Legislature(2003 - 2004)
04/01/2003 09:02 AM Senate FIN
| 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
MINUTES
SENATE FINANCE COMMITTEE
April 01, 2003
9:02 AM
TAPES
SFC-03 # 37, Side A
SFC 03 # 37, Side B
SFC 03 # 38, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:02 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Robin Taylor
Senator Ben Stevens
Also Attending: SENATOR JOHN COWDERY; GEORGE LAVASSEUR, Acting
State Maintenance Engineer, Office of the Commissioner, Department
of Transportation and Public Facilities; BILL CORBUS, Commissioner,
Department of Revenue; RICHARD SCHMITZ, Staff to Senator Cowdery;
MARK O'BRIEN, Chief Contracts Officer, Contracting, Procurement and
Appeals, Office of the Commissioner, Department of Transportation
and Public Facilities;
Attending via Teleconference: Offnet: JIM JOHNSON, President,
Johnson Tire Service; CHUCK MCGEE, US Representative for Ugigrip;
RICHARD NORDNESS, Executive Director, Northwest Tire Dealers
Association; BRUNO WESSEL, Bruno Wessel Inc., Member, National
Safety Council, and Member, Scandinavian Tire and Rim Organization;
EDEN LARSON, President and Chief Executive Officer, Associated
Builders and Contractors of Alaska; From Mat-Su: CLINT QUIGGLE;
From Kenai: HANNELE ZUBECK, Associate Professor, School of
Engineering, University of Alaska-Anchorage; From Fairbanks: ROGER
BURNS; JEFF ALLING, Alcan Builders, and Member, Associated Builders
and Contractors of Alaska; From Anchorage: DON VALESKO, Business
Manager, Local 71;
SUMMARY INFORMATION
SB 106-FEE FOR STUDDED TIRES
The Committee heard from the Department of Transportation and
Public Facilities, the Department of Revenue, the University of
Alaska, members of the public and industry representatives.
SB 40-CONSTRUCTION OF HIGHWAYS BY DOTPF
The Committee heard from the sponsor, the Department of
Transportation and Public Facilities and industry representatives.
The bill was held in Committee.
SB 115-CORRECTIONAL INDUSTRIES PROGRAM EXPENSES
This bill was scheduled but not heard.
Co-Chair Wilken indicated the presence of students representing the
Close-up program.
CS FOR SENATE BILL NO. 106(TRA)
"An Act relating to studded tires; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained this bill "imposes a ten dollar fee on
retail sales of studded tires in Alaska.
GEORGE LAVASSEUR, Acting State Maintenance Engineer, Office of the
Commissioner, Department of Transportation and Public Facilities
testified this bill would impose the $10 surcharge on the purchase
of all studded tires beginning July 1, 2003. He cited Department of
Revenue estimates this would generate approximately $2 million
annually and would cost approximately $50,000 to administer. He
noted businesses collecting this surcharge would be allowed to
retain five-percent of the surcharge, up to $1,000, to cover
expenses.
Mr. Lavasseur commented that many drivers use studded tires as an
aid to winter driving to improve traction on icy surfaces. He
shared that an analysis of Alaska winter driving conditions found
that primary roads with highest traffic roads are covered with ice
or snow only about five-percent of the time. The remaining "studded
tire season" he reported that pavements are bare and/or dry.
Mr. Lavasseur instructed that pavement in Alaska wears at a rate of
".3 inches per million studded tire passes," which he translated
"we lose about a dump truck full of asphalt" every four million
cars with studded tires traveling over a mile of roadway. He added
that each studded tire causes approximately $50 worth of damage
over its life. He informed that the Department of Transportation
and Public Facilities expends over $5 million annual to repair ruts
caused by studded tires.
Mr. Lavasseur directed attention to a photograph and stated the
condition of the road depicted is typical of "what we're seeing" in
portions of Southcentral Alaska, as well as in Juneau.
Senator Bunde relayed that he has heard that this damage caused by
studded tires does not occur on roadways in Interior Alaska. He had
been told this is due to the usage of different asphalt
applications.
Mr. Lavasseur attributed the lesser-studded tire wear to less
vehicle traffic and different weather conditions in Interior
Alaska. He stated that more icepack is present on Interior roads
during a larger percentage of time.
Senator Bunde asked if the different damage rates are in any way
related to the materials and application methods used.
Mr. Lavasseur answered it is not related. He stressed the
Department is "doing several things" to attempt to improve asphalt
performance. He admitted that the asphalt used in Alaska, which
originates as North Slope crude oil, is soft. He listed the
additives to strengthen the asphalt, including the use of larger
and harder rock material imbedded in the asphalt. He qualified that
rock in Alaska is very soft due to the areas geological newness. He
listed the two hard rock sources in Alaska, one at Cantwell and the
other near Haines and informed of the high cost to transport the
hard rock to the road sites.
