HB 133-PAYMENT OF CONTRACTS  5:19:00 PM CHAIR CARRICK announced that the next 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." [Before the committee was CSHB 133(CRA).] 5:19:36 PM REPRESENTATIVE HIMSCHOOT, as prime sponsor, introduced CSHB 133(CRA). She said that the issue that the proposed legislation seeks to address is Alaska's longstanding challenges to fulfill financial commitments to the nonprofit, municipal, and tribal partners. She said that this is not a new issue, nor was it attributed to any single administration, but it has taken place over many years. She remarked that the state struggles to meet payment obligations in a timely manner. REPRESENTATIVE HIMSCHOOT commented that as the committee understood, the state relies heavily on these various partners to deliver essential services to state residents, including services not provided by the State of Alaska. She said that when the state fails to make payments, especially grant funding, there can be consequences for the benefactor. She said that the standard payment window is 30 days and, when missed, it can impair organizations, especially ones with small budgets. She said that a small municipality, nonprofit or tribal organization could have services disrupted or be forced to withdraw emergency funds to cover expenses while awaiting state commitments. She said that the strain can impact payroll, infrastructure projects, and service continuity. REPRESENTATIVE HIMSCHOOT noted that in many rural areas, the cost associated with demobilizing projects due to delays is significant. Failure for scheduled payment increases the overall cost of projects and even reduces investment returns. She said that the bill strives for parity in treatment of private contractors and nonprofit, municipal, and tribal groups. She said the proposed legislation would establish a prompt payment required for the State of Alaska. She said that affected partners would receive interest much like private sector contracts. In conclusion, she explained that the proposed legislation is about accountability. CHAIR CARRICK noted that the sectional analysis to CSHB 133(CRA) could be saved for after testimony. 5:23:28 PM CHAIR CARRICK announced that the committee would hear invited testimony. 5:23:55 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League (AML), began his invited testimony in support of CSHB 133(CRA). He remarked that CSHB 133(CRA) would make significant strides to leveling the playing field and ensuring that local government, tribes, and nonprofits are paid on a timely manner. He remarked that community assistance program funding is one such sector where government payments have been consistently delayed and was an issue for local governments. He said that historically these payments were available as early as July, but that timeline has not consistently been met. He said that AML understood that [the Department of Commerce, Community & Economic Development's (DCCED's)] Division of Community and Regional Affairs (DCRA) requirements often affect the timing of payments for some municipalities. However, given changes, prompt payments could occur early enough in the year to be effective. He discussed the timeline for community assistance applications and that DCRA recently switched to a new system. He was looking forward to ensuring local government access. MR. ANDREASSEN expressed optimism in working through issues seen as barriers to fund distribution and encouraged the committee and administration to explore solutions, whether it was adding support staff or even technological solutions. He asked what could be done to strengthen the information flow between agencies so that documentation and payment schedules can be prompt. He argued that it had to do with increasing capacity and removing both barriers and complexity. He raised questions regarding how much of the process is established by law and what has been added through regulation where complexities may have been added. However, he acknowledged that removing safeguards was not ideal and there would have to be other areas of streamlining worthy of attention. MR. ANDREASSEN noted that the effect of past due payments can be challenging for local government. He discussed complications with payroll, workers compensation, and property insurance. He said that delays can cause cancellations for non-payment, and it is stressful when delays affect payroll for community members. He asked for consideration how this would affect the provision of services to residents and highlighted plowing, potholes, sewage, and other services. MR. ANDREASSEN noted that cash management can become crucial for organizations and other priorities often get deferred, all of which would limit the benefit and services provided to customers and taxpayers. He said that the system lacks the capacity to meet current obligations, let alone do more. MR. ANDREASSEN acknowledged fiscal notes and the limited state budget due to revenue shortfalls. He argued at the very least the state should try to provide service across all types of contractors or grantees with a level of parity. He remarked that strengthening the state would require additional resources and it was something not to run from but to plan for. He said that CSHB 133(CRA) is good government, and it asks to put prompt payment into law so the State of Alaska can be a dependable partner. 5:29:21 PM LAURIE WOLF, The Foraker Group, began her invited testimony in support of CSHB 133(CRA). She noted that the bill establishes prompt payment parity for Alaska nonprofits, municipalities, and tribal organizations for grants, contracts, and reimbursements from the State of Alaska as well as federal pass-through funding. She stated that this is one of the most important pieces of legislation for Alaska's nonprofit sector since the "Pick, Click, Give" initiative 15 years ago. MS. WOLF said that organizations are experiencing payment delays ranging from several months to over a year with amounts varying from a few hundred dollars to over one million dollars. She said that delays affect every department in the state and impact a wide range of services, including senior care, childcare, domestic violence support, housing, food security, transportation, public safety, and other services. She said that the State of Alaska relies on nonprofit sectors to deliver these essential services and payment benefactors were state partners. She said when it comes to cash flow, these partnerships were broken. She said many nonprofits are asked to