Legislature(2021 - 2022)ADAMS 519
03/08/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB69 || HB71 | |
| Presentation: Central Services and Rates Overview by the Office of Management and Budget | |
| Presentation: Procurement and Hr Consolidation by the Department of Administration | |
| Presentation: Division of Facilities Services by the Department of Transportation and Public Facilities | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE BILL NO. 69
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making reappropriations; making
supplemental appropriations; making appropriations
under art. IX, sec. 17(c), Constitution of the State
of Alaska, from the constitutional budget reserve
fund; and providing for an effective date."
HOUSE BILL NO. 71
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; making
supplemental appropriations; and providing for an
effective date."
1:36:18 PM
^PRESENTATION: CENTRAL SERVICES and RATES OVERVIEW BY THE
OFFICE OF MANAGEMENT and BUDGET
1:36:24 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced the PowerPoint
presentation: "Central Services and Rates Overview." He
began by providing an overview of central services on
slide 2. He relayed that any organization, regardless of
size, had to manage how they performed and paid for back-
office functions for indirect costs. Often, they were
referred to as indirect overhead costs, back-office
function costs, or general administrative costs. Although
the services were required, they were not considered direct
or core services of an organization the services were
functions that made core services possible.
Mr. Steininger continued that the slide showed a list of
areas within the state budget and within state functions
that helped with the role of central services. He
highlighted the management of state facilities, state
procurement, accounting, human resources (HR), and
information technology (IT) as examples. They were not
primary functions but were necessary in order for the state
to perform its duties. He noted a usual tension around
allocating costs to state programs that were core to the
functioning of state government. His presentation would
discuss a smaller subset of services.
Mr. Steininger relayed that each state agency performed
many of the back-office functions in-house. For example,
each agency had a finance officer, a procurement officer,
and an HR manager. He explained that when OMB looked at
rates managed by OMB and certain central functions, it
focused on functions that had been taken out of the
agencies' hands and centralized within one of the following
departments to provide service for all agencies: the
Department of Administration (DOA), the Department of
Transportation and Public Facilities (DOT), the Department
of Education and Early Development (DEED), the Department
of Law, the Department of Revenue (DOR), and the Department
of Health and Social Services (DHSS). The slide showed a
list of central services provided to all state agencies and
the department that was providing each service.
Mr. Steininger continued that each service fell within a
certain department because of there being a nexus to the
core service for that agency. He pointed to DOT as an
example. The Department of Transportation and Facilities
Maintenance, whose core service was to maintain facilities,
was responsible for maintaining the facilities for all
agencies. He would provide additional details later in the
presentation.
1:39:42 PM
PALOMA HARBOUR, FISCAL MANAGEMENT PRACTICES ANALYST, OFFICE
OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR,
reiterated that there was a natural tension with central
services based on how their costs were allocated to various
programs. The Office of Management and Budget had oversight
of the cost allocation methods in order to understand the
impacts of central services on program budgets. In managing
a central service, a pressure existed between service
levels and the level of cost effectiveness. The Office of
Management and Budget was responsible for ensuring that the
costs were contained while adequate services were provided.
She reported that OMB had met with central service agencies
and the departments to help find a balance and to work
through issues as they arose.
Ms. Harbour continued that OMB aligned the budget for the
central service agencies with what the agencies or programs
would be charged to cover a certain level of service. Since
the information would be known at the beginning of the
budget process, the departments could make a plan in which
all parties could have a say.
Ms. Harbour discussed the current rate system on slide 4.
She explained that the central service costs for the state
were allocated to programs via rates. They were often
referred to as "charge-back rates" because the programs
were being charged for the services. She noted there was a
lack of transparency on the impact of the rates to the
programs. The lack of transparency was not intentional.
Rather, the rates had been developed over time, were
cumbersome, and appeared in a number of different places.
She suggested that unless a person was a bit of a nerd,
they would not dedicate the time to understanding all of
the various rates and the complexities behind them.
Ms. Harbour moved to slide 5 which demonstrated the
complexity of the rate system. There were many different
rates across the state. She pointed to the box labeled,
"Other agency fee-based rates." She explained that there
were varying fees across different state agencies. She
thought the slide was a good representation of the largest
rates impacting all agencies. She highlighted that risk
management was spread in two different ways. Risk
management for Worker's Compensation was spread based on
salary, and risk management for property and other coverage
was spread based on the property owned by agencies. One
rate might be spread in different ways. For example, there
were 3 rates spread by position control number (PCN).
However, the 3 rates counted positions differently. It was
a convoluted system which she had been tasked with
simplifying.
1:44:13 PM
Ms. Harbour turned to the spreadsheet on slide 6: "Rates
Current System." She noted that the slide was not meant to
pick on DOA, DOT, or the Public Building Fund. It was a
good example of a very complicated rate. The state had to
manage all of the public owned facilities within the Public
Building Fund taking into account operating costs,
depreciation costs, and spreading costs over occupying
agencies. She also mentioned the transition from DOA to DOT
for dual management. Because of the complications she
mentioned, the rate for FY 19 was not released until June
2019, the last month of the fiscal year. It took a
significant effort by both agencies to work together to
understand the costs and rates and to distribute the
information to the other agencies. She reiterated that it
had been a transition year that resulted in complications
and a late impact to programs.
Mr. Steininger furthered that internal management of the
rates and costs had been an internal challenge. Direct
service delivery had caused friction and challenges for all
agencies of the state. As Ms. Harbour had pointed out, not
knowing the rate until the end of the fiscal year created
uncertainty for those actually trying to provide direct
services the public relied on. The idea was to provide
direct services to the public and to create certainty for
program managers by identifying the cost of maintaining
their operations. The last few slides attempted to
illustrate the current state of the centralized service
efforts. As more services were transferred to centralized
operating services, the state needed to address certain
problems.
Ms. Harbour reviewed the principles for moving forward with
rates on slide 7. The governor was proposing to fix some of
the existing problems by transitioning management of
certain services to one agency rather than multiple
agencies. Overall, the goal was to simplify rates; have
fewer rates, make the processes for distributing them
across agencies easier to understand, and to make rates
more predictable for planning purposes. The Office of
Management and Budget planned to base rates on a 3-year
average to increase predictability. She provided some
examples of predictability and the benefits of the change.
The new plan would result in a more transparent system. She
noted that in the coming year certain services were slated
for transfer.
1:50:02 PM
Mr. Steininger advanced to slide 8 listing the impacts of
the budget under consideration. Many of the ways in which
OMB managed rate structures was internal to the executive
branch in its management of the services and interactions
between departments. One area impacting the FY 22 budget
had to do with completing the transition of some additional
centralized services including personnel management and
procurement. Both were being transferred to DOA. All
procurement officers and HR managers would be included in
the transfer. He indicated that Commissioner Tshibaka would
be providing the committee with more detail about the
change. He noted that OMB was looking at how to
successfully transfer services over to DOA and to ensure
the departments paid their fair share of the costs of
procurement and HR. The Office of Management and Budget was
also responsible for making sure DOA had the resources it
needed to provide procurement and HR services at an
appropriate level.
