Legislature(1993 - 1994)

11/17/1993 01:00 PM L&C

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

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