Legislature(2001 - 2002)

04/24/2001 10:05 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 24, 2001                                                                                      
                            10:05 A.M.                                                                                        
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-01 # 83,  Side A                                                                                                            
SFC-01 # 83,  Side B                                                                                                            
SFC-01 # 84,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair  Pete Kelly  convened the  meeting at  approximately  10:05                                                            
A.M.                                                                                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Dave Donley, Co-Chair                                                                                                   
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Jerry Ward, Vice Chair                                                                                                  
Senator Loren Leman                                                                                                             
Senator Lyda Green                                                                                                              
Senator Gary Wilken                                                                                                             
Senator Alan Austerman                                                                                                          
Senator Lyman Hoffman                                                                                                           
Senator Donald Olson                                                                                                            
                                                                                                                                
Also  Attending:    SENATOR  JOHN  COWDERY;   CARL  ROSE,  Executive                                                          
Director,   Association  of   the  Alaska   School  Boards;   FREIDA                                                            
ARNHEIGHT,  Superintendent,  North  Slope Borough  School  District;                                                            
DENNIS POSHARD,  Legislative Liaison,  Special Assistant,  Office of                                                            
the   Commissioner,   Department   of  Transportation   and   Public                                                            
Facilities;  MARK O'BRIEN,  Chief  Contracts  Officer, Contracting,                                                             
Procurement  & Appeals Division,  Department  of Transportation  and                                                            
Public  Facilities; DON  SMITH, Staff,  Senator  John Cowdery;  DOUG                                                            
GARDNER, Assistant Attorney General, Department of Law.                                                                         
                                                                                                                                
Attending  via Teleconference:    From Fairbanks:  Charles  Wiegers;                                                          
Bert Bell,  Alaska  General Contractors  (AGC);  Ton Johansen;  From                                                            
Nome: Mike  Wassman, Engineer,  Kawerak Inc.;  From Anchorage:  Dick                                                            
Cattanach, Alaska General  Contractors (AGC); Eden Larson, Executive                                                            
Director,   Associated  Builders   and  Contractors   (ABC);   April                                                            
Ferguson, Bristol  Bay Native Corporation;  Bill Watterson;  Bernard                                                            
Richard,  U.S. Economic  Development  Administration;  Kevin  Brady,                                                            
Attorney, Oles Mornson  Law Firm; Katelyn Markley, Alaska Industrial                                                            
Development and Export  Authority (AIDEA); Bill Reno, Attorney, Oles                                                            
Mornson  Law Firm;  Martin Moore;  From Saint  Marys: Walton  Smith,                                                            
City  Manager;  Off-Net:  Ken Evans,  Alaska  Native  Tribal  Health                                                            
Consortium (ANTAC).                                                                                                             
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB  83-CONSTRUCTION OF  HIGHWAYS BY DEPARTMENT OF TRANSPORTATION AND                                                            
PUBLIC FACILITIES                                                                                                               
                                                                                                                                
Following  teleconferenced testimony,  CS SB  83 (FIN) was  reported                                                            
out of Committee.                                                                                                               
                                                                                                                                
SB 152-DOTPF-RELATED CONTRACT CLAIMS                                                                                            
                                                                                                                                
Following  teleconferenced  testimony, SB  152 was  reported out  of                                                            
Committee.                                                                                                                      
                                                                                                                                
SB 174-EDUCATION FUNDING                                                                                                        
                                                                                                                                
CS SB 174 (FIN) was reported out of Committee.                                                                                  
                                                                                                                                
SB 193-APPROP:STUDY EFFECTS OF PERM FUND DIVIDND                                                                                
                                                                                                                                
SB 193 was scheduled but not heard.                                                                                             
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 174                                                                                                        
     "An Act relating to education funding; and providing for an                                                                
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
Co-Chair  Kelly requested  a reconsideration  motion be taken  on SB
174 so that the Committee could consider a technical amendment.                                                                 
                                                                                                                                
Senator Wilken  moved to rescind action  taken on moving  SB 174 out                                                            
of Committee.                                                                                                                   
                                                                                                                                
Co-Chair  Kelly  noted  that the  version  of  the bill  before  the                                                            
Committee  was version "C".   There being  no objection, action  was                                                            
RESCINDED.                                                                                                                      
                                                                                                                                
Senator Wilken  moved to adopt  Amendment #6.   [Copy on File].   He                                                            
stated that the amendment  would clarify the intent of the change in                                                            
the local  requirement  for organized  Alaska.   The  affect of  the                                                            
amendment  would  pass on  half of  the amount,  in  order that  the                                                            
taxpayer  and the general  fund would  each carry  half the  funding                                                            
load.  He  pointed out that  on Page 2,  Line 30, the word  "annual"                                                            
would be  inserted,  which would clarify  that it  would affect  the                                                            
prior  year and  would be  an annual  calculation.   Also, it  would                                                            
establish a local assessed value calculation.                                                                                   
                                                                                                                                
Senator Hoffman  objected for the  purpose of discussion.   He asked                                                            
if there had been a comparison for the 1999 date.                                                                               
                                                                                                                                
Senator  Wilken noted  that he did  not have that  information.   He                                                            
believed  that would be included  in the  fiscal note received  from                                                            
the Department.   He added that the 1999 were the  figures which had                                                            
been used.                                                                                                                      
                                                                                                                                
Co-Chair Kelly  asked if the objection was maintained.   There being                                                            
no further objection, Amendment #6 was ADOPTED.                                                                                 
                                                                                                                                
