Legislature(2005 - 2006)CAPITOL 106
01/27/2005 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Dept. of Administration: Divisions of Retirement and Benefits/risk/general Services/finance | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
January 27, 2005
8:02 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Jim Elkins
Representative Bob Lynn
Representative Jay Ramras
Representative Berta Gardner
Representative Max Gruenberg
MEMBERS ABSENT
Representative Carl Gatto
COMMITTEE CALENDAR
OVERVIEW(S): DEPARTMENT OF ADMINISTRATION: DIVISIONS OF
RETIREMENT AND BENEFITS/RISK/GENERAL SERVICES/FINANCE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MELANIE MILLHORN, Director
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Presented the portion of the department's
overview relating to the Division of Retirement & Benefits.
BOB REYNOLDS
Mercer Human Resource Consulting
Seattle, Washington
POSITION STATEMENT: Offered details regarding the Division of
Retirement & Benefits section of the department's overview.
BRAD THOMPSON, Director
Division of Risk Management
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Offered the part of the department's
overview relating to the Division of Risk Management.
KIM GARNERO, Director
Division of Finance
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Presented the section of the department's
overview regarding the Division of Finance.
VERN JONES, Chief Procurement Officer
Division of General Services
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Gave the part of the department's overview
relating to the Division of General Services.
KEVIN BROOKS, Deputy Commissioner
Office of the Commissioner
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Answered questions during the overview on
behalf of the Department of Administration.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 8:02:24 AM. Present at the call
to order were Representatives Elkins, Lynn, Gardner, and Seaton.
Representatives Ramras and Gruenberg arrived as the meeting was
in progress.
^OVERVIEW(S): DEPT. OF ADMINISTRATION: DIVISIONS OF RETIREMENT
AND BENEFITS/RISK/GENERAL SERVICES/FINANCE
8:03:00 AM
CHAIR SEATON announced that the only order of business was the
overview from the Department of Administration, covering the
Division of Retirement & Benefits, the Division of Risk
Management, the Division of General Services, and the Division
of Finance.
8:04:25 AM
MELANIE MILLHORN, Director, Division of Retirement & Benefits,
Department of Administration, presented the portion of the
department's overview relating to the Division of Retirement &
Benefits. She listed the division's funding goals: paying for
benefits during the working lifetime of members; [meeting a] 100
percent funding ratio of assets to approved liabilities,
including retiree medical; actuarial funding of medical benefits
for members; paying for the unfunded liability over the course
of a 25-year period, which is the amortized schedule; collecting
enough contributions during the working lifetime of the employee
and earnings on those contributions to pay for retirement
benefits; and [ensuring] relatively stable employer
contributions over time. She noted that those goals were
established by the Public Employees' Retirement System (PERS)
and the Teachers' Retirement System (TRS).
8:06:13 AM
MS. MILLHORN, in response to a question from Chair Seaton, said
the funding goals are established for all the tiers together.
8:06:48 AM
MS. MILLHORN turned to page 2 in the handout [included in the
committee packet]. She spoke about the funding policies that
govern PERS and TRS, and she noted that the assumptions and
methods are established by the Public Employees' Retirement
board, the Teachers' Retirement board, and the commissioner of
administration. She said experience studies are done every four
to five years to look at each and every assumption that
underlies the actuarial evaluation for the system. She offered
details. She stated that the other part of the process is
actuarial audits, whereby the actuary who is contracted by the
Division of Retirement & Benefits is audited, also every four to
five years.
MS. MILLHORN stated that the Public Employees' Retirement board,
by statute, sets the employer contribution rate. The Teachers'
Retirement board does not have the authority in statute to set
the teachers' retirement contribution rate. She added,
"However, for the last 10 years they have acted as that party,
until last year, when Commissioner Matiashowski reminded the
board that he has the authority to set that rate and that they
can make a recommendation to him."
8:09:05 AM
MS. MILLHORN said the last policy that governs PERS and TRS is
the legislature; it is the exclusive purview of the legislature
to determine the benefits policy for the retirement systems. In
1978, she noted, there was an attorney general (AG) decision
that looked at retirement benefits to determine whether those
benefits could be collectively bargained. The AG's opinion
determined that retirement and benefits are not subject to
collective bargaining. In response to a question from Chair
Seaton, she offered further details.
