Legislature(1995 - 1996)
04/24/1996 08:15 AM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSSB 199(FIN) - ENVIRONMENTAL & HEALTH/SAFETY AUDITS Number 611 CO-CHAIRMAN GREEN announced the next bill on the agenda was CSSB 199(FIN) and called Senator Leman to present his bill. SENATOR LOREN LEMAN, Sponsor, stated, "Senate Bill 199 is a piece of legislation that will encourage self-audits and that is for businesses to look at their own operations, find out what's wrong, identify them, make the changes so it can improve their environmental response and their health and safety records and go on. It is pro environment, pro law enforcement and more importantly, pro common sense. At a time when government inspectors are not going to be able to be doing full time inspections in all businesses, we need to recognize that we can do things to encourage businesses to inspect their own operations and turn around and make the changes. Environmental and health and safety laws are complex. Large businesses, in many cases, have the technical staff and legal staff to respond to them but what I call the `mom and pop' businesses in Alaska often do not. What this will do is remove some of the fears that those businesses have now so they will be encouraged to do it." SENATOR LEMAN continued, "The bill has two main parts. It provides for limited immunity for those who do the right thing - the good actors and it provides for a privilege which means that the information that you produce as part of this audit cannot be used against you as a road map for prosecution. Those are both worthy ideas; in fact I would say that in the first week of the session when I went and talked to the commissioners whose departments are most responsible for this, we got unanimous agreement for the concept. And still in all the testimony that we've heard in all the committees, they all will come through here and you'll probably hear them say again, `We agree with the concept, but it's the details that bog you down.' Well we've worked very carefully to craft legislation that implements the concept that everybody agrees with. It's the carrot approach rather than the stick approach and I believe the legislation we have before us is good legislation. There is a national campaign and a state campaign to discredit this type of thing - this type of legislation - but I'll just note that 17 other states have legislation like this enacted and 9 other states are in the process of enacting this legislation plus there's legislation introduced in Congress and our Congressman Young is one of the prime co-sponsors of the legislation. I'll note that the EPA, even though they resisted this type of thing initially, has come out in terms of their policy and recognized that this type of approach is good - I mean in concept - they still don't like the concept of the states doing it, but they want themselves to do it. They still have - I guess what I'd call the belt way mentality of controlling - but even the EPA under the current Administration is acknowledging that this type of approach is good." He believed this legislation would be good for Alaska; it would enable us to not only enforce our environmental and health and safety laws, but to do a better job. Number 789 CO-CHAIRMAN GREEN inquired if committee members had questions of the sponsor. If not, there were three people in Anchorage wishing to testify via teleconference. Number 802 KEN DONAJKOWSKI, Representative, Alaska Oil & Gas Association, testified that he works as an audit consultant with ARCO and supports CSSB 199(FIN). Number 817 PETER GAMACHE, Assistant Attorney General, Medicaid Provider Fraud Section, Department of Law, testified from Anchorage that he is responsible for the prosecution of Medicaid fraud. He said, "I have no quarrel again with the concept of self-audits and self- reporting. I think a lot of agencies are going in that direction. Even the U.S. Department of Health & Social Services has a voluntary disclosure program for medical providers. My concern with this bill is that it's so broad it's sweeping, that it may have unintended consequences in the health care area. I'm not addressing environmental concerns or occupational licensing concerns. I'm not even addressing the licensing aspect of health care - whether they be facilities or individual providers. My concern specifically is with the criminal prosecution of Medicaid fraud; an area where very often there's agreement as to the facts, disagreement as to the intent behind the facts. Access to information is critical in proving criminal intent. And wherever you have a provider or facility that's volunteering information, that's entirely inconsistent with criminal intent. My suggestion is that any bill that intentionally could affect medical providers needs to address the law enforcement aspect. The reason being -- we've talked about `mom and pop' providers - they're among the top providers in the medical area now under the state's choice or waiver program, providing all sorts of medical care including home health care, personal care assistants." Number 911 MR. GAMACHE continued, "My point is that absent effective criminal prosecution of fraudulent providers, the lawful, honest providers and facilities can't be protected. And I think this bill fails to address those concerns." CO-CHAIRMAN GREEN thanked Mr. Gamache for his testimony and called Toby Steinberger to testify. Number 932 TOBY STEINBERGER, Assistant Attorney General, Governmental Affairs Section, testified that one of her duties is to represent the Department of Labor before Alaska OSHA Review Board. In her opinion, this proposed bill could affect the state's OSHA program to customize it or possibly jeopardize it. Under state and federal law, our state OSHA program must be as effective as federal OSHA. This bill would make it less effective than the federal OSHA Act. In the mid-1970s, the United States Congress passed the Occupational Safety & Health Act which gave the U.S. Department of Labor the power to recognize workplace safety. It also gave the U.S. Department of Labor the authority to enter places of work and conduct inspections...." CO-CHAIRMAN GREEN interjected there was a time limit for testimony and inquired what her attitude was on self-audit. MS. STEINBERGER responded, "Well, what would happen is under federal OSHA, which we must be as effective as the federal, is that our funding could be jeopardized if we're not as effective as the federal program." She added the U.S. Department of Labor can approve state OSHA programs. The state OSHA programs, which we are one of, must be as effective. Under federal law, the U.S. Department of Labor can conduct inspections. That means they can document - that means they can have access to, under this law, state OSHA which we must be as effective including in our inspections. We will be less effective (indisc.) audit. She said this would be very important in our prosecution of the wilful cases. She discussed the importance of testimony and her belief that a document is an excellent trail of evidence. An audit can be very helpful important in proving (indisc.) a wilful citation. She added that federal OSHA does not allow immunity for anyone and we would be giving immunity for the violators. CO-CHAIRMAN GREEN noted that Mr. Bundy was available to testify. Number 1144 ROBERT BUNDY, United States Attorney for the District of Alaska, testified that he has lived in Alaska for over 25 years. He had been the District Attorney in Nome, Assistant District Attorney in Anchorage, worked for the Attorney General's Office in the Anti- Trust Enforcement and White Collar Enforcement areas, as well as Chief Assistant District Attorney in the Anchorage District Attorney's Office. He had also been a partner in a large law firm for over 10 years in which he litigated both with, in behalf of and against, law corporations in the natural resources and environmental areas. He stated, "It is with that background that I come to discuss this with you, mostly as a citizen of the state of Alaska. That I happen to work for the Department of Justice, I think is beside the point in the things that I have to say." Number 1196 MR. BUNDY continued, "The question that strikes me as I read this bill, is exactly why are we facing this - what are we looking at - is something broken that needs to be fixed? I can tell you that based upon a speculation that certain businesses may conduct more audits in the future, we are balancing that against the absolute certainty and guarantee that this bill is going to create enormous problems in all types of environmental and health and safety litigation which is going to drag things out and make them more expensive and make it increasingly difficult, if not impossible, to enforce some of the most critical environmental and health and safety laws that we have in this state. The privilege as a portion of the bill, is an example. For instance, it expands the privilege of these audit things far beyond anything that we see in any kind of privilege that exists in the law today after hundreds of years of fine tuning the law of privileges as it now exists in our law." Number 1256 MR. BUNDY further stated, "The Fifth Amendment privilege which is probably the most important privilege that we have - or one of the most important privilege - doesn't even approach the breadth of this thing. First of all, the Fifth Amendment privilege does not apply to corporations. Obviously, this would apply this to corporations and all kinds of business entities. The reason for the failure to apply, or the decision over the many decades that we've had this, to apply it to corporations has simply been that corporations are different than individuals. A privilege such as this is a personal privilege to individuals to protect them against the government. Large business entities have a much larger role in the health and safety of people and in what they can do and what they're capable of doing and in all of the lawyers, accountants, and everybody else they have that can look after them." Number 1300 MR. BUNDY said, "The privilege also does not apply to documents that are not compelled testimony. For instance, the privilege applies if you were to subpoena somebody to your committee and they would say `I'm not going to testify and answer your questions' it would not apply if you told them to bring with them documents that they created on this subject matter. That applies even in the personal - the individual - not a corporation because documents are important evidence and have been recognized by the courts for a long time that they're important evidence as to a whole variety of important considerations such as intent, knowledge and all of the other things that must be dealt with. The fact of the matter is, balanced against this extraordinary expansion of the privilege - of the various law of privilege - is the speculation that somebody may conduct more audits. I submit to you that businesses, at least