Senator  Olson moved  to rescind action  taken on  failure to  adopt                                                            
Amendment #4  which would delete Section  #1.  [Copy on File].    He                                                            
advised  that none  of the  school districts  in his  area or  rural                                                            
Alaska were in support of the bill.                                                                                             
                                                                                                                                
Co-Chair  Kelly objected.   He argued  that the  bill would  provide                                                            
more  money  to  his district  and  also  the  North  Slope  Borough                                                            
District.                                                                                                                       
                                                                                                                                
CARL ROSE,  Executive  Director, Association  of  the Alaska  School                                                            
Boards, Juneau,  voiced concern with passage of the  bill because of                                                            
issues  with  fairness  and  district  redistribution.     Mr.  Rose                                                            
commented  that the  Association is  concerned about  the future  of                                                            
education  in the State  of Alaska.   He asked  what will happen  to                                                            
children  moving forward  and  their success  with  the high  school                                                            
qualifying exams.   He requested that members take  a long-term view                                                            
and create a real fiscal plan.                                                                                                  
                                                                                                                                
Mr.  Rose stressed  that  SB  174  was a  "regressive"  approach  in                                                            
addressing  the  future.    The  issue  of  adequacy  is  not  being                                                            
addressed.    He added  that  the  Association  is  in favor  of  an                                                            
increase in  the foundation formula  and redistributing money  in an                                                            
adjusted method.   He claimed that  there should not be any  changes                                                            
made  to  SB  36  until  there  is  further  and  more  appropriate                                                             
information  available. He voiced  strong objection to the  proposed                                                            
legislation.                                                                                                                    
                                                                                                                                
AT EASE 10:19 AM/10:21 AM                                                                                                       
                                                                                                                                
A roll  call was  taken on  the motion  to rescind  action taken  on                                                            
Amendment #4.                                                                                                                   
                                                                                                                                
IN FAVOR:       Austerman, Hoffman, Olson                                                                                       
OPPOSED:        Wilken, Green, Leman, Donley, Kelly                                                                             
                                                                                                                                
Senator Ward was not present for the vote.                                                                                      
                                                                                                                                
The MOTION FAILED (3-5).                                                                                                        
                                                                                                                                
Senator Wilken  moved to report the  amended CS SB 174 (FIN)  out of                                                            
Committee  with  individual  recommendations  and  the accompanying                                                             
fiscal notes.                                                                                                                   
                                                                                                                                
Senator Hoffman asked if the title would change.                                                                                
                                                                                                                                
Co-Chair Kelly replied it would not.                                                                                            
                                                                                                                                
Senator  Olson objected  to  moving  the bill  from  Committee.   He                                                            
explained  that the bill  will have a dramatic  affect on the  North                                                            
Slope Borough.                                                                                                                  
                                                                                                                                
FREIDA  ARNHEIGHT,   Superintendent,  North  Slope  Borough   School                                                            
District,  stated that  SB 174  would be  devastating  to the  North                                                            
Slope Borough  School District.  It will remove State  funding which                                                            
amounts to $9  million dollars.  Taking away the State  funding also                                                            
removes the effort  to have grants, which accounts  to a little over                                                            
$10   million  dollars.      She  urged   reconsideration   of   the                                                            
implementation of the legislation.                                                                                              
                                                                                                                                
Senator Olson maintained his objection.                                                                                         
                                                                                                                                
A roll call was taken on the motion to move the bill.                                                                           
                                                                                                                                
IN FAVOR:       Green, Leman, Wilken, Donley, Kelly                                                                             
OPPOSED:        Austerman, Hoffman, Olson                                                                                       
                                                                                                                                
Senator Ward was not present for the vote.                                                                                      
                                                                                                                                
The motion PASSED (5-3).                                                                                                        
                                                                                                                                
CS   SB  174   (FIN)   MOVED   from   Committee   with  "individual                                                             
recommendations"  and with  a new fiscal note  by the Department  of                                                            
Education & Early Development.                                                                                                  
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 83                                                                                                         
     "An Act relating to construction of highways by the Department                                                             
     of Transportation and Public Facilities."                                                                                  
                                                                                                                                
                                                                                                                                
SENATOR JOHN COWDERY  stated that SB 83 would amend  AS 19.10.170(a)                                                            
to  require  that  no  highway  construction  project  that  exceeds                                                            
$250,000 may be  done in house by force account.   Current law would                                                            
still require  that any project that  exceeds $100,000 in  value and                                                            
proposed  to  be constructed   in house,  would  require  a  written                                                            
finding of fact.                                                                                                                
                                                                                                                                
Senator Hoffman  commented  that when work  done in rural Alaska  is                                                            
completed by the  local residents, there is more pride  in the final                                                            
product.  Many  companies use force accounts to provide  jobs in the                                                            
rural areas.   He emphasized  that everyone  should want to  see the                                                            
infrastructure in rural Alaska sustained.                                                                                       
                                                                                                                                
Senator Hoffman pointed  out that ninety-six percent of the projects                                                            
in rural  Alaska  go to  a statewide  bid.   He asked  why should  a                                                            
contractor be  worried about only four percent of  the money staying                                                            
in rural  Alaska areas.   Senator  Hoffman argued  the need  for the                                                            
proposed legislation.                                                                                                           
                                                                                                                                
