Legislature(1997 - 1998)
02/17/1998 01:40 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 17, 1998
1:40 P.M.
TAPE HFC 98 - 31, Side 1.
TAPE HFC 98 - 31, Side 2.
TAPE HFC 98 - 32, Side 1.
TAPE HFC 98 - 32, Side 2.
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 1:40 P.M.
PRESENT
Co-Chair Hanley Representative Mulder
Co-Chair Therriault Representative Kohring
Representative G. Davis Representative Martin
Representative Grussendorf
Representatives Moses, Kelly, Foster and J. Davies were not
present for the meeting.
ALSO PRESENT
Representative Gene Kubina; Representative Norman Rokeberg;
Craig Johnson, Staff, Senator Jerry Ward; Bernie R.
Diamond, Senior Vice President & Secretary, Management &
Training Corporation (MTC), Utah; Margaret Pugh,
Commissioner, Department of Corrections; Margot Knuth,
Assistant Attorney General, Department of Law; Margie
Vandor, Assistant Attorney General, Department of Law; Ruth
Blackwell, Powell Reality, Juneau; Pamela LaBolle,
President, Alaska State Chamber of Commerce, Juneau;
Lorraine Derr, Executive Director, Alaska State Hospital &
Nursing Home Association (ASHNHA); Don Etheridge, Labor
Union, Juneau.
SUMMARY
HB 33 An Act relating to real estate licensing and the
real estate surety fund; and providing for an
effective date.
CS HB 33 (FIN) was reported out of Committee with
a "no recommendation" with a fiscal note by the
Department of Commerce and Economic Development
dated 1/30/98.
HB 53 An Act relating to the authority of the
Department of Corrections to contract for
facilities for the confinement and care of
prisoners, and annulling a regulation of the
Department of Corrections that limits the
purposes for which an agreement with a private
agency may be entered into; authorizing an
agreement by which the Department of Corrections
may, for the benefit of the state, enter into one
lease of, or similar agreement to use, space
within a correctional facility that is operated
by a private contractor, and setting conditions
on the operation of the correctional facility
affected by the lease or use agreement; and
giving notice of and approving a lease-purchase
agreement or similar use-purchase agreement for
the design, construction, and operation of a
correctional facility, and setting conditions and
limitations on the facility's design,
construction, and operation.
CS HB 53 (FIN) was reported out of Committee with
a "do pass" recommendation, a House Finance
Committee Letter of Intent and a fiscal note by
the Department of Corrections and zero fiscal
notes by the Department of Administration and the
Department of Revenue.
SB 209 An Act relating to the Task Force on
Privatization; and providing for an effective
date.
SB 209 was reported out of Committee with a "do
pass" recommendation and with fiscal notes by the
Office of the Governor dated 1/21/98 and
Legislative Affairs Agency dated 1/21/98.
HOUSE BILL NO. 53
"An Act relating to the authority of the Department of
Corrections to contract for facilities for the
confinement and care of prisoners, and annulling a
regulation of the Department of Corrections that
limits the purposes for which an agreement with a
private agency may be entered into; authorizing an
agreement by which the Department of Corrections may,
for the benefit of the state, enter into one lease of,
or similar agreement to use, space within a
correctional facility that is operated by a private
contractor, and setting conditions on the operation of
the correctional facility affected by the lease or use
agreement; and giving notice of and approving a lease-
purchase agreement or similar use-purchase agreement
for the design, construction, and operation of a
correctional facility, and setting conditions and
limitations on the facility's design, construction,
and operation."
Representative Mulder MOVED to ADOPT work draft version 0-
LS0194\X, Luckhaupt, 2/16/98, as the version before the
Committee. There being NO OBJECTION, it was adopted.
Co-Chair Therriault explained that the "X" version included
new language that addressed the "local and special acts
legal concern.
Representative Grussendorf pointed out a conflict in
language used on Page 2, Line 16 and Point #3 in the Letter
of Intent. [Copy on file]. Co-Chair Therriault explained
that 20 years referred to the utilization of the facility,
whereas, Item #3 addresses the facility's operation.
Representative Grussendorf asked who would be responsible
to provide the original debt amount. Co-Chair Therriault
noted that the company would be required to have their own
bonding in order to secure the facility.
BERNIE R. DIAMOND, SENIOR VICE PRESIDENT & SECRETARY,
MANAGEMENT AND TRAINING CORPORATION (MTC), OGDEN, UTAH,
introduced his company, a private firm located in Utah.
Ninety percent of MTC's business is through the federal
government with the Department of Labor (DOL). MTC is the
largest contractor with the federal DOL in the job corp
program.