8:10:55 AM
CHAIR SEATON asked if changes can be made regarding employee
contribution, through collective bargaining.
8:11:20 AM
MS. MILLHORN answered that's correct. She explained,
"Enhancements can be made, but it's a decrease that must be made
prospectively for new tiers."
8:11:41 AM
MS. MILLHORN referenced page 3 of the handout, speaking to PERS,
as it relates to: measurement year; employer rate year; actual
investment return; actuarial investment return; cumulative
return shortfall; cumulative dollar shortfall, in billions -
market value; health care cost rate used; health care percent of
total accrued liabilities; average calculated rate; board
adopted rate; contribution increase; funding ratio - assets and
liabilities; non-medical benefits only; and total benefits. She
explained that the benefit paid is based on a formula set in
statute; members receive a lifetime benefit that's based on
years of service, salary, and age. Actuarial evaluation reports
are prepared annually for PERS and TRS to measure the assets and
liabilities of the plan. One of the primary functions of the
actuarial evaluation is to determine the annual contribution
rate that is expected to adequately provide for future benefit
payouts.
8:12:46 AM
MS. MILLHORN stated that there are over 20 separate assumptions
under the actuarial evaluation prepared annually, and they are
broken into two different categories: economic and graphic.
Two of the assumptions have a great deal of sensitivity and
volatility: the investment return and the health cost trend.
8:14:54 AM
MS. MILLHORN told the committee that the health cost trend for
PERS, as of 2001, was set at 7.5 percent. The assumption was
reset in 2002 to 12 percent, which had the consequence of adding
considerable liabilities to the system. The rate was reset
after a period of consideration, because it was determined that
the cost trend was too low.
8:16:06 AM
MS. MILLHORN stated that the average calculated rate for PERS is
based on the membership. She said there's an actuarial
valuation on PERS, but there's also a supplemental valuation
that looks at each individual employer's assets and liabilities
in order to calculate the employer rate.
8:17:01 AM
MS. MILLHORN, in response to a remark made by Chair Seaton,
confirmed that the state is its own employer, thus it pays at a
different rate. She mentioned municipalities. She said the
rate that one employer versus another would be paying would be
based on many factors, including: the assets and liabilities of
the employer's system, the membership that employer has, the
participation agreement, and if past service for the members is
recognized.
8:18:43 AM
CHAIR SEATON said he would like to see the breakdown.
8:18:59 AM
MS. MILLHORN noted that the actuarial calculated rate, as
recommended by Mercer [Human Resource Consulting] was 25.63
percent, which is based on the underfunded status of the system,
comparing the assets to the liabilities and making a
determination about needing to pay those benefits out for the
next 25 years. She said the [board adopted rate] is capped at a
5 percent increase or decrease in any one year, which was
established in regulation and adopted by the Public Employees'
Retirement board in 1991.
8:20:09 AM
MS. MILLHORN explained that the funding ratio is a comparison of
assets to liabilities made first on nonmedical benefits only,
and then on total benefits. The reason for that is that PERS is
atypical; since the 1970s, it has prefunded for its medical
benefits, while other systems, with the exception of those in
three other states, do not do that. [As shown on the PERS
section of page 3], when the medical component of the pension
benefit is included, it reduces the funding ratio to 72.8
percent. Ms. Millhorn explained that the valuation report is
designed to look at the funding ratio target, which is 100
percent, and determine: "If you needed to pay all of the
liabilities accrued to the members, for the system, as of that
date, you would have 72.8 percent of the assets available to pay
for those members."
8:23:07 AM
MS. MILLHORN continued her reference to page 3 of the handout,
speaking to TRS, as it relates to: measurement year; employer
rate year; actual investment return; actuarial investment
return; cumulative return shortfall; cumulative dollar
shortfall, in billions - market value; health care cost rate
used; health care percent of total accrued liabilities; average
calculated rate; board adopted rate; contribution increase;
funding ratio - assets and liabilities; non-medical benefits
only; and total benefits. She noted, "PERS and TRS added
together represent $5 billion in an unfunded liability to both
systems." The average benefit for TRS is $2,500 per member, per
month, while the average benefit for PERS is $1,500 per member,
per month. There is a higher liability for PERS, because more
of the benefit is costed toward the medical liability. She
showed how the funding ratio is changed by including or omitting
the medical component.
