04/02/1997 01:07 PM House JUD
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= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
April 2, 1997
1:07 p.m.
MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Con Bunde, Vice Chairman
Representative Brian Porter
Representative Jeannette James
Representative Eric Croft
Representative Ethan Berkowitz
MEMBERS ABSENT
Representative Norman Rokeberg
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 132
"An Act relating to municipal taxation of alcoholic beverages."
- HEARD AND HELD
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."
- MOVED CSHB 53(JUD) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 132
SHORT TITLE: MUNICIPAL TAXATION OF ALCOHOL
SPONSOR(S): REPRESENTATIVE(S) DAVIS,Ivan
JRN-DATE JRN-PG ACTION
02/13/97 333 (H) READ THE FIRST TIME - REFERRAL(S)
02/13/97 333 (H) CRA, JUDICIARY, FINANCE
02/21/97 424 (H) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS
02/21/97 424 (H) READ THE FIRST TIME - REFERRAL(S)
02/21/97 424 (H) CRA, JUDICIARY, FINANCE
03/07/97 (H) CRA AT 8:00 AM CAPITOL 124
03/07/97 (H) MINUTE(CRA)
03/07/97 582 (H) CRA RPT 5DP 1AM
03/07/97 582 (H) DP: JOULE, DYSON, RYAN, KOOKESH, IVAN
03/07/97 582 (H) AM: OGAN
03/07/97 583 (H) FISCAL NOTE (REV)
03/07/97 583 (H) ZERO FISCAL NOTE (DCRA)
03/07/97 583 (H) REFERRED TO JUDICIARY
03/07/97 594 (H) COSPONSOR(S): IVAN
04/02/97 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 53
SHORT TITLE: LEASE-PURCHASE CORRECTIONAL FACILITY
SPONSOR(S): REPRESENTATIVE(S) MULDER
JRN-DATE JRN-PG ACTION
01/13/97 41 (H) PREFILE RELEASED 1/10/97
01/13/97 41 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 41 (H) STATE AFFAIRS, FINANCE
02/02/97 (H) JUD AT 1:00 PM CAPITOL 120
02/19/97 406 (H) JUD REFERRAL ADDED
02/21/97 428 (H) STA REFERRAL WAIVED
03/07/97 (H) JUD AT 1:00 PM CAPITOL 120
03/07/97 (H) MINUTE(JUD)
03/10/97 (H) JUD AT 1:00 PM CAPITOL 120
03/10/97 (H) MINUTE(JUD)
03/12/97 (H) JUD AT 1:00 PM CAPITOL 120
03/12/97 (H) MINUTE(JUD)
03/14/97 (H) JUD AT 1:00 PM CAPITOL 120
03/14/97 (H) MINUTE(JUD)
03/26/97 (H) JUD AT 1:00 PM CAPITOL 120
03/26/97 (H) MINUTE(JUD)
04/02/97 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE GARY DAVIS
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99811
Telephone: (907) 465-2693
POSITION STATEMENT: Prime Sponsor HB 132.
REPRESENTATIVE ELDON MULDER
Alaska State Legislature
Capitol Building, Room 501
Juneau, Alaska 99811
Telephone: (907) 465-2647
POSITION STATEMENT: Prime Sponsor HB 53.
FORREST BROWNE, Debt Manager
Treasury Division
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811
Telephone: (907) 465-3750
POSITION STATEMENT: Provided testimony on HB 53.
ACTION NARRATIVE
TAPE 97-49, SIDE A
Number 001
CHAIRMAN JOE GREEN called the House Judiciary Standing Committee to
order at 1:07 p.m. Members present at the call to order were
Representatives Brian Porter, Jeannette James, Eric Croft, Ethan
Berkowitz and Chairman Joe Green. Vice Chairman Con Bunde arrived
at 1:09 p.m., and Representative Norman Rokeberg was absent.
SSHB 132 - MUNICIPAL TAXATION OF ALCOHOL
Number 050
CHAIRMAN GREEN announced the first order of business was SSHB 132,
"An Act relating to municipal taxation of alcoholic beverages."
REPRESENTATIVE GARY DAVIS, Prime Sponsor, explained that SSHB 132
was a relatively simple bill as far as what it would accomplish.
The expected impact was benefits to municipalities, but also to
address alcohol related problems in municipalities around the
state. He advised members that current law restricts
municipalities on the amount of tax they can place on alcoholic
beverages. They are restricted to the same rate of sales tax
imposed on other goods by a municipality, if a tax is imposed by
the municipality. Representative Davis explained that SSHB 132
would remove that restriction and allow municipalities to tax
alcohol at whatever level they deem necessary.
REPRESENTATIVE DAVIS advised members that one of the key reasons he
agreed to submit the proposed legislation was because of the amount
of past legislation that impacted the municipalities in the form of
what might be considered mandates, such as stricter laws relating
to the use of alcohol and DWI arrests that impact a municipalities'
police departments, hospitals, jail facilities and the court
system. Because those laws did not provide additional revenues to
support themselves, SSHB 132 would reduce the restriction on the
amount of taxes that could be imposed on the sale of alcohol by the
municipality.
