HB 133-PAYMENT OF CONTRACTS  9:08:43 AM CO-CHAIR HIMSCHOOT announced that the final order of business would be HOUSE BILL NO. 133, "An Act establishing a 30-day deadline for the payment of contracts under the State Procurement Code; establishing deadlines for the payment of grants, contracts, and reimbursement agreements to nonprofit organizations, municipalities, and Alaska Native organizations; relating to payment of grants to named recipients that are not municipalities; and providing for an effective date." 9:08:56 AM The committee took an at-ease from 9:08 a.m. to 9:10 a.m. [Co-Chair Himschoot passed the gavel to Co-Chair Mears.] 9:10:26 AM CO-CHAIR HIMSCHOOT, as prime sponsor, introduced HB 133. She paraphrased the sponsor statement [included in the committee packet], which read as follows [original punctuation provided]: House Bill 133 seeks to ensure timely payment from the State of Alaska to parties that provide essential support under state agreements. The State relies on nonprofits, municipalities, and tribal organizations to deliver critical services to Alaskans. Delayed payments create financial hardships, disrupt crucial resources, and threaten the financial stability of service providers statewide for years. HB 133 aims to bring prompt payment for nonprofits, municipalities, and tribal organizations that rely on state funding in their grants, contracts, and reimbursements. This measure ensures both state and federal pass-through funds are disbursed promptly to these parties, which benefits the Alaskans they serve. Currently, there is no mechanism in place to ensure prompt payment to nonprofits, municipalities, and tribes. HB 133 would levy penalties and interest against the state when payments are delayed. HB 133 is modeled after AS 36.90.200, which requires the State of Alaska to pay private-sector contractors performing construction or public works activities in a timely manner, including imposing penalties for non- compliance and interest on late payments. This reimburses the contractor for opportunity costs or additional burdens experienced. HB 133 would bring parity in the payment system to nonprofits, municipalities, and tribes. The lack of payment parity is a long-standing, systemic issue. It affects entities across the state for payments of all sizes, with delays between three months to over a year. The impacts are wide-ranging. For some organizations, delayed payments threaten the continuity of programs and services, leaving organizations to pause operations, tap into reserves, pursue lines of credit, or reduce staff until payments are received. Municipalities have reported that delayed payments affect payroll, project funding, insurance renewals, and critical infrastructure investments. For tribes and nonprofits, the risk is even greaterdelayed payments directly impact vulnerable populations who rely on consistent, high- quality care and support. The state's failure to pay in a timely manner not only harms these organizations but also increases long-term costs due to interest, lost investment returns, and administrative inefficiencies. Prompt payment is a fundamental principle of fair contracting. Ensuring prompt payments will strengthen partnerships between the state and the organizations that serve Alaskans. This legislation will increase transparency, implement penalties for late payments, and streamline reimbursement processes. House Bill 133 ensures that funds are distributed efficiently, equitably, and on time, and upholds the state's commitment to those who work tirelessly on behalf of our communities. 9:14:48 AM ELLA LUBIN, Staff, Representative Rebecca Himschoot, Alaska State Legislature, on behalf of Representative Himschoot, prime sponsor, presented the sectional analysis for HB 133 [ included in the committee packet], which read as follows [original punctuation provided]: Section 1 amends AS 36.30 by adding a new section requiring a state agency to promptly pay a contractor for satisfactory service. Criteria are established for acceptable delays in payment and the protocol related to alerting a contractor to the reason for this delay. This section provides several timelines for the accruement of interest on late payments: a late payment will begin to accrue interest on the thirty- first calendar day after invoice, and a reasonably delayed payment will begin to accrue interest on the twenty-first calendar day after resolution on the contract has been found. Section 2 amends AS 36.30 article 4 by adding a new section to include the prompt payment of grants and reimbursements for nonprofit organizations, municipalities, and Alaska Native organizations. Timelines delineating the accruement of interest on late payments for state funds and federal pass-through funds are established, as are acceptable delays in payment and the protocol for noticing as such. An agency has twenty one calendar days from invoice to pay without interest penalty if using federal pass-through funds and thirty calendar days from invoice to pay without interest penalty for all other funds. This section also defines the terms used throughout this bill. Section 3 amends AS 37.05.316 by adding a new subsection (d) which requires a state agency to pay at least twenty percent of the grant amount within 10 days. This section also specifies how the rest of the grant must be paid out to a named recipient. Section 4 provides an immediate effective date for this measure. 9:17:09 AM CO-CHAIR MEARS opened invited testimony. 