ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 25, 2011
3:30 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Dan Saddler
Representative Steve Thompson
Representative Lindsey Holmes
Representative Bob Miller
MEMBERS ABSENT
Representative Craig Johnson, Vice Chair
Representative Mike Chenault
COMMITTEE CALENDAR
HOUSE BILL NO. 125
"An Act moving the Alcoholic Beverage Control Board to the
Department of Commerce, Community, and Economic Development and
relating to duties of that department; and providing for an
effective date."
- MOVED CSHB 125(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 147
"An Act setting a monthly salary for the executive secretary of
the Board of Public Accountancy."
- MOVED OUT OF COMMITTEE
HOUSE BILL NO. 155
"An Act relating to public construction contracts."
- HEARD & HELD
HOUSE BILL NO. 118
"An Act relating to a tax credit for corporate income taxes paid
for qualified research and development expenditures; and
providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 125
SHORT TITLE: ALCOHOLIC BEVERAGE CONTROL BOARD
SPONSOR(s): RULES BY REQUEST OF LEG BUDGET & AUDIT
01/26/11 (H) READ THE FIRST TIME - REFERRALS
01/26/11 (H) L&C, FIN
02/09/11 (H) L&C AT 3:15 PM BARNES 124
02/09/11 (H) Heard & Held
02/09/11 (H) MINUTE(L&C)
02/16/11 (H) L&C AT 3:15 PM CAPITOL 106
02/16/11 (H) Heard & Held
02/16/11 (H) MINUTE(L&C)
02/18/11 (H) L&C AT 3:15 PM CAPITOL 106
02/18/11 (H) Scheduled But Not Heard
02/25/11 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 147
SHORT TITLE: BOARD OF PUBLIC ACCOUNTANCY SECRETARY
SPONSOR(s): LABOR & COMMERCE
02/09/11 (H) READ THE FIRST TIME - REFERRALS
02/09/11 (H) L&C, FIN
02/25/11 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 155
SHORT TITLE: PUBLIC CONSTRUCTION CONTRACTS
SPONSOR(s): LABOR & COMMERCE
02/11/11 (H) READ THE FIRST TIME - REFERRALS
02/11/11 (H) L&C
02/25/11 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
SUE STANCLIFF, Special Assistant
Office of the Commissioner
Department of Public Safety (DPS)
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 125.
JOELLEN HANRAHAN, Director
Division of Administrative Services
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 125.
JENNIFER SENETTE, Staff
Representative Kurt Olson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 147 and HB 155 on behalf of
the prime sponsor, the House Labor & Commerce Committee,
Representative Kurt Olson, Chair.
DON RULIEN, Member
Alaska Society of Certified Public Accountants (ASCPA);
Council Member, American Institute of Certified Public
Accountants (AICPA)
Anchorage Alaska
POSITION STATEMENT: Testified during the discussion of HB 147.
GREY MITCHELL, Director
Division of Labor Standards & Safety
Department of Labor & Workforce Development (DLWD)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 155.
GARY KNOPP, President
Assembly
Kenai Peninsula Borough Assembly (KPB)
Kenai, Alaska
POSITION STATEMENT: Testified during the discussion of HB 155.
MARK FOWLER, Purchasing and Contracting Officer
Kenai Peninsula Borough (KPB)
Kenai, Alaska
POSITION STATEMENT: Testified in support of HB 155.
SCOTT BLOOM, Assistant Attorney
Kenai Peninsula Borough (KPB)
Kenai, Alaska
POSITION STATEMENT: Testified in support of HB 155.
ROBERT RUTHNER, Executive Director
Kenai Watershed Forum (KWF)
Kenai, Alaska
POSITION STATEMENT: Testified during the discussion of HB 155.
RON KOVALIK
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 155.
TIM BECK
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 155.
MITCHELL ROCKIER
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 155.
ACTION NARRATIVE
3:30:03 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:30 p.m. Representatives Olson,
Miller, Saddler, Thompson, and Holmes were present at the call
to order. Representative Mike Hawker was also in attendance.
3:30:17 PM
HB 125-ALCOHOLIC BEVERAGE CONTROL BOARD
3:30:25 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 125, "An Act moving the Alcoholic Beverage
Control Board to the Department of Commerce, Community, and
Economic Development and relating to duties of that department;
and providing for an effective date."