REPRESENTATIVE DAVIS advised members that HB 132 was strictly a
permissive bill and did not create or impose any new taxes, but
allows the municipalities to consider the impacts of alcohol
related problems in their communities and provides the ammunition
to deal with those problems as they see fit.
REPRESENTATIVE DAVIS pointed out a concern had been raised in a
previous committee. If a municipality did impose a higher tax on
alcohol and generated additional revenue, how would one know if
those revenues were being spent on alcohol services?
Representative Davis agreed that that was a valid concern and that
his intent was for those additional revenues to go towards alcohol
related services. Representative Davis expressed that he had
prepared an amendment for members to consider that would add a new
section to the bill; \E.2, Ford, 3/28/97. He explained that that
language would dedicate those additional revenues to alcohol
related services to the degree possible.
CHAIRMAN GREEN expressed that the committee would not take
testimony on the bill at this hearing; however, it was scheduled to
be considered at the next committee hearing.
Number 322
REPRESENTATIVE JEANNETTE JAMES referred to the proposed amendment
and asked what binding agreement the intent language had on a
municipality.
REPRESENTATIVE DAVIS advised members that the language was somewhat
vague in that regard because there was some question as to whether
municipalities could dedicate funds.
REPRESENTATIVE JAMES agreed, and that was a concern she had because
she did not know if it would be very effective.
REPRESENTATIVE DAVIS expressed that it was his belief that it would
send a message to the voters, and if the voters passed it with that
intent, he thought it would behoove the elected officials to follow
the intent of the electorate.
CHAIRMAN GREEN reiterated that the bill would be before the
committee on Friday, April 4, 1997, and questions could be raised
and responded to at that hearing.
REPRESENTATIVE DAVIS recognized the concern expressed, and advised
members that prior to the next hearing he would conduct some legal
research and, hopefully, have some opinions, or additional language
that might be somewhat stronger that would address that concern.
Number 470
REPRESENTATIVE CON BUNDE pointed out that there were two amendments
in his bill packet and asked for clarification as to which one they
were discussing.
REPRESENTATIVE DAVIS explained that the Amendment labeled E\1.,
3/10/97 was no longer current, and members should be looking at
Version E\2. Ford, 03/28/97.
CHAIRMAN GREEN asked if anyone in the audience was from the Alaska
Municipal League (AML), and if there was a member who intended to
make comments at today's hearing.
REPRESENTATIVE DAVIS expressed that no one from the AML would be
testifying today with the understanding testimony would be taken at
a later date.
Number 540
REPRESENTATIVE ERIC CROFT responded to Representative James'
concern regarding the intent language in the proposed amendment
relating to the dedication of additional revenues for alcohol-
related services. He said it was probably not binding, but such
statements were normally adhered to, and it would be a brave
municipal assembly that would violate it.
HB 53 - LEASE-PURCHASE CORRECTIONAL FACILITY
Number 560
CHAIRMAN GREEN advised members they would next consider 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."
CHAIRMAN GREEN informed members the bill had been heard before,
public testimony had been taken, and the bill was now before
committee members for discussion purposes. He pointed out that two
amendments had been adopted at the previous meeting, and they would
now consider any other proposed amendments.
REPRESENTATIVE ELDON MULDER, Prime Sponsor of HB 53, pointed out
that he had submitted two amendments for the committee's
consideration. One of the amendments was brought forth by the
department which was purely technical, and the other amendment was
more dramatic, one he felt would address the major concerns
expressed by people in South Anchorage. Representative Mulder
stated, with the indulgence of the Chairman, he would request that
the committee consider that amendment first which was titled "K.40,
Chenoweth, 4/2/97, and explained that it related to the limitation
of location.
REPRESENTATIVE MULDER expressed that he was proposing, through the
wording of the language to provide some security to the folks in
South Anchorage, and throughout Anchorage, that the facility would
not be located in Anchorage, Alaska. The new proposed language
would insert a new section which would read as follows: "*Sec. 6.
GEOGRAPHICAL LIMITATION. The Department of Administration or the
Department of Corrections, as appropriate, may not enter into an
agreement under sec. 3 or 4 of this Act concerning a correctional
facility that is located or to be located within the boundaries of
a municipality having a population of more than 100,000."
Representative Mulder felt that would alleviate the concerns that
had been expressed by the people of Anchorage.
REPRESENTATIVE JAMES moved to adopt Amendment 4, HB 53. There were
objections, and Chairman Green stated that he would object for the
purpose of discussion.
Number 758
REPRESENTATIVE MULDER advised members that he felt it was their
obligation, as legislators, to promote ideas and try to accomplish
the objectives as laid out by constituents. He felt that the
proposal he submitted would address the four major issues, and
major needs confronting the state of Alaska. Representative Mulder
reiterated that the state was in need of additional prisoner bed
space; it was necessary to relieve the jail problem in Anchorage,
a female facility would be necessary at some point in time, and he
would also like to bring the prisoners home from Arizona.
