Legislature(2005 - 2006)SENATE FINANCE 532
05/01/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB500 | |
| HB283 | |
| HB338 | |
| HB83 | |
| SB160 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 231 | TELECONFERENCED | |
| += | SB 160 | TELECONFERENCED | |
| + | HB 500 | TELECONFERENCED | |
| += | HB 283 | TELECONFERENCED | |
| + | HB 338 | TELECONFERENCED | |
| + | HB 83 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
May 1, 2006
9:06 a.m.
CALL TO ORDER
Co-Chair Lyda Green convened the meeting at approximately
9:10:01 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice-Chair
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: REPRESENTATIVE GABRIELLE LEDOUX; BEN MULLIGAN,
Staff to Representative Bill Stoltze; MICHAEL O'HARE, Staff to
Representative Pete Kott; JIM MCMILLAN, Deputy Director, Credit
and Business Development, Alaska Industrial Development & Export
Authority, Department of Commerce, Community and Economic
Development; LALANYA SNYDER, Staff to Representative Mike
Chenault; GREY MITCHELL, Director, Division of Labor Standards &
Safety, Department of Labor and Workforce Development; SUZANNE
HANCOCK, Staff to Representative Gabrielle LeDoux; JANE ALBERTS,
Staff to Senator Con Bunde; BRUCE LUDWIG, Business Manager,
Alaska Public Employees Association and American Federation of
Teachers; TOM BRICE, Public Employees Local 71; JIM DUNCAN,
Business Manager, Alaska State Employees Association, former
State Senator, and former Commissioner, Department of
Administration; CHERYL FRASCA, Director, Office of Management
and Budget, Office of the Governor
Attending via Teleconference: From Anchorage: DAVID GERMER,
Project Manager, JL Properties, Inc.; From offnet sites: JOHN
DUFFY, Manager, Matanuska-Susitna Borough; KATE GIARD, Chair,
Regulatory Commission of Alaska, Department of Commerce,
Community and Economic Development; ROD COMBELLICK, Deputy
Director, Division of Geological & Geophysical Surveys,
Department of Natural Resources; JOHN AHO, Chair, Alaska Seismic
Hazards Safety Commission; SCOTT HAWKINS, President, Alaska
Supply Chain Integrators
SUMMARY INFORMATION
HB 500-BONDING AUTHORITY FOR HATCHER PASS
The Committee heard from the bill's sponsor, the Matanuska-
Susitna Borough, the Alaska Industrial Development & Export
Authority, and the private sector firm associated with the
project. The bill reported from Committee.
HB 283-AK HOUSING FINANCE CORP BOARD COMP.
The Committee heard from the bill's sponsor and the Alaska
Regulatory Commission, Department of Commerce, Community and
Economic Development. The bill was held in Committee.
HB 338-CERTIF. OF FITNESS FOR EXPLOSIVE HANDLERS
The Committee heard from the bill's sponsor and the Department
of Labor and Workforce Development. The bill reported from
Committee.
HB 83-SEISMIC HAZARDS SAFETY COMMISSION
The Committee heard from the bill's sponsor, the Department of
Natural Resources, and the Alaska Seismic Hazards Safety
Commission. One amendment was adopted and the bill reported from
Committee.
SB 160-STATE PROCUREMENT ELECTRONIC TOOLS
The Committee heard from the bill's sponsor, Alaska Supply Chain
Integrators, representatives of labor organizations, and the
Office of the Governor. A committee substitute was adopted and
the bill reported from Committee.
9:12:16 AM
HOUSE BILL NO. 500
"An Act amending the principal amount of bonds that may be
issued by the Alaska Industrial Development and Export
Authority for the purpose of financing the development of
Hatcher Pass."
This was the first hearing for this bill in the Senate Finance
Committee.