Senator Cowdery indicated  that $33 million dollars had been put out                                                            
to a competitive  bid process.  He  believed that contractors  would                                                            
hire local  people when that possible  in order that they  would not                                                            
have to pay per diem costs.                                                                                                     
                                                                                                                                
Senator Hoffman  claimed that  allowing for  the four percent  often                                                            
times provides training  that workers need in order to become a part                                                            
of a Union.                                                                                                                     
                                                                                                                                
Senator Cowdery  stated that the people living in  rural Alaska were                                                            
entitled to the  same Davis-Bacon wages as all other  workers in the                                                            
State.                                                                                                                          
                                                                                                                                
Senator Olson referenced  comments made by Senator Cowdery regarding                                                            
paying of David-Bacon wages  to those employees.  He understood that                                                            
those employees  were not State employees.  He questioned  if it was                                                            
known that  any State contracts  where competitive  bidding  had not                                                            
been used.                                                                                                                      
                                                                                                                                
Senator Cowdery explained  that SB 83 mainly addresses projects done                                                            
by the Department of Transportation & Public Facilities.                                                                        
                                                                                                                                
Senator Olson  noted that he had distributed  handouts illustrating                                                             
forced accounts  to Bush Alaska.   [Copy on File].  He claimed  that                                                            
the proposed  legislation addresses  force accounts; these  accounts                                                            
have saved the State a fair amount of money over the years.                                                                     
                                                                                                                                
MIKE WASSMANN, Engineer,  Kawerak Inc., testified via teleconference                                                            
from Nome that his agency  had just entered into a contract with the                                                            
Bureau  of  Indian  Affairs  (BIA), the  Alaska  region  office,  to                                                            
develop a regional transportation  program using money from the T-21                                                            
fund.   Annually,  the  BIA brings  into  Alaska about  $20  million                                                            
dollars.   Passing SB  83 would  prevent such  an opportunity.   Mr.                                                            
Wassman  believed   that  the  bill   would  have  affects   on  the                                                            
Department's  ability to manage  its' affairs.   He maintained  that                                                            
most contractors  bring in their own  employees and only  hire a few                                                            
local residents  for laborer positions.   The contractors  generally                                                            
do not have the time and/or money for training the local people.                                                                
                                                                                                                                
CHARLES  WIEGERS,   Associated  Builders   and  Contractors   (ABC),                                                            
testified  via teleconference  from  Fairbanks to  comment that  the                                                            
intent of the  Alaska Statutes over the years has  been circumvented                                                            
by the Department  of Transportation & Public Facilities  in various                                                            
projects.    He claimed  that  in  the  St. Mary's  road  case,  the                                                            
justification  for  using   funds  on  that  project  was  that  the                                                            
Department believed  it would be cheaper to pay lower  wages than it                                                            
would  be to  hire a  contractor.   Mr.  Wiegers stated  that  using                                                            
economically  depressed   labor  force  is  inherently  wrong.    He                                                            
testified in favor of the legislation.                                                                                          
                                                                                                                                
DICK  CATTANACH, Alaska  General  Contractors (AGC),  testified  via                                                            
teleconference  from  Anchorage, and  disagreed  with the  statement                                                            
that Alaska contractors  do not hire local help.   He explained that                                                            
the cost of transportation  and per diem increases a wage by $10-$15                                                            
per hour.   SB 83 would sets parameters  for using a force  account.                                                            
A force  account is  a procurement  method available  to any  public                                                            
entity.   The  bill  establishes a  limit  of $250,000  dollars  and                                                            
anything above  that must go to a competitive bid  process.  It also                                                            
would limit  the Department  of Transportation  & Public  Facilities                                                            
having the opportunity to use public interest findings.                                                                         
                                                                                                                                
WALTON   SMITH,   City  Manager,   Saint   Mary's,   testified   via                                                            
teleconference from Saint  Mary's and pointed out that the people in                                                            
rural Alaska  have the highest  unemployment  rates in the  State of                                                            
Alaska.   He voiced concern  why ninety-six  percent was not  enough                                                            
capital for  the contractors  of the State.   He noted concern  with                                                            
the word  "abuse" being used  by the contractors.   People  in rural                                                            
Alaska  are being begrudged  for a  $3 million  dollar project.   He                                                            
maintained that  $250,000 dollars was no where near  enough to cover                                                            
the projects  being  done under  Intermodal  Surface Transportation                                                             
Efficiency Act  (ISTEA) and other funding being combined  for public                                                            
health work.  He stated  that AGC is greedy and "mean-spirited".  He                                                            
stressed that  people in rural Alaska need to learn  trades and need                                                            
to learn how to make a living.                                                                                                  
                                                                                                                                
BERT  BELL,   Alaska  General  Contractors   (AGC),  testified   via                                                            
teleconference  from  Fairbanks  to voice  support  for SB  83.   He                                                            
claimed that  his firm  always hires locally  and provides  training                                                            
locally.                                                                                                                        
                                                                                                                                
EDEN   LARSON,   Executive   Director,   Associated   Builders   and                                                            
Contractors  (ABC), testified via  teleconference from Anchorage  in                                                            
support for  SB 83.  He observed that  the use of the force  account                                                            
has been growing  throughout the State.   He commented that  it does                                                            
not  make   sense  that  the  State   should  be  moving   into  the                                                            
construction business.                                                                                                          
                                                                                                                                
KEN  EVANS,   Alaska  Native  Tribal   Health  Consortium   (ANTAC),                                                            
testified via teleconference Off-Net in opposition to the bill.                                                                 
                                                                                                                                
