Legislature(2021 - 2022)
03/12/2021 09:01 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
March 12, 2021
9:01 a.m.
9:01:48 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
MEMBERS ABSENT
Senator David Wilson
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Paloma Harbour, Fiscal Management
Practices Analyst, Office of Management and Budget, Office
of the Governor.
PRESENT VIA TELECONFERENCE
Kelly Tshibaka, Commissioner, Department of Administration;
Kate Sheehan, Director, Division of Personnel and Labor
Relations; Thor Vue, Director, Office of Procurement and
Property Management, Department of Administration; Ian
Smith, Managing Director, Alvarez and Marsal; Leslie
Isaacs, Administrative Services Director, Department of
Transportation; Dom Pannone, Administrative Services
Director, Department of Transportation.
SUMMARY
CENTRALIZED SERVICES INITIATIVE:
OFFICE OF MANAGEMENT and BUDGET
DEPARTMENT OF ADMINISTRATION
DEPARTMENT OF TRANSPORTATION and PUBLIC FACILITIES
9:03:47 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced himself.
PALOMA HARBOUR, FISCAL MANAGEMENT PRACTICES ANALYST, OFFICE
OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR,
introduced herself.
Mr. Steininger discussed the presentation, "State of Alaska
Office of Management and Budget, Senate Finance Central
Services and Rates Overview, March 12, 2021" (copy on
file). He looked at slide 2, "Central Services":
General Definition
? A service that is performed centrally on behalf of
the rest of the organization
? Also known as general administration, overhead, back
office functions
State of Alaska Specific Definition
? A service that is performed centrally by one
department on behalf of all departments
Purpose
The central service agency is a subject matter
expert in their service area
? Centralized services benefit from economies of scale
for overall cost savings
9:05:58 AM
Mr. Steininger looked at slide 3, "Central Services
Currently":
Dept. of Law
Legal Services
Dept. of Education
Archives
Dept. of Transportation
Facilities Services
Capital Project Management
Leasing
State Equipment Fleet
Dept. of Administration
Risk Management
Administrative Systems (IRIS/ALDER)
Office of Information Technology
Shared Services
Personnel and Labor Relations
Procurement
Public Building Management
Leasing
Senator Hoffman remarked that there was always a fight
between centralization and decentralization. He stated that
one of the key factors was relation to how and where the
personnel would provide services during the centralization
process.
Mr. Steininger clarified that Senator Hoffman's question
was about the physical location of the services.
Senator Hoffman agreed.
Mr. Steininger explained that in some cases, centralization
of services may result in relocation. He stated that it
depended on the functions performed by the staff.
Senator Hoffman requested a list of personnel adjustments
that would result from the centralization.
Mr. Steininger agreed to provide that information.
9:10:39 AM
Mr. Steininger pointed to slide 4, "FY2022 Governor's
Budget Central Service Changes":
Transfer existing centralized services from
Administration to Transportation
? Public Building Management
? Leasing
Additional services centralized within Administration
? Procurement
? Personnel (Human Resources)
Senator von Imhof hoped that the administration was looking
at both cost and value of provided services. She used an
example to illustrate her point.
9:14:25 AM
Mr. Steininger addressed slide 5, "Central Services Costs":
Cost Distribution
? Central Service costs are charged to benefitting
programs using a cost allocation rate
? Also known as a chargeback rate
? Allocation rates are applied to a cost or activity
that drives costs within the central service agency
? For example, central human resource services charged
with a per employee rate
State of Alaska Specific Costs
? Greater than $380 million charged to all fund
sources
? Less than 4 percent of the overall state budget
Senator Hoffman wondered whether the $380 million
allocation would be a problem in the system.
Mr. Steininger responded that the maintenance and support
of the IRIS system was included in the $380 million, but
was a variable in the charge-back rate from the Division of
Finance. He stated that increased costs for the contractor
would result in a change to the $380 million.
Senator von Imhof wondered how there was certainty that
there was no compromise to quality and accountability. She
reiterated that she was grateful for the focus on cost, but
wanted to ensure that the change would work.
Mr. Steininger replied that Commissioner Tshibaka would
address how the Department of Administration (DOA) would
ensure the delivery of service. He stated that OMB would
ensure execution of the budget.
Co-Chair Stedman handed the gavel to Co-Chair Bishop.