9:12:21 AM
BEN MULLIGAN, Staff to Representative Bill Stoltze, the bill's
sponsor, informed the Committee this bill would allow the
Matanuska-Susitna (Mat-Su) Borough to advance its Hatcher Pass
development efforts by expanding the scope of what the Alaska
Industrial Development and Export Authority (AIDEA) bonds and
other financing could be utilized for. In addition, the AIDEA
bond authority would be increased from $15 million to $25
million.
Co-Chair Green summarized the bill. It would expand the scope of
the project and increase the bond amount.
Mr. Mulligan affirmed.
9:13:42 AM
JOHN DUFFY, Manager, Matanuska-Susitna Borough, testified via
teleconference from an offnet site in support of the bill.
Granting this authority to AIDEA is essential to the project, as
AIDEA's "participation is critical to the success of this
public/private partnership" proposed for Hatcher Pass. This
project is the result of the Borough's long-term economic
development effort to enhance its economy, diversify the area's
tax base, and increase recreational opportunities.
Mr. Duffy stated that both the Borough and the State have
contributed money for infrastructure improvements. He
particularly acknowledged Co-Chair Green's efforts in getting
electric power expanded to the site. The Borough has funded
geotechnical and hydrological studies and an economic impact
assessment, which concluded that the project would create
approximately 1,500 jobs. The construction phase of the project
is anticipated to cost $41 million. "A very strong cooperative
effort" between the Department of Natural Resources' Division of
Mining, Land and Water and the Division of Parks & Outdoor
Recreation State Parks, and the Borough also furthered the
advancement of this project.
9:16:04 AM
DAVID GERMER, Project Manager, JL Properties, Inc. testified via
teleconference from Anchorage. Cooperative efforts on this
project began in October 2003 when JL Properties, a private
sector business, "responded to a solicitation from the Borough
to develop an alpine and nordic ski area at Hatcher Pass".
During the next two years, JL Properties, the Borough, and
Borough consultants worked on developing the scope of the
project and a financial plan. In order to ensure the overall
success of the project, it was determined that the project must
"integrate an alpine ski area, a residential community, and a
Nordic ski area and trail system".
Mr. Germer characterized the development of the financial plan,
which would include "a unique blend of private and public
financing", as "quite challenging". AIDEA's participation "is an
integral part of the financing plan", and the approval of this
legislation would be essential to the project. The next step
would be for the Borough, AIDEA, and JL Properties to
independently "conduct its own due diligence analysis" on "the
financial feasibility of the project". AIDEA's Board of
Directors would base their decision on whether or not to approve
the financing plan upon the due diligence analysis and the
financial feasibility studies. Approval of the financing plan
would allow construction of the project to commence in the
summer of 2006 with a completion date of spring 2008.
9:18:33 AM
JIM MCMILLAN, Deputy Director, Credit and Business Development,
Alaska Industrial Development & Export Authority, Department of
Commerce, Community and Economic Development testified in Juneau
in support of the bill. Alaska Statute (AS) 44.88 would require
AIDEA to receive Legislative authority in order "to issue in
excess of ten million dollars worth of bonds". He clarified that
passage of this legislation "would not guarantee financing". It
would however, allow AIDEA to conduct the due diligence and
project feasibility analysis. This effort would allow AIDEA to
review technical, operational, and financial aspects of the
project and determine how "to mitigate" any risks found. Were
the project to be deemed feasible, "a finance plan will be the
presented to AIDEA's Board of Directors for approval".
Mr. McMillan reminded the Committee that AIDEA has been
associated with the efforts to develop Hatcher Pass for many
years. While numerous proposals had been discussed, none were
advanced. However, the conceptual plan being presented is
"worthy of our consideration", as AIDEA deems the timing, the
plan, and the private developer involved in the project with the
Mat-Su Borough as being the "right" mix of circumstances.
9:20:47 AM
Co-Chair Green pointed out that language in the Analysis section
of the Department of Commerce, Community and Economic
Development's fiscal note #1, specifies that this bond
authorization would have "no fiscal impact on AIDEA operations".
