Legislature(2001 - 2002)
04/26/2001 06:17 PM Senate FIN
| 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
MINUTES
SENATE FINANCE COMMITTEE
April 26, 2001
6:17 PM
TAPES
SFC-01 # 86, Side A
SFC 01 # 86, Side B
CALL TO ORDER
Co-Chair Pete Kelly convened the meeting at approximately 6:17 PM.
PRESENT
Senator Dave Donley, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Jerry Ward, Vice Chair
Senator Alan Austerman
Senator Lyman Hoffman
Also Attending: SUE WRIGHT, staff to Representative Mike Chenault;
MARGO KNUTH, Assistant Attorney General, Office of the
Commissioner, Department of Corrections; VERN JONES, Chief
Procurement Officer, Division of General Services, Department of
Administration; FRANK PRUITT, former Commissioner, Deputy
Commissioner and Legal Council, Department of Corrections;
Attending via Teleconference: From Kenai: RONALD ROZAK; Tim
Navarre, President, Kenai Peninsula Borough Assembly; MARGE HAYS;
RICHARD SEGURA, President, Kenai Native Association; JAMES PRICE;
ELSIE HENDRYX; SUSAN WELLS; MIKE CARPENTER; CAROL SEGURA; From the
State of California: MARVIN WEIBE, Cornell Companies; From
Anchorage: RICHARD VAN HUTTEN, President, Correction Officers
Bargaining Unit of the Public Safety Employees Association; DEE
HUBBARD; From Kodiak: MICHAEL SLEZAK
SUMMARY INFORMATION
SB 92-REMOVAL OF MEMBERS OF THE PF BOARD
An amendment was considered and adopted. The bill moved from
Committee.
SB 193-STUDY: EFFECTS OF PERMANENT FUND DIVIDEND
The Committee adopted a committee substitute and two amendments
were considered and adopted. The bill moved from Committee.
HB 149-PRIVATE PRISON IN KENAI
The Committee heard from the sponsor, the Department of
Corrections, the Department of Administration and members of the
public. A committee substitute was adopted and the bill moved from
Committee.
SB 115-EXTEND BD. OF STORAGE TANK ASSISTANCE
This bill was scheduled but not heard.
SB 153-UNDERGROUND STORAGE TANK LOAN FUND
This bill was scheduled but not heard.
SENATE BILL NO. 92
"An Act relating to removal of members of the board of
trustees of the Alaska Permanent Fund Corporation; and
providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Amendment # 1: This conceptual amendment changes the effective date
of the legislation to January 1, 2004, both in the language and in
the title of the bill.
Co-Chair Donley moved for adoption.
Senator Austerman objected for an explanation.
Co-Chair Donley explained the delayed effective date gives the
public time to review the issue. He stressed this is because
Governor Tony Knowles "felt so strongly" against it as reflected in
the veto message accompanying earlier legislation passed by the
legislature but vetoed by the governor approximately five years
prior. Co-Chair Donley surmised, "There must be some good
meritorious reason for being so strongly opposed to this."
Co-Chair Kelly opined that Governor Tony Knowles "fought" against
the earlier legislation because he wished to replace the existing
trustees with members he chose. Co-Chair Kelly remarked, now that
the governor's appointees are seated, the governor supports the
current legislation to prevent these trustees from being removed
without just cause. Co-Chair Kelly remarked this amendment allows
the legislation to "start with a clean slate with a new governor."
Senator Wilken expressed concern, saying this amendment politicizes
the matter further, when the intent of the legislation is to remove
politics from the process. He remarked that the current board is a
"functioning board" by all accounts regardless of the governor who
appointed the members.
Co-Chair Kelly commented, "There has never been any way in the
history of the State of Alaska that we could have ever predicted a
governor so political as this. The use of the statutes to gain his
political agenda dealing with the permanent fund board was, I
think, very egregious when he vetoed something that I think was in
the best interest of the state. Now that it protects the people
that he has in place, he wants those people protected." Co-Chair
Kelly said he supports the amendment, as it is enacted for a "new
governor-new rules". He expressed he did not want the dismissal for
just cause provision to apply to "all the people that were in under
the old layers of politics with the guy who pushed the envelope at
every level." He continued, "This is the guy who put his
name/picture on the permanent fund check."
Senator Austerman stated that if the effective date on the bill is
to be so far into the future, why the legislation is not voted
down. He agreed with Senator Wilken, that this amendment would
further politicize the issue. He agreed dismissal for just cause is
a worthy issue.
AT EASE 6:22 PM / 6:22 PM
AT EASE 6:22 PM / 6:24 PM
Senator Hoffman understood the question before the Committee is
whether it is good public policy to remove a trustee only for just
cause. He stated he supports this concept, which he also supported
when the earlier legislation was considered. However, he asserted
he opposes the amendment.
Senator Wilken referred to the Board's membership roster and noted
the terms of all four public members expire by the effective date
of the amendment, thus making the effective date mute.
Co-Chair Donley disagreed and explained that beginning in 2004,
removal of trustees for just cause only, would become law.
