Legislature(1993 - 1994)
11/17/1993 01:00 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
JOINT SENATE LABOR & COMMERCE COMMITTEE AND
SENATE ECONOMIC DEVELOPMENT TASK FORCE
Anchorage, AK
November 17, 1993
1:00 p.m.
SENATE LABOR & COMMERCE COMMITTEE
MEMBERS PRESENT
Senator Tim Kelly, Chair
Senator Georgianna Lincoln
SENATE LABOR & COMMERCE COMMITTEE
MEMBERS ABSENT
Senator Steve Rieger, Vice Chairman
Senator Bert Sharp
Senator Judy Salo
SENATE ECONOMIC DEVELOPMENT TASK
FORCE MEMBERS PRESENT
Senator Tim Kelly, Chair
Senator Suzanne Little
Senator Fred Zharoff
SENATE ECONOMIC DEVELOPMENT TASK
FORCE MEMBERS ABSENT
Senator Bert Sharp
Senator George Jacko
Senator Robin Taylor
Senator Rick Halford
ALSO PRESENT
Senator Loren Leman
COMMITTEE CALENDAR
SENATE BILL NO. 212
"An Act relating to publications produced by state agencies and to
the procurement of property, property interests, and services by
state agencies."
PREVIOUS SENATE COMMITTEE ACTION
SB 212 - No previous action to record.
WITNESS REGISTER
Josh Fink, Committee Aide
Senate Labor & Commerce Committee
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Offered information on SB 212
Mary Rucker, Director
Buy Alaska Program
Anchorage, AK
POSITION STATEMENT: Supports SB 212
Steven Rousse, Executive Director
Make It Alaskan, Inc.
2606 C St.
Anchorage, AK 99501
POSITION STATEMENT: Testified on SB 212
Peggy Thomas
XPERT Consultants
Anchorage, AK 99501
POSITION STATEMENT: Testified on SB 212
David Martin
McKinley Capital Management, Inc.
3301 C St.
Anchorage, AK 99501
POSITION STATEMENT: Offered testimony on SB 212
Herb Berkowitz
Berkowitz Futures Advisory, Inc.
840 K St.
Anchorage, AK 99501
POSITION STATEMENT: Testified on SB 212
Alan Johnson
Wedbush Morgan Securities, Inc.
4300 B St.
Anchorage, AK 99501
POSITION STATEMENT: Supports SB 212
Fred Koken, Senior Vice President
Shearson Leman Brothers, Inc.
123 Seward St.
Juneau, AK 99801
POSITION STATEMENT: Supports SB 212
Bill Scott, Executive Director
Bills Means, Chief Investment Officer
Terry Brown
Alaska Permanent Fund Corporation
P.O. Box 25500
Juneau, AK 99811-5500
POSITION STATEMENT: Offered information on SB 212
Chris Gates, Director
Division of Economic Development
Department of Commerce & Economic Development
P.O. Box 110804
Juneau, AK 99811-0804
POSITION STATEMENT: Testified on SB 212
Loren Rasmussen, Chief
Design, Construction Standards Division
Department of Transportation & Public Facilities
3132 Channel Drive
Juneau, AK 99801-7898
POSITION STATEMENT: Testified on SB 212
Dugan Petty, Director
Division of General Services
Department of Administration
P.O. Box 110210
Juneau, AK 99811-0210
POSITION STATEMENT: Testified in support of SB 212
Charles Gray
P.O. Box 70710
Fairbanks, AK 99707
POSITION STATEMENT: Supports SB 212
Wayne Clark
Graphic North
152 Old Steese Highway
Fairbanks, AK 99709
POSITION STATEMENT: Supports SB 212
Paul Gauthier & David Thoene
North Star Color
Anchorage, AK
POSITION STATEMENT: Testified in support of SB 212
Bob Pavitt
Capital Copy, Ltd.
