COMMISSION ON PRIVATIZATION AND DELIVERY OF GOVERNMENT SERVICES Anchorage, Alaska December 8, 1999 9:00 a.m. COMMISSION MEMBERS PRESENT Senator Ward, Co-Chair Representative Cowdery, Co-Chair Senator Adams Mike Harper, President, Kuskokwim Corporation (via teleconference) Tom Fink, Former Mayor of Anchorage Emil Notti Kathryn Thomas, Former Chair of Alaska State Chamber of Commerce George Wuerch, Alaska Municipal League Bill Allen, Former Mayor of Fairbanks (via teleconference) Don Valesko, Business Manager of Public Employees Local 71 COMMISSION MEMBERS ABSENT Representative Brice COMMITTEE CALENDAR Discussion and adoption of recommendations. PREVIOUS ACTION See Commission on Privatization minutes dated 7/20/99, 8/16/99, 9/20/99, 10/28/99, 11/4/99, 11/10/99, 11/18/99, 11/24/99, 11/30/99, 12/1/99 and 12/7/99. ACTION NARRATIVE TAPE 99-24, SIDE A CO-CHAIR WARD called the Commission on Privatization and Delivery of Government Services meeting to order at 9:15 a.m. Members present at the call to order were Representative Cowdery, Senators Ward and Adams, and Commissioners Fink, Notti, Valesko and Thomas. CO-CHAIR WARD announced that Commissioner Wuerch will be 40 minutes late, Commissioner Allen should be arriving at the Fairbanks Legislative Information Office in ten minutes and Commissioner Harper will be joining the committee via phone from Aniak. He noted that Representative Brice will not be present at today's meeting. NEW BUSINESS FORMER GOVERNOR BILL SHEFFIELD, Chief Executive Officer of the Alaska Railroad Corporation (ARRC), made the following comments to the Commission. ARRC provides a good example of how state entities that operate as private businesses can save the state money. ARRC is already privatized with state ownership of all shares of the corporation. ARRC is a self sustaining, self performing asset that does not require ongoing operation or capital state subsidies other than the $22.7 million needed for its purchase and the $10 million used for start-up money. ARRC employees do not participate in the state retirement and benefits system and they are not on the state payroll. In this best case scenario, the state owns a valuable transportation corridor equaling 36,000 acres of land; about 60 acres per rail mile. Alaska does not have an excess of railroad land; when a railroad was built across the western United States many years ago, states received about 7,000 acres per rail mile. ARRC is the only full-service railroad in the nation operating both freight and passenger services. Under state ownership, the state has the ability to expand the rail line system with federal government assistance for resource development. Under private ownership, these grants would not be available for capital programs and upgrades. Privatization would jeopardize ARRC's ability to use federal grant money and, to a certain extent, money would have to be returned to the federal government. The subcommittee's report on privatizing ARRC begs answers to several questions. Why sell a performing asset in an important transportation corridor and, in the process, endanger important user groups and businesses that serve Alaskans? Putting ARRC through the process of seeking potential buyers will bring much uncertainty to its operations and capital developments and will inhibit business. It is better to have employees worry about serving customers than losing their jobs. If ARRC customers become concerned about its longevity, they will question the stability of their long term contracts. They may become less likely to invest capital to expand their operations if they cannot depend on ARRC for reliable transportation. According to Jeff Cook of Williams Energy, "The uncertainty regarding ownership of the Alaska Railroad could have been a real factor in our decision to invest $60 million for our refinery expansion and the discussions today certainly have an impact on our future decisions." MR. SHEFFIELD repeated that federal grants will become jeopardized and non-existent. An RFP process will cost ARRC between $500,000 to $1 million to implement, plus employee time. ARRC does not have a large staff available to solicit proposals for one year, as the subcommittee recommended it do. No one has really defined the intent behind privatization of ARRC and the consequences of private ownership. Public support to keep ARRC as a state asset is high. Its sale could result in non-Alaska control of a valuable transportation corridor. Stipulations will have to be placed on companies bidding for ARRC. He questioned whether potential buyers will be required to continue passenger service on the Hurricane Turn whistle stop or shuttle service to Whittier and what the state will gain or lose by selling ARRC. He pointed out the subcommittee never looked at those questions to determine whether selling ARRC is in the best interest of all Alaskans. MR. SHEFFIELD offered to answer questions and informed Commissioners that Mr. Binkley was also present to answer questions. CO-CHAIR COWDERY commented that Mr. Sheffield's statement - to get the railroad built through the West, a lot of land went along with it - is a true statement but that was then and not now. Most of the railroad sales that have taken place in recent years are bought for the transportation deeds. It is his understanding that when Mr. Denny Washington was interested in buying the Alaska Railroad, he was not interested in the land. He pointed out that the subcommittee recommended requesting proposals for the Alaska Railroad to see if anyone is interested in buying it. He emphasized the railroad will not shut down and employees will probably retain their jobs with a new employer, plus the state could invest the money from the sale in the Permanent Fund. MR. JOHNE BINKLEY, Alaska Railroad Corporation, informed Commissioners that an issue that came to light in a discussion with Representative James yesterday and with Senator Murkowski is their joint effort to expand the Alaska Railroad as far East from existing lines as Fairbanks, North Pole, and Eielsen to link up with the Canadian railway system. Such an expansion would provide access to the lower 48 states. Both Senator Murkowski and Representative James are concerned that legislative action could jeopardize their ability to secure funds from Congress to implement this plan. He noted that the Alaska Railroad corridor between the ice-free tidewater ports of Seward and Whittier, and north through municipalities, Native corporation lands, state and national parks and private lands is a unique and valuable transportation corridor. He stated that selling that transportation corridor is analogous to selling the Yukon River. MR. SHEFFIELD asked for permission to respond to Co-Chair Cowdery's remark. CO-CHAIR WARD said yes, but clarified that any further dialog about the ARRC would be among Commission members. MR. SHEFFIELD told Co-Chair Cowdery that ARRC is doing a lot of work to improve the asset of the railroad, and it has many capital improvements planned over the next three to four years. ARRC cannot continue to work on those improvements if the Legislature intends to privatize it. Many resolutions in opposition to privatizing ARRC have been passed around the state, including a resolution passed three days ago by the Alaska State Chamber of Commerce. Changes to ARRC will affect tourism, coal shipments, fuel supply delivery, gravel hauls, passengers and other freight. 