State Government

Requires the managed process committee to transform State's
accounting procurement and budgeting systems; requires the
procurement policy office to adopt rules for a managed
procurement process that evaluates the efficiency, effectiveness,
and economy of the purchase using uniform accounting standards;
requires the comptroller to collect from state agencies their
portion of benefits received under the state risk management
revolving fund; requires all state departments to develop goals
and objectives; establishes a joint legislative task force on
government restructuring to assist in reducing the size and
bureaucracy of state government and increasing government
efficiency and effectiveness; requires the auditor to contract
with an independent auditing firm to conduct an annual financial
audit of state government to evaluate efficiency in operations
and effectiveness in spending and creates a joint legislative
task force to gather information to supplement the auditor's
work.  Appropriates funds. (SD2)

HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                S.D. 2
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1                              PART I.
 2      SECTION 1.  Act 230, Session Laws of Hawaii 1998, is amended
 3 as follows:
 4      1.  By amending section 5 to read:
 5      "SECTION 5.  The committee shall submit annual reports of
 6 its plans, recommendations, and implementing actions to the
 7 legislature no fewer than fifteen days before the convening of
 8 [the] each regular [sessions of 1999, 2000, and 2001.] session."
 9      2.  By amending section 6 to read:
10      "SECTION 6.  (a)  There is created a committee that shall
11 develop, monitor, and review a managed process that enables state
12 and county governments to implement public-private competition
13 for government services through the managed process that
14 determines whether a particular service can be provided more
15 efficiently, effectively, and economically by a public agency or
16 a private enterprise.  The managed process shall [consider]:
17      (1)  Consider all relevant costs, [identify] develop a
18           costing model that accurately estimates and accounts
19           for the total cost of providing a government function

Page 2                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1           and develop methods by which government in-house costs
 2           can be compared to private sector costs;
 3      (2)  Consider the costs of conversion to the private sector,
 4           including transaction costs, disruption costs, contract
 5           monitoring costs, and revenue increases or decreases;
 6      (3)  Identify the types of contracts which may be exempt
 7           from the managed process[, establish];
 8      (4)  Establish protections for the affected state and county
 9           employees[, and ensure];
10      (5)  Ensure that civil service laws, [merit principles,] and
11           collective bargaining laws are not violated[.];
12      (6)  Ensure that all costs, including the costs of liability
13           insurance, product and performance liability, fringe
14           and employee retirement, disability benefits, and other
15           allocated direct and indirect overhead costs are
16           realistic and fair; and
17      (7)  Develop a handbook and training program that educates
18           government agencies in the competitive government
19           process.
20      (b)  The committee members shall be appointed by the
21 governor within sixty days from the date of this Act.
22      The members of the committee shall include:
23      (1)  The director of finance;

Page 3                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      (2)  The comptroller;
 2      (3)  The director of human resources development;
 3      (4)  One representative from each of the four major counties
 4           to be appointed by the respective mayors;
 5      (5)  Two public-sector union representatives;
 6      (6)  One private-sector union representative;
 7      (7)  Two representatives for private-sector businesses; and
 8      (8)  One representative for nonprofit organizations that is
 9           a recipient or is entitled to be a recipient under
10           chapters 42D and 42F, Hawaii Revised Statutes.
11      The committee shall elect a chairperson and vice-chairperson
12 from among its members.  A majority of the members shall
13 constitute a quorum.  The department of accounting and general
14 services shall provide administrative support for the committee.
15 Members of the committee shall serve without compensation.  The
16 committee shall complete a draft of the managed process by
17 December 31, 2000, and complete the managed process by
18 December 31, 2001.  The committee shall submit [its report,
19 including its] a report of its findings, plans, implementations,
20 and recommendations for statutory changes to civil service laws
21 and such other laws as may be necessary to implement the managed
22 process, to the legislature not less than twenty days prior to
23 the convening of [the 1999] each regular session of the