                                                                                                                                
SFC 01 # 83, Side B 10:55 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr.  Evans  commented  on  statewide  sanitation   and construction                                                             
programs.   Most of the rural projects  are funded through  multiple                                                            
federal  and   State  dollars.     Some  of  the  projects   include                                                            
contributions  from  the State  of  Alaska.   The local  and  tribal                                                            
governments  often  choose the  force  account construction  as  the                                                            
means to construct  important facilities.   He pointed out  that was                                                            
one of several construction  options available to small communities.                                                            
 The force  construction account empowers  the rural communities  by                                                            
leveraging   the  traditional   benefits   of  construction,   which                                                            
strengthens  the  local  economy  and  enhances  the infrastructure                                                             
sustainability.   He noted that ANTAC  strongly recommends  that the                                                            
alternative  of force account construction  remain available  to the                                                            
communities and tribes within Alaska.                                                                                           
                                                                                                                                
Co-Chair Kelly  indicated that he  had scheduled an evening  meeting                                                            
for further testimony on SB 83.                                                                                                 
                                                                                                                                
TON  JOHANSEN  testified  via  teleconference   from  Fairbanks  and                                                            
advised that  the contracting community  was not getting  ninety-six                                                            
percent  of the dollars.   He  suggested that  the legislation  goes                                                            
beyond urban areas, noting  that there will be seven projects in the                                                            
Fairbanks  area this year  on a forced account  basis.  Those  seven                                                            
projects have a value of  about $800 thousand dollars.  Mr. Johansen                                                            
supported the idea of a competitive bid process.                                                                                
                                                                                                                                
APRIL  FERGUSON,  Bristol  Bay  Native  Corporation,  testified  via                                                            
teleconference from Anchorage  against the proposed legislation. She                                                            
stated that the  bill would begin a process of removing  a tool that                                                            
local governments  could choose to  utilize to help maintain  a cash                                                            
economy  in their  communities.   That  option helps  to keep  those                                                            
people  in their  communities  and  encourages  local  hire.   Force                                                            
accounting  allows jobs to  stay in the villages  and maintains  the                                                            
rural infrastructure.   She  reiterated that  the legislation  would                                                            
have a long-term negative impact on rural Alaska.                                                                               
                                                                                                                                
BILL  WATTERSON  testified  via teleconference  from  Anchorage  and                                                            
voiced his  support for SB 83.  He  noted concern with the  build-up                                                            
of State  supervisory  forces  to manage  the work  and the  special                                                            
purchases  of equipment.   He added that the  State does not  have a                                                            
methodology for  accountability to access the overhead  to determine                                                            
the total cost of a project.                                                                                                    
                                                                                                                                
BERNARD   RICHARDS,  U.S.   Development   Economic  Administration,                                                             
testified via  teleconference Off-Net  and suggested that  there are                                                            
enough  projects,  which  can  serve  the  need  of  many  different                                                            
entities.   One of the most  effective tools  used in Alaska  is the                                                            
use of  force accounts.   Force accounts  provide training  and then                                                            
those funds  are turned  over and  spent locally.   In general,  the                                                            
majority  of the  projects  have been  cheaper  by using  the  force                                                            
accounts than if they had  been put out to bid.  He urged members to                                                            
consider  that it will cost  the State more  using contracting.   He                                                            
questioned  if the  State  does have  that  additional  money.   Mr.                                                            
Richards  emphasized that  force accounts  are a  valuable tool  for                                                            
rural Alaska.                                                                                                                   
                                                                                                                                
Senator  Olson asked  Mr.  Bell about  the  contradiction  regarding                                                            
"local hire" with the contractors and village people.                                                                           
                                                                                                                                
Mr. Bell  explained  the inventory  of  projects done  in the  rural                                                            
areas.   He reiterated that  his company has  always hired  from the                                                            
local communities  first.   He surmised that  local hire was  better                                                            
for  the village  relationship.    He  added  that there  are  fewer                                                            
contractors  working   in  the  bush  because  there  is  less  work                                                            
available now in those areas.                                                                                                   
                                                                                                                                
Senator Olson  advised that it had  come to his attention  that most                                                            
contractors have dealt  with paying employees in the Bush areas less                                                            
than Davis-Bacon wages.                                                                                                         
                                                                                                                                
Mr. Bell stated that was  not true.  He emphasized that all the work                                                            
his company  does,  both private  and public,  has paid Davis-Bacon                                                             
wages.  He added  that in the North, there are different  negotiated                                                            
agreements.  In  those areas, they pay on the maintenance  side, 80%                                                            
Davis-Bacon wages.  The  hours offered are usually 7/10's or 7/12's,                                                            
making up for the income.                                                                                                       
                                                                                                                                
Co-Chair  Kelly noted  that SB  83 would  be HELD  in Committee  for                                                            
further consideration.                                                                                                          
                                                                                                                                
Senator Wilken voiced his support for the bill.                                                                                 
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 152                                                                                                        
     "An Act  relating to the handling  of and interest on  contract                                                            
     controversies  involving the  Department of Transportation  and                                                            
     Public Facilities  or state agencies to whom  the Department of                                                            
     Transportation    and   Public    Facilities   delegates    the                                                            
     responsibility for handling the controversies."                                                                            
                                                                                                                                