50 percent of ARRC's net profit is derived from real estate that ARRC has leased. No railroad will survive and pay taxes without land to supplement its diet, and no other railroad will be able to provide the service that ARRC provides to Alaskans now. CO-CHAIR WARD thanked Mr. Sheffield and noted that Commissioner Harper is participating via teleconference from Aniak and Commissioner Allen is participating via teleconference from Fairbanks. COMMISSIONER THOMAS clarified that the only resolution discussed by the Alaska State Chamber of Commerce was whether ARRC should be placed under the Executive Branch. Privatization of ARRC is still fully covered as a position of the Alaska State Chamber of Commerce under its blanket resolution that supports viewing ways to privatize delivery of government services. MR. SHEFFIELD said he was not aware of that. CO-CHAIR WARD thanked Mr. Sheffield and Mr. Binkley for their comments. APPROVAL OF PREVIOUS MINUTES CO-CHAIR WARD announced that no previous minutes are available for approval at this time but they will be available at the December 13 meeting. OLD BUSINESS MR. PIGNALBERI informed commission members that the University of Alaska response to Items I through X of the report outline has not been received yet. NEW BUSINESS CO-CHAIR COWDERY asked Commissioner Thomas to speak to the legislative proposal she brought forward the previous day. COMMISSIONER THOMAS said the recommendation that she put together and placed before the commission was intended to be a broad-based recommendation to encompass several problems that she encountered with the subcommittees when developing recommendations for the departments. She found that the subcommittees lacked the management tools to be able to identify the costs of activities and to identify the management cost of performing activities. As a result, she reviewed reports of several privatization efforts that have come to the Alaska State Chamber of Commerce. She drafted a recommendation from the Commission to the Legislature for action to enable the commission to start compiling the information it needs to make evaluations in the future, and to provide for a body to make recommendations and decisions for the commission. She believes this recommendation will provide an opportunity for the commission to put state budgets in a format that will not only provide the cost of an activity but will also allow for accountability to the citizens of Alaska. Another concern expressed by the subcommittees was the way some costs are being attributed to different functions. The establishment of an independent audit committee to respond to a Commission charged with reviewing the costs of every government activity and service would probably fill the gap and ensure that costs are properly accounted for. She pointed out that although the document she distributed to Commissioners is three pages long, some of the text consists of an explanation of why these separate components are so important to the Commission in establishing the costs of government. She asked Commissioners to consider supporting the formation of an Alaskan Operational Government Commission. CO-CHAIR WARD asked Commissioners Harper and Allen if they had copies of Commissioner Thomas' proposal. Both answered affirmatively. CO-CHAIR COWDERY maintained that over 300 people have volunteered in this effort, over 150 subcommittee meetings have been held, and a tremendous amount of work has been involved. He thought the creation of a commission to carry this effort forward, similar to commissions in Minnesota and Arkansas, is in order. He said he has had no thoughts on the make-up of such a commission at this point. CO-CHAIR COWDERY acknowledged that the state is looking at a $500 million budget shortfall, and that Alaska needs to look at what services can be eliminated or improved. He stated his strong support for Commissioner Thomas' proposal. COMMISSIONER FINK said, in his opinion, the legislative proposal is too long and he thinks it should be added to the appendix of the executive summary in "bullet" form. He cautioned that people will not read a long document. COMMISSIONER THOMAS shortened the proposal to ask Commissioners to draft a proposal to the Legislature, recommending it establish by statute an Alaska Operational Government Commission authorized to recommend, audit and update an operational plan to: identify service costs; establish a cost-based accounting system - a "popular" budget; create an independent government audit committee; and hire staff. She also moved that the Commission ask that all of its subcommittee reports be reviewed by the new commission to provide it with a mechanism to use to go forward. MR. PIGNALBERI repeated the motion for Commissioners. CO-CHAIR COWDERY moved to adopt the proposal. COMMISSIONER THOMAS seconded the motion. COMMISSIONER ALLEN moved to amend the motion to insert, before the word "audit," the words "performance and financial." There being no objection to Commissioner Allen's amendment, CO- CHAIR WARD announced the motion carried. COMMISSIONER VALESKO moved to amend the legislative proposal to request that funding be included so that the new commission can operate properly. CO-CHAIR WARD objected for the reason that he believes the Legislature has the ability to appropriate money once it has determined the criteria, and that the funding issue should be a legislative prerogative. CO-CHAIR COWDERY also objected, and said he does not believe that future legislatures can be bound to fund the commission. COMMISSIONER VALESKO said he is not proposing that this Commission bind another legislature; he is proposing that if this Commission is going to ask the legislature to enact a statute, it also ask that the appropriate funds be provided by the legislature so that it can perform the job it was asked to do. He pointed out that if the Commission recommends to the legislature that it enact a law but says that no cost is attached, it will be creating a paper tiger. COMMISSIONER THOMAS indicated that she has reviewed many privatization reports from around the country, and in all fairness to Commissioner Valesko's membership, part of her concern is providing an activity-based cost system so that employees can step to the plate and manage competition in a fair manner. She cautioned that no commission will ever know what level of management is being charged to each activity unless the budget system is revised. She pointed out that: One thing that became very evident as I researched this over the last few months is that, in most cases, by starting to identify the costs and re-evaluating where management positions and money is going to be spent - or being spent - that those savings started helping fund efforts like this. So I can understand your concern but I think that we would find within a very short time we would have a more extensive management tool to handle our budget and to identify our costs, and this is the only way I know that your employees are going to have -- or your members are going to have an opportunity to participate very fully in the process. COMMISSIONER FINK contended that the proposal is too elaborate. He noted he could buy the idea of a continuing commission for privatization and he believes the proposal would work for private industry but, because it involves government, it will just set up a new bureaucracy. He cautioned that governments and bureaucracies grow and protect themselves and each other. He said he prefers the formation of a short term commission next year