Mr. Steininger indicated that OMB was transferring public
buildings and leasing from DOA to DOT. Centralizing all
facilities services within DOT would be a multi-year
transition. He reported that as OMB transitioned leasing
services to DOT, it discovered that DOT had been paying for
the direct cost of leases for several agencies. As part of
the transition, OMB was placing the money to pay for the
leases directly into programs in order to charge a fair
rate for leasing by square footage. By doing so, it ensured
that agencies had the money to pay for it. It also ensured
that the cost of the service was paid for by the consuming
program. The budget document contained some true-up
adjustments to costs that had not been in the appropriate
place.
Mr. Steininger offered that OMB was expanding the
utilization of lapsing general fund balances for some of
the rates. One of the challenges that agencies had was the
large peaks and valleys. The department was looking to
smooth out the rates over time. Several rates already had
built-in smoothing mechanisms. Ms. Harbour noted risk
management which had a smoothing mechanism that utilized
lapsing general fund dollars to capitalize the fund. It
allowed insurance costs to level out based on a 3-year
average. The Office of Management and Budget was looking to
expand the option to smooth out additional rates. He noted
the importance of smoothing the funding over a 3-year
period. In the instance of a peak year, the smoothing of
the budget would occur over the interim after the budget
year ended. He provided an example. He noted that a spike
in a central service rate would require an agency to look
at direct services. Smoothing ensured that agencies
providing services to the public would not have to
accommodate a spike through a reduced level of service. He
relayed that OMB was looking to smooth out rates to provide
some predictability.
Mr. Steininger reported there would be additional
transparency in the state's budget system by showing some
of the rates with additional granularity. He provided an
example. The system would allow for more detailed scrutiny
of the budget.
1:55:51 PM
Mr. Steininger reviewed the use of lapsed appropriations on
on slide 9. One of the proposals in the FY 22 budget was to
utilize more of the lapsed appropriations for rate
smoothing. The table showed the 4 areas OMB was proposing
to provide lapsed funding to benefit rates. Three of the
areas (the Working Reserve Account, the Group Health and
Life Benefits Account, and the State Insurance Catastrophic
Reserve Account) had utilized lapsed funding previously.
The Group Health and Life Benefits had not required the
funding for a couple of years. However, the other two
accounts had used some in the past. The numbers for FY 21
reflected the maximum amount allowed. The Working Reserve
Account, for example, could use up to $5 million in lapsed
balances. He reported that, based on history, the accounts
did not come close to the maximum amounts. The State
Insurance Catastrophe Reserve Account could use up to $10
million. He highlighted the grey bar representing the
smoothing of centralized services. It was a new addition to
the waterfall - the lapsed funding going to rate funds. The
Office of Management and Budget was proposing to utilize up
to $5 million for rate smoothing. He hoped the use of the
money would not be necessary in subsequent years. He
concluded his presentation and was available for questions.
1:57:47 PM
Representative Wool reiterated what he heard in the
presentation. He hoped that by centralizing services the
state would see a savings. He believed he heard that
certain tasks from DOA and DOT would go to central
services. He did not believe central services would be a
department and asked for clarification about the different
terms being used such as departments, agencies, divisions,
and central services. He mentioned the notion that a
department might pay more for centralized services than if
they remained within individual departments. He recalled
hearing in the subcommittee process that each department
would be billed 1.5 percent of whatever was procured for
procurement services fees. He wondered if the change was
designed to save individual departments money. He also
wondered if there was an administrative cost that would add
to a procurement expense.
Mr. Steininger responded that centralized services could
mean services centralized within one agency but providing
services to all agencies, one entity within a department
provided accounting for all of its divisions, or it could
be a reference to services provided by DOA.
Mr. Steininger addressed Representative Wool's question
about potential savings for the state. He reported that
efficiency was a consideration when it came to centralizing
services. By bringing all of the procurement staff under
one roof, employees could share work. One agency might not
require a full-time employee to do their procurement
resulting in slack capacity. The slack capacity would allow
for the same amount of work to be done with less people. He
explained that reductions were not reflected in the state
budget because it was unclear where the slack capacity
resided. It would become apparent once employees were
centralized. One of the pitfalls OMB experienced with
previous centralization initiatives was that it tried to
take the savings prior to centralizing employees. By doing
so, it set an expectation of savings, created significant
friction, and slowed the transfer of people to different
areas. The Office of Management and Budget was allowing for
the transition of centralized services with the expectation
that over time more work would be done with less.
2:04:00 PM
Representative Wool wondered about a person spending half
of their time doing tasks related to the Department of Fish
and Game (DFG) and the other half on tasks related to DHSS.
He asked how the work load would be dispersed. He could not
see the potential savings.
Mr. Steininger responded that issues would be handled on a
case-by-case basis. He noted that with several
centralization initiatives occurring at the same time, OMB
was actively working with agencies to determine how many
positions would be needed and how to dispense the work. He
admitted there were challenges that complicated the
transition.
Representative LeBon thought he understood what OMB was
attempting to accomplish. He relayed that the bank he
worked for previously spread out the different functions
such as HR, accounting, buildings and properties, and
marketing among the branches. In the banking business the
bank reviewed the allocations annually. He encouraged the
state to do the same. He commented that he was befuddled by
the last bullet on slide 8. Ms. Harbour asked for
clarification about Representative LeBon's befuddlement.
Representative LeBon did not fully comprehend the last
bullet.
Ms. Harbour responded to Representative LeBon's first
remarks. She indicated that the review of rates and the
allocation methods used for rates would be reviewed
annually. It would occur as OMB developed the state's
budget so that programs would be aware of their
allocations.
Mr. Steininger responded that the last bullet [on slide 8]
addressed the utilization of lapsing general fund balances
at the end of each fiscal year. Agencies were budgeted a
certain amount of dollars in unrestricted general fund
dollars. Agencies did not always spend the full amount.
There were a couple of areas in the budget where the
unspent money was utilized. The last bullet indicated OMB
was proposing to use some of the lapsing UGF balance for
rate smoothing purposes. He was suggesting that up to
$5 million could be used for unforeseen events.
Representative LeBon admitted there were no lapse funds in
the private sector banking business which he admitted could
be the root of his confusion.
2:09:45 PM
Vice-Chair Ortiz noted there had been an effort to
centralize services that had occurred over the past couple
of years or more particularly with IT services. There was
also an effort taking place to centralize facilities
management under DOT. He wondered if that effort had been
going on for the previous several years. Mr. Steininger
replied that the centralization of facilities maintenance
within the Division of Facilities Services had been ongoing
for 4 or 5 years.
Vice-Chair Ortiz asked if the same timeframe applied to
centralizing procurement within DOA. Mr. Steininger
responded, "Correct."
Vice-Chair Ortiz asked if there had been an ongoing
analysis about the effectiveness of delivering services. An
agency might want to have more direct say and control over
their particular facilities they had managed previously.
For example, the Department of Fish and Game might see the
need for repairs to a particular facility but would not
have input if the management of the facility resided with
DOA. He asked if the department would lose the ability to
effectively manage a facility that it was previously
responsible for.
