Legislature(2005 - 2006)SENATE FINANCE 532

04/19/2005 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 142 REGIONAL SCHOOL BD LAND/BLDG OWNERSHIP TELECONFERENCED
Moved CSSB 142(L&C) Out of Committee
+ SB 160 STATE PROCUREMENT ELECTRONIC TOOLS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 131 WAGE & HOUR ACT: EXEC/PROF/ADMIN/SALES TELECONFERENCED
Scheduled But Not Heard
+= SB 70 CRIMES INVOLVING CONTROLLED SUBSTANCES TELECONFERENCED
Heard & Held
+= SB 100 ENHANCED 911 SURCHARGES TELECONFERENCED
Moved CSSB 100(FIN) Out of Committee
+= SB 112 TAX ON REAA RESIDENTS TELECONFERENCED
Heard & Held
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 19, 2005                                                                                      
                             9:10 a.m.                                                                                        
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Green convened the meeting at approximately 9:10:29 AM.                                                              
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Bert Stedman                                                                                                            
Senator Fred Dyson                                                                                                              
                                                                                                                                
Also Attending:  JANE ALBERTS, Staff to Senator Bunde;  NONA WILSON,                                                          
Legislative  Liaison,   Department  of  Transportation   and  Public                                                            
Facilities;   KIP   KNUDSON,  Deputy   Commissioner   of   Aviation,                                                            
Department  of Transportation  and  Public Facilities;  VERN  JONES,                                                            
Chief Procurement Officer,  Division of General Services, Department                                                            
of Administration; KEVIN  BROOKS, Deputy Commissioner, Department of                                                            
Administration;   JIM  DUNCAN,   Business   Manager,  Alaska   State                                                            
Employees Association;  SCOTT HAWKINS, Representative, Alaska Supply                                                            
Chain  Integrators;  PETE FORD,  Southeast  Region  Manager,  Alaska                                                            
State Employees  Association;  KIM CARNOT,  Staff to Senator  Green;                                                            
DEAN GUANELI,  Chief Assistant Attorney General, Criminal  Division,                                                            
Legal Services Section-Juneau,  and Chief Assistant Attorney General                                                            
Office of  Special Prosecutions  & Appeals,  Office of the  Attorney                                                            
General                                                                                                                         
                                                                                                                                
Attending  via  Teleconference:   PAMELA  LEWIS,  Statewide   Chief,                                                          
Aviation  Leasing  and  Airport  Land  Development,   Department  of                                                            
Transportation  and Public  Facilities; From  Nome: MITCH  ERICKSON,                                                            
Representative,  None  Chamber of  Commerce; From  Anchorage:  LAURA                                                            
LAWRENCE,  Procurement  Specialist,  Central Region,  Department  of                                                            
Transportation and Public  Facilities; BARRY JACKSON, Resource Data,                                                            
Alaska Supply Chain Integrators                                                                                                 
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 142-REGIONAL SCHOOL BD LAND OWNERSHIP                                                                                        
                                                                                                                                
The  Committee  heard  from  the  sponsor   and  the  Department  of                                                            
Transportation  and  Public  Facilities.   The  bill  reported  from                                                            
Committee.                                                                                                                      
                                                                                                                                
SB 160-STATE PROCUREMENT ELECTRONIC TOOLS                                                                                       
                                                                                                                                
The  Committee heard  from  the bill's  sponsor,  the Department  of                                                            
Administration,   the  Department   of  Transportation  and   Public                                                            
Facilities,  Alaska  Supply  Chain  Integrators,   and  took  public                                                            
testimony. A committee  substitute was adopted and the bill was held                                                            
in Committee.                                                                                                                   
                                                                                                                                
SB 100-ENHANCED 911 SURCHARGES                                                                                                  
                                                                                                                                
The  Committee   heard  from  the   sponsor,  adopted  a   committee                                                            
substitute and one amendment,  and reported the bill from Committee.                                                            
                                                                                                                                
SB 70-CRIMES INVOLVING CONTROLLED SUBSTANCES                                                                                    
                                                                                                                                
The Committee  heard from the bill's  sponsor and the Department  of                                                            
Law. A  committee  substitute and  one amendment  were adopted.  The                                                            
bill was held in Committee.                                                                                                     
                                                                                                                                
SB 112-TAX ON REAA RESIDENTS                                                                                                    
                                                                                                                                
The Committee heard from  the bill's sponsor. A committee substitute                                                            
and one amendment  were considered but not adopted  and the bill was                                                            
held in Committee.                                                                                                              
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 142(L&C)                                                                                            
     "An Act relating to ownership of land by regional school                                                                   
     boards; and providing for an effective date."                                                                              
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Senator Bunde,  the bill's  sponsor by request  of the Senate  Labor                                                            
and  Commerce  Committee,  stated   that  this  bill  would  correct                                                            
"conflicting  statutes  regarding the  ownership of  land for  State                                                            
airports".  While   "the  Legislature  clearly  intended   to  allow                                                            
regional  school  boards the  option  of  greater control  of  their                                                            
facilities  through acquisition  of title,  there is no record  that                                                            
the Legislature,  however, intended to do so at the  cost of federal                                                            
liability,  significant  loss of  federal  funding,  and a  degraded                                                            
state airport system".                                                                                                          
                                                                                                                                
Senator Bunde  noted that members'  bill packets include  a December                                                            
11, 2001 Department  of Law legal  opinion [copy on file]  addressed                                                            
to then-Commissioner   of Department  of Transportation  and  Public                                                            
Facilities  (DOT),  Joe Perkins,  that reviewed  the  intent of  the                                                            
Legislature  in regards  "to this  issue and  the conflicting  lands                                                            
needs".                                                                                                                         
                                                                                                                                
Senator Bunde,  reading from the Sponsor  Statement, stressed  that,                                                            
"several regional  schools are located on state properties,  some in                                                            
very close proximity  to active runways and airport  infrastructure.                                                            
At various times, regional  school boards have requested that DOT&PF                                                            
convey  full title  of the  airport land  to the  schools. This  has                                                            
caused confusion,  staff time in both  the Departments of  Education                                                            
and DOT&PF, as  well as attorney costs, to defend  DOT&PF's title to                                                            
its airport property."                                                                                                          
                                                                                                                                
Senator  Bunde emphasized  that the  State receives  "a substantial                                                             
amount  of money to  build and  maintain runways"  from the  Federal                                                            
Aviation Administration  (FAA). There was no Legislative  intent "to                                                            
breach FAA  grant agreements". This  bill would benefit the  public,                                                            
the regional  school boards, the Department  of Education  and Early                                                            
Development  and DOT  by clarifying  the  intent  of the  conveyance                                                            
language to exclude airport properties."                                                                                        
                                                                                                                                
JANE  ALBERTS, Staff  to  Senator Bunde,  directed  the Committee's                                                             
attention  to a  list of  areas  on a  handout titled  "REAAs  where                                                            
Airport/DOT needs  may overlap:" [copy on file], which  was provided                                                            
by Pamela Lewis  of the DOT. The handout  identifies areas  in which                                                            
"there  could  be  possible  conflicts  between  the  Department  of                                                            
Transportation  and  Public  Facilities   and  the  Regional  School                                                            
Boards".  It should be noted  however, that  there is no  indication                                                            
that a conflict  "might be  brewing" in any  of these areas  at this                                                            
time.                                                                                                                           
                                                                                                                                
Senator  Bunde read  the  list for  the  record: possible  areas  of                                                            
conflict  in  the Northern  Region  would  include  Anvik,  Bettles,                                                            
Galena, Noatak,  Pilot Station and Unalakleet; areas  in the Central                                                            
Region would  include Aniak,  Cold Bay, Illiamna,  Lime Village  and                                                            
Willow.                                                                                                                         
                                                                                                                                
Senator  Hoffman asked  the manner  through which  this legislation                                                             
would resolve the conflict.                                                                                                     
                                                                                                                                
Senator Bunde  responded that the bill would clarify  that the State                                                            
would "control  airport land and that the airport  land could not be                                                            
absorbed by the school district".                                                                                               
                                                                                                                                
Senator  Hoffman  asked  regarding  the situation  that  prompted  a                                                            
school district to seek title of the airport property.                                                                          
                                                                                                                                
NONA WILSON, Legislative  Liaison, Department of Transportation  and                                                            
Public  Facilities,  expressed  that one  example of  the  confusion                                                            
caused by the existing State Statute occurred when the Yukon-                                                                   
Koyukuk  Regional  School Board  made  an administrative  claim  for                                                            
school property at the  Bettles Airport in the year 2001. The school                                                            
in Bettles, which  was constructed in the 1970's,  "is very close to                                                            
the  active runway,  and  is, in  fact, partially  in  front of  the                                                            
building  restriction  line  (BRL).  A BRL  limits  construction  of                                                            
improvements  near  a runway  for  safety  purposes. The  school  is                                                            
actually located  in an area identified by DOT and  the FAA as being                                                            
needed for future aviation purposes".                                                                                           
                                                                                                                                
Ms. Wilson  continued that  during subsequent  discussions  with the                                                            
school  district,  DOT  "obtained  an  Attorney  General's  Opinion,                                                            
basically, in order to  protect the integrity of the airport". While                                                            
some  non-conflicting  BRL  areas  were  identified,  perimeter  and                                                            
runway safety  issues were, in accordance with FAA  guidelines, non-                                                            
negotiable.                                                                                                                     
                                                                                                                                
Ms.  Wilson informed  the  Committee  that similar  Rural  Education                                                            
Attendance  Area (REAA)  airport  title requests  were  made by  the                                                            
Aleutian Regional  School District near Cold Bay in  1986 and at the                                                            
Lake and Peninsula School  District in 1994. Rather than the purpose                                                            
of the bill being  to challenge school districts,  its purpose would                                                            
be  to  "rectify   some  language  that  has  created   some  sticky                                                            
situations in the past".                                                                                                        
                                                                                                                                
Senator Hoffman  voiced that,  while he understood  the position  of                                                            
DOT, he surmised  there must be safety  concerns on the part  of the                                                            
schools. To that  point, he asked that an opinion  on behalf of "the                                                            
school board's  interest" be provided; there must  be some education                                                            
concerns  as  otherwise   there  would  be  no  desire   to  disrupt                                                            
transportation  in those  areas.  A solution  might be  to move  the                                                            
location of the school.                                                                                                         
                                                                                                                                
Ms. Wilson deferred  to Ms. Lewis of DOT who was more  familiar with                                                            
the situations in the Northern communities.                                                                                     
                                                                                                                                
Senator Hoffman asked whether  a representative of the Department of                                                            
Education and Early Development  might be available to provide their                                                            
perspective as opposed to someone working for DOT.                                                                              
                                                                                                                                
Co-Chair  Green asked  whether  a local  community  city council  or                                                            
school board member might better provide the schools' position.                                                                 
                                                                                                                                
Senator Hoffman  replied that the Department of Education  and Early                                                            
Development  would  be able  to provide  information  regarding  the                                                            
situation for  each of the communities  on the aforementioned  list.                                                            
                                                                                                                                
Senator  Bunde,   Chair  of  the  Senate  Labor  &  Commerce   (L&C)                                                            
Committee,  conveyed  that the  Department  of Education  and  Early                                                            
Development  had raised  "no  interest or  concern"  during the  L&C                                                            
Committee hearings on this bill.                                                                                                
                                                                                                                                
Co-Chair Green asked whether  the Regional School Boards, the Alaska                                                            
Association  of School Boards,  or the Alaska  Municipal League  had                                                            
presented testimony to the L&C Committee.                                                                                       
                                                                                                                                
Senator Bunde replied in the negative.                                                                                          
                                                                                                                                
PAMALA LEWIS,  Statewide  Chief, Aviation  Leasing and Airport  Land                                                            
Development,  Department  of Transportation  and  Public  Facilities                                                            
testified  via  teleconference  from  offnet  site in  Fairbanks  to                                                            
provide insight to the  issues that might have prompted the Regional                                                            
School Boards to ask for  title to the airport property. The Bettles                                                            
request occurred at a time  when "the school was fighting" to remain                                                            
open  due  to  a decline   in student  enrollment.   "The  community                                                            
desperately  wanted the  school to  stay open."  DOT had leased  the                                                            
land to the  school for several years;  however, "at some  point" in                                                            
the future, the building  might have to be relocated behind the BRL.                                                            
She speculated  that  the reason for  the title  request might  have                                                            
been an attempt  "to secure a place for them to retain  the school."                                                            
The issues  behind the  Cold Bay  or the Lake  and Peninsula  School                                                            
District  requests were unknown  to her. However,  she noted  that a                                                            
tremendous  amount of  DOT time and  resources were  exerted  in the                                                            
effort  of explaining  why  the  title to  that  land  could not  be                                                            
""relinquished".                                                                                                                
                                                                                                                                
9:23:24 AM                                                                                                                    
                                                                                                                                
Senator Hoffman clarified  that rather than his question being about                                                            
the issues  relating to the  relinquishing  of the title, which  was                                                            
the focus of this  bill, his question was in regards  to the "bigger                                                            
issue" of the  safety of the students in the schools.  "Students and                                                            
airplanes don't  mix." Therefore,  he questioned whether  any of the                                                            
school district  efforts were  an attempt to  address that  issue by                                                            
acquiring the  land so that such things as a fence  might be erected                                                            
to further students' safety. Student safety should be a concern.                                                                
                                                                                                                                
9:24:38 AM                                                                                                                    
                                                                                                                                
Ms.  Lewis  expressed that  she  "absolutely  agreed"  with  Senator                                                            
Hoffman about  the safety issue. However, to her knowledge,  none of                                                            
the requests  were based on the premise  of acquiring land  to erect                                                            
fences or an effort  to make the facility safer. To  that point, the                                                            
Department  of  Transportation   and  Public  Facilities  has  taken                                                            
responsibility  for such things  as erecting  fences to address  the                                                            
"serious concerns of runways and students not mixing".                                                                          
                                                                                                                                
9:25:47 AM                                                                                                                    
                                                                                                                                
Senator  Hoffman asked,  therefore,  about the  "conflict" that  had                                                            
prompted  the  school   districts  to  further  the  airport   title                                                            
requests.                                                                                                                       
                                                                                                                                
Senator Bunde  speculated that a school district might  have desired                                                            
to control the airport  land, which in many communities might be the                                                            
primary means  of accessing a community, in speculation  of it being                                                            
"a potential revenue generator".                                                                                                
                                                                                                                                
Senator  Bunde  noted  that,  in  addition  to  the  student  safety                                                            
concern, another safety  concern is that walkers and things as four-                                                            
wheelers often utilize runways for recreation.                                                                                  
                                                                                                                                
Senator Bunde remarked  that the State has two choices in regards to                                                            
this bill:  either continue  its ownership  of the  airport land  or                                                            
return  the money  that  the  federal government  "has  provided  to                                                            
develop  that airport".  Fencing  the airport  area  to address  the                                                            
safety issue would be the "cheaper" of the two options.                                                                         
                                                                                                                                
9:27:09 AM                                                                                                                    
                                                                                                                                
Co-Chair Green  understood that the bill's primary  purpose would be                                                            
to  resolve  the  conflict  that  exists  between  the  federal  FAA                                                            
policies and State Statute  regarding the conveyance of airport land                                                            
titles.                                                                                                                         
                                                                                                                                
Senator  Bunde  concurred.  However, the  safety  issue  is a  valid                                                            
concern.  One manner  to  address  that issue  would  be to  control                                                            
access  to  the airport  land.  DOT  might desire  to  address  that                                                            
concern by erecting fences.  That would be a separate discussion, as                                                            
the local community might not desire that.                                                                                      
                                                                                                                                
9:28:13 AM                                                                                                                    
                                                                                                                                
Co-Chair  Green pointed  out that it  is common  for things  such as                                                            
schools,  businesses, the  runway, and other  major components  of a                                                            
village to be built in concentrated areas in small communities.                                                                 
                                                                                                                                
9:28:44 AM                                                                                                                    
                                                                                                                                
Senator  Olson  asked  whether  the  BRL  specifications  have  been                                                            
altered over time.                                                                                                              
                                                                                                                                
9:28:58 AM                                                                                                                    
                                                                                                                                
Ms. Lewis  responded  that the  BRL was  revised in  the 1980s  as a                                                            
result  of  a new  master  plan  being  developed  for  the  Bettles                                                            
airport. The FAA approved  that master plan and "a grant for further                                                            
development"  of the airport was also  approved shortly thereafter.                                                             
She was unsure of the conditions of the original BRL.                                                                           
                                                                                                                                
Senator  Olson understood  that the current  Bettles' BRL  specifies                                                            
that the State owns title  to land up to 750 feet from the middle of                                                            
the runway.                                                                                                                     
                                                                                                                                
Ms. Lewis concurred.                                                                                                            
                                                                                                                                
Senator  Olson  asked whether  different  classes  of  airports  had                                                            
differing BRL  standards. Some airports have the capacity  to handle                                                            
large  aircraft such  as jets while  others  could only accommodate                                                             
small aircraft.                                                                                                                 
                                                                                                                                
Ms. Lewis affirmed that there are different classes of airports.                                                                
                                                                                                                                
Senator  Olson  asked  whether  this would  result  in  there  being                                                            
different BRL parameters.                                                                                                       
                                                                                                                                