or would support the continuation of the existing commission, but he does not favor establishing a permanent commission. COMMISSIONER ALLEN commended Commissioner Thomas on the work she has done and stated he believes she is on the right track. He suggested that CO-CHAIR WARD appoint three to five people to look at this proposal in more depth. CO-CHAIR WARD interjected to clarify that an amendment to include a funding mechanism in the proposal is on the table at this time. COMMISSIONER HARPER also commended Commissioner Thomas for her efforts but stated he believes recommending the creation of another bureaucracy is not the right message to send. He was excited about participating on the Commission because he saw it as an opportunity for private citizens to volunteer to give their best shot at this effort and then to leave. CO-CHAIR COWDERY stated his support for the continuation of the Commission. He pointed out that other states have used a similar approach and that their commissions are operating in their fifth and sixth years. He added that when the legislation to create the Commission on Privatization was enacted, the legislature realized that the Commission would not have enough time to do all of the work that it was charged with. He repeated his support for continuing the existence of the Commission and, regarding funding, he does not feel it is fair to his or Co-Chair Ward's staff to be expected to do all of the work. COMMISSIONER VALESKO clarified that his amendment was that the Commission recommend that a request for the proper funding be submitted to the legislature. He maintained that he speaks for all members of the AFL-CIO and said: In general I believe, when you put it out there to competition, you give my -- if you want to speak to my members a chance to compete, we've been there before. We've gone to competition on the Haul Road and came in $2 million cheaper than the private sector on a $7 million bid for maintaining the Haul Road. I know we can compete. I know what my members can do. They are experienced. They have the ability out there to do it so when we looked at it in that context, as far as what this committee is recommending, it is recommending that we go forward with the Commission, I believe we've got to be up front and also say recommend that the legislature appropriate the necessary money to do so. CO-CHAIR WARD informed Commissioners a motion to amend the proposal is before the Commission. He announced the Commission would take an at-ease for ten minutes to work on revised language. SENATOR ADAMS said he believes, from listening to comments made by Commissioners, the original motion will fail. He maintained that the legislature acts as the Alaska Operational Governance Commission. He pointed out that legislative finance committee members take care of the budget and that a legislative audit agency already exists. He stated the Commission is going in the wrong direction. CO-CHAIR WARD said he does not disagree with Senator Adams that the original motion will fail as is which is the reason Commissioner Thomas asked for a ten minute recess. The Commission took an at-ease. CO-CHAIR WARD called the Commission back to order and noted Commissioners Allen and Harper were on-line. COMMISSIONER VALESKO withdrew his amendment to the recommendation put forth by Commissioner Thomas. CO-CHAIR COWDERY withdrew his motion to adopt Commissioner Thomas' recommendation. COMMISSIONER THOMAS moved to adopt a revised recommendation that reads: The legislature shall consider an ongoing effort on the delivery of government services in the most cost effective manner with consideration for providing the public and private sectors with a means to participate and provide the information in her previous recommendation in the appendix. CO-CHAIR COWDERY seconded the motion. COMMISSIONER FINK asked that the motion be re-read. COMMISSIONER THOMAS read: The Legislature consider an ongoing effort on the delivery of government services in the most effective and cost efficient manner with consideration for providing the public and private sectors with a method to have available the information in the appendix. SENATOR ADAMS expressed concern about selling this proposal to the legislature. He suggested extending the termination date of the existing Commission for three months so that Commissioners can participate in Juneau and determine whether the establishment of a new Commission is a viable option. CO-CHAIR WARD asked if Senator Adams is proposing his suggestion as an amendment. SENATOR ADAMS said he is not, he just wanted to see how other Commissioners feel about the idea. CO-CHAIR COWDERY expressed support for Senator Adams' suggestion because he believes the most effective sales people of this idea are the current Commissioners. SENATOR ADAMS said his thought is that if Commissioners are concerned about an extension, he would like to see them lobby legislators for its continuation. He pointed out the Commission expires at the end of December. TAPE 99-24, SIDE B COMMISSIONER THOMAS remarked that she does not want to see a disjointed effort made toward the privatization effort every one or two years. She does not believe that will serve the state well and she would like to see something that will transcend different election cycles so that the Commission can provide some good information. She noted that she does not have a personal problem with continuing the current Commission but she would hate to see the current effort come to a screeching halt with no way for the effort to go forward, and then have the effort move in a different direction at a later time. She pointed out the State of Alaska has seen many such efforts that did not tie together and resulted in volumes of material being printed and sitting idle on bookshelves. CO-CHAIR WARD asserted that Commissioner Thomas' motion will put those concerns squarely before the legislature for its consideration. He pointed out that the presiding officers of the legislature can extend the existing Commission on January 10 if they choose to go that route. CO-CHAIR COWDERY said he understood the intent of Senator Adams' suggestion to be to allow the current Commissioners to participate in Juneau with their titles of "commissioner" rather than to allow the Commission to carry on as it has been. CO-CHAIR WARD replied that he concurs with that effort and he expects many subcommittee members will participate in Juneau as well. COMMISSIONER ALLEN felt Commissioners were discussing two issues: continuance and procedure. He thought Commissioner Thomas' recommendation "hits the target" regarding procedure. He agreed that if a different group picks up where this Commission left off, at least a procedure will have been developed for that group to follow. He suggested that both continuance and procedure be addressed in the executive report. COMMISSIONER VALESKO asked that the motion be reread. COMMISSIONER THOMAS contended that Senator Adams' suggestion to extend the Commission for three months would give members time to deliberate future efforts. SENATOR ADAMS said Commissioners are very close to making that motion and he asked that Commissioner Thomas' motion be read one more time. ANNETTE DEAL, staff to Co-Chair Cowdery, read: That the legislature consider ongoing efforts to the delivery of government services in the most effective and cost efficient manner with consideration for providing the public and private citizens with a manner to have available