3:30:48 PM
SUE STANCLIFF, Special Assistant, Office of the Commissioner,
Department of Public Safety (DPS), stated that the committee
requested an explanation on the fiscal note. The Alcoholic
Beverage Control Board (ABC Board) would be transferred from the
Department of Public Safety (DPS) to the Department of Commerce,
Community & Economic Development (DCCED), and the funding which
is agency receipts is transferred to the DCCED. She advised
that there is not any carryover or administrative costs
necessary to transfer. The DPS essentially removes the ABC
Board from its budget. She asked to read a written statement
into the record, which she read, as follows:
As you all probably know, the Division of Legislative
Finance is automating the fiscal note process this
year to provide improved error checking on the initial
fiscal note submission. Legislative Finance is
working with the Governor's Legislative Office of
Management and Budget (OMB) on this process.
Ultimately this new system and the coordination
between government branches and agencies will result
in an improved process.
The initial fiscal noted by the Department of Public
Safety dated 2/8/11 showed an appropriation required
in FY 12 as $429.8, that is $429,000, and showed and
showed an increase of $74.7 thousand in FY 13 through
FY 17. Although those were the amounts shown on the
expenditures and revenues section of the fiscal note,
the analysis explained that those were costs that the
ABC Board expected to incur if they are to relocate to
the Department of Commerce, Community & Economic
Development. As noted in the analysis, the bulk of
that increase was based on an estimate provided by
DCCED. There was no increase of any kind that would
have gone to the Department of Public Safety (DPS) in
any circumstances. We prepared the fiscal note based
on advice from OMB about the proper form of the fiscal
note. In particular, it was OMB's understanding that
for the new fiscal note process, both DPS and DCCED
fiscal notes needed to reflect the increased cost even
though only DCCED would have actually had a request
for additional funding. After the fiscal note was
submitted the director for Administrative Services
contacted Legislative Finance fiscal analysts and
questioned why DPS would have a positive note when we
simply should have simply had a negative fiscal note
reflecting the ABC Board leaving DPS. In ensuing
conversations between all parties it was determined
that there had been a misunderstanding of how DPS
fiscal notes should have been shown. DPS then
submitted a corrected fiscal note dated 2/15/11, which
accurately reflects the impact to DPS if HB 125 passes
in its current form, namely that all costs and staff
associated with the ABC Board will be transferred from
DPS to DCCED. The fiscal note now reflects there is a
negative fiscal impact to DPS because those costs will
no longer be reflected in the department's budget. We
apologize for any confusion that may have resulted
from this process.
MS. STANCLIFF related her understanding that staff at OMB has
discussed this situation with Representative Hawker. She
deferred to the DCCED to discuss the respective fiscal note.
She said she hopes this alleviates concerns over the DPS fiscal
note and explains that accurately.
3:35:00 PM
JOELLEN HANRAHAN, Director, Division of Administrative Services,
Department of Commerce, Community & Economic Development (DCCED)
agreed with Ms. Stancliff's sentiments. She explained the
fiscal note process has been confusing and the department is
working under shorter timelines to try to get fiscal notes
processed. She referred to the DCCED's fiscal note. She
clarified that DPS's fiscal note shows a negative impact and
DCCED's fiscal note shows a positive amount to move the ABC
Board to commerce. The DCCED's fiscal note also shows an
increased cost of $247,500 which reflects a one-time technology
information cost to move the database to the DCCED. It also
lists an ongoing cost to cover the administrative support within
the DCCED.
MS. HANRAHAN elaborated that the fee increase for the
information technology (IT), which is the bulk of the cost
increase, was determined by the DPS and DCCED's technical teams.
The IT teams reviewed whether the ABC Board's data system was
compatible with the DCCED's system. The IT determined some
issues since the DPS system operates differently than the
DCCED's system. The DPS system includes its own firewall that
isolates it from the state's system. Additionally, the DPS uses
an active directory system which is also not integrated into the
state's system. She related that the DB systems are technical.
She likened it to removing the 7th floor of a 15 story building,
but everything within the walls and the foundation supports the
IT function. Thus, all the equipment must be reconfigured since
the DCCED and DPS's support foundations are different. However,
if the 7th floor was relocated to the 9th floor in the same
building, the system would be easier to reconfigure.
MS. HANRAHAN stated that if the ABC Board was on the same state
system it would cost less to integrate the ABC Board to the
DCCED. The additional cost is to replace some of the equipment
that the applications use since the equipment will not be moved.
The DCCED has overhead costs for the commissioner's office and
the administrative services are primarily inter-agency funded.
The department uses an approved allocation plan that is based on
weighted positions and efforts. This plan allocates the
commissioner's office and the administrative services' costs to
the agencies, whereas the DPS is primarily general funded so
most of their costs are not allocated. One small ongoing cost
is the allocated cost for fiscal, budget, IT, human resources,
and statewide support from the agency, including accounting,
travel processing.