8:25:15 AM
MS. MILLHORN, in response to a remark by Chair Seaton, said
there are a number of factors that contribute to the underfunded
status of TRS as it compares to PERS; it's not just the pension
benefit factors. [Ms. Millhorn nodded at Chair Seaton's request
for information showing the comparison.]
8:27:56 AM
CHAIR SEATON offered his understanding that the reason TRS
pension benefits are higher is because, in general, teachers
have had higher salaries than those with PERS benefits.
8:28:07 AM
MS. MILLHORN answered that's correct.
8:28:49 AM
MS. MILLHORN directed attention to page 4 of the handout. She
noted that, in August 2004, the Government Accounting Standards
board ruled that, beginning in 2007, all pension systems will
have to account for their medical costs on an accrual basis.
Alaska does this already. Furthermore, [the State of] Alaska
also prefunds for its medical costs. In response to a question
from Representative Seaton, she said legislation has the ability
to make a change so that medical costs would not be prefunded.
8:31:32 AM
BOB REYNOLDS, Mercer Human Resource Consulting, the actuary for
Alaska PERS and TRS, said he would address pages five through
eight in the handout, which isolate the factors that have
contributed to changes in the status of PERS and TRS between
1993 through the end of the Fiscal Year 2003 (FY 03).
8:32:56 AM
MR. REYNOLDS noted that page 5 shows year-by-year changes in
funded status in PERS. He said the three factors that affected
funded status in 2001 were demographic experience, investment
experience, and plan changes. He mentioned House Bill 242 and
an ad hoc post retirement pension adjustment (PRPA) that was
adopted by the board; both of those factors contribute to the
plan change component in 2001.
8:34:22 AM
MR. REYNOLDS read the listed categories on the right-hand side
of page 5, which are: non-health assumption changes; health
assumption changes; demographic experience; plan changes;
medical experience; and investment experience. He explained
what each of those categories mean.
8:35:49 AM
MR. REYNOLDS, in response to a question from Chair Seaton, said
nonhealth assumptions are made regarding: turnover rates,
disability rates, mortality rates, and retirement rates.
Roughly every 5 years, those assumptions are considered for
changes. When changes are made, there will be a change to the
liability of the system. Additionally, each year a review is
done of the experience of the system relative to those
assumptions, which is called demographic experience. Mr.
Reynolds noted that health assumption changes relate to the
future, while medical experience looks back to the past.
Investment experience, he said, is one of the largest
contributors to changes in funded status in any given year. He
offered details.
8:38:56 AM
CHAIR SEATON referred to a 2001 plan change, with a 5 percent
change in funded status. He asked, "How does this relate to the
contribution rate that is required of the employer to fund the
system?"
8:39:36 AM
MR. REYNOLDS said the 5 percent shown on page five is the
decline in the funded status, which represents the increase in
the accrued liability caused by the plan changes. That increase
is actuarially amortized over 25 years in determining the
contribution rate. He clarified that the 5 percent is not the
change in the contribution requirement, but rather the debt
increase. He noted that the actuarial report is available
online through the Division of Retirement & Benefits' web site.
8:41:10 AM
MR. REYNOLDS turned attention to page 6, which he said shows
similar information to that on page 5, but for TRS. He noted
patterns of increases in funded status due to investment returns
and overall decreases in funded status, with large factors being
medical costs and investment returns.
8:41:46 AM
MR. REYNOLDS directed attention to page 7, which shows that the
change in funded status is split between assets or investment
factors, and liability sources. He explained that what is being
looked at is funded status relative to the market value of the
actual assets in the fund. Market value of assets is used to
reflect the actual assets available in the fund. From July 1,
2002, to June 30, 2003, the funded percentage for PERS declined
from 92.3 percent to 70.0 percent, while the funded percentage
for TRS declined from 91 percent to 61.7 percent, based on the
market value of assets. Liabilities were the larger contributor
to the decline in funded status of the systems.
