Legislature(1997 - 1998)
03/12/1997 01:00 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
March 12, 1997
1:00 p.m.
MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Con Bunde, Vice Chairman
Representative Norman Rokeberg
Representative Brian Porter
Representative Jeannette James
Representative Eric Croft
Representative Ethan Berkowitz
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
* HOUSE BILL NO. 150
"An Act giving notice of and approving a lease-purchase agreement
with the City of Seward for the construction and operation of an
addition to the Spring Creek Correctional Center, and setting
conditions and limitations on the facility's construction and
operation."
- 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."
- HEARD AND HELD
HOUSE BILL NO. 131
"An Act providing for an advisory vote on the issue of capital
punishment."
- BILL HEARING POSTPONED
(* First public hearing)
PREVIOUS ACTION
BILL: HB 150
SHORT TITLE: LEASE-PURCHASE SPRING CREEK CORRECTIONAL
SPONSOR(S): REPRESENTATIVE(S) DAVIS
JRN-DATE JRN-PG ACTION
02/19/97 399 (H) READ THE FIRST TIME - REFERRAL(S)
02/19/97 399 (H) JUDICIARY, FINANCE
03/12/97 (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
02/19/97 406 (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
WITNESS REGISTER
REPRESENTATIVE GARY DAVIS
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99801
Telephone: (907) 465-2693
POSITION STATEMENT: Sponsor of HB 150
LOUIS BENCARDINO, Mayor
City of Seward
P.O. Box 167
Seward, Alaska 99664
Telephone: (907) 224-3331
POSITION STATEMENT: Testified on HB 150
RON GARZINI, City Manager
City of Seward
P.O. Box 167
Seward, Alaska 99664
Telephone: (907) 224-3331
POSITION STATEMENT: Testified on HB 150
JOAN BENNETT-SCHRADER, Representative
Coalition of Labor Union Workers-Mt. Redoubt Alaska Chapter
P.O. Box 1587
Kenai, Alaska 99611
Telephone: (907) 283-4359
POSITION STATEMENT: Testified on HB 150
FORREST BROWNE, Debt Manager
Treasury Division
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811-0405
Telephone: (907) 465-3750
POSITION STATEMENT: Testified on HB 150 and HB 53
MARGOT KNUTH, Assistant Attorney General
Central Office
Criminal Division
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
Telephone: (907) 465-4338
POSITION STATEMENT: Testified on HB 150 and HB 53
KATHRYN THOMAS, Chair
Alaska State Chamber of Commerce
217 Second Street, Number 201
Juneau, Alaska 99801
Telephone: (907) 586-2323
POSITION STATEMENT: Testified in support of HB 53
ACTION NARRATIVE
TAPE 97-37, SIDE A
Number 0000
CHAIRMAN JOE GREEN called the House Judiciary Standing Committee
meeting to order at 1:07 p.m. Members present at the call to order
were Representatives Green, Bunde, Porter, Rokeberg, James, Croft
and Berkowitz. This meeting was teleconferenced to Kenai, Mat-Su,
Anchorage and Seward
HB 150 - LEASE-PURCHASE SPRING CREEK CORRECTIONAL
Number 0010
CHAIRMAN GREEN announced the first item on the agenda, HB 150, "An
Act giving notice of and approving a lease-purchase agreement with
the City of Seward for the construction and operation of an
addition to the Spring Creek Correctional Center, and setting
conditions and limitations on the facility's construction and
operation."
Number 0070
REPRESENTATIVE GARY DAVIS, Sponsor of HB 150, said this bill
authorizes a lease purchase between the state and the city of
Seward which will expand the Spring Creek Correctional Facility.
This facility is the only maximum security prison in the state of
Alaska and was designed with this expansion in mind. With the
conditions of the prison system; the overcrowding, the contracting
to send prisoners to Arizona and other legislation in front of the
committee about the prison system, there is no question about the
need to support additional prison space in the state. It is his
understanding that this expansion does not create any competition
with any private proposals, as there are no private proposals which
address maximum security. There are probably some prisoners
classified as close, who are in Spring Creek and possibly in other
facilities. It was his understanding that HB 150 was not a
competitive proposal.
REPRESENTATIVE DAVIS estimated a $25 million cost for the
expansion. The Department of Corrections (DOC) provided higher
numbers, this is a negotiable item. There have been cost estimates
put together by companies with whom the city of Seward feels
comfortable.
Number 0320
REPRESENTATIVE ERIC CROFT asked how many additional beds this
expansion would provide.
REPRESENTATIVE DAVIS answered that it would be 250 beds.
REPRESENTATIVE CROFT asked if the community was supportive of
having this facility.
REPRESENTATIVE DAVIS said the city was supportive of this
expansion. He referred to attempts to build prisons and half-way
houses in various communities with little success because of the
lack of community support or community antagonism.
REPRESENTATIVE CROFT stated the cost for this expansion was a cost
of around $100,000 per bed, a figure that is lower than some of the
costs he has seen. He asked why that cost was so competitive.
REPRESENTATIVE DAVIS referred that question to the witnesses from
Seward.
Number 0486
LOUIS BENCARDINO, Mayor, City of Seward, referred to a packet of
information located in the committee file. In the packet was a
resolution passed by the city council of Seward in favor of this
project, the vote was unanimous. The council and the community
were very supportive of this project. No one has complained about
not wanting this expansion. The current facility is located across
the bay, in back of the mountains and he felt that this was one of
the reasons why people were in favor of the expansion. The prison
is located in an industrial area. They felt, that in the future,
this facility could be more aggressive in having projects for the
prisoners. More could be done to keep those prisoners busy.
MR. BENCARDINO said there is a good working relationship with the
prison guards and other members of the community. There was
concern about whether or not there would be additional room if more
guards came to live in Seward, but he said this was not a problem.
There are several subdivisions, some of which have just begun to
house these people. There is a fair sized subdivision right in the
middle of Seward which the city is willing to help put together to
make it available. Thirty homes are on the market in Seward around
the $100,000 to $130,000 price range.
MR. BENCARDINO stated that the city of Seward could meet the market
if this facility is expanded. Prison employees have and are
currently working on planning and zoning committees. He thought
the DOC has placed more emphasis on hiring locally. There was a
problem when people from other parts of the state took jobs in
Seward with the intention that they could be transferred after a
year. When this didn't happen, some employees became unhappy.
When the prison was opened, Anchorage went through a big slump and
so some of these employees couldn't sell their house, they couldn't
move without a loss. Currently 70 percent of the employees live in
Seward. Modifications could be made to help with this issue. This
facility can be built without overruns because Seward wants it to
be built.