3:41:57 PM
REPRESENTATIVE SADDLER inquired as to whether some automation
would occur as a result of the auto-pay functions. He asked why
the costs never seem to decrease despite the efficiencies
gained.
MS. HANRAHAN answered that the cost allocation plan would be
adjusted over time based on changes in the organization and in
the levels of effort needed. The current projected costs
reflect the FY 12 costs, but level of effort will become more
stable once the board is more established in the DCCED.
CHAIR OLSON conferred with the sponsor and related there are no
additional fiscal notes to consider.
3:43:33 PM
REPRESENTATIVE SADDLER made a motion to adopt Amendment 1,
labeled 27-LS0378\M.2, Gardner, 2/7/11, which read as follows:
Page 1, line 3, following ";":
Insert "relating to the exercise of peace officer
powers granted by the Alcoholic Beverage Control
Board;"
Page 2, following line 6:
Insert a new bill section to read:
"* Sec. 3. AS 04.06.110 is amended to read:
Sec. 04.06.110. Peace officer powers. The
director and the persons employed for the
administration and enforcement of this title may, with
the concurrence of the commissioner of public safety,
exercise the powers of peace officers when those
powers are specifically granted by the board. Powers
granted by the board under this section may be
exercised only when necessary for the enforcement of
the criminally punishable provisions of this title,
regulations of the board, and other criminally
punishable laws and regulations, including
investigation of violations of laws against
prostitution and promoting prostitution described in
AS 11.66.100 - 11.66.130 and laws against gambling,
promoting gambling, and related offenses described in
AS 11.66.200 - 11.66.280. Unless authorized by a
search warrant described in AS 12.35.010 - 12.35.120,
nothing in this section authorizes the use of magnetic
card keys or identification cards to access private
clubs."
Renumber the following bill sections accordingly.
CHAIR OLSON objected for the purpose of discussion.
3:44:02 PM
REPRESENTATIVE SADDLER referred to page 1, line 3, of Amendment
1, which is additional language necessary for the title change.
He referred to page 2, line 6, which removes the requirement for
key cards. He said he heard from managers of clubs and
patriotic organizations that they needed to obtain
identification or key cards. He related that the clubs should
not have to provide the cards and this language would remove
that requirement.
REPRESENTATIVE SADDLER made a motion to conceptually amend
Amendment 1, on line 18 after "of" insert "metal keys," and on
line 19, after "card keys" insert ",". This would remove the
requirement for private clubs to have magnetic card keys or
metal keys unless authorized by a search warrant described in AS
12.35.010 - 12.35.120, he stated.
There being no objection, the conceptual amendment to Amendment
1 was adopted.
CHAIR OLSON removed his objection to Amendment 1. There being
no further objection, Amendment 1, as amended, was adopted.
3:46:11 PM
REPRESENTATIVE HOLMES moved to report HB 125, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, the CSHB 125(L&C) was
reported from the House Labor and Commerce Standing Committee.
3:46:53 PM
The committee took an at-ease from 3:46 p.m. to 3:50 p.m.
3:46:55 PM
HB 147-BOARD OF PUBLIC ACCOUNTANCY SECRETARY
3:50:45 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 147, "An Act setting a monthly salary for the
executive secretary of the Board of Public Accountancy."
3:50:50 PM
JENNIFER SENETTE, Staff, Representative Kurt Olson, Alaska State
Legislature, on behalf of the House Labor & Commerce Committee,
Representative Kurt Olson, Chair, stated that HB 147 would set
the monthly salary of executive secretary for the Board of
Public Accountancy (BPA) at a range 23. She mentioned the
executive secretary position was created during the last
legislature, which was widely recognized and supported since the
all volunteer board was understaffed and struggling to fulfill
its mission. The BPA involves the protection of the public
interest since it has jurisdiction over all public accountants
statewide. After the position was created, the Department of
Administration established the salary at a range 19. The
sponsor believes that the BPA will not be able to attract a
qualified candidate to the position at that range.
3:52:47 PM
MS. SENETTE advised members that the bill that created the
position called for it to be at a range 23. The fiscal note
called for the position to be a range 23. The CPAs statewide,
the BPA, and the Alaska Society of Certified Public Accountants
all supported this position at a range 23. The CPAs in the
state pay the executive secretary's salary from its license
fees. Their support is vital and the signals from within the
industry provide recognition that a range 23 is appropriate for
this position. The body of professional knowledge is vast,
professional standards can be complex and requires professional
expertise, knowledge and experience. The executive secretary
represents Alaska's CPAs at the National Association of the
Boards of Public Accountancy (NABPA). This organization
significantly addresses policy changes, including enforcement
standards, and proposed revisions to statutes and regulations.