Mr. Lavasseur gave the Egan Expressway in Juneau as an example and
detailed the project utilizing materials from Haines and Washington
State. He remarked this project is "holding up quite well." He
spoke to the difficulty in locating hard rock sources in the
interior regions of the State.
Senator Bunde asked if it has therefore been determined that it is
less expensive to repave the road than to import hard rock.
Mr. Lavasseur replied that no studies have been conducted to
research this matter; however the "economy" in utilizing Alaskan
hard rock is "very important" to the refiners in Alaska. He added
that it is expensive to barge hard rock into the State. He informed
that the Department is initiating a project to ascertain the amount
of hard rock in the area near Cantwell.
Senator Bunde interpreted the witness' testimony to state that
roads in Alaska are "softer" due to the intent to subsidize asphalt
production from North Slope crude oil.
Mr. Lavasseur countered that "a combination of factors" are
responsible. He stated that the Department is "fixing" the Alaskan
asphalt utilizing modified asphalt.
SENATOR JOHN COWDERY told of studies conducted on certain streets
in Anchorage, which show minimal development of ruts due to the
addition of rubber and other materials to the asphalt.
Mr. Lavasseur added that speed also impacts the wear of pavement.
Senator Cowdery indicated the cost per studded tires is
approximately $11 more per tire than non-studded tires. He opined
that "lightweight" studded tires hit the pavement with the same
force and cause the same amount of damage. He then told of an "ice
tire" developed in Finland that could be utilized year-round.
Although the cost of these tires is higher, he asserted options
other than studded tires are available.
Co-Chair Wilken drew attention to a packet of the "lightweight"
studs, which he would share with Committee members.
Senator Taylor spoke of cement roads in Wrangell and the process of
two-inch overlays of asphalt on other roads. He compared the wear
on both road types and questioned why cement is not more widely
used.
Mr. Lavasseur replied that Portland cement is excellent for use in
areas with a stable base. However, in areas with unstable bases he
stated the cement cracks, noting that most of Southcentral Alaska
has an unstable base due to freezing and thawing.
Senator Taylor challenged that the base of Egan Expressway is
stable. He asked if the Anchorage area roads were "that unstable"
that cement pavement would be unviable.
Mr. Lavasseur answered yes.
Senator Taylor suggested chains would cause greater damage to roads
then studded tires.
Mr. Lavasseur detailed "an aggressive chemical program" of
magnesium chloride utilized in Southcentral Alaska to keep roads as
ice free as possible throughout the winter.
Senator Cowdery asked the witness to compare damage caused by cars
versus trucks.
Mr. Lavasseur listed the width of cars versus trucks noting the
width of the ruts match the width of mid-size passenger cars,
indicating the majority of the damage is caused by cars.
Mr. Lavasseur then showed a photo of a lightweight studded tire. He
described how the ruts are caused and reported that for every one
million passes, approximately one-tenth of an inch of roadway is
eroded. He stated that with the 40,000 vehicles traveling the Glenn
Highway daily, the damage accumulates in a short period of time and
the road must be repaired every two to three years.
Mr. Lavasseur stressed that the ruts cause hydroplaning when filled
with rainwater, and also hamper the visibility of drivers traveling
behind a vehicle riding in a rut as the water sprays. He furthered.
Senator Taylor asked if differential exists between the wear of
cement and asphalt.
Mr. Lavasseur told of his experiences in the 1960s with cement
roads in the State of Minnesota. He stated that studded tires
caused significant damage to the cement roads and therefore the
cement roads were discontinued.
BILL CORBUS, Commissioner, Department of Revenue, read a statement
into the record as follows.
The Governor and I very much appreciate this Committee's
consideration of this important legislation. As you may be
aware, the companion bill, House Bill 173 was substantially
changed in the House Transportation Committee last week to
apply a $2 fee on all tires. The Governor is not opposed to
the changes contained in CS HB 173.
Why is this legislation necessary? SB 106 is a critical and
necessary element of the Governor's overall budget investment
plan and investment plan for FY 2004 and he recently submitted
it to you for your consideration. Governor Murkowski's primary
mission is to build a robust growing economy and generate
sufficient State revenue to fund programs and services that
Alaskans need and expect. Passage of SB 106 will ensure
increased State revenues and may prevent elimination or
diminution of other important programs and services.
What this legislation will accomplish. SB 106 will attach a
fee of $10 per studded tire sold in Alaska to begin in July 1,
2003. Businesses, including tire dealers, service stations and
garages will fill out monthly reports of studded tire sales
and remit the fees to the Department of Revenue containing
five percent of the fees not to exceed $300 per month.
Anticipated additional revenue to the State of Alaska is
approximately $2 million. The amendment contained in CS HB 173
to apply a $2 fee to all tires is expected to generate revenue
of approximately $2.5 million.
Impact on Alaskan businesses. Although Alaskan businesses will
be called upon to collect and remit the fees, SB 106 allows
studded tire sellers to retain their administrative costs up
to five percent, not exceeding $300 per month. I believe this
allowance is fair.