the ones that I have dealt with in litigation, have a tremendous incentive already to conduct self-audits and the biggest incentive they have is the possibility of criminal and civil prosecution. If a business were to come to me and say `What can I do to protect myself most from the possibility of criminal prosecution or civil proceedings by some governmental agency - state or federal,' I would tell them `You need to look and see what your business has been doing - what has occurred and do what you need to do to fix it right now.' That's the kind of advice that these companies are getting right now." Number 1388 MR. BUNDY commented, "The statistics if you look at it are that environmental audits and health and safety audits are increasing at an incredible number rather than decreasing or remaining the same. That doesn't indicate to me that there needs to be additional incentive. And the point is too, is that under this bill, the companies that would most benefit by this are the ones that already have the most incentive to do it. The small `mom and pop' organization - the small company - they're not going to be able to afford the kind of intensive labelling of documents and audits that this bill the way it's presently constituted will protect." Number 1435 MR. BUNDY concluded, "This bill is a litigator's dream. This should be the criminal environmental defense bar relief act. This thing will allow a decent litigator, almost a Mr. Potatohead if the truth be known, to be able to slow down, (indisc.) and delay environmental enforcement litigation almost indefinitely. If you go through the terms that are used describing the documents, describing when they're privileged, when is a document related to an audit report..." Number 1481 CO-CHAIRMAN GREEN asked Mr. Bundy what his response was to the fact that there is a movement to do this in that several states have already done it and others are in the process. Number 1490 MR. BUNDY replied, "Many of these bills were submitted to the various states, all approximately at the same time, often went through without much consideration. In the most recent experience among the states, once the National District Attorney's Association and the various prosecutions had figured out `My gosh, what's going on here' and have testified and brought their views and Maryland and Florida, the most recent states to consider it, have rejected this particular bill. The reason they rejected it is for the many reasons I'm sure you've already heard about how difficult it would be to make a difference." Number 1524 CO-CHAIRMAN GREEN asked if it was Mr. Bundy's view that we should be punitive or we should be corrective. If we're corrective, it seemed to him that self-audit would lead to that as quickly or more quickly than a punitive approach of fining. Number 1534 MR. BUNDY said, "I think you're exactly right but I think that the thing to remember is that right now already built in to the prosecutorial discretion, the policies of the EPA, and the policies of the United States Justice Department and I'm sure policies of the state prosecutors as well -- having been one I understand how prosecutors work -- is that when a company comes to you or an individual comes to you and says, `I've made a mistake, I've found my mistake and I've corrected it' the chances that there would be any criminal prosecution to begin with are small. The chances that any penalty imposed if there were any kind of prosecution or civil proceeding would be much smaller. The point I'm trying to make is that there's already a terrific incentive built in for people to come forward." Number 1587 CO-CHAIRMAN GREEN said, "It's seems though it's that small clause that this has got people concerned to actually admit `Hey, I've got a problem here - I realize that' and then be wide open for you to come back and say `Oh man, thank you very much.' It seems like that's a concern." MR. BUNDY responded, "I guess as a theoretical concern, my question is can anybody point to a single instance in which that's ever happened?" CO-CHAIRMAN GREEN said there have been several pointed out in where this - at least one place I know that the source of this kind of legislation - I remember the National Energy Council and that was touted there and I think from there it spawned to several states. Texas cited several examples where they had been hammered." MR. BUNDY commented, "I think if you look in Alaska, I bet you won't find one and I bet if you look in the United States Department of Justice, these are the two agencies that are going affect the people effected by this bill, I think you won't find any there either." CO-CHAIRMAN GREEN remarked, "Good point." Number 1648 REPRESENTATIVE AUSTERMAN inquired who all was affected by this bill. MR. BUNDY responded, "Affected by the bill presumably, are the state agencies - the Alaska Department of Law and the various state agencies, the DEC, the - I guess what we heard - OSHA, the Health & Social Services on the Medicaid side. Also affected are people that may have been injured in an environmental thing because of the privilege portion. Unlike the way it is now in the ordinary rules of discovery when somebody has a claim whether it's for injury to their property or to their person or for abated nuisance or anything else, they are entitled to find -- the parties exchange information so there can be some reasonable resolution so people can get to the truth. This would deny citizens of the access to the information that they can get now. And I don't know that they're abusing now." Number 1711 REPRESENTATIVE AUSTERMAN mentioned the seafood industry and the processing plants and asked if this bill actually made it easier for them to do self-audits and clean up their stuff? MR. BUNDY responded, "It's no easier for them to do so and I submit to you that they already have a tremendous incentive to do that. What this does is this allows -- against a small, at least arguable increase in the incentive to do so which I don't honestly think is there but which other people in good faith suggest it is -- is against the ability to use the bill the way it's set up for people that have been violators - consistent violators - to hide behind and avoid any ability of either citizens or the state to hold them accountable." Number 1773 CO-CHAIRMAN WILLIAMS asked Mr. Bundy to go over that again. MR. BUNDY stated, "The point I'm making is that on one side you've balanced -- if this bill is passed, it may be true and I personally doubt it but others whom I believe are speaking in good faith, think it is true -- more audits will be conducted. The truth of the matter is that the Colorado Attorney General has recently found and it's one of the states that was the first to pass this, has found there have been no more reports based on audits which either means no more audits were conducted, the audits didn't find any environmental harm or the audits were conducted and nothing was disclosed. That being the case, on the other hand that's balanced against the very real possibility in situations that are set up by this bill for under the rubric of audit and disclosure certain chronic violators to void responding to either citizens or to state agencies to stop their ongoing efforts. There's so many questions about what it takes to get immunity. The terms are so broadly defined and so loose and so, I submit, vague that this will result in years of litigation - roomsful of documents. It's just, like I said, a criminal and civil defense lawyer's dream. And I was one for many years and I can guarantee you, I can think of many, many ways to take advantage of each and every one of these provisions." Number 1884 CO-CHAIRMAN GREEN said that Mr. Bundy had referred to the chronic abuser and asked if the chronic abusers were being prosecuted now? MR. BUNDY replied, "Yes. I can think of a couple of instances right now that we have under investigation that - and these are organizations that have absolutely the resources to hire as many lawyers as they need to figure this out - that had this bill been in effect at the time, that we would be effectively precluded from proceeding with our investigation and any potential penalty against these people." CO-CHAIRMAN GREEN asked, "It's your opinion then that the only recourse would be that they would have to continue to self-audit and show what they're doing and get some reasonable clearing...." MR. BUNDY said the self-audit can be anything. It can be oral. All they have to do is send a notice under this to the affected department, whatever that might be, indicating they are now auditing and our audit will start on January 1 and conclude in December. He added, "There are a million ways -- you may say, `Well, maybe nobody will believe that' but that's just another piece of litigation that's going to go in." Number 1969 CO-CHAIRMAN GREEN asked, "Would it be your opinion if there were three violations - three types of violations by manufacturer X and they self-audit on one of those that the DEC inspectors or the OSHA inspectors would still not be available to find two other violations and fine them on those basis?" MR. BUNDY said, "The problem with that is that it is going to be very difficult draw those lines in any particular way and any document that might be marginally relevant to the other two that was disclosed in the first one is going to be said to have created both a privilege and some kind of immunity." REPRESENTATIVE OGAN asked, "What part of the bill do you like?" MR. BUNDY responded, "Not much." Number 2085 JANICE ADAIR, Director, Division of Environmental Health, Department of Environmental Conservation, testified, "As the sponsor of the bill noted, we too think that the concept of the bill is worth pursuing but we do have some concerns as to the details of how that concept has been delineated in this proposed legislation. Representative Austerman asked who this bill applies to and that is actually one of our concerns. Environmental health and safety laws (indisc.) the bill specifically says are to be broadly construed. We interpret the bill as applying to the state as a landowner, DNR and DOT, to all of our regulations and you would expect some of those - air, water quality - but also our seafood processing requirements and since those are based on voluntary self-audits under the federal hazard analysis critical control point plan that was adopted by this legislature last year in House Bill 208, we don't know if we would be able to adopt that program if this bill were in place. It is a concern; it has something I have had talks with the AG's Office about and we just don't have a good handle on that yet, but that is a serious concern. Other kinds of food processing also operate under voluntary audits - under their own (indisc.) type arrangements that are not subject to any kind of legislation like HB 208 with seafood processing. And as we read this bill, we would be unable to obtain that documentation. So we do have concerns about the