Legislature(1995 - 1996)
04/27/1995 08:42 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 210 - PRIVATE MOTOR VEHICLE LICENSING/TESTING REPRESENTATIVE AL VEZEY, Sponsor of HB 210, said that HB 210 is a comprehensive bill on which there has been some considerable research. He stated this bill has seen a considerable amount of effort and attention from the legislature and the Administration. He commented they were trying to create an opportunity to privatize a government service. Approximately 27 other states provide for some form of contracting out of motor vehicle services. This bill is modeled after the statutes and procedures of several of these states. He added this bill does not mandate anything, but states the department may. Because there is no mandate, the Division of Motor Vehicles (DMV) has given this bill a zero fiscal note. It does lay out a program where the state can contract with parties to: 1) Register vehicles and issue vehicle titles; 2) issue drivers licenses; 3) issue commercial drivers licenses; or 4) any combination of the above. The intent of the sponsor is that the cost of this program would be born by the savings in administrative cost and may even see a positive cash flow. The contractors will not receive any subsidy from the state. They will not receive any portion of the fees collected for the state, but do have the right to charge a service fee. He stated this was not that different than the current process. When an individual purchases a new automobile, they do not give them the manufacturers statement of origin. Rather, the individual is charged $35 to go to the DMV and get a registration and title. He did not expect the service fee would be as high as $35, but stated they did not put a cap on how much could be charged. He added the state was not providing any equipment or staff for the contractor to use. He did not expect this program to take off immediately, but did suspect there would be a couple of contract stations by the end of the year, that at a minimum would provide vehicle registration and titling service. He mentioned there was already at least one professional driving school in Alaska. He felt it would be a small step for them to advance to issuing drivers licenses. Currently, the DMV does not know what it will take to qualify contractors for these functions, as they do not compartmentalize the functions of their personnel. He reiterated they were not requiring the contractor to be qualified to accomplish all of the DMVs function, as they might only contract to do a part of the process. He thought there were only two areas of concern for the DMV: 1) They put the wording of the contract into statute. This was because they had modelled this legislation on the model of other states, where this is working and there is a track record. Also, he felt this was a new enough idea, that he wanted the Administration to have to work with the legislature and not just address these contracts by regulation. He wanted to encourage the DMV to come back to the legislature in a year or two, and see where there were problems that needed to be addressed and improved upon. He clarified that this bill did allow the department to write regulations; and 2) the DMV was used to adjudicating disputes through an administrative hearing process. He has tried to approach this bill as a contract between two parties, as a commercial relationship. Thus, they have set up that disputes will be handled through Alaskas Uniform Arbitration Statute, Title 09.42. He advocated this process, as this was a commercial relationship. The standard in the world of commerce was to have contracts to provide for arbitration. Additionally, arbitration is considered to be a faster process than litigation. There are very few appeals, as the courts recognized the rulings of arbitration tribunals and do not like to overturn these decisions. Under the administrative hearing process, one side frequently feels that they did not receive a fair hearing and appeal to the courts. The state has to pay the cost of the trial. In arbitration, both parties split the cost equally at the beginning. After the process, the arbitrator awards all costs to the prevailing party. Thus, if the state is the prevailing party, they will not have to pay anything to settle a dispute. He felt this was an incentive to find solutions. He argued that arbitration encourages every other form of dispute resolution, including mediation. He advocated that they were taking a new approach to how the state does business, and perhaps this approach should offer a new way of how the state settles disputes. He commented this was a complex bill, and stated they started out looking at how the Federal Aviation Administration handles licensing of pilots and aircraft, which is completely accomplished in the private sector. This research showed there were at least 27 states that contract out these services, of which about 19 contract with the private sector. He offered to answer any questions. CHAIR JAMES noticed that Juanita Hensley, representing the DMV, was present and asked if the committee wanted to hear her testimony before asking questions of both her and the sponsor. Number 263 JUANITA HENSLEY, Chief of Driver Services, Division of Motor Vehicles, stated she had just arrived and apologized for missing the comments of the bill sponsor. She said the department had worked with the sponsor to develop a draft of the legislation that they thought would accommodate their needs. She reiterated one area of concern was with the contracts being included in the statute. She felt that should there be a change in the future, this would require the department to come to the legislature annually to upgrade the contracts. She added the Department of Law thought the exact wording of the