8:44:11 AM
MR. REYNOLDS continued his reference to page 7, directing
attention to the bottom of the page, which shows the following
categories: health experience, health assumption changes, plan
changes, demographic experience, non-health assumption changes,
and total change due to liabilities. Each of those factors
influence the increase or decrease shown for PERS and TRS. He
offered details.
8:46:56 AM
CHAIR SEATON, in response to Representative Gruenberg, told the
committee that any suggestions for changes will be looked at on
February 1. He also indicated that, in general, he will be
asking questions, not to oppose issues, but to bring up ideas
for discussion.
8:48:12 AM
MS. MILLHORN directed attention to page 9, which summarizes PERS
and TRS and is identified by tier and membership categories; it
identifies "the universe of the population" that has or may
receive a medical benefit. She stated that there are
approximately 71,500 PERS members and approximately 93,000 TRS
members. Currently, the State of Alaska, through PERS and TRS,
covers 52,000 members who have medical benefits through the
system.
8:49:44 AM
MS. MILLHORN, in response to Representative Gruenberg, said that
there are "membership categories who have more than one
coverage." In that instance, there is a coordination of
benefits that occur.
8:50:05 AM
MS. MILLHORN turned to page 10, which is taken from the
division's comprehensive annual financial report. It shows an
historical look at the medical costs of the premium rate, the
annual percentage change, and the average compounded annual
increase, from 1977 to date. She offered examples.
8:52:00 AM
MR. REYNOLDS, in response to a question from Chair Seaton,
mentioned evaluation reports that are available from the
division, which describe each of the assumptions that are
employed, including the health cost trend. He explained that
the division employs a scale of health increase factors into the
future, beginning at 12 percent for FY 05 and declining by .5
percent per year, for each of the next several years, eventually
arriving at an ultimate rate of 5 percent. He said that the
division is assuming that medical costs will increase at
relatively high rates for the next few years.
8:53:31 AM
MS. MILLHORN brought focus to page 11 of the handout, which
shows system membership by status. She noted that the
membership has doubled since 1993. Page 12 shows a 10-year
comparison of expenses by type, including: pension benefits,
healthcare benefits, refunds of contributions, and
administrative expenses. She pointed out the increase in costs
since 1995.
8:54:46 AM
MS. MILLHORN turned to page 13, which shows the system
membership by status for TRS, with a 10-year comparison of
active to retired members. She said the number of retirees has
increased and is expected to continue to do so. Ms. Millhorn
added that in 2004, 2,025 members retired from all the systems -
almost double the amount from 2003. Another notable year for
retirement was 1995, which was a RIP [retirement incentive
program] year. In response to Representative Gruenberg, she
said the information for 2004 is not in the handout, but she
could provide that information for the committee.
8:57:31 AM
MS. MILLHORN said more members retiring from the system means
more benefits to be paid out.
8:58:04 AM
CHAIR SEATON said he would like to get other information on "how
that would affect system."
8:59:03 AM
MS. MILLHORN turned to page 15 in the handout, which is a
summary that looks at investment return assumptions, medical
cost assumptions, the mortality table, the actuarially computed
rate for PERS and TRS, the adopted rate for PERS and TRS, and
any difference between the actuarially computed rate and the
board adopted rate.
9:01:08 AM
CHAIR SEATON noted that during some years, PERS had showed a
dramatic drop in contribution rate, while TRS did not.
9:02:12 AM
MS. MILLHORN, in response to a question from Representative
Seaton, explained that each year that the actuarially computed
rate recommended by Mercer Human Resource Consulting is not
adopted by TRS, means additional liabilities are added to the
system.
9:05:30 AM
MR. REYNOLDS recommended that the committee look further back in
history to make comparisons between PERS and TRS. He mentioned
market turndown, and suggested considering the timing of the
contributions as it relates to the long-term effect on the
system.
9:08:19 AM
MS. MILLHORN, in response to a request from Representative
Gardner, offered to provide the committee with a chart showing
what the balance was in the rates at the time they were
adjusted.
9:11:35 AM
MS. MILLHORN answered a question from Representative Gruenberg
regarding page 16 of the handout, which shows PERS and TRS
composite employer contribution increase amounts and total
contributions. She said it shows 5 percent year after year.