broad applicability of the bill. And that is the basis for the fiscal note, by the way, for DEC because we do think that the courts would ultimately make that decision." MS. ADAIR continued, "How the audits are done, who can conduct them and then the scope of the audit report are all very problematic. Environmental audits are still really relatively new management tools. Some companies - larger companies, particularly those who operate in Europe have been doing them for awhile. The European Union, as a means to kind of level the playing field, is adopting international standards. There's an organization called the - the letters don't fit - the abbreviation is ISO, but it's the International Organization for Standardization so they don't have their letters quite right but they have adopted standards for management standards. They started with technical standards so that there would be a level playing field; there's 111 countries that participate in the ISO, the United States is one of them, they then went to their 9,000 series which adopted other kind of management standards (indisc.) is one of those and now they're working on environmental standards, their 14,000 standard series and those do include standards for how audits are done and who may do those for environmental laws. And you don't see any of the aspects that the ISO believes are important in getting a credible audit done in Senate Bill 199." MS. ADAIR further stated, "The DEC does work with companies that want to do audits; we have a pit stop program and I did provide that to you in the packet of information I gave you, where we will go in to car shops through our pollution prevention office and help them devise an audit standard. Then help them do the audits against that standard and figure out whether or not they're in compliance and we do not take action against anyone who does discover something as a result of that and voluntarily reports it to us." Number 2404 CO-CHAIRMAN GREEN announced the House of Representatives was going into floor session and recessed the House Resources Committee meeting to the call of the Chair for HB 548 and CSSB 199(FIN). CSSB 199(FIN) - ENVIRONMENTAL & HEALTH/SAFETY AUDITS Number 181 CO-CHAIRMAN GREEN said the committee would resume testimony on CSSB 199(FIN). MS. ADAIR said, "I think where we left off is we were expressing our concern with the scope of the audit reports, how the audits are done and who can conduct them. I was explaining that there is an international organization for standardization that is developing standards for - not required standards, but guidelines for how to do credible audits with the idea that proper management systems, proper management standards can lead to actually more reliability in producing goods and services and in that you can level the playing field is everybody is sort of doing the same thing. This is something that is particularly important in the European Union where they are trying very hard to kind of bring all those countries together. We do try to help companies develop audit standards. We agree that doing a self-assessment is a very good idea. The more you know, the more you can change or adjust to come into compliance. It's usually those companies that try to hide what's going on from themselves that end up with having compliance problems." MS. ADAIR continued, "There are no generally accepted standards for audits but there are, I think, some generally accepted standards for how audits should be done and the relationship between an auditor and the company being audited. That's not to say that the auditor should always be a third party or an outside employee, but if you're asking someone to come in and give a critical review of how your operation runs, it may not be the best situation if that person reports directly to the person who has responsibility for how that operation is running if they are going to really be honest and critical on it. This legislation allows audits to be done basically by anyone; they can be done randomly; there's no vision that they be done in any structured way and we think that's very important. Particularly if there's going to be an immunity attached to what those audit findings are." Number 274 MS. ADAIR explained, "The definition of audit report is extremely broad. I think it takes up nearly a page of the bill and it includes the corrected action plan. The way that the situation would work is a company would notify any department that would be impacted by whatever the scope of the audit would entail of their intent to do an audit and then we would not hear anything from them again unless they found a violation - they would let us know that perhaps. And that is part of the public record. But how they intend to correct that violation is not. It is confidential. The public can't review it; your citizen councils, community councils can't review it to make sure that they agree. It just becomes a secret document and we find that very problematic. The bill does require that the facility cooperate with us in investigating the issues disclosed, but then we can't ask for the audit report and that includes the corrective action plan. So there's not a real good connection there." MS. ADAIR continued, "By the terms of the legislation, the privilege is not limited to just a critical self-analysis of past events. You can - a company would be able to look at what they're doing, try to determine whether or not it could cause a violation prospectively and decide that gee, ya it does, but we're going to continue to do this. All that documentation would be privileged. It would show a state of mind if we wanted to pursue - if something did happen and you wanted to show that they understood, they knew what was going on, the document would be privileged, however. In federal courts that have recognized a critical self-analysis privilege, they limit it to an analysis of past actions. So if you have an event and you're trying to figure out how to prevent that thing from happening again, you might do an audit of your operations to see how you can prevent that violation from occurring. And that's very different than something where you're looking at something prospectively and we find that to be problematic." MS. ADAIR stated, "We also believe that protecting criminal actions through a privilege or immunity is bad public policy. There are laws on our books that make certain actions a crime. The DEC or any agency does not really make that determination. We refer things to the Department of Law and the Department of Law then uses its prosecutorial discretion to bring a case or not. So we have a real problem with immunizing or holding or applying the privilege to anything that deals with potential criminal actions. We think that the privilege is also unnecessary. As I stated earlier, I think, we do provide a limited immunity when people self-report violations to the department. We do have a program through our pollution prevention office that helps people do audits if they don't know how and most small companies don't. If you look in the yellow pages of the phone book, you're not going to find environmental auditor or auditors in the yellow pages. There's just not a lot of people out there that do that. Larger companies - it's something that they have developed internally and they do have a pretty good system, most of them. But this is something that is still very new for the smaller companies. So we think it's very important for the department to be proactive and help these companies develop these programs. We, in fact, had a provision drafted for our air regulations that would have provided a limited immunity for inspections that were done by the certified inspectors in the air program and we removed that for the public notice draft because of this legislation. We wanted to see where this legislation was going to go. But it is something we're talking about internally. We believe that having an immunity in limited sense for people who self-report give us ability to do some guidance on how you do an audit makes good sense and it is something that we're looking at developing kind of a standard for all of our regulatory packages that we might need to adjust based on whatever the program may be, but they would get that through regulation. It wouldn't be a privilege - privilege makes a document secret - no one can get it. You can't get it, the courts can't get it, we can't get it and it just doesn't seem to really correspond with the kind of a good neighbor policy that we try to develop with not only between us and industry, but industry and the people that live around those facilities." MS. ADAIR remarked, "The EPA testified that this legislation could negatively impact our delegation of federal programs and that was also the issue for the Department of Labor's attorney that she was mentioning for the state OSHA program. That's a delegated program much like DEC's air program and solid waste program. EPA has said that -- in order to delegate a program, we have to be able to demonstrate that we can enforce the law and they want to have that so that everybody is treated the same. If the you operate here or if you operate in Idaho, the laws are treated the same and the citizenry is protected the same. So, EPA has taken a very cautious approach to this kind of legislation and has gone on the record as saying that certain elements of it do give the very good probability that delegation of the programs would be impacted. What they did in Idaho - Idaho passed a similar law, although it deals only with environmental rules, and their Title V delegation package was pending before EPA at the time. EPA had noticed their intent to fully delegate the air program and after Idaho passed this law, they amended that notice to give them interim delegation only until Idaho goes back and fixes its law. So I think they've got two years to make the changes and then EPA will start the process to take the program over in Idaho. And we think that's very serious." Number 568 CO-CHAIRMAN WILLIAMS asked if the department was currently contracting out any type of services, such as inspections? MS. ADAIR responded the department doesn't do that at this time. She added, "We had a program - we were looking at doing something like that, I believe it was in waste water and there is a legal problem with the department contracting out for what is considered its discretionary responsibilities and Marie might be able to answer that more fully, but it's something that I don't believe we can legally do." Number 596 CO-CHAIRMAN WILLIAMS inquired, "With the declining revenue and the problems we're having in that area of being cutback, is this an area that you would be maybe contracting this type of auditing services. I know that there's some people that worked for DEC that are now working for the private sector. Is the department willing to look at something so that we can do some of these audits by outside people - private sector people?" Number 629 