Page 4                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 legislature."
 2      3.  By amending subsections (b) and (c) of section 14 to
 3 read:
 4      "(b)  All new contracts for goods, services, or construction
 5 which are entered into by the State or county after the effective
 6 date of this Act [and prior to July 1, 2001, which extend beyond
 7 June 30, 2001,] shall include a provision stating that the
 8 contract, during its term, is subject to a single review by the
 9 State or county pursuant to the managed process in Part III,
10 Section 6.  Pursuant to the managed process review, the contract
11 may be canceled, renegotiated, continued, or extended by the
12 State or county.  All of these contracts shall continue to be
13 exempt from civil service laws, merit principles, and collective
14 bargaining laws for the duration of the contract even if a
15 managed process is not implemented.
16      (c)  All contracts for goods, services, or construction
17 which are entered into by the State or county on or before the
18 effective date of this Act[, including contracts which extend
19 beyond June 30, 2001,] shall not be subject to review by the
20 State or county pursuant to the managed process in Part III,
21 Section 6.  All of these contracts shall continue to be exempt
22 from civil service laws and merit principles for the duration of
23 the contract."

Page 5                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      4.  By amending section 17 to read:
 2      "SECTION 17.  This Act shall take effect upon approval[;
 3 provided that Part III and IV shall be repealed on
 4 June 30, 2001]."
 5                             PART II.
 6      SECTION 2.  The State of Hawaii has experienced a broad
 7 range of responses from the procurement of private enterprise to
 8 provide or manage previously public agency tasks.  Both
 9 proponents and opponents of these contracts provide data that
10 support their positions.  Reports have indicated that sending
11 prisoners to private facilities has resulted in savings to the
12 State.  Other positions advocate the construction of new
13 correctional facilities in the State, including the possibility
14 of private ownership of that facility.
15      One element of a successful enterprise is the ability to
16 evaluate proposals and options.  Good decisions are based on fair
17 and accurate information.  The State of Hawaii uses the
18 procurement code to ensure that state purchases meet certain
19 standards, but it has thus far not required any type of
20 determination that the procurement of certain services or goods
21 is the most effective, efficient, and economical path to take.
22 The current economic situation requires the State to have a
23 managed process for procurement and to adopt standard methods for

Page 6                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 evaluation to ensure the effective, efficient, and economical
 2 procurement of services.
 3      SECTION 3.  Chapter 103D, Hawaii Revised Statutes, is
 4 amended by adding a new section to be appropriately designated
 5 and to read as follows:
 6      "103D-     Managed process for procurement of private
 7 enterprise.  The policy office shall adopt rules to implement any
 8 public-private competition for government services through the
 9 managed process that determines whether a particular service can
10 be provided more efficiently, effectively, and economically by a
11 public agency or a private enterprise.  The managed process shall
12 consider all relevant costs, identify the types of contracts
13 which may be exempt from the managed process, establish
14 protections for the affected state and county employees, and
15 ensure that civil service laws, merit principles, and collective
16 bargaining laws are not violated.  The managed process shall
17 require any analysis to use uniform accounting standards in
18 determining whether a service can be provided more efficiently,
19 effectively, and economically by either a public agency or a
20 private enterprise.
21      For the purposes of this chapter, "uniform accounting
22 standards" means a system of accounting for costs and expenses
23 which applies accepted accounting practices and customs,

Page 7                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 including those limited to specific industries, to provide a fair
 2 and complete total of the direct and indirect costs and expense
 3 of or reasonably allocable to any activity, including:
 4      (1)  Direct and indirect labor costs and compensatory
 5           benefits;
 6      (2)  Direct material costs;
 7      (3)  Other allocable indirect costs, including indirect
 8           manufacturing or operational costs such as costs of
 9           utilities, parts and supplies, insurance and
10           depreciation on plant and equipment;
11      (4)  Selling, general, and administrative expenses; and
12      (5)  The imputed cost that represents the fair and complete
13           total of the federal, state, and local tax obligations,
14           from which the activity is exempt in whole or in part,
15           to the extend of such exemption."
16                             PART III.
17      SECTION 4.  The legislature finds that our state departments
18 and agencies should constantly be working towards improving the
19 effectiveness and efficiency of our government.  Improving
20 government operations through strategic planning can result in
21 increased and more effective government programs and improved
22 coordination among different agencies and levels of government,
23 and optimal use of state funds and personnel.