contract did not need to be in statute, but just the intent of the legislature. The other area of concern to the department was the requirement of arbitration. They feared that if there was a dispute between the contractor and the department, then they would have to go to arbitration. They felt this should be accomplished by administrative hearing, emphasizing this hearing would not be under the guidelines of the Administrative Procedures Act. Overall, the department felt they could work with this bill, mentioning they currently had 13 commissioned agents working with them. These agents were small governmental entities. This was not a new process for the DMV, but this bill does give them guidelines of how to accomplish this task. She offered to answer any questions. Number 325 REPRESENTATIVE CAREN ROBINSON asked if the department was already privatizing aspects of its service, why it was necessary to have this legislation. REPRESENTATIVE VEZEY stated that currently the state was making no effort to privatize any of its functions. He recognized that there was some effort towards contracting with local government and other governmental entities. He said they were directing this effort, while allowing for considerable flexibility by saying may and not shall. These services are not currently in the private sector and they can be. He said that was the difference. CHAIR JAMES commented if there was anything that could be done to stop the long lines at the DMV, then it should be considered. She thought this may accomplish that goal. Number 349 REPRESENTATIVE JOE GREEN verified that Ms. Hensley had said that the DMV already had the authority to do this without legislation. He asked her if she thought this would encourage contracting with the private sector or mean a continuation of the existing system. MS. HENSLEY replied this bill would allow the agent to charge a fee. She thought this may or may not prevent the long lines at the DMV. Under their existing contracts, they pay the contract agents 15 percent of the intake of profits to process the work for the DMV. This bill would require a renegotiation of these contracts, because this bill requires them to collect a fee and then remit the full fees back to the state. She suspected that if there was a DMV office in the town an individual was residing in and they could go there and not pay the additional fee, then they would choose to do so. Should they favor the shorter lines at the contract station, then they could choose that option. She cited examples of IM (Inspection/Maintenance) stations in the Anchorage area, that are renewing registrations. She stated they had paid for the equipment and training necessary to set up. This is what they would hope to see happen should this bill become law: If they are going to offer the service, that it not place any more burden on the state. The department does feel that if there are more contractors, they may need to ask the legislature for additional funding to pay for the oversight of them. They want to try to continue to provide the public with the service it is used to receiving, and so would not foresee reducing the DMV employees under this bill. Number 426 REPRESENTATIVE GREEN asked if there could not be a flexibility in the fee structure to allow the contract agent to charge their fee in addition to those funds that would normally go to the state; thus making this effectively revenue neutral to the state. He recognized Ms. Hensleys concern about the need for additional oversight of the contract agents, but asked if any additional costs as a result of this would not be made up by a reduction in the administrative processing work of the DMV. MS. HENSLEY thought this could be possible, but said the goal of the department was to reduce those long lines and still provide the same level of service. To do this, they would still need to keep the same number of employees. Number 452 REPRESENTATIVE VEZEY stated one of the problems that arose in discussing this bill with the DMV was the rather complex system of checking information when processing vehicle registration, titles, and drivers licenses. It may be that this process is the bottleneck that may be preventing the department from providing better service. He thought it may be necessary to revisit this legislation in the future to find that balance between control versus services. The problem in working with this legislation has been to allow for this control to remain in place, while allowing for an expansion of service. REPRESENTATIVE ED WILLIS asked if this bill would put another layer between the citizens and their elected officials. He asked how the legislature could address problems that may arise with the contract agents. REPRESENTATIVE VEZEY replied that this would only happen if the citizen voluntarily chose this option. He reminded the committee that this was the way that pilot licenses were handled, as well as fishing and hunting licenses. Thus, he did not think this idea was unusual. He stated he felt it was likely that an individual would have to pay a premium to go to a private vendor and avoid the long lines at the local DMV office. CHAIR JAMES commented this might open options for service that would be available on a schedule other than 8 a.m. to 5 p.m. She pointed out that the DMV office in Fairbanks was closed during the noon hour. She said if you were in line at this time, you faced the risk of having to come back, claiming she had personally had this happen in the past. Number 515 MS. HENSLEY said she was surprised to hear this, because the only offices that are closed between 12 p.m. and 1 p.m. are the one- person offices. She also pointed out that they did have offices in the Anchorage area that were open Tuesday through Saturday to try to accommodate the needs of the