Mr. Steininger reported that one of the things that had
been an issue with the previous system was that it was
difficult to assess the area of highest need among all
departments. For example, an individual department might
view its specific facility as having the highest need. With
a decrease in the amount of available funding, the state
needed to be able to prioritize the maintenance demands
across agencies. Each agency would still have money in
their operating budget for normal operations and
maintenance of facilities. However, having the management
centralized would help in being able to assign the use of
statewide pots of money. In terms of an individual agency
having some control over the management of their
facilities, it was important that the agencies and
centralized services had a customer service attitude.
Centralized services would be accountable to the agencies
and the program managers. He admitted there was direct
tension in the model being proposed.
Ms. Harbour clarified that the governor's proposed budget
was taking an already centralized service of public
building fund management and lease management from DOA and
moving it to DOT. Currently, the public building fund was
split between DOA and DOT which caused difficulties because
of management being shared between the two agencies. In
terms of leasing management, some leases were being managed
by DOA and some by DOT. She opined that it did not make
sense for them to be managed in two places. She reiterated
that the services were already centralized.
Co-Chair Foster reminded the committee of the other
presentations for the afternoon.
2:17:09 PM
Vice-Chair Ortiz asked if monies were already appropriated
for the different agencies to manage their facilities. He
wondered if OMB was talking about different monies that
were for statewide use.
Mr. Steininger replied that the money sitting in a state
agency such as DEED for the maintenance of the state
library would remain in the agency. The state wanted to be
able to track the costs to run its facilities. Employees of
DOT would perform the work, and DEED would pay DOT for its
services. There were several areas in which the state had
smaller facilities near each other. It was more efficient
to have someone managing the maintenance of a portfolio of
properties even though they that might cross different
agencies. The money to pay for the work sat in the
respective agency's budget. However, DOT would manage and
perform the work. There were additional pots of money for
statewide deferred maintenance that could be applied across
agencies.
Co-Chair Foster acknowledged Representative Thompson at the
table.
Representative Josephson referred to slide 9 which stated
that the total FY 21 projected UGF lapse was $110 million.
At the bottom of the slide the actual lapsed funding figure
was $45 million. He asked for clarification.
Mr. Steininger replied that the $45.7 million was the
difference of $110.7 million in projected lapse less the
maximum amount in lapse funding that could be used for rate
smoothing as well as a proposal for Medicaid. He noted that
the projected UGF lapse of $110 million was from the
March 4, 2021 lapse report from OMB. It did not consider
things such as additional COVID-19 support money from the
federal government which would dramatically change what
might lapse in programs like Medicaid.
2:21:16 PM
Representative Josephson did not understand why Medicaid
Support was included on the slide.
Mr. Steininger responded that Medicaid support was included
to reflect all of the areas OMB had proposed using lapsed
funding - not just areas for rate support. He clarified
that the presentation showed four items: Working Reserve
Account Lapse Contributions, Group Health and Life Benefits
Fund Lapse Contributions, Central Services Rates Smoothing
Appropriation Lapse Contributions, and State Insurance
Catastrophe Reserve Account Lapse Contributions. The total
amount for rate support was $30 million.
Representative Josephson asked whether employees who were
part of the centralization of services would be in one
central place in Juneau or whether they would remain housed
in their respective departments - essentially making the
centralization an accounting change. He used the
legislature's IT and HR divisions as examples in his query.
Mr. Steininger responded that employees remained on site at
their agencies for certain services such as IT. While the
services were still done on site, employees reported to a
central office. For some areas, such as procurement, it was
helpful to have the network effect of procurement officers
reporting back to a central procurement agency to help with
standards. The model worked for IT as well applying
consistent policies and standards. The central agency could
apply standards and resources moving resources between
agencies when needed. Employees sat in their agencies but
received support and standards from a central organization.
Representative Josephson commented that it sounded like
Federalism. He was not sure the agencies supported the
model.
2:24:44 PM
Representative Carpenter thought he had heard a significant
amount of confusion. He asserted that the word complex
inferred waste. He was unaware of any other private sector
business or enterprise that would tolerate a management
system where the complexity of the system did not allow an
understanding of costs. He asserted that only government
would mismanage $700,000. He asked what authority was given
to reduce complexity with a smoothing of costs with lapsed
funds. He asked whether OMB would be submitting a report to
the legislature in the next session about how it reduced
complexity to better understand costs. He did not want to
perpetuate a problem.
Mr. Steininger responded that OMB was seeking authority
through an appropriation in the governor's budget. He
explained that the smoothing was related to the potential
for an unanticipated cost. The Office of Management and
Budget was attempting to set rates in advance. When trying
to set rates during the budget development process in the
summer of each year (a year and a half out from the start
of the budget being developed), there was some uncertainty.
Determining a cost base and the number of employees was
constructed with certain assumptions in mind that could end
up being wrong. Changes might be adopted in the legislative
process; the labor market in the state might change; and
the way in which programs were actually managed could
change. All of these things could contribute to a change in
the cost base.
Mr. Steininger continued that if the state had
significantly more or significantly less employees to apply
the rate to, it would change how much an agency would
collect. He used IT as an example. If the IT rate was set
based on an assumption of 17,000 employees, but the actual
number of employees was 16,500 employees, IT would under-
collect its rate. It would result in IT either being unable
to provide services in the twelfth month of a fiscal year
or significantly increasing its costs to agencies. He
suggested that a variable billing rate would force the
direct service agencies to have to deal with the resulting
shortfall. The smoothing effect would allow certainty for
agencies, and agencies would be able to provide good
information to the legislature during the budget
development process.
Mr. Steininger commented that the process was complicated.
He noted the significant amount of uncertainty looking into
the future. The Office of Management and Budget was trying
to address the issue in a way that protected direct
services to constituents while at the same time providing
visibility into the true costs of providing services. At
the end of the day, he wanted to make sure that the cost of
IT services for the state was not exorbitant. A year from
now he would like to be able to provide an update on rate
setting, how rate smoothing funds were applied, and how
management practices were applied. He hoped there would be
less unanticipated supplemental requests in the future
because of setting rates in advance.
Co-Chair Foster thanked the presenters.
^PRESENTATION: PROCUREMENT AND HR CONSOLIDATION BY THE
DEPARTMENT OF ADMINISTRATION
2:32:37 PM
KELLY TSHIBAKA, COMMISSIONER, DEPARTMENT OF ADMINISTRATION
(via teleconference), introduced herself.
KATE SHEEHAN, DIRECTOR, DIVISION OF PERSONNEL, DEPARTMENT
OF ADMINISTRATION (via teleconference), introduced herself.
THOR VUE, CHIEF PROCUREMENT OFFICER, PROCUREMENT AND
PROPERTY MANAGEMENT, DEPARTMENT OF ADMINISTRATION (via
teleconference), introduced himself.
LESLIE ISAACS, ADMINISTRATIVE SERVICE DIRECTOR, DEPARTMENT
OF ADMINISTRATION, OFFICE OF MANAGEMENT AND BUDGET, OFFICE
OF THE GOVERNOR (via teleconference), introduced himself.