She explained, "So, each year, when those rates are established
with a 5 percent increase, that sets the baseline for the next
year, and then another 5 percent is increased. So, that's
additive; that's a cumulative effect of those employee
contribution rate increases." In response to a follow-up
question from Representative Gruenberg, she explained that [the
totals for each fiscal year] are not directly linear; there is a
slight increase.
9:12:44 AM
MR. REYNOLDS said the reason is that the base figures each year
are anticipated to increase each year with payroll. He offered
details.
9:13:52 AM
MS. MILLHORN, in response to a question from Representative Lynn
regarding why Alaska has two totally different retirement
systems, explained that it's because of the benefits that are
arrived at each retirement system. The membership is completely
different and the benefits that the legislature has conferred on
that membership is completely different. She offered examples.
9:14:53 AM
MS. MILLHORN, in response to a question from Representative
Elkins, stated that TRS was established in statute in 1955, and
PERS was established in 1961; the benefits for retirement are
not negotiated through collective bargaining. In response to a
follow-up question from Representative Elkins, she said the
premium increases for State of Alaska employees are negotiated.
9:16:04 AM
CHAIR SEATON recommended that the committee members submit any
further questions to be sent to the witnesses. In response to a
suggestion from Representative Gruenberg, he said the committee
would be working extensively on PERS and TRS issues and a staff
working session would be possible after February 1.
9:18:08 AM
BRAD THOMPSON, Director, Division of Risk Management, Department
of Administration, on behalf of the department, presented the
portion of the overview relating to the Division of Risk
Management. He said the State of Alaska has set up a
comprehensive program for property and casualty claims. The
Division of Risk Management deals with accidents that affect the
individual agencies of the state - legislative, administrative,
and judicial. All monies come from interagency receipts, not
from general fund. The division allocates the cost of risk, or
premium, based on two concepts: the exposure - assets,
activities, or operations; and experience - the prior claims
history. He offered examples. He said the division is trying
to address the trend of normal, expected loss. He noted that
the division is like an insurance company, but is comprised of
only five people.
MR. THOMPSON said the division is set up with funding for the
normal insurance program. In excess of that, for large
individual claims, the state insures the first $1 million
through risk management. He offered an example regarding the
Alaska Marine Highway System's M/V LeConte.
9:21:16 AM
MR. THOMPSON, in response to a question from Chair Seaton, said,
"Each year, the allocation to the agencies is the amount that
they pay, and then we deal with the financing of those
accidents, whether it's worker's [compensation], general
liability, auto liability, marine, aviation, airports, [or]
bonding. The state, with all of its activities has a [vast]
diversity of exposures and activities - and we provide the
protections for all of those operations." In response to a
follow-up question from Chair Seaton, he confirmed that the
State of Alaska provides worker's compensation, for example, in
house, because the state is a self-insured employer and self-
finances the liability owed to its injured employees.
9:22:29 AM
CHAIR SEATON asked if each department or agency that has
employees has a line item in its budget that gets transferred to
the Division of Risk Management.
MR. THOMPSON answered, "It's an assessment for the risk
management cost of risk, and it's detailed by the type of
insurance ...." He offered examples.
9:23:21 AM
REPRESENTATIVE GRUENBERG mentioned a serious insurance crisis
that occurred in the 1980s, the gist of which was that society
had little control over how the companies operated. He asked if
there is better control now.
9:24:42 AM
MR. THOMPSON offered his understanding that that's a general
reference to the hard market/soft market cycle in the world
reinsurance. He noted that, regarding property casualty, there
have been a couple significant adjustments over the past two
decades to the method of rate calculation, and the awareness
level of the issue has increased. He offered further details.
9:27:14 AM
MR. THOMPSON said the division does many claims in house, but
will engage outside counsel, although it is rare that it does
so.
9:29:44 AM
MR. THOMPSON, in response to a question from Representative
Gruenberg, said other states have statutory schemes that require
administrative filing, giving the state a certain period to
respond before filing in a civil action. He noted that the
division will, working with the tort section, respond to claims
in a quasi-administrative fashion. In response to follow-up
questions from Representative Gruenberg, he offered his belief
that it is unnecessary to change the law, because the practice
accomplishes the same ends, and he said didn't know of anything
that could be done to make the process speedier and less
expensive. He opined that the division deals very effectively
and efficiently.
