Legislature(1995 - 1996)
02/01/1995 01:05 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HJUD - 02/01/95 HB 103 - COMPETITION W/PVT SECTOR: CORRECTION IND. Number 685 ROD MOURANT, Aide to Representative Kott, sponsor of HB 103, stated Representative Kott is a strong endorser of the correctional industries program. Current statute allows correctional industries to enter into a competitive environment with previously existing private industry operations. This legislation attempts not to force the correctional industry to back out of those circumstances, but merely to charge their prices competitively in those circumstance; thereby not defeating the purpose of the correctional industries program, but rather protecting a circumstance where a government subsidized operation at a correctional industry is competitive with the private sector. Its investments are therefore protected. Specifically, there are letters from different meat packing industries, both of whom are affected by the current circumstances described. In a slaughterhouse/meatpacking operation, which is actually under state control, there is no requirement to charge competitive overhead and wage expenses. They are able to price their product at a considerably less than market value price. That adversely affects these companies in the private sector. In those circumstances where competition exists with the private sector, this bill calls for the correctional industries' workers to be paid a competitive wage for the service. Those wages would be paid over to the Commissioner of Corrections; for paying both to the inmate and for deposit into the state general fund. A negative fiscal note accompanies the bill, indicating if they had to charge higher prices for their services, they would lose business. Number 750 REPRESENTATIVE CYNTHIA TOOHEY asked if the Palmer facility was the only registered slaughterhouse in Alaska. Number 760 MR. MOURANT thought there were two slaughterhouses, but there is no competition in the slaughterhouse industry. Therefore the slaughterhouse operation is not affected by this legislation at all. The two slaughterhouses are in two different environments. One is a federally inspected slaughterhouse and the other is a state licensed and inspected facility; two different categories, and there is no competition within the state in that regard. Number 764 REPRESENTATIVE TOOHEY was confused by the letters from Mikes' Quality Meats and Indian Valley Meats, complaining about the competitiveness of the Palmer slaughterhouse. Are we not talking about apples and oranges? MR. MOURANT said there is no competition in regards to slaughter operations. The competition is within the cutting, packaging and marketing of products. The slaughterhouse provides both functions. Number 781 REPRESENTATIVE BUNDE asked if the meat was currently on the market at below market prices. Number 785 MR. MOURANT thought that the wholesale purchase price for the finished product was considerably lower than the fair market rate. Number 795 REPRESENTATIVE FINKELSTEIN asked why the existing system was not working and what the negative impact was. Number 800 MR. MOURANT understood that it falls through the cracks in the existing statutes because it is not privately owned, and that is, in fact, what the current legislation speaks to, in regard to the commission not entering into competition with a privately owned facility. The facility we are dealing with is one that used to have a loan through the Agricultural Revolving Loan Fund. That loan was foreclosed on in 1986. The state now owns that Mt. McKinley operation. Number 825 REPRESENTATIVE FINKELSTEIN understood the statute to mean that within the system, they are supposed to look at the impact of these activities on private industry; that private industry being other folks who might want to do it. If the correction industries is involved with it, they have to make the determination that it will not adversely impact other companies out there who are offering the same services. He thought there was a system in place to handle these types of conflicts - a commission to make these determinations. He was confused as to why that did not work. TAPE 95-6, SIDE B Number 000 WALLY ROMAN, Corrections Industries Program (CIP) Manager, Department of Corrections, gave a little background about CIP to bring the committee up to date. The purpose of the CIP is to reduce idleness and to employ prisoners in realistic work experiences. Recently, they have developed two cooperative ventures with the private sector. The part of the statute being talked about is the part that allows them to do that. During hearings four years ago, the legislature clearly defined more requirements on establishing new markets and new industries to minimize the impact on the private sector. Since 1992, CIP has striven to communicate all of its activities to the public sector through advanced advertising, citizens advisory groups, chamber of commerce presentations, and more hearings to receive public comment. The program has been very conservative in ensuring that all proposed ventures are scheduled for discussion before the CIP implements any operations. In addition, the program has promoted cooperative ventures with the private sector that would control the possibility of competition. Of the total $2,000,000 in gross sales, approximately 20 percent have been sales to nonprofit organizations, private individuals, and wholesale to the private sector businesses. MR. ROMAN said the department does have several concerns with the provision of HB 103. It is anticipated that the proposed provisions may be difficult to define and implement, and in addition, there are existing statutes that already provide for the defined process we are talking about, and can be addressed under the Correctional Industries Commission. We believe they should evaluate and regulate the