Mr. Diamond commended the Alaska State Legislature for
considering privatizing their prisons. He noted that his
company has secured contracts throughout the country
because of their education and training programs. These
programs help to cut recidivism.
Mr. Diamond provided Committee members with a "Comparative
Recidivism Analysis of Releases from Private and Public
Prisons in Florida". [Copy on file]. He emphasized that
the intent was not to take over the Department of
Corrections, but rather to work in partnership with them.
In Texas, the Management and Training Corporation (MTC)
operates the largest private prison in the country. The
building was completed and paid for under the proposed
schedule; a facility with 1700 beds, built in under a year.
He elaborated on MTC's good record, recommending that with
passage of the proposed legislation a competitive bidding
process could be opened up.
Mr. Diamond suggested that rather than the State putting up
the money to build the facility, MTC could use the State's
bonding authority; then the City of Delta Junction would
not be liable to pledge. The State contract would be
presented to MTC's private investors to provide the $30
million dollar allocation cost. Once those funds were
paid, MTC would give that facility to the City of Delta
Junction, which would then provide them in the future with
an income stream.
Mr. Diamond acknowledged that his firm was disturbed to
read in the Anchorage paper that the deal had been sealed
with another company. He emphasized that language in HB 53
would strike the competitive nature of the bid. Mr.
Diamond urged the Committee to consider an amendment to HB
53 to provide for competitive procurement. He cautioned
that if the bill's language remains as written, and if it
was the intent of the Department of Corrections (DOC) to
contract in that way, and if federal funds were used, it
would be illegal. All federal contracts specify that any
funds used as federal funds must be competed for,
otherwise, much more State money would have to be
appropriated.
Representative Martin spoke to the value of privatization;
although, he suggested that the proposal presented by MTC
had been submitted too late. Mr. Diamond stressed that MTC
has a large interest in pursuing SB 179. He believed that
participation would require the addition of language to
change the intent in order to a create competitive
procurement. Mr. Diamond stressed that Alaska has the
responsibility to solicit bids from more than one firm.
In response to Representative Mulder, Mr. Diamond explained
that Adak was too far away to be workable in relationship
to costs related to inmates. Representative Mulder
continued to question Mr. Diamond regarding a past proposal
to use the Adak Island for a private prison facility. He
emphasized that MTC has had the opportunity to look at Ft.
Greely for the past two years. Mr. Diamond countered that
the proposal had been brought to MTC's attention only two
weeks ago.
Representative Mulder inquired about the substance abuse
program, which MTC had implemented. Mr. Diamond replied
that program was situated out of Merana, a small community
near Tucson, Arizona. About 60% of the inmates are in the
last period of substance abuse treatment, while the others
are there for alcohol treatment. He offered to mail
Committee members the studies and results from that
facility.
Representative Mulder inquired how realistic the $70 dollar
per day rate was. Mr. Diamond recommended that portion of
the legislation should be amended. The other twenty-nine
states that have permissive legislation include language
listing a 3% - 15% percent decrease. Also, language could
be added stating that there must be savings of at least 10%
under the State per diem rate for the same service offered.
He pointed out that the $70 dollar rate should include
capital costs, which was not realistic.
Co-Chair Therriault pointed out that the wording of the
bill does not preclude the Commissioner of the Department
of Corrections from requiring a competitive bidding
process. Mr. Diamond commented that Section #4 would
strike that requirement. He recommended adding a 6th point
by amending the Letter of Intent and calling for
competitive procurement.
MARGARET PUGH, COMMISSIONER, DEPARTMENT OF CORRECTIONS,
voiced appreciation for opening up the debate on the
competitive bidding process. She provided Committee
members with a handout addressing the Department's
concerns. [Copy on file]. She pointed out that the State
count is, currently, 3,218 prison beds filled, and that is
518 above emergency capacity. She cautioned, the trend is
upward.
Commissioner Pugh reminded Committee members that public
protection is the first mandate of the Department of
Corrections. A schedule has been ordered to be submitted
to Judge Hunt by March 9th. Commissioner Pugh reiterated
that the current concern is the short-term need.
Co-Chair Therriault suggested that the short-term concerns
could be addressed in the Supplemental. He added that
passage of HB 53 is not the solution to the State's
problem, although, a part of the long-term solution.
MARGOT KNUTH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, provided Committee members with handouts, "Cost
Comparison for the House Finance Committee" and "Private
and Public Prisons, Studies Comparing Operational Costs
and/or Quality of Service". [Copies on file]. She spoke
to the cost comparisons of a publicly versus a privately
operated 800-bed medium custody prison. Studies comparing
the operational costs of public and private prisons have
been of interest to many jurisdictions around the United
States General Accounting office.