MS. ADAIR replied, "The department doesn't do audits now. We don't go in and audit companies, I mean, yes, we will do inspections to ensure compliance with our laws and that's something that, as I said, we really can't contract out to do audits. Let me digress for just a second. There are a number of DEC employees - past employees who have gone to work for environmental consultants and I don't mean to identify any of them in this story, but the environmental consulting field is very interesting. There's a number of them that are (indisc.) - they really know what they're doing and then there's -- this is a completely unregulated field, really anybody can hang up their shingle and call themselves an environmental consultant. We've had cases where -- a quality assurance program plan is something that we require if someone's going to do a contaminated site cleanup - you have to tell us about your chain of custody and how you're going to go about testing for the contaminant and monitoring it, so we know that you know what you're doing. We've had consultants come in and take other consultant's quality assurance program plans from our files because they're public records, copy them and simply change the names and then submit them as their own. The way that we find that is because they miss some places and they don't get all the name changes in there right. So, it causes great concern when we know there are consultants out there that would stoop that low. But then you say, `And now we want you to go out and do audits of these companies' and then we're going to provide these companies not only with immunity, but we're going to hold all those documents privileged and no one can ever see them to know what's in them. So we somehow have to get a handle, I think, on how audits are done and making sure that there is an appropriate relationship between the auditor and the auditee. I think this is an avenue worth exploring. You don't get it in this legislation in my opinion." Number 725 CO-CHAIRMAN WILLIAMS said he understood there are auditors and there are auditors, but inasmuch as most companies want assurance that their audit was done correctly, an auditor will have to be credible or won't be in business very long. Number 761 CO-CHAIRMAN GREEN noted he had just been informed that Eileen Maclean had passed away and the committee would take a moment of silence. Number 797 REPRESENTATIVE DAVIES asked Ms. Adair to briefly outline the department's current policy on limited immunity. Also, he inquired if she was aware of any case in which DEC was involved where anyone was prosecuted based on information that came to light as a result of an environmental audit. MS. ADAIR replied, "I'll answer the last question first because it's easiest - no. What our policy is right now and I gave you a little brochure in our packet of our pit stop program and that's probably the most formal that we get about it - but we just generally have a policy that if someone comes in to the department and self-reports a violation that they discovered, and they don't have to necessarily say that we performed this elaborate audit, but they self-report a violation and there's not been any harm to another person, it doesn't appear that they intended to do it -- you know they are telling us about it and they're doing everything they can to correct it or in some cases they have already corrected it - then we don't pursue any penalties of any sort. Now if it's a contamination issue - and this is another thing that gets wrapped up into this and Mr. Chairman, I'm sure you'll be most interested in this - this also would impact how we use the response fund and then our ability to cost recover for the response fund. Because as long as this documentation is kept from the department, if it's contaminated, it still has to be cleaned up. And if we can't get the information to show who the responsible party or parties are, then the state is likely going to end up on the hook or a municipality if they have to take a property back because of failure to pay property taxes. So we would see a potential increase in the use of the response fund to clean up contaminated sites where we couldn't find the responsible party. Now in a case like that right now, if someone comes in and self-reports contamination, they still have to clean it up. That in our mind isn't a penalty; that is simply restoring the environment. There's not a monetary penalty or anything like that that's added on top of that." Number 951 CO-CHAIRMAN GREEN said, "You've indicated that under the current system if somebody does come in, you help them clean up, you make sure it's cleaned up properly but you don't hammer them. If you were to go to regulations to accomplish essentially what this bill would try and do, would there be an immunity involved or would it just be kind of a `well, trust us' type thing?" MS. ADAIR replied, "Mr. Chairman, we did provide you with a copy of a draft amendment to this bill that we had prepared several months ago, I think almost by now, that we think captures what our policy is. So I would see any regulations that we would do to be very similar to that amendment or committee substitute or whatever it is. But we would likely set out the standards for what we would consider a voluntary report of a violation and under what circumstances we would forego any penalties or administrative action. As I said, where there was contamination or some kind of harm done, that would be something separate. You'd still have to take care of that. And any place where the federal law, because of the program delegation, would preclude us from doing that and that is something that's in our amendment that we did. We'd probably have a little bit more flexibility in a regulatory sense to do something like that because regulations are usually more discretionary. But we really wouldn't want to jeopardize program delegation through an immunity provision and I think you can understand why. You don't want to have two sets of rules that people have to follow - the state and the feds - two permits to get and all of that; it doesn't really make sense." Number 1040 CO-CHAIRMAN GREEN inquired, "And then the regs - then you would bypass this concern that I think is a just concern that there wouldn't be any public oversight. There would still be the existing oversight that you have now." MS. ADAIR replied, "Mr. Chairman, that's correct. We would not provide for any kind of privilege, of course. And then the regulation development process would be subject to the Administrative Procedures Act and would be out there for public comment and we would be able to look at the whole range of issues. One of the problems with this bill is that there are no issues to point to to say this is what we're trying to fix. And so as a result, the language of the bill can be -- it's very broad and there's a lot of things we don't really know what it means. We don't really know how it would apply because we don't have any examples to point to. It makes it very difficult; although we know there will be a fiscal note. It makes it very difficult to understand the full ramifications of the legislation." Number 1093 CO-CHAIRMAN GREEN commented, "I think -- we heard this morning from the federal government that while other states have enacted the same or similar legislation, there are some problems with it and that maybe we would find that same problem -- we can't go to other states and say we'll model ours after yours, like we do in some legislation." MS. ADAIR responded, "Mr. Chairman, that's what we've found, too. My review indicates that only Texas has included health and safety laws in the audit bills and they don't have a delegated OSHA program either. So they're not the same as Alaska. All the other states have only environmental audits. I did call around to some of the other EPA regions just to see what their experience was. A lot of them don't have any experience yet because the bills are still too new but we have recently learned that in Colorado and Oregon it really isn't working like they thought it would work." Number 1157 REPRESENTATIVE OGAN said, "Kind of on a different line -- looking at a letter written to Mr. Robert Bundy by Senator Loren Leman -- are you familiar with the letter?" MS. ADAIR replied that she had not seen the letter. REPRESENTATIVE OGAN said, "He brings up some points in here I'd like to ask you to comment on. It says that under EPA's new policy, violations reported must not have -- they have apparently a -- violations that are discovered through self-audit and promptly reported to the agencies - similarities to what this bill does -- violations reported must not have resulted in serious harm to the environment, repeat offenders are excluded, regulated entity must correct the problems, take steps to prevent future reoccurrence. Do you concur that that's part of this bill?" MS. ADAIR replied, "No, I don't. I don't think the bill is drafted very well and I mean I could take you to the section like on the repeat violations -- it's only repeat violation if it's in the same facility. You could have an operator - and we do have operators that do this - a dirt mover is a very good example because they move around. If you go from facility to facility, you can have the same violations a whole bunch of times as long as you're in a different facility, it doesn't count against you. So it hasn't really -- repeat violators really haven't been addressed in this bill." Number 1277 REPRESENTATIVE OGAN remarked, "Well, his assertion is that SB 199 actually is stricter in some respects. Immunity is available only if a business first provides notification to the agency of its intent to conduct an audit, the EPA has no such requirement. In addition, EPA offers a 75 percent reduction in penalties even if the reported violations were not discovered through a self-audit. In contrast, immunity in SB 199 is allowed only for violations that arise from a self-audit. Would you care to comment on that." MS. ADAIR asked if Representative Ogan could repeat the first issue. REPRESENTATIVE OGAN responded, "The first one is that immunity is available only if.... MS. ADAIR interjected, "...only for things that are reported as a result of the audit. I do believe that is in the bill. I think that's correct. And the second part was..." REPRESENTATIVE OGAN said, "Immunity is only allowed for violations that arise from a self-audit." MS. ADAIR replied, "I believe that's correct, also." REPRESENTATIVE OGAN inquired, "So you would still have the ability to check up on these people even though they didn't have a self- audit?" MS. ADAIR stated, "We would still be able to inspect. We would still be able to have involvement with the company. When you take the privilege and the immunity together, that's where the problems start to occur because the privilege takes all of this documentation and keeps it from any kind of review by anyone. So while the violation may be the result of an audit -- may