9:31:34 AM
CHAIR SEATON asked Mr. Thompson if he could provide the
committee with a the division's rate structure and charge to
agencies, in order to compare it to private worker's
compensation.
9:32:02 AM
MR. THOMPSON said he can provide the committee with the
division's cost allocation scheme and the rates that are
collected through a payroll assessment; however, he said that to
compare that to what's done in the commercial market would be
like comparing apples and oranges. In response to a follow-up
question from Chair Seaton regarding possible solutions to
consider, he noted that each insurance underwriter that is
permitted to file worker's compensation files annually. The
State of Alaska, as a self-insured employer, is also required to
file. He said that information would be the best uniform data
set for seeing trends and experience, and he offered to supply
that information to the committee.
9:35:09 AM
REPRESENTATIVE GRUENBERG asked if the state uses a broker to buy
excess insurance lines.
9:35:28 AM
MR. THOMPSON answered yes.
9:35:51 AM
REPRESENTATIVE GRUENBERG asked if the cost of insurance has gone
up because of the New York attorney general's raising criminal
lawsuits against a brokerage company and other large insurance
companies.
9:36:06 AM
MR. THOMPSON replied, "Our premium experience to compare is not
as affected, because ... we buy select, very high excess." He
offered examples. He said, "Ours is a flat-fee based
arrangement."
9:38:35 AM
KIM GARNERO, Director, Division of Finance, Department of
Administration, on behalf of the department, presented the
portion of the overview relating to the Division of Finance.
She turned to page 1 in a handout [included in the committee
packet] titled, "Finance Component." She said the division has
been working to reduce the penalties by the Internal Revenue
Service (IRS), through several steps, including: reporting as
compensation the value of state vehicles for employees required
to commute in them; reporting amounts paid to inmates for prison
labor; successfully appealing a $13,000 penalty for tax deposits
made late last year; and hosting two training sessions with IRS
representatives for state and local government finance
professionals to help prevent future tax reporting problems.
Ms. Garnero said these efforts have become more important since
the IRS is shifting its focus to more audits of government
employers.
9:40:27 AM
MS. GARNERO reported that on January 31, the division will
publish the Executive Compensation and Travel Report. She noted
that $2,100 was saved by publishing on the web site only. Ms.
Garnero said the state won a certificate of achievement in
excellence in financial reporting.
9:41:30 AM
MS. GARNERO said the division is starting a statewide travel
office, modeled after the State of Utah's, which will establish
a consistent statewide policy that protects the state's interest
and treats travelers equitably. She offered further details.
9:42:51 AM
MS. GARNERO, in response to a question from Chair Seaton, spoke
of the streamlined process for Medicaid travel. She noted that
the division is currently only handling travel by air and ferry.
9:43:53 AM
MS. GARNERO said the division runs a statewide accounting and
payroll system, known as the Alaska Statewide Accounting System
(AKSAS) and the Alaska Statewide Payroll System (AKPAY). Both
systems are nearing the end of their useful lives. Last
October, the division added the capability to make electronic
payments to individuals, which will factor into the division's
ability to implement the electronic payment requirements of
House Bill 494, which passed last year. Ms. Garnero stated that
a functional payroll system is critical to the state, and it
takes a substantial amount of time to convert for an
organization as large and diverse as the state is. She noted
that the governor's budget request includes $20 million to
replace the current payroll system and create a reporting
database or data warehouse for both the replacement and legacy
systems. In response to a question from Chair Seaton, she
confirmed that that data is electronically maintained.
9:45:55 AM
REPRESENTATIVE GRUENBERG told Ms. Garnero that "we" introduced
the warrant bill again and will be asking for assistance from
the division.
9:47:45 AM
CHAIR SEATON said some systems have different parameters and he
suggested the division ensure that the search engine is
adequate.
9:49:32 AM
MS. GARNERO, in response to a question from Representative
Gardner, said the penalties, to date, have been due to software
problems, but it's been close. In response to a follow-up
question from Representative Gardner, she explained that the
delay related to the permanent fund dividend (PFD) was an
administrative error.
