Legislature(1997 - 1998)
04/17/1997 08:05 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSSB 68(FIN) - TASK FORCE ON PRIVATIZATION The next order of business to come before the House State Affairs Standing Committee was CSSB 68(FIN), "An Act relating to the Task Force on Privatization; and providing for an effective date." Number 1971 SENATOR JERRY WARD, Alaska State Legislature, explained why he introduced the bill. He talked about privatizing government during his campaign which he discovered was more difficult once in office. It could not be done over night. "It needs to be looked at and it needs to be looked at carefully." As a result, he drafted a bill to create a task force. He was not in favor of task forces or studying something to death. Therefore, the money was divided in half to look at each section of state government to determine if it was in the public's interest to privatize. The functions of the following departments would be looked at in the first year: Transportation and Public Facilities; Corrections; and Health and Social Services. The three departments represented $1.3 billion. In other states, when a savings was discovered through privatization, it was around 20 percent. He did not know where the savings would be, but every dollar would be looked at if the bill was passed. There were sections that would not be privatized such as the State Troopers, but every section would be looked at. Number 2153 CHAIR JAMES asked Senator Ward who would be on the task force and how would they be appointed? Number 2159 SENATOR WARD replied they would be appointed by the Speaker, President and Governor. The task force would include senators, representatives and members of the public; as-well-as, representatives of the Alaska State Public Employees Union. It was a 13-member committee - 5 appointed by the House; 5 appointed by the Senate; and 3 appointed by the Governor. Number 2184 CHAIR JAMES commented that the term "privatization" was a buzz word, therefore, there were different meanings. There was a difference between the concepts of "contracting out" and "privatization". Privatization was when a sector of government went out of business and the private sector picked up the functions. Contracting out was when certain parts of government were done by others while the government still maintained control or oversight. In addition, in the case of contracting out, state employees should have the same opportunity to compete for the contract. Number 2277 SENATOR WARD stated he also believed that state employees should be able to compete for any of these things. In the case of the privatization of corrections, the prisoners in Arizona were still under the jurisdiction of the Commissioner of Corrections in Alaska. That was an example of what should be looked at and debated. Number 2349 CHAIR JAMES stated that the dollar should not necessarily be the main concern. We should also be concerned about and factor efficiency and effectiveness into the equation. Number 2377 SENATOR WARD replied he did not disagree. He assumed that if something was done more efficient and effective it would be done cheaper. Number 2397 REPRESENTATIVE BERKOWITZ stated what Senator Ward was really going after was what Vice President Al Gore called "reinventing government". SENATOR WARD replied it certainly was not what anything Al Gore said. Number 2417 REPRESENTATIVE BERKOWITZ further stated there were private consulting groups that did this sort of thing for a living and were good at it. He asked Senator Ward if he had considered this type of service? Number 2435 SENATOR WARD replied privatization was a policy issue and we were the policy makers - the legislative branch. "We will make the policy for the Administration," he stated. REPRESENTATIVE BERKOWITZ explained he was not asking about policy. He was asking about actual tactics. The tactics and experience already existed with private consultants. TAPE 97-45, SIDE B Number 0004 SENATOR WARD stated the task forces in other states found it was a large expense when the decision came down to the legislative body anyway. Number 0017 REPRESENTATIVE VEZEY commented the archives were full of studies done on the operations of the various agencies. The management science of out sourcing versus vertical integration was well published. The debate was not if we should do this, but why haven't we been doing this. He wondered, therefore, if the fiscal note should be zero. We should be routinely doing this type of examination anyway. Number 0053 SENATOR WARD replied the fiscal note paid for per diem and travel expenses of the public members. It did not include a staff position. We were not trying to create a new entity. He agreed that this type of discussion should be on going. Number 0086 CHAIR JAMES explained this was her fifth year talking about regulation reform. The political reality of any kind of reform needed to be factored in - the public, the Administration and other legislators. She always said that a task force was an excuse to not do anything. Number 0140 SENATOR WARD explained the task force would report back the next legislative session. We were hearing about privatization now which needed to be seriously looked at. He was opposed to just another study as well. Number 0202 REPRESENTATIVE ELTON stated he was struck by the irony of not privatizing a study on privatization. Number 0226 SENATOR WARD replied we did not need another study. We, the policy makers, need to look at the studies and make some decisions. He did not intend to recreate the wheel. He would consider other models taken in other states. Number 0280 REPRESENTATIVE ELTON replied we would get another study one way or another either through a government task force or a private company. He had a problem with looking at other states because Alaska was not like other states. Number 0319 SENATOR WARD replied the task force would be appointed by the majority of the policy makers. He did not want experts from afar either. Number 0349 CHAIR JAMES stated she was concerned about the end-product. She asked Senator Ward how he envisioned the recommendation? SENATOR WARD replied he suspected that probably 95 percent would be set aside by the task force while 5 percent would be set into the category of possible privatization. And, of the 5 percent, probably 2 percent would be identified as feasible. The task force, however, would create its own policy mission. Number 0413 REPRESENTATIVE BERKOWITZ explained the Tort Reform Task Force was not highly esteemed by the House of Representatives. In addition, we could discuss privatization every day; that was our job. He did not understand why a task force was needed when a special committee for example could be formed. Number 0453 SENATOR WARD