public. She reiterated the DMV was trying hard to find ways to be more efficient and responsive. CHAIR JAMES stated that what was distressing to her and the public was that the DMV is the department that brings in more money than it spends, yet the service seems to be less than what it should be for the money received. MS. HENSLEY replied that the budget of the DMV is only one-fourth of that which it earns in income. REPRESENTATIVE VEZEY stated he felt that the initial demand for these contract agents would come from commercial users, who look not only at the cost of fees, but also the cost of payroll for the individual standing in line at the DMV. This could be a way for them to improve the efficiency of their own internal organization by tying in with a contract agent of the DMV. Number 539 MARGOT KNUTH, Assistant Attorney General, Criminal Division, Department of Law, was concerned that HB 210 in the new proposed statute, 28.12.120, specifies the required contract language to be used by the DMV. She said as a general rule, when you specify the language of a contract in a statute, then you cannot change the contract without amending the statute. Thus, the preferred practice is to establish the terms of the contract in statute, but not the exact language. This provides flexibility should something be overlooked or another statute changes that has an impact on this one. She thought this would seriously tie the hands of the Administration, who would be required to come back to the legislature to effect any changes in the contracts. Thus, her recommendation was that this statute not specify the language of the contracts, but the terms the legislature feels are necessary to have included in these contracts. REPRESENTATIVE VEZEY answered that the contracts that they have put together, state that they will comply with state and federal law and regulations. He stated they wanted the Administration to have a reason to come back to the legislature, should there be a problem that needs to be addressed. He was concerned that should they turn all authority over to the Administration, then they will be in the same problems expressed about regulations, which are that neither the legislature or the Administration is accountable. By putting the contracts in statute, they hope to encourage the Administration, legislature, and public to get together in the event a problem arises. REPRESENTATIVE ROBINSON asked if there would not have to be additional regulations drafted even with this tight contract. Number 579 REPRESENTATIVE VEZEY replied that he felt this statute was very complete. He stated the DMV had testified in the Transportation Committee that they did not see that regulations would be required, as the bill is very complete. They had asked for the authority to write regulations, should something come up in the future. REPRESENTATIVE OGAN expressed reservation about putting the regulations in statute. He thought that maybe it would be wise to put some type of sunset on this provision of the bill. He also asked if this would not load up the legislature with contract negotiations. His experience had been that contracts were something that were negotiated on a case-by-case basis. Number 598 REPRESENTATIVE VEZEY explained this was not a mandate to do anything, but just allows the department to consider this as an option. Should there be enough public demand, then the legislature can tighten up the language to make it more mandatory. He thought that Representative Ogans concerns were addressed in this bill. He also stated that if the legislature wanted to be more responsive and accountable, then it had to accept more responsibility for their work product. REPRESENTATIVE GREEN agreed there was a dilemma with the amount of regulations currently on the books, but also found the DMV to be a very responsive agency. He stated his concern was that if something was found to need addressing in July, then it could not be addressed by the legislature until the next session. He thought that regulations were theoretically based on statute and if given an outline to follow by the legislature, they should adhere to those guidelines. If they dont, the legislature could then address the concerns they have without having to address these contracts on a yearly basis. He thought the legislatures plate was full already. CHAIR JAMES commented the solution to this problem was to have oversight of regulations, which she thought could very simply be accomplished. She said this was a whole other subject. Number 624 MS. KNUTH answered the problem with a contract that states must read as follows, is if there is a problem discovered when the legislature was not in session, she did not know how it could be addressed until the legislature convenes. She said the language of the contracts look good, but she could not say if they were comprehensive. She said until you start using these contracts, you cannot know what problems may arise. CHAIR JAMES stated her inclination was to ask what damage would be done. Wouldnt it only be that you would be delayed from entering into a contract until the following legislative session. Those people who had already entered into a contract would be bound by the terms of those contracts. Should a change be necessary, then the only damage would be that the DMV could not enter into any new contracts until the next legislative session. Number 645 MS. KNUTH stated their concern was more that if there was a provision that was not addressed, that it could lead to litigation. Should there need to be something addressed, she thought one of the two parties would possibly face an economic loss. She did not think it would be a case of not entering into a contract, but rather making do with the existing provisions and then making up for any