REPRESENTATIVE MULDER noted that initially, a centralized facility
located in the Anchorage area made sense, although it was not
specified in the bill. He expressed that another part of a
legislator's job, once an idea had been laid out, was to listen to
the response of the people. Representative Mulder pointed out that
it had become apparent to him that the people of Anchorage did not
want a new prison, or a new jail, per se. Representative Mulder
felt that was fine, that there were other communities that had
stepped forward and were interested and he would like to be able to
afford that opportunity to those other communities.
Number 813
CHAIRMAN GREEN questioned whether the concept of Amendment 4 had
passed muster as to whether there might be some concern that it
would be prejudicial. He noted that even though the poll may have
indicated that Anchorage did not want the facility, would it be
possible for a judge to deem it prejudicial against one community,
because everyone else in the state would have the right to select
a jail site, but not the municipality of Anchorage.
REPRESENTATIVE MULDER stated that that was a good question;
however, he did not fear that from the practical standpoint of who
would challenge it, given the fact that it was met with such huge
resistance.
REPRESENTATIVE ERIC CROFT expressed that the proposed amendment
went a long way to reassure the members of the committee regarding
that concern; however, he pointed out that the membership of the
committee consisted of six Anchorage representatives, and one from
North Pole. He felt that those members were reassured, although he
would wonder how Representatives Hudson, Elton, Brice, Davies and
Therriault would feel about the proposed new language and
restriction. Representative Croft noted that he did want to see a
solution for the process to take place with public input, but the
bill before members would not allow a facility to be constructed in
Anchorage, Alaska.
Number 934
REPRESENTATIVE MULDER advised members that there had been
resolutions passed by a number of communities. He expressed that
since the whole South Anchorage issue had exploded, people and
communities had been voicing their interest in having a facility
constructed in their localities because they wanted the economic
opportunity and jobs. Representative Mulder advised members that
Seward, Alaska and the Mat-Su Valley had passed resolutions, and
interest had also been expressed by Adak, Alaska, Delta Junction,
Alaska, and folks throughout the state in support of having a
facility built in their respective areas.
REPRESENTATIVE CON BUNDE felt what they were considering might be
a broad axe approach to what might need a scalpel, pointing out
that the proposed amendment would preclude Fire Island, which a
number of people felt could be a possible location for a prison
facility. He noted that it would also limit any private-state
partnership expansion in Eagle River, Alaska, he would assume.
Representative Bunde pointed out that rather than take such a
global approach, why not consider a local site selection apparatus.
REPRESENTATIVE MULDER responded that his reasoning was largely due
to what he felt was a fairly solid and consistent response to the
public. He noted that Eagle River residents were not in favor of
expanding that facility, and were presently resisting the
conversion of a sex offender treatment program facility at Hiland
Mountain to a female facility. Representative Mulder expressed
that he did not believe that necessarily made sense, but the people
were opposed to the conversion of that facility. He advised
members that to expand the Hiland Mountain Correctional Facility it
would require an enlargement of the water capacity, and the
community, basically, had the ability to thwart that effort.
Representative Mulder pointed out there was always a handful of
people that recognized the economic opportunity, but there had been
a hysteria that had convinced him that the better course of action
was, "you can't lead where people don't want to follow". So, he
would like to see the facility constructed where the people wanted
one.
Number 1137
REPRESENTATIVE BRIAN PORTER advised members that he certainly
understood the pressure that some members had been under because of
the proposed legislation, and the concerns that the committee was
attempting to address. He stated that the committee was being
somewhat inconsistent with what he thought was a progressive step
when they said they would not just lay something before the public
without making sure that an entire package was presented to them;
all the facts, in order that the people could make a reasonable
decision. Representative Porter felt that if a dollar sign were
placed on a proposal that would construct a correctional
institution at Adak, Alaska, or Fire Island, that the dollars would
drive them away. He noted that he was not even sure that Delta
Junction, Alaska was a feasible location.
REPRESENTATIVE PORTER felt what was currently before the committee
was, quite frankly, a cop out. He did not see the question on the
survey, noting that he had had some experience in that area and was
very familiar with the NIMBY (Not in My Backyard) syndrome;
however, he believed that it could be overcome with general
education and acknowledgement that the criminal justice system
exists and had to be reckoned with. Representative Porter
expressed that it had to be reckoned with in a monetarily efficient
manner. He pointed out that just the statement that any
neighborhood's crime rate was more affected by its neighbors than
it was by any escaped prisoners, would probably enlighten a number
of people.
REPRESENTATIVE PORTER stated with that, he did not believe it was
the job of the legislature to set the kind of standard as was
proposed through Amendment 4. He advised members that it was
something that the Department of Corrections and individual
communities should work out. Representative Porter informed
members that to that extent, he would resist any amendment that
would put an institution in a community, or prohibits an
institution from being constructed in any given community.