Number 0798
RON GARZINI, City Manager, City of Seward, discussed the
differences in the building techniques and where the money would
come from for the expansion. In 1984, the city was a conduit
financier. The city entered into a lease with the state of Alaska,
Department of Administration, for a certain number of beds which
were authorized by the legislature. The city went forward with the
financing, but part of this financing was a transfer of
responsibility agreement with the state Department of
Transportation and Public Facilities (DOT/PF). The city received
the money, previously appropriated by the legislature, did the
financing, accumulated a pot of money and then transferred the
responsibility back to DOT/PF. He expressed frustration at being
criticized for the construction project when, as far as he was
concerned, the city did not have the project for more than ten
seconds. Their role was a signature in order to receive the money,
and a signature for transferring the responsibilities.
MR. GARZINI stated that the project was designed by an engineering
firm headquartered and operated out of Bellevue, Washington. The
project was built a foot and a half too low, when it rains the
ground gets wet and there is a standing sheet water. If this
facility is expanded, it will be elevated at least a foot and a
half. He expressed frustration at some of the problems he had when
working with state agencies. He was able to get some assistance
from Governor Sheffield, who set up a liaison who was responsible
for coordinating all the factors of the project. It was initiated
by DOT/PF, upon review by the DOC. Once the documents were signed,
the trustees released the money to pay the contractors. He said
his sole role was to oversee that the budget was maintained.
MR. GARZINI explained that the city of Seward would like a single
point of contact. He suggested doing a true lease, as if the state
were leasing from the private sector. He said, instead of
reverting it back to DOT/PF to build, he would rather provide for
DOT/PF oversight on the job, provide for DOC oversight, provide for
a review from the Department of Revenue (DOR) which they want in
the lease document. If the DOR wanted to hire the underwriter to
raise the money, he questioned who would care. The only thing he
wanted to do was to have the city's financial advisor provide
advice to the council on whether or not it is a good deal for the
city.
MR. GARZINI said, in terms of DOT/PF oversight, they should be able
to review the design, make sure that what the state is getting is
appropriate and even co-sign the money being released. He did not
think that DOT/PF needed to be in charge of the project. In
discussions with Commissioner Perkins, he did not seem opposed to
this suggestion.
MR. GARZINI went to a private contractor, the contractors who are
building another project in Seward, who are credible. They quoted
an estimate for $20 million for 200 beds, which he totaled to $25
million for 250 beds. Fortunately, Spring Creek was supposed to be
doubled in size. The price is good, but there are probably a few
other costs in response to concerns about the kitchen capacity. If
the legislature allows this project to happen, a bigger budget
could be created but suggested that a tight control be maintained
on what costs will be allowed. The city will administer the
project with DOT/PF and the DOC.
MR. GARZINI did not feel this was a high tech building. He
presented the figure of $26.7 million. The one mistake he made was
that there was capitalized interest during construction. The city
borrows the money and has to start making payments before it is
occupied. An estimate has been given on that cost. If the city
borrows $25 million, there would be $23,480,000 available, by their
best estimate, for construction. It would give the state
approximately 230 beds. As you go forward with the finance
committee and look at the number of beds you want, the city feels
that it could be done for about a $100,000 a bed if there are no
variations from the plan of just providing bed space. If the state
wants to put money into the infrastructure; improve the gym or
kitchen, a limit needs to be stated and then the city would
administer it.
MR. GARZINI said there is a degree of risk to the city, but he was
willing to build it in such a way that the city council would
accept the risk. The city would design it, get financing, bid the
project, get a qualified contractor to give a firm bid and then the
city would close the financing. He wouldn't close the financing or
even seek to close the financing until the bid was in hand, against
an approved design and an assessment of risk. If the assessment
stated there was minimal risk, the contract would be awarded. This
is how it was handled last time. There was a contingency built in
for changes, should they occur. He did not see a great deal of
risk if this project is done right.
Number 1230
CHAIRMAN GREEN asked if this expansion would be a mirror image to
what is there.
MR. GARZINI referred to the packet of information with a picture of
the existing Spring Creek Correctional Facility. They are
proposing an expansion of the remaining bedroom units.
CHAIRMAN GREEN asked if 250 beds was the upper limit. He wondered
if 300 beds could be built for $30 million.
MR. GARZINI said this question could be worked out between the city
and the DOC. Spring Creek was built with 750 beds in mind; 375
beds were originally built and there are currently 450 beds in the
existing facility. The upper rows of the facility are double
bunked. This expansion talks about single bedroom units costing
about $100,000. The DOC could always add more beds, provided that
they didn't get into Cleary problems. He said this is a dialogue
that should occur between the legislature and the DOC, with
eventual discussions with the city of Seward if they become the
agent to build this expansion.
CHAIRMAN GREEN asked how long this project would take.
MR. GARZINI said he would like the legislature to think about
putting a timetable in HB 150. One of the things that happened
during the initial construction was that when the Administration
said to move on this, the project got done. The executive branch
and the city can move quickly if there is a timetable. He added
that these are dollars which could stay in the state.
CHAIRMAN GREEN asked if there had been discussions with
Commissioner Pugh. In earlier testimony, she said there is an
ideal size for a facility and that once you got beyond it problems
with the inmates are created. He asked if the expansion would
create the sort of problems she suggested.
Number 1386
MR. GARZINI deferred the question to the commissioner. He said, in
terms of the community, a 750 bed facility was not a problem.
Completing Spring Creek Correctional Facility was an issue that was
favored by the city of Seward.
Number 1422
REPRESENTATIVE JEANNETTE JAMES referred to the fact that only one-
third of the facility had been built and looking at the picture she
did not see how another wing could be built.
MR. GARZINI said one picture shows the site plan, and another
picture shows what has been built. The prison site acreage is
exceedingly large.
REPRESENTATIVE JAMES asked if the reason for the small unit price
was because it was an expansion, not construction of a total
facility.
MR. GARZINI confirmed this. He said there was a gymnasium,
counseling areas, administrative quarters, fencing, parking,
heating systems, etc., which would be cost factors if you were
starting from scratch. The sewer treatment plant was built
oversized; it was designed for 1,600 people. The water tank was
put on the other side of the facility, above it, so an additional
water infrastructure wouldn't be needed. The power facilities were
right there. Renovations might need to be done, but the bedroom
units are all that the city feels would be essential.
Number 1530
CHAIRMAN GREEN said the cost is half of what another estimate was.
The thought was that the city was either bidding low, thinking low
or else these ancillary facilities would cost another $100,000 a
bed.