9:50:38 AM
VERN JONES, Chief Procurement Officer, Division of General
Services, Department of Administration, on behalf of the
department, presented the part of the overview relating to the
Division of General Services. He explained that he works as
director of the division. He noted that the division's major
components include central purchasing for establishing statewide
contracts and overseeing the executive branch. He said the
oversight role is to provide purchasing advice and procurement
training. There are only five buyers in central purchasing; the
fewest in any state. The division focuses a lot of attention in
education and advising the agency procurement people.
9:52:07 AM
MR. JONES related that one of the division's performance
measures in purchasing is to reduce the cost of goods and
services that the state procures via establishing cost-effective
contracts. The two focuses in central purchasing are
establishing contracts that drive the cost of goods and services
down and the oversight function. Another performance measure is
to provide adequate training sessions to enable the customer
agency procurement people to earn and maintain certification.
9:53:13 AM
MR. JONES said the division's leasing section is responsible for
establishing and administrating contracts for all executive
branch leased office and warehouse space. There are over 500
leases statewide. Leasing performance measures include a 10
percent reduction in the amount of square footage for new,
leased office space. To meet that reduction, the division has
established new, more efficient space standards. Another
performance measure in leasing is a 5 percent reduction in the
average cost of leased space and negotiating lower costs for all
expiring leases.
9:54:31 AM
MR. JONES listed some of the major spaces that the division's
facilities section manages and maintains, which totals over 1
million square feet. The property management section has two
functions: to dispose of excess state property and to dispose
of surplus property to eligible donees, such as local
governments and non-profit [organizations]. He noted that the
property [management] section is lean and efficient and operates
completely on the receipts that it generates.
9:55:27 AM
MR. JONES stated that the central mail component provides state
agencies in Juneau with daily sorting, delivery, insertion, and
posting services. Central mail's performance measures are to
reduce the cost of agency mail processing and to reduce the
number of postage meters in use.
9:57:15 AM
MR. JONES, in response to a question from Representative
Gruenberg, said that ensuring that government is run properly
would fall roughly within the purview of Department of
Administration, but there is no such title as inspector general.
He note that, as Chief Procurement Officer, he performs that
function as it relates to procurement. In response to a follow-
up question from Representative Gruenberg, he noted that other
states exert much more central control than Alaska does. In
response to another question from Representative Gruenberg,
regarding whether Alaska should have a state agency [to ensure
the proper running of government], he said there may be
arguments for that; however, it would cost money and would be a
higher policy call than he would make.
9:59:22 AM
REPRESENTATIVE RAMRAS thanked Mr. Jones, Ms. Garnero and the
others for their due diligence and the pride they show in their
divisions.
9:59:55 AM
CHAIR SEATON asked if broad general contracts are done so that
every agency buys fuel or toilet paper, for example, from one
place.
10:00:35 AM
MR. JONES answered, "We are the only agency that establishes
statewide contract for everyone else's use. Every other
department out there procures for their own individual
department's needs .... If there [are] common needs across
departments, that's our job in [the Division of] General
Services, and I think the fact that we only have maybe 60 to 80
contracts is a function of that. We only have five people, and
they do split their time between contracting and oversight."
10:02:44 AM
CHAIR SEATON told Mr. Jones to let him know if there is anything
that the legislature can do to help him get centralized
contracts used by all the vendors. He asked Mr. Jones to
provide the committee with information regarding the 14-year
contract for the Department of Transportation and Public
Facilities' (DOT&PF) move to Ketchikan.
10:05:03 AM
KEVIN BROOKS, Deputy Commissioner, Office of the Commissioner,
Department of Administration, speaking to Representative
Gruenberg's previously stated question regarding whether the
state might consider having an agency to ensure the proper
running of government, noted that while there's not a specific
office of an inspector general in state government, there is an
internal audit function that occurs. Furthermore, he noted that
the priorities of Governor Frank Murkowski's administration
include looking at the administrative processes of government
for efficiency measures. He said, "While it's not housed in a
single person or office, there's certainly an ongoing effort
that is far reaching ...."
10:07:40 AM
CHAIR SEATON remarked that when PERS and TRS have to be absorbed
into department budgets, it is necessary to look everywhere for
savings.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
10:07:59 AM.
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