Page 8                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      The legislature believes that the development of goals and
 2 objectives is essential for state departments and agencies to
 3 determine priorities, guide their decisions, and measure the
 4 effectiveness of their programs and services.  Moreover, goals
 5 and objectives would assist the legislature in evaluating the
 6 budgetary needs of departments and agencies.
 7      The legislature further finds that many of our State's
 8 departments and agencies have not formally established goals and
 9 objectives.  Accordingly, the purpose of this Part is to require
10 all departments and agencies to identify their goals, objectives,
11 and policies, to provide a basis for determining priorities and
12 allocating limited public funds and human resources.
13      SECTION 5.  Every department and agency of the State shall
14 develop and submit to the legislature twenty days prior to the
15 start of the regular session of 2000 and each regular session
16 thereafter, an annual report addressing the following:
17      (1)  A statement of goals, including what the department or
18           agency hopes to accomplish both short and long term;
19      (2)  Objectives and policies, specifically setting forth how
20           each goal can and will be accomplished;
21      (3)  An action plan with a time-table indicating how the
22           established objectives and policies will be implemented
23           in one, two, and five years; and 

Page 9                                                     747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      (4)  The process that the department or agency will use to
 2           measure the performance of its programs and services in
 3           meeting the stated goals, objectives, and policies.
 4                             PART IV.
 5      SECTION 6.  The legislature finds that there is an immediate
 6 need to streamline and improve the delivery of government
 7 services by restructuring state government.
 8      Studies to improve the responsiveness and efficiency of
 9 state government have already been conducted, ranging from
10 reports in 1974 and 1977 from the commission on organization of
11 government ("CORE"), to the 1993 report of the interim commission
12 on government redesign, which supported the need to redesign the
13 delivery of state government services.
14      Recognizing the need to improve the delivery of government
15 services and reduce government bureaucracy, the legislature in
16 1996 passed Act 297, Session Laws of Hawaii 1996 to address the
17 consolidation and streamlining of government departments and
18 services.  That Act acknowledged that although the current state
19 administration had taken certain actions to respond to the
20 State's fiscal crisis and restructure state government agencies
21 for more efficient and effective delivery of government services,
22 the task of reorganizing state government falls jointly on the
23 legislature and the governor:  the legislature to set policies

Page 10                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 and the governor to develop and implement an action plan to
 2 implement the policies.
 3      In response to Act 297, the governor issued an interim
 4 report to the legislature entitled "Restructuring State
 5 Government Services" (December 1996), which made a number of
 6 findings and recommendations to streamline government.  However,
 7 the legislature finds that these efforts, while important, do not
 8 go far enough, and that the circumstances that prompted the
 9 enactment of Act 297 still remain.
10      There continues to be a need to resolve the State's economic
11 stagnation, as well as a need for government agencies to adapt to
12 the ever-changing needs and demands of the public they serve.
13 State agencies must revise and retool their concepts of public
14 service in order to remain responsive and efficient.  There
15 continues to be not only duplication of effort among state
16 agencies but also encroachment into the functions of the private
17 sector.  Many state government services, although well-meaning,
18 have placed increased strain on the State's weak fiscal
19 situation.  In order to carry out the most essential public
20 services, the State must make the best use of every resource,
21 every tax dollar, and every personnel position.
22      The legislature further finds that the State's continuing
23 poor economy, weak revenue projections, and budget gaps between