9:17:21 AM LAURIE WOLF, President/Chief Executive Officer, Foraker Group, gave invited testimony on HB 133. She said the state relies on its partnership with the Foraker Group to deliver services through grants, contracts, and reimbursements; however, the partnership is broken when it comes to money. Because of the current process, the Foraker Group is asked to report on money that has not been received in order to stand in line for the next payment that will also be delayed. Importantly, this money has been approved by the legislature, she noted. She explained that prompt payment must be followed when conducting transactions with for-profit businesses, as directed by AS 36.90.200; unfortunately, this rule does not apply to municipalities, nonprofits, and Tribal organizations. She said the Foraker Group's goal is to ensure that the state is efficient and that the work organizations provide to Alaskans is predictable, stable, and available. After surveying Alaska organizations to demonstrate the severity of the issue, top impacts of delayed payments include cash flow issues, operational delays, increased administrative burdens, uncertainty and financial planning challenges, negative impacts on staff, strained relationships, and impact on program continuity. Delayed payments also directly impact economies around the state because nonprofits cannot pay their bills to other for-profit and nonprofit vendors. She clarified that the purpose of HB 133 is to establish a foundation for moving forward based on prompt payment parity, along with incentives for timely payments just like the private sector. She encouraged members to consider the bill favorably. 9:22:11 AM REPRESENTATIVE RUFFRIDGE, referencing the Foraker Group's written testimony [included in the committee packet], asked how many dollars would fall into the category of "behind by thirty days" in the nonprofits represented by the Foraker Group. MS. WOLF explained that every department has its own system, so it's difficult to account for all delayed payments. She added that the Foraker Group has been asking for the total amount of delayed payments for many years. 9:24:10 AM STEPHANIE BERGLUND, CEO, Thread Alaska, gave invited testimony paraphrased the following written remarks [included in the committee packet]: Thread is Alaska's statewide child care resource and referral organization. We are a private 39-year-old nonprofit serving families, early educators, early childhood education programs, businesses and communities across the state all to increase access to affordable and high quality child care. Thread is a grantee of the State, receiving most of our organizational funding from the State Department of Health and the State Department of Education and Early Development. We are proud to be close partners with the State's early childhood offices regularly working to execute projects and grants that support the child care sector, including the distribution of millions in COVID-19 Relief funds. thread strongly supports House Bill 133 and Senate Bill 129. As an organization that relies on State funding to provide services, pay parity is critical to ensure services are delivered timely and with intent to meet the required grant/contracted scopes of work. While we have seen some important improvements at the Department of Health, we continue to encounter significant delays and uncertainty surrounding payments and reimbursements from the State of Alaska. Overall, there is inconsistency in how Departments issue, approve, disperse and pay for granted/contracted services. This includes irregularity in following agreement timelines. The lack of payment parity has been a growing issue and has persisted across multiple administrations, affecting organizations statewide including thread clients. Many of the child care programs we work with have also experienced the negative impact of these inconsistencies and delays. Child Care Assistance Program payments are issued monthly, and when those payments are delayed, it creates financial strain on the small margins that many child care small businesses operate on. The cost of leases, utilities, and wages are fixed expenses, regardless of when reimbursements are processed. Payment delays put the sustainability of these programs at risk, compromising the high-quality services they provide to families and early educators across the state. HB 133 and SB 129 address a long-standing inequity by ensuring that nonprofits, municipalities, and tribal organizations receive timely payments for essential work. These bills would bring payments to nonprofit partners in line with the existing statutory protections for private contractors, ensuring that critical funding is distributed as intended and without unnecessary delays. Resolving this issue is essential to Alaska's nonprofit sector and ensuring that we continue to effectively serve our communities. We strongly urge you to prioritize the passages of HB 133 and SB 129 to allow nonprofits like thread to continue our vital work without the financial instability caused by delayed payments. Thank you for your leadership on this issue and your commitment to supporting Alaska's families and communities. 9:28:21 AM CAROLE TRIEM, Government Affairs Manager, Alaska Municipal League (AML), gave invited testimony on HB 133. She explained that all of AML's 165 members receive payments from the state either through grants or pass through of federal funds. For many members, Community Assistance is the most important of those programs, which remits payments from the state to local governments, and for several dozen communities, represents between 40-90 percent of their annual budgets. In communities without large tax bases, municipal resources are depleted or stretched thin by the end of the year and local government operations will sometimes shut down as they wait for new revenue to come in, which makes prompt payments very important. Without timely payments, cities face cash flow issues and problems making payroll, and the delays may cause extra costs in contracts and purchases. The city of Toksook Bay, for example, reported that delays in Community Assistance payments resulted in higher insurance costs due to interest penalties after missed payment deadlines. She listed other programs through which communities receive payments from the state. 