information in the appendix. CO-CHAIR WARD asked if there is objection to the adoption of the motion. COMMISSIONER VALESKO said amendments may be forthcoming because the motion brings the entire appendix into the record and there may be parts of the appendix that all Commissioners do not agree should be included. COMMISSIONER FINK noted he plans to move one part of the appendix that Commissioner Valesko does not like. SENATOR ADAMS suggested that Commissioners accept the motion and change the wording of the final report at a later date if problems occur. CO-CHAIR WARD stated the Commission has a conceptual motion before it and asked if any Commissioner objects to its adoption. COMMISSIONER FINK said the problem might be solved if Commissioner Thomas' motion included the words "along the lines" of the appendix. CO-CHAIR WARD agreed. COMMISSIONER VALESKO noted the part that is most bothersome to him is the section that recommends opening up the Public Employees Relations Act (PERA). He expressed concern that by agreeing to the motion on the table he will later have to get the other Commissioners to agree to remove that language. COMMISSIONER FINK thought Commissioner Thomas was asking for direction for the kind of information she wants and he has no problem with that. He said he would not think Commissioner Valesko would either, although he might object to part of it. COMMISSIONER VALESKO clarified that he is concerned that by voting in favor of the motion he will be voting to amend PERA and, if so, he will have to vote against it. CO-CHAIR WARD said no, Commissioner Valesko would be voting to allow Commissioner Thomas' motion to be considered. CO-CHAIR WARD announced that with no objection, the motion carried. CO-CHAIR WARD noted the motion would be addressed at the next meeting. SENATOR ADAMS moved to recommend that the legislature issue an RFP for the purchase and operation of the ARRC. AN UNIDENTIFIED COMMISSIONER seconded the motion for the purpose of discussion. SENATOR ADAMS advised that he made the motion so that the Commission can get the issue on or off of the table. He noted that he is opposed to the sale of ARRC because he believes it is a viable function of Alaska's development and because he is interested in the Canadian link and the Seward and Anchorage airport expansion. He also noted ARRC is able to receive federal funds. SENATOR ADAMS commented that the Alaska State Chamber of Commerce has opposed any legislative action or action by the Administration that would diminish the ARRC's ability to continue operating in its current way. COMMISSIONER FINK said he favors the Commission going on record in support of the sale of ARRC. He thought it will take several years to sell ARRC and that the resolution produced by the subcommittee was very good. He asked if Senator Adams' motion includes the subcommittee's entire proposal of four recommendations. SENATOR ADAMS answered yes. COMMISSIONER FINK stated he does not object to the motion. COMMISSIONER WUERCH spoke in opposition to the motion for the reason that, for the short term, Alaska's congressional delegation will be able to secure substantial federal funds for ARRC which would be lost if ARRC were privately owned. In addition, Anchorage is on the threshold of seeing major improvements that will benefit all Alaskans, such as the airport and Ship Creek development. CO-CHAIR COWDERY asked if, when the state bought ARRC, it was supposed to consider it for privatization every five years. COMMISSIONER WUERCH said it was originally. CO-CHAIR COWDERY asked if the motion will recommend that an RFP be issued to establish a value of ARRC. He repeated that if ARRC is eventually sold, he will be a strong proponent of putting that money into the Permanent Fund. COMMISSIONER FINK stated, in response to Commissioner Wuerch's comment, that the subcommittee's recommendation will take several years to implement. For example, the land ARRC should give up will have to be determined before it is sold. He pointed out the subcommittee approached Mr. Washington, a prospective buyer, who said he did not want to discuss the sale until a decision to sell is made. COMMISSIONER VALESKO said he believes the motion contains the first recommendation of the ARRC subcommittee, and not recommendations 2, 3, and 4. CO-CHAIR WARD clarified that Senator Adams wanted all four recommendations on the table. SENATOR ADAMS said he included all four recommendations because he does not want to take a piecemeal approach. COMMISSIONER FINK repeated that if the motion is passed by the Commission and the legislature acts on it in January, it will take at least two years to sell any land. COMMISSIONER THOMAS informed Commission members that she attended all meetings of the ARRC subcommittee and she brought two items to Commissioners' attention. The subcommittee spent a lot of time considering how much state liability is involved with ARRC and whether ARRC assets are being maximized. The issue of selling land to the leaseholders was also given a fair amount of consideration. She asked Commissioner Wuerch to comment on the reason the Municipality of Anchorage would not want that land as part of its tax base. She also asked Senator Adams to consider removing recommendation 4, regarding the vegetation control program, from his motion because she believes that issue is of separate importance. SENATOR ADAMS maintained that he presented his motion as a package and that Commissioner Thomas could make a separate motion regarding recommendation 4 if she wished to do so. COMMISSIONER NOTTI spoke in opposition to the motion because he believes in the importance of extending the railroad into Canada as the residents of the Yukon River need freight rate reductions. He noted he would hate to see federal money get "stopped up" by uncertainty. COMMISSIONER WUERCH explained, in response to Commissioner Thomas' question, that the Municipality of Anchorage has struggled for the past 15 years to attract private sector sponsorship for developments in the Ship Creek area and it would be beneficial to have some investment there that would provide a tax base. He has come to the conclusion it is not possible at this time. He would like to see development happen under public ownership of ARRC and, at a future date, sell the improved property to provide for a tax base. Second, he has been frustrated that herbicides are not used in this state, and in his travels around this country and others, he believes ARRC is grossly underestimating the true impact of contaminated ballast to Alaska's railroad system. He thinks ARRC's estimate of the cost of not using herbicides is very conservative but he felt the herbicide issue is a legislative one. COMMISSIONER ALLEN stated this issue is important to the city of Fairbanks and that he has taken a "hands off" approach toward the issue of privatizing ARRC over the years. He indicated he plans to oppose the motion for several reasons. Fishing for values in determining what an asset is worth is an expensive ordeal for both the seller and potential buyers, especially when there is no definite plan to liquidate the asset. In addition, he agrees with Mr. Sheffield that it is terribly demoralizing to ARRC employees to have this question continue to surface every year. He repeated that the railroad is very important to Fairbanks. Fairbanks has a $10 to $15 billion project on the horizon with the construction of the national missile defense system, and the extension of