                                                                                                                                
DICK  CATTANACH, Alaska  General  Contractors (AGC),  testified  via                                                            
teleconference  from  Anchorage  and  noted that  he  had  submitted                                                            
written testimony  regarding AGC's position on the  legislation.  He                                                            
offered to answer any questions of the Committee.                                                                               
                                                                                                                                
BERT  BELL,   Alaska  General  Contractors   (AGC),  testified   via                                                            
teleconference  from Fairbanks  that  it is wrong  to use  someone's                                                            
money  and not pay  interest  on it.   He predicted  that the  State                                                            
would loose.  He spoke in support of the legislation.                                                                           
                                                                                                                                
TON JOHANSEN testified  via teleconference from Fairbanks,  to voice                                                            
support of the bill.                                                                                                            
                                                                                                                                
KEVIN  BRADY,  Attorney,  Oles  Mornson   Law  Firm,  testified  via                                                            
teleconference from Anchorage  and encouraged the passage of SB 172.                                                            
 He claimed  that  passing the  bill would  give  some incentive  to                                                            
settle  claims where  the  costs are  less.   He offered  to  answer                                                            
questions of the Committee.                                                                                                     
                                                                                                                                
BILL  RENO,   Attorney,  Oles  Mornson   Law  Firm,  testified   via                                                            
teleconference from Anchorage  in support of SB 152.  He stated that                                                            
the dispute-resolution  process is badly broken.  He emphasized that                                                            
SB 152  could help  address the  current process  problems and  deal                                                            
with them "fairly".                                                                                                             
                                                                                                                                
KATELYN MARKLEY, Alaska  Industrial Development and Export Authority                                                            
(AIDEA),  testified via teleconference  from  Anchorage that  SB 152                                                            
could  result  in additional  interest  payments  for  the State  on                                                            
contract related claims.   She added that there is no way to predict                                                            
what the  legislation will  cost in the future.   AIDEA development                                                             
finance  funds generally  do not  use general  fund  money.  In  the                                                            
past, claims  have been  negotiated through  the actual settlement.                                                             
If AIDEA funds  are required of AIDEA's net income,  then there will                                                            
be  declines,  which  will  result  in  a  decrease  to  the  annual                                                            
dividends.     She  stated  that   SB  152  could  affect   economic                                                            
developers, AIDEA and the general fund with decreased funding.                                                                  
                                                                                                                                
EDEN   LARSON,   Executive   Director,   Associated   Builders   and                                                            
Contractors (ABC), testified  via teleconference from Anchorage that                                                            
the Associated Builders and Contractors supports SB 152.                                                                        
                                                                                                                                
BILL WATTERSON  testified via teleconference from  Anchorage support                                                            
for SB 152.                                                                                                                     
                                                                                                                                
Co-Chair  Kelly stated that  SB 152 would  be HELD in Committee  for                                                            
further consideration.                                                                                                          
                                                                                                                                
                                                                                                                                
AT-EASE 11:05 AM / 6:18 PM                                                                                                      
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 83                                                                                                         
     "An Act relating to construction of highways by the Department                                                             
     of Transportation and Public Facilities."                                                                                  
                                                                                                                                
                                                                                                                                
DENNIS POUCHARD,  Legislative Liaison, Special Assistant,  Office of                                                            
the   Commissioner,   Department   of  Transportation   and   Public                                                            
Facilities, introduced Mark O'Brien.                                                                                            
                                                                                                                                
MARK O'BRIEN,  Chief Contracts Officer,  Contracting, Procurement  &                                                            
Appeals   Division,   Department   of  Transportation   and   Public                                                            
Facilities,  stated that the  Department was  opposed to SB  83.  He                                                            
discussed that the effect  of the bill would prohibit the Department                                                            
or any agency  that it might transfer  projects to, from  working on                                                            
construction  projects force account  even if they were in  the best                                                            
interest of the  State.  When the Department uses  its' employees or                                                            
the employees of a local  public agency, it is generally referred to                                                            
as a  force account.   Most  of the  projects  which the  Department                                                            
considers force accounts are federally funded.                                                                                  
                                                                                                                                
In addition to  the statutory requirements, the decision  must be in                                                            
the  best  interest  of  the  State,  the  federal  government  also                                                            
requires that  it be cost effective.   An example of these  projects                                                            
would  be   the  small  community   roads  and  boardwalk   projects                                                            
accomplished in conjunction with other community projects.                                                                      
                                                                                                                                
When  the Department  of  Environmental  Conservation  Village  Safe                                                            
Water or the Bureau  of Indian Affairs or the Indian  Health Service                                                            
is in  a community  rebuilding  an  existing infrastructure,  it  is                                                            
often in the State's  best interest for cost effectiveness  that the                                                            
Department transfers the  project to the appropriate agency.  If the                                                            
Department  is prohibited from force  account projects in  excess of                                                            
$250 thousand  dollars,  the likely  result will  be an increase  to                                                            
construction  costs.   The additional  burden will  then reduce  the                                                            
total number of projects that can be funded in the program.                                                                     
                                                                                                                                
Mr. O'Brien stated  that force accounts are a tool  available to the                                                            
Department  to  accomplish  construction  projects  and  used  on  a                                                            
limited basis.  In the  past three years, that account accounted for                                                            
less than three  percent of the Department's annual  capital budget.                                                            
                                                                                                                                