In conclusion the fee of $10 per studded tire is necessary and
essential to the Governor's spending and investment plan for
Alaska. The Department of Revenue can and will efficiently
administer the fee as discussed in the Department's fiscal
note. I urge and appreciate your serious consideration of this
legislation and ask that you pass it out of Committee today
with your support for enactment this session.
Senator Bunde voiced concern about the volume of paperwork and
asked if quarterly reports have been considered.
Mr. Corbus was unsure if this had been considered and indicated the
Department would not oppose a quarterly reporting method.
Senator Taylor asked if the intent is to dedicate the revenues
generated by the fee to highway maintenance or repairs.
Co-Chair Wilken answered the revenues would be deposited into the
State general fund.
JIM JOHNSON, President, Johnson Tire Service, testified via
teleconference from an offnet location in Anchorage and referenced
his written testimony [copy on file]. He told of testimony given by
physicians and engineers serving on the Swedish Road and Transport
Research Institute (VIT) at the 1994 Winter Cities Conference,
attesting to the increased deaths and property damage that would be
caused by a discontinuance of studded tires. As a result of these
findings, he informed that the VIT participated in development of
lightweight environmental studs weighing 1.1 grams and also
recommended better road construction, particularly to the road
base. He relayed that the VIT charged the Alaska Department of
Transportation and Public Facilities with building "terrible roads"
and recommended the use of the lightweight studded tires, which
would minimize damage. He stated that his company introduced
environmental lightweight studs to North America in 1994 in an
attempt to be "good corporate citizens".
Mr. Johnson opined that the damage caused by studded tires is less
significant than claimed by others and pointed out that the annual
cost of $5 million to repair roads has not increased since 1993,
which he calculated would have increased over time without the use
of the newer lightweight studded tires. He claimed the damage is
the result of poor quality road base, which is not rectified with
resurfacing.
Mr. Johnson charged that this legislation would impact lower income
residents, who might not be able to afford the $40 additional cost
to purchase studded tires. He reported, "Studded tires is the most
proven safety device that is known to man." He attested that
although ice tires, also known as "friction" tires, have improved
driving safety, they do not compare to the starting and stopping
ability and the length of wear of studded tires. He questioned why
lightweight studded tires were not mandated rather than the fees
for all studded tires proposed in legislation. He suggested
assessing a $2 fee for all tire purchases and utilize the revenues
for better road construction. He predicted that if better roads
were constructed damage would decrease by 30 percent, and mandated
use of lightweight studs would decrease road damage by 15 percent.
Mr. Johnson remarked this legislation would benefit no party, and
the issue was creating revenue rather than the use of studded
tires. He remarked, "If you're going to tax safety, you have a
problem."
Senator Cowdery referenced a study conducted by the University of
Alaska and asked if the use of studded tires has resulted in a per
capita decline in the number of accidents.
Mr. Johnson did not know, but emphasized that if motorists were
discouraged from purchasing studded tires, fatalities and property
damage would increase and more sand, gravel and chemicals would be
required to provide better traction on roads.
Senator Cowdery asked the number of states with similar weather
conditions to Alaska that ban studded tire use.
Mr. Johnson listed Wisconsin and Minnesota, but pointed out that no
bans have been issued since 1975 and that studded tire use is
permitted on emergency vehicles. He stressed that injury rates
"skyrocketed" when the bans were implemented.
Senator Cowdery asked about bans on studded tire use in Canada.
Mr. Johnson that use of studded tires is permitted in Canada with
the exception of Toronto.
Senator B. Stevens asked if the witness has reviewed the committee
substitute for HB 173, which would impose a $2 fee for the purchase
of all tires.
Mr. Johnson supported that bill.
Senator B. Stevens took issue with the assertion that more
accidents would occur. He stated that he has driven in the State
his entire life, never with studded tires and has had no accidents.
He questioned the applicability of the statistics showing increased
accidents in Wisconsin and Minnesota following the studded tire
ban, suggesting that winter conditions over the time period could
have been more severe than average.
Mr. Johnson and Senator B. Stevens debated the issue.
CHUCK MCGEE, United States representative for Ugigrip, testified
via teleconference from an offnet location in opposition to the
bill. He told about the lightweight tire studs manufactured by
Ugigrip and other manufacturers, which have been proven to reduce
road wear. He attested to the better braking and traction
capabilities of studded tires, citing the Swedish VTI studies. He
stated that any cost increase would cause drivers to not use
studded tires. He spoke to the benefits of the newer studs and the
lesser damage caused by them.
RICHARD NORDNESS, Executive Director, Northwest Tire Dealers
Association, testified via teleconference from offnet site in the
state of Washington in opposition to the bill. He stated the
Association's position that studded tires is an important safety
feature for Alaskan residents. He remarked that a $10 per studded
tire fee would be have a negative impact on winter driving safety,
as many motorists could not afford the $40 total and that many
drivers would chose to not purchase the tires.