IAN SMITH, MANAGING DIRECTOR, ALVAREZ AND MARSAL (via
teleconference), introduced himself.
Commissioner Tshibaka introduced the PowerPoint
presentation: "Procurement and HR Consolidation." She
indicated she would move through a briefing on procurement
in each consolidation. She would leave some of the slides
for member's information in the interest of time. She began
with slide 2 which contained the status of four
consolidations currently happening within the department.
She reported procurement and HR were already completed. The
Office of Information and Technology (OIT) consolidation
and the consolidation of shared services accounting (SSOA)
were in process.
2:34:25 PM
Commissioner Tshibaka turned to slide 3. She provided four
reasons why the consolidation efforts were different from
previous consolidations. First, the department invested in
pre-consolidation assessments developed by subject matter
experts. In particular, the department received assistance
from Alvarez and Marsal with the procurement consolidation.
They had a long history with other states and companies.
They had worked with 70 of the Fortune 100 companies and
had done work with Oregon, Rhode Island, the U.S. Postal
Service, the City of Seattle, Kansas, and Wyoming.
Commissioner Tshibaka reported DOA had also employed a
government structure. She explained that prior to the
present day it was unclear who made the decisions regarding
things pertaining to DOA. Usually, DOA made decisions and
imposed them on the rest of the departments which had not
gone over very well. Currently, the department had a
governance structure within DOA that gave the other
departments a decision-making role in consolidation
decisions that affected them. Going forward, regardless of
who the commissioner was, the other departments would have
a say in the decisions that DOA made that affected them.
Commissioner Tshibaka relayed that the department had also
established service level agreements - contracts between
DOA and each of the other departments. The contracts were
customized between the Office of Procurement and the
Division of Personnel in each of the departments, so they
knew what to expect from DOA adding clarification to
expectations. She indicated the consolidations were
designed through a collaborative and inclusive process
involving staff, stakeholders, and leaders in the other
departments.
Commissioner Tshibaka explained how decisions were made on
slide 4. Over 300 formal meetings had occurred over the
last 2 years just for the consolidations. It did not
include all of the informal phone calls, emails, and chats
between departments. She reported that the governance
structure was led by the Alaska Administrative Governance
Counsel, five commissioners, and OMB. The governance
counsel had been making some of the decisions at a higher
level. Under the Alaska Administrative Governance Counsel
there were four advisory committees: HR, Procurement, IT,
and SSOA. Each advisory committee had high level
representatives from each of the departments who were
making some of the key decisions as consolidations moved
forward.
Commissioner Tshibaka elaborated some of the key decisions
included determining the way in which the state did
procurement and the HR policies moving forward. There were
working groups under each of the governance committees
consigned to hammer out plans and policies. They informed
the advisory committees allowing the information to bubble
up to the governance counsel of commissioners and OMB to
make final decisions. Everyone had visibility and a say in
what was happening.
2:37:43 PM
Commissioner Tshibaka moved to slide 5. She turned the
presentation over to Mr. Vue to discuss the details of the
procurement consolidation. She relayed that procurement
consolidation had its authority in AO 304 calling for the
statewide consolidation of purchasing procurement. The
State of Alaska previously used a decentralized procurement
model. While that practice might provide some just-in-time
flexibilities for small organizations with little need for
oversight, the industry norm in standards for large
organizations was a centralized purchasing model -
especially for those organizations the size of Alaska.
Mr. Vue reported the state's previous decentralized model
presented some challenges. For example, there were several
redundancies. There were multiple employees spending time
purchasing the same thing. He suggested it would be similar
to two members of the same household running out to buy the
same item. There was significant waste in effort.
Mr. Vue also conveyed that there were significant
difficulties in sharing lessons learned and best practices,
which were coupled with the lack of leverage in volume
spending. Consolidation for procurement into one central
division provided various opportunities in terms of
tangible hard cost savings. There was the elimination of
some of the redundancies he had already mentioned, the
ability to leverage total spending power through the
state's volume purchasing, and better allocation of
personnel resources. For example, each department
previously had an employee doing procurement training for
their respective department. By centralizing procurement
only one full-time employee (FTE) would be needed to
provide statewide procurement training for all of the
departments.
2:40:05 PM
Mr. Vue advanced to slide 6. Consolidation activities
started with an independent third-party assessment which
was the Alaska Administrative Productivity and Excellence
(AAPEX) project. The assessment was a review of purchasing,
warehousing, supply chain, and inventory management
activities within the state. As part of the review process
the department looked for ways to achieve greater
efficiencies in costs. It examined job classifications of
employees using industry and best practices and lessens
learned from comparable spend states like Ohio and
Louisiana.
Mr. Vue summarized some of the operational challenges of
the previous decentralized procurement model on slide 7.
Mr. Vue moved to slide 8. He reported there was a detailed
and meticulous procurement consolidation, implementation,
and communications strategy which considered effective
change of management best practices by looking at
behavioral norms through change and obtaining key
stakeholder inputs. The slide showed the high-level phase
strategy the department implemented. He assured members
there was a great deal of detail that went into each of the
phases.
Mr. Vue turned to slide 9: "Procurement Consolidation:
Early Adopters." He reported the department had been very
mindful of unknown variables that might negatively impact
the consolidation. The department took every opportunity to
learn the landscape ahead of time. The department
identified known issues and concerns to avoid large
mistakes during consolidation. He wanted any mistakes that
were made to be manageable. He also wanted to reduce the
risk to the State of Alaska. The state transitioned three
of its smaller procurement departments early as part of the
early adoption program. The phased approach allowed the
state to obtain a real-world knowledge on all things
related to consolidation including technical issues and
concerns; and emotional, psychological, and behavioral
models that could impact change and consolidation. The goal
was to learn from the process making the transition of the
rest of the executive branch more streamlined.
2:43:00 PM
Mr. Vue advanced to slide 10: "Procurement Consolidation:
PCNs were Selected Working with Departments." He relayed
the department started with 185 FTEs that were identified
from the AAPEX Assessment showing employees who performed
some form of procurement functions. The Department of
Administration looked through the duties and
responsibilities related to each of the PCNs and
subsequently excluded some FTEs that only had marginal
connections to procurement. They also looked at situations
where administrative officers and administrative assistants
happened to make purchases with a credit card as a
government purchase card holder.
Mr. Vue reported that after conducting the analysis, the
state was left with 113 employees, 18 of whom were already
DOA employees. From a list of 113 FTEs, DOA sent out a
survey for each specific PCN and asked the departments to
analyze and provide an initial allocation of the
percentages of duties that each PCN spent conducting
procurement functions. The Department of Administration
followed up with one-on-one meetings with each department
to come up with the finalized employee count of 62 state
employees dedicated strictly to procurement and procurement
related functions. Excluding DOA's existing 18 employees,
the remaining 44 positions were transferred into DOA as
part of the consolidation effort.
Mr. Vue addressed the question of how the procurement
consolidation would save money on slide 11. Consolidations
had cost savings implications on multiple fronts. First, he
noted personnel reductions as a result of better
efficiencies. He also noted savings resulting from a better
utilization of time and labor through improved processes.
