they attempted to make a                 
  good balance and model after other privatization task forces                 
  that worked.  The number ten came from three or four states,                 
  although  the  range  was  between  six  and  fifty  people.                 
  SENATOR PHILLIPS wanted to prevent a five/five tie  and make                 
  sure  decisions would be  made.  SENATOR  WARD noted Senator                 
  Donley had expressed a similar concern.                                      
                                                                               
  SENATOR PARNELL asked if the task force would accomplish its                 
  work without additional staff.   SENATOR WARD confirmed that                 
  was the  intention.  Public members would receive travel and                 
  per diem.                                                                    
                                                                               
  SENATOR PHILLIPS  asked if the  findings and  intent in  the                 
  legislation was required  because he didn't want  to clutter                 
                                                                               
                                                                               
  up the statutes.  SENATOR PARNELL indicated he would like to                 
  strip  them  out.    SENATOR DONLEY  pointed  out  that  the                 
  language only  goes  in the  Session  Laws rather  than  the                 
  permanent statutes.   There was  additional discussion about                 
  the intent of the legislature being followed.                                
                                                                               
  SENATOR ADAMS pointed  out an updated  fiscal note of  $16.4                 
  based on changes  in the State  Affairs Committee.  He  then                 
  expressed interest in addressing other  areas in addition to                 
  the three departments,  such as  the Alaska Railroad,  Court                 
  Services officers, and AHFC.  He  didn't want the task force                 
  limited in its first year.  He also suggested the two public                 
  members appointed  by the  speaker and  president should  be                 
  Independent  candidates,  neither  Republican nor  Democrat.                 
  SENATOR WARD suggested Commerce could  be added in the first                 
  year to look at the railroad.                                                
                                                                               
  SENATOR  ADAMS brought up the reporting date of November 15,                 
  noting that it is normally January 15, after the legislature                 
  convenes.   MR.  JOHNSON responded  that the  reason was  to                 
  include the governor's  budget.   SENATOR ADAMS pointed  out                 
  that  the operating  budget was, by  law, required  no later                 
  than  December  16.    SENATOR  TORGERSON  stated  that  all                 
  recommendations by the task  force would require legislation                 
  and questioned any  impact on the governor's  budget without                 
  legislation.    He  was  uncertain  whether he  favored  the                 
  legislation because as subcommittee chair  he was looking at                 
  what  could  be privatized,  but  legislation  was required.                 
  There were a  lot of good ideas, but they depend on the will                 
  of the body,  and the task  force report does  not give  the                 
  body  any greater  will.   He was unsure  that the  bill did                 
  anything more than give some people per diem.                                
                                                                               
  SENATOR WARD said it  was not his intention to  form another                 
  committee and spend his summer doing this.   The frustration                 
  of  finding spots  for  privatization  in  subcommittee  and                 
  committee  process  and  then  "something  doesn't  come  to                 
  factor"  was  the  reason  for introducing  the  bill.    He                 
  believed  a formula was  needed to get  to privatization and                 
  that was why he  looked at the other states to  see how they                 
  did it.   When it came  to looking at government,  it always                 
  required a  highlighting of  privatization to  find out  if,                 
  when, and where it should be done.                                           
                                                                               
  SENATOR DONLEY believed this was a reasonable way to proceed                 
  on the issue  of privatization,  although he shared  Senator                 
  Torgerson's concern with the necessity of statutory changes.                 
  The problem is that it is  all through the statutes, "little                 
  things  spread  out  through  departments everywhere."    He                 
  envisions the  task force giving  a list of  suggestions and                 
  thought it would be  helpful to have the expertise  of other                 
  people to give  the legislature  something to  work off  of.                 
  The  only  thing   similar  were   1985  Budget  and   Audit                 
  suggestions.    SENATOR  DONLEY   had  some  concerns  about                 
                                                                               
                                                                               
  resources for the  task force because  he wanted them to  be                 
  sufficient  to do  a  good job.   He  noted the  sponsor was                 
  trying to be  efficient and frugal with  the implementation,                 
  but felt additional resources would be needed to do it right                 
  because it was a tremendous project  with a short time line.                 
  He looked forward to seeing  what suggestions came back from                 
  the task force.                                                              
                                                                               
  SENATOR  TORGERSON agreed with much of those statements.  He                 
  pointed out that only about ten  percent of Budget and Audit                 
  recommendations had been followed.   He said there were many                 
  privatization suggestions  that nothing had been  done with.                 
  His objections to the bill would be satisfied if there was a                 
  commitment to do something with the report.                                  
                                                                               