9:31:47 AM REPRESENTATIVE RUFFRIDGE highlighted the Department of Administration's (DOA) zero fiscal note and sought to verify that the department could implement this bill at zero cost. In addition, he asked how the interest would be paid and whether the bill would require that interest be paid. CO-CHAIR HIMSCHOOT said if the state makes prompt payment there would be no added expense. She said the desire is for the state to get out and stay out of arrears with nonprofits, Tribes, and municipalities. She offered to follow up on the query about interest payments. REPRESENTATIVE RUFFRIDGE referred to AS 45.45.010, which according to the court, does not actually prescribe interest on anything despite seemingly intending to do so. He asked whether each department would need to submit a fiscal note to explain how this goal would be accomplished. CO-CHAIR HIMSCHOOT pointed out that if all departments were to provide timely payments, the fiscal note would be zero. With regard to interest, she said the bill would not change state requirements when partnering and providing funds to another private or nonprofit entity. 9:36:56 AM REPRESENTATIVE RUFFRIDGE asked whether interest had been paid on late payments for other contractual arrangements and if so, whether it was 10.5 percent. CO-CHAIR HIMSCHOOT said she did not know the answer and had been trying to find that information. She contemplated where the funding for the extra payment would come from and offered to follow up with the requested information if there are concrete examples of late payments. 9:38:08 AM REPRESENTATIVE HOLLAND expressed appreciation for the bill and highlighted the importance of Section 3. He recommended clarifying that payments are not automatic and that civic organizations must be compliant within the payment system and submit proper documentation. CO-CHAIR HIMSCHOOT sought to confirm that Representative Holland was suggesting that Section 3 should further clarify that certain benchmarks must be met. REPRESENTATIVE HOLLAND said he was looking for clarification that checks would not be automatically sent without the recipient setting themselves up for payment. CO-CHAIR HIMSCHOOT shared her understanding that those steps are inferred but could be made explicit. 9:43:00 AM REPRESENTATIVE PRAX suggested that the administration should speak to why they cannot do this without direction from statute and asked whether the committee would be hearing from departments. CO-CHAIR HIMSCHOOT said the problem is widespread and longstanding and has spanned multiple administrations. She offered to reach out to department leadership for further insight. 9:46:01 AM REPRESENTATIVE RUFFRIDGE referenced the pie chart on a handout from the Foraker Group [included in the committee packet] and questioned why the percentages total 128 percent, not 100 percent. He said it can't be assumed that payments would be made on time and expressed his hope that further conversations with departments, particularly the Department of Education and Early Development (DEED) and the Department of Health (DOH), would be had. CO-CHAIR HIMSCHOOT deferred to Ms. Wolf. 9:49:54 AM MS. WOLF said the data is a point in time survey from summer 2024, and not meant to be a representative sample of all 5,600 nonprofits within the state. Similarly, the pie chart represents organizations' responses and is not meant to add up to 100 percent. She said she hoped the takeaway is that the problem is systemic and therefore, a systemic solution is needed. 9:51:59 AM TOM MAYER, Chief Procurement Officer, Office of Procurement and Property Management, Department of Administration (DOA), confirmed that the dollar impact would be minimal because only a few forms would need to be modified. He said the Office of Procurement and Property Management does not process or pay bills, and that invoices are generally approved by project managers. 9:52:53 AM REPRESENTATIVE RUFFRIDGE asked how many grant payments to nonprofits the Office of Procurement and Property Management is responsible for. MR. MAYER said his office establishes multi-agency contracts for things like office supplies that all agencies use. He explained that the procurement office does not track payments to allow for a separation of powers that avoids the responsibility of both procuring something and approving the payment for that thing. REPRESENTATIVE RUFFRIDGE asked why then, DOA wrote a fiscal note for the bill. MR. MAYER answered, "We were required to write a fiscal note, and in our case, for my particular section, there was no dollar cost to it. All we can do is modify forms." 9:54:40 AM REPRESENTATIVE PRAX asked who is responsible for making and tracking the payments. MR. MAYER suggested the accounting team for each department. 9:55:50 AM REPRESENTATIVE HOLLAND commented that he's stunned that the procurement process is not tracking payments to contractors. REPRESENTATIVE PRAX commented that in addition to nonprofits, employees are not getting paid. He stressed the need to speak with each department face to face to resolve the issue. 9:57:39 AM CO-CHAIR HIMSCHOOT reiterated that her intention with HB 133 is to solve a problem and set a performance standard that is on par with private contractors. CO-CHAIR MEARS announced that HB 133 would be held over.