MR. GARZINI answered, in a nutshell, that he gave the contractor
the detailed bid documents. The contractor gave them back the
price, for maximum security bedroom units. This expansion could be
built cheaper, but not for maximum security prisoners. As long as
you don't build a lot of infrastructure or load up with a lot of
overhead, the city was prepared to only charge for his time and the
city engineer's time to put this together.
CHAIRMAN GREEN compared this bid with other indications which were
quite a bit higher; those other facility estimates were for a stand
alone facility.
MR. GARZINI said a new, stand alone facility would have to pay for
water, sewer, access, recreational facilities, et cetera.
CHAIRMAN GREEN asked if those additional things would total another
$100,000. Would it be $200,000 for a stand alone facility or would
it be a different figure.
MR. GARZINI said he did not price anything outside the existing
facility. He did accept the fact that there might need to be some
changes.
Number 1635
REPRESENTATIVE CON BUNDE alluded to the sheet water problem. He
asked if this area was the best place to build.
MR. GARZINI answered that if this is a concern of the legislature,
he would provide a registered hydrologist statement that the site
was secure and safe, prior to getting financing. There are two
problems with the water. The first is the sheet water, the
facility was built too low and the second one is the Fourth of July
Creek. As city manager, he is obligated to secure the creek
because of the shipyard and the dock which employees about 200
employees in the fish processing industry. In discussions with the
city engineer, the amount of money needed to secure the creek would
be $400,000. This money would prepare a complete mining plan,
clean the creek out and rip rap it, build finger dikes to train the
river back. The creek needs to be dealt with.
REPRESENTATIVE BUNDE suggested that $400,000 would just begin the
environmental impact statement.
MR. GARZINI explained that there are no fish in the creek.
REPRESENTATIVE BUNDE asked, if the factors remained the same, how
many additional state employees would be employed by the expansion.
MR. GARZINI clarified that the state is exporting close to 250
inmates, who are being incarcerated down south. He did not view
the operating costs for these beds as a great new increment because
the state is already paying it. There will be some state employees
involved and referred to information presented by the DOC. The
cost might be greater than shipping them outside the state, but it
shouldn't be much greater. The capital costs are being kept down,
for the most part you would only have to add guards. The
infrastructure is there physically and administratively. The
number 250 was picked because it was the number of inmates being
sent down to the Lower 48.
Number 1795
REPRESENTATIVE NORMAN ROKEBERG referred to cost estimates from the
DOC for the operations. He calculated that given this bill and the
fiscal note from the Department of Corrections it would cost $112
a day to house a prisoner.
MR. GARZINI said this amount seemed high.
REPRESENTATIVE ROKEBERG said he took the numbers out of the bill
packet; $7.483 million to operate it and $2.702 million for the
debt service which is the maximum on the bill itself. He referred
to a letter by the superintendent of Spring Creek Correctional
Facility about his feeling that operating the facility could cost,
on a per day basis, $52 dollars.
MR. GARZINI had the finance director take the $20 million estimate
to construct which the contractor, Strand-Hunt, gave the city and
added it to the estimated cost by the superintendent of Spring
Creek. The superintendent talked about the cost of the new
increment, which is different than the numbers to which
Representative Rokeberg referred. The numbers Representative
Rokeberg took used the total facility and the total cost and
blended them into a number. The new increment might be a few
dollars different, it would take the cost per bed capital, the
number of prisoners, and the new increment of guards which adds up
to a $50 to $60 price. He said the increment of addition is
probably $60 per bed per day. Blending these costs into the
hundred that you are paying now should be less than $112. He was
attacking the price of the exported prisoners which he thought was
$80 a bed per day.
REPRESENTATIVE ROKEBERG stated that when it costs $10.185 million
a year to operate the new increment, that is what it costs. An
argument could be made that Alaska is exporting jobs; even with the
$59 a day, adjusted up to $62 a day for the Arizona Correction
Corporation of America (ACCA) contract.
Number 1965
MR. GARZINI said the $2.7 million covered against the 250 new
prisoners with the staff increment, as described, combined to a $60
rate. If you blend this cost into the total facility, you get a
higher number. The number of beds that was attempted was the
number of exported prisoners. The city believed that they could
come very close to the exported price with this expansion. He said
it was hard for him to imagine that a $7 million operating
increment was needed to serve 250 new prisoners.
CHAIRMAN GREEN said he was going to stop this discussion because
there was not any substantiated figures from the person who devised
the fiscal note. This figure might be a projection from what they
are spending now.
REPRESENTATIVE ROKEBERG suggested that Mr. Garzini needed an
opportunity to look at the fiscal note.
JOAN BENNETT-SCHRADER, Representative, Coalition of Labor Union
Workers-Mt. Redoubt Alaska Chapter, had a couple of questions. She
referred to Section 1 and said it mentions the construction and
operation of a correctional facility. This would mean an expansion
at Spring Creek. The first question was; what does the city of
Seward operate in the facility or how does the city put the
operations out to bid. The second question was; if operations are
put out to bid, if the city of Seward would privatize. The third
question was; should the city privatize, where is the hold harmless
clause for the state of Alaska.
MS. BENNETT-SCHRADER said there did not seem to be any mention in
the list of limitations on how the operations would be governed.
Aside from that concern, she believed the communities were fully in
support of an addition to the existing prison.
Number 2103
REPRESENTATIVE DAVIS said the intent is to expand the Spring Creek
facility and its operations as it is currently operated. The
intent is a state run prison, no privatization. As soon as the
addition is built, the state would control and operate the facility
under lease.
Number 2127
FORREST BROWNE, Debt Manager, Treasury Division, Department of
Revenue, said there is some confusion on lease financing. The
division looks at any lease, such as the one proposed, as state
debt. The DOR is always going to look at minimizing state debt.
He suggested that the bill, essentially, did not specify who would
be the nominal issuer of the state debt. The city of Seward is
specified in HB 150. The division thinks this would give the state
bond committee maximum flexibility to get the most cost effective
financing possible.
MR. BROWNE said typically, if the city is specified and the state
is required to use that structure, there are not the advantages of
scale. The state can't package this financing with other financing
which might occur at the same time this financing is going through.
The national financial markets respond well to relatively large
packages. Frankly, some of the lease financing which is being
looked at are small, so the per unit cost of issuance becomes very,
very high.