have been discovered as the result of an audit and reported, there's no way for the agency to go in and look at the documentation. And to the extent it is revealed to us, we have to keep it confidential. So then there's no way for the public, who may have a keen interest in whatever the violation was, to check to see if their interests are being taken care of - if we're doing our job." REPRESENTATIVE OGAN asked, "What is the information that agencies routinely use in enforcement proceedings that will be denied to them if a self-audit privilege is enacted in Alaska." MS. ADAIR replied, "We look at the definition of the audit report. It includes photographs, drawings, legal analysis, field notes, records of observations, laboratory analysis, maps, charts, graphs, surveys, other communications associated with other audits, memoranda and the corrective action plan. So if you have a company that's trying to hide something - and there are companies out there that are like that - if they're trying to hide something, they do an audit, they just scoop up all this information, they stamp it confidential as part of their audit document, and it's gone from any kind of public review. So, it's hard to answer that question real directly because the possibilities are so broad what could be privileged under this bill that we would otherwise routinely get. We do -- I know that the Department of Law, on our behalf, when we are trying to figure out contamination issues, we will ask for an audit through the discovery process - or the Department of Law will so that we can try to figure out who the responsible party is if an audit is available - if they've done any." Number 1527 REPRESENTATIVE DAVIES asked if Ms. Adair was familiar with the EPA policy with respect to self-audits? MS. ADAIR responded yes. REPRESENTATIVE DAVIES commented that it's his impression from what he's read that one of the essential elements of the EPA policy is disclosure. He asked Ms. Adair if she knew what that entails? MS. ADAIR replied, "Well, the EPA policy doesn't have the privilege and I think that's a very important distinction. As I understand the EPA policy, they won't routinely ask for an audit when they're doing an inspection, but they may ask for it if they believe that it's important to determine compliance. And the reduction in any penalties that may be offered by the Department of Justice do depend on a voluntary disclosure of the violations that may have been found as a result of the audit -- that the facilities come to EPA and say, `This is what we did, this is what we found, this is what we're going to do about it' and give them the documentation that goes along with that." REPRESENTATIVE DAVIES inquired, "So the disclosure in that context doesn't have to do with the audit itself, but with the violation." MS. ADAIR responded, "It's my understanding that they get the audit also - they get the documentation." REPRESENTATIVE DAVIES added, "Because there's no privilege attached to it." MS. ADAIR replied that was correct. REPRESENTATIVE DAVIES said, "Mr. Chairman, just for the record it would seem to me that that would be an important part -- I mean that's one of the problems that I see with this is that we don't have the information that's shielded whereas in a process where you're encouraging openness and working with people, you'd want to have the information on the table." CO-CHAIRMAN WILLIAMS thanked Ms. Adair for her testimony. Number 1663 NANCY WELLER, Division of Medical Assistance, Department of Health & Social Services, said the department was concerned about SB 199 for many of the same reasons that the DEC had expressed because the definition of the environmental or health and safety law is so broad that it could negatively impact a lot of the functions the department performs in relation to the Medicaid program. She said, "The Division of Medical Assistance, in administering the Medicaid Program, is charged with licensing and certifying health facilities and ensuring that payments to providers are accurate, and linked to services that are actually rendered." MS. WELLER further stated, "The division certifies health care facilities under our contract with the federal health care financing administration. Facilities and health care providers who are certified are then allowed to bill both Medicare and Medicaid for services provided. The surveyors look not only at the physical plant of the buildings but at all of the financial and patient care records to determine if care being provided is done in a safe environment and if everything is correctly documented. The entities are encouraged to do self-audits and reviews but if these records are kept from the state, potentially life-threatening situations could go undetected." Number 1740 MS. WELLER continued, "The division also conducts active programs of surveillance and utilization review and audits of health care providers to assure that payments for health care services are correct. As required under federal law, a provider fraud unit exists in the Department of Law, and you heard from them earlier today. Cases involving providers misconduct and fraud are very time consuming and costly for the states to pursue. The audit privilege under SB 199 would create the perfect avenue for a dishonest person to conceal illegal activities by preventing access to the very records necessary to verify that services were correctly provided and billed, or by proving the provider's mental state in order to prove that fraud or program abuse had occurred. Additionally, a provider could claim an audit privilege which would prevent the division from imposing sanctions relating to program abuse. One of the sanctions we have in our sanction regulations allows us to recoup money that was illegally paid to a provider. We are required under federal law to return any money that was illegally paid within 60 days of discovering the illegal payment. If someone were to take an audit privilege and we could never collect the money, we would have to pay back to the federal government money that we would never be able to collect." MS. WELLER explained, "The Medicaid Rate Advisory Commission within the department also shares similar audit concerns about this bill. The commission is charged with setting rates of payment for health care facilities. The commission auditors rely on access to facility records, self-audits and cost reports in the complex rate setting process. If they have lack of access to any of the numerous documents necessary to determine that rates are in compliance with the federal `Boren Amendment', to assure that payments are related to economically efficient operation, it would add much greater complexity to the rate setting process." MS. WELLER concluded, "The Department of Health & Social Services believes that in order to protect the public's safety, the investment in the Medicaid program and to guarantee the health and safety of all Alaskans who receive care in health facilities, that any activities related to the Medicaid program should be excluded from the definition of environmental and health and safety audit." Number 1873 CO-CHAIRMAN GREEN thanked Ms. Weller for her testimony and asked if there were any questions. Number 1923 MIKE PAULEY, Legislative Administrative Assistant to Senator Loren Leman, advised the committee he wished to comment on some of the testimony he had heard. He said, "In our view, much of the testimony stems from basic misunderstandings of what the bill does and does not do. But what I'd first of all like to address is the issues raised this morning about why is this bill even needed. It was suggested that companies are already doing self-audits so why pass an incentives bill. The reason for approving legislation such as SB 199 is that it will encourage more companies to conduct self- audits and it will help improve the quality of audits that are already being performed. Last year Price Waterhouse conducted a survey of 369 companies nationwide, which represented 14 different manufacturing and service sectors of the economy. It was found that 75 percent of the companies now perform some form of self- auditing, but it's useful to note that two-thirds of those companies stated that they would expand such programs if penalties were eliminated for problems that the companies themselves identified, reported and corrected. In addition, 20 percent of the companies that do not perform audits stated that they feared the audit information could somehow be used against their company. This fear is unfortunately validated by the experiences of companies that are performing audits: 25 percent reported that outside third parties had attempted to obtain their audit data and 15 percent reported that those attempts were successful. An additional 12 percent said that audit reports had been used for enforcement purposes against them. Clearly, many companies question why they should go above and beyond what the law requires by conducting expensive audits, only to discover problems that will lead to penalties and other punitive actions. Too many companies simply choose not to search for problems; it's the attitude that says, `I'd rather not know.' But a compliance problem that goes undetected and unnoticed by management is still a problem. And we ought to measure the success of our environmental laws not by how many court cases have been filed or how many fines have been handed out, but by how many regulated entities are conscientiously complying with the law." MR. PAULEY further stated, "Regulated entities understand the need for self-audit incentive legislation and that's why SB 199 has been endorsed by the Alaska Oil and Gas Association, the Alaska State Chamber of Commerce, the Alaska Miners Association, the Alaska Forest Association and many other groups. These groups and businesses represent the vast majority of private sector employment in Alaska. I might also note that last week the Alaska Municipal League lent their endorsement to this legislation." MR. PAULEY continued, "But a second factor is that in addition to encouraging more companies to perform audits, we think that SB 199 will improve the quality of audits that are already being conducted. This is because the privilege provision in the bill makes businesses more comfortable using frank and unambiguous language in the audit reports. Many of the audit reports that are now being produced employ vague and indirect language out of fear that the report might somehow be compromised. For example, I have brought here today a popular textbook which guides companies in the art of self-auditing. It's called `Environmental Health, and Safety Auditing Handbook' written by Lee Harrison and the book is full of admonitions about how your audit report shouldn't be too specific about what you actually find in case someone actually gets a hold of it. Just as one example, there's a quote here to the effect that says, `The possibility that audit reports could become public or be