REPRESENTATIVE ETHAN BERKOWITZ advised members he would agree with
Representative Porter. He pointed out that he was concerned with
an amendment that would essentially preclude a given outcome, that
did not go further in defining the process. Representative
Berkowitz stated that as much as he would like to find a way of
saying, "Not in my back yard", he thought it was necessary that it
be accomplished through a process, rather than just bluntly
prohibiting something.
REPRESENTATIVE CROFT pointed out that revised Amendment 3 addressed
some of the concerns that had been raised. The next amendment
related to the geographic limitation, and asked the Chairman in
which order he wanted to consider those.
CHAIRMAN GREEN advised members that Representative Mulder's
amendment had been offered and objected to, and they were now,
basically, in a dilemma of having to set Amendment 4 to the side,
or to go ahead and take a vote on it.
REPRESENTATIVE CROFT moved to table Amendment 4, and offered
Amendment 3 for committee consideration, as a solution to the
situation they now found themselves in. The intent of
Representative Croft's motion was to table Amendment 4 until
members had the opportunity to consider proposed amendment 3.
There being no objection, Amendment 4 was tabled.
CHAIRMAN GREEN pointed out that Amendment 3 was a result of the
subcommittee process and asked if Representative James wanted to
present the amendment as Chairman of the subcommittee, or if she
wished to defer to Representative Croft.
CHAIRMAN GREEN asked that Representative Croft provide a brief
overview of the work accomplished by the subcommittee assigned to
HB 53, and offer the amendment after providing his summary.
REPRESENTATIVE CROFT advised members that the subcommittee
attempted to find a process that the municipalities were used to
which was achievable, and they also addressed Chairman Green's
concern that there be an effective two mile radius which would
allow for an approval process. They addressed Representative
James' concern that there be some type of option on the land price
that would not allow a landowner to hold up the construction of a
facility once approved. Representative Croft advised members that
the subcommittee also addressed his concern that there be, with
those two general guidances, a general process that the
municipalities were used to, and could follow.
REPRESENTATIVE CROFT pointed out that after talking to several
representatives from municipalities, and talking to Sheila Selcraig
[Ph] in Anchorage, Alaska, what he had learned was that they were
very used to conducting special assessment districts. He noted
that they said that that was done all the time. When asked if they
would have a problem if he provided a map and asked for a 2 mile
radius around any given site, for the purpose of asking landowners
for approval, that the response he received was that they did that
sort of thing all the time with very oddly shaped districts to see
if people wanted to pay more taxes for some sort of improvement
assessment. Representative Croft stated that there was always the
question of, did the people in a particular area want to be taxed
for a given improvement. He explained that the process for doing
that, which was set in statute for special improvements, as well as
by ordinance in some municipalities, was one where the affected
landowners, in this case the two mile radius, were given a certain
amount of time to register that they agreed. It would be necessary
for a 51 percent vote to allow for something to happen and if that
percent was reached, the plan would be implemented; if not, it
would not be.
REPRESENTATIVE CROFT pointed out that the amendment included a site
selection process whereby if a site were chosen, it would
effectively implement a special assessment type of election. In
this case, it would first be published and then followed by a
letter asking if the people would agree to a correctional facility
constructed within a given boundary. He reiterated that that
process worked all the time to have people tax themselves if they
so wished. Representative Croft wanted to tie the language as
close to that process as possible, because it had worked and
municipalities were comfortable with the process. He stated that
the only change members of the subcommittee had discussed, with
respect to proposed Amendment 3, was on line 15 of the amendment,
to possibly eliminate the two words "who vote".
CHAIRMAN GREEN advised members he would address that matter.
REPRESENTATIVE CROFT offered Amendment 3. Representative Porter
Objected.
REPRESENTATIVE JAMES pointed out that it was interesting that
Amendment 4, which had just been presented by Representative
Mulder, solved a problem that members had concern with. Now,
without Amendment 4, it was her belief that another problem had
been created through proposed Amendment 3 because it set out a
system that would have to be used everywhere in the state, and
modeled after a system that was practiced in the municipality of
Anchorage. She expressed also that members did not know if other
communities followed the same practice, and there was also the
possibility that a municipality did not exist, which could create
a potential problem. Representative James stated that as happy as
she was with the amendment initially, she now saw some flaws in it.
She noted that the subcommittee had arrived at the amended language
specifically because of Anchorage's concerns, and if members would
consider Amendment 4, the concerns expressed by Anchorage residents
would no longer exist. Representative James now wondered which way
members wanted to address the issue.
Number 1738
CHAIRMAN GREEN pointed out that the amendment only applied to
municipalities, so that would take care of one of Representative
James' concerns. He stated that it seemed to him that whether in
Anchorage, or somewhere else, there should be some right of the
people to voice their opinion of whether they wanted a correctional
facility or not, which was the concept of the proposed Amendment 3.