MR. BROWNE said, secondly, the city would plan to hire a financial
advisor in this transaction. The state has a financial advisor,
the state has bond counsel and oftentimes the city would want to
have their own counsel. In effect there is a doubling up of
financing expenses. Those are some suggestions the DOR would make
if flexibility was given through the state bond committee in the
final structure of this debt, which would minimize the interest
cost of debt and the cost of issuance in the future.
MR. BROWNE said, currently, this facility has about $31 million of
debt. Several weeks ago, when interest rates dipped, the division
was in the process of starting a refinancing. The DOR is
constantly in touch with the national financial markets. When
rates come down, the DOR sees an opportunity to refinance, it has
been able to do this over the years without legislative approval as
long as the operating cost can be reduced.
MR. BROWNE recommended that the possibility of refinancing be
linked with the new financing, so that if the DOR goes to market
they wouldn't be limited to seeking financing for $25 million. The
DOR might be able to combine financing and go to market for $56
million which would allow them to appeal to a broader market of
national investment bankers who would bid on this financing. It
would also allow one set cost of issuance. These suggestions could
accomplish the goals of HB 150 and yet give DOR the flexibility to
minimize future costs over the next 18 years.
Number 2261
CHAIRMAN GREEN said, by combining this through the state and
reducing the total package, it might be more beneficial than for
the city to seek financing from some other institution.
MR. BROWNE answered that it could be to the state's benefit if a
reference is made in the bill to the possibility that we might have
to refinance. It gives DOR the ability to refinance one package.
CHAIRMAN GREEN said if the city is going to seek financing other
than through the state, then an analysis would have to be made to
figure out where it works most advantageously.
MR. BROWNE did not believe the city of Seward was seeking financing
outside of the state. This financing would be done based on the
state's credit, so, in a sense it is state debt. The DOR is
suggesting that if the legislature is not tied to doing it
specifically with the city of Seward, the DOR may package the
financing with the approved facility in Palmer at the airport. It
might be possible to combine these facilities together if the
timing is right. The DOR wouldn't slow down the progress, but it
would give them more flexibility. Flexibility can result in lower
financing cost.
CHAIRMAN GREEN said he was not aware that they would not be able to
finance.
Number 2320
REPRESENTATIVE JAMES referred to the city's experience on the
construction of the original facility when they had no actual
control over the project, yet the city has been blamed for some of
the things that have gone wrong with the facility. If this
expansion happens and the bonding would be done through the DOR,
she asked what kind of a guarantee would the city have that there
would be sufficient control over the construction of the facility
to avoid future blame.
MR. BROWNE said the DOR is only interested in the financing part of
this expansion. It doesn't matter to them whether the city had the
construction contract, it went through DOT/PF or a third party
private vendor. Because the DOR is signing the lease they would
like to be the ones who go to the bond rating services, the
underwriter, put it together and then have the ability either to
package it with other financing, and to refinance it without having
to get a city council resolution. Sometimes in the financial
markets, the ability to move quickly can save a considerable amount
of money. This is the only aspect of the bill that DOR is
interested in, so it should not impact who would be the
construction supervisor.
Number 2386
REPRESENTATIVE ROKEBERG asked if the due convenience of the
existing obligation allowed a separate type of financing for any
potential expansion. He asked if it was possible for the city of
Seward to finance the expansion without taking into account the
existing obligation.
MR. BROWNE answered that it might be possible, but you would have
to legally define the area. To the extent that they share common
offices, gymnasiums, or rest areas would be complicated if they
were to have two separate financing agreements. This is another
reason why DOR felt having the flexibility to package the
financing, do the refinancing as well as the new financing might
simplify the legal complications having to do with creating a
security interest for the bond holders, separate from the security
interest of those who bought the bonds eight years ago in the
original financing.
REPRESENTATIVE ROKEBERG asked about that particular serial, what
are the coupon rates and the longest maturities and how much does
DOR think they could save on a refinancing.
MR. BROWNE said DOR has about nine years to go on the previous
financing. The rates, about three weeks ago, were about 62 basis
points, that is .6 percent per year over the market rate at that
time three weeks ago. He did a present value calculation which
included the extra cost of issuance of issuing another $31 million
and paying off the old bond holders with the net savings to the
state at approximately $1.1 million. This figure changes from time
to time. He added that, in his example, he could not have moved
quickly because there would have been another municipality
involved. If the future structure is the one DOR is proposing
where the state controls the financing, then when DOR sees an
opportunity sometime down the road when interest rates dip they
might be able to maximize those savings.
TAPE 97-37, SIDE B
Number 0000
REPRESENTATIVE BRIAN PORTER asked if DOR could provide language.
MR. BROWNE said they would come up with language and then work with
the sponsor regarding that language. They tried, on each line, to
indicate what their counsel suggested would be the minor changes
which would facilitate the financing at the best cost.
Number 0021
REPRESENTATIVE ETHAN BERKOWITZ referred to the comment by Mr.
Browne about the beneficial results of state control in terms of
the bond rating and asked him to explain this a little more.
MR. BROWNE provided an example, last week the housing finance
authority received a triple A rating from Standard and Poor's.
Very few people know that this was a result of careful discussions,
analysis and projections given to those bond rating services by a
combination of the state and that particular agency. If the DOR is
careless and if they delegate to other people, the responsibility
which he felt the state has, to represent its financial condition
to the financial community, the state runs the risk that their
condition is not conveyed in the most positive manner. This would
be an additional reason why the DOR would like the state to be
involved. Because it is state debt, the state is paying the bills
and would suffer the consequences. In this proposed language
change, this debt would be considered as all other state debt.
When the state is in talking to the bond rating services or when
investment bankers come to Juneau, the DOR would talk to them about
this project as well as others that are going; General Obligations
(GO) bonds, other lease financing, international airport, housing
authority, Alaska Industrial Development and Export Authority
(AIDEA), and so forth. This expansion project would become a part
of the state's overall debt management program which they are
trying to do on a professional basis to minimize the cost.
Number 0096
REPRESENTATIVE BERKOWITZ said, as he understood it, the impact here
is a $25 million obligation. He asked if it was subsumed within
the state obligation whether it would be minimal overall. Whereas
if Seward or some other entity would do it then there could be
major consequences.
Number 0115
MR. BROWNE said DOR is not saying that Seward could not do this
financing efficiently, they certainly could do it. The DOR is
saying that if they had the flexibility, either to do it through
Seward or through some other nominal issuer, combine it with the
refinancing or perhaps combine this one with other financing that
DOR would be doing around the same time, these things might result
in some efficiencies. They did not suggest that Seward couldn't do
this particular financing fairly efficiently. He referred to the
physical segregation of the security interest, there has to be
legal definition. He felt this could be troublesome to the extent
that you had some common areas that both groups of bond holders
would want to have a security interest in. It could be done in the
manner proposed, but DOR feels they have a better way of doing it
which in the long run could save the state considerable money and
could give them future flexibility.