In  response  to Senator  Olson,  Mr.  O'Brien  explained  that  the                                                            
confusion  stated in previous  testimony  regarding the percentages                                                             
lies in that  those portions of the  capital budget spent  for items                                                            
other than the  construction of the contract itself.   That includes                                                            
the design  of the project  and administration  fees, which  are not                                                            
included in the  actual construction costs typically  handed over to                                                            
a contractor.   Four percent is the percentage of  the total program                                                            
that the Department has.                                                                                                        
                                                                                                                                
Senator Olson  assumed that  the architect  and engineer firms  came                                                            
from Anchorage  and Fairbanks.   He  asked if  there were any  firms                                                            
from outside the State of Alaska.                                                                                               
                                                                                                                                
Mr. O'Brien replied  not generally and that design  consultants used                                                            
are primarily from Alaska.                                                                                                      
                                                                                                                                
Senator  Ward asked  if the force  accounting were  required  to pay                                                            
Davis-Bacon wages.                                                                                                              
                                                                                                                                
Mr. O'Brien replied they were.                                                                                                  
                                                                                                                                
Senator Ward asked how it was decided what wage was paid.                                                                       
                                                                                                                                
Mr. O'Brien  explained that the statutory  requirements for  payment                                                            
of Davis-Bacon  wage apply only to contractors and  sub-contractors.                                                            
Local communities  that are  doing the projects  on a force  account                                                            
basis and that community establishes the wages paid.                                                                            
                                                                                                                                
Senator Ward asked if the Administration was funding that.                                                                      
                                                                                                                                
Mr. O'Brien replied that it was.                                                                                                
                                                                                                                                
Senator  Ward  asked if  more  work  would be  accomplished  by  the                                                            
Administration through funding the program.                                                                                     
                                                                                                                                
Mr. O'Brien  explained that the communities  are able to  extend the                                                            
money further and realize greater savings.                                                                                      
                                                                                                                                
Senator Ward  asked if the Administration  supports that  throughout                                                            
the State.                                                                                                                      
                                                                                                                                
Mr. O'Brien advised  that the Administration determines  information                                                            
on a project-by-project  basis.   Each project  would have to  be in                                                            
the State's best interest and cost effective.                                                                                   
                                                                                                                                
Senator Ward suggested that could fit any projects in the State.                                                                
                                                                                                                                
Mr. Poshard  clarified that  one could use  the same logic  for most                                                            
projects.    However,  the Department   uses other  criteria.    The                                                            
Department  tries to  determine if  there is  the where-with-all  to                                                            
handle  the project  and  the size  and  magnitude of  each  project                                                            
requested.   Most  of the  projects which  were done  by the  agency                                                            
other than  the Department,  were done in  cooperation with  another                                                            
agency.  Projects are not  indiscriminately handed over just to save                                                            
money.                                                                                                                          
                                                                                                                                
Senator Wilken agreed that  there is a need for force accounting and                                                            
also that there  is a need for flexibility in the  field.  He stated                                                            
that there  is a duty to let private  industry bid on projects.   He                                                            
noted  that  he  thought  the number  should  be  higher  than  $250                                                            
thousand dollars but lower than $3 million dollars.                                                                             
                                                                                                                                
Mr. Poshard  understood  that the  bill assumes  that projects  over                                                            
$250 thousand  dollars are required  to be bid out.  He recommended                                                             
that the Department of Law provide an interpretation.                                                                           
                                                                                                                                
Senator Hoffman  explained that the  way in which he read  the bill,                                                            
any project  over $100  thousand dollars  would have  to go  to bid.                                                            
The second paragraph indicates  that it must be in the best interest                                                            
of the State.                                                                                                                   
                                                                                                                                
Mr. Poshard  clarified that  in the existing  provision in  law, the                                                            
Department is required  to do a "best interest" determination if the                                                            
project  is over  $100 thousand  dollars.   However,  he noted  that                                                            
through the  bill, anything over $250  thousand dollars would  "tie"                                                            
the Department's hands.                                                                                                         
                                                                                                                                
                                                                                                                                
AT EASE: 6:40 P.M. - 6:45 P.M.                                                                                                  
                                                                                                                                
                                                                                                                                
Co-Chair Kelly  moved to adopt a conceptual  amendment, which  would                                                            
allow the Department  the flexibility  to use force accounting  when                                                            
there is no  responsive bidder.  The  language would be inserted  on                                                            
Page  1,  Line  10,  following  "less"   and  would  read,  "or  the                                                            
Department  has not  obtained  a responsive  bid".   There being  no                                                            
objection, the amendment was ADOPTED.                                                                                           
                                                                                                                                
Senator  Austerman asked  about the  handouts  addressing the  force                                                            
accounts.                                                                                                                       
                                                                                                                                
Mr. Poshard  explained that  the labor and  other costs were  broken                                                            
out.    The labor  costs  are  the  costs  that  do not  go  to  the                                                            
contracting  community.  The  two columns  added together equal  the                                                            
total amount for  each project.  The combined total  would relate to                                                            
the $250 thousand dollars limit.                                                                                                
                                                                                                                                
Senator  Austerman commented  on the  handout and  pointed out  that                                                            
most of the  figures fall within $500  thousand dollars.   He agreed                                                            
that  the smaller  projects should  use  force account.   He  voiced                                                            
concern  with previous  testimony  indicating that  the contractors                                                             
would hire  local people.   He knew  that the  reality was that  the                                                            
local people  don't always  get hired and  the contractors  bring in                                                            
their  own employees.   He  added  that the  more work  that can  be                                                            
delegated to the villages, the better it would be.                                                                              
                                                                                                                                