9:20:49 AM
Co-Chair Bishop stated that he had worked on centralization
when he was the commissioner of the Department of Labor and
Workforce Development under former Governor Murkowski. He
wondered whether there were conversations with the
commissioners of the departments about the execution of
centralization. He shared that there could be a
centralization of services, but the personnel conducting
the service would still be in another separate department.
Senator Olson remarked that the process of centralization
and decentralization had been ongoing for as long as he
could remember in the legislature. He remarked that prior
centralization efforts were not particularly successful,
and wondered why this effort would be successful.
Mr. Steininger deferred to DOA, but stated that the
individuals that would be in the new Human Resources were a
part of the prior consolidation, so they understand the
lessons in that former centralization effort and the
resulting friction.
Senator Olson stressed that it was the third year of the
current administration's tenure. He wondered what would
occur with a change in governor.
Mr. Steininger understood that the consideration must be
made when evaluating a government organization. He shared
that the Office of Information Technology was a
centralization under the prior administration. He remarked
that the current administration was attempting to achieve
success in those centralized services.
9:25:22 AM
Senator Olson asked for more examples of successful
centralized services.
Mr. Steininger recalled that the Office of Information
Technology was created from the Enterprise Technology
Services, and brought on all of the technology support and
server management from agencies. He remarked that it was
not a perfect path, but it was a progress that showed
benefits of bringing together discrete activities by
applying consistent standards. He also shared that there
were similar accounting functions within the newly
consolidated Shared Services.
Senator von Imhof remarked that there had been many past
attempts at centralization and decentralization from
various administrations that were aiming for increased
value. She felt that there was an issue about an electronic
process versus a paper process; employee turnover; employee
communications; and other issues. she wondered how many
times there had been a decentralization and centralization
of certain programs over the previous twenty years. She
wondered whether there were other ways to add value.
Mr. Steininger responded that he did not know how many
times there were centralized and decentralized of services,
but agree to provide that information.
9:29:08 AM
Mr. Steininger discussed slide 6, "Rates Current System."
The slide showed the current process of allocated rates of
services. He stated that the current way of allocating
services was complicated and generated friction within
state agency finances, resulted in an issue of concern
about the cost of centralized services. He stated that the
slide showed a sample of the larger rates.
Senator Olson assumed that the slide referred to indirect
costs. He remarked that the indirect costs had not been
paid in full by the state, and queried the process for rate
negotiation with tribal organizations.
Mr. Steininger replied that the indirect costs were
primarily charged by DOA to state agencies. He did not know
how that would apply to tribal organizations.
Senator Olson wondered how OMB would negotiate the rates
with the different agencies within the state.
Mr. Steininger remarked that there were weekly meetings
with the administrative directors, and deferred to Ms.
Harbour for detailed information.
Ms. Harbour furthered that the point of the process was for
simplification, but agencies already know the charges. The
charges were negotiated later in the fiscal year in order
for it to be in the budget process to ensure the charges
were known.
9:35:06 AM
Senator Olson stressed that the effort often resulted in
benefits and drawbacks.
Ms. Harbour remarked that the advantage of developing the
rates during the budget process was that there could be an
accounting of the benefits and drawbacks during the
process.
Co-Chair Bishop surmised that there was an attempt to
create good public policy.
Mr. Steininger agreed.
Co-Chair Bishop looked at the DOT Public Building Fund,
which addressed the buildings in all agencies.
Mr. Steininger agreed, and remarked that the current system
was overly-complex and did not always lead to consistent
outcomes.
Co-Chair Bishop surmised that the multiplier did not
indicate enough.
Mr. Steininger agreed, based on the backlog list.
Ms. Harbour looked at slide 7, "Rates Principles for
Moving Forward":
? Simple
? Fewer rates
Fewer methods for distribution-group similar
rates
? Simplified payment process
?Predictable
? Set for budget development -integrated into
budget system
? Clear method to estimate program cost impacts
? Predictable billings -no end of year surprise
billings
? Based on lagging averages -average of three
prior year actuals
? Cost constraints -change how central service
agency costs are budgeted
? Mechanism to absorb large fluctuations
9:40:55 AM
Ms. Harbour looked at slide 8, "FY2022 Governor's Budget
Rate Changes":
Transfer State Facility Lease Funding from
Transportation to Occupying Agencies
? Consistent treatment of state facility leases
? Reflect true program costs
Reduce Shared Services and Information Technology
Budget Authority
? Align central service agency budgets with approved
rates
? Recognize efficiencies and realized savings
? Improve budget transparency
Senator von Imhof wondered whether there were things that
could be done without centralization, such as setting
simpler rates. She asked what specific problem required a
solution.