Page 11                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 expected expenses and income requires a determination as to the
 2 best means to increase government productivity and realize
 3 additional cost savings.  The legislature finds that while the
 4 State's economic situation is weak, it nonetheless presents an
 5 opportunity to enhance the productivity of state government and
 6 to fill the budget gap with the resultant savings.
 7      Accordingly, the purpose of this Act is to accelerate the
 8 restructuring of state government by:
 9      (1)  Creating a joint legislative task force on government
10           restructuring;
11      (2)  Stating appropriate policies for restructuring; and
12      (3)  Providing for a comprehensive implementation strategy
13           to be utilized in the review of the departments and
14           offices of the executive branch of state government.
15      The legislature finds that these measures will help to
16 enhance productivity and promote economic growth in Hawaii
17 through the redirection of government first to a commitment to
18 education of our children and more efficient delivery of services
19 to stimulate economic growth of small businesses and reshaping
20 economic development programs.
21      SECTION 7.  Joint legislative task force on government
22 restructuring; establishment; membership; appointment;
23 compensation; duties.  (a)  There is established a joint

Page 12                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 legislative task force on government restructuring.  The task
 2 force shall consist of six members from each house appointed by
 3 the presiding office of each house.
 4      (b)  In carrying out its duties under this section, the task
 5 force may request staff assistance from the department of budget
 6 and finance, department of business, economic development, and
 7 tourism, and other appropriate state agencies.
 8      (c)  The members of the task force shall select the
 9 chairperson and shall be reimbursed for expenses, including
10 travel expenses, necessary for the performance of their duties.
11      (d)  The task force shall solicit input on and study the
12 role of each of the departments and agencies in the executive
13 branch of state government, and make recommendations to the
14 governor on restructuring state government and reducing
15 government bureaucracy, consolidating agencies, and streamlining
16 procedures as necessary for the efficient functioning of state
17 government based on the following policies and goals:
18      (1)  The creation of a clear sense of mission for
19           restructuring state government;
20      (2)  The avoidance of making changes to reorganize state
21           government for the sake of change only;
22      (3)  The development of government which provides "user-
23           friendly" services in and out of state government;

Page 13                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      (4)  The adoption of "best practices" of management and
 2           operations;
 3      (5)  The search for economies of scale;
 4      (6)  The elimination of duplicative or outmoded functions
 5           and activities;
 6      (7)  The enhancement of productivity by consolidating
 7           functions;
 8      (8)  The elimination of unnecessary regulation;
 9      (9)  The redesigning of processes to increase efficiency,
10           cut costs, and reduce public inconvenience;
11     (10)  The exposure of government operations to competition;
12     (11)  The guarantee of effective, efficient government
13           operations; and
14     (12)  The realization of significant long-term savings.
15      (e)  In developing an action plan under subsection (d), the
16 task force shall make recommendations to achieve the following:
17      (1)  Consolidate or restructure redundant state government
18           services, programs, and operations; 
19      (2)  Improve the departmental effectiveness with which
20           general fund dollars are spent;
21      (3)  Reduce the ratio of management, administrative,
22           clerical, and supervisory personnel to the front-line
23           personnel;

Page 14                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      (4)  Integrate the effective use of technology;
 2      (5)  Achieve the most effective delivery of services to
 3           Hawaii citizens; and
 4      (6)  Any other areas that the task force deems relevant to
 5           enhance productivity in Hawaii state government.
 6 The task force shall develop criteria or benchmarks as necessary
 7 to assist in the development of productivity plans for state
 8 departments.
 9      SECTION 8.  Report.  The task force shall make its
10 preliminary recommendations to the governor no later than twenty
11 days before the convening of the regular session of 2000, and
12 shall submit its final recommendations no later than twenty days
13 before the convening of the regular session of 2001.
14      SECTION 9.  There is appropriated out of the general
15 revenues of the State of Hawaii the sum of $          , or so
16 much thereof as may be necessary for fiscal year 1999-2000, for
17 the purposes of this Act.  The sum appropriated shall be expended
18 by the speaker of the house of representatives.
19      SECTION 10.  There is appropriated out of the general
20 revenues of the State of Hawaii the sum of $         , or so much
21 thereof as may be necessary for fiscal year 1999-2000, for the
22 purposes of this Act.  The sum appropriated shall be expended by
23 the president of the senate.