9:20:59 AM
Mr. McMillan affirmed the passage of this legislation would have
no fiscal impact on AIDEA. This legislation "is merely the
authorization to move forward with the feasibility work". Were
the Board to authorize the financing of the project, there
"would be additional receipts to AIDEA", which could be used to
support such things as operations and dividends.
Co-Chair Green observed that the bill would increase the level
of bonds that could be authorized by AIDEA.
Mr. McMillan concurred.
9:21:39 AM
Senator Olson asked the reason for increasing the bond
authorization from $15 million to $25 million.
Mr. McMillan responded that the original bill on the Hatcher
Pass project was passed in 1998. That proposal was limited to
the development of a $20 million alpine ski area. The project
now proposed is "much more expansive and comprehensive", with an
anticipated project cost of $42 million; thus, the need to
increase AIDEA's participation.
Co-Chair Green deemed the public and private sector partnership
being advanced in this project to differ from most other
projects presented to the Committee.
Co-Chair Wilken moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Without objection, HB 500 was REPORTED from Committee with
previous zero fiscal note #1 dated April 14, 2006 from the
Department of Commerce, Community and Economic Development.
AT EASE 9:23:30 AM / 9:25:00 AM
CS FOR HOUSE BILL NO. 283(STA)
"An Act relating to the compensation for board members of
the Alaska Housing Finance Corporation; and providing for
an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
MICHAEL O'HARE, Staff to Representative Pete Kott, the bill's
sponsor, noted that a new committee substitute is being offered
for consideration.
Co-Chair Green moved to adopt committee substitute Version 24-
LS0922\F as the working document. She objected for purposes of
explanation.
Mr. O'Hare explained that Sec. 2, page 1 line 10 through page 2
line 2, has been added to Version "F". This new section would
amend Alaska Statute (AS) 42.04.020(f) pertaining to the salary
paid to the chairperson and commissioners of the Regulatory
Commission of Alaska (RCA). Existing step and range salary
schedule language would be replaced with language allowing the
Governor to determine those salaries.
9:27:41 AM
Senator Olson asked the fiscal impact of this change.
Co-Chair Green noted that the recent drafting of Version "F" has
not provided sufficient time for RCA to calculate the fiscal
impact.
Co-Chair Green noted that in addition to the salary changes
pertaining to the RCA chairperson and commissioners, Version "F"
would also increase Alaska Housing Finance Corporation (AHFC)
Board members compensation while attending business meetings
from $100 to $400 per day. This language is depicted in Section
1(e) on page 1 line 6.
9:29:01 AM
KATE GIARD, Chair, Regulatory Commission of Alaska, Department
of Commerce, Community and Economic Development testified via
teleconference from an offnet site and communicated that the
compensation changes proposed for the four RCA commissioners
would incur a fiscal impact of approximately $170,000. The
fiscal impact of the compensation for the chairperson is
unknown, as the Governor would make that determination.
Ms. Giard stated the increased compensation proposed would
expand the range of RCA commissioner candidates. The RCA Chair
is appointed for a four-year term and commissioners are
appointed for six-year terms. Her term as RCA chair began in
2002 and would terminate in 2006. One of her objectives as chair
was "to position the RCA to move forward into the future". This
included a review of commissioner compensation, as one of "the
challenges" facing the Legislature is to recruit commissioners
willing to work very hard during their terms and who could bring
maturity and business experience to the Agency. Their decisions
"would have long-term fiscal impact on the State of Alaska".
Current Commissioners are paid $86,000 annually, as compared to
State department commissioners who earn approximately $124,000
annually. The current base level salary paid to RCA
commissioners is insufficient to attract a business executive or
a department commissioner. The proposed salary would be similar
to that of State department commissioners. The Governor would
establish the salary for the RCA chairperson.
9:32:24 AM
Senator Stedman asked whether an updated fiscal note would be
provided prior to action being taken on the bill. In response to
a remark by Co-Chair Green, he acknowledged Ms. Giard's
testimony that the commissioners' salary increase would equate
to approximately $170,000.