There was also a real cost savings opportunity related to
spending and strategic sourcing. He explained that
strategic sourcing was a form of volume purchasing. He
mentioned that the Alvarez and Marshal assessment prior to
consolidation found an opportunity for cost savings through
strategic sourcing which ranged from a low end of $98
million to a high end of $230 million over the following
5 years. Some of the detail could be seen later in the
slide set. He relayed that the various types of spend in
Alaska could be lumped into several categories. By reducing
the ad hoc department purchases of the same products and
leveraging them through category management, Alaska had the
potential to achieve significant savings through various
forms and procurement methods.
Mr. Vue continued that the same analysis accounted for the
fact that some products were more difficult and costly to
source in Alaska due to the state's geographic location.
Generally, some products had high transportation costs
coupled with low market resale value. He mentioned sand,
lubricant, and certain types of foods as examples.
Mr. Vue continued to slide 12: "Procurement Consolidation:
Methodology: In-Scope Spend." He reported that there were
things that were excluded from the cost savings model. He
noted instances in which procurements or purchases where
competition would not provide better value for the state.
Another example was a situation in which a product was
specifically excluded from having to go through a formal
competitive process. There were also things that were
exempt such as items purchased with pass-through grants.
Mr. Vue turned to slide 13 which provided a summary of the
potential savings that could be achieved through
procurement consolidation by leveraging the category spend
model. He was available for questions from members.
2:47:52 PM
Representative Wool referred to slide 10 where 185 PCNs
were analyzed and 113 PCNs were found to be doing
procurement. The department reduced the number to 62 PCNs.
He asked if 51 PCNs were eliminated.
Mr. Vue replied that the 113 employees were doing some form
of procurement-related work. However, some of them were
also doing administrative tasks such as checking the mail.
He noted that it was not fair for the gaining department to
take personnel and leave everything else for the loosing
department to figure out. He reported that when he looked
at the 113 employees, he considered all of the other things
an employee might be doing outside of procurement - tasks
that did not simply disappear as a result of consolidation.
He talked directly with departments to determine the proper
resource allocation as far as their needs for procurement.
The remaining positions were left within the department to
be reallocated for the additional remaining tasks.
Mr. Vue continued that the 18 existing DOA employees and
the 44 employees that were transferred to the new
centralized procurement organization, made up the 62 PCNs.
He indicated 51 PCNS would remain within their departments
to perform tasks of one form or another.
Representative Wool clarified that the 51 PCNs that
remained within their departments would be given additional
work or would be lost or reduced to parttime. He thought
that would be the way to gain efficiency. He asked if the
goal related to billing out each department was based on a
percentage (1.5 percent) of the procurement purchase. In
other words, he wondered if billing would be based on how
much was procured rather than hourly wages related to PCNs.
Mr. Vue thought the confusion regarding the percentage of
costs associated with procurement activities was more in
line with DOA's administrative fee charged to vendors when
the department organized and structured statewide contracts
for use by all departments. He was not under the impression
in his discussions with departments that there would be a
surcharge per employee for the cost of conducting
procurement. However, he was not entirely in tune with all
of the budgetary aspects that occurred on the back end. He
would have to get back to the committee.
Representative Wool recalled the term, "Vendor fee" being
added onto the billing invoice. He was not sure how the
process worked.
2:53:49 PM
Representative Rasmussen referred to slide 13. She asked
about the average of the in-scope spend for FY 18 and
FY 19. She wondered why the information was not more
recent. She also noted that in the grid he had listed the
scope-spend average. The sample annual savings ranges were
listed above. She wondered how he arrived at his number of
possible savings. Mr. Vue replied that the data provided in
the report was what was most current at the time when the
department initially provided the information to the third-
party consultant. He was sure subsequent data could be
provided. However, the third party's analysis had
concluded. He asked the representative to restate her
second question.
Representative Rasmussen was trying to understand the range
and whether it was a savings. She wondered how the range of
savings was determined. Mr. Vue deferred to the
representative from Alvarez and Marshal.
Mr. Smith answered that there was an extra column on the
original presentation that had estimated savings for each
of the in-scope spending averages across FY 18 and FY 19.
The column was removed at the last minute. The last comment
regarding sample annual savings ranges by category should
have been removed from the slide. Based on the in-scope
analysis that the company did in terms of addressable spend
- spend that could be influenced through aggregation or
disaggregation if centralized spend had been with a single
vendor for too long. Through the analysis he came up with a
range of $25 million to $45 million in potential savings
per year. Over 5 years the range of savings was estimated
between $98 million to $230 million. The analysis had been
completed about a year prior.
Representative Carpenter asked if the projected savings was
within DOA or across all agencies. Mr. Smith replied that
it was statewide spend. Representative Carpenter suggested
he should expect to see the savings across multiple
department budgets. Mr. Smith responded, "Correct."
2:58:40 PM
Representative Johnson had gone through something similar
with the city [City of Palmer]. One of the goals was to
allow for different programs to be charged. She wondered if
it was a goal of the centralization. She provided an
example.
Mr. Vue clarified that Representative Johnson was asking
whether there was a way to capture various grants. He
commented that grant funding and the sources of grant
funding were not necessarily captured in procurement. The
legislature had specifically excluded grants as defined in
statute. He believed that there was a model for capturing
grants but could not speak to it. He turned the
presentation over to Ms. Sheehan.
Ms. Sheehan moved to the discussion of the HR consolidation
and provided a history beginning on slide 14. The state's
procurement consolidation was done through Administrative
Order (AO) 305 mandating that all HR positions be
transferred from the agencies to centralized operations
within the Division of Personnel and Labor Relations
(DOPLR). Human Resources was partially centralized and
partially decentralized. She relayed that mostly employee
relations and recruitment were in the agencies and
centralized payroll fell within the Division of Personnel
and Labor Relations. What the administration found was that
there were inconsistencies among agencies. Sometimes there
were 14 different ways of doing things which created
inefficiencies. As a result, the AO consolidated HR in four
phases.
Ms. Sheehan turned to slide 15 to discuss Phase I of the HR
consolidation. Phase I was a heavy lift, as the division
had work groups that looked at all of HR's functional areas
including employee relations, investigations, and
recruitment. Agency HR staff and administrative staff came
together to map workflow processes and find inefficiencies
and inconsistencies. Next the group identified the best
practice, workflow, and process. A new organizational
structure started to evolve. The group created centers of
expertise, operation centers, and HR business partners.
Ms. Sheehan advanced to slide 16 to review Phase II of the
consolidation. Phase II was developed by a leadership team
which included HR staff, Division of Personnel staff,
agency administrative staff, an administrative services
director, a division operations manager, and the deputy
commissioner of DOA. Together, the group made decisions
about the structure, the work that belonged in each of the
operations centers and centers of expertise. The group also
completed a survey for all HR staff regarding their top
three preferences of work and the department they wanted to
work in. The group was able to place over 90 percent of the
employees into one of their preferences.