Mr. Steininger replied that rate simplification could be
achieved without centralization. He shared that the problem
of central service payment source existed before the
centralization of other services. He stated that
centralizing bigger services highlights the problem, hence
the requirement to address the problem.
9:46:37 AM
Senator von Imhof surmised that the commissioner would
address her concern about the benefit of centralization.
Mr. Steininger stated that OMB's focus on rate setting was
a focus.
Senator von Imhof stated that rate setting was a separate
issue.
Mr. Steininger stressed that the problems related to
further centralizing procurement or human resources (HR)
would be addressed by the commissioner.
Co-Chair Bishop handed the gavel to Co-Chair Stedman.
Senator Wielechowski queried the measured outcomes and
standards that were used to ensure the benefit of the
changes.
Mr. Steininger deferred to Commissioner Tshibaka.
9:48:56 AM
KELLY TSHIBAKA, COMMISSIONER, DEPARTMENT OF ADMINISTRATION
(via teleconference), introduced herself.
KATE SHEEHAN, DIRECTOR, DIVISION OF PERSONNEL AND LABOR
RELATIONS (via teleconference), introduced herself.
THOR VUE, DIRECTOR, OFFICE OF PROCUREMENT AND PROPERTY
MANAGEMENT, DEPARTMENT OF ADMINISTRATION (via
teleconference), introduced himself.
IAN SMITH, MANAGING DIRECTOR, ALVAREZ AND MARSAL (via
teleconference), introduced himself.
LESLIE ISAACS, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF TRANSPORTATION (via teleconference), introduced himself.
Mr. Isaacs discussed the presentation, "Procurement and HR
Consolidation" (copy on file). He looked at slide 2, "How
Are These Efforts Different?"
? DOA invested in pre-consolidation assessments,
developed by subject matter experts
? DOA is employing governance structure, giving other
departments a decision-making role in consolidation
decisions that affect them
? DOA has established Service Level Agreements (SLAs)
between each department and OPPM, DOPLR
? The consolidations were designed through
consolidation a collaborative, inclusive process,
involving the staff, stakeholders, and leadership of
other departments
Mr. Isaacs highlighted slide 3, "Coordination and Decision
Making":
HOW THESE DECISIONS WERE MADE
? Between mid-2019 and December 2020, DOA had 300+
formal engagements with other departments to implement
consolidations, not including ad hoc phone calls or
conversations between staff
? Governance structure led by the Alaska
Administrative Governance Council (AAGC), 5
commissioners, and OMB
? 4 Advisory Committees report to the AAGC: HR,
Procurement, IT, and Shared Services-Accounting. These
committees are comprised of representatives from
different departments
? Working groups staffed from across the departments
assist the Advisory Committees
9:55:29 AM
Mr. Vue addressed slide 4, "Procurement Consolidation":
History of the Procurement Consolidation
? February 2019: AO 304 Issued (Procurement
Consolidation Order)
? Over 100 employees held procurement delegation
throughout State agencies
? Decentralized model had significant drawbacks,
redundancies, difficulty sharing best practices,
difficulty enforcing procurement policies
? Consolidation benefits: commodity and contractual
cost savings, standardized, streamlined processes,
greater consistency, and control in procurement
Co-Chair Stedman handed the gavel to Senator von Imhof.
Mr. Vue pointed to slide 5, "Procurement Consolidation":
AAPEX Assessment (Alaska Administrative Productivity
and Excellence)
Focused on how to consolidate procurement to:
? Generate Cost Savings
? Improve Customer Satisfaction
? Achieve Process Efficiencies
? Address Staffing Challenges
Reviewed purchasing, warehousing, supply chain and
inventory management activities within the State.
Mr. Vue addressed slide 6, "Previous State of Procurement":
AAPEX found the decentralized structure resulted in
inefficiencies and operational issues
9:59:15 AM
Senator von Imhof felt that the presentation could continue
by moving to slide 9.
