Legislature(1995 - 1996)
02/28/1996 02:40 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL 428 "An Act giving notice of and approving a lease-purchase agreement for construction and operation of a correctional facility in the Third Judicial District, and setting conditions and limitations on the 1 facility's construction and operation." Representative Mulder MOVED that work draft #9-LS1338\U, Chenoweth, 2/13/96, be the version before the Committee. There being NO OBJECTION, it was so ordered. Representative Mulder explained the differences between the original version and the committee substitute including those recommendations proposed by the Commissioner of Corrections: 1. The committee substitute would remove the requirement that contract facilities abide by court orders. 2. The restriction on maximum security housing was removed. 3. The Department recommended that the accreditation language be removed; it was. 4. The inclusion of "design" listed in the total construction costs. Representative Mulder acknowledged that the bill was "permissive". It was not a mandate ordering the Department to build the facility. He pointed out the inconsistency between statute and the Alaska Administrative Code. The bill would allow the Commissioner of Corrections appropriate authority. Representative Mulder reported that the needed projected bed space by 2002 would be 1000 additional beds. Representative Mulder reemphasized that it was essential for the State to explore creative ways of saving revenue. He pointed out that the Department of Corrections budget has grown exponentially. He thought those costs could be cut through privatization. The proposed legislation would provide the Department an allowance to explore an additional alternative. Representative Martin voiced concern with inclusion of Alaska Housing Finance Corporation (AHFC) or Alaska Import & Export Authority (AIDEA) money being used for the project. Representative Mulder noted that at this time, there is no state commitment for funding, pointing out that a lease/purchase option was written into the bill. Representative Brown questioned if the Subcommittee had considered broadening the legislation in order that the Department could use it as a tool to expand their own plan. That plan includes expansion and regionalization of current facilities. Representative Mulder responded that the 2 Subcommittee did not give consideration to the State's plan, as that plan has not yet been released. He concluded, the proposed legislation would focus on the lease/purchase aspect of the package. Representative Brown inquired why that option was being considered for only the Third Judicial District. Representative Mulder advised that area has had the highest criminal traffic and involvement. Representative Brown recommended that the "context" of the problems should be considered, including the draft plan to be distributed by the Department. Representative Brown noted Page 2, Lines 25 -27, questioning the effect that language would have on the community residential centers. Representative Mulder said the language would broaden the Commissioner of Corrections capabilities to research private half-way houses. Representative Brown disagreed, explaining that the language would create a limitation between contracts with private agencies. Representative Mulder noted inclusion of "only", which would not allow the Commissioner to "focus the intent down", thus making it less cost effective. Representative Navarre pointed out that if the facility was owned by the private sector and paid for by the State, taxes would be paid for by the State, benefiting the local municipality. He recommended that action on the bill be postponed, until the Department had distributed their plan. Representative Mulder reputed that the plan was not available at this time. He added that the proposal would include a 400 bed facility. That facility would cost approximately $104 million dollars to build, whereas, private industry could build a 1000 bed facility for approximately $65 million dollars. He emphasized the disparity, and the State's need to save money. Co-Chair Hanley reiterated that the legislation was "permissive" and that the Commissioner would not be required to implement it, echoing that the Department's plan was not available at this time as promised. Representative Navarre emphasized that the Commissioner of Corrections has promised that the plan would be available by March 4, 1996, stressing that a "plan" exists and that it will be released. Representative Therriault referenced Section 3, Page 7, language regarding the construction of the correctional facility under the Project Labor Agreement (PLA) and what determination would be used for a "hire through the local union hall". Representative Mulder noted that "local union hall" would reflect the entire State, thus intending to maximize Alaska hire. 3 Representative Therriault questioned the