Page 15                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1      SECTION 11.  The task force on government restructuring
 2 shall cease to operate after the adjournment sine die of the 2001
 3 regular session of the legislature.
 4                              PART V.
 5      SECTION 12.  Section 41D-4, Hawaii Revised Statutes, is
 6 amended by amending subsections (b) and (c) to read as follows:
 7      "(b)  In addition to any appropriation the legislature shall
 8 make to the state risk management revolving fund, the comptroller
 9 [may] shall apportion to, and collect from, state agencies those
10 amounts of money that, in the discretion of the comptroller,
11 reflect benefits received by the agencies under this chapter.
12 The comptroller [may] shall consider the relevant risk and loss
13 experience of the agencies in making apportionments and
14 assessments.  Funds so collected shall be deposited into the
15 state risk management revolving fund.
16      (c)  [The comptroller may establish deductibles for the
17 state agencies for certain perils or classes of property losses
18 and may:
19      (1)  Assess the agencies for losses incurred in the amount
20           of the deductible; or
21      (2)  Reduce the payment from the state risk management
22           revolving fund to cover the casualty loss by the amount
23           of the deductible.] The comptroller shall prepare a

Page 16                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1           report, for each fiscal year, for each agency that is
 2           subject to subsection (b), stating the amount
 3           apportioned to, and to be collected from, that agency.
 4           The report shall be submitted to the agency and to the
 5           legislature no later than one hundred forty-five days
 6           before the commencement of each regular session of the
 7           legislature preceeding the fiscal year applicable to
 8           the apportionment."
 9                             PART VI.
10      SECTION 13.  The legislature finds that there is an
11 immediate need for a comprehensive financial audit of state
12 government.
13      The goal of the audit is to ascertain the financial
14 viability of state government and to provide the management
15 reports which will lay the groundwork to reshape the State for a
16 new and improved way of doing business.  The purpose of the audit
17 is to verify the financial standing of the State, examine its
18 organization, management, operations, and programs, and identify
19 opportunities for reorganization, consolidation, and elimination
20 of duplicated functions.  In addition, the legislature finds that
21 the audit should be conducted by an independent auditor to
22 provide an outsider's view and determine where reductions can be
23 made in state spending.
24      The purpose of this Act, therefore, is to require the

Page 17                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 auditor to contract with an independent auditing firm to conduct
 2 an audit of state government.  The audit is to provide for a
 3 complete review of all state agencies and programs, services, and
 4 activities operated by those agencies for the purpose of
 5 evaluating efficiency in operations and effectiveness in state
 6 spending. 
 7      SECTION 14.  Definitions.  For purposes of this Act:
 8      "Agency" means any state board, commission, department,
 9 committee, institution, agency, or office within the legislative,
10 executive, or judicial branch of state government, including
11 institutions of higher education.
12      "Independent auditor" means an independent accounting or
13 auditing firm of national standing that has experience in
14 conducting financial audits of state agencies.
15      SECTION 15.  Financial audit of the state government.  The
16 auditor, through competitive sealed bidding or proposals pursuant
17 to chapter 103D, Hawaii Revised Statutes, shall contract with one
18 or more independent auditors to conduct management or financial
19 audits, or both, of state government operations to:
20      (1)  Challenge and question the basic assumptions underlying
21           all agencies and the programs and services they provide
22           to identify those that are vital to the best interests
23           of the people of the State of Hawaii and those that no