report on funding delays to receive the next payment, which is often also delayed. She said that delayed payments have become normalized or even accepted, despite funds in question already being approved by an appropriate body. She argued that if monetary funds were budgeted, approved, and allocated, then spending should occur promptly. She noted that prompt payment is already required by AS 36.90.200 for transactions with for- profit businesses, but it did not include rules for non-profit entities. MS. WOLF commented that efforts to address this issue have occurred for multiple years and administrations. She noted that a former commissioner suggested that nonprofits secure lines of credit to manage delayed payments, implying that it was their responsibility to subsidize the state. She said many nonprofits lack the collateral required for such credit lines and it was not their job to do this. MS. WOLF commented that the Foraker Group surveyed Alaska nonprofit sectors and studied cash flow disruptions and how they affect administrative operations, financial planning, staff, business, and other nonprofit activities. She reiterated that nonprofits do not have the financial reserves to cover major state grants or contracts while waiting for allocated funds. She said that these delays can impair local economies and result in vendors not getting paid. She noted that the study would be shared with the committee. MS. WOLF stated that unlike businesses or contractors working on public projects, nonprofit payment schedules are not protected by statutes that guarantee timely payment. She said that stopping services without pay has profound consequences. She acknowledged that the state may have some workforce shortages and technological hangups, but the nonprofit sector could not remain silent when a broken system is burdensome to its organizations. She urged support for CSHB 133(CRA). 5:36:20 PM SAM CHANAR, Mayor, City of Toksook Bay, began his invited testimony in support of CSHB 133(CRA). He said that Toksook Bay plays a waiting game: The city receives a letter from the State of Alaska; the city waits for another letter regarding Community Assistance Program payments; the city then enacts an ordinance providing for the budget of the upcoming fiscal year; the city then passes a resolution certifying a financial statement; applications are submitted to comply with payment requirements; and the city then waits for payments. He discussed complications with insurance contributions and renewal processes. He said that come July, the waiting game starts regarding whether coverage would be in place. He said that if the July 31 deadline cannot be met then the city would be sent a 30-day notice of nonpayment that requires payment in full or a payment plan for the end of August. This requires additional fees and interest. He said that the city regularly risks losing its insurance coverage. He discussed challenges in Toksook Bay such as the absence of commercial fisheries, tourism unlike other areas in Alaska, and the challenges given funding holds. He said that last year Toksook Bay received Community Assistance Program funding in October, over three months after the insurance renewal deadline. He said that the City of Toksook Bay is in full support of the passage of CSHB 133(CRA). 5:41:11 PM CHAIR CARRICK opened public testimony on HB 133. 5:41:38 PM The committee took a brief at-ease at 5:41 p.m. 5:42:19 PM CHAIR CARRICK said that there was a slight technical delay. 5:42:32 PM SUSAN ANDERSON, CEO, Boys & Girls Club of Southcentral Alaska, testified in support of HB 133. She said that the Boys & Girls Club of Southcentral Alaska serves over 4,000 youth in twenty- one locations across Alaska. She said that it serves youth in nearly every legislative district. She said that the proposed legislation would create a 30-day deadline for state contracts, grants, and reimbursement agreements and a 21-day payment deadline for federal pass-through funding. She said that HB 133 would provide reliability, transparency, and accountability for payment of state obligations. She shared that in January 2024, the state owed more than $1,000,000 to the Boys & Girls Club and it took 150 days to receive the payment. She said that January 2025 was better, but funding still took about 65 days to reach the organization. She echoed Ms. Wolf's previous testimony that delayed funding disrupts services to children, families, and caregivers. Organizations either take on debt or face fines when dealing with delayed payments. Further, delays impair planning and strain relationships with vendors and providers of services. She said that there had been positive developments as a recent payment from the state took only 10 days. MS. ANDERSON noted that The Boys & Girls Club was a grant funded organization with an annual budget of about $12 million and it did not have the flexibility to float payments on behalf of the state. She said that services cannot be paused because of the youth and families being supported by services. She remarked that if pay dates are missed, negative adjustments need to be made. She stated that HB 133 would support organizations such as The Boys & Girls Club and the youth affected by their services. 5:45:53 PM TREVOR STORRS, President & CEO, Alaska Children's Trust, testified in support of HB 133. He said that the proposed legislation would ensure timely payment schedules from the State of Alaska to all the parties that provide essential services under state agreements. He said that the Alaska Children's Trust is a leading statewide organization focused on the prevention of both child abuse and neglect and supports policies that strengthen Alaska's communities and families. Ensuring that partners are paid on time is one such policy. He said that the proposed legislation would ensure that both state and federal pass-through funding would be available. He said that the nonprofit sector continues to experience systemic challenges with lengthy delays in payments which have adversely impacted the state's communities and economy. He said that prompt payments are crucial for nonprofits and partners to execute state policy efficiently, including policies designed to protect children. MR. STORRS remarked that according to Kids Count, in 2023, 37,000 families accessed public assistance which accounted for 21 percent of Alaska families with children. He said that families who access public assistance are also likely to access services provided by nonprofit, tribal, and community-based organizations that partner with the State of Alaska. He remarked that delays have affected services ranging from childcare, domestic violence support, housing, food security, public safety, and more. Accessing these services plays an essential role in preventing child abuse and neglect. He encouraged support for HB 133. 