description of the facility expansion. Representative Mulder reiterated that determination of an allowance for expansion would be decided if money could be saved given the economy at scale and centralization. Representative Therriault stressed that local communities want jobs established within their boundaries. Those communities would not want to see the expansion isolated to one area. Representative Mulder replied that small, remote prisons are expensive. The legislation focuses on ways to address incarceration efficiently. Decisions should be driven by cost. Representative Therriault asked if the operator would be self insured. Representative Mulder replied that currently, private corporations operating throughout the country have their own insurance coverage. Representative Brown explained Amendment #1. [Attachment "maximum hire" of Alaska State residents in the building and operations of the facility. Co-Chair Hanley questioned if the language was constitutionally correct. Representative Brown responded that legal sources have stated that the language "may be" unconstitutional, although it would be good policy. Co-Chair Hanley asked if Representative Brown could imagine that option being required in all State agencies. Representative Brown requested to hold the amendment, in order to "clean up" the language, making it constitutionally correct. Amendment #1 was HELD in Committee. Representative Brown MOVED to adopt Amendment #2. [Attachment #2]. She explained that Amendment #2 would address construction of the correctional facility as a public project. Adoption of the amendment would require that the project be subject to prevailing wage standards and would then apply existing public construction law. Representative Mulder OBJECTED, pointing out that the private facility would be built under the Project Labor Agreement (PLA). (Tape Change, HFC 96-53, Side 2). Representative Mulder indicated that prevailing wage would be determined between the contractor and the union hall. Representative Brown questioned why the bill stated that prevailing wages would be paid, suggesting the application 4 of existing law to the proposed project. Representative Mulder replied that public officials should not dictate the terms between the union hall and the contractor. Representative Therriault observed that the provisions of the amendment could weaken protection in the bill to hire union employees. Representative Brown disagreed, noting that the amendment would guarantee that prevailing wage would be paid to the union employee involved. Representative Navarre added, it was already required under existing statutes, and recommended including it in the legislation to guarantee that operations are legally correct. He inquired if a construction company was contracted from out-of-State, would they then be able to bring employees from out-of-state. PAT SMUTZ, ALASKA STATE LEGISLATIVE DIRECTOR, AFL-CIO, replied that if it was a local building trade agreement, local hire would be required. The out-of-state contractor would have to go through local hiring halls and unions. A roll call was taken on the MOTION to adopt Amendment #2. IN FAVOR: Brown. OPPOSED: Kelly, Kohring, Martin, Mulder, Parnell, Therriault, Hanley, Foster. Representatives Grussendorf and Navarre were not present for the vote. The MOTION FAILED (1-8). Representative Brown MOVED to adopt Amendment #3. [Attachment #3]. Representative Mulder OBJECTED. Representative Brown explained that Amendment #3 would require a feasibility study to examine the various methods available to the State to relieve prison over- crowding. JERRY SHRINER, SPECIAL ASSISTANT, OFFICE OF THE COMMISSIONER, DEPARTMENT OF CORRECTIONS, explained that it would be assumed that labor contracts would require a feasibility study when closing facilities. He noted that the Department's plan addresses a variety of locations, and would take into consideration correctional populations. He advised that the outcomes recommended would change by locating all bed needs in one location. Co-Chair Hanley asked if a cost-ratio benefit comparison had been provided under the Department's plan. Mr. Shriner noted that the Department has not provided a cost-benefit with regard to private prisons. Mr. Shriner added that a 400 bed facility was part of the plan. 5 Mr. Shriner informed members that the Department, in determining a plan, established where the greatest population needs are located and are most extreme. Representative Martin and Mr. Shriner discussed the feasibility study and the cost benefit analysis. Representative Brown confirmed that other states which have incorporated privatization, have incorporated safeguards for guaranteeing that the state government would be receiving the "best deal". She felt that Amendment #3 would provide a minimal safeguard. A roll call was taken on the MOTION to adopt Amendment #3. IN FAVOR: Navarre, Brown. OPPOSED: Kohring, Martin, Mulder, Parnell, Therriault, Foster, Hanley. Representatives Grussendorf and Kelly were not present for the vote. The MOTION FAILED (2-7). Representative Brown MOVED to adopt Amendment #4. [Attachment #4]. Representative Mulder OBJECTED. Representative Brown briefed the Committee that Amendment #4 would require evidence that a cost savings of at least 5% in construction costs be met before the project was begun. She indicated that other states have this statutory requirement. Co-Chair Hanley asked if Project Labor Agreements would always be required on state construction projects. Mr. Shriner did not know. Co-Chair Hanley noted that type of agreement would not save money. Representative Therriault added that the amendment would prevent operational savings. Representative Brown asked to WITHDRAW Amendment #4 in order to refine the language. There being NO OBJECTION, it was withdrawn. Representative Brown addressed Amendment #5. [Attachment operating cost savings. Representative Mulder noted that he would concur with the amendment, if Representative Brown would include the addendum that it be compared to the average daily per diem rate of $107 dollars per day. Representative Brown reminded Representative Mulder that the Department could become more efficient, which would then lower those costs. Representative Mulder warned that was an arbitrary concept. 6 Representative Martin requested a friendly amendment to Amendment #5, adding language to follow Line 8, "as of FY97 Department of Corrections budget". Following discussion, Representative Martin withdrew the proposed amendment to Amendment #5. Mr. Shriner commented that other states have dealt with the situation through statute. Most states establish that the cost must be at least equal to, and if it is not, they then must establish a bench mark for the costs of the facilities proposed to be built. Representative Therriault suggested that the amendment language was to "simplistic". Representative Brown stated that the Commissioner would need to make written analysis and findings. She stressed that savings must be insured before the undertaking. Discussion continued among Committee members regarding the planning process required to achieve the guaranteed savings. Representative Brown advised that it would make sense to have the cost comparison done after the bids, although noted that she would be more comfortable having the feasibility study provided before the process. Amendment #5 was HELD. (Tape Change, HFC 96-54, Side 2). Representative Brown MOVED to adopt Amendment #6. [Attachment #6]. Representative Mulder OBJECTED. Representative Therriault noted that the costs associated with operating a facility was a direct link to how the facility was constructed. He thought that efficiency would be lost in not combining the two. Representative Navarre explained that the amendment would not preclude that from happening. Mr. Shriner commented that the Department would prefer that the two issues be separated. DOC would not want to be tied to a facility, and consequently tied to the operator for 20 years, until they (the Department) owned the building. He suggested that the process should be separated; an RFP for construction and a separate RFP for operations. Representative Navarre noted language on Page 4, Section 4, and asked if persons employed by the Department of Corrections could become the contractors of a facility. Representative Mulder replied that a collective group of employees, bidding on a project would not be precluded. Representative Navarre recommended that language be changed. Representative Brown asked if an Internal Revenue Service 7 (IRS) law existed which would prohibit the State from entering into a contract longer than a specified period of time. DENNY DEWITT, AID, REPRESENTATIVE ELDON MULDER, responded that their office had been advised through a variety of bonding counsels that the lease/purchase of a facility would need to be a separate contract from the operational portion of the activity. The operational portion would need to be rebid at the end of five years. A roll call was taken on the MOTION to adopt Amendment #6. IN FAVOR: Navarre, Brown, Grussendorf. OPPOSED: Kelly, Kohring, Mulder, Parnell, Therriault, Foster. Representatives Hanley and Martin were not present for the vote. The MOTION FAILED (3-6). Representative Brown MOVED to adopt Amendment #7. [Attachment #7]. Representative Mulder OBJECTED. Representative Brown explained that the amendment would allow the State to temporarily take over operations if they could do it for less costs. Representative Mulder argued that if the State could operate the facility for less, they would be entitled to come back to the Legislature to request that. Representative Therriault asked if the amendment would affect the bidding rates. Representative Brown offered a scenario in which the contractor hyped up the costs; at that time, a provision would need