the railroad from Ft. Greeley to Eielson Air Force Base is important to that project. He agreed with Commissioner Notti that Alaskans need more options for freight delivery, most certainly to the Interior. An infrastructure is necessary for resource development and getting products to market has hamstrung that development. He felt ARRC is analogous to the Alaska Marine Highway System which he believes should be kept in state ownership. He respectfully requested Commissioners to oppose the motion. COMMISSIONER HARPER called for the question. CO-CHAIR WARD asked Co-Chair Cowdery to make one last comment. CO-CHAIR COWDERY said the comments made imply that if ARRC was to be sold, it would be torn up and cease to exist as a railroad which he does not believe would be the case. He noted that any sale contract could require that ARRC employees be retained or be given the first right of refusal. He added that the RFP could stipulate that if the purchaser ceases operations, ownership will revert to the state. He repeated that approval of the motion will only recommend to the legislature that it approve a request for proposals. CO-CHAIR WARD moved to amend the motion to replace the language to read: The Privatization Task Force recommends to the Legislature that it consider placing the Alaska Railroad under the Executive Budget Act. COMMISSIONER FINK asked Co-Chair Ward to consider putting that language forward as a separate motion as he will have to vote against it but would have supported the original motion. CO-CHAIR WARD explained that he was attempting to find some common ground. He remarked that rather than recommend that an RFP be issued, he thinks one year should be spent collecting information to determine whether or not ARRC should be sold. CO-CHAIR COWDERY seconded the motion. SENATOR ADAMS commented that he believes ARRC is working well under its current system. He would have agreed with its sale five years ago, but now sees it as a viable engine of the state. CO-CHAIR WARD clarified that his amendment replaces Senator Adams' language to adopt the subcommittee's four recommendations with the following language: The Privatization Commission recommends to the legislature that it consider placing the Alaska Railroad Corporation under the Executive Budget Act. The motion failed with Co-Chair Ward and Commissioners Notti and Thomas voting "yea," and Senator Adams, Co-Chair Cowdery, Commissioners Allen, Fink, Harper, Valesko and Wuerch voting "nay." CO-CHAIR WARD asked Senator Adams to repeat his motion. SENATOR ADAMS clarified that his motion is that the legislature shall issue an RFP for the purchase or operating lease of the Alaska Railroad and the other three items contained in the subcommittee's report pertaining to the ARRC. [Those items are: 2) the ARRC shall offer to sell land presently leased to leaseholders to the leaseholders for fair market value; 3) the ARRC shall offer to sell for fair market value all land that is non-essential to railroad operations and is non-revenue generating; and 4) the ARRC shall implement a vegetation control program including use of herbicides.] The motion failed with Co-Chairs Ward and Cowdery and Commissioners Fink and Thomas voting "yea," and Senator Adams, Commissioners Allen, Harper, Notti, Valesko and Wuerch voting "nay." COMMISSIONER THOMAS asked Commissioners to consider adopting, as a recommendation, the ARRC's fourth recommendation which read, "The Alaska Railroad shall implement a vegetation control program including use of herbicides." COMMISSIONER THOMAS explained that this recommendation was very important to members of the subcommittee. AN UNIDENTIFIED COMMISSIONER seconded the motion. SENATOR ADAMS objected. COMMISSIONER ALLEN asked that ARRC staff educate Commissioners on this issue as he does not feel knowledgeable enough to cast a vote. COMMISSIONER THOMAS explained the subcommittee felt ARRC needs public support and the support of the Commission to use herbicides to control vegetation around the railbed. CO-CHAIR WARD noted ARRC supports the herbicide recommendation. COMMISSIONER VALESKO asked that ARRC officials verify their support of this recommendation. CO-CHAIR WARD said ARRC representatives expressed their support at the subcommittee level. COMMISSIONER HARPER called for the question. The motion carried with Co-Chairs Ward and Cowdery and Commissioners Allen, Fink, Harper, Notti, Thomas, Valesko, and Wuerch voting "yea," and Senator Adams voting "nay." CO-CHAIR COWDERY moved to place the Alaska Railroad Corporation under the Executive Budget Act. CO-CHAIR WARD noted that motion was previously defeated. CO-CHAIR COWDERY said he thought Commissioners could make individual recommendations, and he thought the previous motion was a group recommendation. COMMISSIONER WUERCH asked for a ruling of the Chair. He noted the previous motion was supposed to have been substantive so by voting against substitution, "we don't necessarily reach the conclusion we voted against the idea." He said he would prefer to bring it back to the table as a stand-alone motion. CO-CHAIR WARD ruled that the motion can be placed before the Commission again. CO-CHAIR COWDERY maintained that placing ARRC under the Executive Budget Act will reduce frustrations because ARRC's books will be available for review which will allow verification of ARRC's plans of future projects. He noted the Department of Transportation is under the Executive Budget Act and was able to plan ahead and secure funding for the airport expansion. He maintained there is no reason the legislature should not be able to open up ARRC's books to see, in detail, exactly where the money goes from the top executive level to the lowest paid employees. He pointed out that financial statements do not show that kind of detailed information so he believes putting ARRC under the Executive Budget Act would help it. He said he cannot see any downside to such a change. COMMISSIONER WUERCH asked that the Commission be given some background information on how the other state-owned corporations operate, such as the Alaska Housing Finance Corporation (AHFC) and the Alaska Industrial Development and Export Authority (AIDEA), and whether ARRC's operations differ. CO-CHAIR COWDERY asked Senator Adams if AHFC and AIDEA fall under the Executive Budget Act. SENATOR ADAMS reminded Co-Chair Ward that a motion is on the table. CO-CHAIR WARD asked for a roll call vote. The motion carried with Commissioners Fink, Notti, Thomas, Wuerch, and Co-Chairs Ward and Cowdery voting "yea," and Commissioners Allen, Harper, Valesko and Senator Adams voting "nay." CO-CHAIR WARD asked Commissioners if they have any recommendations they would like the full Commission to consider. COMMISSIONER WUERCH noted he reviewed the recommendations considered by the Commission on the previous day. He emphasized that he is concerned that one of his proposed recommendations did not make the "short list," that being Recommendation 5 put forth by the Department of Administration which relates to privatization of the state telephone system. He pointed out that an interagency billing process is used for that system whereby departments are billed at the rate of about 25 cents per minute for long distance telephone calls. He believes that the true cost of providing government telephone and data transmission services have not been correctly identified because the process is so amorphous that no one has a good handle on what the real costs are. He indicated