Co-Chair Kelly asked if he supported inserting a new number.                                                                    
                                                                                                                                
Senator Austerman  moved to  insert "$500,000"  on Page 1,  Line 10,                                                            
deleting "$250,000".                                                                                                            
                                                                                                                                
Senator Ward objected in order to hear from the sponsor.                                                                        
                                                                                                                                
Senator Wilken  agreed that $250 thousand  dollars was a  little too                                                            
restrictive.                                                                                                                    
                                                                                                                                
Senator Cowdery indicated his support of inserting "$500,000".                                                                  
                                                                                                                                
                                                                                                                                
SFC 01 # 84, Side A                                                                                                             
                                                                                                                                
                                                                                                                                
Senator Ward withdrew his objection.                                                                                            
                                                                                                                                
Mr. Poshard stated that  the Department, even with the changes, does                                                            
not support the bill.   The Department wants to maintain the maximum                                                            
amount of flexibility.  Even with the $500,000 limit,  it will still                                                            
have  an  effect  with the  Village  Safe  Water  projects.    Those                                                            
projects  are  done  in conjunction  with  the  Village  Safe  Water                                                            
Program.    In that  program,  a  situation  is  created  where  the                                                            
Department has a fair amount  of efficiency in operating the old way                                                            
with other  agencies.  He voiced  his appreciation  for the  changes                                                            
made by the Committee, nonetheless.                                                                                             
                                                                                                                                
Senator  Olson asked  if the  cost numbers  were  available for  the                                                            
average Village Safe Water project.                                                                                             
                                                                                                                                
Mr. Poshard did not have  those numbers, however, the list contained                                                            
in the Committee  members packets, indicate two water  projects done                                                            
in 1998 and done  through a force account, one of  which amounted to                                                            
$800,000 and the other amount was $700,000 dollars.                                                                             
                                                                                                                                
Senator  Olson inquired  if SB  83 had  been in  place, could  those                                                            
projects have been successfully undertaken.                                                                                     
                                                                                                                                
Mr.  Poshard  responded  that  the projects  would  have  been  done                                                            
differently, which would have cost the State more money.                                                                        
                                                                                                                                
Senator Olson  asked if there  would have  been less quality  in the                                                            
work.                                                                                                                           
                                                                                                                                
Mr. Poshard  could  not comment  on the  quality of  the work.   The                                                            
State would  be required  to have two separate  projects that  would                                                            
require  two separate  bid  documents  and  construction  management                                                            
personnel.  It would have to be done very differently.                                                                          
                                                                                                                                
Senator Leman  believed that the proposed legislation  was the wrong                                                            
way to  get at the  problem.  He  believed that  there should  be as                                                            
much competition  as possible.  He  suggested that the real  problem                                                            
is  that Davis-Bacon  wages  are not  the wages  being  paid in  the                                                            
village  areas,   which  creates   a  disparity  between   what  the                                                            
contractors have to pay.                                                                                                        
                                                                                                                                
MARTIN  B. MOORE  testified  via teleconference  Off-Net  that  many                                                            
communities  are in opposition  to SB 83.   He pointed out  that the                                                            
village people  need force accounting because of the  1998 fisheries                                                            
disaster.  He  added, the year 2000 has been another  disaster.  The                                                            
fishing industry  is no longer a mainstay  for those remote  village                                                            
areas.  He proposed criteria which are needed:                                                                                  
                                                                                                                                
     ·    Finding ways and means to cheaper energy resources;                                                                   
     ·    Finding alternatives to welfare institutions;                                                                         
     ·    Establishing    manufacturing   sites   &   home   cottage                                                            
          industries;                                                                                                           
     ·    Finding   innovative  markets  for  the  declining  salmon                                                            
          fishing industry; and                                                                                                 
     ·    Construction  of the North  Slope Natural Gas pipeline  to                                                            
          village communities.                                                                                                  
                                                                                                                                
Co-Chair  Donley moved  to report CS  SB 83 (FIN)  out of  Committee                                                            
with individual  recommendations  and with  the accompanying  fiscal                                                            
note.                                                                                                                           
                                                                                                                                
Senator Hoffman objected.                                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:       Leman, Ward, Wilken, Austerman, Donley, Kelly                                                                   
OPPOSED:        Hoffman, Olson                                                                                                  
                                                                                                                                
Senator Green was not present for the vote.                                                                                     
                                                                                                                                
The motion PASSED (6-2).                                                                                                        
                                                                                                                                
CS   SB   83   (FIN)   MOVED  from   Committee    with  "individual                                                             
recommendations"  and  with  fiscal note  #1  by the  Department  of                                                            
Transportation & Public Facilities.                                                                                             
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 152                                                                                                        
     "An Act  relating to the handling  of and interest on  contract                                                            
     controversies  involving the  Department of Transportation  and                                                            
     Public Facilities  or state agencies to whom  the Department of                                                            
     Transportation    and   Public    Facilities   delegates    the                                                            
     responsibility for handling the controversies."                                                                            
                                                                                                                                
                                                                                                                                
SENATOR  JOHN COWDERY  stated that  the proposed  legislation  would                                                            
require  that when  a contract  settlement  with  the Department  of                                                            
Transportation  & Public Facilities  is in dispute and then  settled                                                            
in favor of the contractor,  interest must be paid to the contractor                                                            
on the  settlement  amount for  the time  that the  contract was  in                                                            
dispute.  Interest would  accrue at the rate applicable to judgments                                                            
and the interest  accrues from the  date the claim is filed  through                                                            
the date of the decision.                                                                                                       
                                                                                                                                