Number 0163
REPRESENTATIVE BERKOWITZ asked if Seward were to issue the bond
itself, would it impact the state bond rating.
MR. BROWNE said Seward would issue the bonds only through the
state's credit, which would affect the state's bond rating. It
would be part of the state's overall debt capacity, it would get
into the ratios and the formulas. The city of Seward would not
have a national credit rating to issue these bonds on their own.
In a sense it is state debt even though it is referred to as a
lease. The word lease is a bit of a misnomer. It was a developed
technique so that states don't have to go to the voters to get
approval to incur debt. From a constitutional standpoint it is not
considered debt, but most people in the business, who work with
this every day, consider it debt as a practical matter in terms of
the bond rating, debt capacity and those sort of things.
Number 0222
MARGOT KNUTH, Assistant Attorney General, Central Office, Criminal
Division, Department of Law, said she is working with the
Department of Corrections on some of their expansion initiatives.
Alaska has expansion needs in several areas and in different
custody levels. The most urgent need is medium security beds. To
that extent the Spring Creek project, although definitely on the
list for expansion, was further down the state's list of
priorities. The community of Seward's enthusiasm for the project
has brought this project up to the point where it is a part of the
discussion of the state's whole plan.
MS. KNUTH did not think it was realistic to expect to bring back
anyone from Arizona with this expansion because Alaska is so far
behind in prison construction that new people would be put in those
beds. This expansion could slow the export of prisoners to
Arizona. The state is about 260 prisoners a year behind in space.
Of that number, 60 prisoners are appropriate for halfway houses,
community correctional centers and 200 of that number are
appropriate for hard beds.
MS. KNUTH said there needs to be a discussion about what needs to
be done to get another 250 prisoners to Spring Creek. The state
feels that more needs to be done to the infrastructure than the
city of Seward is contemplating. Initially the facility was built
for a population of 250, or less than 250 prisoners, with the
thought of doubling that number. The infrastructure was built for
approximately 500 prisoners. The doubling of the number happened
through double bunking, so there is not the structure for the
additional beds. The land is vacant, but the additional prisoners
are already there. The facility is overcapacity.
MS. KNUTH said there are some things which do not need to be built,
but some things would need to be expanded such as the kitchen
facilities. Discussions would determine what things need to be
expanded. If this prison expansion is part of a package of
bringing more prison beds to Alaska, the DOC is interested in the
issue and in participating in conversations about it.
Number 0376
CHAIRMAN GREEN suggested that some of those overcrowded prisoners
could transfer over. If it is a higher security prison, transfers
could be made so that other prisoners could go to less secure
prisons.
MS. KNUTH said this was correct.
REPRESENTATIVE ROKEBERG asked if there was a prison expansion plan
in the state. He asked if there was anything in writing.
MS. KNUTH brought a chart and an abridged version of the plan.
Number 0444
REPRESENTATIVE JAMES referred to the problems in other communities
and asked if there was any other community that has an existing
facility and has come forward and asked for an expansion.
MS. KNUTH said yes, there are several including Palmer. Palmer is
where the state would get the most beds for the dollars because
their infrastructure is underutilized now and was built
specifically for an expansion. In Bethel, the Yukon-Kuskokwim
facility wants and needs expansion. MatSu pretrial is another
facility where the community is interested in having this happen.
She said the Fairbanks facility needs an expansion, but that
community has not come forward in the same way that other
communities have, which makes it lower on the list. Highland
Mountain is another one which is high on the state's list, but that
community specifically does not want a greater number of prisoners.
There are different levels of enthusiasm and non-reception
throughout the state.
REPRESENTATIVE JAMES mentioned that she never brought up Anchorage.
Number 0550
MS. KNUTH answered that the municipality feels there is a need to
replace the Sixth Avenue jail.
REPRESENTATIVE ROKEBERG said the needs for facilities are the
number one priority in the state and asked that the committee not
feel that the neighborhood concern which has been expressed is an
areawide or a citywide concern in Anchorage.
CHAIRMAN GREEN took issue that it was jail versus prison, not just
geographic.
REPRESENTATIVE ROKEBERG agreed with the distinction, but it does
not say that Anchorage is against having a facility.
Number 0600
REPRESENTATIVE ERIC CROFT asked if the price for Arizona included
inmate health.
MS. KNUTH said the price does not include health care. One of the
ways to get a low cost figure is by having a very select population
of prisoners which is what we are exporting to Arizona. The
prisoners who go to Arizona are the cheapest prisoners that we have
the state; they don't have major medical problems, they don't have
psychological or social disruption problems, they don't have
special needs for programs. These prisoners are the absolute bare
bone need group of prisoners. The $62 a day figure does not
include the medical costs and some of the other costs the state
incurs. The actual figure, when those are included, is in the $80
a day range.
REPRESENTATIVE CROFT referred to the approximate $7.5 million
fiscal note, with $2.5 million of it designated for inmate
programs, inmate health care and other indirect costs. He asked if
the Arizona figure would take out this amount.
MS. KNUTH clarified that she was not in the best position to answer
that question.
REPRESENTATIVE CROFT asked if she could find out what the predicted
operating life was of this facility.
MS. KNUTH said she would.
HB 53 - LEASE-PURCHASE CORRECTIONAL FACILITY
Number 0705
CHAIRMAN GREEN announced the next item on the agenda as 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."
MARGOT KNUTH, Assistant Attorney General, Central Office, Criminal
Division, Department of Law, referred to the committee meeting on
March 10, 1997. She said Representative Mulder did a good job of
indicating the problem in this state. She made a chart to indicate
where the institutions are, how bad off they are, which ones can be
expanded and what this ends up costing per bed. She referred to
and explained the chart. Spring Creek is the maximum security
facility, the only other place with maximum security to any extent
is the Lemon Creek facility in Juneau. At Spring Creek, $25
million could buy 250 beds if you are just buying the beds. If you
need the infrastructure expansion, then the number of beds you get
for you money goes down some. The analysis, by DOT/PF, is that 166
beds could be added if additions to the infrastructure were needed.
It is a difference between $100,000 versus $150,000 per bed.