Ms. Lewis  was uncertain as  to whether the  type of airport  or its                                                            
classification  was  pertinent  to  this discussion.  This  bill  is                                                            
limited to addressing  the title "to the land underlying  the school                                                            
facilities".   She  deferred   to  Kip  Knudson,   the  DOT   Deputy                                                            
Commissioner of Aviation to address that question.                                                                              
                                                                                                                                
Senator  Olson asked  whether the  Northwest  Arctic Borough  School                                                            
District,  the Lower Yukon  School District,  and the Bering  Strait                                                            
School District,  which are in his election district,  were notified                                                            
about this  legislation. He  also distributed  a map [copy  on file]                                                            
depicting that  the community of Noatak's school is  adjacent to its                                                            
airport.                                                                                                                        
                                                                                                                                
Ms. Lewis remarked  that rather than separate notices  being sent to                                                            
the   school   districts,   routine   notification   regarding   the                                                            
legislation was conducted.                                                                                                      
                                                                                                                                
Senator  Olson surmised therefore  that the  three school  districts                                                            
"have not been notified of this possible action."                                                                               
                                                                                                                                
Ms. Lewis reiterated  that routine notification procedures  had been                                                            
conducted.                                                                                                                      
                                                                                                                                
9:32:08 AM                                                                                                                    
                                                                                                                                
KIP  KNUDSON,  Deputy   Commissioner  of  Aviation,   Department  of                                                            
Transportation  and Public  Facilities, voiced  concern that  safety                                                            
issues were  being interjected  into the bill  at hand. Despite  the                                                            
State's massive  land holdings, there is extremely  high competition                                                            
for buildable  land in village  areas. The  fact that airports  have                                                            
some of  the best land in  the villages is  part of the reason  that                                                            
some schools are located  on airport property. No other economically                                                            
feasible building  site might have  been available. Such  situations                                                            
have led  to there being  "an uneasy relationship"  between  DOT and                                                            
the villages.                                                                                                                   
                                                                                                                                
Mr.  Knudson stated  that  safety  concerns  have been  an  on-going                                                            
issue. DOT would request  that schools be built elsewhere were other                                                            
building sites an option.                                                                                                       
                                                                                                                                
Mr. Knudson shared  that prior to the introduction  of this bill, he                                                            
had discussed  the issue with Eddy Jeans, Director,  School Finance,                                                            
Department of  Education and Early Development. Mr.  Jeans contacted                                                            
the affected school districts  about the proposed bill; no "negative                                                            
feedback" had been received.                                                                                                    
                                                                                                                                
Mr. Knudson reiterated  that the focus of the bill is limited to the                                                            
issue of land  title. No request would be made to  a school district                                                            
to  remove a  school  from the  airport  land, unless,  through  the                                                            
development  of a long-range  plan, another  feasible site  might be                                                            
identified.  Were that the  case, DOT would  assist in facilitating                                                             
that option in conjunction  with any construction project that might                                                            
be occurring.                                                                                                                   
                                                                                                                                
Senator  Bunde,  referencing  the  Noatak map  provided  by  Senator                                                            
Olson, spoke  to the beach  erosion issue  facing the community.  He                                                            
noted that relocation  of the school was included  in the long-range                                                            
plan to address the erosion issue.                                                                                              
                                                                                                                                
Senator Olson  clarified that a river rather than  the ocean was the                                                            
cause of the erosion being  experienced in Noatak. To that point, he                                                            
whether Mr.  Knudson needed a copy  of the Noatak map for  reference                                                            
purposes.                                                                                                                       
                                                                                                                                
9:34:50 AM                                                                                                                    
                                                                                                                                
Mr. Knudson responded  that he was "painfully aware"  of the erosion                                                            
issue facing the  Noatak community. The dilemma was  whether to move                                                            
the school for $20 or $30  million or to move the airport for $20 or                                                            
$30 million.                                                                                                                    
                                                                                                                                
Senator Olson  noted that, as depicted  on the map, the erosion  was                                                            
projected to encroach  upon the airport's land by  the year 2010. He                                                            
asked  therefore  whether  future  plans might  include  moving  the                                                            
airport.                                                                                                                        
                                                                                                                                
Mr.  Knudson  informed   the  Committee  that  the  Department   was                                                            
currently developing  a master plan. Alternatives,  including moving                                                            
or retaining  the airport, were being  evaluated. Nonetheless,  "the                                                            
school is the most pressing issue at the moment".                                                                               
                                                                                                                                
Co-Chair Green  understood that the State, specifically  DOT, had no                                                            
intention of transferring  title of property to any  regional school                                                            
board, primarily  in order to avoid litigation and  the repayment of                                                            
FAA funding.  Thus, the issue at hand  is an attempt to address  the                                                            
federal and State conflict.  While Legislators would like to resolve                                                            
the issue to better their  own district, "the greater cause of what"                                                            
is being addressed in this legislation must prevail.                                                                            
                                                                                                                                
Senator Olson asked Mr.  Knudson how non-support of this legislation                                                            
would affect federal funding of the identified Rural airports.                                                                  
                                                                                                                                
Mr. Knudson  assured that  "at this point",  DOT is "not at  risk of                                                            
losing federal  funds". The issue would be to resolve  "the conflict                                                            
and  confusion  that  arises  between  the  State  Statute  allowing                                                            
districts to claim  title to State land and the federal  requirement                                                            
that we  maintain our  airport boundaries".  This legislation  would                                                            
"resolve a nagging bureaucratic problem."                                                                                       
                                                                                                                                
Co-Chair  Wilken  moved  to  report the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
There  being  no  objection,  CS  SB  142(L&C)   was  REPORTED  from                                                            
Committee with  zero Fiscal Note #1, dated March 18,  2005, from the                                                            
Department of  Education and Early Development and  zero Fiscal Note                                                            
#2, dated April  4, 2005, from the Department of Transportation  and                                                            
Public Facilities.                                                                                                              
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 160                                                                                                        
     "An Act relating to a procurement and electronic commerce                                                                  
     tools program for state departments and instrumentalities of                                                               
     the state; and providing for an effective date."                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
9:38:24 AM                                                                                                                    
                                                                                                                                
Senator Bunde,  the bill's sponsor by request of the  Senate Labor &                                                            
Commerce  Committee, stated  that this legislation  would assist  in                                                            
modernizing  the State's  procurement methods  by transitioning  the                                                            
State away  from a "pencil and paper"  procurement system  toward an                                                            
electronic  (e-commerce) system.  This "Supply  Chain Modernization                                                             
Program"  would provide  financial benefits  to the  State. He  read                                                            
segments of the Sponsor Statement as follows.                                                                                   
                                                                                                                                
     …it is  very important that the  Legislature remain  focused on                                                            
     the  need  to  deliver  long-term  reductions  in the  cost  of                                                            
     government.  Therefore, this bill renames, expands  and extends                                                            
     the pilot  procurement, eCommerce  and supply chain  management                                                            
     program authorized  by HB 313 in the 2003 Legislative  Session.                                                            
                                                                                                                                
     The  program  is already  delivering  savings  in  the cost  of                                                            
     overhead  and administration.  …  It needs to  be expanded  and                                                            
     extended to reach its full potential.                                                                                      
                                                                                                                                
     Overhead  costs represent  a significant  portion of the  total                                                            
     cost  of government.  However,  the State  of Alaska  generally                                                            
     performs  overhead functions using outmoded tools  and methods.                                                            
     Private   industry   has  delivered   considerable   gains   in                                                            
     productivity  during the  past two decades  by contracting  out                                                            
     back-office  functions   to specialist   firms  and  installing                                                            
     modern   computer-based   systems.  It   is  time  that   State                                                            
     government  embraces  these techniques  and  participates  more                                                            
     fully in the U.S. productivity boom.                                                                                       
                                                                                                                                
Senator Bunde  noted that  projected annual  net labor cost  savings                                                            
for the  fourteen  primary State  agencies in  which the  e-commerce                                                            
system would  be implemented  would range from  two to five  million                                                            
dollars.  Total cost  savings  for goods  and services  could  range                                                            
between  five  to  twenty-five  million  dollars.  In  addition,  an                                                            
increased  degree  of efficiency   would occur,  as  the  e-Commerce                                                            
system would increase the speed of acquisitions and purchasing.                                                                 
                                                                                                                                
9:41:04 AM                                                                                                                    
                                                                                                                                
Senator Bunde  stated that  the adoption of  HB 313 during  the 2003                                                            
Legislative Session  authorized a three-year "Pilot  Procurement and                                                            
Internet  e-Commerce  Program"  specific "to  two agencies  and  two                                                            
other  state  instrumentalities.   Cost savings   on administrative                                                             
salaries  and  benefit  burden are  currently  projected  to  exceed                                                            
$150,000  over this two-year  period. This  represents a savings  on                                                            
procurement  administration of over  20%. Cost savings on  goods and                                                            
services  will evolve  over time as  the program  matures and  other                                                            
regions and  agencies are  added, and the  resulting volume  savings                                                            
and purchasing  can be obtained."  Support of this bill "would  help                                                            
move the State of Alaska into the Twenty-first century".                                                                        
                                                                                                                                
Senator  Hoffman recalled  the discussions  that transpired  in 2003                                                            
when HB  313 was adopted.  Because there  was concern regarding  the                                                            
possible  impacts  of the  Program,  it  was  limited to  two  State                                                            
agencies and  two other State institutions  for a three-year  period                                                            
in  order to  allow  the Legislature  could  evaluate  the  program.                                                            
Therefore,   he  questioned   the   reason  for   considering   this                                                            
legislation at  this time as it would "be premature"  to continue it                                                            
prior to a complete report being compiled.                                                                                      
                                                                                                                                
9:43:05 AM                                                                                                                    
                                                                                                                                
Senator  Bunde stated  that there  is evidence that  the program  is                                                            
working  well. "It  has worked  exceptionally  well  in the  private                                                            
sector". Acting now would be financially beneficial.                                                                            
                                                                                                                                
Senator  Hoffman voiced  concern about  whether  sufficient data  is                                                            
available from  which to make a determination  as to the  success or                                                            
failure of  the program.  While evidence  might support there  being                                                            
monetary  savings, other  drawbacks might  become evident.  He urged                                                            
that  the  complete  report  be  finalized  before   further  action                                                            
occurred.                                                                                                                       
                                                                                                                                
9:44:17 AM                                                                                                                    
                                                                                                                                
Senator Bunde  anticipated  there to be resistance  to changing  the                                                            
process,  regardless of  whether action  was taken  now or in  three                                                            
years time.  Monetary savings,  "sooner rather  than later",  should                                                            
prevail. Others might disagree with this position.                                                                              
                                                                                                                                
Co-Chair Green  noted that an abundance of back-up  material [copies                                                            
on file] accompanies Senator Bunde's sponsor statement.                                                                         
                                                                                                                                
9:45:04 AM                                                                                                                    
                                                                                                                                
VERN  JONES,   Chief  Procurement   Officer,  Division  of   General                                                            
Services,  Department  of  Administration,  shared  that,  upon  the                                                            
passage of HB  313, which implemented the State's  Pilot Procurement                                                            
Program, the Department  issued a Request for Proposals  (RFP) for a                                                            
private contractor to outsource  State procurement functions for the                                                            
Southeast  Region of  the Department  of Transportation  and  Public                                                            
Facilities  (DOT). A  feasibility  study was  conducted as  required                                                            
under organized labor bargaining  unit agreements, and subsequently,                                                            
the contract was awarded  to Alaska Supply Chain Integrators (ASCI).                                                            
The  bill, which  has  a contract  termination  date  of June  2006,                                                            
limited the  pilot procurement  program to  two departments  and two                                                            
instrumentalities  of  the State.  ASCI  has been  coordinating  the                                                            
procurement program for DOT for nine months.                                                                                    
                                                                                                                                
Mr. Jones stated that this  bill would eliminate the restrictions on                                                            
the number  of State departments  and instrumentalities  that  could                                                            
implement this procurement  program. In addition, it would eliminate                                                            
the June 2006 termination  date of the program. The Labor & Commerce                                                            
committee substitute  being considered would require  the contractor                                                            
contract   include  the   Alaska   Bidder  and   other  preferences                                                             
requirements.                                                                                                                   
                                                                                                                                
9:46:52 AM                                                                                                                    
                                                                                                                                
Senator Hoffman  asked whether sufficient  information is  available                                                            
from which to determine the success of the program.                                                                             
                                                                                                                                
9:47:17 AM                                                                                                                    
                                                                                                                                
Mr. Jones responded  that it is "the Administration's  position that                                                            
this program  is still  in transition".  At this  time, it would  be                                                            
unfair to label  it as being a "failure"; it would  be premature "to                                                            
draw any firm conclusions" about the program.                                                                                   
                                                                                                                                
Senator Olson  asked whether Mr. Jones' remarks could  be indicative                                                            
of there being "a sense" that the program is a failure.                                                                         
                                                                                                                                
Mr.  Jones  responded that  that  is  not the  Department's  or  the                                                            
Administration's   position.   He  clarified   that   it  would   be                                                            
"premature" to  label the program as either a success  or a failure.                                                            
                                                                                                                                
9:48:27 AM                                                                                                                    
                                                                                                                                
Senator  Olson  understood  that  the University   of Alaska  has  a                                                            
different  procurement   mechanism  in  place.  To  that  point,  he                                                            
inquired as to  whether the University has opted out  of the State's                                                            
procurement process.                                                                                                            
                                                                                                                                
Mr.  Jones explained  that  the  University  is required  "to  adopt                                                            
substantially   similar  procedures   to  those  contained   in  the                                                            
Procurement   Code".  Therefore,   while  the  University   "is  not                                                            
technically  governed  by the  Procurement  Code, they,  in  essence                                                            
follow the  spirit and intent  and most of  the provisions  that are                                                            
contained in the Procurement Code."                                                                                             
                                                                                                                                
Senator Olson asked for further information in this regard.                                                                     
                                                                                                                                
Mr.  Jones  responded   that  Alaska  Statute  36.30   requires  the                                                            
University  "to comply  substantially  with the  provisions" in  the                                                            
State Procurement Code.                                                                                                         
                                                                                                                                
Co-Chair Wilken, noting  that the backup material contains the first                                                            
audit of the  Pilot Program, asked  the status of the second  audit.                                                            
                                                                                                                                
9:49:53 AM                                                                                                                    
                                                                                                                                
Mr. Jones responded  that, while the  complete second quarter  audit                                                            
is  not yet  available,  the cost  of goods  portion  of the  second                                                            
quarter audit has been completed and is available.                                                                              
                                                                                                                                
Co-Chair Wilken  asked when the second  audit in its entirety  would                                                            
be available.                                                                                                                   
                                                                                                                                
Mr. Jones anticipated  that the second audit to be  completed within                                                            
the next week.                                                                                                                  
                                                                                                                                
Co-Chair  Wilken  asked  whether  the  second  audit  would  contain                                                            
information  pertaining to the three-month  quarter ending  December                                                            
31, 2004.                                                                                                                       
                                                                                                                                
Mr. Jones affirmed.                                                                                                             
                                                                                                                                
Co-Chair Wilken  noted that a substantial amount of  information was                                                            
provided  in  the  first  audit. He  asked  Mr.  Jones  to  identify                                                            
information  in the audit  from which the  Committee could  "form an                                                            
opinion".                                                                                                                       
                                                                                                                                
Mr. Jones understood  Co-Chair Wilken's  remarks to infer  that "the                                                            
first quarter audit was really inconclusive".                                                                                   
                                                                                                                                
Co-Chair Wilken  disagreed that to  be the point of his remarks,  as                                                            
he could  not understand  the  report. "This  is a  report built  to                                                            
confuse not  to inform."  The hope is that  the second report  would                                                            
provide  "decision makers"  with more  substance.  He asked who  was                                                            
responsible for the report.                                                                                                     
                                                                                                                                
Mr. Jones affirmed that he was.                                                                                                 
                                                                                                                                
Co-Chair Wilken opined  that it was "a very poor report". Subsequent                                                            
reports should be improved.                                                                                                     
                                                                                                                                
Co-Chair Wilken  asked how much staff  time is being devoted  to the                                                            
project.                                                                                                                        
                                                                                                                                
Mr.  Jones responded  that  the time  varies.  A number  of  people,                                                            
including himself, a dedicated  DOT contract administrator position,                                                            
and  a Department  of  Administration  contract  manager,  devote  a                                                            
substantial amount of time to the program.                                                                                      
                                                                                                                                
9:52:21 AM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken specifically  asked  the  number of  hours in  each                                                            
workweek that Mr. Jones devotes to this "important" project.                                                                    
                                                                                                                                
Mr. Jones determined that  he spends a couple of hours a week on the                                                            
project.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken expressed  that "a  deal is a  deal". He  disclosed                                                            
that  his being  one  of  the initial  supporters  of  the  project;                                                            
however, now he  is "a little concerned" and "conflicted"  about the                                                            
efforts being  exerted to the program. The expectation  was that six                                                            
quarterly  progress reports  would be  provided.  He noted that  the                                                            
privately  owned company,  British Petroleum,  has experienced  good                                                            
results with this type of a program.                                                                                            
                                                                                                                                