REPRESENTATIVE PORTER felt that through the discussion on Amendment
3 so far, it touched on the problem of getting into municipal
business at the depth expressed in the amendment that it would
create. He pointed out that if members wanted to be city
councilmen in Seward, or planning zoning commissioners in
Anchorage, they should run for that office. Representative Porter
explained that for members to sit there and say that in the city of
Seward, who already had a resolution stating that they wanted the
new facility, that if the commissioner would have to initiate and
complete a site selection process, and then be required to hold an
election, would amount to what he would consider an unfunded
mandate. He informed members that he was a former member of the
Anchorage Municipal Assembly, and had spent three years coming to
Juneau to approach the legislature asking that things not be done
to the municipality. Representative Porter advised members that
what they were considering was another attempt of trying to solve
a perceived problem in Anchorage. He felt Anchorage should be able
to solve the problem, if there was one.
Number 1821
REPRESENTATIVE BUNDE was also concerned as to who would pay for the
election and the various advertizing costs. He asked if the
developer would be expected to pay those costs. Representative
Bunde pointed out that he had a lot of confidence in the amendment
until Representative Croft started using the analogy of the special
assessment areas and taxes, because he had lost confidence in
Anchorage's ability to follow the law in those special assessment
districts.
CHAIRMAN GREEN returned to the issue of the words "who vote", on
line 15 of proposed Amendment 3, and explained that the thought
process there was that a poor voting turnout could occur, and if it
did not stipulate who voted, you would never, perhaps, get 50
percent of the voters. He expressed that if it was limited to
those who did vote, that at least they could realize 50 percent of
that group. Chairman Green advised members if that would create a
problem, he would support the deletion of those two words.
REPRESENTATIVE JAMES stated that it was always her intention, when
going through the process, that the cost would be born by the
person responding to the RFP, not a financial burden on the
municipality or creating an unfunded mandate.
Number 1936
REPRESENTATIVE CROFT referred to lines 52 and 53 of proposed
Amendment 3, which stated, "the entity making the proposal may, at
the expense of the entity", and explained that it was also his
intention, as well, that it be at the cost of the entity.
REPRESENTATIVE CROFT stated with respect to the second point
brought forth by the Chairman and Representative Bunde, that rather
than a day event, where one would not know how many of people would
show up to vote, that by providing a period of time, as in the case
of a special assessment, for people to reply to the concept put
forth. That process would have a cut-off date, and from that
point, if 51 percent of the people agreed, the project could go
forward.
REPRESENTATIVE CROFT stated with regard to the frustration voiced
regarding municipalities overriding local concerns, that he felt
the amendment reinforced local power to make those decisions. With
respect to Representative Porter's concern, Representative Croft
did not see their mission as solving Anchorage's problem, so much
as writing a public participation process that both was doable, and
had some teeth in it to assure that those places who were begging
for a correctional facility, should have it. He stated that those
areas who were begging not to have a correctional facility
constructed in their vicinity, have the right to voice their
opinion.
Number 2050
CHAIRMAN GREEN pointed out that in places such as Seward, it was
very likely that the facility would be constructed outside the city
limits, and would not be affected by that language in any case.
REPRESENTATIVE PORTER thought one of the things that was necessary
to understand when getting into the types of situations members
were discussing, was the diversity of the state. He pointed out
that when they try, at the state level, to cram some specific
procedure into every municipality and borough, it just would not
fit. Representative Porter expressed that what the amendment
called for, basically, would work great in a small community in New
Hampshire that is used to town meetings to decide everything, but
Anchorage had a population of over a quarter million that had a
nice representative form of government in their municipal assembly,
which was the way they had elected to solve those types of things.
REPRESENTATIVE PORTER pointed out that he could find a person who
would want a prison in Anchorage, just as well as someone could
find a person who did not. He stated that that was not the point,
and reiterated that Anchorage had a system set up to resolve those
issues, even though the legislature might like to interpose its
will on them. Representative Porter did not believe it was proper,
and the only thing that they do when attempting to do that was
create problems in other areas. He advised members that he did not
read the amendment as the entity paying for anything they did not
want to pay for because it states; "the entity making the proposal
may at the expense of the entity contract with the administrator of
the municipality"; it did not say anything about who would fund the
election, but that it consisted of counting ballots.
REPRESENTATIVE PORTER felt what was being considered was something
that started on the wrong premise; that it was a problem that the
legislature should solve, and every time it's attempted to be done
it results in other alternatives that each has a different kind of
problem, which, eventually should bring people to the conclusion
that it was something they should not be doing.
CHAIRMAN GREEN called a brief at ease at 1:45 p.m., and reconvened
the meeting at 2:13 p.m.
REPRESENTATIVE CROFT withdrew Amendment 3, and moved Amendment 3-B.
REPRESENTATIVE PORTER objected for the purpose of explanation.
CHAIRMAN GREEN advised members that Amendment 3-B would remove all
references to a "legal subdivision". He explained that only
becoming aware of the problem that afternoon, that unless the bill
provided for a definition of a legal subdivision, it should not be
used. Chairman Green thought it was a defined term, but finding
otherwise, the language would only refer to a municipality.
REPRESENTATIVE BUNDE pointed out that "legal subdivision" was still
referred on line 15 of Amendment 3-B.
CHAIRMAN GREEN agreed, stating that should have been removed.