disclosed to potentially adverse parties should also shape the language auditors use in their reports. It is usually unwise and unnecessary to opine in an audit report that a given activity or condition is illegal or a violation; rather auditors should identify applicable requirements and summarize conditions noted in the field. Thereafter in a separate written or oral communication, legal counsel can assess whether a violation has occurred.' The sponsor of SB 199 believes that the audit documents ought to be frank and get straight to the heart of the problem, as opposed to using vague and ambiguous language. We're not interested in sanitized documents that are written in legalese and which are of no use to anyone. Protecting audit reports through privilege will encourage the use of honest and straightforward language." Number 2279 MR. PAULEY said, "The second area I want to address is the immunity and privilege provisions. It's been suggested that they are overly broad and that they are somehow going to offer a haven for bad actors. On the contrary, we'd argue that there are numerous caveats and conditions set on the immunity and privilege provisions in this bill. We like to think SB 199 is less like a haven and more like a minefield for bad actors. Let me explain. Regarding the privilege provision, the privilege does not apply to any information which is already required to be reported to agencies or otherwise maintained as part of an existing law, regulation or permit. If you're required to report it, if you're required to maintain records on your premises about certain activities under existing law, you cannot invoke privilege for such information or for such documents. The audit privilege can't be invoked for information that a regulatory agency obtains through its own observation or sampling or monitoring. The privilege also doesn't apply to information received from a whistleblower or third party." Number 2363 MR. PAULEY said, "Under the CS that is before the House Resources Committee, there is also a provision that allows an audit report to be reviewed by a judge if there is a valid suspicion that the audit was conducted for a fraudulent purpose, such as an attempt to shield information needed for an ongoing investigation. It it's determined that the audit was conducted for an invalid purpose during the in camera review by a judge, the privilege is lost. The privilege also does not apply to records and information that are already developed or maintained as part of a regular business practice such as inventories of supplies or materials; if it's something that you already do as part of a normal accounting procedure, you can't claim privilege for that. It's not protected by the audit report." MR. PAULEY continued, "On the immunity, this also has strict limitation and these limitations are in some cases even stricter than the EPA's new policy which was promulgated last year. You're only eligible for immunity for violations that arise from a self- audit report. You must have provided notice to the appropriate agency of your intent to conduct an audit or else immunity will be invalid. Disclosure of the.... TAPE 96-68, SIDE A Number 001 MR. PAULEY continued..."substantial on-site injury or substantial off-side harm. No immunity is available for violations that had already been detected by an agency or already subject to an investigation. No immunity is available if it is proven that the regulated entity knowingly committed the violation. This bill only applies to unintentional violations. Furthermore, immunity is not available for any persons that have a history of noncompliance. So in conclusion, there's a lot of conditions placed on the immunity and if even one of them is violated, the immunity is lost. These exceptions constitute a minefield which will kill or maim any bad actor that seeks to use this bill as a shield for improper conduct." MR. PAULEY stated, "Another issue I'd like to raise is litigation. It was suggested this morning that this bill is a lawyer's dream; that there will be no unemployed lawyers in the state of Alaska after this bill is created because of litigation that will spawn. First, I cannot deny the possibility that if this bill is enacted that it might be tested in the courts. Most laws that really matter in people's lives eventually get tested in the court. The Alaska and Federal Constitutions have probably been the subject of more litigation than any individual statute that comes to my mind. Civil rights laws have generated enormous litigation. Nevertheless, I doubt that many of us would question that these laws have served us well. Having said that, it is useful to note that one-third of the states in the Union have adopted self-audit laws. We are not aware that it has resulted in an explosion of litigation in those states. Furthermore, there are existing privileges in Alaska, such as the attorney/client and work product privilege, and the sponsor is not aware that any of these privileges have generated an obscene amount of litigation. With the Chairman's permission, I would like to just share with the committee an existing privilege that is in the Alaska Statutes under Title 18, Chapter 23. This relates to protecting the proceedings and records of physician peer review panels. All 50 states have these laws on the books. The law recognizes that a public interest is served by maintaining confidentiality for the proceedings of a physician peer review panel. The concept here is that if the minutes or other documents from a physician peer review panel were disclosed, few doctors would be honest in their assessment of their own performance or the performance of other doctors. Thus, it's been recognized that a public health interest is served by establishing the privilege for these proceedings." MR. PAULEY explained, "The premise of SB 199 is no different. We argue that the public interest in environmental protection and safe work places is ample justification for extending a narrow, qualified privilege for self-critical analysis in these areas. The detractors of SB 199 argue that the privilege is an untested, radical and dangerous concept. On the contrary, we have privilege laws on the books already. They have worked. They have not been abused. The end result of these new applications would be a cleaner environment and safer work places. That is a goal in which we should all be able to agree. That concludes my remarks on the testimony this morning and just with regard to testimony we've heard in the last hour, I would only say that in response to Ms. Adair's concern that the audits should be limited to retroactive analysis, in the CS that's before the committee, the definition of self-audit report - some language has been added that states that the self-audit can only apply to current or past compliance with laws. So the prospect of having an audit determined to plot a future course of action of noncompliance and figuring out whether it would be profitable to the company to be out of compliance with the laws, that possibility is far-fetched, as we believe it is, has been excluded by the new definition in the bill." Number 349 CO-CHAIRMAN GREEN commented, "You mentioned that if a company has a history of violation, then they can't fall under this, and I'm thinking how would that be interpreted do you think, for a company like a North Slope oil field operator who may have developed a plethora of potential pits, where they use gravel as the berm around it, and they would fill with rain water or snow and then the snow would melt and seep through the gravel and because there is a law that says you can't have leaking pits, they were cited and they were cited many, many times because they were leaking rain water out of these pits that they've never used. Now would that mean that under this law that if that company came in and self-audited for a leaky pit that they couldn't use the immunity that they just told on themselves?" Number 425 MR. PAULEY responded, "Chairman Green, that is a legitimate concern and one that has been wrestled with a lot. The best I can do to answer it is to refer you to page 8 of the CS, if the members have that - Version 9-LS1312\O, which is the House CS - but on page 8, line 8, letter (h), it says `the immunity under this section does not apply if a court or administrative law judge finds that the person claiming the immunity has on or after the effective date of this Act, one repeated an unreasonable number of times or continuously committed violations that are the same as or similar to the violation for which immunity is sought under this section and not attempted to bring the facility operational property into compliance so as to constitute a pattern of disregard of environmental or health and safety laws.' So I think the key word here is the word `and.' Not only is it the repeated violations considered but also you would have had to have a record where you hadn't attempted to correct that. So, the bottom line answer to your question is that I think that they - with the information I have and as you've described it - I think they would be eligible for immunity so long as they had attempted to bring themselves into compliance. There were a large number of violations, but unless they had just ignored that and not taken any efforts to correct it, this would not be a problem." CO-CHAIRMAN GREEN remarked, "And that was the case - they didn't because they weren't leaking anything but snow melt and rain water. So it wasn't anything that created a problem; they weren't impounding anything that nature didn't impound. However, they were in violation because the law said you will not have pits that leak, even though you're not using them." MR. PAULEY interjected, "Regardless of what they're leaking." CO-CHAIRMAN GREEN said that was right and they were cited. MR. PAULEY responded, "I don't know if I have the answer to that other than that maybe the regulation -- I mean if there's poorly written existing laws and environmental regulations, this bill is not going to solve that problem. It addresses how they're implemented and how they're enforced but in that case, it sounds like it's just an ill-thought out regulation." CO-CHAIRMAN GREEN remarked, "And I think the regulation was written with the context that you're putting something in there and it shouldn't leak out. And everybody agreed to that; however, there were a plethora of pits developed that never were used and nobody thought about that. And it was the use of the law to punish that causes some people concern of `Hey, wait a minute why do I blow the whistle if I've seen in the past that this bites me' and so that was just an issue I just wondered about. The other thing, Ms. Adair indicated that while several states - a third I think you used - about a third of the states have employed something like this, her comment went on to say that `yes, but it was perhaps ill- advised and that now they're seeing that maybe those weren't done as well, they