replied neither he nor the legislature were involved in appointing the Tort Reform Task Force. If the legislature had been involved in appointing members to the Tort Reform Task Force, a bill would have been passed last year. He wanted to form a task force to start the privatization debate mechanically; it was his way of approaching an issue like this. Number 0490 REPRESENTATIVE IVAN stated he supported the concept and the bill. He had not had good experiences with "outside experts" because their concepts usually did not fit the area. Number 0574 CHAIR JAMES asked Senator Ward if he would be amenable to changing the findings and intent of Section 1 to include the following possible language: "to evaluate those that ought not to be done by government but by the private sector"? CHAIR JAMES cited a lecturer who used to work for the Department of Transportation in Oregon. He called his presentation rightsizing government. He concluded it was not a privatization issue, but a simplification of the processes. Number 0675 SENATOR WARD replied he would not be opposed to amending the section. CHAIR JAMES said she would work on the language further and get back to him. SENATOR WARD stated the gentleman from Oregon eliminated nine layers of the department and made it run better. This was one of the reasons why the Department of Transportation and Public Facilities should be looked at first. Number 0700 CHAIR JAMES stated the gentleman from Oregon indicated that you should not privatize something that could become or was a monopoly, or you would lose control. The railroad in Alaska was an example. Number 0781 JAMES BALDWIN, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law, was the first person to testify in Juneau. There was clear violation of the separation of powers between the branches by having the Governor appoint members to the task force. There were good arguments to have everybody get together to discuss a problem of common interest. But when the branches cross pollinate, there was the possibility that the legislative branch could prevail thereby weakening the other branch. This was a foundation issue that needed to be brought to the attention of the committee. Number 0904 CHAIR JAMES wondered if the Long Range Financial Planning Commission was also a violation. She asked Mr. Baldwin if the cooperation in preparing and drafting legislation to help the Administration was all right? Number 0992 MR. BALDWIN replied it was very all right. It was the duty of the Administration to freely answer questions and to provide information to legislative committees. Similarly, the Administration would be willing to serve and provide information that the task force would need. He did not see that being a member of the task force would guarantee the receipt of the information any more than it would be compelled to now. He reiterated appointing members to serve on a task force that was part of another branch was a violation. Number 1049 CHAIR JAMES said she had never thought of it that way. She was disappointed with the Long Range Financial Planning Commission - the process, not the results. Number 1093 REPRESENTATIVE ELTON asked Mr. Baldwin if the blurring of the separation of powers was because the task force was being created by law? Didn't legislators serve on the Tort Reform Task Force? MR. BALDWIN replied legislators did serve on the Tort Reform Task Force. There was a blurring of the separation of powers there as well. There were no legislators appointed at first but due to the outcry from the legislative branch some were appointed. It was a good example in support of what he was saying today. The Governor waived his right to object, but he did not waive it for all time. In this instance, the Governor was objecting; he did not want to hold appointing authority for this task force. Number 1168 CHAIR JAMES replied it was a constitutional mandate and it affected the separation of powers, the Governor could not waive his right. MR. BALDWIN replied he could not waive it for all time. But he certainly could allow it to happen. The examples had already been cited. In addition, a waiver would not bind the next Governor and it did not bind the current Governor. Number 1224 CHAIR JAMES wondered if the legislature would have the option to waive its rights. The Governor, she believed, had the authority to establish any kind of task force on any issue with or without legislative approval. He would have the right to include legislators if he wanted, especially if they could not influence the end result. The Tort Reform Task Force was not the same as the task force in SB 68 or the Long Range Financial Planning Commission because this was a legislative decision that actually joined the two branches. She agreed the legislature did not have the right to do that. It was not an issue of whether or not the Governor wanted to have appointment power, it was whether or not he should have the power. Number 1364 REPRESENTATIVE ELTON commented the task force would not set policy or make law, it would just make a recommendation. He wondered, therefore, if the purpose of the task force mitigated the concern of cross pollinazation? Number 1392 MR. BALDWIN replied it could. It was important to consider who was being advised, however. This was a very important task force; it would advise the legislature that could change the laws. Number 1442 CHAIR JAMES said she understood why the Governor did not want to participate. However, it would be hard to accomplish the goal of the task force without Administrative help, information, and knowledge. The Administration knew more about the inner workings of the agencies. She asked Mr. Baldwin if he knew how the Governor would respond to requests from the task force for information? Number 1553 MR. BALDWIN replied the Administration was not willing to sit on the task force, but it would be willing to assist in any way possible by providing information and data. Number 1593 REPRESENTATIVE DYSON asked Chair James what her intentions were in regards to the bill today? CHAIR JAMES replied she did not have any intention. She assumed it would be passed out at some point. A few amendments looked like they were needed. Number 1635 SENATOR WARD stated it was very important that the Administration be involved in the task force in the interest of the state. He understood the concerns, but they were unjustified fears. He did not believe that the Governor would veto the bill. He also believed that the Governor would appoint members to the task force; it would not work without his participation. Number 1708 CHAIR JAMES announced she wanted to get a second legal opinion before forming an opinion. The bill would not be moved from the committee today. Number 1750 MIKE McMULLEN, Personnel