123 S. Seward St.
Juneau, AK 99801
POSITION STATEMENT: Supports SB 212
Jim Krebs, Vice President
Ken Wray's Printing
323 E. Fireweed Lane
Anchorage, AK 99501
POSITION STATEMENT: Testified on SB 212
Paul Martone
A T Printing
Anchorage, AK
POSITION STATEMENT: Supports SB 212
ACTION NARRATIVE
TAPE 93-33, SIDE A
Number 001
SENATOR KELLY called the joint meeting of the Senate Labor &
Commerce Committee and the Senate Economic Task Force to order at
1:00 p.m. However, because several of the committee members and
task force members were in Juneau discussing fiscal policy with the
Administration, there was a lack of a quorum, and Senator Kelly
stated it would be considered a work session on SB 212 (STATE
PROCUREMENTS AND PUBLICATIONS). He noted that Senator Lincoln,
Senator Little and Senator Zharoff would be taking part in the work
session over the teleconference network.
Number 020
JOSH FINK, committee aide to the Senate Labor & Commerce Committee,
explained that the legislation, which was introduced by the
committee at the request of the Senate Economic Task Force, has two
key components: (1) increasing the share of state work going to
Alaskans; and (2) building on the state's financial services
infrastructure.
The legislation would establish the state's policy for the
procurement of investment services to increase the utilization of
investment and brokerage services provided by persons located in
the state. This would give the state the opportunity to foster the
development of greater expertise and ability in Alaska investment
and brokerage firms. The affected state agencies and public
corporations would themselves determine how to implement this
policy and report to the Legislature on their progress annually.
It does not make mandates on percentages or a time line.
The legislation also establishes an innovative construction
procurement method pilot program within the Department of
Transportation and Public Facilities for a two-year period to
implement an Alaskan bonus program to replace the current
preferences. It would be a pilot program so it wouldn't affect the
preferences or any of the contracts put out by the Department of
Administration. The idea is to gather information over a two-year
period to see if it works better.
The incentives provided in Alaska bidders preference, products
preference, Alaska hire, Alaska subcontracting and disadvantage
business enterprises EEO programs are largely unworkable and,
consequently, under-utilized or not utilized at all. Allowing DOT
to test a bonus system on a trial basis, which provides bonuses at
a project's completion and encourages the same policy goals, would
be more economically beneficial for vendors, greatly reduce
administrative costs and bid protests and, possibly, could be used
in joint federal and state projects where state preferences
currently are not allowed.
The commissioner of the Department of Transportation and Public
Facilities would establish this program through regulation and
report to the Legislature on the program's progress within 27
months after implementation. If successful, the Legislature could
expand and extend the program indefinitely, replacing the current
preferences.
SB 212 incorporates a number of provisions from the "Make It
Alaskan" bill that would increase the amount of state work going to
Alaskans from the Seventeenth Legislature:
(1) It would encourage procurement officers to restrict
notice of contract solicitation to Alaskan suppliers and providers
of services desiring to compete for state work.
(2) It would require the commissioner to include in his
report to the Legislature on state procurements the number of
bidders located in state and out of state that bid or made
proposals on procurements. In addition, the reports would be made
annually rather than biannually to provide increased accountability
and legislative oversight regarding the success of increasing
Alaskan's participation in state procurements.
(3) It would replace the statutory requirement that state
publications be produced at state-operated facilities with the
requirement that state publications be produced at a private sector
facility located in the state when practicable. Also, it would
implement standards for the production of publications that the
Department of Administration would establish.
Number 064
MARK RUCKER, Director, Buy Alaska Program, said their program's
mission is to encourage local purchasing whenever possible, and
they work with businesses, government organizations and consumers
in helping them find local vendors for the products and services
that they are buying out of state. She said they feel that SB 212
contributes to the goals and mission of their program, and they
look forward to working with the committee in learning more about
the bill.