MS. KNUTH referred to the Palmer medium correctional center and
said for only $13 million, 221 beds could be provided which equals
$59,000 a bed. The list equals $155 million without including what
the North Slope Borough might come in at. If you were to say $25
million was all the legislature would expend this year, this money
would buy the 166 to 250 beds in Spring Creek or you could get 221
beds in Palmer plus 48 beds in Bethel and 64 beds in Mat-Su
pretrial and 50 beds at Harborview and the Hiland Mountain float.
When we make those type of comparisons, it gets tough.
MS. KNUTH said if the legislature were to appropriate $150 million,
which is the Governor's six year capital project plan for the DOC.
One of the spendier places is the Wildwood correctional center in
Kenai because the state is up against the infrastructure wall.
When you have to create new infrastructure, the beds end up a
costly $195,000 a piece. When you finish with that infrastructure,
you have a core which will let you expand beyond that so the next
set of beds would be closer to the Palmer price of $59,000 a bed.
Ultimately when you look at the ten year picture, you have to be
thinking about several sets of expansions. The question is how
much to do and where to start.
Number 0987
CHAIRMAN GREEN clarified that the estimated costs were done by the
Department.
MS. KNUTH said the Anchorage figure, $60 million for the 400
replacement beds, is a state estimate.
Number 1019
REPRESENTATIVE ROKEBERG clarified this was the plan endorsed by the
criminal justice task force. He asked when authorization was made
for the North Slope and Harborview facilities.
MS. KNUTH said the North Slope item represents conversations on
what the cost is and how many beds. There is no construction
happening and nothing is authorized. The North Slope was looking
at something which was more expensive than what the state is
comfortable with paying. The state wanted them to re-evaluate
their first estimate which was $42 million for something like 75
beds. The state had listed $15 million for those beds.
REPRESENTATIVE ROKEBERG said the operating costs would probably be
high and referred to the fact that it is close to $200 a day for
community jails in Barrow. He referred to Spring Creek and the
estimated operating costs with his calculation being $112 a day
based on the fiscal note and the debt service.
MS. KNUTH was not able to concur. The staff numbers are accurate
on the fiscal note, they have two more people guarding the
prisoners at any given moment which is what is being estimated for
250 additional prisoners. It actually takes 44 new positions to
have two people there at any time. This component of the fiscal
note is straightforward. When nonpersonnel costs are looked at,
those are done through an averaging system and those may be high on
this note. If the state was able to track down actual numbers, it
could bring the note down , but she did not have enough information
about that to tell the committee more except that it is high on
this note.
REPRESENTATIVE ROKEBERG clarified that there are significant
operational variables with each geographical location in the state.
It was his contention that if the state had a larger facility there
would be greater economies of scale and therefore a lower per bed
operating cost.
MS. KNUTH said this would be the case to the extent that you could
do that. Alaska has a lot of pretrial felons who need to be in
their community for access to court as well as housing short term
misdemeanants where it doesn't pay to ship them to Arizona or
somewhere else in the state. There is a break down of how many
inmates are sentenced felons, versus the pretrial felons, versus
misdemeanants. All Wildwood inmates are essentially pretrial,
except for an occasional in and out prisoner depending on what is
happening spacewise elsewhere. To a certain extent, a lot of the
numbers, especially in the jail area, are not flexible. Whereas
prison numbers do tend to be more flexible. When you have someone
with a year or more to serve, then you can move them to where you
can house this economy of scale.
Number 1305
CHAIRMAN GREEN clarified that the location and the type of facility
creates as large a variation in cost as the size of the facility.
REPRESENTATIVE ROKEBERG referred to the Yukon-Kuskokwim facility
where it cost $149 a day per bed and asked if there was a number of
misdemeanants who could be in soft beds in that community.
MS. KNUTH said there are three components of a general corrections
plan: try to reduce the number of people who are going into the
system, within that number to try to maximize the number who could
go into halfway houses which are soft beds; for those prisoners who
have to be in hard beds, make sure that those beds are available;
and the third part is to try to get people out of those hard beds
in a manner which is consistent with public safety. The greatest
complaint about corrections is that there should be more use of
halfway houses, more soft beds. She said the DOC is doing the best
that they can. All the available beds have been filled. There
will always be a need for more soft beds and the state will always
be utilizing them, but the state also needs hard beds. The state
gets prisoners who could not be put into soft beds because it would
not fulfill the mandate of protecting the public.
Number 1460
CHAIRMAN GREEN asked what the reluctance was to use other forms of
surveillance, such as electronic surveillance for non-violent
felons and misdemeanants so that a bed would not have to be taken.
MS. KNUTH said this is an area that is being entered into. One of
the elements of reluctance is that when the state gives the court
system additional tools, they don't think of them as alternatives.
The court sees it as one more thing to do. If you were to add
electronic monitoring as another option, you must prevent the court
from stacking all the conditions on top of each other instead of
taking away the jail time. As electronic monitoring is being
looked at, there needs to be a way in which the court system uses
this as an alternative compared to jail time, not just one more
part of it. Under the existing statutory framework, the state does
not have the administrative ability to say that a person's sentence
was ten days in jail which will be enforced through electronic
monitoring. A statutory fix would be needed before that could
happen.
CHAIRMAN GREEN said perhaps this should be considered if it is
statutorily fixable.
MS. KNUTH said this is a ripe area to look at.
Number 1595
REPRESENTATIVE CROFT asked for an explanation on the chart and why
the Palmer facility was so cheap.
MS. KNUTH explained the chart. She said Spring Creek would be
between $100,000 and $150,000 per bed depending on whether you are
getting as many as 250 beds or as few as 166 beds. The $150,000
figure assumes that not only do you need to build a bed, but you
also need to build some infrastructure for that bed. There is some
component of a kitchen, a dining room, an additional administrative
building. The price is $59,000 per bed in Palmer because it is the
one facility where the core infrastructure is being underutilized.
It has an ability to have more people without having to do more
than building the beds and expand the fence.
Number 1733
REPRESENTATIVE JAMES expressed concerns; whether to have private
prisons or to continue current operations. One of the benefits is
the smaller cost per day in a private prison because of the
economies of scale. She asked for information on why you needed to
put all these facilities in different communities. She thought
some of those people could be transferred out of those communities
and could be moved to a statewide facility. She also raised the
issue of soft beds. It was her understanding that soft beds could
be provided by the private sector. She asked if the government had
deterred or created interest in that issue.
Number 1857
MS. KNUTH answered that all but six or eight of the soft beds are
private, this is the private part of corrections in Alaska at this
point. Those six or eight are contract beds in Barrow. The state
just bought another 13 soft beds this week and are buying them as
fast as they can, with whatever money is available to them. They
might have overspent, there may be as many as 75 soft beds
available but the DOC doesn't have money in their budget for those.