Co-Chair  Wilken  perceived  the  Administration   to  be  "somewhat                                                            
detached" from  this effort. "Some  influence/management  direction"                                                            
must be provided  to the project;  else wise, the Legislature  would                                                            
continue  to receive  reports  similar to  the first  audit  report.                                                            
Therefore,  he supported tabling further  action on the legislation                                                             
until  the next Legislative  Session.  That would  allow three  more                                                            
audit reports  to be compiled  through which  the Legislature  could                                                            
better evaluate the program.                                                                                                    
                                                                                                                                
Co-Chair Wilken characterized  the current program scenario as being                                                            
"set  adrift"  with  "the bureaucracy   fighting  the privatization                                                             
people" and there being  no one in the middle to bring the two sides                                                            
together. "Someone needs  to manage the program" in order to provide                                                            
the Legislature  the information necessary  to make decisions  about                                                            
the program. He  suspected that, were that done, the  decision would                                                            
be  to  support  the  program.  The  benefits   of  the  program  as                                                            
highlighted in Senator Bunde's remarks would be realized.                                                                       
                                                                                                                                
Co-Chair Wilken  stated that were  the concept of the pilot  program                                                            
undermined  by "delays,  a lack  of cooperation,  and falsehoods  on                                                            
both sides",  the Committee might  be required "to craft  it at this                                                            
table"  during the next  Session.  That would not  be the  preferred                                                            
course  of  action.   "Really  good  data,  understandable   by  the                                                            
Committee, understandable  by this Legislature" must  be provided by                                                            
next January.                                                                                                                   
                                                                                                                                
Co-Chair Wilken noted that  he had conveyed his reluctant to vote in                                                            
favor of this legislation  to Senator Bunde. This hearing would be a                                                            
determining factor in his decision.                                                                                             
                                                                                                                                
9:55:39 AM                                                                                                                    
                                                                                                                                
Senator  Bunde moved  to  adopt committee  substitute,  Version  24-                                                            
LS0224\C as  the working document.  This committee substitute  would                                                            
serve to "clean up" some provisions of the bill.                                                                                
                                                                                                                                
Senator Hoffman objected for explanation.                                                                                       
                                                                                                                                
KEVIN BROOKS,  Deputy Commissioner,  Department  of Administration,                                                             
assured  the Committee  that  the  Department  is committed  to  the                                                            
effort to analyze the Pilot Procurement Program.                                                                                
                                                                                                                                
9:57:05 AM                                                                                                                    
                                                                                                                                
Mr.  Brooks  spoke to  the  Department's  assistance  in  developing                                                            
language in the committee  substitute that would "clean up" Title 36                                                            
preferences   currently  applicable   to   State  purchases.   These                                                            
preferences  have  been expanded  over  time  and, as  result,  have                                                            
become  quite  cumbersome.   While  no  changes  were  made  to  the                                                            
preferences themselves,  efforts were made to develop  language that                                                            
would  make  the  application   of  those  preferences   "easier  to                                                            
administer as procurements are made".                                                                                           
                                                                                                                                
Senator Hoffman  asked for  assurance that  the changes included  in                                                            
Version "C"  would, therefore, be  limited to "cleaning up"  current                                                            
language.                                                                                                                       
                                                                                                                                
Mr. Brooks affirmed.                                                                                                            
                                                                                                                                
Senator Hoffman removed his objection.                                                                                          
                                                                                                                                
9:58:26 AM                                                                                                                    
                                                                                                                                
Senator  Dyson  inquired  to  the  obstacles  that  "have  kept  our                                                            
existing  workforce from"  being more innovative  in the  purchasing                                                            
process.                                                                                                                        
                                                                                                                                
Mr. Brooks  responded that  no State's  procurement office  employee                                                            
would  "dispute" the  fact that  "the implementation  of  e-commerce                                                            
tools  would  be  a great  benefit  to  the  State".  Some  monetary                                                            
investment  would  be  required  to  automate  the  existing  "labor                                                            
intensive paper process"  which is "based on a procurement code that                                                            
in many cases is not meant  to be as efficient as it is to be fair".                                                            
It is  designed to  provide any bidder  a chance  to bid for  public                                                            
dollars.  The   rules  governing   the  Pilot  Procurement   Program                                                            
contractor in  procuring goods and services for the  State are "more                                                            
relaxed" than those required of a State agency.                                                                                 
                                                                                                                                
Mr.  Brooks noted  that,  although  not occurring  on  a wide  scale                                                            
basis, efforts  have been undertaken across departments  to automate                                                            
the procurement processes. Some have been successful.                                                                           
                                                                                                                                
9:59:52 AM                                                                                                                    
                                                                                                                                
Mr. Brooks stated that  the Department's perspective on the bill "is                                                            
that  there is  room for  improvement" in  the manner  in which  the                                                            
State currently  procures goods and services. He disagreed  that the                                                            
Pilot Program  "has been cast adrift", as the Department  is anxious                                                            
to determine whether the program would work.                                                                                    
                                                                                                                                
Senator Dyson restated  the question as to what might have prevented                                                            
the  State from  advancing  its procurement  methods  to align  with                                                            
procurement  trends  that  have occurred  elsewhere  over  the  past                                                            
twenty-five  or  thirty  years;  specifically  whether  the  State's                                                            
existing procurement  code or Statutes  are preventing the  existing                                                            
workforce from accomplishing "these really imaginative things".                                                                 
                                                                                                                                
Mr.  Brooks  expressed   that  "the  procurement   code  is  not  an                                                            
impediment to automating" the procurement progress.                                                                             
                                                                                                                                
Senator  Dyson asked  whether  any of  the State's  bargaining  unit                                                            
agreements   were  an  impediment   to  transitioning  toward   more                                                            
efficient modes of conducting procurement.                                                                                      
                                                                                                                                
Mr. Brooks did not recognize  bargaining unit agreements as being an                                                            
impediment.                                                                                                                     
                                                                                                                                
Senator Dyson  asked whether the Legislature has refused  to provide                                                            
the necessary  resources, specifically  computers and networks  that                                                            
would be required to advance the process.                                                                                       
                                                                                                                                
Mr.  Brooks responded  that  the necessary  computer  resources  and                                                            
staff are available;  however the  necessary software that  would be                                                            
required to automate State government has not been procured.                                                                    
                                                                                                                                
Senator Dyson asked the reason for the absence of such software.                                                                
                                                                                                                                
Mr. Brooks  responded that  no recent software-funding  request  had                                                            
been made;  higher priorities,  such as new  payroll and  accounting                                                            
systems, have  preceded the procurement  software request.  However,                                                            
it should be noted  that "the procurement module for  automation" is                                                            
in the Department's five-year plan going forward.                                                                               
                                                                                                                                
Senator Dyson opined therefore  that since the issue is not the law,                                                            
the procurement  code,  or the  people, then  "ultimately" it's  the                                                            
lack "of will to do it".  To that point, he asked whether it was the                                                            
Department's intention  "to move towards the very  best, most modern                                                            
kind of procurement system" available.                                                                                          
                                                                                                                                
Mr. Brooks affirmed that to be the intent.                                                                                      
                                                                                                                                
Senator Dyson  voiced appreciation  for the fact that an  entity was                                                            
willing to  participate in  the Pilot Program  and "commit a  lot of                                                            
money and resources"  to demonstrate that such a program  would work                                                            
in  the  State's  environment.   "That's  the  genius  of  the  free                                                            
enterprise system."                                                                                                             
                                                                                                                                
Senator Dyson asked what  might occur where the State to authorize a                                                            
private contractor to conduct  all or a major portion of the State's                                                            
key  goods  and  services  procurements   functions,  and  then  the                                                            
contractor  discontinued  their service,  went out  of business,  or                                                            
increased their fees astronomically.                                                                                            
                                                                                                                                
Mr. Brooks  speculated that the alternative  would be for  the State                                                            
to reassume the responsibility or hire another contractor.                                                                      
                                                                                                                                
Senator  Dyson  asked   how  much  notification  of  separation   is                                                            
specified in this legislation.                                                                                                  
                                                                                                                                
10:05:10 AM                                                                                                                   
                                                                                                                                
Mr. Brooks  communicated that  the Pilot  Program established  by HB                                                            
313 would  terminate in June  2006, or in  approximately 14  months.                                                            
During  that time  period,  efforts would  be exerted  to  determine                                                            
whether  the program  would be  feasible  to expand  to other  State                                                            
departments.  SB 160 would  provide the authority  needed to  expand                                                            
the program in  such a manner. In addition, passage  of SB 160 would                                                            
assure the contractor that the State could continue the program.                                                                
                                                                                                                                
Senator Dyson  recognized, as did the Department,  that this program                                                            
could provide  a multitude of possibilities.  However, the  specific                                                            
question is  how, after the State  "committed major portions  of its                                                            
State  business  into their  hands",  the  State would  continue  to                                                            
conduct "its business"  were the contractor to un-expectantly "cease                                                            
to function".                                                                                                                   
                                                                                                                                
Mr. Brooks  "speculated" that  the State would  be required  to hire                                                            
staff or hire another contractor.                                                                                               
                                                                                                                                
10:06:30 AM                                                                                                                   
                                                                                                                                
Senator  Dyson  asked whether  the  conditions  in this  bill  would                                                            
adequately provide  the time and file/software access  that would be                                                            
required were the State required to resume those functions.                                                                     
                                                                                                                                
Mr.  Brooks replied  that  in that  event, "the  procurements  being                                                            
performed by the contractor would be available to the State".                                                                   
                                                                                                                                
Senator  Dyson  specifically  asked  whether  the State  would  have                                                            
access to the associated software files.                                                                                        
                                                                                                                                
Mr. Brooks replied  in the negative; software files  are proprietary                                                            
to the contractor.                                                                                                              
                                                                                                                                
After a brief  exchange with Senator  Dyson, Mr. Brooks stated  that                                                            
even thought the  software was proprietary, the fact  that the State                                                            
had  provided data  to  the contractor  at the  onset  of the  Pilot                                                            
Program,  would  allow  that  action   to  be  reciprocated  at  the                                                            
termination  of the  program. However,  he voiced  being  unfamiliar                                                            
with the specific terms of the contract.                                                                                        
                                                                                                                                
Senator  Hoffman asked whether  other states  have privatized  their                                                            
procurement process.                                                                                                            
                                                                                                                                
Mr.  Brooks  remarked  that  no  other  state   has  outsourced  its                                                            
procurements.                                                                                                                   
                                                                                                                                
Mr. Jones affirmed that to be correct.                                                                                          
                                                                                                                                
Senator Hoffman asked regarding  "the public policy reason" for that                                                            
decision.                                                                                                                       
                                                                                                                                
Mr. Brooks voiced being  unsure of the reasons that other states had                                                            
not furthered  such a privatization endeavor. "The  issue for Alaska                                                            
is" whether  we  can "provide  this service  better;  there is  fair                                                            
evidence that procurement  can be done more efficiently". The public                                                            
policy issue question should  include "who does procurements for the                                                            
State".  The issue of  public trust  is involved  when there  is "an                                                            
expenditure  of State funds;  do we value  that vendors have  a fair                                                            
shake at  State dollars and  that there is  a fair and open  process                                                            
for doing that".  These questions are valid, and this  Pilot Project                                                            
would  provide the  opportunity  to determine  the  answers to  such                                                            
questions.  Even  though "the  jury  is still  out"  on whether  the                                                            
program would  be an overwhelming  success, this bill would  further                                                            
the opportunity  to  investigate the  endeavor. While  "the data  is                                                            
inconclusive"  at this point, there is no reason to  discontinue the                                                            
investigation as to the program's potential.                                                                                    
                                                                                                                                
10:09:30 AM                                                                                                                   
                                                                                                                                
Senator  Olson,  noting  that  "an  essentially  zero"  fiscal  note                                                            
accompanies the bill, asked  what specific costs would be associated                                                            
with utilizing a private contractor.                                                                                            
                                                                                                                                
Mr. Brooks responded  that whenever a privatization  effort is being                                                            
considered that would displace  State employees, the bargaining unit                                                            
must be notified, a plan  must be developed, and a feasibility study                                                            
must be conducted.  The effort only  moves forward were there  to be                                                            
"savings  in  the  labor  costs".  The  bargaining   unit  agreement                                                            
contains  specific  guidelines   regarding  the  conditions  of  the                                                            
feasibility  study. It  is anticipated  that  an automated  process,                                                            
whether it be  conducted by a private entity or by  the State, would                                                            
also "realize savings in the actual" procurement costs of goods.                                                                
                                                                                                                                
Senator  Olson asked  regarding the  exemptions  that are  currently                                                            
specified in the State's procurement code.                                                                                      
                                                                                                                                
10:11:00 AM                                                                                                                   
                                                                                                                                
Mr. Brooks asked for further clarification of the question.                                                                     
                                                                                                                                
Senator Olson  understood there to  be several exemptions  currently                                                            
specified in the State's  procurement code. Thus his question was to                                                            
"the end result" of those exemptions.                                                                                           
                                                                                                                                
10:11:20 AM                                                                                                                   
                                                                                                                                
Mr. Jones stated  that there are currently  47 exemptions  specified                                                            
AS  36.30.850   of  the  State's   procurement  code.  Rather   than                                                            
indicating  that entities  were exempted from  abiding by the  code,                                                            
the result  is  that certain  classes or  commodities  of goods  and                                                            
services are exempted  across the board. For example,  "dentists and                                                            
doctors  are  not  required  to abide  by  the  competitive  bidding                                                            
requirements".   Such  things  as  grants  and  certain   investment                                                            
instruments  are also exempted. At  times, the issue of there  being                                                            
47 exemptions  has been  mistakenly interpreted  to mean that  there                                                            
were  47 agencies  or entities  "that didn't  have to  abide by  the                                                            
code".  By and large,  these exemptions  exempt  a certain class  of                                                            
goods or services from the code.                                                                                                
                                                                                                                                
Senator Olson  asked regarding the  recourse the bill would  provide                                                            
to a vendor who might wish to protest an award.                                                                                 
                                                                                                                                
Mr. Jones responded  that while protest  provisions are included  in                                                            
the State's  procurement code, no  such provisions were included  in                                                            
the current contract. "There is no allowance for that."                                                                         
                                                                                                                                
10:13:10 AM                                                                                                                   
                                                                                                                                
Mr.  Brooks  remarked   that  Co-Chair  Wilken's  earlier   comments                                                            
regarding the  audit reports were  "points well taken". While  early                                                            
reports pertaining  to the program "were lacking",  the fact is that                                                            
they were  being developed  during  the transitioning  phase of  the                                                            
program.  Going  forward,  the Department  would  require  that  the                                                            
successes of  the program be identified  and articulated.  "Accurate                                                            
and  timely reporting"  must  occur in  order to  meaningfully  make                                                            
those measurements.  He assured that  such efforts would  occur, and                                                            
that, "as  the program moves  forward" …  "data that everyone  could                                                            
agree with" would be provided.                                                                                                  
                                                                                                                                
10:14:15 AM                                                                                                                   
                                                                                                                                
Co-Chair Green revisited  the issue of what changes were included in                                                            
the  Version  "C"  committee  substitute  being  considered  by  the                                                            
Committee,  as it is noticeably  longer than  the previous  version,                                                            
Version  24-LS0524\X. Specifically,  she asked  whether language  in                                                            
Section  1(g), page two,  lines 11  and 12, and  Section 1(l),  page                                                            
two, lines  28 through 30  of Version "X"  had been revised  in some                                                            
manner in Version "C".                                                                                                          
                                                                                                                                
Mr.  Jones communicated  that  two  major  changes occurred  in  the                                                            
transitioning  of language between Version "X" and  Version "C". One                                                            
of those changes was the  Statute reference change from AS 36.30.190                                                            
as specified in  Section 1(a), page one, line ten  of Version "X" to                                                            
AS 36.30.265 in Version  "C". This change would allow the Department                                                            
"to award a contract  of this type via an RFP rather  than a low bid                                                            
invitation to bid situation.  The second change in Version "C" was a                                                            
series of changes starting  on page two" that would incorporate "all                                                            
the procurement  preferences", currently specified  in AS 36.30 into                                                            
this  bill.  This   action  would  serve  to  "apply   them  to  the                                                            
procurements  that  are  made  by  the  contractor".  As  previously                                                            
mentioned the  existing Statutes are  confusing and do not  interact                                                            
well.  Therefore,  existing  procurement  language  was  altered  in                                                            
Version  "C"  in  order  "to  make  all  the  preferences   uniform,                                                            
understandable, and a little simpler to apply and administer".                                                                  
                                                                                                                                
Co-Chair  Green corrected  her  earlier  remarks about  Version  "C"                                                            
being larger than Version  "X" as she had discovered that two copies                                                            
of Version "C"  had been inadvertently stapled together  in her bill                                                            
packet. Version "C' was not as large as it had appeared.                                                                        
                                                                                                                                
10:17:27 AM                                                                                                                   
                                                                                                                                
Co-Chair Green  asked whether the  Automatic Bid Award language  had                                                            
been eliminated in the Version "C" committee substitute.                                                                        
                                                                                                                                
Mr. Jones asked for further clarification.                                                                                      
                                                                                                                                
     (e)  Except as  otherwise  provided under  (g) or  (h) of  this                                                            
     section,  if  a  bidder  qualifies  as  an  Alaska  bidder,  is                                                            
     offering  services through  an employment  program, and  is the                                                            
     lowest  responsible and responsive  bidder with a bide  that is                                                            
     not  more than  15  percent higher  than  the lowest  bid,  the                                                            
     program  contractor shall  award the  contract to that  bidder.                                                            
     This  subsection does  not give  a bidder  who would  otherwise                                                            
     qualify  for a preference  under this  subsection a  preference                                                            
     over  another   bidder  who  would  otherwise   qualify  for  a                                                            
     preference under this subsection.                                                                                          
                                                                                                                                