Ms. Knuth pointed out that the Governor's proposal to
address prison bed needs in Alaska is to expand the Palmer
Medium Correction Facility. In going with the Ft. Greely
proposal instead, the handout compares the cost of care of
inmates at Arizona and then added the total cost of care
for an inmate at Palmer. The cost at Arizona is $82.34
dollars per day; at Palmer the cost is $86.60 dollars per
day.
Co-Chair Hanley recommended that the analysis be based on
the capacity divided by the cost, not the actual numbers.
He commented that it was not fair to count the over-
capacity cost given the number of prisoners to be shipped
out. Ms. Knuth pointed out that there will be a decrease
cost of care, which will off set those costs. Co-Chair
Hanley reiterated that Palmer is 1/3 over capacity and when
it is brought down to capacity, there will be a substantial
increase in the per diem rate.
Co-Chair Hanley asked the anticipated cost to build the
Palmer Correctional facility. Ms. Knuth replied that there
currently is not an 800-bed facility in Alaska. She
suggested that it was not fair to compare the costs of a
300-400-bed facility in Palmer to an 800-bed facility. The
800-bed facility would indicate the economy of scale.
Co-Chair Hanley pointed out that there would be a capital
cost included in the Delta facility. He commented that it
was important to add up the creation of 800 beds in the
Governor's proposal and compare that to the 800 bed cost in
Delta on a cost comparison basis. Ms. Knuth pointed out
that when leasing space in Arizona, the State does not
consider the capital costs; we would not at Delta either
because eventually it will become their asset. She
stressed that it is important when considering a location
for medium security prisoners, to compare what the cost
would be as compared to shipping the prisoners out of
state.
Co-Chair Hanley asked the Governor's cost for the Palmer
expansion. Ms. Knuth replied it would be $75 thousand
dollars per bed, capital cost. Commissioner Pugh added
that the Governor's total proposed cost would be $16
million dollars. Co-Chair Hanley noted that amount would
not be included in the per diem rate. Ms. Knuth responded
that there would not be an offset to the proposed Ft.
Greely plan as there will be no asset. Co-Chair Hanley
questioned the value of the asset. Ms. Knuth noted that
the State would use it indefinitely at no additional cost,
except maintenance. Co-Chair Hanley argued the long-term
cost factors involved.
(Tape Change HFC 98- 31, Side 2).
Representative G. Davis questioned the City of
Delta/Greely's responsibility within the negotiations.
REPRESENTATIVE GENE KUBINA referenced Section #4, which
stipulates that, the provisions of AS 33.03.031 (a) and (c)
would not apply to the lease agreement. He questioned why
(a) was being exempted.
MARGIE VANDOR, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, spoke to exemption of paragraph (c). She stated that
the language is permissive and that the Department could
still go out to competitive bid. The confusion is that the
lease of the facility is under section (a) with the the
State and the City of Delta. Within that lease, stated in
subsection (b) is the operational lease with a private
third party. Under subsection (b), the agreement to lease
must provide for an agreement between the City of Delta and
a private third party, which would then create a separate
agreement.
Ms. Knuth spoke to subsection (a). The major impact of
that section is that it would allow the Commissioner to
continue to send prisoners to Arizona, even if there was
space available at Ft. Greely. She was troubled in
deleting the last sentence of (a) as it specifies that the
Commissioner "may not enter into an agreement with an
agency, unable to provide a degree of custody, care, and
discipline similar to that required by the laws of the
State".
Co-Chair Therriault stated that passage of the bill or the
building of the facility would not preclude utilizing out-
of-state beds in the future. He added that the Letter of
Intent specifies that the State does not intend anyone to
be housed below the established standards.
Representative Kubina argued against deletion of section
(a). He asked if the purpose of exempting (a) was so that
all laws would then be applicable to apply to both a
private and public facility. Co-Chair Therriault
reiterated that custody, care and discipline are all
covered in the intent language according to the American
Correctional Standards.
Representative Mulder spoke to exemption of (a). That
section pertains to the commissioner's findings. In
deliberations, there has been concern with the
Commissioner's willingness to proceed with the plan. He
thought, that in order for the statute to require a
"finding" by the Commissioner, that could provide another
opportunity for the Commissioner to "sand-bag" the
proposition. He summarized that the exemption would
provide more direct authority. Representative Kubina
reiterated his concern with the proposed action and the
fast track that the bill is on. In conclusion, he urged
that the last sentence of the paragraph should be
applicable to a prison facility.
Representative Mulder stated that it was his intent that
the legislation meet or exceed the accreditation standards.