deficiencies in litigation. MS. HENSLEY said the department would echo the concerns of the Department of Law. Should they enter into a contract that changes, then under this law they would have to go back to terminate that contract. Once the contracts were terminated, then the contractor would have the right to go to arbitration to get the issue resolved. She thought this would be costly and time-consuming to the department. CHAIR JAMES stated her experience with contracts suggested that when they realize there is something missing in the agreement, they do an addendum, but do not throw out the whole contract. Thus, she fails to see the scenario they suggest. She thought that only the amendment would be on hold, and this could happen currently, without the language of this bill. MS. KNUTH said this was the problem with the specific language being in statute. This doesnt allow the Administration the flexibility to negotiate should any changes be necessary. CHAIR JAMES stated she understood those concerns, but asked if they wanted to have the freedom to have a contract with one agent that was different from the one they have with another. She thought this could create a problem, and that was what having the contract in statute prevented. MS. KNUTH did not foresee having different contracts with different agents, but was thinking in terms of refinement that may be needed with all of their contracts. CHAIR JAMES stated that it sounded as if they were saying that they had not really looked at this language well enough to know what was necessary to be in the language of the statute. MS. KNUTH said she had looked at this language, but felt that until the situation was implemented, you may not know of all of the changes that may be needed. She said there could be a change in federal or state law that could mean a change would be necessary in the contracts. She felt the use of the legislature to micro-manage something as technical as this was inappropriate, when what was needed was the policy considerations and guidelines. Number 690 REPRESENTATIVE ROBINSON asked if there was a way this language could be refined to allow for addendums to contracts. REPRESENTATIVE VEZEY answered that the contracts were worded that a contract agent must follow state and federal law. Should the law change, the contracts change to reflect this change of law. He stated they were not locked into a prior law. The basic nature of a contract, he said, was that two people could agree to anything. With this language, they were trying to set up the grounds for termination of the contract by the state and the commitments of the contractor to comply with the law. TAPE 95-54, SIDE B Number 000 REPRESENTATIVE GREEN agrees with the idea to legislatively fix something that has runamuck, he still agrees with the idea of having departmental regulations that are under the guidelines of the legislature. He was concerned that should the legislature continue to pass legislation, where the legislature dictates all things and by-passes the regulatory process, then this was overkill. He felt this was a case where the legislature was trying to micro-manage things that is should not be. He stated the legislature should just be giving guidelines for these contracts. If these contracts do not comply with these guidelines, then the legislature should address this with the agencies to get them fixed. Number 070 REPRESENTATIVE OGAN stated there were statutes that set forth the legal form, stating the documents should read substantially as follows or substantially in a similar form. He thought maybe it would be appropriate to have a conceptual amendment that would change the verbiage on page 7, line 12, to read The contract required under AS 28.12.110(b) for third party agents must read substantially as follows. Combining this with some legislative oversight as necessary, he felt would solve the problem. He thought that maybe these contracts could be reviewed by the sponsor and be a win-win situation for everyone. Number 102 REPRESENTATIVE VEZEY said there were three contracts, depending on the type of service the agent wants to engage in. They are all worded very similar, stating that the third party agent agrees to comply with all applicable statutes and administrative regulations of the state of Alaska and all applicable federal laws, including regulations of the Federal Highway Administration, and with all applicable municipal ordinances. Thus, should the state wish to arbitrarily change a contract condition, then they have the ability to write a regulation. The contractor has no choice but to follow that regulation. He thought they had given the department a tremendous amount of responsibility. He reiterated the contract changes anytime the law changes. REPRESENTATIVE PORTER stated he did not know of any other contracts that were in statute. He asked why it was appropriate to put this contract in statute, even with the verbiage of these terms, as opposed to the suggested verbiage of what terms should be in the contract. REPRESENTATIVE VEZEY answered the reason was that the state had such a poor record of privatization. He felt if they were going to push the Administration towards privatization, then it would be necessary to use a few more tools than had been used in the past. REPRESENTATIVE PORTER did not disagree, but felt it was ironic that this involved the one agency that had taken some steps to privatize itself. REPRESENTATIVE VEZEY replied that this was correct and he was not sure how they happened to focus on this particular agency. He stated they had tried to look toward other areas that had been successful in privatization in government and the one area that stood out was the Federal Aviation Administration. Much of that service has successfully been privatized and is so