This is an active board and it is important that Alaska has
adequate representation to express Alaska's position on issues.
The BPA needs to attract someone with appropriate credentials to
engage with the national board. She stated that a range 19
earns approximately $58,000 whereas a graduate without
experience can earn $60,000 without a license. The executive
secretaries nationwide are paid significantly higher than a
range 19. She stated that the fact that the Department of
Administration (DOA) did not consider the market factor will
greatly hamper the BPA's efforts to attract and retain an
executive secretary. She reiterated the support for the bill.
She stated that the DOA signals its willingness to work with the
legislature in terms of its decision on the appropriate range
for this position.
3:56:42 PM
REPRESENTATIVE HOLMES asked for the base salary for a range 23.
MS. SENETTE said she did not have the base salary information
for a range 23 employee.
CHAIR OLSON pointed out that this bill was introduced at the
request of Department of Administration (DOA).
3:57:47 PM
DON RULIEN, Member, Alaska Society of Certified Public
Accountants (ASCPA); Council Member, American Institute of
Certified Public Accountants (AICPA), stated that HB 147 is
important to the profession. The professional knowledge needed
is technical and comprehensive, covering audits, state and
federal income tax arena, and ethical standards. The
enforcement can be complex and it is imperative that the Alaska
BPA not be further hampered by an inexperienced executive
secretary. The ASCPA believes HB 147 is an important bill. In
response to Chair Olson, Mr. Rulien agreed the CPA license fees
pay for the cost of the CPA's executive secretary.
3:59:11 PM
REPRESENTATIVE SADDLER asked whether the ASCPA has anyone in
mind as a candidate at a range 23. He suggested that it would
be a good job for an Alaskan.
MR. RULIEN said he was uncertain. In further response to
Representative Saddler, Mr. Rulien responded that the ASCPA
would like someone in Alaska with CPA experience. He reiterated
that as previously mentioned a person graduating from college
with a degree in accounting can earn $60,000 prior to licensure.
He characterized the field of accounting as a tight market right
now.
3:59:57 PM
REPRESENTATIVE THOMPSON asked whether the BPA had any problems
keeping the executive secretary position manned.
MR. RULIEN answered that the BPA has experienced significant
staff turnover. At one point the administrator position was
shared with other boards. He offered his belief that the
training period would require an extensive training period in
order for the executive secretary to learn the CPA rules in
Alaska.
REPRESENTATIVE HOLMES answered her earlier question. She
advised members that a range 19 step A is set at $59,000 and a
range 23, step A would earn $77,100 per year. She suggested
someone could check her math as she based it on the monthly
salary schedule. She related the specific salary would be
$6,425 per month for a range 23, step A.
4:01:27 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 147.
REPRESENTATIVE HOLMES moved to report HB 147 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 147 was reported from the
House Labor and Commerce Standing Committee.
4:02:29 PM
The committee took an at-ease from 4:02 p.m. to 4:07 p.m.
4:07:18 PM
HB 155-PUBLIC CONSTRUCTION CONTRACTS
4:07:24 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 155, "An Act relating to public construction
contracts."
4:07:40 PM
JENNIFER SENETTE, Staff, Representative Kurt Olson, on behalf of
the prime sponsor, the House Labor & Commerce Committee, chaired
by Representative Kurt Olson explained that this bill
accomplishes two things. It raises the trigger point for when
public construction projects must adhere to the Little Davis-
Bacon Act (LDBA) for prevailing wages. Currently, the threshold
for Alaska's Little Davis-Bacon Act is set at $2,000. This bill
would raise the threshold to 75,000 before the LDBA would be
triggered. This bill would establish a boundary between
maintenance, which would not subject to the LDBA and public
construction, which is subject to the Little Davis-Bacon wages.
4:08:30 PM
MS. SENETTE referred to Section 1 of HB 155, which specifies
that the chapter only applies to public construction projects
over $75,000. She explained that during the great depression,
the Congress enacted a federal statute, the Davis-Bacon Act,
which required prevailing wages as the minimum wage to be paid
on public works projects. Subsequently, states enacted similar
laws, which are known as the Little Davis-Bacon Acts (LDBA).
She referred to the LDBA in Alaska, which is located in Title
36. That law currently applies to public construction contracts
over $2,000. This limit is modeled after the limit included in
the federal Davis-Bacon Act. She emphasized that the federal
Davis-Bacon Act was enacted during the Great Depression in 1935.