3:03:40 PM
Ms. Sheehan continued to slide 17: "Human Resources
Consolidation: Phase III: Implementation Phase (Completed
February 8, 2021)." Phase III was completed on February
8th. Phase III involved assigning employees to their new
positions and was a transition phase. Employees were
reporting to the Division of Personnel. The division had
service level agreements in place with each department
after having multiple meetings to review them. The division
also had town hall meetings to keep everyone informed
through the transition.
Ms. Sheehan provided an overview of how the department
selected certain PCNs on slide 18. She met with each
department and talked to commissioners about the
consolidation process and the advantages that accompanied
the project. She had many meetings to determine which PCNs
would be brought to the division and which ones would stay
in the different agencies. The service agreements were
crucial, as they clearly defined the work the Division of
Personnel would provide, the work each department would
provide, and which PCNs were needed to get the work done.
Because the state had human resource business partners,
there was at least one PCN in each department belonging to
the department rather than the Division of Personnel. She
explained that while the division did not end up bringing
over every PCN as originally planned, the majority of HR
PCNs were brought over. She reiterated that the decisions
were made in discussions with each agency.
Ms. Sheehan reviewed why the proposed HR consolidation was
different than prior consolidation attempts on slide 19.
She had been in a leadership role in DOPLR since 2007. She
started with the department shortly after the
HR consolidated in 2003. In 2012 the division
decentralized. Presently, the division was consolidating HR
again. She explained that the difference had to do with
learning several lessons over the years. In 2003, DOA
wanted more control, but the change came with
inconsistencies. In 2012, it was determined that the
Division of Personnel did not understand the mission and
needs of each department and did not have anyone physically
sitting in the departments to consult. She thought DOPLR
was taking a better approach in the current consolidation.
Ms. Sheehan explained that in the current consolidation the
division clearly articulated the duties of each PCN and
would assign a human resource business partner in each
department to take on new jobs the division had not had
time to complete before. The human resources business
partner would start doing things such as strategic
workforce planning and leadership development - things that
DOPLR had previously let fall to the wayside because of
being busy with day-to-day issues. She also noted the HR
staff assigned to each department could physically remain
within their department.
Ms. Sheehan reported other differences in the current
consolidation process including the division looking at
best practices throughout the country and paying attention
to how other large corporations were structured. The
division also got input and feedback from stakeholders
including HR staff and the departments. The consolidation
felt significantly different to her as someone who had been
a part of several. She was encouraged that the
consolidation would be successful.
3:08:14 PM
Ms. Sheehan discussed the improved HR services on slide 20.
She relayed that the HR business partners would do things
that were not being done in every department currently. The
division also had an HR investigations unit and more
onboarding. The division would have a strategic recruitment
unit that would do talent acquisition management actively
recruiting specifically where the division had difficulty
finding staff. The improved HR services also included key
performance indicators which had not been used prior. She
was available for questions.
Co-Chair Foster invited the commissioner to make comments.
Commissioner Tshibaka indicated Mr. Isaacs would be
presenting the remainder of the presentation.
Representative Johnson asked if the funds would lapse back
into the general fund or whether they would be tied to the
reverse sweep. Mr. Steininger asked the representative
which funds she was referring to. Representative Johnson
asked if the savings resulting from efficiencies would go
into the general fund or whether the funds would be tied to
the reverse sweep. She wondered if the consolidation would
help with the state's budget deficit.
Mr. Steininger replied that it depended on the appropriated
source of money. He indicated that any savings of an
unrestricted general fund appropriation for an agency would
lapse back into the general fund. If there was a savings
for an appropriation for a specific fund, the money would
lapse back into that specific fund. Looking forward, as the
initiatives matured over time and truly saved money, the
state would adjust its appropriation request. If the state
was able to purchase something for significantly less, the
administration would look to make strategic budget changes
to be in line with actual expenditures. In order to make
changes in the state budget, the savings had to be realized
first. Any savings that were implemented in the current or
following fiscal year would lapse back into the fund from
which it was appropriated. Funds would not get tied up in
the reverse sweep unless they were already subject to it.
If the state saved money in a federal program, the money
would either get returned to the federal government or
create more room within the federal grant.
Representative Carpenter referred to slide 13 and the list
of potential savings. He wondered if the numbers were
reflected in each of the department's budgets or whether
the funds were being requested in the hopes of finding
savings.
Mr. Steininger could not speak to the specifics of
slide 13. The Office of Management and Budget was not
reflecting savings as a result of procurement consolidation
in the FY 22 budget. The savings would not be included
until they were actually realized.
3:14:03 PM
Commissioner Tshibaka commented that she had another slide
that talked about the budget impacts for the procurement
and HR consolidation. It detailed how the PCN transfers
would be affected. The administrative services director
wanted to walk the committee through slide 22 related to
the topic.
Mr. Isaacs moved to slide 22: "F 22 DOA Budget Impacts of
OPPM and HR Consolidation." The overall impact of the two
consolidations on DOA's budget would be an interagency
authority increase of $11.1 million. It represented a
duplicative fund source where the other departments would
retain their budget and pay DOA for the services rather
than paying for them directly. The middle of the slide
showed the breakdown of the two different sections. He
stressed that through the reimbursable services agreement
(RSA) process the other departments would be paying DOA via
interagency receipts. He noted that 45 rather than 44 PCNs
were being transferred over. He elaborated that due to the
timing of the proposals one PCN was left out of the
governor's originally proposed numbers but was reflected in
the governor's amended budget proposal. Netting all of the
PCNs together, the Office of Procurement and Property
Management would receive 45 PCNs and 40 PCNs would be
assigned to the Division of Personnel.
Representative Rasmussen asked Mr. Isaacs to review the
PCNs that were not being rolled into DOA. Mr. Isaacs
clarified that Representative Rasmussen was referencing the
51 PCNs. Representative Rasmussen responded, "Correct." Mr.
Isaacs indicated the PCNs would remain in their respective
departments.
3:17:50 PM
Representative Wool referenced people who stayed in their
departments and enterprise employees whose positions were
being centralized. He asked if the same process would occur
within procurement. He queried about the 51 PCNs. He
suggested that for some departments procurement was very
unique. He wondered whether procurement was analogous to
OIT regarding enterprise and line of business.
Mr. Vue responded that Representative Wool was fairly
accurate. He indicated the employees that would be
transferring from the departments would still be the
primary point of contacts for their departments, as they
understood the unique challenges, needs, products, and
services for their departments. The overall goal was to
maintain the designated teams to support their respective
department. He noted there was the overarching enterprise,
the State of Alaska, and its statewide team which would
manage statewide contracts, training, policies, oversight
of contracts, and auditing of contracts. The enterprise
would ensure uniformity and consistency of procedures being
implemented throughout all departments which was the goal
of the plan.
3:20:12 PM
Representative Edgmon asked about the potential loss of
jobs and whether Juneau would be hit the hardest given the
percentage of jobs in the capital city.
Mr. Vue responded that the reduction of jobs was not the
intent of the consolidation effort related to procurement.