were too hasty and may not be all that it was cracked up to be." Number 676 MR. PAULEY responded, "Mr. Chairman, during our Resources Committee hearings on SB 199, we heard testimony from representatives from Oklahoma and also from Texas which both have self-audit laws on the books. The testimony we heard was that those laws have been very positive, that they had inspired companies to do audits who hadn't been previously doing them before. We heard testimony from John Riley who is the litigation director for the Texas Natural Resources Conservation Commission - sort of their counterpart to our DEC, and he had very positive reviews about how the law has been implemented there and the number of companies and municipalities, I might add, who are taking advantage of its provision. The testimony we heard has been positive. I mean, we haven't talked to every single one of the 17 states that have this because of limited time and staff resources, but with the ones we talked to, we've heard positive feedback. On the other hand, I have not heard any convincing testimony from other states about that their laws were lemons or that they haven't been working as intended." Number 751 MR. PAULEY continued, "If I could just throw in one thing sort of on a different subject, but this is something I forgot to bring up. There was some testimony given a little while ago on the issue of - - that this bill could hypothetically be used to protect information that is needed to determine proper Medicaid payments to hospitals and detect fraud and things of this nature and this has come up at repeated hearings before and we're unclear as to what is motivating the testimony. The definition of environmental health and safety law contained in the law very plainly states that where health and safety is concerned, we're talking about occupational health and safety - occupational health and safety only. So as applied to a hospital, the only application this bill has would be to occupational safety issues with regard to the employees of the hospital. It has nothing to do with patient care standards or anything of the sort or whether excessive treatments are being used or whether the Medicaid payments are fraudulent. It's just not even touched by this bill and we think there's just a fundamental misunderstanding - that they don't understand that health and safety is limited to occupational. It doesn't have anything to do with patient care status. I might add though that the existing privilege law in the Alaska Statutes very much has an impact on the treatment of patients. I'm not aware that has caused (indisc.) abuses and it's been on the books since the early `70s." CO-CHAIRMAN GREEN asked if there were any questions and thanked Mr. Pauley for his testimony. Number 871 MARIE SANSONE, Assistant Attorney General, Natural Resources Section, Department of Law, said she has been the lead attorney for the Department of Law on this bill for the Civil Division. The Criminal Division has followed it separately and probably would want to express their concerns. She said, "We do have many, many concerns with this bill and our concerns primarily arise out of the breadth and scope of the bill. First of all, the laws that are affected -- if you look in the definitions in Section 490 (a) or (3), the bill defines environmental or health and safety law. It applies to all federal and state environmental laws and the municipal ordinances passed in conjunction with or to implement those laws. This first of all is broader than the EPA policy. The EPA policy only applies to the laws that EPA enforces. So when you say all environmental laws, DEC certainly implements the majority of the state's environmental laws but so do the other agencies and departments. The Alaska Oil and Gas Conservation Commission, for example, regulates a lot of environmental and health and safety aspects with the injection wells. The Department of Natural Resources - their forest practices regulations would certainly be considered an environmental regulation; they regulate water quality." Number 985 MS. SANSONE further stated, "Then if we look at this issue about the occupational safety and health laws, they are all the federal and state occupational health and safety laws and the municipal ordinances adopted to implement and in conjunction with those. So they are not just OSHA. They're a broad array of health and safety laws that come into play in an occupational setting. We feel that if the sponsor truly intends this to really be just OSHA, it would be a simple matter to amend the bill to say that. But without that limitation, we cannot interpret the bill broadly and in fact, in Section 490(b), the bill tells us we have to interpret this term `environmental or health and safety' laws broadly. So there's a huge sweep of laws throughout all the Titles of the Alaska Statutes. Then in the definitions also, they define the term `audit' and that's in Section 490(a)(2). An audit can be conducted by anybody affiliated with a company; it can be an employee of the company; it can be a contractor. They don't have to have any authority to conduct the audit. They don't have any money - authorities spend money to conduct the audit - they may not have the authority to spend the money to make the corrections that the audit recommends. So anybody anytime can initiate an audit. Well that's a problem - that's a very serious problem and one that we feel sets up this bill for fraud and abuse." MS. SANSONE continued, "The audit report is defined in 490(a)(1). The audit report - it sounds like that term ought to just be the report and the analysis, but it's not. It's everything that goes into making that report. It's all the data, all the evidence, and Ms. Adair read them - photographs, analyses and so on - and there's even a catchall in case they missed anything - all documents and communications associated with the audit. Well that's everything. It would pick up the corrective action plan unless under the immunity you come in and get to see that, but for the privilege you don't. That's just way too broad." Number 1114 MS. SANSONE stated, "The bill creates - it really has two parts - it has a privilege and that's found in Section 450 and 455 and also in Section 2 of the bill, there's an amendment to Title 12, the Criminal Code, so they're putting it into the criminal laws, as well. Then there's immunities in Section 475. Now the important point to remember about these is that they're really treated very differently and for the limitations, we've just heard that the sponsor believes there's a lot of minefields and I guess we would disagree with that. We think there are limitations but they're confusing and ambiguous, but they're there for the immunities from penalties. For the privilege, there really are no limitations. The privilege is triggered without any advance notice of the audit. For the immunity you have to give advance notice of the audit; not for the privilege. You just start your audit. For the immunity, you have to undertake corrective action which is appropriate. If you're going to be forgiven penalties, you need to fix your problem. Not true for the privilege. For the privilege, you do not have to correct your violation. So we have a bill that's set up so that for minor violations, for the most part, you could make a limited disclosure and get immunity. If you had a really serious problem or one that you really felt you needed to hide, well you just use the privilege and you don't have to worry about meeting any requirements; you just assert it." MS. SANSONE further stated, "Now in this new CS, they've inserted a provision that we can have an in-camera review to find out if there's fraud and so forth. That provision is really an impossibility. We cannot prove fraud; we cannot prove those conditions unless we have the evidence. The evidence you need to prove fraud is the evidence that would be concealed by the privilege. So that provision really does not help us out - I mean, it's nice to put it there but in practice, we won't be able to do that." Number 1285 MS. SANSONE explained, "Now, because the privilege is so broad that's of concern in itself, but in the very first section of the bill - in the first paragraph it tells us it applies to every type of case; every type of civil case. So, we're not just talking about enforcement cases. We're talking about cases where people are injured. We're talking about construction claims. We're talking about insurance cases. We're talking about cases to recover money for contaminated sites. Any type of civil case you can imagine is impacted by this bill. Criminal proceedings are all impacted and administrative proceedings are, as well." Number 1350 MS. SANSONE provided background on what a privilege is. She said, "A privilege is something in the law of evidence and procedure that really is very special. A privilege has a much broader meaning than just confidential. Confidential information is not necessarily privileged so the two terms do not mean the same. In the law, the concepts relating to privilege are very old. They have been defined and interpreted by courts over a long time - even hundreds of years - some of the concepts. Privileges can be created by the courts and they can also be created by the legislature. There are two ways that information can be privileged. First of all, we talk about information that's privileged from disclosure. If a person is entitled to claim a privilege, that means that that person cannot be compelled to disclose the information to any other person. And it also means that the person claiming the privilege can prevent any other person from disclosing the information to another person. So privileged from disclosure means you can't access the information and you can't find out about it. The other way information is privileged, is privileged from use as evidence. Evidence is privileged; it cannot be used as evidence in court. So even though you have that information, if somehow it was disclosed to you, even if everybody in the courtroom has that information, you cannot use that as evidence. The judge doesn't get to hear it. The jury doesn't get to hear it. If it's a hearing in front of a legislature, the legislature doesn't get to hear it and can't use it. Now this is really an oddity in evidence law because most of the laws of evidence are designed to bring out the truth - and you hear the trial lawyers and prosecutors say that litigation is a truth seeking process. When people cannot resolve their disputes through settlement, they have to go to court and part of that is to find out what really happened. And when the witnesses get on the stand, you probably remember, they swear to tell the truth, the whole truth and nothing but the truth. Now privilege is different from that because a privilege allows you to conceal the truth, not bring it out. So the privilege keeps information concealed. Privileges protect important information; they're not designed to protect trivial unimportant information. MS. SANSONE continued, "So when lawyers talk about the privilege, they'll say the information is probative - it would have helped to prove a claim or a defense. They might say that the information that is being privileged was prejudicial; it would have made someone's claim weaker or it would have made someone's defense weaker but it would have made a difference. You have to ask if the courts are supposed to be figuring out the truth, why have we created this privilege to keep away the evidence that's important that would have helped the judge or jury decide the case. The reason for that is that it furthers - there has to be some goal that we're trying to further and that's usually that you're trying to strengthen a relationship to improve communications in a relationship. So you have a husband and wife privilege to further the marriage; you have a lawyer/client privilege so that clients can come in and be very candid in their disclosure and get good advice; you have a doctor/patient privilege so that you don't have to be afraid what you tell your doctor is going to be found out by everyone. These privileges though are very narrow because you're keeping evidence away from people that need it to make decisions. It usually will protect only the communication and not the underlying evidence. All these privileges have clear cut exceptions like in a malpractice case, a client gives up their attorney/client (indisc.