     (g) If a  bidder is an Alaska bidder, is a qualify  entity, and                                                            
     is  the lowest  responsible and  responsive  bidder with  a bid                                                            
     that is  not more than 10 percent  higher than the lowest  bid,                                                            
     the program contractor  shall ward the contract to that bidder.                                                            
     This  subsection does  not give  a bidder  who would  otherwise                                                            
     quality  for a preference  under this  subsection a  preference                                                            
     over  another   bidder  who  would  otherwise   qualify  for  a                                                            
     preference  under this  subsection or  (h) of this section.  In                                                            
     this subsection  "qualifying  entity" has the meaning  given in                                                            
     AS 36.30.170(e).                                                                                                           
                                                                                                                                
Co-Chair  Green specified  that  language  in Version  "X",  Section                                                            
1(e), page  two, lines eight through  14 and Section 1(g),  lines 19                                                            
through 25,  specified that an automatic  bid could be awarded  were                                                            
certain conditions  in place. She understood that  this language was                                                            
changed in Version "C";  therefore, she asked to the reason for that                                                            
change.                                                                                                                         
                                                                                                                                
Mr. Jones responded  that while the Version "X" language  would work                                                            
in a bid process,  it would not be  appropriate for an RFP  process.                                                            
                                                                                                                                
Mr.  Brooks  reiterated  that  the  endeavor  was to  clean  up  the                                                            
preferences;  there  was  no  intent  to change  any  of  them.  Any                                                            
provision that  was included in Version  "X" is included  in Version                                                            
"C". "Just in cleaner more straightforward language."                                                                           
                                                                                                                                
There  being  no  further  objection,  the  Version   "C"  committee                                                            
substitute was ADOPTED as the working document.                                                                                 
                                                                                                                                
Co-Chair Wilken  asked what would occur on June 30,  2006, were this                                                            
legislation  not adopted.  In other words,  the question is  whether                                                            
the  process  would  revert  to  how  it  functioned  prior  to  the                                                            
implementation of the Pilot Program.                                                                                            
                                                                                                                                
Mr. Jones replied  that absent this  legislation, the Pilot  Program                                                            
contract  would  expire  on  June 30,  2006.  "There  are,  however,                                                            
extension   optional   renewals  included   in   there  should   the                                                            
legislation amend that sunset date."                                                                                            
                                                                                                                                
Co-Chair  Wilken  asked, for  clarification  purposes,  whether  the                                                            
extension  option  language was  included  in HB  313 or  in SB  160                                                            
Version "C".                                                                                                                    
                                                                                                                                
Mr. Jones stated  that HB 313 specified  a termination date  of June                                                            
2006 and  SB 160  would eliminate  the termination  date  provision.                                                            
Adoption  of SB 160 would  allow the State  "to amend" the  existing                                                            
contract going forward.                                                                                                         
                                                                                                                                
Senator  Bunde highlighted  the  fact that  the adoption  of SB  160                                                            
would  provide the  option  to extend  the contract;  its  extension                                                            
would  not be  mandatory. This  is a  "permissive"  bill that  would                                                            
allow the project to continue were it deemed warranted.                                                                         
                                                                                                                                
Senator  Hoffman  asked whether  the  Administration  would  promote                                                            
legislation  making the program  more permanent  were it  determined                                                            
that such  a program  would produce  "considerable  savings" to  the                                                            
State.                                                                                                                          
                                                                                                                                
Mr. Brooks  responded that while the  Administration was  interested                                                            
in determining  whether such a program would work,  he was unsure as                                                            
to whether the Administration would introduce such legislation.                                                                 
                                                                                                                                
Senator Olson  voiced being  uncomfortable  that there was  not more                                                            
support  for a  program  that  is supposedly  "working  and  working                                                            
well", as acclaimed by the bill sponsor's remarks.                                                                              
                                                                                                                                
Mr.  Brooks expressed  that  his testimony  was  that  "we have  not                                                            
determined  that this has been successful  in saving money.  We have                                                            
very  preliminary  data;   only  a couple   of  quarters  have  been                                                            
analyzed".  There is support for continuing  the procurement  pilot,                                                            
as further  analyses would provide  more complete information.  "The                                                            
jury  is  still  out  on  …  whether  privitization   of  all  State                                                            
government" would be the appropriate action.                                                                                    
                                                                                                                                
10:22:19 AM                                                                                                                   
                                                                                                                                
Co-Chair Green  recalled there being  frustration and delays  in the                                                            
implementation  of the program. That  situation might have  impacted                                                            
the  amount of  reporting  that  has been  provided  to  date. As  a                                                            
result, the  evaluation process has  been more difficult.  The delay                                                            
also shortened  the amount of time  that the contractor was  able to                                                            
manage the  procurement system.  This bill  would provide more  time                                                            
"for the program to be in place".                                                                                               
                                                                                                                                
Mr. Brooks  stated that  Co-Chair Green  has a  "good point",  as he                                                            
also questioned  the progression  of the endeavor  since HB  313 was                                                            
adopted. The first year  was dedicated to the development of a plan,                                                            
conducting  the feasibility  study, developing  the project  RFP and                                                            
selecting  the  vendor.  Therefore,  the contractor  was  unable  to                                                            
undertake  the DOT procurement  process in  July 2004. As a  result,                                                            
rather than  having three  years in which  to evaluate the  program,                                                            
only  two years  would  be available.  This  bill would  assure  the                                                            
vendor that the  program would not terminate in 14  months. It would                                                            
also provide the  Administration sufficient flexibility  in which to                                                            
determine which  other departments  and agencies would benefit  from                                                            
such an endeavor.                                                                                                               
                                                                                                                                
Co-Chair Wilken  agreed that the original  timeline was of  concern;                                                            
however, the vendor's actual  involvement in the procurement process                                                            
began  on   June  30,  2004,  and   only  one  report,  which   took                                                            
approximately four months  to compile, has been provided. The second                                                            
report  is not  yet completed.  A total  of four  reports should  be                                                            
available  were action  on this  legislation  delayed until  January                                                            
2006. However,  it is  uncertain as  to whether  a decision  made at                                                            
that time would be sufficient "to make plans for June".                                                                         
                                                                                                                                
Co-Chair Wilken suggested  that the Committee consider extending the                                                            
Pilot Program  another year.  That would provide  time for  "a solid                                                            
basis of information"  to become available. He opined  that the four                                                            
reports that could  be available in January might  not provide a lot                                                            
more information than is available now.                                                                                         
                                                                                                                                
Co-Chair Green  characterized that issue as being  "the heart of the                                                            
conversation".                                                                                                                  
                                                                                                                                
10:27:11 AM                                                                                                                   
                                                                                                                                
Mr. Brooks  expressed  that the  intent  is to provide  "better  and                                                            
quicker information".  The second quarter report would  be completed                                                            
shortly and the  third quarter report, ending March  2005, should be                                                            
available  within the next  30 days. A 30-day  turnaround after  the                                                            
end of each quarter  is the goal. The report for the  quarter ending                                                            
on December 31, 2005 should be available in January 2006.                                                                       
                                                                                                                                
Co-Chair  Wilken understood  therefore  that six  quarterly  reports                                                            
would be completed by January 2006.                                                                                             
                                                                                                                                
10:28:08 AM                                                                                                                   
                                                                                                                                
JIM DUNCAN,  Business Manager,  Alaska State  Employees Association                                                             
(ASEA), informed  the Committee that  ASEA represents approximately                                                             
8,000 State  employees. ASEA members  hold a significant  portion of                                                            
the 200 State  jobs that would be  impacted by this legislation.  He                                                            
voiced being very  concerned about the impact that  this legislation                                                            
would have on  the livelihood of all State employees  represented by                                                            
bargaining units.                                                                                                               
                                                                                                                                
Mr.  Duncan  questioned  the  appropriateness   of  furthering  this                                                            
legislation  prior to  more Pilot  Project quarterly  reports  being                                                            
compiled. The data provided  in the lone report is insufficient upon                                                            
which  to  make  a sound  judgment.  While  the  report  provides  a                                                            
multitude  of  figures and  information,  it  does not  provide  any                                                            
substantive conclusion  about the program as previously  inferred by                                                            
Co-Chair Wilken  when he asked for  assistance in identifying  which                                                            
portion  of the  audit findings  could be  utilized  as a base  upon                                                            
which to further  a decision. He referred the Committee  to "Section                                                            
Two  -  Department's  Comments  on  Audit"  of  the  "Department  of                                                            
Transportation  and  Public  Facilities  Report on  the Outsourcing                                                             
Procurement   Pilot  February   14,   2005"  as   attached  to   DOT                                                            
Commissioner Mike  Barton's February 16, 2005 memorandum  [copies on                                                            
file] addressed to Ray  Matiashowski, Commissioner of the Department                                                            
of Administration.  Section Two stated  that, "It is clear  from the                                                            
audit  conclusions  that under  ASCI management  there  has been  no                                                            
improvement  in service  and the  cost of  goods to  the state  have                                                            
actually increased. Based  on these finds we recommend that there be                                                            
no expansion  of  the pilot  until ASCI's  performance demonstrates                                                             
significant benefit  to the state." Mr. Duncan declared  that, "that                                                            
is a clear and  very direct statement." This language  should answer                                                            
Co-Chair Wilken's question.                                                                                                     
                                                                                                                                
Mr. Duncan stated  that while the second quarter,  October 1 through                                                            
December  31 2004,  audit  has not  as of  yet been  completed,  the                                                            
"Costs of Goods"  portion is available and indicates  that there was                                                            
a 16.3 percent  increase in  the cost of goods  to the State  during                                                            
that quarter. An increase  in the cost of goods also occurred during                                                            
the  first   quarter.  These  increases,   combined  with   the  DOT                                                            
recommendation  against expanding the pilot program,  "are very good                                                            
indicator[s] that  there are questions about whether  this is really                                                            
saving the State money  or not", in regards to the cost of goods. He                                                            
asked  that the Members  strongly  consider this  information.  "The                                                            
trend is  there," and its  continuance would  clearly indicate  that                                                            
the program would not save  the State money. A final decision on the                                                            
program  should  not  be  made  until  all  the  reports  have  been                                                            
provided.                                                                                                                       
                                                                                                                                
10:32:43 AM                                                                                                                   
                                                                                                                                
Mr. Duncan characterized  the "privatization of State jobs" as being                                                            
an important  issue. The response  to Senator Hoffman's question  as                                                            
to whether any  other state has pursued privatizing  procurement was                                                            
"no", no  other state or  municipality has  done it. There  had been                                                            
discussion  during  a  different  committee  hearing  on  this  bill                                                            
regarding  the fact  that the Municipality  of  Anchorage was  doing                                                            
"something innovation and  different" in regards to its procurement.                                                            
"While that  is true and should be  applauded, the City's  effort to                                                            
streamline  its procurement  system  "is  being done  by  government                                                            
employees".                                                                                                                     
                                                                                                                                
Mr. Duncan addressed Senator  Hoffman's question as to whether there                                                            
was  "a  good   public  policy  reason"   against  privatizing   the                                                            
procurement  process  by  providing   an  Executive  Office  of  the                                                            
President,  President George Bush,  Office of Management  and Budget                                                            
Washington,  DC 20503  Circular  No. A-76  (Revised)  dated May  29,                                                            
2003,  [copy  on  file].  The  Bush  Administration  has  sought  to                                                            
privatize "jobs wherever  they can", and this circular addressed the                                                            
development  of a  policy regarding  the performance  of  commercial                                                            
activities.  The "Policy" component  of the circular reads  "Policy.                                                            
The longstanding  policy of the federal government  has been to rely                                                            
on the  private sector  for needed  commercial  services. To  ensure                                                            
that  the  American  people  receive maximum  value  for  their  tax                                                            
dollars, commercial  activities should  be subject to the  forces of                                                            
competition."  Continuing, he pointed  out that section "b."  of the                                                            
Policy section specifies  that government agencies shall "b. Perform                                                            
inherently governmental activities with government personnel."                                                                  
                                                                                                                                
Mr. Duncan continued  that the question of what would  be defined as                                                            
an inherent  governmental  activity is addressed  in section  "B.a."                                                            
and section "B.a.(4)" of the circular.                                                                                          
                                                                                                                                
     a. An inherently  governmental activity is an  activity that is                                                            
     so  intimately related  to the  public interest  as to  mandate                                                            
     performance  by government personnel. These activities  require                                                            
     the   exercise   of   substantial   discretion    in   applying                                                            
     governmental  authority  and/or  in  making decisions  for  the                                                            
     government….                                                                                                               
                                                                                                                                
     (4)  Exerting ultimate  control over  the acquisition,  use, or                                                            
     disposition   of United  State   property  (real  or  personal,                                                            
     tangible  or intangible),  including  establishing policies  or                                                            
     procedures  for  the collection,  control,  or disbursement  of                                                            
     appropriated and other federal funds."                                                                                     
                                                                                                                                
Mr. Duncan  stated that the Bush Administration  has determined,  as                                                            
evidenced  in this Office  of Management  and Budget circular,  that                                                            
the  procurement  of federal  property,  which  could  be viewed  in                                                            
Alaska's case  as the purchase of State property,  "is an inherently                                                            
governmental  function   that should   be performed   by  government                                                            
employees".                                                                                                                     
                                                                                                                                
Mr. Duncan stated  that this position is supported  by the fact that                                                            
there  must  be  "significant   public  trust  in  the  procurement                                                             
function".  "There  should  be no  question"  as to  how  Government                                                            
procurement dollars are used or how contracts were developed.                                                                   
                                                                                                                                
Mr. Duncan reminded the  Committee that the State's procurement code                                                            
was developed  in 1985 as the result of a "significant"  procurement                                                            
issue  that occurred  relating  to a  Fairbanks facility.  A  select                                                            
State Senate Committee  developed the model procurement  code, which                                                            
was endorsed by  the American Bar Association. The  procurement code                                                            
was  adopted in  order  to regain  public trust  in  regards to  the                                                            
procurement process.  While the Code has been amended  over time, it                                                            
remains a good model.                                                                                                           
                                                                                                                                
Mr. Duncan declared that  this bill would exempt the contractor from                                                            
the conditions of the State's  procurement code. "The rules would no                                                            
longer  be those that  you have  in Statute",  but would instead  be                                                            
those set by the contractor  and the seated Administration. He spoke                                                            
against providing that  authority to those entities. The Legislature                                                            
should desire  a procurement process  that would be "conducted  with                                                            
integrity and would follow" Statutory guidelines.                                                                               
                                                                                                                                
Mr.  Duncan  shared  that  in addition  to  serving  in  the  Alaska                                                            
Legislature,  he  once held  the  position  of commissioner  of  the                                                            
Alaska Department of Administration.  One of his responsibilities as                                                            
Commissioner was  to oversee the State's procurement  process. While                                                            
he has heard  that there are problems  with the State's procurement                                                             
process;   he  did  not   experience  any   problems  when   he  was                                                            
commissioner.  Such things as provisions  that allow a dissatisfied                                                             
"vendor to protest  and to understand" the reason  for their getting                                                            
an award could  slow the process down;  however, the process  "still                                                            
works and it works the way it's supposed to".                                                                                   
                                                                                                                                
Mr.  Duncan  noted   that  the  State  employees  involved   in  the                                                            
procurement process are  professionals who "do their job and … do it                                                            
well". He noted  that a request "for the tools to  do e-procurement"                                                            
was, as is currently  the case, on the Department's  capital project                                                            
requests  when he was commissioner.  While  the current request  was                                                            
pre-empted  by the need for a new  payroll system, that request  is,                                                            
and was, there. "There  is nothing in the State's procurement system                                                            
that would prohibit the  use of electronic tools by State employees.                                                            
The only need is the purchase of electronic software."                                                                          
                                                                                                                                
Mr. Duncan urged  the Committee to wait and evaluate  the results of                                                            
the Pilot Project  audit and evaluate  whether the process  could be                                                            
conducted  "just  as  efficiently  and  effectively"  by  government                                                            
employees  were the required  tools in  place. These considerations                                                             
should occur before the legislation moves forward.                                                                              
                                                                                                                                
10:40:27 AM                                                                                                                   
                                                                                                                                
Senator  Bunde  noted that,  as  Mr.  Duncan  had expressed  in  his                                                            
opening  remarks,  Mr.  Duncan's   position  was  to  represent  the                                                            
interests of ASEA members.  Therefore, it could be assumed that even                                                            
were the  audit findings  to determine that  the process would  save                                                            
money, Mr. Duncan  would be obligated to oppose it  because it would                                                            
eliminate State jobs.                                                                                                           
                                                                                                                                
Mr. Duncan  affirmed  his responsibility  to  protect ASEA  members'                                                            
jobs;  he would  not support  the loss  of those  jobs. However,  "a                                                            
different angle"  is the anticipation  that the first two  quarterly                                                            
reports would  not reflect any money  being saved; "matter  of fact"                                                            
the costs  are increasing.  While  the contractor  would argue  that                                                            
they have saved  the State $200,000,  those savings were  the result                                                            
of the elimination  of State jobs rather than being  the result of a                                                            
decrease  in the  cost of  goods and  services. The  union would  be                                                            
reviewing  the forthcoming  quarterly audits  during the interim  to                                                            
further evaluate  the program. It would also be determining  methods                                                            
in which the process could  be more efficiently handled within State                                                            
government. Even thought  his job is to protect State employee jobs,                                                            
it is also his  job to work with the Legislature and  the Department                                                            
of Administration to further such efficiency.                                                                                   
                                                                                                                                