Rather, the purpose was to leverage the state's expertise,
resources, and processes. He would depend on a department's
expertise and their unique understanding of their mission
to best allocate and distribute personnel resources. He
reemphasized that the intent of the consolidation was not
to cut jobs. He suggested that natural attrition could
occur upon an employee's retirement or a job change. It
would be up to each department to determine if a position
was needed to meet its mission. The intent on reducing jobs
was not part of the effort.
Representative Edgmon supported making things more
efficient and providing services in a timely manner.
However, he thought there would be a reduction in personnel
with the consolidation. He commented that the change fit
neatly into the confines of executive orders and an
appropriation bill. He wondered if a policy bill was needed
in order to make the change.
Mr. Vue suggested the need for whether there should be some
policy directives from the legislature was not necessary
from his reading of the administrative order. He thought
the administrative order made the responsibilities clear
and that the implementation strategy fell within the
executive branch. The administrative order laid out
objectives including a cost savings and a streamlining of
redundancies. He argued that the administrative order and
the authority to implement it fell within the purview of
the order.
3:24:12 PM
Representative Edgmon thought the change was a massive
undertaking. He wondered why it had not been done prior to
the present. Mr. Vue indicated discussions had occurred in
past administrations. He could not speculate the intent of
previous administrations and why a change was not
implemented earlier. Representative Edgmon asked if the
change was incentivized with COVID funding. Mr. Vue
responded in the negative.
Representative LeBon referred to slide 13 which he thought
provided a list of potential savings categories. He asked
for examples of savings already achieved within the
categories. Mr. Vue relayed that the administration wanted
to capture immediate savings. However, it was early in the
consolidation. There were certain contracts related to
freight and shipping the administration was pursuing for a
cost savings. There were other source contracts related to
IT equipment such as laptops. He indicated that the list of
savings were informed projections related to consolidation
efforts in the out years. Representative LeBon commented
that the administration likely already experienced a cost
savings in travel in the past year.
3:27:10 PM
Representative Carpenter turned to the subject of
contracts. He wondered if contracts were being renegotiated
or whether the administration was finding efficiencies in
contracts as they had been written. He asked, if the state
were to find a savings in a contract, whether it would
appear as a reduction in the budget. Mr. Vue replied that
if there was an immediate renegotiation of a particular
contract and an immediate reduction in the cost of the
contract, there would likely be a corresponding reduction
in the budget. He deferred to a budget expert.
Representative Carpenter noted that someone had predicted a
large amount of potential savings. He suggested that either
the budget would reflect the anticipated savings through a
reduction in the budget, or there would be a significant
amount of lapsed funds at the end of the year. He wondered
about the budget process and how the savings would be
handled either though lapsed funds at the end of the year
or through budget reductions. He thought the legislature
would be encouraging the cost savings by reducing the
budget. He was not understanding the process of projected
savings and asked for clarification.
Commissioner Tshibaka explained that since savings was
projected out into the future, the administration did not
expect to see $98 million to $230 million in savings in the
following year. There would be a glide path up that the
administration anticipated based on what Alvarez and
Marshal had provided. She further explained that DOA would
be capturing and monitoring the savings by department and
spend category. However, DOA did not have control over
other department budgets. As DOA was reducing the spend in
other department budgets, departments would still determine
their budgets. If a department did not have a commensurate
reduction, it could spend the money DOA saved them on
something else. She had seen such a pattern within the
federal government. She suggested that it would be
something to watch for in the future.
Representative Carpenter indicated he would like to see an
assessment of the projections on the slide compared to
actual savings in the following year broken down by
department. He wondered if the information would be
available prior to the next budget cycle.
Commissioner Tshibaka expected close coordination
throughout the year between the chief procurement officer
and OMB regarding actual realized savings and the
development of budget proposals going forward.
3:33:20 PM
Representative Edgmon pointed out the projected savings in
the far right-hand column on slide 13. He asked what period
of time the numbers encompassed. He wondered if they
reflected multi years. Commissioner Tshibaka could not see
what column Representative Edgmon was referring to. She
asked him to tell her the numbers in the far right-hand
column.
Representative Edgmon was referring to the column on the
right of slide 13. Commissioner Tshibaka asked what numbers
Representative Edgmon was looking at. Representative Edgmon
responded that he was looking at $416.8 million and $80.2
million down the column. The total of the column equaled
approximately $800 million which he remarked was a
significant number. He wondered if the numbers were over a
3-year period, a 5-year period, or a 10-year period.
Commissioner Tshibaka deferred to Mr. Smith.
Mr. Smith explained that edits had been made to the slide
and did not think it was as clear as it could have been. He
clarified that the words "sample annual savings ranges by
categories included" was not removed. Previously, there had
been a column that was removed. The remaining right-hand
column was the average spend over the periods of FY 18 and
FY 19. In other words, it was spending he thought he could
influence with improved sourcing practices. He was not
talking about saving $700 million. He clarified that out of
approximately $800 million he might be able to
conservatively achieve an annual savings of between
$25 million to $45 million.
Representative Edgmon commented that about 70 percent of
agency spending was tied to personnel. He had heard earlier
that the effort, which was encouraging in terms of
achieving savings and efficiencies, was not intended to
reduce personnel. Rather, it was intended to reduce other
costs. He asked if he was correct.
Commissioner Tshibaka responded that when she talked about
targeting $98 million to $230 million in reduced spend
through strategic sourcing over 5 years, it did not include
reducing a single PCN. It was simply from changing the way
the state did procurement. If the legislature were to
receive a full analysis from Alvarez and Marshal on how
they developed their methodology, it was extremely
conservative. She was looking at about 3 percent of the
state's overall procurement spend. She reemphasized she was
not looking at eliminating a single PCN.
3:36:31 PM
Representative Edgmon noted having heard a presentation
from the department a few days prior that about one-third
of the state's workforce could be teleworking. He suggested
that by combining such an effort with the effort by
Commissioner Tshibaka there was a quiet revolution taking
place. He noted the potential for reduced leasing costs
with people working from home and the efforts being made by
DOA. He asked the commissioner how she would sum up the
efforts to an audience such as the chamber of commerce.
Commissioner Tshibaka was compelled to move home to serve
Alaskans by addressing some of the crisis' that many people
were trying to tackle. One of the ways she could help was
to apply her skill set to making government work. Members
were seeing the results of the efforts by the staff at DOA
working diligently over the prior two years. She continued
that there were different ways of modernizing the state's
business practices where cost savings could be found along
with performance improvements transforming how the state
did business. The state would also improve how it served
Alaskans without gutting, thrashing, or slashing
hard-working Alaskans. The efforts were intended to
radically improve how Alasa government performed its work.
Over time, costs would drop and services would improve.
Some of the presentations were showing glimpses of
improvements which was really exciting.
Representative Edgmon replied that as a policy maker, part
of his job was to ensure that the changes were not coming
at the cost of providing equitable services. He mentioned
reducing DMV offices and privatizing services as an
example. He wanted to have a balanced perspective, know
more about the changes, and be able to provide a balanced
perspective for folks that wanted more information.