REPRESENTATIVE BERKOWITZ offered a friendly amendment to strike [or
legal subdivision] on line 15 of Amendment 3-B.
CHAIRMAN GREEN had no objection to the friendly amendment, and it
was struck from line 15 of Amendment 3-B.
CHAIRMAN GREEN continued explaining the changes and advised members
that on the old Amendment 3, line 14, which referred to
"residential landowners", that there could be a problem in not
allowing people who rent in the area to vote. That language was
then changed to reflect a "majority of the voters".
CHAIRMAN GREEN pointed out that there had been an oversight on line
34 which referred to approval under subsection (f), and it should
have referred to subsection (g), and that was corrected in the new
Amendment 3-B. The only other change reflected in the new proposed
amendment was a change in the wording on the old amendment, line
56, to read "The entity making the proposal shall pay for the cost
to count the ballots". Chairman Green advised members that would
remove the possibility of the municipality having to pay those
costs.
CHAIRMAN GREEN directed members attention to Amendment 3-B, page 2,
line 9, to insert the phrase at the expense of the private entity
after the word "shall". And on line 11, deleted [residential
landowners] and insert voters. Chairman Green asked if the
objection was maintained. Representative Porter maintained his
objection, so a roll call vote was taken. In favor:
Representatives Bunde, James, Croft, Berkowitz and Chairman Green.
Opposed: Representative Porter. Representative Rokeberg was
absent. Amendment 3-B, HB 53, was adopted 5 to 1.
CHAIRMAN GREEN advised members that would bring them back to
Amendment 4, which had earlier been tabled.
REPRESENTATIVE CROFT moved to bring Amendment 4 back before the
committee. There being no objection, Amendment 4 was before
members for consideration.
CHAIRMAN GREEN pointed out that with the concurrence of
Representative Mulder, proposed Amendment 4 had been modified, and
would add a new section which states; the provisions of sections 3,
4 and 6 are not severable, and renumber the following bill sections
accordingly. Chairman Green explained that the intent was to say
that if that particular issue was not held constitutional that it
would not be severed from the rest of the bill. Chairman Green
reiterated that Representative Mulder had no objection to that
amendment.
REPRESENTATIVES PORTER and BUNDE objected. There being objection,
Chairman Green requested a roll call vote: In favor:
Representatives James, Croft and Chairman Green. Opposed:
Representatives Bunde, Porter and Berkowitz. Representative
Rokeberg was absent. Amendment 4 failed adoption by a vote of 3 to
3.
TAPE 97-49, SIDE B
Number 000
CHAIRMAN GREEN advised members that Representative Mulder had
submitted an amendment which would be considered as Amendment 5, HB
53.
REPRESENTATIVE MULDER advised members that proposed Amendment 5
made a small revision which was identified necessary by the
department, and would insert; and the land on which it is located,
on page 5, line 17 following the word "facility". There being no
objection, Amendment 5 was adopted.
REPRESENTATIVE BERKOWITZ moved Amendment 6, HB 53.
REPRESENTATIVE PORTER objected.
CHAIRMAN GREEN called a brief at ease at 2:25, and reconvened the
meeting at 2:27 p.m.
REPRESENTATIVE BERKOWITZ explained that proposed Amendment 6 was an
"unbundling" amendment. He reminded members that as stated by the
Department of Revenue, there was a large, potential fiscal
repercussion relating to state bonding. Representative Berkowitz
advised members that Amendment 6 would divorce the private entity
from the state. He noted that there was a concern that without
that provision the state would not be able to refinance, easily,
the state's debt. Representative Berkowitz noted that Forrest
Browne with the Department of Revenue would be able to further
explain what proposed Amendment 6 would accomplish.
FORREST BROWNE, Debt Manager, Treasury Division, Department of
Revenue, reminded members that in previous testimony the department
had indicated that even if the contract consisted of a straight
lease with a private developer, the financing portion would be
considered by the financial markets and by the bond rating services
as state debt. He explained that if the bill passed and was
enacted it would result in $90 million of additional state debt.
Mr. Browne pointed out that it would affect the state's debt
capacity to do other things, irrespective of whether it was
described as a lease or not. He stated with that premise, the
department had considered the alternatives, and the Department of
Revenue felt they could minimize the cost of that debt, minus the
operations and the construction which would be left to the private
developer, by borrowing the $90 million, and the orderly repayment
of it over the term of the lease could be most efficiently put into
place by the state arranging the debt directly. Mr. Browne pointed
out that the department did not believe any private developer could
go to New York, make presentations to the bond rating services,
plead the case of the state of Alaska's fiscal situation and get
the highest possible bond rating and the lowest cost of capital.
MR. BROWNE stated that because the department knew, through
previous lease financing of the type described, that as interest
rates go down there were opportunities to refinance state debt. He
noted that he was currently in the process of doing that for the
third time with the Spring Creek Correctional Center. Mr. Browne
explained that each time the state refinanced, they save
potentially millions of dollars in interest costs over the balance
of a term. If the state arranged the debt directly they would have
the opportunity, over the 20 year term when interest rates take a
dip, to refinance, just as one would do with their home mortgage.