He added that the Letter of Intent was not intended to
limit important criteria. Representative Grussendorf asked
if Point #5 was a realistic goal in meeting the $70/day
cost. Co-Chair Therriault replied that by placing that
number within the Letter of Intent, the Legislature would
be giving clear direction to the Commissioner where the
costs are expected to be.
Representative Mulder noted that he would review AS
33.30.031(a) and if necessary would offer to amend that
concern on the floor.
Representative Martin MOVED to report CS HB 53 (FIN) out of
Committee with individual recommendations, the Letter of
Intent, and the accompanying fiscal notes. There being NO
OBJECTION, it was so ordered.
CS HB 53 (FIN) was reported out of Committee with a "do
pass" recommendation, a House Finance Committee Letter of
Intent and with a fiscal note by the Department of
Corrections and zero fiscal notes by the Department of
Administration and the Department of Revenue.
(Tape Change HFC 98- 32, Side 1).
HOUSE BILL NO. 33
"An Act relating to real estate licensing and the real
estate surety fund; and providing for an effective
date."
REPRESENTATIVE NORMAN ROKEBERG reviewed the changes made to
the work draft, 0-LS0197\R, Lauterbach, 2/14/98.
Co-Chair Therriault clarified that a realtor could still
take less of a commission in the new language.
Representative Rokeberg agreed and noted that if there
should be mitigation inside a transaction, the commission
amount could be reduced and the market place would then
again have free range.
Representative Martin MOVED that version 0-LS0197\R,
Lauterback, 2/14/98, be the version before the Committee.
There begin NO OBJECTION, it was adopted.
Representative Rokeberg spoke to Amendment #1, which would
address a miscalculation made by the drafters in the
original legislation. [Copy on File]. Co-Chair Therriault
MOVED to adopt Amendment #1. There being NO OBJECTION, it
was adopted.
Co-Chair Therriault MOVED to adopt Amendment #2. [Copy on
File]. Representative Rokeberg explained the intent of
Amendment #2, which would clarify the meaning of "by
employment" or the act of employment for an independent
contractor. Many licensees are independent contractors and
not employees. This language would help them. There being
NO OBJECTION, Amendment #2 was adopted.
Representative Mulder disclosed a conflict of interest as
he holds a real estate license.
Co-Chair Therriault MOVED to adopt Amendment #3. [Copy on
File]. Representative Rokeberg spoke to the amendment,
which redrafts the entire section on "conflict of
interest". He suggested that the new language would
minimize litigation, although, would not restrict the types
of claims resulting from cause of action that could be
brought forward.
Co-Chair Therriault supported the inclusion of the
language, which stipulates that the private person still
has the right to sue if there is misrepresentation.
Representative Martin voiced concern regarding an audit,
which involved the Alaska Housing Finance Corporation
(AHFC). Representative Rokeberg replied that
recommendations in the audit indicated that the Real Estate
Commission should address the issue. The recommendations
of the audit are fully addressed through the proposed
language.
Representative Mulder referenced the conflict of interest
language in addressing who is a "relative". He asked the
problem in representing a niece or nephew. Representative
Rokeberg replied that relative had been clearly defined in
the exception section. The exception was intended to cover
a relative managing property without licensure. He added
that language resulted from concerns by AHFC who felt that
integrity of the Real Estate Commission could come into
question.
There being NO OBJECTION, Amendment #3 was adopted.
Representative Grussendorf questioned Section #22 and
language regarding disclosure of a sex offender.
Representative Rokeberg explained that the laws as they
apply to real estate licensees have changed dramatically
over the past few years. He mentioned case law around the
U.S. dealing with disclosure of everything from ghosts to
murders. The laws create duties, which are enforced. The
duties to disclose can be cross-purposed.
Co-Chair Hanley questioned if there was a requirement to
disclose a ghost in a home. Representative Rokeberg stated
there was not. Co-Chair Hanley asked if it was the "duty"
of the agent to disclose sex offenders. Representative
Rokeberg stated that a duty could arise between the agency
relationship of the client and licensee. Co-Chair Hanley
asked the type of situations, which are required to be
disclosed. Representative Rokeberg replied that those
disclosures generally have to do with the condition of the
property.
RUTH BLACKWELL, POWELL REAL ESTATE, JUNEAU, reported that
in Juneau, everything known is disclosed. Co-Chair Hanley
noted that with concern to a physical defect, the law will
protect if it is unknown, whereas, some information such as
a homicide occurrence would not legally have to be
submitted. Discussion followed regarding the legality of
types of information being disclosed.