In response to a question from Senator Olson, Ms. Giard affirmed
the commissioners' salary increases would amount to $170,000 per
year.
9:32:55 AM
Senator Stedman observed that compensation levels for boards and
commissions have been a matter of discussion in the past. "The
issue is broader than just the subject matter in this bill."
Thus, the compensation of other boards and commissions should
also be addressed.
Co-Chair Green acknowledged Senator Stedman's remarks.
The bill was HELD in Committee.
[NOTE: No action was taken on the motion to adopt Version "F".]
9:33:25 AM
CS FOR HOUSE BILL NO. 338(L&C)
"An Act relating to applications, qualifications, and
criminal history and background checks for a certificate of
fitness for explosives handlers; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
9:34:00 AM
LALANYA SNYDER, Staff to Representative Mike Chenault, the
bill's sponsor, informed the Committee the Department of Labor
and Workforce Development is responsible for issuing Certificate
of Fitness licenses to explosives handlers. While an Alaska
criminal background check is required as part of that process, a
fingerprint check is not. Authorization of a fingerprint check
is being sought, as it would assist the State in verifying
identification and would provide a tool for checking criminal
activity on record in other states.
Co-Chair Green understood such action would align State statutes
with federal law.
Ms. Snyder affirmed.
Co-Chair Green asked for further information about explosives
handlers.
Ms. Snyder deferred to Grey Mitchell with the Department of
Labor and Workforce Development.
9:36:06 AM
GREY MITCHELL, Director, Division of Labor Standards & Safety,
Department of Labor and Workforce Development, identified
explosive handlers as people who are employed in such things as
road construction and rock pit operations. Individuals, such as
miners, who are employed in operations subject to federal
jurisdictions such as the Federal Mine, Safety, and Health
Administration, would be exempt from the background check
requirement.
Senator Stedman inquired about the certificate of fitness
license requirements for an explosive handler.
Mr. Mitchell expressed that the licensing process requires an
applicant to provide their name, address, physical disabilities,
and employment history. In addition, applicants are tested on
general explosive knowledge, safety procedures, and explosive
handling. The license is valid for three years.
9:38:24 AM
Senator Olson asked for further information about the exemption
for miners from the background check requirement.
Mr. Mitchell clarified that the State does not have jurisdiction
over people employed in occupations covered by the Federal Mine
Safety and Health Administration. Thus, the State Statute
specifically excludes those occupations. These jurisdictional
issues were addressed when Statutes regarding this certification
process were originally established.
Senator Olson asked whether the Alaska Miners Association has a
position on the bill.
Mr. Mitchell understood that the Association had not provided
testimony on the bill.
Ms. Snyder informed the Committee that the Alaska Miners
Association opposed the original bill, as miners were included
in the list of occupations subject to the provisions. Their
opposition was removed once miners were excluded from the
requirement.
Co-Chair Wilken moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
There being no objection, CS HB 338 (L&C) was REPORTED from
Committee with two previous zero fiscal notes: fiscal note #1
dated January 5, 2006 from Department of Labor and Workforce
Development and fiscal note #2 dated January 17, 2006, from the
Department of Public Safety.
9:40:38 AM
SENATE CS FOR CS FOR HOUSE BILL NO. 83(STA)
"An Act relating to the Alaska Seismic Hazards Safety
Commission; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
9:41:08 AM
SUZANNE HANCOCK, Staff to Representative Gabrielle LeDoux, the
bill's sponsor, stated the bill would extend the termination
date of the Alaska Seismic Hazards Safety Commission, which is
under the auspices of the Department of Natural Resources (DNR),
until June 30, 2012 and increase the Commission's membership
from nine to eleven. The increase in membership would provide
more local government representation. The Governor appoints
members of the Commission for three-year terms.
Ms. Hancock noted "the scientific community and the insurance
industry" support the legislation.
REPRESENTATIVE GABRIELLE LEDOUX supported Ms. Hancock's remarks.
Amendment #1: This amendment deletes the entirety of language in
Sec. 3(4), page 2, lines 8 through 11 and replaces it with the
following.