Mr. Vue pointed to slide 9, "Procurement Consolidation":
PCNs Were Selected Working With Departments
? 185 PCNs performed some sort of procurement
functions within state government
? DOA excluded PCNs that only had marginal connection
to procurement; 113 remained
? DOA sent a survey for each specific PCN and asked
Departments to analyze and provide an initial
allocation of percentage of duties spent in
procurement functions
? Reviewed Department responses starting in March 2020
? Departments asked to make recommendation on
appropriate staffing
? DOA determined final PCN count, including only staff
performing purchasing, procurement, contracts, and
related functions
? Ultimately, 62 positions, including 18 DOA PCNs were
considered within scope
? Remaining 44 positions were transferred into DOA by
January 2021
? Budget request transfers PCN funding from previous
to new departments
Senator von Imhof felt that there were some specialty items
that would be pertinent to specific departments. She
encouraged department in the subcommittee process to
address the functionality of the centralization, because
she felt that waiting six months for a department to
receive an item was not beneficial.
Senator Hoffman wondered whether there was personnel
relocation.
Mr. Vue replied that the department was mindful of the need
to provide a high level of customer service, so the
consolidation was approached in a dual model. He remarked
that there would be dedicated employees to service the
specific departments. He shared an example of centralized
procurement, as it relates to items that are used across
agencies and departments.
10:05:48 AM
Senator von Imhof remarked that she was eager to hear from
the commissioners in the subcommittee process. She stated
that she would like to skip to slide 11.
Mr. Vue addressed slide 11, "How will these save money?"
Procurement Consolidation
Strategic Sourcing Cost Savings Methodology
? Reduced actual spend by 20 percent, across all
categories, including current contracts, and accounted
for purchasing practices, geography, and vendor
availability;
? Additional spend reductions: some spend categories
were reduced as much as 64 percent to account for the
unique challenges faced in Alaska, up to and including
100 percent for some difficult-to-procure categories;
? Reduced spend was compared with proprietary
benchmarks which represent real-world sourcing results
in actual sourcing events. This results in a range of
savings for any particular category;
? Strategic sourcing savings do not include any
reductions in PCNs. Any future PCN-reduction based
cost savings from a procurement consolidation would be
separate from strategic sourcing savings.
Senator von Imhof felt that the HR component of the
proposal was important.
Ms. Sheehan pointed to slide 12, "Human Resources
Consolidation":
History of the HR Consolidation
? February 2019: AO 305 Issued (HR Consolidation
Order)
? Mandated all HR positions be transferred to
Division of Personnel and Labor Relations (DOPLR)
? HR was partially centralized but lacked
consistency; without standard processes,
Departments were operating under different
systems
? Purpose of AO was to streamline and increase
accountability of HR activities within the
Executive Branch by realigning HR staff to create
a clear reporting structure to the Director of
DOPLR and within respective agencies
August 2019: Work on Consolidation began in four
phases
Ms. Sheehan discussed slide 13, "Human Resources
Consolidation":
Phase I: Assessment, Research, Work Session, Mapping
of Processes, and Planning Activities
? Conducted by HR staff throughout the agencies, with
assistance of outside contractors that had prior
experience with DOTPF
? HR staff identified 70 process inefficiencies across
departments, including lack of standardization, lack
of digitization for on-paper practices, irregular pay
processing, and problems in recruitment, onboarding,
and retention
? Developed new organizational structure to address
inefficiencies and inconsistencies
10:10:25 AM
Senator Wielechowski wondered whether any consultants were
used to study the consolidations.
Ms. Sheehan replied in the affirmative.
Senator Wielechowski wondered whether the consultations
were conducted through a request for proposal (RFP) process
or a no-bid process.
Ms. Sheehan replied that there was a current contract with
Collins Alliance.
Senator Wielechowski wondered whether that was a bid
contract.
Ms. Sheehan replied that she would provide that
information.
Ms. Sheehan looked at slide 14, "Human Resources
Consolidation":
Phase II: Analyze and Design Phase (Began November
2019)
? Led by HR Transformation Leadership Team comprised
of HR staff, agency administrative staff (ASD and
Division Operations Manager), DOPLR Staff, Director of
DOPLR, and DOA Deputy Commissioner
? Meetings of the HR Transformation Leadership Team
were held every two weeks starting in February 2020
? The team determined which services were needed and
where they fit into the new structure
? HR staff in every department were asked to fill out
a survey with their top three preferences on where
they would want to work in the new structure; over 90
percent of staff got the positions they selected
Senator Hoffman wondered whether there were public records
of the team meetings.