if the state is able to put the system up for competitive bid, it should know what the true costs are. He noted that with a rapidly changing technical environment and deregulation of telephone services throughout the nation, Alaska is trailing the nation in privatizing telephone services. He reported that Anchorage and Fairbanks have cost-free municipally owned telephone service and he believes privatization of the state system is a move in the right direction. COMMISSIONER WUERCH moved to adopt Recommendation 5 of the Department of Administration subcommittee's report. COMMISSIONER FINK seconded the motion. SENATOR ADAMS noted that he intended to offer a motion recommending that the State of Alaska develop an overall plan in the area of business-oriented technology with the intent of privatizing that technology and improving efficiency and services to the public. COMMISSIONER VALESKO asked if this recommendation is a duplication of something that has already been done since the Department of Administration has issued a request for proposals for its communications system. TAPE 99-25, SIDE A COMMISSIONER FINK commented, "Mr. Adams' number one recommendation - if it does mean to privatize that whole area, it seems like it's much more broad than yours. I would like for it to cover all these other things." He said that it is unclear to him whether Senator Adams' motion recommends privatization or recommends that a study be performed. He asked if the recommendation could be amended to include all other areas of technology for privatization. COMMISSIONER WUERCH said that is his intention as he believes that will provide more incentive for the private sector to invest in remote areas of the state, especially with the shift of communication functions to the Internet. Currently, the private sector only has a small portion of the market consisting of the entertainment portion and some telephone service. The government shelters a huge communications bill from the private sector. Commissioner Wuerch agreed with Commissioner Fink that the entire spectrum should be looked at, including radio and emergency panel service. COMMISSIONER WUERCH addressed the issue of whether an RFP has already been issued and noted that all proposals could be refused. (Indisc. - talking and paper shuffling). COMMISSIONER VALESKO noted that he met with Commissioner Poe, Department of Administration (DOA), on this item. He also noted that Local 71 members who work for the state will be affected by the fact that the RFP solicits a private entity to take over the state communications system. To his understanding, the state is the only provider that has "line of sight" communications between Kodiak and the mainland. He informed the commission that "they" are reviewing ways to make effective use of the state system before it becomes devalued with more private sector communications companies. CO-CHAIR WARD asked if there was further discussion on the motion to adopt Commissioner Wuerch's Recommendation 5. COMMISSIONER VALESKO objected because he believes an RFP is already being issued. Therefore, Commissioner Wuerch's Recommendation 5 was adopted with one dissenting vote. CO-CHAIR WARD asked if Commissioners Notti, Allen, and Harper had any recommendations to place before the commission. All three commissioners indicated that they did not have anything to bring before the commission at this time. CO-CHAIR WARD asked if Commissioner Valesko had anything to bring before the commission. COMMISSIONER VALESKO asked if there would be time to bring items before the commission at a later date. CO-CHAIR WARD explained that with the full commission's permission, he intends to complete the commission's business at the end of business today. At that point, staff will be instructed to place this information in a finalized document to be delivered to the commissioners this Friday. The final report will be taken up on December 13, 1999 and, if necessary, on December 14, 1999. He specified that during the December 13 meeting, everything would remain before the commission. Co-Chair Ward announced that now would be the appropriate time to bring items before the commission. COMMISSIONER VALESKO moved that the commission adopt his Recommendation 2 which reads: "Any privatization efforts must ensure that there is a substantial and guaranteed cost savings to the state on an immediate and long-term basis." COMMISSIONER FINK asked whether the language "substantial and guaranteed" is necessary. He agreed that any privatization effort must ensure cost savings. COMMISSIONER VALESKO said that he would be willing to amend his recommendation to read: "Any privatization efforts must ensure that there is a cost savings to the state on an immediate and long- term basis." CO-CHAIR WARD asked if there was objection to the amendment to Recommendation 2. There being no objection to the amendment, it was adopted. The motion to adopt Commissioner Valesko's Recommendation 2 as amended was before the commission. There being no objection, Recommendation 2 as amended was adopted. CO-CHAIR COWDERY stated staff cannot develop a professional document by Friday. CO-CHAIR WARD commented that the commission will have follow-up time. He said that he talked with the staff who realize that the commission needs a draft by December 13, 1999. SENATOR ADAMS noted that he submitted 11 items to the commission. He then expressed the need for some portion of the report to provide for accountability for privatization and gave Recommendation 11 as an example. That recommendation states: "It's imperative that the state functions that are privatized are viewed regularly to ensure that they're at least as effective as state-provided services." He pointed to the sex offender program and the numerous parks around the state as examples of the need for such a recommendation. He reiterated that there should be some accountability included in the report in order to show that it has merit. COMMISSIONER FINK moved his Recommendation 4 which recommends the legislature enact a statute that no labor contracts may be entered into which place limits on privatization. He explained that numerous subcommittee reports indicate that some labor contracts prohibit some services from being privatized. Labor groups will always want such a provision in the contract. Commissioner Fink thought that a law should be passed to affect future contracts and the renewal of contracts. The law should indicate that labor contracts should not contain any language which would limit privatization efforts. CO-CHAIR COWDERY seconded Commissioner Fink's motion. COMMISSIONER VALESKO informed the commission that the contracts he is familiar with contain language requiring the state to do a cost- efficiency study to illustrate that the work can be performed cheaper using contract labor versus the state work force. He acknowledged that the state is burdened with showing that it can provide the work cheaper, but he felt that is a positive aspect. Commissioner Valesko pointed out that attempts have been made to include language in the contracts to require the state to pay the same wages and benefits as the private sector. During many administrations, the state has negotiated to exclude such language. Local 71's current contract includes language that requires the state to pay the wages for the work specified in the contract, plus $2.55 in benefits. Such language provides a base for the worth of the work. Placing limits on the right to