Number 075
STEVEN ROUSSE, Executive Director, Make It Alaskan, Inc., said as
a result of the passage of SB 427, the management of the Made In
Alaska program has been transferred to Make it Alaskan, Inc., which
represents 2,500 permit holders within the current Made in Alaska
program. Their organization offers their support for the concept
of the legislation. Their specific interest would be in the area
of the product preference program and assurances that products that
are Alaskan be identified possibly through the Made in Alaska
program and be required to have a valid permit under the Made in
Alaska program. There is some concern with the language in the
area of encouraging procurement officers to restrict notice, and
they may be interested in strengthening that language. He offered
his group's willingness to work with the committee and to provide
specific recommendations on how the bill could be addressed in
those specific areas.
Number 164
PEGGY THOMAS, owner of a consulting firm in Anchorage, XPRT
Consultants, addressed her comments to the "buy Alaska" portion of
the legislation.
Ms. Thomas said the Department of Commerce & Economic Development
issues a list of Alaska products that are entitled to the Alaska
bidders preference, and right now it just lists the services
portion of printing and not the product, so the services printing
are an Alaska product. She recommended that instead of
perpetuating the Alaska bidders preference, to explore the use of
a special program which would provide the incentive to the
procurement officers not to exercise the exception in the bill that
permits buying from other than Alaskan vendors. She said she does
not believe it will do any good to limit solicitations to Alaska
vendors because there are exceptions when that will not apply. She
suggested establishing a program similar to the Federal Small
Business Program where there is incentive and encouragement for the
procurement officers to do business in Alaska. She added that
program could go so far as to establish goals that must be met or
should be met if at all possible by the procurement offices. It
would cost much less than paying an extra 4.9 percent for all the
goods that are being provided by outside manufacturers.
Ms. Thomas also pointed out that right now, the law sets out a five
percent preference for Alaska bidders, and the people outside who
are providing things through an Alaska bidder know this and can
raise their prices also. The money is still going outside and the
Alaska vendor is only going to get what is left over out of that
five percent edge he's got, or he is going to pass that cost on to
the consumer by raising his prices. She suggested an incentive
program for the procurement officers, which she said would be much
less costly than the five percent extra that all the goods and
services are going to cost.
Ms. Thomas expressed her willingness to work with the committee to
help establish a program which could save the state untold amounts
of money.
Number 280
SENATOR KELLY said the next areas of discussion would be
investments and financial services, followed by the pilot bonus
system, ending with state publications printing policy.
Number 285
DAVID MARTIN, a certified public accountant with McKinley Capital
Management, Inc., said their area of primary interest is the
emerging money manager bill. The people that are involved in the
money management business got together as a group to propose adding
language to SB 212, which would add a Alaska money managers
program.
McKinley Capital would like to work with the State of Alaska to
manage some of its funds. When they became aware of SB 212, they
thought it might be a vehicle to begin to work with the state.
McKinley Capital and the other money managers have taken the
position that the state has a fiduciary responsibility to its
citizens to invest wisely. Money managers and the development of
the money management industry could be provided in the future,
which could save fifty to a hundred million dollars that is
presently going out to outside money mangers.
Mr. Martin said the group of money managers is very open to working
with the Legislature, various agencies and other people to
accomplish these goals.
Number 350
HERB BERKOWITZ, the owner of Berkowitz Futures Advisory, Inc. in
Anchorage, said his business is a commodity trading advisor, which
is a money manager in the commodities and futures market.
Mr. Bertkowitz said that to a large extent, we're talking about
state retirement money, and that money calls for the highest
standard of care. The things looked for in the management of this
money are income, capital gains, but most importantly, the
preservation of capital. The chief means of preserving capital is
diversification, but it can be taken too far. Large sums of money
require management by institutions that are geared for managing
large sums of money. He said he contends that there should be room
for local money managers to be able to manage much smaller amounts
of money just by having the board lower it a little bit to allow
them to meet qualifications that are relevant. He added that he
does not think that local money mangers should be allowed to be any
less competent that other money managers.
Number 442
SENATOR KELLY said the next area of discussion would be the
brokerage section of the bill.