Page 18                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1           longer meet that goal;
 2      (2)  Review the functions, organizational structures, and
 3           staffing levels of all agencies and the programs,
 4           services, and activities operated by those agencies;
 5      (3)  Evaluate the efficiency with which agencies operate the
 6           programs under their jurisdictions and fulfill the
 7           duties assigned to them by law;
 8      (4)  Determine methods to maximize the amount of federal
 9           funds received by the State for their programs in order
10           to better ensure that the people of Hawaii receive a
11           greater share of the taxes levied on them by the
12           federal government;
13      (5)  Determine methods to establish a system for the
14           reporting of measurements related to performance and
15           for integrating the information so reported into the
16           State's fiscal planning processes;
17      (6)  Make recommendations, including but not limited to the
18           following:
19           (A)  Any necessary changes in organizational structure,
20                management style, and administrative procedures to
21                improve the overall administration and operation
22                of state government;
23           (B)  The use of automated technology;

Page 19                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1           (C)  The privatization of certain operations, or other
 2                alternative service delivery approaches including
 3                managed (public-private) competition; and
 4           (D)  The elimination of or reduction in funding to
 5                various agencies, programs, or services; and
 6      (7)  Make recommendations to the legislature as to
 7           amendments to statutory and constitutional provisions
 8           that will improve the efficiency and economy of state
 9           government.
10      SECTION 16.  Assistance from state agencies.  All
11 departments, agencies, and offices of the State and any private
12 companies or agencies receiving state funds shall fully cooperate
13 with and provide assistance to the independent auditors as needed
14 with respect to its audit, and shall respond promptly to the
15 auditors requests in conducting this audit, including but not
16 limited to requests for records and other information requested
17 in the course of the audit.
18      SECTION 17.  Financial audit work plan; public input;
19 reports.(a)  In performing its duties under this Act, the
20 independent auditor shall adopt a financial audit work plan,
21 which shall ensure that the audit is conducted by program and
22 functional areas so that individual agency performance can be
23 analyzed in relationship to other agencies and overlaps and gaps

Page 20                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 can be detected.
 2      (b)  The work plan shall include the conduct of public
 3 hearings throughout the State and the establishment of a
 4 telephone hotline for citizens to call in suggestions for
 5 improving government operations or to report instances of fraud,
 6 waste, or other abuse.  To the greatest extent possible, the
 7 independent auditor shall seek input from state employees at all
 8 levels.
 9      (c)  The independent auditor, consistent with generally
10 accepted accounting principles and auditing standards, shall
11 report its findings and recommendations to the legislature and
12 the governor no later than twenty days before the convening of
13 the regular session of 2000.
14      SECTION 18.  There is established a joint legislative task
15 force consisting of the senate committee on government operations
16 and housing and the house committee on labor and public
17 employment.  The task force shall establish an agenda and goals
18 and objectives consistent with the purposes of this Act.  The
19 task force shall receive public testimony with respect to state
20 government fraud, waste, and excess or any other matter the task
21 force deems worthy of consideration.
22      The task force shall meet at a time to be jointly determined
23 by the chairs of both committees during the 1999 legislative

Page 21                                                    747
                                     H.B. NO.           H.D. 1
                                                        S.D. 2

 1 interim.
 2      The task force may submit suggestions to the auditor on
 3 possible subjects for audits.
 4      SECTION 19.  There is appropriated out of the general
 5 revenues of the State of Hawaii the sum of $          , or so
 6 much thereof as may be necessary for fiscal year 1999-2000, for
 7 the purposes of this Act, including costs incurred under this Act
 8 in contracting with one or more independent auditors to conduct
 9 financial audits of state government agencies in accordance with
10 this Act and for costs incurred in the conduct of those audits.
11 The sum appropriated shall be expended by the auditor for the
12 purposes of this Act.
13      SECTION 20.  Statutory material to be repealed is bracketed.
14 New statutory material is underscored.
15      SECTION 21.  This Act shall take effect upon its approval,
16 except section 9, 10, and Parts V and VI shall take effect on
17 July 1, 1999.