Mr. Duncan argued  that even though this process is  being touted as                                                            
a public/private  partnership,  that would not  be the case  as jobs                                                            
were being  eliminated. Last  year ten  State procurement  positions                                                            
were eliminated.  Some decry  that positions  for those individuals                                                             
were created  in other State departments.  That might have  been the                                                            
case in the 1980s  and 1990s, but that is not the  case today due to                                                            
budgeting constraints.  Another consideration is that were all State                                                            
procurement  jobs eliminated  there would be  no option to  secure a                                                            
procurement jobs in another department.                                                                                         
                                                                                                                                
10:43:36 AM                                                                                                                   
                                                                                                                                
MITCH ERICKSON, Representative,  None Chamber of Commerce, testified                                                            
via teleconference  from  Nome to  voice concern  in regards  to the                                                            
"expedited"  manner  in which  this  bill  is advancing.  The  Pilot                                                            
Project  is still in  the initial  process and  therefore, a  proper                                                            
analysis  could not be provided.  There is  confusion as to  whether                                                            
the contractor  would be held to the  same procurement standards  as                                                            
the State would.  Were they not, then  the process could  be likened                                                            
"to comparing  apples and oranges". Business conducted  by the State                                                            
is significant to local  economies. There is fear that transitioning                                                            
to a centralized  procurement system  would negatively impact  local                                                            
businesses. The State currently  "commands a best pricing system due                                                            
to  its size",  and  "the fact  that  the State  would  pay for  its                                                            
purchases"  is important. It should  also be noted, "that  eCommerce                                                            
is not  an exclusive private  sector function;"  it could easily  be                                                            
implemented in the State system.                                                                                                
                                                                                                                                
Mr. Erickson  communicated  that one consideration  of the  Costs of                                                            
Goods information, particularly  in regards to Rural communities, is                                                            
that "the  landed cost are  the true costs".  The purchase  price is                                                            
not the  true cost.  The belief  is that, without  proper  analysis,                                                            
State  offices in  Rural areas  would be  required  to carry  larger                                                            
inventories  in   order  to  compensate  for  "the  inefficiencies"                                                             
resulting from a centralized  procurement system. Currently, when an                                                            
item is needed, it could be purchased locally.                                                                                  
                                                                                                                                
Mr. Erickson  urged  that a thorough  evaluation  of the program  be                                                            
conducted  before this bill,  or a similar  bill, was advanced.  The                                                            
bill's  appearance now  is one of  being "back-doored;  it does  not                                                            
reflect well on the Legislative process".                                                                                       
                                                                                                                                
10:46:07 AM                                                                                                                   
                                                                                                                                
Senator Bunde  responded to the back-door  argument by stating  that                                                            
this  bill  has  transited  through  the  Legislative   process.  He                                                            
suggested  that the  action of  the State  buying  locally could  be                                                            
considered as a form of revenue sharing.                                                                                        
                                                                                                                                
AT EASE 10:46:43 AM / 10:47:58 AM                                                                                           
                                                                                                                                
Senator   Bunde  communicated   that  a  companion   bill   is  also                                                            
progressing through  the House of Representatives  committee hearing                                                            
process.                                                                                                                        
                                                                                                                                
Co-Chair  Green  stated  therefore,  that there  would  be  numerous                                                            
committee-hearing opportunities in this regard.                                                                                 
                                                                                                                                
10:48:31 AM                                                                                                                   
                                                                                                                                
SCOTT  HAWKINS,  Representative,  Alaska  Supply  Chain Integrators                                                             
(ASCI), communicated  that ASCI, the contractor operating  the Pilot                                                            
Procurement Project  program, was founded in 1999  to provide supply                                                            
chain  activities  for  the  oil  industry,  primarily  Prudhoe  Bay                                                            
operations.  Over the past  six years the  company has increased  in                                                            
size  to  approximately  150  employees,   most  of  who  reside  in                                                            
Anchorage,  the Mat-Su  Valley,  and the  Kenai Peninsula.  A  small                                                            
office  recently  opened in  Juneau.  A significant  number  of  the                                                            
employees  in the Anchorage  area graduated  from the University  of                                                            
Alaska's  global  statistics  program. The  company  specializes  in                                                            
back-office  process  management: helping  both  public and  private                                                            
sector  entities streamline  and automate  back  office duties  more                                                            
efficiently and expediently.                                                                                                    
                                                                                                                                
Mr. Hawkins  characterized  this "permissive  bill"  as being  "very                                                            
important to  the future of this program".  "There is little  danger                                                            
that it would run amuck".                                                                                                       
                                                                                                                                
Mr.  Hawkins   provided  Members   a  handout  titled  "ASCI   State                                                            
Procurement Pilot Review  and Outlook" [copy on file]. The company's                                                            
perspective  as  program  operator   is  that  "the  most  important                                                            
criteria" for  the program is to produce cost savings.  As discussed                                                            
"from  the very beginning",  staff  and personnel  cost savings  are                                                            
foremost in the cost-savings  endeavor. "There is also the potential                                                            
to save money on the cost  of goods." Those cost savings would occur                                                            
over   a  longer   timeframe,  and   would  be   most  successfully                                                             
accomplished  when the program  is applied  across several  agencies                                                            
and several regions,  as the result of purchasing  larger amounts of                                                            
goods and more agreements and automation occur.                                                                                 
                                                                                                                                
Mr. Hawkins  referred the  Committee to page  four of the  company's                                                            
handout titled  "Cost Savings Achieved".  That information  projects                                                            
that over the  first two years of  the project, $163,089  in savings                                                            
would be realized in personnel costs.                                                                                           
                                                                                                                                
Mr. Hawkins  noted that it has been  stated that the second  quarter                                                            
cost of goods  report reportedly indicates  that an increase  in the                                                            
cost of  goods occurred.  However, language  in the report  actually                                                            
states that, "The  Division of General Services, after  consultation                                                            
with  Legislative   Audit,  does   not  believe  the  data   can  be                                                            
extrapolated   in  order   to  draw  firm   cost  increase/decrease                                                             
conclusion, but that the  data may serve to identify potential areas                                                            
for improvement.  The data  documents less  than one percent  of the                                                            
purchases."                                                                                                                     
                                                                                                                                
Mr.  Hawkins stressed  that,  "these benchmark  audits  have been  a                                                            
feature  of the  program  from the  beginning".  To  that point,  he                                                            
opined  that  "the term  'audit'  might  be too  strong  a term"  to                                                            
characterize the  activity. A benchmark provides a  snapshot of data                                                            
with  the  purpose  of  providing  a  record  of  the  program,  the                                                            
methodology  being  used,  and  to  highlight   possible  areas  for                                                            
improvement. The reports  were not designed "to provide full program                                                            
reviews".                                                                                                                       
                                                                                                                                
Mr. Hawkins stated that  Co-Chair Wilken's description of the audit,                                                            
as being  "disappointing" would  be correct  were one looking  for a                                                            
conclusion.  That is not the purpose  of the benchmark; the  purpose                                                            
is to  provide  "on-going snapshots  of  data…" The  Costs of  Goods                                                            
report for  the first quarter "is  particularly troublesome",  as it                                                            
is based on seven  items. "Seven items out of several  thousand that                                                            
were done."  As such, no  "level of statistical  validity"  could be                                                            
extrapolated.  Approximately   thirty items  were  included  in  the                                                            
second quarter  Cost of Goods report.  That is also an insufficient                                                             
number  upon which  to  draw any  conclusions.  The  purpose of  the                                                            
report  is to  provide  information  pertaining  to such  things  as                                                            
vendor trends.  ASCI "was particularly concerned about  the Costs of                                                            
Goods piece being  taken out of context". Therefore,  ASCI conducted                                                            
"an analysis of  all the transactions to date under  the web tools."                                                            
For the period  October 1 through December 31, 2004,  the web tools/                                                            
catalog transaction comparisons  provide "high data integrity". This                                                            
analysis, which  is depicted on page five of the handout,  indicated                                                            
there being a  three-percent reduction in the cost  of goods for the                                                            
second quarter  and an  overall two-percent  reduction for  both the                                                            
first  and second  quarter  periods. This  analysis  of 972  catalog                                                            
transactions  would  sufficiently  "provide  statistical  validity".                                                            
There are  mechanisms through  which to provide  assurance  that the                                                            
State  "is getting  the  best price  available  to it  at any  given                                                            
time". There is evidence that the program is working.                                                                           
                                                                                                                                
10:55:50 AM                                                                                                                   
                                                                                                                                
Mr.  Hawkins   concurred  with  Mr.   Brooks  comments  that,   "the                                                            
Administration  is struggling  with  how to evaluate  the  program".                                                            
However,  he submitted that,  "on the basis  of cost of operations"                                                             
and the early  indications that the eCommerce web  tools are showing                                                            
worth, "the record is very clear that we are seeing that value".                                                                
                                                                                                                                
Mr. Hawkins stated that,  "the program has accomplished a great deal                                                            
in its  first few  months". Procurement  procedures  and rules  have                                                            
been established.  The rules "are hard-wired into  the contract" and                                                            
while  being substantially   similar to  the  rules of  the  State's                                                            
procurement code  in regards to such things as requiring  quotes for                                                            
procurements  under  a certain  amount;  "there  is a  lot less  red                                                            
tape"; specifically  in regards  to the appeals  process. While  the                                                            
current appeals  process has some  value "or else it wouldn't  be in                                                            
the procurement  code",  "more often,  it is a  source of delay  and                                                            
keeps the agencies from  getting the goods and services they need in                                                            
a timely manner".                                                                                                               
                                                                                                                                
Mr. Hawkins  stated that  there are several  reasons supporting  the                                                            
action  of  privatizing   the  procurement  process.   The  activity                                                            
associated  with  the  process  could not  be  classified  as  being                                                            
"glamorous  stuff".  While "most  managers  do not  wake  up in  the                                                            
morning thinking  about" how to improve the process,  procurement is                                                            
the nature  and focus of  ASCI's business.  The company has  "an on-                                                            
going desire for excellence in the process".                                                                                    
                                                                                                                                
Mr.  Hawkins   communicated  that   the  State  could  acquire   the                                                            
technology contusive to  improving the process in-house; however, as                                                            
a condition  of the State's collective  bargaining unit agreements,                                                             
there  is the requirement  that  the technology  and the  associated                                                            
process  "must  be deployed  effectively  and  has to  deliver  cost                                                            
savings". ASCI  must deploy technology, build catalogs,  and operate                                                            
the process "within  the existing baseline cost structure  and still                                                            
show a cost savings after that".                                                                                                
                                                                                                                                
10:58:48 AM                                                                                                                   
                                                                                                                                
Mr.  Hawkins opined  that  were the  State  to invest  in  eCommerce                                                            
software  and associated  technology,  it would be  unlikely that  a                                                            
reduction in personnel  would occur. Cost savings  are a requirement                                                            
under the contract with ASCI.                                                                                                   
                                                                                                                                
Mr. Hawkins  communicated that the  pilot program got off  to a slow                                                            
start  and  is  operating  at  a  very  small  level;  however,  the                                                            
program's  footwork  has  now  been established.   Nonetheless,  the                                                            
current size limitation  could be likened to operating "a backhoe in                                                            
a sandbox".  This legislation  would allow  "the full potential"  of                                                            
the program to  surface, as the installation of a  massive eCommerce                                                            
system across multiple  departments would provide the most benefits.                                                            
                                                                                                                                
Mr. Hawkins  stated that  were the status  quo program to  continue,                                                            
there would be  insufficient time to implement it  on a larger scale                                                            
were  the   program  ultimately  deemed   successful.  From   ASCI's                                                            
standpoint as an employer,  due to the limited time remaining in the                                                            
Pilot Project,  "little assurance"  could be provided to  employees"                                                            
that the project  would even be renewed. This makes  it difficult to                                                            
retain employees.                                                                                                               
                                                                                                                                
Mr. Hawkins  shared  that the company  has learned  that the  entire                                                            
scope  of the procurement  operation  could not  be absorbed.  There                                                            
would  still   be  the   need  for  State   employee  counterparts,                                                             
particularly in regards to large projects such as construction.                                                                 
                                                                                                                                
11:01:22 AM                                                                                                                   
                                                                                                                                
Senator  Stedman  asked whether  the  Alaska Marine  Highway  System                                                            
(AMHS)  would  continue  to  be  excluded  from  the  privatization                                                             
procurement process under the conditions of this legislation.                                                                   
                                                                                                                                
Mr. Hawkins  affirmed.  The types  of procurements  required by  the                                                            
AMHS  could  not  feasibly  be  absorbed;  construction  and  Vessel                                                            
overhaul procurements would be difficult to manage.                                                                             
                                                                                                                                
Senator Bunde remarked  that the loss of a job is not taken lightly.                                                            
To that point,  he asked whether the ten State employees  whose jobs                                                            
were eliminated  by  the implementation  of the  Pilot Project  were                                                            
offered employment by ASCI.                                                                                                     
                                                                                                                                
Mr. Hawkins  stated that such action  had occurred. Some  of the ten                                                            
employees retired,  others were offered  other positions  at parity.                                                            
It should  be noted  however,  that there  was a  difference in  the                                                            
benefit packages  offered by ASCI  and the State. While none  of the                                                            
ten  displaced  workers  accepted   a  position  with  ASCI,  it  is                                                            
understood  that those individuals  obtained other State  government                                                            
employment.                                                                                                                     
                                                                                                                                
11:03:57 AM                                                                                                                   
                                                                                                                                
Senator Dyson  asked how the State could "protect  itself" were ASCI                                                            
services to be withdrawn.                                                                                                       
                                                                                                                                
Mr. Hawkins  responded that this is  a prudent consideration  at any                                                            
time a contractor  is performing a major task. ASCI  recognizes that                                                            
halting  its  services  without  proper  notice  would  destroy  the                                                            
company's reputation. Such  action would be unacceptable, and "would                                                            
be extremely  unlikely".  The  company "would  be  legally bound  to                                                            
provide these services",  and the company would "arguably be legally                                                            
obligated for  the damages" the State would incur  "were a breach of                                                            
contract to occur.                                                                                                              
                                                                                                                                
Senator  Dyson appreciated  the response,  however, noted that  were                                                            
the  contract extended  for  a longer  period of  time, procurement                                                             
staff positions  and support would be weaned from  State operations.                                                            
Perhaps a draft  amendment should  be considered that would  mandate                                                            
that at  the end of the  contract, electronic  files and  associated                                                            
software would be available  in order for the State to transition to                                                            
another vendor or to re-absorb  the process. To that point, he asked                                                            
Mr. Hawkins to contemplate such a proposal.                                                                                     
                                                                                                                                
Mr. Hawkins responded that  the company "would be happy" to consider                                                            
such  an  amendment.   The  current  contract  includes   provisions                                                            
requiring  that electronic  records be provided  to the State.  ASCI                                                            
has no "desire  to hold someone over  a barrel"; the purpose  of the                                                            
software  tools is "to automate  and streamline  and do good  things                                                            
not  to cohere  people with".  The  tools currently  accompany  ASCI                                                            
services  and should  ASCI  "services be  decoupled  …. the  company                                                            
would be happy  to negotiate a licensing agreement  that would allow                                                            
the tools  to continue  to operate".  Therefore,  such an  amendment                                                            
would be acceptable.                                                                                                            
                                                                                                                                
11:07:57 AM                                                                                                                   
                                                                                                                                
PETE  FORD, Southeast  Regional  Manager,  Alaska  Public  Employees                                                            
Association (APEA) Bargaining  Unit, provided testimony on behalf of                                                            
Bruce   Ludwig,   Business   Manager,   Alaska    Public   Employees                                                            
Association, as follows.                                                                                                        
                                                                                                                                
     The Pilot  Program authorized  by HB 313 was rushed  through in                                                            
     the final days of  the 2003 Session. There were no measurements                                                            
     of success included  in the bill, no benchmarks for comparison,                                                            
     and nothing to enable  anyone to determine if the Pilot Program                                                            
     was a success or a failure.                                                                                                
                                                                                                                                
     Frankly,  there does not appear  to have been a lot  of thought                                                            
     given  to the Pilot  Program.  There was one  hearing in  House                                                            
     Finance, and one in  Senate Labor & Commerce. The bill title is                                                            
     misleading.  When we talked with  legislators after  HB 313 was                                                            
     passed, we were told  it "just enabled e-commerce." In fact, it                                                            
     did much more than that.                                                                                                   
                                                                                                                                
     Alaska  Supply Chain  Integrators  (ASCI), who  brought HB  313                                                            
     forward,  was the only "responsive"  bidder, and was  awarded a                                                            
     contract  for Southeast DOT&PF. The State determined  that they                                                            
     could save $250,000  per year by eliminating the warehouse, and                                                            
     using fewer employees  through the internet purchasing process.                                                            
     ASCI  actually  began  work on  July  11,  2004, and  10  state                                                            
     employees were laid off.                                                                                                   
                                                                                                                                