The reason for the threshold was to acknowledge that some
projects are simply too small to justify the administrative
burden associated with the Davis-Bacon compliance. Currently,
if a project falls under the threshold the municipality or
community does not have to go through the "administrative hoops"
necessary to comply with the LDBA, including certified payroll,
additional reporting requirements, and filing with the Alaska
Department of Labor and Workforce Development (DLWD). She
characterized the requirements as a substantial administrative
burden. She highlighted that in Alaska and particularly in
rural Alaska it is hard to find a public construction project
that does not exceed $2,000. The federal limit was based on a
mobile workforce during a time when communities were easily
accessible. In Alaska, many communities are accessible only by
ferry or barge so by the time the materials are transported and
the logistical factors are considered, the cost will probably
greatly exceed $2,000, she surmised.
4:11:04 PM
MS. SENETTE stated that in practice imposing such a low
threshold has the effect of not having a threshold. She
highlighted that the low threshold also has the effect of
discouraging economic development since the rigidity of the LDBA
compliance requirements discourages smaller firms from
submitting bids on projects. In rural areas it can also mean
that workers must be imported to perform work that otherwise
could have been done by local workers had local firms bid on the
jobs. Raising the threshold would create opportunities for
smaller contractors, who may not have had the experience or
desire to content with the LDBA requirements. These smaller
contractors would be eligible for more projects not subject to
the LDBA. A number of other states have raised their
thresholds, with the average threshold amount of $108,000. She
reported that 19 other states current have higher thresholds
than suggested by HB 155. She related that the DLWD list is in
members' packets. She reiterated the current federal threshold
was set in 1935 by the Davis-Bacon Act and Alaska's LDBA is
modeled after that federal law. She stated that the inflation
alone justifies an increased trigger point, but the specific
impacts on Alaska she just mentioned support increasing the
threshold amount proposed in HB 155.
4:12:58 PM
MS. SENETTE referred to Section 8 of HB 155, which would clarify
maintenance and construction requirements. This bill attempts
to exclude maintenance contracts from the definition of public
construction. Thus, maintenance contracts would not be subject
to the LDBA under the bill. The current statute broadly defines
construction, yet it is unclear which projects are considered
construction projects and which ones are considered maintenance
projects. There is a huge difference between maintenance and
construction. Filling 15 potholes or replacing guardrails along
the roadway should be considered maintenance work and should not
be subject to the LDBA prevailing wages. The fiscal note
reflects a $396,000 decrement, which is due to the decrease in
filing fees. She pointed out letters of support from
organizations and municipalities in members' packets. This bill
has generated considerable public comment, she said.
4:14:46 PM
REPRESENTATIVE MILLER asked for the rationale to increase the
threshold from $2,000 to $75,000 before the job is subject to
the LDBA.
MS. SENETTE answered that the original conversation with
municipalities suggested an increase the threshold for the LDBA
to $250,000, but that figure seemed too significant of an
increase. The prime bill sponsor wanted to start lower, she
offered.
REPRESENTATIVE MILLER asked if $75,000 was selected for any
particular reason.
CHAIR OLSON said, "That number was pulled out of the air." He
related the $75,000 is not as high as the average increase
adopted by other states that have increased the threshold for
the LDBA. He offered his belief that HB 155 must be a
collaborative effort between the unions, the public entities,
and the legislature. He suggested the amount will likely be
lower. He anticipated some amendments will be necessary to
clean up language and address the threshold limit. He further
suggested the amount might be as low as $50,000 or slightly
less. He reiterated the threshold amount must be palatable to a
number of people.
4:16:38 PM
REPRESENTATIVE SADDLER referred to page 3, line 29, of HB 155
and asked for the different between rehabilitation work covered
under the bill and maintenance, which would not be covered.
MS. SENETTE deferred to the Department of Labor & Workforce
Development (DLWD) to address the definitions.
REPRESENTATIVE HOLMES also asked for clarification on how repair
work would differ from maintenance work.
4:17:29 PM
GREY MITCHELL, Director, Division of Labor Standards & Safety,
Department of Labor & Workforce Development (DLWD), stated that
the department relies on a 1982 attorney general's opinion that
draws a distinction between repair work subject to the LDBA, and
maintenance work, which is not subject to the LDBA. It hinges
on whether new material is needed for the project. If a roadway
is resurfaced, graded, and potholes are cleaned out and
repaired, it is considered maintenance and the project is not
subject to the LDBA. However, if new materials such as
truckloads of dirt are necessary or new guardrail must be used,
the project would be considered repair work rather than
maintenance work.
4:18:56 PM
REPRESENTATIVE HOLMES said she would like to review the 1982
attorney general's opinion. She referred to page 4 of HB 155
and stated the definition of maintenance does not bear any
resemblance to what he just described. She was unsure of what
rehabilitation or repair work would be subject to the LDBA and
maintenance work. The definition of maintenance in HB 155 does
not speak to new or used materials.