  SENATOR PHILLIPS recounted that over the past four years the                 
  legislature   has  implemented   every   Budget  and   Audit                 
  recommendation they could on the legislative side.  What was                 
  left  was  the  administrative   side.    SENATOR  TORGERSON                 
  clarified that he was speaking only of privatization.                        
                                                                               
  SENATOR  WARD stated  he had another  meeting to  attend and                 
  concluded his  testimony.  He  had no problem  with changing                 
  the number of  task force members.   He agreed with  Senator                 
  Torgerson  and  didn't want  to do  something unless  it was                 
  going make it better.                                                        
                                                                               
  DON ETHERIDGE, Union Local  71, spoke in favor of  the bill,                 
  but had  concern with being  fairly represented in  the task                 
  force.  He  had seen many  times where the state  contracted                 
  out particular jobs that  could be done cheaper but  the job                 
  wasn't completed or done right and  the state had to correct                 
  it.    He gave  an  example  of maintenance  on  a Southeast                 
  airport runway that air carriers have refused to land on and                 
  the state had  to come in and  grade it.  He wanted  to make                 
  sure  that  when  jobs  are  looked  at, the  whole  job  is                 
  considered,  not just  the bids  for the  project.   Another                 
  example was a community  that wanted to bid on a project and                 
  do road maintenance for the same cost as the state, but they                 
  would only grade it, excluding doing the beds, culverts, and                 
  everything else that goes  with it.  He reiterated  that the                 
  only concern was  that they were  looked at fairly and  when                 
  jobs were compared, it was the  whole job, not just part  of                 
  it.                                                                          
                                                                               
  SENATOR PHILLIPS asked  if Mr. Etheridge's concern  was with                 
  language on page 2, lines  3-4, "nominees submitted by labor                 
  organizations."  MR. ETHERIDGE clarified  that he would like                 
  to see two  representatives from the  labor group, one  blue                 
  collar  and  one  white  collar,   because  their  jobs  are                 
  different and don't  overlap.   SENATOR PHILLIPS agreed  and                 
  shared  the  concern  that  blue  collar  workers  would  be                 
  outnumbered.  He did not want that to happen.                                
                                                                               
                                                                               
  SENATOR  DONLEY  echoed the  same  concerns.   He  noted the                 
  employees represented by Local 71  were a different group of                 
  people from the ASEA  group.  He thought it  was appropriate                 
  that  there  was  one  of  each  to  represent  the separate                 
  interests and have input.                                                    
                                                                               
  SENATOR PARNELL saw it differently.   He noted that labor is                 
  the only public group that is assured representation because                 
  they  not  only have  a  designated  seat  appointed by  the                 
  governor, but they also have the possibility for other seats                 
  appointed by the president  and speaker.  He felt  there was                 
  more than fair representation.                                               
                                                                               
  MIKE  MCMULLEN,   Division  of   Personnel,  Department   of                 
  Administration, spoke of  current restrictions of collective                 
  bargaining   contracts,  and  wanted   to  assure  that  the                 
  committee had an understanding  of what it will mean  to the                 
  process.  He  handed out copies of worksheets  that describe                 
  contract provisions of  six bargaining agreements  regarding                 
  contracting.   The  common  thread is  the  provision for  a                 
  feasibility study  or cost  benefit study  and that  current                 
  employees not  be laid  off  unless the  study showed  there                 
  would be a  savings to the state  to have it done  through a                 
  contractor.  The cost of the studies average between $20,000                 
  to $50,000 each.  The sequence would be that the task  force                 
  would be  formed, there would be  a report in  time to draft                 
  legislation and influence  the budget for the  next session.                 
  The  budget  would  necessarily  have  to  fund  the  formal                 
  feasibility studies that the contracts  require.  It was his                 
  understanding  that the task  force would not  be doing that                 
  level of  detail.   At the  same  time the  funding for  the                 
  studies  are being  requested,  legislative changes  will be                 
  considered.  The rub comes after that where a study may come                 
  up with a different conclusion than the task force.  At that                 
  point, the  collective bargaining agreements  would prohibit                 
  the  contracting  out of  work  that causes  displacement of                 
  employees.  Meanwhile, the legislation  may have changed and                 
  there will be a conflict.  Mr. McMullen's concern was with a                 
  formal study reaching  a different conclusion than  the task                 
  force  recommendation  and  he  wanted   to  make  sure  the                 
  committee was aware of the potential time bomb factor.                       
                                                                               