Number 445
ALAN JOHNSON, regional manager for Wedbush Morgan Securities, Inc.,
in Anchorage, stated his appreciation for the directed brokerage
business coming to Alaska, which is helping establish an
infrastructure for private enterprise.
Number 460
FRED KOKEN, Senior Vice President, Shearson Lehman, Inc., testified
from Juneau in support of SB 212. He said he thinks anything that
can be done to increase the utilization of people and services in
both the brokerage and financial services industry and the concept
of emerging money managers can only be positive.
Mr. Koken said the Alaska Permanent Fund and the Department of
Revenue have policies that encourage their money mangers to place
business with New York Stock Exchange member firms that maintain
offices in Alaska. The more the state invests in various markets
through vendors with local instate representation, the more it will
add to the state's economic growth and development, both in terms
of greater expertise within the state, as well as increasing the
payroll within the state.
Mr. Koken outlined three areas to strengthen existing policies and
proposed policies:
(1) Alaska Permanent Fund uses a formula and the primary
basis for that formula is census, thus, the firms that have the
larger payrolls and employ the larger number of people get a
relatively proportionate larger share of the business. He
encourages other state entities to implement similar policies.
(2) Current policies only encourage the money managers when
other things are equal to do business through firms with local
representation. If money managers were required to execute through
vendors with local representation, the State of Alaska would stop
losing business outside.
(3) Current policies encourage the money managers to direct
business through vendors with local representation when all things
are equal. When the money manager places business through the
trade department of one of these local vendors, that trade
department could be located in San Francisco, Chicago, etc. and no
monetary recognition is going to come back to the State of Alaska
and these potential payroll dollars are then lost forever. He
suggested requiring money mangers to notify the traders that trade
is from State of Alaska and needs to be credited back to Alaska
operations.
Number 605
BILL SCOTT, Executive Director, Alaska Permanent Fund Corporation,
introduced staff members Bill Means and Terry Brown.
BILL MEANS, Chief Investment Officer, said the permanent fund's
first investments in equities occurred in 1983, and the program was
created at that time by which the managers would be instructed,
where executions on all other basis would be equal, to do business
with firms with representation in Alaska. During the last 7-month
period, a total of $862,174 in commissions was directed toward
Alaska brokerage firms.
Mr. Means stated that he finds it somewhat disconcerting that the
small emerging markets proposal has come first to the Legislature
because he feels the APFC trustees are quite willing to listen to
Alaskan businesses.
Mr. Means said fixed income is an over-the-counter business. APFC
is linked on a daily basis to the major securities dealers in New
York. The flow of information is really crucial on the fixed
income securities and must be received in a timely manner. He
added that a similar situation exists with corporate bonds.
TAPE 93-33, SIDE B
Number 005
TERRY BROWN, Alaska Permanent Fund Corporation, emphasized that, in
his view, the Alaska brokerage program that is now in place is an
excellent program that works well. He said they are complying, not
only with the intent of the program, but with the general consensus
as it exists in the marketplace as well. APFC encourages brokers
to take part in the program, and at present they have nine local
brokers, or major firms that partake in the program.
Number 040
BILL SCOTT, Executive Director, Alaska Permanent Fund Corporation,
stated they are well aware of the desire and their responsibilities
to encourage and foster business in Alaska and develop the
brokerage community. He said he does not feel that it is
inappropriate that, given certain standards, business be directed
to smaller investment management firms in Alaska.
Number 060
SENATOR KELLY commented that most legislators are real cautious
about trying to tell the permanent fund how to invest, but he
thinks the emerging money managers program will be a very popular
idea in the Legislature. He said the people at the corporation are
obviously the people to come up with the criteria, and he
encouraged that they work with the money manager community to see
if they can come up with some type of a program that the permanent
fund corporation feels comfortable with. He added that he has
concerns with the brokerage services language in the bill.
Number 085
The next area of discussion was the pilot bonus system within the
Department of Transportation & Public Facilities.
Number 090
CHRIS GATES, Director of Economic Development, Department of
Commerce & Economic Development, told the committee that since
February, they have been working hard to look at ways to make the
product preference program better than it is now.