Mr. Nordness also opposed tire dealers acting as tax collectors. He
told of efforts in conjunction with legislatures in Washington,
Oregon to promote the use of lightweight studs.
Co-Chair Green clarified the Association represents tire dealers in
the states of Alaska, Oregon and Washington.
Mr. Nordness affirmed.
Co-Chair Green asked if the Association conducted a comparison of
the licensing and taxation of vehicles registered in the three
states.
Mr. Nordness replied the Association had not conducted such
studies.
Co-Chair Green predicted the total licensing and taxation cost for
vehicles is significantly less in Alaska.
Senator Bunde asked if studded tires are permitted in Oregon and
Washington.
Mr. Nordness answered they are.
SFC 03 # 37, Side B 09:49 AM
BRUNO WESSEL, Bruno Wessel Inc., Member, National Safety Council,
and Member, Scandinavian Tire and Rim Organization, testified via
teleconference from an offnet location in Sarasota, Florida, told
of his experiences as an importer of tire studs since the 1960s. He
opposed this bill, as some motorists could not afford the tax. He
disputed the excuse that ice is only present on roadways five
percent of the year, arguing that in Minnesota it was learned this
was the time that 90 percent of accidents occurred.
Mr. Wessel spoke to the ineffectiveness of overlaying roads because
the ruts return rapidly. He stressed that the roads must be
"milled", or ground out, before being relayed. He referenced
"government studies" that found that one truck is equal to 6,000
car passes.
Mr. Wessel also spoke of the VTI and reiterated that findings that
reduced studded tire use would increase accidents and fatalities.
He asserted that studded tires have "the added benefit of
roughening road and roughening the ice," which provides better
traction for vehicles without studded tires.
Senator Cowdery commented he has observed vehicles in Alaska's body
shops for repair that had studded snow tires.
Mr. Wessel emphasized that although some vehicles with studded
tires would be involved in accidents, they would be less likely
than vehicles without studded tires. He informed that he was a
delegate at the Winter Cities Conference in 1994 and has traveled
to Alaska on several occasions.
CLINT QUIGGLE testified via teleconference from Mat-Su as a private
citizen about his 36 years "in the tire business" and in opposition
to this bill. He suggested the focus is on tax revenue, but
stressed the safety issue. He stressed that studded tires prevent
accidents and save lives, particularly on ice covered roads. He
predicted that because some motorists could not afford the tax they
would continue to drive with old studded tires or without studded
tires.
Senator Cowdery asked if witness agreed the average cost per
studded tire is $11 higher than for non-studded tires.
Mr. Quiggle responded the amount varies from $10 to $12 per tire.
Senator Cowdery asked if the witness had experience with ice tires.
Mr. Quiggle reported that after driving with studded tires for 30
years, he experimented with ice tires this year. He liked the
tires, but stressed that in the event the vehicle slides, the ice
tires respond significantly slower than studded tires.
Senator Cowdery indicated most modern cars have an ABS brake system
and he told of his driving experience with ice tires on the hills
in Juneau.
HANNELE ZUBECK, Associate Professor, School of Engineering,
University of Alaska-Anchorage, testified via teleconference from
Kenai about a study she conducted on the social-economical impacts
of studded tire use in Alaska. The preliminary report, titled
"Socio-Economic Effects of Studded Tire Use in Alaska: Interim
Executive Summary-March 10, 2003" is on file. Her recommendation is
that a $10 fee per studded tire would encourage the use of driving
with old studded tires, which may not provide adequate traction but
would instill driver confidence. She predicted this would increase
the accident rate. She furthered the same impact would result if a
$2 fee were imposed on the sale of all tires, as proposed in HB
173. She suggested a higher fee for the conventional heavy studs,
which would encourage drivers to select lightweight studs and have
less impact on the State's economy.
Ms. Zubeck addressed the matter of soft asphalt informing that
hardening the asphalt is possible; however, cracking and other
problems would occur. She stated that aggregate is the actual
issue.
Ms. Zubeck listed the states that currently ban the use of studded
tires and noted Illinois is the only state where icy road
conditions are present.
Senator Taylor asked the witness repeat of the conclusions of the
preliminary report.
Ms. Zubeck detailed the findings of the studies, in comparison to
data learned from research conducted in Sweden and Norway. She
qualified that the annual estimated damage amount of $5 in Alaska
is inaccurate and should be reevaluated.
Ms. Zubeck testified that studded tire use reduces accident rates
and that reducing studded tire use would increase the overall
costs, despite savings in road maintenance and revenue generated
from the studded tire fee.
Senator Taylor appreciated the University of Alaska's efforts on
this matter.
Senator Cowdery asked if the ruts caused by studded tires are a
safety issue as well.
Ms. Zubeck answered, "absolutely". She noted the absence of studies
of summertime accidents, as most studies concentrate on winter
accidents. She remarked that that information on hydroplaning is
important to collect and analyze.
Senator B. Stevens referenced certain information contained in the
section of the preliminary report relating to pavement wear as
follows.