Senator Hoffman commented  that the bill would create constitutional                                                            
concerns with equal protection.   The Department of Transportation &                                                            
Public Facilities  has procurement  authority  for all construction                                                             
projects conducted  in the State and prejudgment claims  will affect                                                            
all agencies conducting  construction.  He questioned claims against                                                            
the  other  agencies besides  the  Department  of  Transportation  &                                                            
Public Facilities.                                                                                                              
                                                                                                                                
Senator Cowdery  replied that  if other agencies  owe money  and the                                                            
court  indicates   that,   then  those  agencies   should   also  be                                                            
responsible to pay the interest due.                                                                                            
                                                                                                                                
Senator Hoffman  asked why the other  agencies were not included  in                                                            
the legislation.                                                                                                                
                                                                                                                                
Senator  Wilken mentioned  that  Page 1  was difficult  to read  and                                                            
noted that there is no effective date placed in the bill.                                                                       
                                                                                                                                
Co-Chair Kelly asked if there were any proposed amendments.                                                                     
                                                                                                                                
Senator Leman thought that  the State interest rate was too high and                                                            
acknowledged  that  this  bill was  not  the  vehicle to  make  that                                                            
change.                                                                                                                         
                                                                                                                                
DOUG  GARDNER,  Assistant  Attorney   General,  Department  of  Law,                                                            
commented  that the  concerns indicated  by the  Associated  General                                                            
Contractors,   propose  stipulations   that   are  currently   being                                                            
litigated  in a case called  Quality Asphalt.   The letter  does not                                                            
address the problems that  the Department of Law sees with the bill.                                                            
                                                                                                                                
Mr. Gardner  suggested that the Committee  should consider  that the                                                            
majority  of states  do not  implement  the interest  penalty.   The                                                            
legislation  would put Alaska in a  minority position.  Most  states                                                            
pay interest on liquidating  claims.  The cost of the application of                                                            
the bill would  be "unknown".  The fiscal note could  be significant                                                            
if the bill was given any retroactive charges.                                                                                  
                                                                                                                                
Many  of  the  Department  of Transportation   &  Public  Facilities                                                            
projects are  funded by the Federal  Highway Administration  (FHWA),                                                            
the  Federal  Aviation  Association  (FAA) or  the  Federal  Transit                                                            
Authority.  Some of  the agencies  would not  pay interest  charges.                                                            
All  agencies  that  build  though  the  State,  contract  with  the                                                            
Department  of Transportation  & Public  Facilities.   Every  single                                                            
agency would be  required to pay interest on administrative  claims.                                                            
The  Committee   could  see,  in  the  years  to   come,  a  lot  of                                                            
supplemental requests to cover these costs.                                                                                     
                                                                                                                                
Mr. Gardner  invited  the Committee  to consider  some of the  equal                                                            
protection issues  voiced by Senator Hoffman.  The  bill changes the                                                            
procurement  code and singles  out construction  projects.   A savvy                                                            
litigator could  misconstrue that information.  The  other projects,                                                            
such as the Railroad, would  be required to have similar statutes in                                                            
place and to also pay interest.                                                                                                 
                                                                                                                                
Senator   Ward  asked   how  many   states  have   implemented   the                                                            
legislation.                                                                                                                    
                                                                                                                                
Mr. Gardner remembered  of the 17 states that were checked, only one                                                            
pays  interest on  a disputed  claim.   He  offered to  go back  and                                                            
recheck which states had been checked.                                                                                          
                                                                                                                                
Mr.  Gardner  explained  that the  Department  of  Transportation  &                                                            
Public Facilities does  pay interest on administrative claims.  That                                                            
issue did  not become  litigated until  fairly "late  in the  game".                                                            
Contractors  probably   became  familiar  with  receiving   interest                                                            
payments  until the  Courts  changed that.    That was  a change  in                                                            
findings.                                                                                                                       
                                                                                                                                
Senator Wilken  addressed equal protection.  He understood  that the                                                            
contractors  had been excluded from  the interest payments  that the                                                            
State already pays.                                                                                                             
                                                                                                                                
Mr. Gardner commented  that the responses found in  that letter were                                                            
confusing.   In  the cases  that are  brought as  direct actions  to                                                            
Superior Court,  the State has allowed itself to be  sued on certain                                                            
types of conditions elected by the Superior Court.                                                                              
                                                                                                                                
Senator  Donley  moved  to  report  SB 152  out  of  Committee  with                                                            
individual recommendations  and with the accompanying  fiscal notes.                                                            
                                                                                                                                
Senator Hoffman maintained his objection.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:       Leman, Ward, Wilken, Donley, Kelly                                                                              
OPPOSED:        Olson, Hoffman                                                                                                  
                                                                                                                                
Senators Austerman and Green were not present for the vote.                                                                     
                                                                                                                                
The motion PASSED (5-2).                                                                                                        
                                                                                                                                
SB 152  MOVED from  Committee with  a "do pass"  recommendation  and                                                            
with  a  fiscal   note  by  Department   of  Community  &   Economic                                                            
Development  and note #1  by Department of  Transportation  & Public                                                            
Facilities.                                                                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Pete Kelly adjourned the meeting at 07:31 P.M.                                                                         

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