MR. MITCHELL agreed. He said the language in HB 155 does not
match the DLWD's interpretation of maintenance and repair work.
CHAIR OLSON agreed that this is one issue he is working to
resolve.
REPRESENTATIVE HOLMES asked the committee to also consider
definitions for rehabilitation and repair since the terms seem
to be overlapping concepts.
4:20:37 PM
REPRESENTATIVE HOLMES asked whether school districts and
regional education attendance areas (REAAs) would be exempt from
the bill.
CHAIR OLSON offered his belief that the REAAs will need further
clarification.
REPRESENTATIVE MILLER related he had the same question.
4:21:24 PM
REPRESENTATIVE HOLMES asked for the DLWD's position on HB 155.
MR. MITCHELL answered that the DLWD is neutral on the bill.
4:22:18 PM
GARY KNOPP, President, Assembly, referred to line 3 of the
second paragraph in the sponsor statement, which refers to the
bill updating an antiquated statute/ This is what HB 155 does,
he said. He related that the current statute erodes the
purchasing dollars for local communities and taxpayers. He
highlighted that the dollar threshold for the LDBA exists due to
the wide recognition that some projects are simply too small to
justify the overhead associated with compliance with the law.
He stated that these requirements drive a lot of contractors
away from participation on LDBA projects. He acknowledged that
the sponsor statement is accurate. He reiterated that the bill
would only affect local and state projects, since the federal
projects would be subject to LDBA. A lot of the KPB's revenue
is derived from service areas with small revenue streams. It is
detrimental to the KPB since it must pay prevailing wage rates
for small maintenance projects such as filling potholes or
redistributing gravel. He offered his belief that the
definition of maintenance and repair is almost one and the same.
Since the term is so broadly defined in statute, it has been the
KPB's experience that the DLWD interprets any public project
over $2,000 as a construction project. The difference between
maintenance and repair should not be based on whether new
material is used but rather on the overall value of the project.
He wondered if a project less than $75,000 should warrant using
the LDBA with the additional requirements necessary to comply
with the law. He hoped the committee would consider these
issues. In response to Chair Olson, he offered to address any
amendments at the next hearing.
4:26:36 PM
MR. KNOPP referred to the fiscal note and analysis. He said
that the filing fee is not necessary for all projects up to
$25,000. He pointed out that the filing fee of one percent does
not "kick in" until the $25,000 threshold is reached. Thus, the
fiscal impact should be based on projects from $25,000 to the
proposed $75,000 threshold, he said. He referred to the fiscal
note analysis that lists 1,413 public construction projects with
contract values of less than $75,000, which he thought
represents about 70 percent of all projects. He surmised it
would also considerably reduce the DLWD workload, which would
translate to substantial savings to the state. He referred to
page 12 of the FY 05 Legislative Audit report, 05-4605, which
suggests a deluge of certified payrolls up to $4,000 per week
negates any systematic screening by the DLWD. This bill would
drastically reduce the department's workload since the public
construction projects total 2,200 and the DLWD is currently
bombarded with certified payrolls. He referred to the FY 2000
Legislative Audit Report, which recommended a shift to a $25,000
threshold. The audit also suggested defining the terms
maintenance and construction, he reported.
4:29:01 PM
MR. KNOPP stated that he is also a contractor and performs some
"dirt work." He said that he could pay an equipment operator
$25 per hour, but that it would cost and additional 32 to 35
percent for the Workers' Compensation and unemployment insurance
for the employee. However, the cost for an employee on a
prevailing wage job to perform the same work would cost $86 to
$87 dollars per hour. The wages alone would increase from $25
to $47 per hour, he remarked. Additionally, since insurance
premiums are based on the payroll costs, his Workers'
Compensation and general liability would also increase. He
predicted it costs nearly 100 percent more for LDBA employee
costs.
4:30:04 PM
MR. KNOPP referred to the fiscal note. He related that the
committee should consider that the $152,000 in filing fees
actually "belongs" to contractors and local contractors, which
is significant to the taxpayers.
4:30:40 PM
MARK FOWLER, Purchasing and Contracting Officer, Kenai Peninsula
Borough (KPB), stated that the KPB mayor provided a letter of
support for HB 155, which he hoped the committee has received.
The KPB believes this bill will benefit the KPB by providing
additional buying power and encouraging smaller contractors to
bid on small contracts. The KPB is approximately 25,000 square
miles, with many communities and villages spread throughout.