-coughing), doctor/patient privilege. Many of the privileges are called qualified, meaning they can be overcome if you show hardship or that it's impossible to get your evidence any other way such as when a witness dies, you can't interview that person. And finally, most privileges are waived by disclosure. The party that wants to keep the information privileged has the responsibility and obligation to keep it confidential." MS. SANSONE remarked, "I wanted to go over these characteristics and Mr. Bundy talked about some of them because the privilege in SB 199 has absolutely none of those characteristics. The privilege in SB 199 is broad; it's not narrow, it has no exceptions, it's not qualified if it's impossible or an undue burden to get the information any other way, and it's not waived by disclosure. As lawyers and people that enforce the law, that causes us concern because all the other privileges have these characteristics. They've evolved that way over hundreds of years and they work. And that's why they're the way they are. So when we have a new privilege developed that doesn't match any of the characteristics of regular privileges, that really troubles us. It troubles us because not only are we looking at enforcement, and maybe for enforcement some narrow exceptions might be appropriate, but we're going to apply this privilege to everybody whether they're private parties - it could be a purely private case where two people can't figure out who has contaminated whose property. It could be public litigation where the state has been sued -- and I have a case right now where we can't figure out who's responsible for how much contamination on the property and frankly, the state's going to end up paying for most of it. All types of cases. So that troubles us." Number 1598 MS. SANSONE stated, "Now the last point I want to say about privileges is that there's already two that can be used to protect environmental audits. The trade secret privilege protects information - confidential, proprietary business information, so that would be a key type of information that a business legitimately would be concerned about protecting and they can protect it. They can protect it under the evidence rules and under many, many statutes that the legislature has passed in particular areas to protect that kind of information. We also have the attorney/client privilege and I'd be the last person to disagree with Mr. Pauley that that can be abused in an audit because it should not be used to make the audits confusing or ambiguous. That's not appropriate. But where an audit is raising questions about criminal liability or serious tax problems or something of that nature, it's very appropriate to bring in the lawyer and try to figure out how to deal with it and they have that privilege they can use. Now there's a couple other ways to protect information because there's an implication here that people don't have any tools to protect information. That's not true. There are exclusionary rules. These are rules of evidence or procedure where the information is not privileged or secret among the parties, but it's kept out of evidence - kept out of the courtroom. And the key one that gets used in connection with audits is the exclusionary rule for subsequent remedial measures. If there's an accident - someone falls down a broken staircase and I repair that staircase, the fact that I repaired it cannot be used as evidence that it was broken. So that's one type of exclusionary rule that protects evidence of situations where people have found out about a problem and fixed it. Other types of evidence get excluded through the rules of criminal procedures such as motions to suppress evidence when there's been an improper search or seizure or an illegal confession. So there are techniques to exclude evidence when there's been an abuse." Number 1706 CO-CHAIRMAN GREEN interrupted Ms. Sansone to inform her that the committee was running out of time and asked her to provide a copy of her testimony. He asked her to summarize the other issues that were of concern. Number 1751 MS. SANSONE stated, "I did want to cover that we can protect information under court rules if it's annoying, embarrassing, oppressive, if there's an undue burden or expense. We feel there is simply no need for a privilege when you have privileges, exclusionary rules and protective orders available. Protective orders can be tailored to unique situations so if someone did have information that was highly sensitive, they can go to court and they can ask for whatever type of order they feel is appropriate - whatever they come up with, they can ask for if they can justify they can protect it. The audit privilege, we feel that it originates with the type of privilege called a self-evaluative privilege developed by the courts but it has gone way beyond that. It does not meet any of those criteria that the courts have set up for that type of privilege. That privilege is recognized in environmental cases and in the Ninth Circuit. It's something we had discussed in Senate Finance as a possible alternative. The audit privilege sort of grows out of there but it's really an aberration. In the medical peer review privilege that Mike Pauley gave you a copy, is an example of that and if we looked at that in comparison to the audit bill, we'd see it's much more narrow, many protections and limitations - a much more acceptable way to deal with information without sweeping it all up. This bill - the privilege is so broad, it operates as a vacuum cleaner literally to sweep up all the evidence of crimes and violations. We are concerned with people that really are criminals; that have intentionally and deliberately set out to violate the law and to hide evidence. We're almost talking two different languages from the sponsor. The sponsor talks about moms and pops, we're talking about midnight dumpers, fly-by-night operators, people that engage in fraud and deliberate efforts to conceal and hide information and that submit false reports to the state. That's why the fact that they're required to submit reports is not sufficient, if they're submitting false reports. And how do you know they're false reports? Well, in the course of an investigation, you would access the types of documents, information and evidence that are concealed by this audit privilege. So that's of great concern to us." Number 1866 MS. SANSONE concluded, "We don't feel that the bill truly is working in other states. The Colorado Deputy AG has stated there's been no significant increase in voluntary disclosure or compliance, which is important because Colorado was one of the first states to put this law on the books. It's the only state where the AG and the enforcement agencies have really supported an audit privilege. All enforcement attorneys in offices have vehemently opposed this privilege as we heard today from the United States attorney. Colorado which was a very friendly environment is now reporting no significant increase in disclosure or compliance. The bill is not working there. The Tennessee attorney general thinks it may be unconstitutional and it'll burden the courts, make the courts do work that enforcement agencies are to do. So the other states are reporting problems. They're having problems with their federally delegated programs but the really adverse effects won't come to light for awhile because the adverse effects are going to stem from the bad actors who are going to abuse the bill, hide the evidence and we're not going to know - we're not going to know until people show up and they want to know why am I injured - why is my property not worth any money - why do I have this funny rash - why can't I breathe, and they're not going to be able to find out. And that's when we're going to know that this bill does not work. The bill is just like a trojan horse. It looks nice, it sounds good, it sounds like it's going to help. You'll find the supporters all say we like the concept of the bill - the concept is very attractive but what's inside is not very good and it's not going to work and it's going to cause us a lot of trouble." Number 1939 CO-CHAIRMAN GREEN asked if Ms. Sansone had testified on the Senate side? MS. SANSONE replied, "yes." CO-CHAIRMAN GREEN inquired what the response had been to her testimony. Number 1962 MS. SANSONE responded, "We had quite a bit of testimony, Mr. Chairman, in the Senate Resources Committee. Senator Leman removed a number of troubling provisions, but the problem -- and then we had some more amendments in Senate Finance to deal with the specific problem. The problem with amending the bill is that the concepts here really are contrary to the way the law works so to try to amend the bill - it's like trying to drive the wrong way on a highway. If the evidence law is set up to be a certain way, to be narrow and have disclosure and so on, and you're trying to dodge all these cars, eventually you crash. If we went through the details, I could be here until the end of session going through every sentence, telling you `Well, this sounds like it's going to work, but here's what's really...' -- it has these funny twists and turns. It's a long bill and it has a lot of those and they're problems. CO-CHAIRMAN GREEN thanked Ms. Sansone for her testimony. He announced that because of the tremendous difference of attitude on the bill, he would place it in a subcommittee of Representatives Austerman, Nicholia and chaired by Representative Kott.
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