Mr. Gates outlined three programs administered by the department
under the Alaska Product Preference Program. The purpose of these
programs is to provide incentives to Alaska businesses in
responding to state bids and/or proposals for state contracts by
giving those businesses preference consideration. However, these
preferences have not been fully utilized by contractors and, if the
purpose of putting these in place by statute and regulation was to
increase Alaskan involvement, it's not producing as much of the
desired result as was hoped. Further, the enforcement of current
preference programs is cumbersome and expensive for the state and
for contract agencies.
Mr. Gates said the incentive to use Alaskan materials and products
does not extend beyond the date of the award of the contract, which
they think is a fundamental flaw that is addressed by the bonus
program. He said the public bidding process is very confusing, and
to factor in the Alaska product preference isn't done for one clear
and compelling reason above all: If they aren't successful at
using the Alaska products and the Alaska services that were
included in the bill, they could receive substantial penalties from
the State of Alaska and be declared nonresponsive and not a
responsible bidder and not allowed to bid on state contracts.
Also, the current products preference program and others are
effectively barred from participating in approximately $200 million
of annual federal construction dollars. He said that if we are
going to have an incentive program at all, it should include this
amount of federal money as well. The requirement concept that the
state has now can be replaced by an incentive contract where it
won't require contractors to do anything, but it will offer an
incentive for them to use Alaska products and Alaska
subcontractors.
Another problem with the current products preference program is
that it is hard to administer. The bonus pilot program provides an
alternative where there is one single accounting done at the end of
the project.
The pilot program also gives a tremendous incentive for a supplier
or for a contractor to change his plans during the course of the
contract in order to use Alaska goods and services. It gives them
a continuing incentive throughout the life of the contract to take
advantage of the bonus program.
The department also believes that the bonus program, when practiced
for a year or two, will result in lower bid prices for Alaska
products because contractors will reduce their upfront bid prices
themselves in anticipation of receiving the bonus at the end of the
project.
Concluding his comments, Mr. Gates said the department thinks that
if the bonus program is implemented slowly and carefully by DOT, it
can provide a benefit versus the present products preference
program currently in place.
Number 300
Senator Lincoln asked questions on providing the ability for local
hire, as well as bid opening dates and the size of contracts.
Number 330
LOREN RASMUSSEN, Chief, Design, Construction Standards, Department
of Transportation & Public Facilities, said there is distinction
between Alaska hire and local hire. He said when talking about a
bonus program, we are talking about an Alaska hire, which is
statewide, and not some local hire.
On the size of contracts question, Mr. Rasmussen said there is an
effort within DOT, and there has been for a long time, to make the
size of the contracts fit the contracting communities, looking at
the number of bidders and the local requirements. There are times
in which they should be looking at dividing contracts up to fit
more local areas.
Also, bid openings in the fall have been a problem in trying to get
all of their federal aid dollars obligated in a certain period of
time, and Commissioner Campbell has been trying to address that
problem to even out when they open bids.
Mr. Rasmussen said Commissioner Campbell has sent a comprehensive
letter of the committee addressing some of the questions asked of
DOT relating to a bonus program. He said the department is
supportive of an innovative contracting and, particularly, a bonus
program. However, he added that there are very few state-funded
projects today, and since most types of products used in these
projects are produced in Alaska such as gravel, concrete, asphalt,
etc., everybody in Alaska would get the same preference and it
probably wouldn't make much difference in the awards or even a
bonus program.
Number 400
DUGAN PETTY, Director, Division of General Services, Department of
Administration, stated the department is supportive of efforts to
foster competitive Alaska businesses. They are also supportive of
efforts to streamline the procurement process, and they are
interested in maintaining the efficiency and reducing the cost of
the operation of state government.
Mr. Petty advised the committee that the department's experience
has been that in the area of penalties, there could be some
changes, even in the current law, that would take away some
disincentives for the use and bidding of Alaska products which
would be beneficial both on the construction side and the services
and supply side.