There is a growing need for soft beds, but they are not a
substitute for hard beds for some of the prisoners. There is a
classification matrix which corrections applies to determine the
proper placement. She wasn't as qualified to speak on
classification, but offered to provide information about it.
MS. KNUTH said the state has had a lot more success in getting soft
beds then they have had in expanding the hard bed numbers. The
hard beds require capital expenditures which tend to be quite
large, whereas they are able to buy some soft beds here and there.
There are some communities who do not like to have the Community
Residential Center (CRC) in their area and there has been some
resistance. There are places where the state would like to have
more soft beds, but haven't yet found a good place to put them.
MS. KNUTH referred to the economies of scale and cost per day. To
take the Fairbanks correctional center, the people who are there
are short term misdemeanants and pretrial felons. Any of the
felons who have a lengthy sentence to serve are being sent
somewhere else. They are going to Spring Creek, Arizona, Wildwood
or Palmer depending on their classification. Those prisoners go
back to Fairbanks the last six months or 90 days of the sentence.
She said this was the same thing in Bethel and Ketchikan because
they don't have the space to keep the prisoners there for a long
term sentence.
Number 2177
REPRESENTATIVE JAMES suggested that the state move some of the
people who are qualifying for soft beds into soft beds instead of
keeping them in hard beds.
MS. KNUTH said it is a matter of percentages, there are some people
in hard beds who could go into soft beds, but the state does not
have enough soft beds. Each year the prison population is growing
by 260 people. Of that number, only 60 of them meet classification
standards for the soft beds. Two hundred of those prisoners are
dangerous, they need to be isolated and they need hard beds. There
are some hard beds that aren't being utilized in the best way
possible. This pales in comparison with how short we are on hard
beds for the people who belong in them.
REPRESENTATIVE JAMES asked if it was possible for the hard bed
prisoners to be in one facility somewhere in the state.
Number 2300
MS. KNUTH answered that, for prisoners who are in maximum or medium
custody who have sentences of over a year, you can send them
virtually anywhere. There is also an increase in the number of
people who are getting short sentences and there is a big increase
in the number of people who are pretrial. For some reason this
increase is not going up proportionately. Judges are giving them
sentences of time served in a pretrial status. Those people can't
be sent anywhere. She could try to get more precise numbers, but
out of the yearly increase of 200 hard beds each year something
like 30 to 50 of them have to stay local because they are the short
term prisoners who can't be transported, with a 100 of the
prisoners being able to transfer.
TAPE 97-38, SIDE A
Number 0000
REPRESENTATIVE BERKOWITZ suspected that the increase in pre-
indictment prisoners has to do with the change in the Anchorage
district attorney's office about negotiating cases at the pre-
indictment phase and pushing back the process further. He asked if
she could track from the time of arrest to the time of post
conviction and classification when someone becomes hard bed, soft
eligible.
MS. KNUTH said she couldn't but Mr. Sauser could provide an answer.
Number 0114
CHAIRMAN GREEN said, "it's been said that judges are having a
tendency to, well they're not supposed to be involved, but there
has been plea bargaining down from a certain classification which
might be, without question a hard bed to a lesser offense that
might be more amenable to a soft bed type situation. Is that, to
your knowledge, is that going on? I know they're not doing it on
a bed basis, but they're doing it on what their charge is, but."
MS. KNUTH did not feel that the judiciary would be involved.
REPRESENTATIVE PORTER said the question presumes that the only
basis for classification is the current charge and there is a much
bigger criteria.
CHAIRMAN GREEN clarified that what he was saying was there is plea
bargaining occurring and as a result of that, what might have been
a felony for a hard bed, now becomes a misdemeanor and this
bargaining exacerbates the problem of having more misdemeanants.
He said we have enough hard beds, but not enough if we are going to
fill those hard beds with misdemeanants.
MS. KNUTH said most of the beds are being filled by felons who have
fairly lengthy sentences. There are areas where there is a lot of
turnover in a misdemeanant population.
REPRESENTATIVE PORTER asked if there were misdemeanants who would
not be suitable for a soft bed.
MS. KNUTH said there are and Mr. Sauser could explain the
classification. For example if a prisoner has a recent history of
escapes, they are removed from consideration for soft bed
eligibility. If there is a violence problem they are not sent to
a halfway house.
Number 0384
FORREST BROWNE, Debt Manager, Treasury Division, Department of
Revenue, said the DOR is only interested in the most effective type
of financing. There are two concerns about HB 53; one is the tax
exempt versus taxable and the other is, essentially, turning over
the arranging of debt for the state to a third party. The DOR has
provided recommendations which satisfy those concerns. Regarding
the first problem; there is no requirement in the bill, as written,
that it would use tax exempt financing. There is an advantage in
doing this type of financing which relates to approximately 200
basis points, varying a bit from month to month and depending on
the term of finance. In this proposed term, approximately 18
years, the DOR sees a penalty of approximately 2 percent per year
on the $90 million financing by using taxable rather than tax
exempt financing.
MR. BROWN said because HB 53 does not require the use of tax
exempt, the DOR has prepared their fiscal note under the assumption
that taxable financing would be used. There would be a way to
require the state and the third party contractor to abide by a
certain U.S. Department of Treasury, IRS regulation having to do
with private company management contracts. Those contracts are
fairly narrow, they restrict somewhat the profit making ability of
the private contractor which could be a negative in the eyes of the
private contractor. The trade-off is an estimated a $25 million of
potential savings on the financing costs. The suggestion is that,
if the legislature wishes to require the use of tax exempt
financing, it should be specified in HB 53, by references made to
these IRS management contract guidelines. He had a copy of those
guidelines.
MR. BROWNE said the DOR reading of HB 53 and how this would work,
according to their council's opinion, is that absent a requirement
it probably wouldn't happen. A contract would happen which would
not fit into the IRS guidelines and therefore taxable financing
would be required.
MR. BROWNE suggested separating the financing, the arranging of the
debt, from the contract to construct the facility and the contract
to operate the facility. If the state retains that financing
flexibility, then the procedure would be as follows: the bill would
essentially say that the state bond committee would arrange this
debt as any other debt is arranged, approved by the legislature;
the state would then solicit bids from private, third party
contractors to construct and manage the facility under the
assumption that they would be paid in full, in cash at the
completion of the facility or you could arrange some progress
payments during the construction; the facility would be constructed
and operated pursuant to those agreements as provided in HB 53.