Manager, Division of Personnel, Department of Administration, was the next person to testify in Juneau. His testimony was neither pro nor con today but to ensure that the committee understood the process as we saw it. Most of the collective bargaining contracts had provisions for a formal feasibility study in regards to contracting services out. The study had to be announced to the union with the ability to bid for an alternative. If the study indicated that money would be saved then the state was free to contract the work and lay state employees off. In addition, upon reviewing the recommendations in November from the task force, the departments would be asking for money and time to conduct their own feasibility study before the effective dates. The feasibility study would probably come up with different results than the task force creating a conflict. He did not know a way around the potential conflict, however. Number 1956 CHAIR JAMES stated that her understanding of privatization was not the same as contracting out. The state could currently contract out; it was generally a determination of the Administration and not the legislature. If the legislature privatized a part of government it would change the law. She believed, for example, that the permitting process for natural resources should be privatized. It required professionals such as engineers. Therefore, if the public needed a permit, they could pay an engineer for the service. Privatization was letting the public sector compete and provide the service and not the government as opposed to contracting out. Number 2099 MR. McMULLEN replied he agreed with her characterization of privatization. The expectations of the bill, however, also included contracting out; and, unless the task force clarified its purpose, the contracting out issue would come up. CHAIR JAMES replied she also continued to hear the term "out sourcing". Privatization did not include out sourcing. Number 2172 FRANK SMITH was the first person to testify via teleconference in Barrow. He appreciated the testimony in regards to privatization creating a monopoly. There was already a great deal of influence in Alaska of providers in the corrections field. He was also concerned about the composition of the task force. If the Governor's appointees were not included, the minority would only be represented by two members causing a skewed outlook. As a result, the task force could not look at the real cost for example. He cited the cost of the prison in Arizona did not look at the chances for parol being relocated so far from home and support. He reiterated he was concerned that the providers would call the shots. Number 2367 PAMELA LaBOLLE, President, Alaska State Chamber of Commerce, was the next person to testify in Juneau. The chamber was in favor of privatization and SB 68. A copy of our resolution had been provided to the committee members. The resolution requested that the legislature and Governor forge a plan by the end of 1997 to implement a program to privatize the applicable services currently provided by government. The chamber had held privatization seminars in 1995 and 1996. A general approach was taken in 1995 to look at the services that had been privatized throughout the nation. A focused approach on transportation was taken in 1996. TAPE 97-46, SIDE A Number 0001 MS. LaBOLLE further stated there were services that only the government could and should provide. Alaska had grown beyond that concept, however, now that there was less money. The chamber was not satisfied with what happened with the Long Range Financial Planning Commission. The intention was to study the issue and make a recommendation for possible actions by the legislature because the legislature represented the people of the state. "We don't like to see groups of people taking on that function." The caveat, therefore, was that the task force would make recommendations to the legislature and based upon public input the legislature would develop privatization plans. MS. LaBOLLE further commented on the quote by the Department of Law indicating the power of a citizen group versus the power of a legislative group. The Constitution of the United States said that the political power resided with the people. Number 0249 CHAIR JAMES replied an individual person could not come in and vote, but an individual person could influence the vote. CHAIR JAMES read the following provision from the Alaska State Chamber of Commerce's Resolution: "THEREFORE, BE IT RESOLVED that the Alaska State Chamber of Commerce strongly encourages the privatization of those state services which could be competitively provided in the private sector; and" CHAIR JAMES cited British Columbia, Canada sold all of their equipment to the incoming contractor for repair and maintenance of their roads. The provence was divided into districts for different contractors. The cost was about the same in the end but the economy improved because the money that the government spent went to wages. While the money that the private sector spent went into the pockets of the people. Therefore, effectiveness, efficiency and competition needed to be looked at when addressing the issue of privatization. Competition needed to be looked at to prevent a monopoly. Number 0469 MS. LaBOLLE replied there was no reason why present governmental organizations could not compete for the services on a level playing field. The pyramid of government where the tax payers were on the bottom was inverted and would eventually topple - too much government and not enough private enterprise to support it. Number 0549 CHAIR JAMES explained she thought of these issue deeply because of her accounting background. She was not sure if current governmental organizations could compete for private services because if they did not win the bid they would be disbanded and not available to compete the next time. It was more of a placate. CHAIR JAMES reiterated she would like to see a definition of the term "privatization" separate from the terms "out sourcing" and "contracting" for clarification. She asked Ms. LaBolle if she agreed a definition of privatization was needed? Number 0656 MS. LaBOLLE replied, "Yes." It could be one of the tasks of the task force. In addition, the chamber did not buy the arguments of the separation of powers. If it was just a group of people looking at the issue and making recommendations that could or could not be followed by the legislature then it was not a problem. CHAIR JAMES announced she would get an opinion from the Legislative Legal and Research Services in regards to the separation of powers concern. The bill would be held over until a later date yet to be determined.
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