MR. BROWNE advised members that the third reason for the amendment
involved the area of flexibility. He noted that from time to time
it would be necessary to expand a facility, and subject to
legislative approval if the state controlled the debt, they would
merely go out and add to the debt the monies to expand the
facility, which would preclude having to go "hat in hand" to the
private entity that controlled the mortgage. Mr. Browne added that
whatever rate the private entity should quote for expansion
purposes, the state would have no ability to negotiate. It was the
suggestion of the Department of Revenue that the state pay cash for
the construction, pursuant to whatever bids that came in, and the
same on the operations in order to have control of that debt over
the 20 year term.
CHAIRMAN GREEN asked if that would make it a state owned facility,
rather than a private entity.
MR. BROWNE explained that the structure was, whether it was a
private entity or state financed, that the trustee would hold the
facility for the bond holders as security, pursuant to a deed of
trust until the debt was repaid. He stated that that was
irrespective of whether a private developer arranged the debt for
the state, or the state did it itself. Mr. Browne stated that in
either instance, the trustee would step in an hold it for the term
of the lease.
CHAIRMAN GREEN asked if that would in any way impact the
privatization of the operation the facility.
MR. BROWNE advised members that the financing was neutral to the
construction and the operations, and could be done completely by
the private sector as the bill dictated. The only difference was
that through financing, the payments in either case, would be going
through the trustee.
CHAIRMAN GREEN stated that if change orders were to arise, which
normally did, would the change order be approved by the state or
the private contractor.
MR. BROWNE stated that there would not necessarily be any change.
He explained that whatever the contract called for would be
followed, that the payment from the trustee would be made as soon
as invoices were approved by who ever the approving authority was.
Mr. Browne assumed that if they had a private contractor, that
contractor would assume responsibility for the design,
construction, subcontracts and the approval of the invoices. Those
approvals would go directly to the trustee, the bank, who would
then make disbursements directly to either the contractor,
suppliers or subcontractors.
Number 406
REPRESENTATIVE JAMES advised members that it appeared to her that
Mr. Browne was making an argument as to why the private sector
could not build a prison cheaper than the state.
MR. BROWNE disagreed with Representative James, and further
explained that what the department was saying was that in arranging
the financing the effective interest costs that the state pays
initially, and over the entire term when considering refinancing,
would be less costly to the state than if the state arranged the
debt. Mr. Browne advised members it would not affect the ability
of the department to negotiate, or accept bids on the construction
from a private developer, or the operations from a private
developer. He stated that the only difference was that in one
instance the state would pay cash when the building was completed
and accepted by the Department of Corrections, and in the other
case, the building would be accepted by the state and make payments
to the third parties, which in turn would go to the trustee. In
either case, Mr. Browne explained that the payments would go
directly to the trustee.
REPRESENTATIVE JAMES asked if what Mr. Browne was saying was that
the state wanted to do the bonding and not allow a city, for
example, to do the bonding.
MR. BROWNE stated that in either instance, whether the private
developer arranged the financing, or whether the state arranged the
financing, they would find what was called nominal issuer of the
bonds. The nominal issuer might well be a municipality; if it were
located in the Anchorage area it could be the city of Anchorage,
but did not necessarily have to be the municipality where the
project was geographically located but a municipality within the
state of Alaska that would serve as the nominal issuer. The
nominal issuer of the bonds was a technical requirement to separate
the Department of Administration, that would be signing the lease,
from the issuer of record. In any case, whoever was selected for
that would show up at the closing and would have the lease in their
possession for about 5 minutes before they signed the documents and
then everything would be turned over to the trustee as a protector
for the bond holder.
MR. BROWNE advised members that in that instance, they would most
likely select a local municipality to be the nominal issuer, which
was not really the gist of what the department was suggesting. He
stated that what the department was suggesting was to allow the
state to make the financial arrangements, rather than the private
developer, because it was felt there would be financial advantages
that truly should accrue to the state because it was the state's
credit. Mr. Browne pointed out that the Department of Revenue was
in the business of refinancing state debt from time to time, and
might as well do it in this instance as the situations become
favorable sometime in the future. He noted that that would surely
occur; however, he could not say when interest rates would dip, but
knew within a 20 year period, there would be times in which
refinancing could happen. Mr. Browne advised members that the
department felt it should be pursued aggressively and that the
savings should accrue to the state.
REPRESENTATIVE JAMES asked if the language would give the state the
authority to bond for any amount of money, or if there was a
restriction on the amount that could be spent on the proposed
facility.
MR. BROWNE advised members that there was a $90 million total
project cost, which was identical language as was in the original
bill. He noted that the state would finance less than that amount
if the bids came in lower, but could not issue bonds in excess of
that amount without legislative approval.
CHAIRMAN GREEN asked if the arrangement, as proposed by the
Department of Revenue, would restrict the private entity's ability
to draw against the bid amount because the state would be paying
cash upon completion and acceptance of the facility.