• Traffic conditions (decrease wear by decreasing traffic
volume and proportion of studded tires, decreasing winter
speed limits and increasing lane widths); and
• Weather conditions (decrease wear by keeping the road
surface dry).
Senator B. Stevens commented that the Legislature does not have the
authority or ability to decrease traffic and keep road surfaces
dry.
Ms. Zubeck clarified that salting the roads would assist in keeping
them dry and that subsidized public transportation could reduce the
amount of traffic in urban areas. She noted that parking costs in
Helsinki, Finland are high and that with the availability of "park
and ride" and other public transportation programs, vehicle traffic
into the city has been reduced.
ROGER BURNS testified via teleconference from Fairbanks in
reference to the VTI report and a State of Alaska report, AK-RD-96-
1, issued in 1996 [copies on file]. He commented on the amount of
anecdotal testimony about road conditions. He reiterated earlier
testimony that "putting consumers in harm's way" for the purpose of
collecting $2 million in taxes is "unconscionable". Since this is a
revenue source proposal rather than a matter of safety, he
supported the house bill plan to impose a $2 fee on the purchase of
all new tires, as it would raise $2.5 million per year. He asserted
that all studies show that studded tires reduce accidents and he
opined that purchasers should chose tires based on the conditions
of the roads they drive. He noted that the roads in Fairbanks have
ice and snow more often than roads in other parts of the State.
Senator Bunde affirmed the witness supports a tax on the purchase
of all tires.
Senator Taylor associated himself with the previous speaker that
the purpose of this bill is to generate funds. He noted the funds
would not be dedicated for road maintenance. He supported the house
bill proposal to add a tax to the sale of all new tires. He
suggested it would remove the arguments for and against studded
tires, which should be addressed in separate legislation.
Senator Taylor offered a motion to amend SB 106 to reflect the
language contained in CS HB 173 to impose a $2 fee on the sale of
all new tires [This conceptual amendment was not numbered].
Co-Chair Wilken requested the motion be removed to all a committee
substitute to be drafted for Committee review.
Senator Taylor agreed and the motion was WITHDRAWN without
objection.
Senator Bunde indicated he would offer amendments for the purpose
of discussion, although he did not intend action to be taken at
this meeting.
Amendment #2: This amendment deletes "studded" from the title of
the committee substitute. The amended title reads as follows.
"An Act relating to tires; and providing for an effective
date."
This amendment also eliminates the proposed $10 fee imposed on the
retail sale of studded tires and imposes a fee of $2.50 on the
retail sale of all motor vehicle tires.
This amendment also deletes the language in Sec. 43.98.025(b),
relating to a $10 fee for the installation of studs on a motor
vehicle license, and inserts new language to read as follows.
(b) In addition to the fee imposed under (a) of this
section, a fee of $5 a tire is imposed on the retail sale of
tires studded with metal studs or spikes weighing more than
1.1 grams each embedded in the periphery of the tire surface
and protruding beyond the tread surface of the tire, or on the
installation for a fee of metal studs or spikes weighing more
than 1.1 grams each on a motor vehicle tire in the state.
Senator Bunde moved for adoption of the amendment.
Co-Chair Wilken objected for discussion.
Senator Bunde spoke to the amendment. He recommended a fee of $2.50
for each tire rather than $2 proposed in the house bill based on
conversations with retailers indicating that because tires are
usually sold in sets of four, the $10 total fee would be easier to
account.
Senator Bunde removed his motion to adopt the amendment without
objection and Amendment #2 was WITHDRAWN.
Amendment #3: This conceptual amendment changes the remittance
period for submission of the collected fees by retailers to the
State from monthly to quarterly. The amended language of Sec.
43.98.025(d) reads as follows.
(d) A seller shall collect the fee from the purchaser. A
seller shall file a return on a form prescribed by the
department and remit the fee collected to the department on a
quarterly basis of the sale or installation.
Senator Bunde moved for adoption.
Senator Bunde removed his motion to adopt Amendment #3 without
objection and the amendment was WITHDRAWN.
Co-Chair Wilken requested members submit suggestions for
incorporation into a committee substitute and ordered the bill HELD
in Committee.
Co-Chair Wilken understood that Department of Transportation and
Public Facilities vehicles are exempt from weight limits. He
requested Mr. Lavasseur to provide an explanation on the matter.
SENATE BILL NO. 40
"An Act relating to construction of highways by the Department
of Transportation and Public Facilities."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated, "SB 40 allows the use of force account
construction only for highway construction projects estimated to
cost $250,000 or less. Projects greater than $250,000 will be
subject to a competitive bid process as outlined in State statute."
RICHARD SCHMITZ, Staff to Senator Cowdery, stressed importance of
the competitive bidding process to State government operations. He
explained this is to ensure fairness and to garner the best prices
available. He noted the current system does not accurately compare
the expense of private ownership of equipment and contract
employees with that of State-owned equipment and State employees.
Mr. Schmitz spoke to a handout [copy on file], which reads as
follows.