  SENATOR  PHILLIPS  brought up  contractual  versus statutory                 
  provisions.   MR. MCMULLEN referred  to the first  case that                 
  went to arbitration  on contracting  out.  It  was when  the                 
  legislature changed  social services  in the  Kawerak-Norton                 
  Sound area  and it  was provided  by pass-through  money and                 
  replaced state employees.  The state  said that was the law,                 
  that's  the way  it was appropriated,  that's the  way we're                 
  going to  spend it,  and did  not do  a formal  study.   The                 
  arbitrator said they were required to  do the study and they                 
  had to pay  double for a period  of time.  Agencies  are now                 
  aware of having to do studies.  He noted that Corrections is                 
  about  to  notify  unions   because  of  the  lease-purchase                 
                                                                               
                                                                               
  question  in  contemplation  that  it  will  displace  state                 
  employees.  They  need to trigger the  contractual processes                 
  to make sure there is no conflict down the road.   He wanted                 
  the committee to  take the  potential conflict into  account                 
  regarding   different  results   by  the   task  force   and                 
  feasibility studies.'                                                        
                                                                               
  SENATOR  TORGERSON  asked  how  many  state  employees  were                 
  covered  under  this.   MR.  MCMULLEN  responded  there were                 
  approximately ten  to twelve  thousand out  of the total  of                 
  twenty thousand.                                                             
                                                                               
  PAM LA BOLLE,  President, Alaska State Chamber  of Commerce,                 
  spoke  in favor  of  SB 68.    Privatization of  appropriate                 
  government services has  been one of the  highest priorities                 
  of the  ASCC for a few years.  The  last two years they held                 
  summer seminars devoted to the subject.  The first year they                 
  looked at what was happening in other states, what potential                 
  there was  for privatization  in education,  transportation,                 
  corrections,  et cetera.    Last year  they  focused on  the                 
  Department  of  Transportation and  Public Facilities.   She                 
  recalled a  presenter from  British Columbia that  discussed                 
  privatizing  their road maintenance  department and  she was                 
  willing to  share that  information with  the proposed  task                 
  force.                                                                       
                                                                               
  SENATOR  PHILLIPS  asked if  the  Marine Highway  system was                 
  discussed. MS. LA BOLLE replied that  they had looked at it.                 
                                                                               
                                                                               
  MS.  LA BOLLE read a  portion of a  resolution passed by the                 
  ASCC, "ASCC asks  the legislature to forge a plan by the end                 
  of 1997 and implement a  program to privatize all applicable                 
  services currently provided by government."   The task force                 
  is exactly what they were hoping for.  She  gave the example                 
  of an  upside-down  pyramid with  the  base being  the  tax-                 
  providing private sector supporting the top-heavy government                 
  and that it will all crumble  one of these days.  There  are                 
  functions  that only government  can do well,  but there are                 
  things  that  government  has  taken  on  as  a  matter   of                 
  convenience that could easily be done by the private sector.                 
  She had  a few words  of caution.   The ASCC championed  the                 
  Long Range Financial Planning Commission  with the idea that                 
  they would come up with recommendations that the legislature                 
  would made decisions on based on public input.  Instead, the                 
  commission came up with THE plan, and one was  either for or                 
  against it, and  it wasn't a pretty picture.   She wanted to                 
  be  sure  the duties  of the  task  force were  to recommend                 
  suggestions only.                                                            
                                                                               
  SENATOR TORGERSON asked Mr. McMullen  what the time estimate                 
  was for the feasibility studies and if any had been  done in                 
  the  past.   MR.  MCMULLEN responded  that  the time  varies                 
  depending on the  size and complexity of the  services being                 
                                                                               
                                                                               
  considered  for  privatization.    The  print  shop  in  the                 
  Department of  Administration was  studied for  $20,000.   A                 
  time estimate would  vary between  two to six  months.   The                 
  state has done several studies.  SENATOR TORGERSON suggested                 
  they  be dusted  off  and looked  at  because they  probably                 
  haven't changed that much.                                                   
                                                                               
  MR.  MCMULLEN  explained the  sequence  of the  process that                 
  triggers  the study.   After the study,  the union generally                 
  has an option to put  in their own bid on how  they can meet                 
  the savings.  There were no  studies that had been completed                 
  that  were not implemented  to his knowledge.   One approach                 
  which was rejected by the sponsor was to have the task force                 
  perform the studies.                                                         
                                                                               
  COCHAIR SHARP called a  five minute recess at 10:39 A.M.  He                 
  reconvened the meeting at 10:44 A.M.                                         
  COCHAIR SHARP  recommended holding the  legislation to  work                 
  with the sponsor on  possible changes to the make-up  of the                 
  task force.  SB 68 was HELD in committee.                                    
  Upcoming committee and subcommittee meetings were announced.                 
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting was adjourned at approximately 10:44 A.M.                        

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