MR. BROWNE advised members that he believed he would be involved in
the process and would suggest that the state fund on a progress
payment basis because there was no cheaper money on the 4 percent,
or 5 percent tax free money the state might be able to obtain if
the state did it directly.
Number 670
REPRESENTATIVE PORTER pointed out that the only difference he could
see, in a practical application, was if the entity got their own
financing he would agree that the state would be on the hook to
underwrite the financing, but asked if the private entity would
have the ability to take all the money up front, if they chose, as
opposed to payment by the state in phases.
MR. BROWNE stated that he would think in either case, the RFP and
the resulting construction contract would call for progress
payments of approximately 90 percent of the work that was done.
Also, monthly inspections would take place by a third party to
ensure that the work was in place, as well as the performance bonds
and payment bonds required in the contract.
MR. BROWNE advised members that one of the concerns the department
had when they were tracking through the mechanics of how they would
evaluate an RFP, was if different entities came in with different
lease terms, how could the state figure out which was the better
deal. With Amendment 6, they would be evaluating the lump sum
construction amount that the private developer had designed and
come up with, and then whatever the annual or periodic payments
were for the operation of the facility. This would allow everyone
to be on a level playing field, with the state paying cash as the
project moved forward.
Number 762
REPRESENTATIVE BUNDE asked if what Mr. Browne was saying was that
the department was doubtful that a private entity could build a
prison as cheaply as the state might want to purchase it.
MR. BROWNE advised members that he was convinced that the private
enterprise could figure out a way to finance the project, and would
never suggest otherwise. However, his point on the financing end
was that there was no one who could do it more efficiently than the
state itself, and the state should reserve the financing for itself
because it was state debt, and over the long term had the potential
to save many millions of dollars.
REPRESENTATIVE BUNDE asked if by stating "efficiently" meant less
expensively.
MR. BROWNE agreed with that.
CHAIRMAN GREEN asked that Mr. Browne, or Representative Berkowitz
walk the committee through the contents of proposed Amendment 6.
Number 872
MR. BROWNE advised members that what he had done, because the bond
counsel's language was so extensive, was mark a copy of the
original bill with the changes that would result with the adoption
of proposed Amendment 6.
MR. BROWNE referred to page 1, line 8, and advised members that by
giving notice, authorizing and approving the lease agreement, it
would be pursuant to the bonding statute. He explained that the
state would need to provide notice of such financing in
legislation.
MR. BROWNE explained that the next change on line 10, would delete
the words [construction and], and insert; construction of a
correctional facility, authorizing an agreement for the, which
would unbundle the construction and operation of the facility from
the lease purchase agreement. Mr. Browne asked that members keep
in mind that the lease purchase agreement was the financing
instrument. He stated that under the constitutional limitation of
state debt, they could not say they would incur debt, but could say
they could enter into a long term lease agreement and then the
Certificates of Participation was a technical term of what sold to
the bond holders on a tax exempt basis. That would result in each
bond holder getting a fractional share of the state's semi-annual
lease payment that was made to the trustee which would become tax
free income, if structured correctly.
Number 1047
REPRESENTATIVE BUNDE expressed his appreciation of the explanation
provided by Mr. Browne; however, advised members that he would be
more comfortable if members had a committee substitute before them
that would reflect all the changes proposed by Amendment 6.
CHAIRMAN GREEN asked if Representative Bunde was suggesting that
the amendments that had passed, as well as proposed Amendment 6, be
incorporated into a new draft committee substitute prior to
adopting Amendment 6.
REPRESENTATIVE PORTER stated with that, he would consent to a
general description as to what Amendment 6 would do, rather than a
line by line explanation.
Number 1119
CHAIRMAN GREEN called a brief at ease at 2:49 p.m., and reconvened
the meeting at 2:58 p.m.
Due to a taping malfunction, the remainder of the meeting was not
recorded; however, the following is a synopsis of what occurred.
CHAIRMAN GREEN pointed out that because Amendments 6 and 7 related
to the financing aspects of the bill, it would be his suggestion to
incorporate the amendments already passed by the House Judiciary
Committee into a new committee substitute. They could then forward
proposed Amendments 6 and 7, with the House Judiciary Committee
Substitute, to the House Finance Committee with a recommendation
that they be incorporated into CSHB 53 (JUD).
REPRESENTATIVE JAMES, with that recommendation, moved to report
CSHB 53 (JUD) out of committee with individual recommendations and
attached fiscal notes, as well as notice to the House Finance
Committee that the House Judiciary Committee would recommend
adoption of amendments 6 and 7.
REPRESENTATIVE CROFT objected.
CHAIRMAN GREEN requested a roll call vote. In favor:
Representatives Bunde, Porter, James and Chairman Green. Opposed:
Representatives Croft and Berkowitz. CSHB 53(JUD) was reported out
of committee by a vote of 4 to 2.
ADJOURNMENT
CHAIRMAN GREEN adjourned the House Judiciary Standing Committee
meeting at 3:03 p.m.
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