     Since the Pilot Program  began, only one quarter of performance                                                            
     has been  audited. The second  audit is currently in  progress,                                                            
     and the third audit should be getting underway soon.                                                                       
                                                                                                                                
     The Pilot  Program is supposed to operate until  June 30, 2006,                                                            
     when  it  is   scheduled  to  expire.  As  the  Department   of                                                            
     Administration has  testified, the jury is still out. It is too                                                            
     early  to extend, or  make permanent,  the Pilot Program.  This                                                            
     Bill   should  be  held   over  while   sufficient  record   is                                                            
     established  to  be  able  to  intelligently  make  a  decision                                                            
     whether the Program has been a success or not.                                                                             
                                                                                                                                
     While  Mr. Hawkins  has been  quick to  characterize the  Pilot                                                            
     Program  as a  success,  we have  heard many  negative  reports                                                            
     regarding  the Program  and the  service it  is providing.  For                                                            
     instance,  we have  heard  that the  actual cost  of goods  and                                                            
     services purchased  through ASCI is as much as 16% greater than                                                            
     comparable costs made  through the state's existing procurement                                                            
     processes.  If true, this  would mean  that the state  has paid                                                            
     more than  $2 million more than  necessary for goods  purchased                                                            
     through  the Pilot Program. We  have heard that there  are some                                                            
     1,500  invoices,  valued at  more  than $250,000,  that  remain                                                            
     unpaid because  the Purchase Orders do not match  the invoices.                                                            
     This affects  the State's relationship with its  suppliers, and                                                            
     denies   many  Alaska  businesses   timely  payment,   creating                                                            
     difficulties for those  businesses. We have hear that, of the 7                                                            
     orders for  parts ordered through ASCI for the  engine overhaul                                                            
     of the M/V  Kennicott, 6 orders were shipped  to Juneau and had                                                            
     to be  re-shipped to  the shipyard in  Portland where  the work                                                            
     was actually being done.                                                                                                   
                                                                                                                                
     Of the original $250,000  projected savings, about half was for                                                            
     eliminating  the  warehouse.  But the  warehouse  has not  been                                                            
     eliminated; there  is no savings there. We have also heard that                                                            
     the ASCI  employees working the  Pilot Program are required  to                                                            
     work extreme  amounts of overtime; anticipated  savings will be                                                            
     further  reduced when those overtime  bills are paid.  It seems                                                            
     likely that the anticipated  savings may not be borne out after                                                            
     the final  audit - any savings will certainly  be substantially                                                            
     less than the grand amounts "anticipated".                                                                                 
                                                                                                                                
     In  addition, since  ASCI  does not  have to  follow the  State                                                            
     Procurement  Code,  their procedures  do not  meet the  minimum                                                            
     requirements  of  federal  purchasing,  and they  cannot  order                                                            
     equipment,  materials  or services  for  construction  projects                                                            
     funded  or partially  funded by federal  monies. All  purchases                                                            
     involving federal  monies are still worked by state procurement                                                            
     personnel - there is no savings there.                                                                                     
                                                                                                                                
     There is  also the matter of overhead, which  was not budgeted.                                                            
     With a zero  fiscal note, the State has had to  assume the cost                                                            
     of overseeing  the contract. The reality of the  "anticipated",                                                            
     promised savings seems more and more remote.                                                                               
                                                                                                                                
     In  summary, it is  way, way  too early to  extend the  current                                                            
     Pilot  Program. From  the anecdotal information  we have  heard                                                            
     (and formal,  official audits  are not yet available),  instead                                                            
     of  saving the  State  $150,000, the  Pilot  Program will  more                                                            
     likely cost the State  additional millions of dollars. We think                                                            
     that  the Pilot  Program  should run  its course  and have  its                                                            
     effectiveness fairly  and fully evaluated. We ask that you hold                                                            
     this Bill  and check the progress and performance  of the Pilot                                                            
     Program  next year.  We urge you  to be sure  to obtain  direct                                                            
     testimony  from  the Department  of Transportation  and  Public                                                            
     Facilities,  the  "customers"  of the  Pilot Program,  and  get                                                            
     their  impressions  and opinions  regarding  the  value of  the                                                            
     Pilot Program's performance.                                                                                               
                                                                                                                                
11:13:26 AM                                                                                                                   
                                                                                                                                
Senator Bunde  asked "what  level of savings"  would be required  to                                                            
garner ASEA's support of the program.                                                                                           
                                                                                                                                
Mr. Ford  responded  that he  could not  "answer that  in a  vacuum,                                                            
without being  able to look at real life figures";  however, ASEA is                                                            
not  opposed  to the  State  saving  money and  has  supported  "the                                                            
concept" of a State eCommerce  program, as it would produce monetary                                                            
savings. State personnel should be involved in such an endeavor.                                                                
                                                                                                                                
11:14:52 AM                                                                                                                   
                                                                                                                                
LAURA LAWRENCE,  Procurement Specialist, Central Region,  Department                                                            
of   Transportation    and   Public    Facilities   testified    via                                                            
teleconference  from Anchorage  and shared  with the Committee  that                                                            
she has been employed in  the Department's procurement office for 21                                                            
years. She opposed  the bill as both an employee and  as a concerned                                                            
citizen.  As   a  condition  of  her   position  as  a  procurement                                                             
specialist, she  must abide by the procurement code;  otherwise, she                                                            
could be guilty  of a Class C felony  and be subject to prosecution                                                             
under Alaska Statute 36.30.  Her bidding practices have earned her a                                                            
reputation  for  integrity  with  both  in-State   and out-of-State                                                             
vendors,  and federal employees.  The State's  procurement  code was                                                            
established "to  prevent unorthodox purchasing" that  had previously                                                            
occurred.  ASCI has already  admitted that  its conducting  of State                                                            
business  with one of its  own supply companies  was a mistake.  She                                                            
questioned  how many  such  mistakes would  occur  absent the  State                                                            
procurement  practice  obligations.  Continuing she  questioned  how                                                            
much  business would  be averted  to  specific companies  or  ASCI's                                                            
"favorite  vendors".  Such  action  would  be a  disservice  to  the                                                            
State's  entire  business  community  as  well  as  to  the  State's                                                            
taxpayers.  Competitive bids  for purchases  under $150,000  are not                                                            
required under the Pilot  Program. Bid competition by both small and                                                            
large companies  for projects under  that range are plentiful.  Many                                                            
bids are awarded to small  operations, and, to that point, she asked                                                            
how small  companies might  fare were the  new program implemented.                                                             
She detailed  the many responsibilities  that accompany each  bid as                                                            
well  as  the variety  of  bids  that  occur. She  also  noted  that                                                            
warranty work  is also an important  consideration, especially  when                                                            
accepting  a low bid  from an  out-of-state company.  ASCI, being  a                                                            
private company, would have no obligation to in-State vendors.                                                                  
                                                                                                                                
Ms. Laurence  noted  that the  aftermath  that might  result were  a                                                            
private  contractor  to  remove  their  service  should  also  be  a                                                            
consideration.  This  is a  very  controversial  bill.  There is  no                                                            
indication  that money would be saved  or that better service  would                                                            
be provided.  State  employees  would lose  their  jobs. Many  small                                                            
Alaskan companies  would be disadvantaged;  particularly  when goods                                                            
and services under $150,000  would not be required to be put to bid.                                                            
                                                                                                                                
Ms. Laurence supported  the purchase of computer software components                                                            
that  would allow  the State  to conduct  eCommerce  activities  in-                                                            
house. Were  State employees hands  "untied" they could provide  all                                                            
the services  and supplies, equal  to or better than an out-sourced                                                             
company could.  State jobs  would be maintained  and the use  of in-                                                            
State vendors  would continue to stimulate  the State's economy  and                                                            
provide  local  jobs. This  project  has  not been  undertaken  long                                                            
enough  to provide sufficient  data  and should  not be advanced  at                                                            
this time.                                                                                                                      
                                                                                                                                
Co-Chair Green  asked, in respect  of the Committee's limited  time,                                                            
that  Ms. Laurence  provide  her  written  comments to  Members  via                                                            
facsimile.                                                                                                                      
                                                                                                                                
11:22:10 AM                                                                                                                   
                                                                                                                                
BARRY  JACKSON, Resource  Data/ASCI,  testified  via teleconference                                                             
from Anchorage  and informed the Committee that he  retired from the                                                            
State of Alaska  Department of Administration,  Division  of General                                                            
Services  after   31-years  of  service   including  service   as  a                                                            
contracting  manager, deputy director,  and acting director.  He was                                                            
also  on the  Board  of  APEA and  a  founding  member of  ASEA.  He                                                            
informed  the Committee that  he had assisted  ASCI in winning  this                                                            
contract and has since  instructed DOT employees how to use the ASCI                                                            
eCommerce application.                                                                                                          
                                                                                                                                
Mr. Jackson  noted that  an effort  was made in  the Price of  Goods                                                            
reporting to compare  the price of goods purchased  by ASCI with the                                                            
price of  goods that had  been awarded by  State employees.  To that                                                            
point, the benchmark report  would provide information as to whether                                                            
prices increased, decreased  or held status quo; however, the report                                                            
would  not provide  information  as to  the reason  for any  change.                                                            
While   the  statistics   provided   might   be   interesting,   the                                                            
representation  is a dangerous one  in that "someone might  think it                                                            
was meaningful and base  a decision on it. It is a statistic with an                                                            
overwhelming potential to mask the truth."                                                                                      
                                                                                                                                
Mr. Jackson stated that  the State's standard practice is to measure                                                            
"its procurement  successes by comparing  the prices offered  at the                                                            
moment  of bid  opening  against each  other.  The State  has  never                                                            
judged  its own purchasing  performance  by comparing  the price  it                                                            
paid  last  year  with  the  price  it  pays  today.  This  kind  of                                                            
benchmarking  is an  approach that  … General  Services would  never                                                            
condone  having applied  to  themselves,  precisely  because of  its                                                            
potential  to  paint a  completely  false  picture of  their  actual                                                            
performance."                                                                                                                   
                                                                                                                                
Mr. Jackson  addressed the concern  about "potential corruption"  by                                                            
stressing that "in all  significant aspects of the existing contract                                                            
…. the contractor is required  to employ competitive practices which                                                            
are  fundamentally  the same  as  those actually  practiced  by  the                                                            
State.  There   is  not  much  difference   between  professionally                                                             
administered  public and  private purchasing  practices, except  for                                                            
mountains  and  mountains  of  red tape,  institutionalized   delay,                                                            
antiquated systems and huge performance and efficiency gaps."                                                                   
                                                                                                                                
Mr.  Jackson  suggested   that,  "an  independent  contractor   with                                                            
preservation  of investment  as its  most potent  motivation has  an                                                            
unbiased  primary interest  in simply doing  its job as efficiently                                                             
and economically  as possible  for the State".  He would also  argue                                                            
that,  "an independent  contractor  is  in  a stronger  position  to                                                            
resist pressures  to commit bad practices.  Such pressures  do exist                                                            
and are difficult  for State employees to resist because  their jobs                                                            
or careers can be put in  jeopardy. These pressures and consequences                                                            
are not  idle speculation  … they are real"  as he knows "from  long                                                            
experience".                                                                                                                    
                                                                                                                                
Mr. Jackson characterized  the project audits as intense "scrutiny".                                                            
The  quarterly  audits  are quite  frequent  and  are "questionably                                                             
conceived   and  yield   such   wrong  edit   interpretations   from                                                            
opponents".   They   are  "significant   mechanisms   for   building                                                            
resistance  to the further implementation  of the pilot,  especially                                                            
in the pilot agency". Were  the same audit procedures applied to the                                                            
State  procurements,   "numerous   purchasing  violations   and  bad                                                            
practices" would come to light.                                                                                                 
                                                                                                                                
Mr. Jackson countered the  union's position that more money could be                                                            
saved were  eCommerce tools provided  to State employees  by stating                                                            
that had the  unions submitted a proposal  to compete for  the Pilot                                                            
Project, he  doubted whether their  proposal could have won  were it                                                            
to have "preserved  every one of those  jobs that were lost"  in the                                                            
winning competitor's proposal.  "Who's kidding who here?" The unions                                                            
would have  had to  implement an  eCommerce system  as least  on par                                                            
with  the one  implemented  by  ASCI, and  they  would  have had  to                                                            
eliminate more  jobs than ASCI in order to win. "Enlightened  unions                                                            
have found  another perspective, one  which is ultimately  much more                                                            
valuable to union members."                                                                                                     
                                                                                                                                
Co-Chair  Green, in  recognition  of limited  time,  asked that  the                                                            
testimony  be concluded.  Further  comments, in  written form,  were                                                            
welcome.                                                                                                                        
                                                                                                                                
Mr. Jackson  stressed that, "the fiscal  train wreak is coming";  it                                                            
is  "just  around  the corner".  When  it  arrived,  "it  would  not                                                            
magically leave  purchasing positions  untouched. Failing  to enable                                                            
e-commerce  now" would "severely  cripple"  the State's procurement                                                             
system  in the future.  This bill  would provide  the State  "a rare                                                            
opportunity  to look toward the future"  and improve the  situation.                                                            
The technology is available  and could be implemented; it would save                                                            
money. "All that is needed is the resolve to do the obvious."                                                                   
                                                                                                                                
Co-Chair Green  announced that the  bill would be HELD in  Committee                                                            
in order for the bill's  sponsor to provide further consideration to                                                            
the comments that had been offered.                                                                                             
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 100(L&C)                                                                                            
     "An Act relating to enhanced 911 surcharges imposed by a                                                                   
     municipality."                                                                                                             
                                                                                                                                
                                                                                                                                
This  was the third  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
11:28:27 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green noted that  her staff had  assisted Senator  Bunde's                                                            
staff in the development of this bill.                                                                                          
                                                                                                                                
Senator Bunde,  the bill's sponsor, moved for the  adoption of CS SB                                                            
100 (FIN), Version 24-LS0407\R as the working document.                                                                         
                                                                                                                                
Co-Chair Green objected for explanation.                                                                                        
                                                                                                                                
KIM CARNOT,  Staff to Senator  Green, noted  that a memorandum  from                                                            
Co-Chair  Green's office, dated  April 18,  2005 [copy on file]  had                                                            
been distributed.  It detailed the  changes included in the  Version                                                            
"R" committee substitute as follows.                                                                                            
                                                                                                                                
     Section 1. AS 29.10.200(37) is amended to include the enhanced                                                             
     911 system under Home Rule applicability.                                                                                  
                                                                                                                                
     Section 2. AS 29.35.131(a) 911 surcharge is amended                                                                        
        Page 2                                                                                                                  
        · Line 11 -- $1.50 surcharge for wireline and wireless                                                                  
        · Line 13 - 15 --L&C version language allowing for vote to                                                              
                go about cap remains in the bill.                                                                               
        · Line 15 - 17 -- requires parity between wireless                                                                      
                telephone and wireline telephone surcharge                                                                      
        · Line 24 - 26 -- requires notification by the municipality                                                             
                when the surcharge is assessed and when it is                                                                   
                changed.                                                                                                        
                                                                                                                                
     Section 3. AS 29.35.131 is amended by adding two new sections                                                              
        · (i) Page 2 Line 30 - Page 3 Line 26 defines appropriate                                                               
                use of the enhanced 911 surcharge                                                                               
        · (j) Page 3 Line 27 - Page 4 Line 3 requires enhanced 911                                                              
                providers to execute an agreement addressing the                                                                
          duties  and responsibilities of each and  establishing the                                                            
                priorities for the use of the E-911 surcharge                                                                   
          revenue.                                                                                                              
                                                                                                                                
     Section 4. Amends AS 29.35 to allow municipalities to require                                                              
     implementation of E-911 from a multi-line telecommunications                                                               
     system.                                                                                                                    
                                                                                                                                
     Section 5. AS 29.35 is amended to apply to home rule and                                                                   
     general law municipalities.                                                                                                
                                                                                                                                
     Section 6. AS 29.35.131(h) is repealed (home rule                                                                          
     applicability).                                                                                                            
                                                                                                                                
Ms. Carnot  noted that Sections  1, 5, and  6 would make  structural                                                            
changes in order "to make  the bill generally applicable to any form                                                            
of government; any form of community in the State".                                                                             
                                                                                                                                
Ms. Carnot stated that  the majority of the changes made are in Sec.                                                            
2 of the bill.  While a $1.50 limitation would be  imposed, language                                                            
in Sec. 2 would  allow the decision to increase the  surcharge above                                                            
that  amount  to  be  made  locally.  In  addition,  parity  in  the                                                            
surcharge amount  must occur in regards to wireless  and wired phone                                                            
service.  There would  also  be a  requirement that  a municipality                                                             
rather than  the telephone  company must  notify phone customers  at                                                            
the time a surcharge was imposed or changed.                                                                                    
                                                                                                                                
Ms. Carnot  continued that Sec. 3  would define the appropriate  use                                                            
of  the E-911  surcharge  funds  so  that  the funds  would  not  be                                                            
"mismanaged   or   misused".   Both  federal   and   other   states'                                                            
requirements  were considered  in the development  of this  section.                                                            
Sec.  3(j)  would require  an  agreement  to  be entered  into  when                                                            
another provider  in lieu  of the local  municipality, provides  the                                                            
service.  Such an agreement  would  clarify how  the funds would  be                                                            
utilized and would allow  for regional planning efforts between, for                                                            
example,  a borough  and its  municipalities.  The agreement  should                                                            
also include the  Alaska State Troopers were their  service provided                                                            
in  the area.  The  purpose  of  subsection  (j)  would be  to  help                                                            
communities  coordinate  planning  on  how  to  utilize  "the  money                                                            
wisely" and accommodate system growth.                                                                                          
                                                                                                                                