The KPB encounters a small pool of contractors in the remote
communities who are capable of meeting the KPB's needs.
However, the KPB has found many small contractors are less
willing to participate on contracts subject to the LDBA. The
LDBA requirements drive up the cost of doing business and fail
to generate local work for contractors.
4:32:25 PM
MR. FOWLER related a scenario in which the KPB identified a need
for fencing. A local contractor bid $7,500 for the job, which
exceeded the $2,000 threshold and was subject to the LDBA. Once
the contractor found out the job was subject to the LDBA, he was
no longer interested due to the administrative burden posed by
the law. The KPB paid in excess of $18,000 for a non-local
contractor to perform the same scope of work. Often communities
are logistically challenged, he said. Numerous smaller less
complex projects have been negatively impacted due to the low
threshold. He reiterated that smaller less complex projects
that are subject to the LDBA are burdensome to the contractor
and the DLWD. The KPB believes that HB 155 would benefit the
KPB's residents and contractors. He referred to the fiscal note
and stated that the DLWD does not receive a filing fee for
projects less than $25,000, but the department must process all
projects over $2,500. The DLWD does not receive any filing fee
for jobs between $2,500 and $75,000. These projects require
considerable administrative effort without any compensation to
the DLWD. He predicted if the threshold is increased as
proposed by HB 155, that the DLWD will receive a filing fee on
all projects it processes.
4:35:01 PM
REPRESENTATIVE HOLMES related her understanding that HB 155
would accomplish three things: it would increase the current
$2,000 threshold for the LDBA projects, would change the
definitions to exclude maintenance work, and would exempt school
districts and REAAs. She asked whether the KPB's main interest
is with the monetary aspects of the bill.
MR. FOWLER answered the KPB supports HB 155 in its entirety. He
suggested that his scenarios related to his work experience at
the KPB.
4:36:27 PM
SCOTT BLOOM, Assistant Attorney, Kenai Peninsula Borough (KPB),
stated that he provides legal guidance for capital projects,
road service, and maintenance departments, as well as other
legal guidance for the KPB. The LDBA is unduly burdensome on
the municipal public construction and maintenance activities.
Currently, the statutes lack sufficient clarity for the KPB to
accurately determine which projects are subject to the LDBA and
which are not. He asked to focus on Section 8 of HB 155 to the
definitions for public construction and maintenance. The
proposed language is a departure from the current framework. It
is based on a 1982 attorney general's opinion and little if any
case law provides guidance to better define maintenance from
construction. The KPB's road service area contracts out
maintenance service for its roads. These activities include
plowing and grading roads, maintaining ditches, brushing,
replacing culverts, applying calcium chloride, and fixing
potholes and sink holes. Additionally, contractors will also
replace lost gravel and travel surfaces. The road service area
has a Capital Improvement Program (CIP) to upgrade roads. The
KPB clearly understand these CIP projects are subject to the
LDBA. However, it is more difficult to determine whether other
activities must adhere to the LDBA, including activities such as
brushing or when brushing exceeds the "prior line," pulling
gravel from the ditches when the ditch is made wider or deeper.
He listed some work that may or may not apply to the LDBA,
including adding new materials to the ditches, applying calcium
chloride, or filling a sink hole or pothole. He asked whether
these activities are considered as rehabilitation or repair
projects. He asked whether applying $1,500 of gravel on a
roadway and a week later apply $600 to an adjacent road would
constitute one project over $2,000 or two separate projects. He
stated that the KPB's maintenance projects are generally
relatively small in value and do not exceed $20,000. He offered
his belief that approving a higher ceiling on the LDBA projects
and adding the proposed language in Section 8 of HB 155 which
better distinguishes maintenance from construction will
alleviate most of the KPB's struggle in determining whether a
projects fall under the LDBA. It is critically important for
the KPB to know whether a project falls under the LDBA for
compliance reasons, he said. The LDBA projects take longer to
process and complete, limit the pool of available contractors,
and cost more. This limits the number of projects the KPB can
complete and means fewer services will be provided to taxpayers.
He referred to the fiscal note. He recommended that proposed
Section 8, subsection (4) be changed to reflect the language in
AS 36.95.010 (6), with the addition of the exclusionary language
for the school districts.
REPRESENTATIVE HOLMES referred to proposed Section 8 to the
definition for public construction. She was unsure that this
language provides clarity since rehabilitation and repair is
included, but maintenance is excluded. She asked whether this
language needs some additional work.