Re: SB 40 alternatives:
Is DELIVERY ORDER CONTRACTING an alternative?
• DOC is used by, and was developed by, the Department of
Defense (it's called JOC by the Army, SABER by the Air
Force) and is being increasingly used by local
governments and educational facilities.
• DOC is a competitively bid, fixed price, indefinite
quantity, indefinite delivery (IDIQ), general
construction contract.
• The contract typically has a base year with 2 to 4 option
years.
• The contract sets parameters such as location of work,
type of work to be done, design criteria, etc.
• A DOC contract uses unit price guides (UPG) and/or a
unit-price book (UPB) to establish a price for a
multitude of lines items of work. A typical UPB has about
40,000 line items in order to cover just about every
imaginable task. Items that are not in the book are then
negotiated, priced, and added to the UPB. A UPG uses
computer cost databases, etc.
• The contractor bids a coefficient that is a markup or
markdown to the UPB items, rather than a dollar price.
What you get with a Delivery Order Contract:
• On-call general contractor where prices for line items of
work are predetermined.
• A contract that is easy to manage.
• A contract that puts more money into "hard construction"
instead of soft upfront costs.
Mr. Schmitz surmised this legislation would provide incentive to
the Department of Transportation and Public Facilities to institute
new methods of contracting for smaller projects.
SENATOR JOHN COWDERY told of contractors that bid on a $3 million
project located in Saint Mary's, in which the Department elected to
utilize a force account. He opined this was an abuse of the force
account. He reported that many states have defined maintenance and
construction, separated by dollar amounts. He intended to provide a
"level playing field", understanding that the Department must have
the ability to utilize a force account. He considered the $250,000
limit to be adequate and would provide necessary latitude. He
relayed he had asked the Department the lowest cost of a project
located in rural Alaska, in which a request for bids would be
issued. He was told the amount was between $75,000 and $100,000.
Senator Cowdery stated this legislation would "get the State out of
the construction business".
Senator Taylor asked if this legislation would prevent abuses.
Senator Cowdery responded it would require competitive bid. He
noted that currently no limitation is imposed.
Senator Taylor asked the regulatory authorization under which the
Department makes the decision that only certain contractors could
bid on a project. He gave the construction of high-speed ferries as
an example.
GEORGE LAVASSEUR, Acting State Maintenance Engineer, Office of the
Commissioner, Department of Transportation and Public Facilities
responded he would provide an answer at a later time at Co-Chair
Wilken's request.
Mr. Lavasseur testified to his 29 years in Southcentral Interior
Alaska maintaining highways. He gave a history of the force account
method beginning with a meeting eight years ago in Washington D.C
with the National Highway Administration, where he learned that
other states have the same problem of infrastructure without
adequate funding to maintain it. As a result, congressional
approval was granted to allow the use of federal funds for
maintenance purposes, including pavement life extension, bridge
repair and gravel-to-pavement programs. Before this authorization,
he reminded that for several years during the 1980s, the State did
not have enough funds to maintain highways.
Mr. Lavasseur told of significant damage caused by the melt of
discontinuous permafrost and the use of federal funds in the force
account to maintain road smoothness, and to rehabilitate older
pavements. He listed the type of projects undertaken with these
funds, including boardwalks, community roads and capital projects
performed by the Department maintenance staff. Of the $42,600,000
appropriated for this purpose in 2003, 86 percent is paid to
private contractors. He detailed the percentages allocated to
private contractors and Department staff in each region, based on
the availability of hot asphalt.
Mr. Lavasseur indicated photos showing heavy equipment, and the
process of repairing roads in the Northern Region.
SFC 03 # 38, Side A 10:37 AM
Mr. Lavasseur asserted the force account method allows efficiencies
for maintenance work done in Interior Alaska. He elaborated that
the Department combines maintenance resources from a variety of
"camps", which allows reduced per diem costs and better
mobilization of units. He cautioned that if this type of work were
contracted to the highest bidder, the costs would increase. He
listed design problems, since typical as-built specifications are
not available for 150 to 200 sections of a particular road that
could be worked on. He added that the sections only measure between
50 to 300 feet rather than one continuous section and that he has
learned from private contractors they are not interested in these
projects. He attributed this to the short construction season and
the large area in which equipment and manpower must be distributed.
He noted that when a project is comprised of one section measuring
three or more miles, a private contractor is employed, as the
Department only addresses spot repairs. He assured that all
crushing is done by the private sector, amounting to over $1
million annually in the Northern Region. In addition, he reported
that all the emulsion is purchased from the private sector for
approximately $2.5 million annually, and rollers, belly dumps,
tractor-trailers, and milling machines are rented from the private
sector.
Mr. Lavasseur stressed the Department performs some of the
maintenance work because of the lower costs associated with not
paying Davis-Bacon Act wages, bypassing bid packages, preparing
construction engineering on the grade, and not paying for a profit.
