Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the Senate to the amendments proposed by the House of Representatives in S.B. No. 1096, S.D. 1, H.D. 1, entitled:

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this measure in an amended form.

The purpose of this measure is to clarify the application of public employment laws.

Specifically, the measure:

Your Committee on Conference finds that while the State's economy is demonstrating some evidence of recovery after almost a decade of low growth and recession, the demands on government for the delivery of core services continue to increase. The legislature also finds that the use of tax and fee hikes to meet projected government expense increases are counterproductive to the very economic recovery that produces revenues to fund those expenses. As such, it is more important than ever that government have the ability to deliver services by the most efficient means possible.

To this end, the State and its counties have long used the private sector to provide public services to Hawaii's citizens. Historically, government agencies and private organizations have benefited from outsourcing to increase efficiency and take advantage of larger economies of scale, and have used resources that are owned or have been developed by the private sector to achieve savings for the long-term good. When time and need have suggested that opportunities would be missed or that costs might be avoided or minimized, government has used private sector services and expertise to take advantage of the opportunity rather than "start from scratch." In certain instances, outsourcing could provide the flexibility needed to enable government to remain fluid in its ability to effectively provide services for the ever changing needs of its constituency.

However, in recent years, certain circumstances have contributed to curtailing state and county governments' ability to utilize privatization as a means of cutting costs and more efficiently managing its resources.

Because of the Hawaii Supreme Court's decision in the consolidated cases Konno v. County of Hawaii, 85 Haw. 61 (1997) and other occurrences, the basic authority of state and county government to deliver public services through the private sector has been called into question.

In Konno, the Hawaii supreme court invalidated a contract between the county of Hawaii and a private landfill developer and operator after concluding that under the State's civil service laws, only civil servants could perform the services and fill the positions historically and customarily provided or filled by civil servants. While the supreme court in Konno "emphasize[d] that nothing in this opinion should be interpreted as passing judgment, one way or the other, on the wisdom of privatization," and acknowledged that "[w]hether or not, as a policy matter, private entities should be allowed to provide public services entails a judgment ordinarily consigned to the legislature", it also noted that "the civil service encompasses those services that have been customarily and historically provided by civil servants", and concluded that, absent express legislative authority to obtain services from other sources, civil servants must provide these services.

Consequently, state and county agencies, in some instances, were precluded from entering into service contracts with private providers to obtain the services they needed, reduce direct labor, material, and equipment costs, and take advantage of indirect savings through contractual provisions for insurance and indemnification against third—party and regulatory liability claims.

Recognizing the negative fiscal impact the Konno decision would have on government, the Legislature enacted Act 230, Session Laws of Hawaii 1998 (Act 230), which provided the necessary express authority to the State and counties to contract with the private sector. Act 230 also established a committee to develop a managed process that would allow state and county agencies to contract with the private sector for the provision of government services, thereby making government more efficient and cost—effective. The justification for establishing the process was to ensure that when government decides to seek services from the private sector, it relies on the accurate assessment of costs and perceived benefits in order to make informed and responsible decisions. Although the managed process committee completed its work mandated pursuant to Act 230 and submitted its recommendations to the Governor and the Legislature, a complete working model of managed competition has yet to be implemented.

Not willing to wait or rely solely upon the results of Act 230 to make government more efficient and responsive to the needs of the public, the Legislature enacted Act 253, Session Laws of Hawaii 2000 (Act 253), otherwise known as the Civil Service Modernization Act. Act 253 contained sweeping employment reforms that shape the way government service will be defined in the twenty-first century. Under this new paradigm, no longer will public agencies be resigned to the "one size fits all" mentality of hiring, allocating, training, and retaining their employees. Act 253 in part, enables the State, counties, and other public jurisdictions to custom tailor their workforce to suit their particular needs. Act 253 also authorized the use of experimental modernization projects by public agencies as a means to modernize and streamline their operations in lieu of privatizing the functions of the public agency.

Although the managed competition process embodied in Act 230 and the experimental modernization project concept authorized under Act 253 paved the way towards improving government efficiency and provided management with some of the tools necessary to effect change, your Committee on Conference believes that more can be done to expedite the process of improving the cost-effectiveness of providing services to the public.

As such, in furtherance of the new paradigm embraced under Acts 230 and 253, your Committee on Conference asserts that privatization should be included as a management tool to assist government in remaining fluid in its ability to effectively provide services for the ever changing needs of its constituency. Your Committee on Conference also believes that providing public sector management with a full complement of management tools to choose from...namely privatization, managed competition, and experimental modernization projects...affords public sector management a vast array of options to achieve its goal of government efficiency.

However, your Committee on Conference is fully aware of the negative impact privatization and managed competition will have on public sector employees' ability to negotiate fair and adequate compensation packages, as the balance of negotiating power will be tipped in favor of public sector management. In order to ensure that the fragile balance between employer and employee negotiating leverage is maintained, your Committee on Conference believes that certain public employees should have their right to strike reinstated and that the essential employee statutes should be repealed.

In light of these beliefs and upon further consideration, your Committee on Conference has amended the measure by:

Your Committee on Conference is satisfied that the amended measure will further facilitate the modernization of the public sector working environment while maintaining the fragile negotiating balance between public employers and public employees.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of S.B. No. 1096, S.D. 1, H.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as S.B. No. 1096, S.D. 1, H.D. 1, C.D. 1.