Number 450 to Number 615
The committee took a 5-minute recess, and after coming back to
order, Senator Kelly stated the final area of discussion would be
state publications' printing policy.
Number 625
CHARLES GRAY, former publisher of the Fairbanks Daily New Miner,
informed the committee that this is the third time he has testified
on this particular aspect of state procurement since 1990 when
legislation was passed which prevented private enterprise print
shops from bidding on state work. He supports language in SB 212
which provides that publications of a state agency shall be
produced at a private sector facility located in the state when
practical. He noted that state agencies are required to use the
state facilities, but it is not always done efficiently.
TAPE 93-33, SIDE A
Number 001
WAYNE CLARK, Graphic North, Fairbanks, voiced his support for SB
212. He said the Alaska private economy is heavily based on
government purchases, and for the government to compete with
businesses is counterproductive and costs the taxpayer more money
than if the private sector did it. In a 1990 National Federation
of Independent Business of Alaska questionnaire, of which 4,400
business owners responded, 83 percent of those responding stated
that they supported legislation that would restrict government
agencies from competing with the private sector.
He spoke to the state of the art equipment that the University of
Alaska has in their print shop and its effect on the private
sector.
Number 050
JOSH FINK clarified that when the legislation changing the state
procurement policy passed in 1990, it was not the sponsor's intent
to have the state competing with the private printers and end up
taking their business away, and SB 212 will correct that. Also, in
1991, HB 245 contained a provision that would have made that
correction, but it failed to pass the Senate before adjournment.
The only opposition to making that correction was from the
University of Alaska.
Number 075
PAUL GAUTHIER, North Star Color, Anchorage, stated support for SB
212. Northstar Color is a pre-press shop which does a process
called "color separation." He said they see a lot of state jobs
that go out of state where pre-press is included in it. Not all of
those printers have that pre-press capability so they in turn farm
that out. Having the pre-press done in state can save the
taxpayer's money and will be much more cost effective.
Number 100
DAVID THOENE, North Star Color, Anchorage, said because North Star
Color is a "specialty house," they are actually forbidden to bid on
any state projects because they won't break out that pre-press
process from the entire print job. North Star Color, as a trade
shop, does not do any printing; they don't even own a press. Most
of the printers in the State of Alaska cannot do color separations.
Number 130
DUGAN PETTY said there have been discussions on this point with the
agencies, and generally, the agencies try to insist upon keeping it
in one job so that the contractor who is awarded the bid is
responsible and held responsible for the quality of the end
product. He agreed it is an area that needs to be looked at and
said he would discuss it further with Mr. Gauthier.
Number 181
BOB PAVITT, President of Capital Copy, Ltd., in Juneau, testified
in support of SB 212. He said many state agencies have been
frustrated by the constraints placed on printing by the 1990 law,
having to wait longer for important publications, and when serious
errors are made, have encountered additional delays and costs while
the errors are being corrected. The current law does not
accomplish what its supporters intended, and it has created an
unworkable situation which benefits neither the state or the
private sector.
Number 225
JIM KREBS, Vice President, Ken Wray's Printing in Anchorage, stated
their support for removing printing from the state agencies and
returning to the private sector. He said printing is a custom
manufacturing type of industry that requires extremely large
capital expenditures. It also requires the ability to continue to
do work over a period of years in order to be able to repay the
investment for the equipment.
Mr. Krebs said the legislation speaks of Alaskan bidders and refers
to another bill that defines an "Alaskan bidder," and he suggested
it be specified as "Alaskan manufacturer" rather than "Alaskan
bidder" to allow printers, who may have met the qualifications of
being an Alaskan bidder, but may be purchasing the goods from
outside the state, to bid.
Number 280
PAUL MARTONE, Vice President of A T Printers in Anchorage, stated
their support for SB 212 and changing the law so that they can have
the opportunity to compete for jobs.
Number 300
There being no other witnesses wishing to testify on SB 212,
Senator Kelly closed the public hearing and adjourned the meeting.
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