Ms.   Carnot  stated   that   Sec.   4  would   require   multi-line                                                            
telecommunication  systems,  often  referred  to as  Private  Branch                                                            
Exchange  (PBX)  systems,  to  implement  technology  through  which                                                            
emergency  responders  would  be notified  of  the location  of  the                                                            
caller. However,  concern was voiced regarding this  requirement and                                                            
in response,  rather than  specifying a timeline  in State  Statute,                                                            
the  language  was  included  that would  allow  a  municipality  to                                                            
develop an ordinance and regulate the timeline.                                                                                 
                                                                                                                                
11:32:15 AM                                                                                                                   
                                                                                                                                
Senator Bunde  conveyed that the federal  Enhanced-911 requirements                                                             
"are costing our communities  a lot of money". Absent the ability to                                                            
raise  the E-911  surcharge  amount,  as would  be provided  by  the                                                            
legislation,  communities   would  be  required  to  increase  local                                                            
property taxes and other  sources. It is also important to take into                                                            
consideration  the increasing  use by  wireless phones  of the  911-                                                            
service and require  them to make "a larger contribution".  It is "a                                                            
fairness  issue". This  would  be likened  to asking  those who  use                                                            
something to pay for it.                                                                                                        
                                                                                                                                
Co-Chair  Wilken noted  that  the City  of Fairbanks  had written  a                                                            
letter dated  April 7, 2005 [copy  not provided] regarding  PBXs and                                                            
the fact that  this Legislation might  incur significant  expense to                                                            
some businesses, such as  hotels, that currently own PBX systems, as                                                            
some older  versions are  not up-gradable.  To that point,  he asked                                                            
whether his understanding of the situation was correct.                                                                         
                                                                                                                                
Ms. Carnot responded that  language in Sec. 4, page four, lines five                                                            
and six of  Version "R" would provide  a municipality the  option of                                                            
whether or  not to require  the implementation  of such technology.                                                             
The requirement  would  be a  local decision  that  would allow  for                                                            
public comment and consideration.                                                                                               
                                                                                                                                
Co-Chair  Green noted  that  others had  also raised  this  concern.                                                            
Efforts to accommodate it were made.                                                                                            
                                                                                                                                
Co-Chair Wilken noted that  a technical correction might be required                                                            
as  the word  "with"  appears  to  be missing  between  "guide"  and                                                            
"valid" in language in Sec. 4, page four, line nine.                                                                            
                                                                                                                                
Co-Chair  Green suggested  that rather  than the  word "with"  being                                                            
inserted, a comma might suffice.                                                                                                
                                                                                                                                
Co-Chair  Green stated  that  the bill's  drafter  would review  the                                                            
language.                                                                                                                       
                                                                                                                                
11:36:00 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken noted  that  a copy of  the Version  "R"  committee                                                            
substitute  had recently been provided  to the Mayor of the  City of                                                            
Fairbanks,  and a  response is  expected. Continuing,  he  expressed                                                            
that  the  City  "is very,  very  concerned  about  the  $1.50  cap"                                                            
limitation.  According to the City's  calculations, a level  ranging                                                            
between $2.50  to $3.50 would be required.  Therefore, he  requested                                                            
that consideration  be given to allowing the local  governing bodies                                                            
to  determine  the level  that  would  be needed  to  support  their                                                            
service.                                                                                                                        
                                                                                                                                
Co-Chair Wilken  asked whether "the  issue about who controls  what"                                                            
in regards to cities within boroughs had been rectified.                                                                        
                                                                                                                                
Co-Chair Green  affirmed that that issue had been  addressed in Sec.                                                            
3(j) on page  three, beginning on  line 27. That language  specifies                                                            
that an "agreement  must be reached between overlapping  geography."                                                            
                                                                                                                                
11:37:12 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken  asked  for  further  clarification   about  how  a                                                            
community vote  on an E-911 issue  would transpire in the  case of a                                                            
city within  a borough, in which the  city operates the 911-system.                                                             
                                                                                                                                
11:37:28 AM                                                                                                                   
                                                                                                                                
Ms. Carnot responded that  this is a two-part issue. Sec. 3(j) would                                                            
establish the agreement  between the primary Public Safety Answering                                                            
Point  (PSAP)  and  the  secondary  PSAP.  She  explained  that  the                                                            
surcharge  funds  collected  by  the  local  telephone  company  are                                                            
transferred  to the  designated  primary  responder.  In the  Mat-Su                                                            
area, for example,  which emergency  responder would respond  to the                                                            
call  would be  determined by  the type  and location  of the  call.                                                            
Either the Alaska State  Troopers or the municipality could respond.                                                            
Therefore,  the language in  Sec. 3(j) would  develop the  mechanism                                                            
through which  those communities could work to form  an agreement in                                                            
regards to how services  would be provided in addition to how the E-                                                            
911 surcharge would be utilized.                                                                                                
                                                                                                                                
Ms. Carnot stated that  the people being served in the E-911 service                                                            
area  would  vote on  the  surcharge  level issue.  She  was  unsure                                                            
regarding  which entity would  be responsible  for coordinating  the                                                            
election.                                                                                                                       
                                                                                                                                
11:39:09 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green  asked  whether   the  City  of  Fairbanks  was  the                                                            
Fairbanks North Star Borough's primary PSAP.                                                                                    
                                                                                                                                
Co-Chair  Wilken  understood   that  the  City  provides  the  E-911                                                            
service,  as the  Fairbanks  North Star  Borough  is a second-class                                                             
borough  and  as   such  "does  not  have  public  safety   powers".                                                            
Therefore,  the  City  "shoulders"   the  expense  of  the  service,                                                            
borough-wide. Financial  assistance would be welcome as the City has                                                            
a three million dollar deficit in that regard.                                                                                  
                                                                                                                                
Co-Chair Wilken  noted however, that while further  clarification of                                                            
the voting process would  be sought, he would not object to the bill                                                            
moving forward.                                                                                                                 
                                                                                                                                
11:40:07 AM                                                                                                                   
                                                                                                                                
Co-Chair Green  asked whether the language in Sec.  3(j) would apply                                                            
to the Fairbanks  area, as she doubted  that any of the area's  911-                                                            
funds were  directed to  any budget  other than  that of the  City's                                                            
primary PSAP service budget.                                                                                                    
                                                                                                                                
Co-Chair Wilken  understood that the  City supported the  Fairbanks'                                                            
E-911  service  in  its entirety.  He  worried  that  voters  living                                                            
outside  of the City  but within  the Borough  might decide  not "to                                                            
support moving  that responsibility from the City  to Borough-wide".                                                            
Uncertainty  in regards  to how this  might pan  out was the  reason                                                            
that he had sought further advice from the Mayor of Fairbanks.                                                                  
                                                                                                                                
Co-Chair  Green  understood  that "the  entire  universe  of who  is                                                            
served  by the  system"  would pay.  In  other words,  anyone  whose                                                            
emergency calls transit through that system should support it.                                                                  
                                                                                                                                
Ms. Carnot  stated that  both Co-Chair Wilken  and Co-Chair  Green's                                                            
"understanding of the situation are correct".                                                                                   
                                                                                                                                
11:42:29 AM                                                                                                                   
                                                                                                                                
Ms. Carnot  counseled that while "a  sales pitch" would be  required                                                            
to garner borough  wide support of  the bill and increasing  the 911                                                            
surcharge, "selling the  issue of bringing emergency 911 services to                                                            
people in your  borough is a lot easier than what  local communities                                                            
often have to sell in terms of increasing fees or taxes".                                                                       
                                                                                                                                
Co-Chair Wilken  agreed, but noted  that his concern centers  on the                                                            
fact that, as his second-class  borough does not have safety powers,                                                            
it would  be unable "to tax  for those powers  in order to  transfer                                                            
monies  from the  borough  to the  provider,  which is  the City  of                                                            
Fairbanks".                                                                                                                     
                                                                                                                                
Ms. Carnot  conveyed  the understanding  that  this situation  would                                                            
fall  under  "what is  defined  as  the Enhanced  911  System".  She                                                            
referred the  Committee to Sec. 2(a),  page one line seven,  as this                                                            
language would  specify that "A municipality  may, by resolution  or                                                            
ordinance,  elect  to  provide  an  enhanced  911  system  …".  This                                                            
language might  address Co-Chair Wilken concern, as,  by definition,                                                            
the enhanced-911  system would  include the  entire service  area of                                                            
the borough beyond the borders of the municipality.                                                                             
                                                                                                                                
Co-Chair  Wilken  understood  therefore   that  "Fairbanks  may,  by                                                            
resolution  or  ordinance,  elect to  provide  enhanced  911 to  the                                                            
entire borough".                                                                                                                
                                                                                                                                
Co-Chair  Green  clarified  that in  order  for  the service  to  be                                                            
provided, an agreement  between the borough and the city must exist.                                                            
The terms  of the agreement  between the City  of Fairbanks  and the                                                            
North Star  Borough could include  such things as who would  conduct                                                            
the election.                                                                                                                   
                                                                                                                                
Ms. Carnot  noted that  current language  in the Statute  definition                                                            
section, AS 29.35.137,  specifies that an enhanced  911-service area                                                            
"means the area  within a municipality's jurisdiction  that has been                                                            
designated  to receive enhanced 911  services". This language  would                                                            
allow whatever  provisions are agreed upon by the  City of Fairbanks                                                            
and the North Stat Borough to apply.                                                                                            
                                                                                                                                
Co-Chair  Wilken continued  to voice concern  regarding whether  the                                                            
powers of the  Legislature or the  powers of the City could  "bleed"                                                            
over to each  other in regards to  authority or the disbursement  of                                                            
funds from  the citizens of  the Borough to  the City. It should  be                                                            
clarified  as to  whether the  City could  collect  fees from  users                                                            
outside of  the City, and,  could the Borough  funnel money  back to                                                            
the City. The concern continues  about whether people in the Borough                                                            
would support  a proposal  to begin paying  for 911 services,  since                                                            
that is not currently  the case. He would await input  from the City                                                            
in this regard.                                                                                                                 
                                                                                                                                
Co-Chair  Green asked for  confirmation that  there is currently  no                                                            
collection of 911 fees outside of the City of Fairbanks.                                                                        
                                                                                                                                
Co-Chair Wilken affirmed that to be correct.                                                                                    
                                                                                                                                
Senator  Bunde asked  whether  language in  Sec.  3(i), page  three,                                                            
lines one  through four,  would prohibit  municipalities from  using                                                            
the surcharge  revenue to lease or  purchase new facilities  for its                                                            
911 call centers;  the funds could  only be utilized "to  rejuvenate                                                            
or remodel existing structures".                                                                                                
                                                                                                                                
Co-Chair Green  opined that the language  would not allow  the funds                                                            
to be used  to construct  new facilities  as the language  specifies                                                            
that,  "The surcharge  revenue  may  not  be used  for constructing                                                             
buildings, leasing  buildings, maintaining buildings,  or renovating                                                            
buildings,  except for the modification  of an existing building  to                                                            
the  extent  that   is  necessary  to  maintain  the   security  and                                                            
environmental  integrity of  the public safety  answering point  and                                                            
equipment rooms".                                                                                                               
                                                                                                                                
Senator Bunde  commented that this  clarification should  be on "the                                                            
record" as  some might otherwise interpret  enhanced 911  service to                                                            
allow such expansion.                                                                                                           
                                                                                                                                
Ms. Carnot noted that the  funds could be used to modify an existing                                                            
building.                                                                                                                       
                                                                                                                                
Senator Bunde acknowledged  that modifications would be permissible.                                                            
                                                                                                                                
Co-Chair Wilken  conveyed to the Committee  that a recent  Fairbanks                                                            
Daily  News  Miner  newspaper  editorial  [copy  not  provided]  had                                                            
assisted  in clarifying the  question, as it  attests that  were the                                                            
bill to become law, "local  governments" such as the Fairbanks North                                                            
Star Borough  Assembly  "would be  allowed, after  holding a  public                                                            
hearing,  to raise the E-911  surcharge to  a maximum of $2.00,  now                                                            
$1.50 per wireline  and cell phones.  In the Fairbanks Borough,  the                                                            
extra money raised,  about a million [dollars] would  largely go the                                                            
City of Fairbanks  since it is the primary E911 provider.  The City,                                                            
in turn, would  be able to reduce  its property tax rate  cause it's                                                            
no longer subsidizing…."  He stated that the editorial addressed his                                                            
concern as  it conveys "that money  could be taken from the  Borough                                                            
and move it to the City".                                                                                                       
                                                                                                                                
Co-Chair Green removed  her objection to the adoption of the Version                                                            
"R" committee substitute.                                                                                                       
                                                                                                                                
There  being  no  further  objection,  the  Version   "R"  committee                                                            
substitute was ADOPTED as the working document.                                                                                 
                                                                                                                                
Conceptual  Amendment #1:  This amendment  inserts a new  subsection                                                            
into Section 3 of the bill as follows.                                                                                          
                                                                                                                                
     "call taker" means  a person employed in a primary or secondary                                                            
     answering  point whose duties include the initial  answering of                                                            
     911or  enhanced 911 calls and  routing the calls to  the agency                                                            
     or  dispatch center  responsible  for  dispatching appropriate                                                             
     emergency  services  and a  person in  a primary  or  secondary                                                            
     answering  point  whose  duties  include  receiving  a  911  or                                                            
     enhanced  911  call  either directly  or  routed  from  another                                                            
     answering point and  dispatching appropriate emergency services                                                            
     in response  to the call. The  term "call taker" is  synonymous                                                            
     with  the term  "dispatcher"  in that  it is  inclusive of  the                                                            
     functions  of both answering the 911 or enhanced  911 calls and                                                            
      dispatching emergency services in response to the call.                                                                   
                                                                                                                                
Co-Chair Green  moved for the adoption of Amendment  #1 and objected                                                            
for clarification.                                                                                                              
                                                                                                                                
Ms. Carnot  explained that,  during discussion  on the bill,  it was                                                            
determined  that the term  "call taker" should  be defined  in State                                                            
Statutes as its inclusion  would allow for continued funding of that                                                            
position with  the 911 surcharge funds.  The term currently  appears                                                            
in Sec. 3(i)(3) and Sec.  3(i) (4) of Version "R", page three, lines                                                            
18 and 21. She read the  definition of call taker as depicted in the                                                            
amendment.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken  noted,  for  the  record,  that,  the information                                                             
provided on an  Alaska Municipal League (AML) handout  titled "E-911                                                            
Dispatch Center  Costs and Revenues  Selected Alaska Cities",  which                                                            
depicts  current call centers'  operating  costs, the current  E-911                                                            
revenues  received,   and  the  current  revenue  shortfalls   being                                                            
experienced  in Anchorage,  Fairbanks,  Kenai,  Juneau, and  Kodiak,                                                            
depicts  that  Anchorage  and  Fairbanks,  for  instance,  are  each                                                            
currently   experiencing   an  approximate   four   million   dollar                                                            
shortfall;  Kenai  is  experiencing   an approximate   $1.8  million                                                            
shortfall; Juneau has an  approximate $900,000 shortfall; and Kodiak                                                            
has an  approximate  $550,000 shortfall.  When  the $1.50  surcharge                                                            
rate being proposed  is applied to the number of telephone  lines in                                                            
each   community,   Anchorage   would  experience   a   surplus   of                                                            
approximately  $2.4  million  dollars.  However,   Fairbanks'  would                                                            
continue  to have  a deficit of  approximately  $2.4 million;  Kenai                                                            
would  have a  deficit of  approximately  one million  dollars;  and                                                            
Juneau would have an approximate  $100,000 deficit, and Kodiak would                                                            
have  an approximate  $350,000.  These  figures  would  explain  the                                                            
reason  there  had  previously   been  a  cut-off  at  the  100,000-                                                            
population level.                                                                                                               
                                                                                                                                
Co-Chair Wilken stated  that this should be a consideration, as this                                                            
legislation  would  not  assist "my  town  at  all; and  that's  why                                                            
they're so  upset about" it.  In addition to  the fact that  a $1.50                                                            
surcharge would  be insufficient,  the community of Fairbanks  would                                                            
also  incur the  expense  of an  election.  He empathized  with  the                                                            
community's "distress" regarding the bill.                                                                                      
                                                                                                                                
11:53:46 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken remarked  that the forthcoming  October 2005  local                                                            
election   in   Fairbanks   would   already   include   "contested,                                                             
acrimonious,  and expensive"  mayoral  and city  council  elections.                                                            
Furthermore,  since local governments  are prohibited from  spending                                                            
money to further ballot  issues, the charge of garnering support for                                                            
the  E-911  surcharge  ballot  issue would  fall  on  local  citizen                                                            
volunteers.  While  the 911  emergency system  is  available to  any                                                            
caller, only a  small percentage have used it and  know the value of                                                            
it; therefore,  convincing  people to  approve such  a surcharge  on                                                            
each phone line could be  a difficult task. To that point, he voiced                                                            
the preference  that  rather than  a community  vote occurring,  any                                                            
decision regarding  the local 911  service, including the  surcharge                                                            
level, should  be a determination made by the local  assembly. While                                                            
he appreciated  the  intent  of the  legislation,  he voiced  having                                                            
"grave reservations about it".                                                                                                  
                                                                                                                                