He also spoke of the need to employ the "highly-trained" Department
staff for at least nine months per year, explaining that previously
the winter seasonal workers fished commercially during the summer
months before the fishing industry declined.
Mr. Lavasseur informed that the Department has been able to adapt
to lower budget appropriations, inflation and unfunded salary
increases because of cost saving efforts such as these.
Mr. Lavasseur assured the Department was committed that the abuses
of the past would not occur under the leadership of the current
Murkowski Administration. He warned that passage of this bill would
have a "devastating effect" on the highway maintenance program.
Senator Taylor asked if a series of repairs along 50 miles of a
highway could be divided into separate projects, each costing less
than $250,000 and complying with the provisions of this
legislation.
Mr. Lavasseur predicted the costs would be higher than $250,000. He
voiced concern that the Department would be limited by the $250,000
maximum amount and indicated he preferred a $1 million limit. He
gave the repairs needed to the Alaskan Highway between Tok and the
Canadian border as an example of this. He stated that private
contractors would be hired to make repairs to the larger sections
of the highway, but the Department would conduct the repairs on
damaged sections of only several hundred yards in length. He
detailed the process of staging equipment and a two-year supply of
materials in key locations along the highway. He calculated the
cost of repairs utilizing this method at approximately 65 cents per
square foot, or $100,000 per square mile of area actually repaired.
He predicted that to divide the repairs into smaller projects would
increase the cost significantly.
Senator Taylor restated his scenario suggesting the Department
could address the smaller repair sections as separate projects, yet
still utilize the efficiencies of stockpiled materials and
equipment.
Mr. Lavasseur expressed the Department would not chose to violate
the intent of the bill. He qualified that if the division of
repairs as Senator Taylor described were specified in the
legislation, the Department could utilize the practice.
Senator Cowdery countered Mr. Lavasseur's comments pointing out
that the private sector also has a trained workforce. He mentioned
one project covering 38 miles. He relayed that he spoke with
Commissioner Barton about day-labor contracts to address larger
projects and had received assurance this would be done.
EDEN LARSON, President and Chief Executive Officer, Associated
Builders and Contractors of Alaska, testified via teleconference
from an off net location to dispute the Department testimony. She
characterized this legislation as designed to prevent abuses to the
force account system in the future. While she was assured the
current Administration would not commit such abuses, she voiced
concern that the proposed limitation must be imposed to prevent
future administrations from committing abuse. She furthered that
the limitation would allow the Department to perform efficiently.
Senator Cowdery asked the size of the membership of the
organization.
Ms. Larson listed 145 contractors, their associates and suppliers,
representing approximately 4,000 employees in the State.
DON VALESKO, Business Manager, Local 71, testified via
teleconference from Anchorage representing Department of
Transportation and Public Facilities the 500 to 600 employees who
perform road and facility maintenance. He voiced concerns with this
legislation, particularly the impact it would have on regular
maintenance operations, such as snow removal. He detailed the high
cost of clearing roads after a heavy snowfall, which must be bid
upon under the provisions of this bill. He understood one incident
brought this issue to light, but stressed that one incident should
not "dictate bad legislation".
Senator Cowdery told of research indicating the definition of
maintenance is "tighter" in other states, and that many states
categorize projects costing less than $50,000 as maintenance and
those over $50,000 as construction. He asked if the witness would
favor such definitions.
Mr. Valesko did not, because snow removal after even lighter
snowfall would require the bidding process. He stated that the time
involved with the bidding process would cause unnecessary delays in
clearing the roadways.
Senator Cowdery asked what information the witness based his
comments on.
Mr. Valesko calculated the $200 daily salary paid to an operator
plus the $200 daily cost for equipment, multiplied by the 30
operators working five days per week in the Anchorage area to be
$60,000 per week. He remarked this would place snow removal
services in the category of construction, which he disputed.
JEFF ALLING, Alcan Builders, and Member, Associated Builders and
Contractors of Alaska, testified via teleconference from Fairbanks,
in support of the bill. He agreed this legislation was prompted by
an incidence of abuse committee by the prior gubernatorial
administration. He expressed the intent is not to hamper snow
removal efforts, but rather to prevent the State from competing
with private industry on large construction projects.
Mr. Alling told of bidding on a University of Alaska project and
the use of multipliers to simplify the process.
Mr. Alling questioned the representation by Mr. Valesko of union
members.
Senator Bunde asked if the employees of Alcan Builders are union
members.
Mr. Alling replied they are not, although he stated the company
engages unionized subcontractors and they "work together quite
happily".
Senator Cowdery asked if most of the private contractors pay Davis
Bacon Act wages to its employees.
Mr. Alling answered yes.
Senator Taylor understood the presence of a systemic problem of the
distinction of the Department between construction and maintenance.
He commented that in British Columbia, Canada, maintenance
operations have been contracted to the private sector with
significant savings realized. He suggested the definition of
maintenance and construction should be given further consideration,
because this legislation as written, could result in "more
disservice than good."