(4) "seismic hazard" means an earthquake-induced geologic
condition that is a potential danger to life and property;
in this paragraph, "geologic condition" includes strong
ground shaking, landslide, avalanche, liquefaction, tsunami
inundation, fault displacement, and subsidence;
Co-Chair Wilken moved to adopt Amendment #1.
Co-Chair Green objected for explanation.
Co-Chair Wilken explained that the Senate State Affairs
Committee added "definitional language" to the bill. DNR deemed
that language "too broad" in its scope, and requested the
original bill language be reinstated. Thus, this amendment would
reinstate the original language.
Co-Chair Green removed her objection.
There being no further objection, Amendment #1 was ADOPTED.
9:43:25 AM
ROD COMBELLICK, Member, Alaska Seismic Hazards Safety Commission
and Deputy Director, Division of Geological & Geophysical
Surveys, Department of Natural Resources, testified via
teleconference from offnet site and affirmed that DNR is the
administrator of the Commission. Amendment #1 addressed both the
Commission's and the Department's concern that the Senate State
Affairs language would "broaden the scope" of the Commission's
responsibilities "to include all geologic hazards even those
that were not seismically induced". Amendment #1 "would refocus
the Commission's purview in the area of earthquake hazards".
Mr. Combellick noted the bill would also expand the Commission's
"purview to include tsunami hazards". This expansion is
considered "appropriate".
Mr. Combellick pointed out that Amendment #1 would also remove
volcanic eruptions from the purview of the Commission. The
Commission supports this exclusion because that activity is
currently under the purview of the Alaska Volcano Observatory
(AVO), in which the State is a participant. The Commission's
responsibilities should not overlap with those of that "very
effective body".
Mr. Combellick stated DNR supports the Commission extension, as
it would allow the Commission to further its recommendations on
issues it had identified in a recent report [copy not provided]
to the Department.
9:45:52 AM
Senator Olson asked the level of communication between the
Commission and AVO.
Mr. Combellick responded that a "considerable" amount of
communication occurs between the two entities, specifically as
the State's participation in AVO is conducted through his
agency. He is the direct conduit between the entities.
Mr. Combellick shared that during the recent Mount Saint
Augustine volcano eruption there was concern the volcano "might
generate a tsunami". The Commission relied on AVO to
appropriately address that situation.
9:46:57 AM
Co-Chair Wilken noted the State would provide for the travel
expenses of the eight Commission's member employed by the State.
To that point, he asked whether funds would be allocated for the
travel expenses incurred by the Commission's three public
members, as specified in Sec. 2(c)(7) page 2 lines 4 through 6
of the bill. Else wise, this issue might negatively impact
public member recruitment.
Mr. Combellick noted that sufficient funding is available to
provide for all members' travel. He pointed out, however, that
the agencies in which the State Commission members are employed
typically cover these expenses.
Co-Chair Wilken concluded therefore that not addressing this
issue in the bill "would not preclude the public members' being
taken care of".
Mr. Combellick affirmed. While this issue is not specifically
addressed in this bill, the Commission was granted such
authority in the original legislation.
Co-Chair Green understood therefore that Commission travel
expenses were addressed in existing Statute.
Mr. Combellick affirmed. Travel authority for the Commission was
provided in legislation adopted in 2002.
9:48:56 AM
JOHN AHO, Chair, Alaska Seismic Hazards Safety Commission,
testified via teleconference from an offnet site. The Commission
has been very active and this extension would enable it to
continue its "seismic risk mitigation activities". The
Commission's efforts "are extremely important" to the State.
Co-Chair Wilken moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
There being no objection, SCS CS HB 83(FIN) was REPORTED from
Committee with previous zero fiscal note #4 dated January 20,
2006 from the Department of Natural Resources.
AT EASE 9:50:19 AM / 10:10:46 AM
Co-Chair Green called the meeting back to order.