negotiate the worth of the work means that the private sector could pay minimum wage for work. He stressed that he does not want to be part of a commission that puts forth a recommendation, such as Commissioner Fink's Recommendation 4, that would lower the standard of living of Alaskans. Commissioner Valesko stated his opposition to Commissioner Fink's Recommendation 4. CO-CHAIR COWDERY said that he does not believe anyone wants to lower the standard of living for anyone in the state and he does not believe Commissioner Fink's Recommendation 4 would do that. Co-Chair Cowdery informed the commission that when the Knowles' Administration put the state printing function out to competitive bid, the labor union sued the Administration. The Administration had to pay for the bid and the cost of labor's lost wages because that was a provision of the contract. Co-Chair Cowdery interpreted Commissioner Fink's Recommendation 4 as the notion that the state should not negotiate away its right to negotiate with the private sector. COMMISSIONER THOMAS informed the commission that she favors Commissioner Fink's Recommendation 4. She pointed out that discussing privatization does not necessarily mean that the work will be awarded to a nonunion entity. Every union employee should have the opportunity to get the job. Perhaps, the job would merely move to another union representation. In the ideal world of privatization, some of these functions could be moved to areas of the state where there is not much of an economy. She questioned why vehicle registrations have to be mailed to Anchorage, for example. Privatization offers many opportunities to provide jobs in other parts of the state which is why she hates to see such limitations in labor contracts. COMMISSIONER WUERCH spoke in favor of Commissioner Fink's Recommendation 4. He pointed out that the adoption of Commissioner Valesko's Recommendation 2 placed a limit on privatization efforts. On the other hand, Commissioner Fink's Recommendation 4 says that there will be no limits. He suggested amending Recommendation 4 by replacing the phrase "which place limits on privatization" with "which prohibits privatization." COMMISSIONER FINK felt the difficulty with the word "prohibits" is that many people would argue that something does not actually prohibit privatization. Commissioner Fink said that he does not see any conflict in his recommendation and Commissioner Valesko's Recommendation 2. The labor contract is separate and does not affect the concept of privatization. COMMISSIONER WUERCH announced that he has been persuaded that the language in Commissioner Fink's Recommendation 4 is adequate and he supports the motion. COMMISSIONER VALESKO pointed out that the language in Commissioner Fink's Recommendation 4 does place a limit on privatization. Commissioner Valesko's Recommendation 2, which specifies that the state may not privatize work unless a savings can be illustrated, also places a limit on privatization. Labor and management [with Commissioner Fink's Recommendation 4] would not be able to discuss that. He explained, "Under ... the NLRB rules and regulations and the federal laws, contracts that are entered into, consistently across this nation - labor and management have entered into agreements that restrict or have some application to outsourcing work." This is a level playing field in which labor and management can discuss their concerns. When one specifies that one cannot enter into labor contracts which address outsourcing, contracting out, and privatization, a tremendous amount of unrest and insecurity is created amongst employees. He explained that the employees lose job security, which was gained through the negotiated language. The public sector is left feeling that their jobs are at risk each time the legislature meets. Commissioner Valesko felt that production would decrease. He questioned why, if these protections are included in the national labor laws, the state would not include such protections in the state labor laws. COMMISSIONER FINK pointed out that in private labor negotiations, the management side is limited in what it can give because it must make a profit. However, during government labor negotiations, a government manager can agree to something and the taxpayer is stuck with the bill. Commissioner Fink acknowledged that there are limits on outsourcing in some nongovernment agreements. However, it is done within the realm of the bottom line because management represents its shareholders, who want to keep their jobs. That is not the case in government, which is why it should not be allowed. Upon a roll call vote, Commissioners Fink, Harper, Notti, Thomas, Wuerch, Ward and Cowdery voted in favor of the adoption of Commissioner Fink's Recommendation 4. Commissioners Allen, Valesko and Adams voted against the adoption of Commissioner Fink's Recommendation 4. Commissioner Brice was not present. Therefore, the motion passed 7 yeas, 3 nays. COMMISSIONER FINK moved that the committee adopt his Recommendation 5 which states: "Eliminate the Alaska product preferences, the recyclable preference, and the food products preference." He explained that the subcommittees that dealt with those preferences all recommended that they be removed. CO-CHAIR COWDERY seconded the motion. SENATOR ADAMS informed the commission that he would be voting against Commissioner Fink's Recommendation 5 because all of the preference programs were established to help Alaska businesses. COMMISSIONER FINK agreed with Senator Adams' assessment regarding Alaska food products but did not believe that argument is true for the recyclable preference which costs the state approximately 10 percent more for paper products. COMMISSIONER WUERCH mentioned that as a past president of the Alaska Chamber of Commerce, he struggled to get the Buy Alaska program established therefore he is opposed to this recommendation. Upon a roll call vote, Commissioners Fink and Cowdery voted in favor of the adoption of Commissioner Fink's Recommendation 5 and Commissioners Harper, Notti, Thomas, Valesko, Wuerch, Ward, Adams and Allen voted against the adoption of Commissioner Fink's Recommendation 5. Commissioner Brice was not present. The motion to adopt Commissioner Fink's Recommendation 5 failed with a vote of 2-8. COMMISSIONER FINK moved that the commission adopt his Recommendation 6 which reads: "A process must be installed wherein the legislature reviews and approves any court settlement or dropping of an appeal by the Administration when the subject matter is a state policy issue." CO-CHAIR COWDERY seconded the motion. COMMISSION FINK pointed out that the Hammond Administration settled in the Hootch case, which cost the state a lot of money. He also believes that dropping the subsistence appeal will cost the state money as well. He commented that this occurs at the local government level as well. Commissioner Fink acknowledged that this recommendation will force discussion about what constitutes a policy issue. He indicated that such tactics, in effect, result in a law being passed without a law actually being passed. Commissioner Fink clarified that he was suggesting that if a lawsuit is filed, the chief administrator of any body could not settle a policy issue without the legislature's approval. Otherwise, the chief administrator would have to continue an appeal until legislative approval is achieved. This does not take any power from the courts. SENATOR ADAMS pointed out that Commissioner