Co-Chair Hanley reiterated his concern resulting from suits
of selling a property, which is located next door to a sex
offender. He questioned why that liability would differ
from other pertinent info. Co-Chair Therriault pointed out
that anyone can access the database to find out where a sex
offender lives. Ms. Blackwell added that federal law
prohibits a real estate agent from disclosing who lives
next door. Although, she pointed out that the agent should
always recommend that the buyer go to the City/Borough to
find information regarding the neighboring houses.
Co-Chair Hanley pointed out that sexual offenders have an
85% chance of recidivism. He recommended that there should
be information added, which clearly defines whose
responsibility it is to disclose where sex offenders live.
Representative Rokeberg noted that it is estimated that
less than half of the sex offenders are registered. He
asked how much can we statutorily mandate an agent to
provide.
(Tape Change HFC 98- 32, Side 2).
Representative Mulder commented that there must be
consistency established by the law. He recommended that
"everything you know should be disclosed". The liability
for a real estate agent is sky high. Representative
Rokeberg pointed out that there is a disclosure statement
provided with each property sale, and perhaps a new section
should be added to the disclosure statement warning
potential buyers to seek information regarding sex
offenders in the neighborhood. Ms. Blackwell noted that
the Real Estate Commission is currently working on such a
disclosure statement.
Co-Chair Hanley supported that action, pointing out that
the general public is more concerned about sex offenders
than most other neighborhood information.
Representative Hanley MOVED to ADOPT a conceptual amendment
with language, which indicates that, the buyer is
responsible for becoming aware of the location of sex
offenders. Co-Chair Therriault recommended that language
be added which provides direction as to where a person can
be directed to find out information on sex offender's
residence. Ms. Blackwell understood that information
should be included on the property disclosure statement.
There being NO OBJECTION, the conceptual amendment was
adopted.
Representative Martin MOVED to report CS HB 33 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note. Representative Rokeberg asked if
the conceptual amendment would create greater fiscal
impact. Ms. Blackwell responded that the form was already
being changed so that it should not create a greater fiscal
impact. There being NO OBJECTION, CS HB 33 (FIN) was
reported out of Committee with "no recommendation" and with
a fiscal note by the Department of Commerce and Economic
Development dated 1/30/98.
SENATE BILL NO. 209
"An Act relating to the Task Force on Privatization;
and providing for an effective date."
CRAIG JOHNSON, STAFF, SENATOR JERRY WARD, explained that
privatization should be the fundamental political and
economic reassessment within the role of government and the
private sector for the State of Alaska. He suggested that
markets are efficient only when they are competitive;
however, efficiency should not be the government's only
goal. Government must balance the pursuit of efficiency
with effectiveness while maintaining the confidence of the
people it represents.
Mr. Johnson pointed out that SB 209 was introduced to
establish a task force that will review functions of state
government that could easily be transferred to the private
sector. The task force will have members from the public,
legislative and executive branches of government. He
summarized that SB 209 will address the State's contracting
procedures to make sure Alaskans are getting the most out
of every contracting dollar spent. He pointed out that SB
209 is identical to previous proposed legislation SB 68,
with slightly different fiscal notes. The House and Senate
leadership has determined that the fiscal note should
include per diem for legislators.
Representative Kohring questioned the necessity of the
proposed legislation; he recommended hiring a consulting
agency. Co-Chair Therriault replied that the costs for an
outside consultant would be higher, in addition, Senator
Ward wants there to be cooperative effort between policy
makers for the State and the Legislature.
PAMELA LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF
COMMERCE, JUNEAU, spoke in support of SB 209. The
legislation sets forth that some government functions can
be done more efficiently and less expensively within the
private sector.
LORRAINE DERR, EXECUTIVE DIRECTOR, ALASKA STATE HOSPITAL &
NURSING HOME ASSOCIATION (ASHNHA), voiced support of the
proposed legislation because of our dwindling State and
federal dollar allocations. ASHNHA would be willing to
work with the task force in addressing the ways other
states are working with the privatization of health care.
DON ETHERIDGE, LABOR UNION, JUNEAU, noted support of SB 209
although, voiced concern with the proposed time frame. He
thought that there would not be enough interest in such a
short time span especially, given that this is an election
year. He urged a longer time frame be allocated for the
study.
Representative Martin asked if moving the date to January
15th would be better. Mr. Etheridge stated any change
would help, although, he would propose a one year
extension.
Representative Martin MOVED to report SB 209 out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it
was so ordered.
SB 209 was reported out of Committee with a "do pass"
recommendation and with fiscal notes by the Office of the
Governor dated 1/21/98 and the Legislative Affairs Agency
dated 1/21/98.
ADJOURNMENT
The meeting adjourned at 4:00 P.M.
H.F.C. 14 2/17/98
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