10:10:56 AM
CS FOR SENATE BILL NO. 160(L&C)
"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 second hearing for this bill in the Senate Finance
Committee.
Senator Bunde, the bill's sponsor, moved to adopt committee
substitute Version 24-LS0524\B as the working document.
Co-Chair Green objected for explanation.
10:12:02 AM
Senator Bunde voiced appreciation for today's hearing. This bill
would address the State's procurement and electronic (e-
commerce) tools pilot program that has been in operation for a
year. He determined the State would benefit most by retaining
senior procurement specialists to purchase specialty items such
as gears needed for the State ferries while using the e-commerce
tools for simple, repetitive orders. Thus, Version "B" would
limit outsourced e-commerce procurements to $50,000. State
procurement personnel would be responsible for specialty
purchases exceeding $50,000 as well as the majority of contracts
for services.
Senator Bunde explained the changes in Version "B" were based on
a consensus between the Administration and the private
contractors. Private contractors' responsibilities would expand
"horizontally" to include more of the small, repetitive aspects
of purchasing. State procurement officers would secure services,
contracting, and large procurements. The State should use the
experience gained through the pilot procurement program [PPP] to
advance its procurement activities. He urged the Committee to
support the bill.
10:13:55 AM
JANE ALBERTS, Staff to Senator Bunde, noted that provisions in
Version "B" would address State employees' position that, if
provided e-commerce tools, they could match the procurement
savings experienced by the private contractor. These provisions
would allow each State department to either "contract for both
labor aspects and e-commerce tools from the private contractor"
or to "pay a licensing fee … for the e-commerce tools" and
conduct procurement operations with State employees. Since both
these options would utilize "the same e-commerce tools", the
Office of Management and Budget could compare purchases made by
State employees to those purchased by the private contractor.
10:15:09 AM
Senator Bunde stated that Version "B" would also extend PPP's
current State procurement code exemptions another three years.
10:15:30 AM
In response to a question from Senator Olson, Senator Bunde
clarified that PPP's current State procurement code exemptions
would be extended until July 1, 2009. After that date, all
procurements must comply with the code.
Co-Chair Green noted that language in Sec. 9 page 4, line 21
pertained to the procurement code exemption.
Senator Olson asked for further clarification.
Co-Chair Green read the language.
Sec. 9. Section 2 and 3 of this Act take effect July 1,
2009.
Senator Bunde stated that, in order to successfully implement
the PPP and its e-commerce tools, exemptions to some portions of
the State's procurement code were required. Those exemptions
would be continued until July 1, 2009. After that date, all
provisions of the procurement code must be adhered to.
Senator Olson asked whether this bill would affect PPP's
"estimated savings".
Ms. Alberts deferred to Scott Hawkins with ASCI.
Senator Bunde understood Senator Olson's question to be whether
eliminating the procurement code exemptions would negatively
affect the savings the State might receive from the PPP.
10:17:31 AM
Co-Chair Green understood Senator Olson's question to be whether
the proposal to allow State employees to purchase large ticket
items would negatively impact savings the State might receive
were ASCI, with its specified exemptions, to make those
purchases.
10:18:06 AM
SCOTT HAWKINS, President, Alaska Supply Chain Integrators,
testified via teleconference from an offnet site. The affect on
savings is "one of the things that the three-year period will
tell us". DOT data indicates that approximately 93 percent of
all transactions are less than $5,000. Thus, the exemptions to
the State procurement code would "streamline, really, a small
share" of the overall transactions. The reasons for providing
the procurement code exemptions were "more technical than
relating to cost savings". Technical compliance issues would
include such things as "the implications for having a private
contractor" serving as an agent of the State and how do certain
"elements of the procurement code apply to a private agent of
the State". The three-year procurement code exemption extension
would provide "adequate time" in which to address technical
issues.
Senator Olson characterized the response as "vague". He
understood that one of the objectives for implementing the PPP
was to save between five and 20 million dollars. Thus, his
question was whether this bill would affect that savings
potential.