potential competition of the private sector. He said their primary concerns were that the statute establishing free venture businesses has been utilized to implement several different models of correctional industries operations in conjunction with the private sector. This section of the bill was put in there in 1986 to allow them to take advantage of a program called the Prison Industry Enhancement Act, which was under the United States Department of Justice. It was specifically put in there to design a level playing field with the private sector. They have had operations under that program and are in the process of implementing a couple more. They are concerned that adjusting the provisions of 43.32.017 may affect future implementations of cooperative ventures with the private sector. MR. ROMAN explained the difficulty that would result from trying to pay comparable wages to workers, since their workers are completely untrained inmates. If actual costs reflected training hours, the prevailing rate would be so much higher, they would place themselves out of the market. Another aspect that keeps them noncompetitive with the other slaughterhouses is that they are only allowed to cut and wrap one animal per customer per year. They are unlimited in the number of animals they can slaughter for wholesale distribution purposes. Number 330 REPRESENTATIVE BUNDE asked if the Department of Corrections' meat prices in the stores are comparable to meat purchased from private meat packing operations. MR. ROMAN explained that their meats would not be found in stores, because they cannot keep up with the demand for volume. They sell to private restaurants. REPRESENTATIVE TOOHEY stated she was opposed to the state competing at all with the private sector, if the playing field is not totally level at all perceptions. Number 415 REPRESENTATIVE VEZEY commented that we have a large societal problem in incarcerating people. He supported anything they could do to make this cost of incarceration less of a burden to society. He did not know of anything constructive that could be done that does not, conceivably, compete with private sector. He felt there needs to be a balance between the need to have an affordable system of incarceration and maintaining a healthy private sector. He felt the commission that is in place would be a much better forum to address the fairness of this type of competition than a statute or legislative committee. If there is a problem, maybe the makeup of the commission should be looked at, rather than trying to codify what competition is. Number 450 HERB SIMON, resident of Nelchina, explained his frustrations with the complications involved in conveying his public opinion to the committee members in time for the meeting. He then explained in full detail, the slaughter process and how that relates to their pricing formula. He felt the Mt. McKinley facility to be unique in its services due to the equipment used, quality of inspections, and capacity for processing. Also, it is the only facility that slaughters animals grown exclusively in Alaska. He said it would be hard for the Department of Corrections' operations to compete with private sector wages. He also thought the industry should be deregulated. Number 660 CHAIRMAN PORTER felt that if the committee were to consider this bill, it would be more to the point to recognize that there is already a system in place to deal with these issues. He asked the bill sponsor to meet with the Department of Corrections to see if the constituent concerns could be addressed through another avenue. REPRESENTATIVE DAVIS agreed with Chairman Porter. She felt that maybe the two private industries who expressed concern, do not fully understand what Mt. McKinley does, exactly. They need to be educated and included in the discussion. She felt there was a difference between what is going on at the private meat packing plants and the Mt. McKinley slaughterhouse. Number 711 CHAIRMAN PORTER noted the statute provides a mechanism to deal with the problem they are expressing, which is unfair competition. The competition comes in the sale, not what goes into the costs; and so the sale price mechanism is there. REPRESENTATIVE BUNDE observed that the competition question could be answered by having comparable prices placed on the finished product. Number 730 REPRESENTATIVE DAVIS asked about the pricing on products going to the wholesalers. Number 735 MR. ROMAN explained that their prices are based on an agricultural index and the restaurant index. MR. SIMON mentioned that Alaska is known as a dumping ground for the lower 48, for products they do not want; so the fresher products coming from Mt. McKinley are higher in quality. Number 750 REPRESENTATIVE BUNDE felt maybe Mt. McKinley's prices were too low for what the product is. Number 825 CHAIRMAN PORTER asked what happens if there are no competitors when starting a new business, and one pops up two years later. Are you then required to adjust, based on what that business does? Number 840 MR. ROMAN said that has happened, and what they did is stayed in the business and tried to meet the prevailing market rate created within the business. The free venture statute allows for somebody to come in and run a business inside the prison with their managers completely. It also allows them to sell to a private company at wholesale, according to their specifications. That is what they are doing with Aurora Caskets right now. It allows them to come in and purchase a block of hours from the inmate work force. It also allows them to do some business with the public. For all of those, they have to go out and receive special certifications, and if it is interstate commerce, they have to meet certain federal guidelines before they can do business. CHAIRMAN PORTER announced the bill would be held. ADJOURNMENT The House Judiciary Committee adjourned at 2:45 p.m.