5:48:07 PM CHAIR CARRICK, after ascertaining there was no one else who wished to testify, closed public testimony on HB 133. 5:48:34 PM REPRESENTATIVE STORY said that there was compelling testimony regarding the need for timely payment. She noted that she had read the report from the Foraker Group and she knew there was an updated fiscal note regarding the bill. She inquired about how many entities such as nonprofits were not getting paid on time. Additionally, she asked how many staff could be added to ensure timeliness and what processes could be changed. She inquired as to the current process for paying benefactors. She was aware that some private contractors were not paid on time either, despite current statute. . She raised concerns given any interest fees that are having to be paid to contractors for untimely payment. CHAIR CARRICK noted that some testifiers were available online to field some of these types of questions. 5:50:44 PM REPRESENTATIVE HIMSCHOOT remarked that relevant departments would be available online for questions in the upcoming committee hearing on the proposed legislation. She remarked that she has worked with many departments to determine causes of these delays. She said it often stems from staff turnover and challenges related to computers and technology. She said that most departments have acknowledged the 30-day requirement and expressed a powerful desire to meet these deadlines. Some departments use centralized email addresses to avoid staffing change complications and facilitated contact with benefactors. She said that another issue was the lack of uniform grant management software. She said some states use a single software whereas Alaska departments use different systems, potentially resulting in lost efficiency. She said efforts are underway to better understand these types of challenges and that CSHB 133(CRA) was not intended to accuse departments of negligence. She acknowledged that the 30-day deadline can often be difficult to meet; however, the burden often shifts to benefacting organizations not equipped to manage delays. REPRESENTATIVE STORY said that this explanation did help clarify the process and potential impediments to payment deadlines. She asked whether it may be appropriate to move the timeline to 45 days and how adversely it may affect contractors. She affirmed that parity across the board was ideal and asked how an effective timeline could be established. She said that she was interested to hear more about interest payments made by the state due to delays, what the approximate costs were, and approaches to mitigate the problem. She said that she was hesitant to include a timeline with the bill if it was an unrealistic timeline and asked what would be considered reasonable. 5:54:41 PM REPRESENTATIVE MCCABE said that he appreciates the proposed bill. He said it encourages the state to do the job that it is supposed to do. He said there is a 30-day standard for contractors and delayed payments are inappropriate. He raised alarm given a one-year delay of $1,000,000 to a village or small Native corporation and noted that current delays impact villages poorly. REPRESENTATIVE MCCABE said that one reason he supports the bill is from his personal work experience. He said that he worked for a company that flew a significant amount of hours for the State of Alaska, and he did not know whether they had ever been paid, and they may have given up seeking payment. He said that he knew some contractors that would not do business with the State of Alaska because of the reputation regarding payments. He agreed with Mr. Andreassen that there needs to be a way to prevent the departments from "weaponizing" fiscal notes. REPRESENTATIVE HIMSCHOOT urged caution in placing blame on anyone as she believed the issues were systemic in nature. She said that this topic would require evaluation of the processes. 5:56:59 PM CHAIR CARRICK noted that the testimonies were compelling and asked Representative Himschoot what processes occur in other states when doing state to state comparisons. She raised concern about any potential interest payments from delayed payment schedules. She asked what type of remediation could be done for the issue. REPRESENTATIVE HIMSCHOOT responded to Chair Carrick that there is an Alaska Statute that requires 30-day prompt payment for the private sector, and it comes with a 10.5 percent interest penalty for past due payment. She said that she had reached out to the Department of Transportation & Public Facilities (DOT&PF) regarding late fees and was awaiting a response. She said that she would need more information for better understanding of state-to-state comparisons regarding payment schedules. CHAIR CARRICK asked for elaboration on the 10.5 percent interest fees. REPRESENTATIVE HIMSCHOOT responded that she was unsure where the 10.5 percent figure came from, but it was in statute. She imagined it was to "make an entity whole" for any additional costs incurred. 5:59:27 PM REPRESENTATIVE HOLLAND remarked that he thought the fiscal note should include a statement by the departments regarding how much money they are making "on the float" - money made while holding the corpus - which he explained concerned him because it is an unfair practice. He spoke about the challenge of determining when an organization is paid, noting that in this regard, consistency would lead to better management of cash flow, whether on a 30- or 60-day payment schedule. He asked whether there was a way to improve the expectation for payment consistency and communication. REPRESENTATIVE HIMSCHOOT responded that understanding the "float" was a reasonable request. She said there were accountability measures built into a lot of these grants for performance. She acknowledged that consistency matters but understood that making a new "floor" for payments could be tricky, for instance if a 60-day payment became 70 days, rather than a 30-day payment becoming 40 days. She suggested one solution to this could be improved communication with partners. She reminded the committee of the Foraker Group study, [available in the committee file]. 6:04:41 PM CHAIR CARRICK announced that CSHB 133(CRA) was held over.