11:55:54 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green  reiterated   that  Amendment  #1  is  a  conceptual                                                            
amendment.  The bill drafter would  review both the language  in the                                                            
amendment and  the language identified  earlier by Co-Chair  Wilken.                                                            
                                                                                                                                
[NOTE: While  Co-Chair Green did not  formally remove her  objection                                                            
to Conceptual Amendment #1, its removal was implied.]                                                                           
                                                                                                                                
Amendment #1 was ADOPTED without further objection.                                                                             
                                                                                                                                
Senator Bunde  moved to report the bill, as amended,  from Committee                                                            
with individual recommendations and accompanying fiscal notes.                                                                  
                                                                                                                                
There  being  no  objection,  CS  SB  100(FIN)   was  REPORTED  from                                                            
Committee  with previous  fiscal note  #1, dated  February 15,  2005                                                            
from the Department  of Public Safety  and previous fiscal  note #2,                                                            
dated February  15, 2005 from the Department of Commerce,  Community                                                            
and Economic Development.                                                                                                       
                                                                                                                                
AT EASE 11:56:59 AM / 11:57:58 AM                                                                                           
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 70(JUD)                                                                                             
     "An Act relating to  controlled substances regarding the crimes                                                            
     of   manslaughter  and   misconduct   involving  a   controlled                                                            
     substance;  relating to  listing certain  anabolic steroids  as                                                            
     controlled  substances;   amending  Rule 41,  Alaska  Rules  of                                                            
     Criminal Procedure; and providing for an effective date."                                                                  
     This was the first hearing for this bill in the Senate Finance                                                             
     Committee.                                                                                                                 
                                                                                                                                
                                                                                                                                
This  was the third  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
DEAN GUANELI,  Chief Assistant Attorney General, Criminal  Division,                                                            
Legal Services Section-Juneau,  and Chief Assistant Attorney General                                                            
Office of  Special Prosecutions  & Appeals,  Office of the  Attorney                                                            
General,  stated  that  this bill,  which  is  referred to  "as  the                                                            
Governor's  Methamphetamine  bill,  … makes  a number  of  important                                                            
changes to Alaska Law to  provide additional disincentives to people                                                            
who  manufacture  methamphetamine".  The  bill  would  also  provide                                                            
additional  protection  to children  in an  effort  to reduce  their                                                            
exposure to the substance.                                                                                                      
                                                                                                                                
Mr. Guaneli  stated  that Section  1 of the  bill provides  findings                                                            
about the dangers  of the manufacturing  of methamphetamine  (Meth).                                                            
The findings  are directly  related to provisions  in Sec. 5  of the                                                            
bill that would  require a cash only bail of $250,000  were a repeat                                                            
Meth offender caught manufacturing the substance.                                                                               
                                                                                                                                
11:59:52 AM                                                                                                                   
                                                                                                                                
[NOTE: Co-Chair Wilken assumed chair of the meeting]                                                                            
                                                                                                                                
Co-Chair  Wilken  clarified  that  Mr.  Guaneli's  remarks  were  to                                                            
Version 24-GS1049\L of the bill.                                                                                                
                                                                                                                                
Senator  Bunde moved  to  adopt the  Finance  committee substitute,                                                             
Version 24-GS1049\L as the working document.                                                                                    
                                                                                                                                
There being  no objection,  Version "L" was  ADOPTED as the  working                                                            
document.                                                                                                                       
                                                                                                                                
Mr. Guaneli  argued  that the repeat  Meth offender  cash only  bail                                                            
level was warranted  as such a person  would be aware of  the drug's                                                            
danger.                                                                                                                         
                                                                                                                                
Mr. Guaneli noted  that Sec. 2 includes language that  would subject                                                            
a person who manufactures  or sells a drug in violation of the State                                                            
drug laws to someone  who dies as a direct result  of ingesting that                                                            
drug, to the State's  manslaughter Statute. This would  include such                                                            
things as drug  overdoses from the use of such as  heroin, Meth, and                                                            
cocaine and a "date rape" drug.                                                                                                 
                                                                                                                                
12:01:52 PM                                                                                                                   
                                                                                                                                
Mr. Guaneli  stated that  language included  in Sec. 3, page  three,                                                            
beginning on line four  is an attempt to address evolving techniques                                                            
of Meth  manufacturing.  State Crime  Lab chemists  have  determined                                                            
that new techniques include  such things as mixing the components in                                                            
an organic solution.                                                                                                            
                                                                                                                                
Mr.  Guaneli stated  that  Sec. 4,  beginning  on page  three,  line                                                            
seven,  was  added  by  the  Senate  Health,  Education  and  Social                                                            
Services  Committee  at the  request of  Senator  Hollis French,  to                                                            
address muscle enhancing  "anabolic steroids", which like marijuana,                                                            
"are prohibited  under federal  law", but  are not prohibited  under                                                            
State law.  It would be "appropriate"  to prohibit such drugs  under                                                            
State law,  as "it is difficult  to get  the federal authorities  to                                                            
prosecute cases involving small amounts of these drugs".                                                                        
                                                                                                                                
[NOTE: Co-Chair Green reassumed chair of the Committee.]                                                                        
                                                                                                                                
Mr.  Guaneli  pointed out  that  a  technical  correction  regarding                                                            
language  in Sec. 4(f), page  three, line 20  of the bill,  could be                                                            
considered  as  the language  is  unnecessary  since  State  Statute                                                            
specifies that  the word "includes"  means "but is not limited  to".                                                            
                                                                                                                                
Co-Chair Green understood therefore that the term is redundant.                                                                 
                                                                                                                                
Mr. Guaneli  suggested that  consideration  be provided to  striking                                                            
the  phrase ",  but is  not limited  to,"  as its  inclusion  "could                                                            
create some difficulties for the Courts in interpretation…"                                                                     
                                                                                                                                
Conceptual Amendment #1:  This amendment deletes the phase ", but is                                                            
not  limited to,"  after  the word  "includes"  in Sec.  4(f),  page                                                            
three, line 20 of the bill.                                                                                                     
                                                                                                                                
Co-Chair Wilken moved to adopt Conceptual Amendment #1.                                                                         
                                                                                                                                
There being no objection, Conceptual Amendment #1 was ADOPTED.                                                                  
                                                                                                                                
Mr. Guaneli  stated that  Sec. 6  and Sec. 7  are "enhanced  penalty                                                            
provisions"  in regards to individuals  who manufacture Meth  in the                                                            
presence of or assistance  by children. Provisions in Sec. 8 provide                                                            
definitions to further the enhanced penalty provisions.                                                                         
                                                                                                                                
Co-Chair Green  noted that, in addition  to endangering children  by                                                            
exposing  them to the manufacturing  of Meth  in a building,  Sec. 8                                                            
would allow that endangerment to include vehicles.                                                                              
                                                                                                                                
12:06:44 PM                                                                                                                   
                                                                                                                                
Mr. Guaneli concurred.  He noted that because newer  Meth production                                                            
techniques require minimal  amounts of lab equipment, they are quite                                                            
portable. Meth  labs have been found  in motorhomes and in  the back                                                            
of cars.                                                                                                                        
                                                                                                                                
Mr.  Guaneli  stated that  Sec.  9 and  Sec.  10 were  developed  in                                                            
response to  concerns raised during  the Committee's April  13, 2005                                                            
hearing on the bill. These  sections would require the Department of                                                            
Public  Safety  to  maintain  on its  Internet  website  a  complete                                                            
listing  of properties  in  which illegal  Meth labs  had  operated,                                                            
regardless  of whether the  site had been  re-mediated or not.  Real                                                            
estate  agents  and  others  desiring  to  purchase  property  could                                                            
consult this information  for "full and complete information"  about                                                            
a property.                                                                                                                     
                                                                                                                                
Co-Chair Green asked for  confirmation that the information would be                                                            
public information.                                                                                                             
                                                                                                                                
Mr. Guaneli understood  that the information "would  be available to                                                            
anyone".                                                                                                                        
                                                                                                                                
Co-Chair Green  recalled that this issue was the primary  concern of                                                            
realtors who had testified.                                                                                                     
                                                                                                                                
Mr. Guaneli  informed  that Sec. 11  relates to  rules that  must be                                                            
amended  in response  to proposed  bail  provisions.  The bill  also                                                            
contains applicability and effective date provisions.                                                                           
                                                                                                                                
12:08:52 PM                                                                                                                   
                                                                                                                                
Mr. Guaneli  concluded  that the  work conducted  during the  Senate                                                            
committee process has resulted in an improved bill.                                                                             
                                                                                                                                
AT EASE 12:09:21 PM / 12:10:02 PM                                                                                           
                                                                                                                                
Senator   Stedman  questioned   the  reason   for  the  bill   being                                                            
accompanied by zero fiscal  notes, as he assumed that the bill could                                                            
result in more incarcerations.                                                                                                  
                                                                                                                                
Mr. Guaneli responded  that whenever criminal statutes  are enacted,                                                            
there  is "the  hope that  there would  be some  deterrent  affect".                                                            
However, it  is difficult to determine  the extent of the  deterrent                                                            
in regards to  Meth offenders, particularly those  who are addicted.                                                            
Nonetheless, there is optimism  that Meth production in the presence                                                            
of children would  be deterred. Therefore, the number  of people who                                                            
would  be   prosecuted  for   child  endangerment   should   not  be                                                            
significant.  The additional penalties  being proposed could  result                                                            
in one or two  additional years of  imprisonment. The Department  of                                                            
Corrections has anticipated that such cases would be limited.                                                                   
                                                                                                                                
Co-Chair Green ordered the bill HELD in Committee.                                                                              
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 112(CRA)                                                                                            
     "An Act imposing a tax on residents of regional educational                                                                
     attendance areas and relating to permanent fund dividend                                                                   
     applications; and providing for an effective date."                                                                        
                                                                                                                                
                                                                                                                                
12:12:48 PM                                                                                                                   
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Senator  Bunde moved  to adopt  Version 24-LS0505\X  as the  working                                                            
document.                                                                                                                       
                                                                                                                                
Co-Chair Green objected for explanation.                                                                                        
                                                                                                                                
Senator Bund, the bill's  sponsor, explained that the changes in the                                                            
Version  "X" committee  substitute  would  include  the addition  of                                                            
Legislation  Intent language  in Section 1,  page one, beginning  on                                                            
line seven, that would  allow the Legislature to utilize the revenue                                                            
resulting  from  the  tax  imposed  by the  bill  to  fund  regional                                                            
educational  attendance areas  (REAA). Language  in Sec. 2(c),  page                                                            
one,  lines  13 and  14,  would  levy  a $50  fee  per  request  for                                                            
information;  language in Sec. 4(a)(1)  and Sec. 4(a)(2),  page two,                                                            
lines  12 through  18,  would specify  that  the REAA  tax would  be                                                            
levied on individuals  over the age  of twelve but under  the age of                                                            
65 who  reside in  a REAA  as of  January 1  of the  tax year or  an                                                            
employee of  an REAA during a tax  year. A person who resides  in an                                                            
REAA and also  works for the REAA would only be required  to pay the                                                            
tax once.                                                                                                                       
                                                                                                                                
Senator  Bunde stated  that language  in Sec.  4(c)(1) through  Sec.                                                            
4(c)(3), page  two, lines 25 through  31, would define who  would be                                                            
exempt from the fee.                                                                                                            
                                                                                                                                
Senator Bunde continued  that language in Sec.4(a), page three, line                                                            
two, specifies  that the tax  must be paid  prior to April 1  of the                                                            
calendar  year in which  it is  imposed. Language  in Sec.  4(c)(1),                                                            
page three,  line 23 specifies exemptions  for those who  might have                                                            
already  paid the  tax.  In addition,  the  bill defines  the  terms                                                            
"family", "regional Attendance area", and "tax".                                                                                
                                                                                                                                
Conceptual Amendment  #1: This amendment deletes the  phrase "at any                                                            
time" from language  in Sec. 4(a)(2)(B), page two,  lines 17 and 18.                                                            
                                                                                                                                
In  addition, the  following  language  is inserted  following  "tax                                                            
year" in Sec. 4(a)(2)(B) on page two, line 18.                                                                                  
                                                                                                                                
     for 10 consecutive days or a normal pay period, whichever is                                                               
     less, or for more that 20 cumulative working days.                                                                         
                                                                                                                                
Senator Bunde moved to adopt Amendment #1.                                                                                      
                                                                                                                                
Senator Bunde  explained that this  amendment defines what  the term                                                            
employed means in relationship to this bill.                                                                                    
                                                                                                                                
Senator Hoffman objected  for further explanation. He apologized for                                                            
his and Senator  Olson's absence during  the initial explanation  on                                                            
this bill, as they had  been called to a meeting with Governor Frank                                                            
Murkowski.  This is an important  bill to  both himself and  Senator                                                            
Olson.                                                                                                                          
                                                                                                                                
Senator Bunde  explained that this  language was being offered  upon                                                            
the recommendation  of Legislative  Legal and Research Services,  as                                                            
it would further  clarify who would be considered  as being employed                                                            
by an  REAA. Specifically,  it  would apply  to someone  who held  a                                                            
temporary job with an REAA but who might reside out of State.                                                                   
                                                                                                                                
Co-Chair  Green removed  her objection  to the  adoption of  Version                                                            
"X".                                                                                                                            
                                                                                                                                
Senator Hoffman asked that  further discussion of the bill occur, as                                                            
this "major policy  decision" would have "major impact"  on both his                                                            
and Senator Olson's regions.                                                                                                    
                                                                                                                                
Senator Bunde  restated his earlier explanation of  the bill as well                                                            
as the Conceptual Amendment being offered.                                                                                      
                                                                                                                                
12:20:35 PM                                                                                                                   
                                                                                                                                
Senator Hoffman  asked whether any  consideration had been  given to                                                            
military personnel  who, because they  live on military bases,  "are                                                            
exempt  from taxation".  "They are  not paying  for their  education                                                            
either."                                                                                                                        
                                                                                                                                
Senator  Bunde  stated  that  military  personnel  who live  near  a                                                            
community  that imposes  a sales tax  would pay  such taxes.  "Their                                                            
payment in  lieu of taxes,  of course, passes  through to the  local                                                            
school  district there."  Nonetheless  he  did not  consider that  a                                                            
local  contribution. The  State is  prohibited  from taxing  federal                                                            
property. "No is the short answer."                                                                                             
                                                                                                                                
Senator  Hoffman  noted that  he has  used  that "exact  reason"  in                                                            
regards to  Western Alaska "in which  "well over 95-percent  of land                                                            
is federal  and  the State  of Alaska  receives payment  in lieu  of                                                            
those taxes for  all of those federal lands that are  non-taxed". He                                                            
appreciated  the fact that  Senator Bunde  recognized that  fact and                                                            
has used that  "same argument" in regards to this  bill. "Under this                                                            
legislation,  those people  would be  paying this  tax plus the  tax                                                            
that is being charged on those properties in lieu of taxes."                                                                    
                                                                                                                                
12:22:22 PM                                                                                                                   
                                                                                                                                
Senator  Bunde countered  "that  it swings  both  ways" as  military                                                            
personnel  who live near  a military base  in an urban Alaska  area,                                                            
pay to support  their local schools  as well as the payment  in lieu                                                            
of  taxes money  that  passes through  to  the school  district.  He                                                            
"rejected  any claim"  that the  latter  should be  recognized  as a                                                            
local  contribution  for "it  is simply  federal  money that  passes                                                            
through".                                                                                                                       
                                                                                                                                
Senator  Hoffman  argued  therefore   that  were  the  land  private                                                            
property rather than federal  property, the land would be subject to                                                            
taxation; however,  "by virtue that  it isn't, that prohibits  those                                                            
areas from even the possibility of being considered…"                                                                           
                                                                                                                                
Co-Chair Green recognized  this as "a function of military service".                                                            
Many military  personnel who  live in local  communities do  support                                                            
local programs.                                                                                                                 
                                                                                                                                
Senator Hoffman  clarified that his argument is specific  to federal                                                            
lands such  as the Yukon Kuskokwim  Delta National Wildlife  Refuge,                                                            
which "are federal parks that are not available for taxation".                                                                  
                                                                                                                                
12:23:55 PM                                                                                                                   
                                                                                                                                
Senator Bunde stated that  "the argument is … a little disingenuous"                                                            
as a borough must  be formed in order to impose taxes.  There has no                                                            
interest  shown  in that  regard.  Thus, even  if those  lands  were                                                            
private, it  is uncertain whether  a tax base would be provided  for                                                            
the area's schools.                                                                                                             
                                                                                                                                
Co-Chair  Green  stated  that the  amendment  would  be readdressed                                                             
during the April 20th Committee meeting.                                                                                        
                                                                                                                                
[NOTE: No action  on the motion to  adopt a committee substitute  or                                                            
the amendment  transpired  during this hearing.  Refer to the  April                                                            
20, 2005 hearing in this regard.]                                                                                               
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Green adjourned the meeting at 12:24:27 PM                                                                           
                                                                                                                                
                                                                                                                                

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