Mr. Hawkins recalled that the five to 20 million dollars savings
projection was based on implementing the PPP to all State
departments. The PPP that was implemented was "so small" it
negated the opportunity to save even five million dollars.
Senator Olson asked whether the PPP has produced any savings, to
date.
Mr. Hawkins stated that a savings of approximately $187,000 in
procurement-warehouse overhead and operating expenses have been
documented over the PPP's two-year operational timeframe. A
savings measurement for costs of goods procurement was
unavailable, "as the program hasn't been implemented to a
degree" that could provide reliable catalog data.
10:21:15 AM
BRUCE LUDWIG, Business Manager, Alaska Public Employees
Association and American Federation of Teachers, testified in
opposition to the bill. The PPP was enacted two years prior "as
an experiment". Even though the program was projected to save
five to 20 million dollars, "the only documented savings has
been negative". Two independent audits indicated that PPP has
cost the State at least a million dollars a year because ASCI
paid more for goods than State purchasers did. "The final
savings in overhead" was in the range of $53,000 after contract
modifications were factored in. "In short" the PPP "failed
miserably".
Mr. Ludwig questioned the decision to continue exempting the
private contractor from the State's procurement code, as the
code was developed to protect citizens of the State by
providing: transparency in the process; competition; and appeal
procedures. Continuing the exemptions would provide none of
these. He asked the Committee to take no action on the bill at
this time.
10:22:57 AM
TOM BRICE, Representative, Public Employees Local 71 Labor
Association, informed the Committee that Local 71 members are
"the blue collar workers of the State of Alaska": they are
involved in airport, warehouse, pioneer home, and highway
station operations such as snowplow drivers and belly blade
truck drivers. These individuals have been some of the primary
users of the pilot procurement program in Southeast Alaska.
Association members have communicated to him that the "very
complicated process" involved in this procurement program has
forced many of them to use "credit cards or other alternative
means of purchasing, simply because trying to go through and
follow the computer system, trying to place an order through the
ASCI program, is becoming very cumbersome and burdensome".
Mr. Brice also noted that, oftentimes, orders placed through the
program deliver the wrong item, or the order is never delivered,
or does not arrive in a timely manner. One Association foreman
ordered 50 fluorescent light bulbs for a State shop. They
arrived one or two at a time over a three-month period. An order
for front-end loader oil filters remained unfilled for three
months. Such delays impact services provided by the State.
Mr. Brice urged the Committee to further investigate this issue
before moving it from Committee.
10:25:47 AM
JIM DUNCAN, Business Manager, Alaska State Employees Association
and former State Senator, spoke in opposition to the bill. Many
of the 7,500 general government unit members represented by the
Alaska State Employees Association (ASEA) would be impacted by
this legislation. Reasons against this legislation include the
fact there is clearly "no indication that this is a cost savings
of any kind". When ASCI questioned whether the Administration's
audit of the program was objective, a third party auditor,
Mikunda Cottrell Accounting & Consulting (MCAC), was hired to
conduct another audit.
Mr. Duncan stated he had not attended the March 24, 2006
Committee hearing about the MCAC audit because he was unaware it
was scheduled. The validity of that audit is in question. The
MCAC auditor "recognized" that the sample size was too small to
be valid and took this concern to the State and ASCI. The
decision was made to continue. The MCAC audit concluded that the
two-year program produced "a small savings" of $50,000 per year
in personnel costs for the two-year period. It also indicated
there was a "tremendous" one million dollar per year increase in
the cost of goods purchased.
Mr. Duncan reminded the Committee that MCAC "clearly" stated to
both this Committee and the public that its study was "not a
valid study but was a strong indicator of what was happening"
with the PPP. The indication was that PPP produced small
personnel savings, but increased costs of goods. Thus, there is
a "strong" indication that expanding the program beyond the
limited application of the initial pilot program endeavor "would
cost a whole lot more to the State".
Mr. Duncan opined it would be illogical "to expand and extend a
program that has a strong indication from a third party auditor"
with no vested interest, that the program would increase costs
to the State.