Ms. Sheehan replied that there were not public records of
those meetings. She shared that there was more
communication in the current process, including town hall
meetings.
Senator Hoffman queried the location of the town hall
meetings.
Ms. Sheehan replied that the town hall meetings were held
on either Web X or Teams.
Senator Hoffman asked where the town hall meetings were
held.
Ms. Sheehan replied that the meetings were held online.
Senator Hoffman wondered whether Bethel participated in the
town hall meetings.
Ms. Sheehan responded that the town halls were for HR staff
and administrative service directors. She shared that there
were no current HR staff in Bethel.
Senator Hoffman stated that there was not a worry, because
there were no records.
Senator Wielechowski asked the name of the consulting firm.
Ms. Sheehan replied that it was Collins Alliance and Tandem
Motion.
10:15:04 AM
Senator Wielechowski asked about the experience of Tandem
Motion.
Ms. Sheehan replied that the principle of Tandem Motion had
years of experience in the type of consulting work for
various states and corporations. She agreed to provide
further information.
Senator Wielechowski requested a copy of the CV,
experience, and the cost of the contract.
Senator von Imhof wondered whether there was a written
record from the commissioners that asserted approval of the
centralization.
Ms. Sheehan replied in the affirmative, and shared that she
met regularly with the commissioners.
10:18:08 AM
AT EASE
10:19:00 AM
RECONVENED
Senator von Imhof stated that the HR consolidation portion
of the presentation would be set aside for another day, and
the meeting would continue with the presentation from the
Department of Transportation and Public Facilities (DOT).
10:20:02 AM
DOM PANNONE, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF TRANSPORTATION (via teleconference), discussed the
presentation, "Department of Transportation and Public
Facilities, Senate Finance Committee DFS Update" (copy on
file). He looked at slide 2, "Division of Facilities
Services":
Statewide Public Facilities
.notdefRegistered Professional Architects, Civil, and
Mechanical Engineers
.notdefPMI Project Management Professionals (PMP)
.notdefCertified Energy Management Professionals (CEM)
.notdefConstruction Contracting Officer
Facilities Maintenance and Operations
.notdefFacilities and Building Maintenance Managers
.notdefMaintenance professionals spanning all building trade
disciplines (carpentry, plumbing, electrical, HVAC,
building automation)
.notdefCapabilities range from ground up construction to
routine maintenance and repairs throughout all regions
of state
.notdefComputerized Maintenance Management System (CMMS)
Established FY2019
Mr. Pannone discussed slide 3, "Computerized Maintenance
Management System (CMMS)":
The intent of the Computerized Maintenance Management
System is to provide an enterprise level management
system for all State of Alaska departments who own or
manage facilities, lease space, and manage projects.
Mr. Pannone pointed to slide 4, "Current and Future
Service":
Currently Providing Service to
.notdefDepartment of Education and Early Development
.notdefDepartment of Health and Social Services
.notdefDepartment of Administration
.notdefDepartment of Labor and Workforce Development
.notdefDepartment of Public Safety
.notdefDepartment of Transportation and Public Facilities
.notdefAlaska Court System
Future Services
.notdefOnboarding two more departments by FY2022, DNR and
DEC.
.notdefConsolidate Leasing and Public Building Fund
functions from DOA in FY2022.
.notdefOnboarding DFG and DMVA by FY2023.
10:25:24 AM
Mr. Pannone looked at slide 5, "Lease Management and Public
Building Fund Facilities."
Mr. Pannone discussed slide 6, "Facilities Budget
Alignment." He stated that the department had an increased
accountability with the dollars in expenses. He shared
that, traditionally, DOT had billed out for their buildings
that may be occupied by other state agencies based on
actual expenses. He stated that it was found that some
agencies had occupied space but did not pay anything, so
did not know the cost of the space. Therefore, DOT paid for
the operating components from their own budget. He stated
that the proposal would transfer the UGF to the occupying
agency, so their budgets could reflect the true cost of
delivering their services.
Senator von Imhof discussed housekeeping.
ADJOURNMENT
10:29:24 AM
The meeting was adjourned at 10:29 a.m.
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