Legislature(1993 - 1994)
11/17/1993 01:00 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
JOINT SENATE LABOR & COMMERCE COMMITTEE AND SENATE ECONOMIC DEVELOPMENT TASK FORCE Anchorage, AK November 17, 1993 1:00 p.m. SENATE LABOR & COMMERCE COMMITTEE MEMBERS PRESENT Senator Tim Kelly, Chair Senator Georgianna Lincoln SENATE LABOR & COMMERCE COMMITTEE MEMBERS ABSENT Senator Steve Rieger, Vice Chairman Senator Bert Sharp Senator Judy Salo SENATE ECONOMIC DEVELOPMENT TASK FORCE MEMBERS PRESENT Senator Tim Kelly, Chair Senator Suzanne Little Senator Fred Zharoff SENATE ECONOMIC DEVELOPMENT TASK FORCE MEMBERS ABSENT Senator Bert Sharp Senator George Jacko Senator Robin Taylor Senator Rick Halford ALSO PRESENT Senator Loren Leman COMMITTEE CALENDAR SENATE BILL NO. 212 "An Act relating to publications produced by state agencies and to the procurement of property, property interests, and services by state agencies." PREVIOUS SENATE COMMITTEE ACTION SB 212 - No previous action to record. WITNESS REGISTER Josh Fink, Committee Aide Senate Labor & Commerce Committee State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Offered information on SB 212 Mary Rucker, Director Buy Alaska Program Anchorage, AK POSITION STATEMENT: Supports SB 212 Steven Rousse, Executive Director Make It Alaskan, Inc. 2606 C St. Anchorage, AK 99501 POSITION STATEMENT: Testified on SB 212 Peggy Thomas XPERT Consultants Anchorage, AK 99501 POSITION STATEMENT: Testified on SB 212 David Martin McKinley Capital Management, Inc. 3301 C St. Anchorage, AK 99501 POSITION STATEMENT: Offered testimony on SB 212 Herb Berkowitz Berkowitz Futures Advisory, Inc. 840 K St. Anchorage, AK 99501 POSITION STATEMENT: Testified on SB 212 Alan Johnson Wedbush Morgan Securities, Inc. 4300 B St. Anchorage, AK 99501 POSITION STATEMENT: Supports SB 212 Fred Koken, Senior Vice President Shearson Leman Brothers, Inc. 123 Seward St. Juneau, AK 99801 POSITION STATEMENT: Supports SB 212 Bill Scott, Executive Director Bills Means, Chief Investment Officer Terry Brown Alaska Permanent Fund Corporation P.O. Box 25500 Juneau, AK 99811-5500 POSITION STATEMENT: Offered information on SB 212 Chris Gates, Director Division of Economic Development Department of Commerce & Economic Development P.O. Box 110804 Juneau, AK 99811-0804 POSITION STATEMENT: Testified on SB 212 Loren Rasmussen, Chief Design, Construction Standards Division Department of Transportation & Public Facilities 3132 Channel Drive Juneau, AK 99801-7898 POSITION STATEMENT: Testified on SB 212 Dugan Petty, Director Division of General Services Department of Administration P.O. Box 110210 Juneau, AK 99811-0210 POSITION STATEMENT: Testified in support of SB 212 Charles Gray P.O. Box 70710 Fairbanks, AK 99707 POSITION STATEMENT: Supports SB 212 Wayne Clark Graphic North 152 Old Steese Highway Fairbanks, AK 99709 POSITION STATEMENT: Supports SB 212 Paul Gauthier & David Thoene North Star Color Anchorage, AK POSITION STATEMENT: Testified in support of SB 212 Bob Pavitt Capital Copy, Ltd. 123 S. Seward St. Juneau, AK 99801 POSITION STATEMENT: Supports SB 212 Jim Krebs, Vice President Ken Wray's Printing 323 E. Fireweed Lane Anchorage, AK 99501 POSITION STATEMENT: Testified on SB 212 Paul Martone A T Printing Anchorage, AK POSITION STATEMENT: Supports SB 212 ACTION NARRATIVE TAPE 93-33, SIDE A Number 001 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 infrastructure. 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 preferences. 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 program. 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 operations. 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 subcontractors. 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 project. 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 sector. 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.