Mr. Duncan urged the Committee to consider the indicators
reflected in the MCAC audit and not expand or extend the
program. He also urged the Committee to be "very careful in
allowing anyone" making procurements for the State "to bypass
the State's procurement code". Such action could be "very
dangerous and it could create tremendous problems in the
future". The procurement code was developed between 1984 and
1986 by a Legislative commission, which ranked the best
interests of the State and the public as paramount.
Based upon his experience as a former Legislator and
commissioner of the Department of Administration, Mr. Duncan
believed the State's procurement code has worked and "would
continue to work very well".
Mr. Duncan concluded his remarks by reiterating reasons not to
further the pilot procurement program: "there is no indicator
that it has saved the State any money; there is a strong
indicator" that it would cost the State a tremendous amount of
money, particularly were it expanded to other departments.
Furthermore, "there is no good public policy reason to bypass
the State procurement code". Please do not extend or expand this
program.
10:30:46 AM
CHERYL FRASCA, Director, Office of Management and Budget, Office
of the Governor, testified on behalf of "the group that is held
accountable for the management results that State government
delivers". She appreciated the attention the Committee has
provided to evaluating the PPP's success or lack thereof. She
has, at times, "refereed" in regards to the "issues and
challenges" presented from "both sides of the pilot".
Nonetheless, the Administration "believes that these are
management tools that are good for government to deploy where it
makes sense". She appreciated Senator Bunde's efforts to develop
a committee substitute that "is a good reflection of the lessons
learned" from the PPP. Forwarding Version "B" would make State
government more efficient and would save money.
Senator Bunde stated that major technological advances have
occurred in the past decades, and, while "change is threatening"
it is inevitable. In spite of the "resistance" the pilot program
has experienced, "it has shown progress and promise. It is time
for the State" to update its e-commerce procurement activities
to the level at which private enterprise has operated for years.
This would improve efficiency and produce cost savings. He urged
the committee to support this legislation.
Co-Chair Green withdrew her objection to the adoption of the
Version "B" committee substitute.
There being no further objection, the committee substitute was
ADOPTED.
Senator Bunde moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Senator Hoffman objected.
Senator Olson also objected. A pilot program that has cost the
State more than one million dollars a year rather than saving
the State money "is almost counterintuitive. The five to 20
million dollar anticipated savings have not transpired.
10:34:44 AM
Senator Olson asked why the pilot program had not provided the
expected results.
Senator Bunde responded that "there's absolutely no proof that
that million dollar" expense would not have been incurred under
the original procurement system. To that point, State personnel
costs have increased. "The audit has been pretty thoroughly
debunked", and he did not believe that the program incurred
additional costs. Costs increase "whether there is change or
not".
Senator Hoffman, speaking as a businessman, surmised that no
business person in making payroll decisions would approve this
measure.
Senator Olson did not object to the practice of employing
another private sector business to assist with the operation of
his business, as, in many cases, it is less expensive to
contract out some jobs. However, after reviewing the February
28, 2006 study [copy on file] on the MCAC report, he
acknowledged "validity, in spite of the previous study" that
included invalid variables.
A roll call was taken on the motion.
IN FAVOR: Senator Dyson, Senator Bunde, Senator Stedman, Co-
Chair Wilken, and Co-Chair Green
OPPOSED: Senator Hoffman and Senator Olson
The motion PASSED (5-2)
CS SB 160 (FIN) was REPORTED from Committee with new $650,000
fiscal note dated April 29, 2006 from the Senate Labor &
Commerce Committee.
10:37:55 AM
Co-Chair Green announced that the Committee would reconvene at
5:00 pm to address the capital budget bill.
RECESS TO CALL OF THE CHAIR 10:38:09 AM.
[NOTE: The Committee reconvened at 6:40 PM to address amendments
to 231-BUDGET: CAPITAL & OTHER APPROPRIATIONS. Those minutes are
identified as SFIN 0501060640 PM.]
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