to be included to address those operational concerns. Without the amendment, options would be limited. Representative Mulder disclosed that in the "lower 48", contract bids were lower than those received by state governments. If a breech existed, the state would temporarily take it over. Representative Navarre pointed out to Committee members that the amendment would provide a check on the competitive bid process. The State could not arbitrarily take over the project and violate the terms of the contract. Discussion followed among Committee members regarding options available during the competitive bid process. Representative Navarre MOVED a friendly amendment to Page 3, Line 23, deletion of "temporarily". He thought that would technically address the problem. There was NO OBJECTION to the deletion of the language. 8 A roll call was taken on the MOTION to adopt Amendment #7. IN FAVOR: Navarre, Brown, Grussendorf. OPPOSED: Kohring, Martin, Mulder, Parnell, Therriault, Kelly, Hanley. Representative Hanley was not present for the vote. The MOTION FAILED (3-7). Representative Brown MOVED to adopt Amendment #8. [Attachment #8]. Representative Mulder OBJECTED. Representative Brown explained that the amendment would address concerns in establishing limits for operation. Representative Mulder was more comfortable with the limitation being made through a policy call by the Legislature than one made by the Administration. Representative Brown reminded Representative Mulder that getting action done through the Legislature was not an easy or timely option. She concluded, the amendment would provide for temporary operations. Representative Mulder suggested that Page 3, Line 27, adequately addressed that concern. Co-Chair Hanley stated that the amendment language was too "broad". Representative Brown offered to redraft the amendment. Following discussion that it was the Chair's intent to move the legislation, Representative Brown MOVED to adopt Amendment #8 as drafted. A roll call was taken on the MOTION. IN FAVOR: Navarre, Brown, Grussendorf. OPPOSED: Martin, Mulder, Parnell, Therriault, Kelly, Kohring, Hanley, Foster. The MOTION FAILED (3-8). Representative Brown MOVED to adopt Amendment #9. [Attachment #9]. Representative Mulder OBJECTED. (Tape Change, HFC 96-54, Side 2). Representative Brown questioned that in the event of a default, why the facility would be operated by the State only "temporarily". Representative Mulder responded that the intent of the legislation was to keep it private. A roll call was taken on the MOTION to adopt Amendment #9. IN FAVOR: Navarre, Brown, Grussendorf. 9 OPPOSED: Mulder, Parnell, Therriault, Kelly, Kohring, Martin, Foster, Hanley. The MOTION FAILED (3-8). Representative Brown MOVED to adopt Amendment #10. [Attachment #10]. Representative Mulder OBJECTED. Representative Brown noted that the amendment would insure that correctional officers and other staff are properly trained to work with incarcerated felons. Representative Mulder commented that concern was addressed on Page 3, Line 31 and Page 4, Lines 1 & 2. He added that record and background checks would be a part of the contract language. He concluded, that the concern would be handled between the Commissioner of Corrections and the private contractor. Representative Brown WITHDREW Amendment #10, agreeing that it had been addressed. There being NO OBJECTION, Amendment Representative Brown MOVED to adopt Amendment #11. [Attachment #11]. Representative Mulder OBJECTED. Representative Brown explained that Amendment #11 contains standard language used by the Department of Administration (DOA) in contracts to deal with non-performance on the part of the contractor. Representative Mulder stated that information should be specified in the contracts. Representative Brown suggested that by placing the language in statute, would automatically place it in "any" contract entered into. Representative Parnell thought that "resulting excess costs" would be standard language. Representative Navarre MOVED a "friendly" amendment to Amendment #11, removing the language "for any reason whatsoever" and "any resulting excess" and inserting "reasonable". The language would clarify that if a default by a contractor should occur, the State would then continue the operations, charting back the costs. Representative Mulder advised that concern had been addressed in the procurement statutes. There being NO OBJECTION to Representative Navarre's "friendly" amendment, the language was changed. A roll call was taken on the MOTION to adopt Amendment #11 as changed. IN FAVOR: Navarre, Parnell, Brown, Grussendorf. OPPOSED: Therriault, Kelly, Kohring, Martin, Mulder, Hanley, Foster. The MOTION FAILED (4-7). 