Fink's Recommendation 6 is a policy question. He believed it will require a legal opinion because of the balance of power issue between the executive and judicial branches. COMMISSIONER VALESKO informed the commission that he would be voting against Commissioner Fink's Recommendation 6. He noted his limited knowledge in this area but said he could foresee this issue reaching into labor agreements and everything in state government. COMMISSIONER THOMAS commented that although she is basically in favor of what Commissioner Fink is trying to accomplish, it is equivalent to the legislature laying odds as to whether the legislature will win or lose. She also expressed concern about the wording of Commissioner Fink's Recommendation 6. She suggested that perhaps the words "a legal settlement" would be more appropriate than "a court settlement." COMMISSIONER FINK indicated that Commissioner Thomas' language may be acceptable. He explained that this does not frustrate the judicial branch from making its decisions, but rather it will frustrate the Administration's decision to agree to something before it goes to the highest court unless the agreement is approved by the legislature. Recommendation 6 would also stop the Administration from ending a case on appeal. Commissioner Fink pointed out that Governor Knowles has agreed not to appeal the decision that more money has to be spent on schools. Governor Knowles only received the opinion of one judge as opposed to 60 legislators. That should not be able to happen. COMMISSIONER NOTTI agreed with Commissioner Fink that some decisions have been incorrect, as with subsistence. However, he felt that the set up of a strong executive branch should be left as such. COMMISSIONER WUERCH found the idea appealing in many respects but expressed concern that Recommendation 6 goes beyond the charter of the commission. Upon a roll call vote, Commissioners Ward, Cowdery and Fink voted in favor of the adoption of Commissioner Fink's Recommendation 6 and Commissioners Notti, Thomas, Valesko, Wuerch, Adams, Allen and Harper voted against it. Commissioner Brice was not in attendance. Commissioner Fink's Recommendation 6 failed with a vote of 3-7. COMMISSIONER FINK moved that the commission adopt his Recommendation 9 which states: "Eliminate any government money to public radio or TV, endowment for the arts, one percent to the arts." CO-CHAIR COWDERY seconded the motion. "I'd like to just point this one percent for arts, in addition to the international airport - that's a little over a million dollars that we have to spend out of that money out there for the arts." Co-Chair Cowdery spoke in favor of the motion. COMMISSIONER FINK pointed out that way back when, kings and queens funded the arts. Although such people do not have that kind of money now, private people have spent money in this area. Commissioner Fink stressed that some nonprofit foundations now have close to a trillion dollars in assets. Such foundations have to give out about five percent a year. He stated that these nonprofit foundations will "take up the slack" if they are forced to. Although the arts are an important part of society, the arts do not have to be backed by government funds. SENATOR ADAMS objected to Commissioner Fink's Recommendation 9, specifically the portion speaking to public radio. He explained that in Kotzebue, for example, public radio provides more than entertainment; it also serves as a safety net and communications link. COMMISSIONER FINK mentioned that he supported the original public radio and TV program in the legislature. However, he believes that today the private sector will cover the entire state with radio and television. He indicated that having a public broadcast available reduces the incentive for private enterprise to enter this area. COMMISSIONER VALESKO expressed opposition to Commissioner Fink's Recommendation 9 because he believes it is appropriate to mandate a certain percentage of funds to go towards the arts. COMMISSIONER NOTTI commented that he could agree with the portion of the recommendation dealing with the arts, but the remainder is tied to public safety issues. Upon a roll call vote, Commissioners Ward, Cowdery and Fink voted in favor of the adoption of Commissioner Fink's Recommendation 9 and Commissioners Notti, Thomas, Valesko, Wuerch, Adams, Allen and Harper voted against the adoption of Commissioner Fink's Recommendation 9. Commissioner Brice was not in attendance. Commissioner Fink's Recommendation 9 failed with a vote of 3-7. COMMISSIONER FINK moved that the commission adopt his recommendation to eliminate any government funding of power cost equalization. [The motion was not seconded.] CO-CHAIR WARD pointed out that the commission was still under Commissioner Comments and could accept suggestions from commission members. The commission will not return to reconsiderations and amendments until the commission has heard all commissioner comments. COMMISSIONER THOMAS expressed concern that there are some good recommendations from the subcommittee reports that no one had the opportunity to take up. She asked that the fact that some worthy recommendations could not be addressed be acknowledged in the final report. CO-CHAIR WARD clarified that all subcommittee reports will be highlighted in the final report. TAPE 99-25, SIDE B CO-CHAIR COWDERY mentioned that he has already had legislators contact him regarding areas that have not been covered by the commission. CO-CHAIR WARD asked if any commissioner had more new items to discuss. Co-Chair Ward noted that the commission would address old items, reconsiderations, and amendments at the meeting scheduled on December 13, 1999. He informed the commission that the staff has been instructed to combine all the information into a draft form, which will be provided to each commissioner before the end of business Friday. The close-out process will begin during the December 13, 1999 meeting. Co-Chair Ward asked if there were any other comments. COMMISSIONER VALESKO stated that he wanted to note his Recommendation 3 which states: "Methods be developed to monitor current and future privatization. Cost savings analysis must be performed to determine if the state can, or has, provided the service less expensively." He noted that his recommendation is similar to Senator Adams' Recommendation 11. CO-CHAIR WARD announced that he will be offering a recommendation to move the legislature. He requested that Commissioner Valesko submit his recommendation to Mr. Pignalberi to be placed on the agenda for the December 13, 1999 meeting. He also asked other commissioners to submit any recommendations to staff. SENATOR ADAMS commented, "Sometimes we err in our judgement and we have done it in a couple of areas." He hoped commissioners would rescind some of their motions at the next meeting. He indicated the commission packet should include a document regarding the collections functions of the Department of Law, which he suggested everyone review because there may be the need to rescind prior action in this area. He said that the commission made an error in placing ARRC under the Executive Budget Act. Senator Adams believed the commission went against the judgement of the Alaska State Chamber and its resolution 99-15. He noted that the Fairbanks Chamber also had a resolution which he would bring for review. There being no further comments, the Commission on Privatization and Delivery of Government Services adjourned at 11:43 a.m.