Senator B. Stevens asked if Mr. Lavasseur has reviewed the handout
titled, "Air Force Guide: Simplified Acquisition of Base Engineer
Requirements (SABER)" [copy on file]. He asked if the information
contained in this report address preventive maintenance.
Mr. Lavasseur affirmed and explained that due to permafrost melt
the destruction of roads has increased rapidly, and more resources
have been necessary to perform repairs.
Senator B. Stevens echoed Senator Taylor's assertion that the issue
is based on the definitions of construction and maintenance.
Senator B. Stevens characterized snow removal as one type of
maintenance, yet preventative maintenance is more a type of
construction.
Senator B. Stevens next questioned the zero fiscal note, citing the
second paragraph of the analysis, which reads as follows.
Since it is not possible to determine which projects will be
considered for FAC [Force Account Construction] over the next
six years, we will base the projected savings on Calendar Year
2002. The estimated savings on 2002 force account projects
(greater than $250,000) was $4,267,700. Assuming the amount of
force account projects remains constant over the next six
years, the lost savings would total $25,606,200.
Senator B. Stevens asked if expenses would increase over $25
million.
Mr. Lavasseur replied it would for the period of time indicated
[six years]. He elaborated this would be due to the costs of
issuing bid packages, engineering design, advertising and
construction management.
Senator B. Stevens indicated a fiscal note to separate legislation
applying to FY 01 [bill number and further information not
provided], estimated savings of $120 million utilizing a force
account. He cited the analysis of the unspecified fiscal note as
reading "Assuming the force account managed costs over the next six
years, loss of savings would be a total of $120 million." He
requested reconciliation of the information of the two fiscal notes
and the aforementioned Air Force report. He suggested the matter
could be discussed after this meeting concludes.
Mr. Lavasseur agreed to explain the matter.
Senator B. Stevens noted the funding has been accounted more often
as "one line item" and wanted to understand the reason.
Mr. Lavasseur indicated the majority of the projects in question
have been gravel-to-pavement.
Co-Chair Wilken asked the year the federal government ruled that
federal National Highway System funds could be used for maintenance
purposes as well as construction projects.
Mr. Lavasseur answered 1998.
MARK O'BRIEN, Chief Contracts Officer, Contracting, Procurement and
Appeals, Office of the Commissioner, Department of Transportation
and Public Facilities, testified via teleconference from an offnet
location that he could answer questions posed by Committee members.
Mr. O'Brien addressed Senator B. Stevens's queries regarding the
fiscal notes, stating that the differences reflect a change in how
the savings was calculated. He explained, "there were significant
savings factors back in 2000 that resulted in estimates of savings
as high as 55 and 60 percent." He informed that upon review of
competitive bids and "the current marketplace", the savings
estimates have been recalculated to 20 to 25 percent and the
current fiscal note reflects a savings of 28 percent. He noted this
percentage is based on a comparison of Davis Bacon Act wages,
profit and construction engineering expenses.
Mr. O'Brien next spoke to the definitions of maintenance and
construction projects, indicating AS 19.45.001(2) provides the
definition of construction as "?construction or any derivation
meaning 'construction, reconstruction, alteration, improvement or
major repair?'" and (10) provides the definition of maintenance. He
assured this legislation would not hamper routine maintenance
projects, such as snow removal. However, he pointed out that
because the construction definition does not specifically define
major repair, uncertainty over the classification of resurfacing
projects would require the $250,000 provision.
Senator Taylor asked how the matter could be resolved. He
questioned the imposition of an "arbitrary number" and the
situation of the cost of a project exceeding $250,000 and
automatically becoming a major repair that is subject to the
bidding process. He requested further clarification of the
definition of repair and major repair.
Mr. O'Brien ascertained the definition of repair was unrelated to
the provisions of this legislation, surmising that maintenance
would continue to be categorized as repair rather than as
construction and not subject to the provisions of the force
account, although he assured he would review the matter.
Mr. O'Brien agreed with earlier testimony that most construction
should be undertaken through the competitive bid process and
informed that currently 97 percent of the work is handled in this
manner. He noted that of the three percent of the work done through
the force account process, half is contracted by competitive sealed
bid. He stressed that less than one-half percent of the work is
therefore not undertaken through competitive bid.
Mr. O'Brien reported that community roads and boardwalk projects,
which require considerable maintenance activity, is often
transferred from the Department to the Bureau of Indian Affairs or
Indian Health Agency undertaking other projects in the area. He
stated it is often in the State's best interest and is cost
effective to do so, as the other agencies have staff, equipment and
materials on hand to perform the work. He noted this practice would
be prohibited under the provisions of this legislation.
Senator Cowdery asked the dollar amount of the three percent of the
projects not currently addressed through the competitive bid
process.
Mr. O'Brien replied that $61 million was expended through the force
account during the years 1998 through 2002. During the same period,
he continued, the entire program expended $2,279,000,000. He
calculated the force account comprised 2.68 percent of the total
expenditure.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 11:13 AM
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