MR. BROWNE explained the reason for this suggestion is that DOR
thought it would be poor public policy to delegate the
responsibility to someone other than the state. He questioned
having someone, not as familiar with the state and its financing,
going to Wall Street, talking to the bond rating services, the
underwriters, essentially arranging the credit, using the credit of
the state and arranging bonds for a long period of time. He said
they might not be familiar with the Prudhoe Bay curve as well as
other positive things that are occurring in the state of Alaska.
If there was ever a default in that agreement over the 18 year
period, it would reflect back on the state. He said DOR jealously
guards this state credit situation because it has been very hard to
get the double A rating which the state currently has.
MR. BROWNE said the second point is that there is no one who could
get lower cost financing for the state than the state itself. The
state is in the market, has access on a daily basis. They feel
that the effective cost to the state in terms of financing, which
in a sense are going to be paying over the term, is that the state
should be the one that would arrange it.
MR. BROWNE said the third point, in terms of future flexibility, is
that the DOR has seen over the years, in these long term debt
instruments, opportunities to refinance them from time to time.
The outstanding general obligation bonds were refinanced at a
considerable savings. The latest refinancing of the international
airport resulted in about $7 million of savings. This has been
done from time to time because, in the past, the state has directly
controlled the issuance and management of this debt. They did not
feel it would be well advised to leave these potential refinancing
profits on the table. These should accrue to the state and the DOR
would like the ability to claim those into the future, instead of
letting them go.
MR. BROWNE said the fourth point is that the proposed facility,
would need to be expanded or renovated. If the state has direct
access to the financial markets, they could do that at any time in
the future when the legislature approves it. If the financing was
controlled by a third party, then the state would have to go "hat
in hand" to the holder of the financing. There would be little or
no competition in that regard and the state would pay whatever the
expansion cost would be. If the state had control and direct
access to the markets, the additional monies could be raised for
the renovation or expansion with a minimized cost and maximum
flexibility.
MR. BROWNE said there is no provision in HB 53 for the state, at
the end of the period, to own the land underlying the facility.
The DOR would suggest an amendment, since the state is paying this
over the 18 year period. The state would end up not only owning
the facility, but the land as well.
Number 0925
REPRESENTATIVE CROFT asked for clarification on unbundling and how
this might affect the state's credit rating. He asked what is
currently bundled in this and how it is different from how it is
normally done.
MR, BROWNE said, as is proposed in the bill, the third party
contractor would design, construct the facility and then manage it
for at least a five year period. This contractor would also raise,
based on the state's credit, up to $90 million. The DOR thinks the
same thing could be accomplished, if the intent of the legislature
is to have privatization, by writing the contract that the state
would pay cash for the facility when it was completed. Then the
state could go out and do its own direct financing with the
national financing markets. In either case it will impact on the
state's debt and the state's debt capacity, the state's bond
rating. The DOR would suggest that it would be more advantageous,
and we are talking about tens of millions of dollars which could be
saved, if this process was used. The implied goal of HB 53 could
be accomplished and yet some flexibility could be retained on the
financing. Essentially having state control, because it is state
debt. You can call it a lease with a third party, but the third
party is not providing the credit. It is the state of Alaska and
the agreement that the state has made to make the principle
payments.
Number 1066
REPRESENTATIVE CROFT asked if we have ever let a private entity
have this much possible impact on the state's credit rating.
MR. BROWNE did not know of any situation. Sometimes on small scale
leases such as xerox equipment, the automotive fleet or
construction maintenance fleet there may have be instances where
the state signs a lease or just goes out and bids. The vendor
effectively ends up doing the financing along with providing the
equipment. He provided an example of where the DOR recently
refinanced $5 million of equipment for the DOT/PF that previously
had been bid as a package. The DOR separated the financing and
having closed the transaction had 12 competitive bids which looks
like there might be $400,000 of savings in interest costs over the
next five years on a $5 million package. He would suggest that on
a $90 million project, potentially millions of dollars could be
saved.
REPRESENTATIVE ROKEBERG said that projects such as the Red Dog Mine
and Four Dam Pool have been underwritten by AIDEA, so there have
been larger projects where there has been correlation with the
state's credit.
KATHRYN THOMAS, Chair, Alaska State Chamber of Commerce, said her
organization represents approximately 700 member businesses
statewide which provide jobs to nearly 70,000 employees. The
mission of her organization is to create a climate which is
conducive to a strong private sector economy. She spoke in favor
of HB 53 because it represents a reasonable and logical action by
state government which will save money to the state and enhance
business opportunities in the private sector. The top priority of
the state chamber of commerce is to help the state find ways to
close the fiscal gap. Therefore, the chamber encourages the state
to find those government services which could be affordable and
efficiently provided by the private sector. She said HB 53
provides a way to do those things.
MS. THOMAS stated that it has been demonstrated, through the
experience of housing a portion of Alaska's prisoners in the
Arizona private system, that the private sector can provide for the
confinement and care for prisoners as satisfactorily and at a lower
cost than the Alaska state system. The missing element, within a
government operation, is competition. The private sector must do
things more efficiently and at less cost in order to be the
successful bidder. If the private sector does not provide the
service in a manner consistent with the state's specifications,
then the private sector knows that there are other service
providers ready and able to take their place.
MS. THOMAS said the practice of government contracting with the
private sector for correctional system services is not a new
concept in which Alaska would be breaking ground. This is being
done, successfully, in many other states. This bill provides that
the contractor must provide custody, care and discipline to the
standards established by the state and by the courts. The service
will be as good as any that the state of Alaska could provide, but
at a lesser cost.
MS. THOMAS explained that in addition to the initial cost savings
there is the added benefit of the corporate taxes that the private
service provider will be paying to the state. Ancillary and
support services would also be utilized by the state. The state
would also seek contractors who would provide their own prison
facilities which meet the state specifications. Savings would be
realized by the state in not having to furnish the land,
construction and maintenance for another state owned facility. Her
organization can see no downside to this legislation, it makes good
business sense.
Number 1403
REPRESENTATIVE BERKOWITZ referred to privatization and asked if the
chamber felt there were any core governmental services which ought
to be privatized.
MS. THOMAS felt all services ought to be looked at. There are some
services that government is best at administering. Many areas such
as prisons and areas of DOT/PF could be privatized, but we have to
decide to what to degree, where, as well as structuring state
procedures so that this can be done.
CHAIRMAN GREEN said this issue would be revisited on Friday with
committee deliberation and amendments.
Number 1498
ADJOURNMENT
There being no further business to conduct, CHAIRMAN GREEN
adjourned the meeting of the House Judiciary Standing Committee at
3:05 p.m.
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