MR. BLOOM agreed the definition is problematic. He said he was
unsure a solution exists. The definition proposed in Section 8
does not define rehabilitation and repair, but tells what it is
not. It is not maintenance, he said. He suggested that the
current framework hinging on whether material is transported is
problematic. He stressed that the DLWD is following an attorney
general's opinion, but the opinion does not have legal
consequences or any bearing in communities. He offered his
belief that it may be necessary to for a court to decide the
implications, which he did not think was the best route to
proceed.
4:42:52 PM
ROBERT RUTHNER, Executive Director, Kenai Watershed Forum (KWF),
stated that he works for a small or medium sized nonprofit
organization that performs habitat work in streams throughout
the Kenai Peninsula. This represents a fairly large area to
cover. He has learned the LDBA by trial and error since he
performs road work. He related a lot of his work is clearly
public construction and falls within the LDBA. However, some of
the work falls outside the LDBA. He related the KWF would like
clarity on the definitions just discussed. He outlined that
specifically nonprofit organizations generally work for the
public good and often have relationships with the local
government and sponsors. One limitation that occurs is when
someone wants to make a donation or volunteer his/her time to
help on a public construction project. The LDBA limits the
KWF's ability to complete projects that are in the best interest
of the local government since it does not accommodate people who
want to volunteer their time or donate funds to help complete a
project. Thus, mixing local government funding with private
sector monies, can be difficult. He offered the KWF's support
for the increase to the threshold for the LDBA. Additionally,
he suggested the committee determine whether an opportunity
exists to exempt "do-gooder" projects. He thought using
volunteers would be beneficial to local government. It could
result in a better outcome for projects that have been deemed
public construction, such as trails, parks, fences, buildings
shared between local government and nonprofit organizations. He
reiterated examining the nonprofit and public aspect would
assist nonprofits. Additionally, the KWF supports raising the
threshold amount for the LDBA.
CHAIR OLSON commented that everyone wants the language as clear
as possible in order to avoid litigation.
4:46:42 PM
RON KOVALIK stated that he has served as a volunteer road
commissioner for over 30 years. Two years ago this issue was
"dropped on us like a bomb" and has nearly paralyzed us, he
said. He spoke in support of raising the threshold to $75,000.
He would also like to see the threshold indexed to inflation.
He cautioned against defining maintenance, rehabilitation, and
repair, as "we're going to go around in circles" and the result
will not fix any roads. He said, "What the road needs, we do.
If it takes gravel, we use gravel. If we need machinery, we use
machinery." The LDBA has made it difficult to use volunteers to
brush or remove snow. He said those types of restrictions
practically paralyze the road service areas and prevents any
work from being done.
CHAIR OLSON asked how many road service areas are located in the
Fairbanks area.
MR. KOVALIK answered that Fairbanks has over 100 road service
areas.
CHAIR OLSON suggested the bill would affect small projects.
MR. KOVALIK agreed that it drives off volunteers.
4:48:24 PM
TIM BECK stated that he is a past road service area commissioner
and has previously serves on the Fairbanks North Star Borough
Assembly and Road Service Area Committee. He pointed out that
today is speaking as a member of the Alaska Municipal League
(AML) board. The FNSB does not have road powers. Road service
is provided by road service areas, represented by a commission
of local residents from within the road service area. The
$2,000 threshold for the LDBA is easily surpassed in the larger
service areas. Often, regular maintenance must be addressed as
a capital projects due to the $2,000 limit. The LDBA increases
project costs and the completion time. This threshold increase
to the LDBA is long overdue and would save local residents
thousands of dollars by awarding the administration and design
costs associated with capital projects. He listed two things
that are advantageous in HB 155: the increase to the $2,000
threshold to a more practical number and to clearly define
capital improvements and maintenance. He related his
understanding that maintenance means bringing a road back to its
existing condition, prior to an event such as erosion, snowfall
or flooding even if it requires additional material to do so.
He informed members that Fairbanks currently has 107 road
service areas.
4:50:06 PM
MITCHELL ROCKIER stated that passing HB 155 would place a bigger
risk on owners to complete jobs and on employee salaries. He
predicted administrator would creatively split up a $150,000
project ends up being split up into two smaller projects to
avoid the LDBA. This could lead to more contract management.
He offered his belief that the bill would open it up to workers
receiving different wage scales. Currently, the LDBA wages
keeps everyone on equal parity. He related a scenario in which
three contractors bid on a job at $30, $25, and $15 per hour.
He surmised the bigger contractor will lose out. He stressed
that the Davis-Bacon Act wages were established to provide a
decent salary and benefits for the middle class. He reiterated
his concern that changing the wage scale would open it up to
"low bidders."
4:52:44 PM
CHAIR OLSON stated he was leaving public testimony open on HB
155.
[HB 155 was held over.]
4:53:25 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:53 p.m.