10 Representative Brown MOVED to adopt Amendment #12. [Attachment #12]. Representative Mulder OBJECTED. Representative Brown noted that the amendment would provide that the facility could be built in a district other than the Third Judicial District. Representative Brown MOVED a language change to Page 3, Lines 9 and 10, which would read "related costs to establishing correctional facilities may not exceed $100 million dollars". Representative Martin OBJECTED to the conceptual amendment. Representative Mulder identified that the Third Judicial District had been specified because the pressure and expansion needs within the correctional system are located within that district. He reiterated that in order to maximize the efficiency through centralization and size, building a facility in that area would avoid some transportation and other hidden costs. Representative Brown MOVED TO WITHDREW Amendment #12. There being NO OBJECTION, it was withdrawn. Representative Brown MOVED to adopt Amendment #5. [Attachment #5]. Representative Mulder OBJECTED. Representative Brown noted that Amendment #5 would require a 5% operational savings. A roll call was taken on the MOTION to adopt Amendment #5. IN FAVOR: Navarre, Brown, Grussendorf. OPPOSED: Kohring, Martin, Mulder, Parnell, Therriault, Kelly, Foster. Co-Chair Hanley was not present for the vote. The MOTION FAILED (3-7). Representative Mulder recommended adopting a $300 thousand dollar fiscal note in lieu of the other fiscal notes submitted. He believed that the costs incurred by the Department of Transportation and Public Facilities (DOTPF) and the Department of Administration (DOA) could be rolled into the cost of financing. The Department of Corrections would require only a $300 thousand dollar allocation in order to prepare the Request For Proposal (RFP) and determine staffing operational requirements. Representative Navarre recommended that each Department be consulted to provide testimony regarding the fiscal impacts. Mr. Shriner addressed the fiscal differences to that Department. The Department of Corrections (DOC) would 11 receive the total allocation and then each of the other departments would receive funds through an RSA from DOC. He thought some costs could be capitalized through bonding. Bonding costs should remain in the fiscal note. Mr. Shriner warned that $300 thousand dollars would not cover all necessary costs. Representative Mulder disagreed, noting that the Commissioner of Corrections had projected cost needs for a thorough analysis of the entire proposal. He suggested that was a "smoke screen" to delay the legislative process, and emphasized that the $300 thousand dollars would be sufficient in providing for staff and comparison time and the design expertise for the RFP. Representative Martin suggested that more money would require more time. Representative Grussendorf questioned inclusion of the maintenance concern. Representative Mulder replied that maintenance should be required by the private contractors, and that the contractor would be required to return the facility to the "same condition" it was in before occupancy. Representative Mulder reiterated that would be a contractual item. Representative Martin added that private enterprise always includes maintenance as part of the operating costs. Representative Mulder MOVED the $300 thousand dollar fiscal note for the Department of Corrections. Representative Navarre OBJECTED to the fiscal note. Following discussion, Representative Navarre WITHDREW the objection to the fiscal note, noting his objection to the legislation moving from Committee before overviewing the Department of Corrections long term plan. Representative Mulder MOVED to adopt CS HB 428 (FIN) with the individual recommendations and with the accompanying fiscal notes. Representative Navarre OBJECTED. Representative Navarre stated that he does not oppose privatization and that with appropriate safeguards, privatization could save the State money. He emphasized the need for safeguards. He reminded members that the savings and loans industry was a private industry which ultimately caused the tax payers billions of dollars. Representative Navarre advised that the legislation established "no constraints". Once the facility is built, the cost of operations would be out of their hands, except through the RFP process. He suspected that major maintenance would be deferred for the first five years. Representative Navarre summarized that constraints must be 12 added to the bill. Privatization is not good at any cost. Privatization is only good when constraints and constrictions are added to save money. He reiterated that the Department of Corrections plan should be considered along with the proposed legislation. A roll call was taken on the MOTION to MOVE the bill from Committee. IN FAVOR: Martin, Mulder. Parnell, Therriault, Kelly, Kohring, Foster. OPPOSED: Navarre, Brown, Grussendorf. Co-Chair Hanley was not present for the vote. The MOTION PASSED (7-3). CS HB 428 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Department of Corrections and a zero fiscal note by the Department of Revenue dated 2/05/96.