commonplace that people do not even think about it. Number 166 CHAIR JAMES commented this bill is really plowing new ground and not really wanting to be facetious, but the concerns she is hearing from the Department of Law is the type she would expect to hear from attorneys. She stated she had just finished reading The Death of Common Sense and suggested that anyone who had not read this, do so. This book tells how precise government has tried to be over the past 30-40 years. Being so precise creates loopholes. She stated as an example, the 36,000 pages of the regulations of the Internal Revenue Service. The more it is attempting to try to cover every detail of a situation, the more the likelihood is that someone will discover a loophole. It was her experience that the KISS (Keep it simple stupid) method works better. She stated this dispute will always take place with the legal profession, as that is their job. She thought there needed to be some common ground, between being too cautious and careless. She thought that, should this common ground be found, there would be less litigation as a result. She argued that the language in this bill finds that common ground, and the only thing that will happen should these contracts be insufficient, is that the Administration will be before the legislature next year without having finished the contractual agreements. This would be the stop-gap. Should this happen, that they have to come before the legislature the following year, then she asks what would be lost. She agrees there is a place to write regulations and a place to write statutes. Currently, there is a problem with finding the balance of this relationship between the statute writers and the regulation writers. She agreed this may be overkill, but sometimes it is necessary to overcorrect to find the proper balance. Number 212 REPRESENTATIVE GREEN understood the frustration being felt with the regulatory process, but he wondered if the compromise suggested by Representative Ogan was not a better idea. Should they set the guidelines of the contracts, while allowing for some flexibility, they could then revisit them next year and make changes if the Administration did not follow legislative intent. He added this would allow for legislative review, while removing the handcuffs of the precise language. Number 239 MS. KNUTH stated if the sin of attorneys is trying to be precise, then this bill is guilty of that sin as well. It is setting out with total precision of what that contract is going to say. By keeping it simple, the legislature would set out just the parameters of the contract, but not the exact language. This will just help those seeking to find the loopholes in the contracts. Thus, she agreed with the comments of Representative Green. CHAIR JAMES asked if the existing language, as indicated by the sponsor, does not already allow for changes in state or federal law. She thought this language was pretty comprehensive. MS. KNUTH answered by stating an example on page 8, line 27, of an agreement where the third party agent agrees to provide as required by AS 28.12.150. She asked who would know in the future that this statute was the only applicable requirement for insurance. Should there be another unspecified statute that is applicable, then the vendor could say they do not have to comply. Another possibility would be that the revisor of statutes changes this statute to another number, which is then unspecified in this contract. These were the reasons this language was too restrictive in allowing the department to solve any future problems that may arise. Number 273 REPRESENTATIVE VEZEY said he had no problem with some wordsmithing on the language of this contract, but suggested that any concern of the Department of Law could be addressed by deleting subparagraph 2. He stated they had already said the agent would be required to comply with all applicable laws, and so it was not necessary to specify the requirement to comply with insurance laws under statute AS 28.12.150. His interpretation of this meant that the contractor was required to comply with any insurance requirements and not just those of AS 28.12.150. He reiterated that the wording of this contract is very specific that the agent is required to comply with the law, and so if the law changes, the contract changes. Number 292 REPRESENTATIVE PORTER feels she picked a good example, since having heard this bill before in the Transportation Committee, she just found an example of a paragraph that could be removed from this bill. He stated this was a close call, since he agrees that there is a real need for regulation reform and that some agencies runamuck, but felt this was the wrong agency they were picking on. He also thought this was a situation of micro-managing, which the legislature says they do not like to do. Thus, he would support the idea of adding the wording substantial similarity to the wording of the bill. CHAIR JAMES asked if he would make this in the form of a motion, as a conceptual amendment. REPRESENTATIVE PORTER moved that on page 7, line 13, the verbiage be amended to read for a third party agent must substantially read as follows, and that this language be adopted at the appropriate places throughout the bill. CHAIR JAMES asked if there was any discussion on that amendment. REPRESENTATIVE VEZEY stated for the record that this amendment would also apply to page 10, line 15 and page 13, line 14. CHAIR JAMES asked if there was any objection to this amendment. Hearing none, the amendment passed. She asked if there was any other discussion. REPRESENTATIVE GREEN moved to pass CSHB 210(TRA) as amended with individual recommendations and a zero fiscal note. CHAIR JAMES asked if there were any objections. Hearing none, the bill passed out of committee.