Commissioner Tshibaka responded that the proposals for the
DMV were offered in an attempt to help provide a savings
and an idea for consideration. It was an idea she thought
could be offered without substantially reducing services to
Alaskans. She had been asked to present several ideas of
ways to bridge the budget gap the state faced. The way the
administration offered proposals to the legislature as
policy makers for consideration was through the budget
proposal.
Co-Chair Foster thanked the commissioner and other
presenters. He suggested recessing until 7:00 p.m.
Representative Josephson noted he would not be available at
7:00 p.m. due to a subcommittee meeting. Co-Chair Foster
was trying to avoid interfering with subcommittee meetings.
3:41:43 PM
AT EASE
3:42:57 PM
RECONVENED
Co-Chair Merrick called the meeting back to order and
indicated the committee would be continuing with the
presentation by DOT.
^PRESENTATION: DIVISION OF FACILITIES SERVICES BY THE
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES
3:43:17 PM
DOM PANNONE, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF TRANSPORTATION AND PUBLIC FACILITIES, OFFICE OF
MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR (via
teleconference), introduced himself. He indicated he could
proceed with the presentation.
3:44:12 PM
AT EASE
3:44:56 PM
RECONVENED
Co-Chair Merrick invited Mr. Pannone to continue.
Mr. Pannone introduced the PowerPoint presentation:
"Division of Facilities Services." He would discuss some
upcoming changes proposed for FY 22. He began with slide 2:
"Division of Facilities Services." The division was an
enterprise service that had been around since FY 19. There
were two parts to the division. The first part was
statewide public facilities which had to do with vertical
construction, largely capital building projects, and
included mechanical engineers, professional architects,
engineers, and project managers. The second part of the
division was facilities maintenance and operations. The
section was responsible for keeping the state's buildings
running including day-to-day repairs and large repairs
across the state. The state's Computerized Maintenance
Management System (CMMS) was also housed within the
division. He would discuss the system in more detail in the
following slide.
Mr. Pannone moved to slide 3: "Computerized Maintenance
Management System (CMMS)." He explained that at the core of
the Division of Facilities Services was the CMMS. It
codified the division's business processes and allowed all
of the information of the division's activities to be
captured up front and automatically. He further explained
that when the division had maintenance technicians working
on a building, they entered the work orders from the CMMS.
Building occupants entered orders into the system and the
information arrived automatically on devices for
maintenance personnel. When a maintenance person bought
parts or serviced an appliance, the information was logged
into the system and the cost was captured and applied to
the building, the location, and all of the related
activity. The system allowed for the division to have
intelligence and reporting on what it was doing. It
provided visibility and was a big driver. There were
several modules within the system that had not always been
available in the past. The division used the system when it
was trying to allocate small portions of deferred
maintenance. The information helped to determine the best
way to spend funding across the state. The system allowed
for efficiencies such as doing maintenance projects that
were similar at the same time. For example, the state could
use one contractor and one contract for both sites. As the
division on-boarded other departments, it captured their
data to have all of the information centralized allowing
for a central enterprise decision-making product.
3:48:44 PM
Mr. Pannone advanced to slide 4: "Current and Future
Service." He relayed that the department was currently
providing services to several departments. The division had
service level agreements with each of the departments
listed including the Alaska Court System. In the agreements
the division negotiated what kind of services the division
would provide and the corresponding expectations of each
entity. As a centralized service, the division did not
remove the decision-making process from the customer
agencies. They still made a significant number of decisions
about what happened to their buildings and about the level
of services they needed based on their budget and business
requirements.
Mr. Pannone continued that the division provided for
carve-outs and off-ramps for facilities that might not fit
the enterprise service model. For example, specialty labs
or a remote cabin belonging to DFG might not be good fits.
The division allowed carve-outs for departments to be able
to continue managing their line of business and specialty
facilities. The division was looking at onboarding two
additional departments by the beginning of FY 22 - the
Department of Natural Resources (DNR) and the Department of
Environmental Conservation (DEC). The division was also
continuing to define what a service model would look like
for DFG, the Department of Military and Veterans' Affairs
(DMVA), and the Department of Corrections (DOC). The
division wanted the enterprise to work for all parties.
Mr. Pannone reported that in FY 22 the division was looking
to consolidate another centralized function, leasing and
public building functions from DOA that OMB discussed
earlier. He would provide further detail on the following
slide.
Mr. Pannone turned to slide 5: "Lease Management and Public
Building Fund Facilities." The slide provided an outline of
the budgetary components as they existed in the current
fiscal year: 2021. In FY 22 the division would be moving
the single budgetary component that was currently the
Division of Facilities Services into its own separate
results delivery unit or separate appropriation. The
division would then combine the budgetary components from
DOA creating one cohesive division. The change would
provide enterprise-wide visibility of the operations and
maintenance of the state's buildings, leases, leased
buildings, and space management as a whole. He suggested
that as the state moved into a post-pandemic time the state
needed to evaluate the space it required and the most cost-
effective options.
3:51:54 PM
Mr. Pannone moved to slide 6: "Facilities Budget
Alignment." He explained that another group of transfers
took place in the FY 22 budget with the advent of the
Division of Facilities Services and the increased
accountability of funds. The division had identified a
handful of buildings that DOT no longer occupied but was
paying for their maintenance and operations. Doing so
provided no benefit to the mission of the department and
did not house any of DOT's programs. The buildings were
housing other agencies' programs because historically they
had occupied the space. In identifying the space, the
division had no decision-making ability to determine if the
agencies needed the space. To resolve the issue the
division transferred the historical UGF from DOT's budget
to the occupying agencies in the FY 22 budget in order to
charge the occupants the DOT lease rates. The group of
buildings he was referring to would become part of a
consistent charging model. The occupying agencies' budgets
would reflect the true costs of their programs. They could
make decisions into the future as to whether they continued
to need the space and whether their dollars needed to be
spent on the space. He relayed that $1.1 million of the
costs and funds being moved paid for utilities.
Historically, if the cost of utilities went up and DOT bore
those costs, it ate into other portions of DOT's budget
lowering service. In the future if utility rates increased,
the agencies would have control over who turned the lights
on and off. It would be the responsibility of the occupying
agencies to manage within their budgets. The rates were
based on actuals from 2 years prior and was a tested
methodology for rents of DOT buildings.
Co-Chair Merrick reviewed the agenda for the following day
and thanked the presenters.
HB 69 was HEARD and HELD in committee for further
consideration.
HB 71 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN OMB FY22 Central Services Rates Overview 3.8.21.pdf |
HFIN 3/8/2021 1:30:00 PM |
|
| OMB HFIN supporting document 030821.pdf |
HFIN 3/8/2021 1:30:00 PM |
|
| DOT - HFIN 03.08.2021 DFS.pdf |
HFIN 3/8/2021 1:30:00 PM |
|
| DOA-HFIN HR Proc A&M Sample Client Testimonials 3-8-21.pdf |
HFIN 3/8/2021 1:30:00 PM |
|
| DOA-HFIN HR and Procurement 3-8-21.pdf |
HFIN 3/8/2021 1:30:00 PM |