A roll call was taken on the motion.
IN FAVOR: Senator Green, Senator Leman, Senator Ward, Co-Chair
Donley and Co-Chair Kelly.
OPPOSED: Senator Austerman, Senator Hoffman, Senator Olson and
Senator Wilken.
The motion PASSED (5-4)
Co-Chair Donley offered a motion to move SB 92, 22-LS0462\A, as
amended, from Committee with accompanying zero fiscal note from the
Department of Revenue.
Senator Austerman objected, saying he thought the bill as amended
is "useless".
A roll call was taken on the motion.
IN FAVOR: Senator Green, Senator Leman, Senator Ward, Senator
Wilken, Co-Chair Donley and Co-Chair Kelly
OPPOSED: Senator Hoffman, Senator Olson and Senator Austerman
The motion PASSED (6-3)
The bill MOVED from Committee.
AT EASE 6:27 PM / 6:30 PM
[Note: The following portion of the meeting failed to record on
Committee equipment. The Legislative Information Office made an
alternate recording; see tapes titled SFC-01 #86/II and SFC-01
#86/III. However, the sound quality of these tapes is poor.]
SENATE BILL NO. 193
"An Act relating to a study of the economic and social effects
of the permanent fund dividend on the state."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Kelly informed that this bill speaks to a 1990 court
decision on Lindly vs. Malone.
Co-Chair Donley gave a history on the issue, beginning in 1988 when
he sponsored legislation to change the residency requirement for
the permanent fund dividend from six months to two years. He noted
a clause was inserted in this bill providing that in the event a
court found that two years is too long, the requirement would
automatically become one year.
Co-Chair Donley stated that since this time, he has learned the
longest length of residency that is acceptable for a benefit
qualification, according to the United States Supreme Court, is two
years. He detailed the ruling, which found that in certain
instances, such as with in-state tuition fees, it is acceptable to
stipulate up to two years as the residency requirement to prevent
exploitation from a transient population. He opined the Alaska
permanent fund is a comparable benefit in its attraction. He
surmised that the more lengthily two-year residency requirement
could be imposed in Alaska if there was evidence that people were
moving to the state for the purpose of receiving the dividend.
Co-Chair Donley continued, saying that when a state court found the
1988 legislation unconstitutional, the decision was not appealed to
the state Supreme Court because the state had not yet developed the
necessary evidence to show that this benefit was the reason people
were moving to Alaska.
Co-Chair Donley pointed out the amount of the dividends are
significantly higher then they were in 1988. He noted the residency
requirement was doubled through the legislation from six months to
one year, but that the matter of a two-year residency requirement
remained unresolved.
Co-Chair Donley explained that SB 193 provides that a study would
be conducted to learn if it could be determined whether there is a
problem with people attracted to the state because of the permanent
fund dividend and if a longer residency requirement is justified.
Senator Austerman inquired about the Longevity Bonus Program, which
provides subsidies to elderly Alaskan residents, and if this
program is in the process of being phased out.
Co-Chair Donley affirmed. He noted the original legislation of 1988
increased the residency requirement for this program as well, but
that this is no longer an issue since the program no longer accepts
new participants.
Co-Chair Donley moved to adopt CS SB 193, 22-LS0828\J as a working
draft.
There was no objection and the committee substitute was ADOPTED.
Amendment #1: This conceptual amendment replaces "general fund"
with "permanent fund earnings account" in Section 2 on page 2 line
2 of the committee substitute. The amended language reads as
follows.
The sum of $200,000 is appropriated from the permanent fund
earnings account to the Legislative Council for a study of the
economic and social effects of the permanent fund dividend on
the state.
Senator Leman commented that a permanent fund account, rather then
the general fund, is normally used when addressing legal matters
regarding the permanent fund and would be appropriate in this
legislation as well.
Senator Leman moved for adoption of the amendment.
Senator Ward objected.
There was some question as to the specific name of the fund and the
Division of Legislative Finance was requested to supply the correct
information.
Senator Wilken wanted to ensure the correct fund account was
inserted into the language.
The bill was HELD in Committee until later in the meeting.
CS FOR HOUSE BILL NO. 149(FIN)(title am)
"An Act expressing legislative intent regarding correctional
facility space; relating to correctional facility space;
authorizing the Department of Corrections to enter into an
agreement to lease facilities for the confinement and care of
prisoners within the Kenai Peninsula Borough; and providing
for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Donley moved to adopt CS HB 149, 22-LS0436\W as a working
draft.
SUE WRIGHT, staff to Representative Mike Chenault, testified that
this bill transfers the authority given for construction of a
private prison from Delta Junction to the Kenai Peninsula Borough.
She detailed the changes to the bill in the committee substitute
beginning with deleted language pertaining to the State of Alaska
procurement code. She explained this change is in response to an
opinion written by the Attorney General warning of a potential
conflict of interest.
Ms. Wright relayed a concern raised by the Department of
Corrections that the department would be required to begin paying
the private operator per diem for the entire 800 beds immediately
upon the opening of the facility. Therefore, she noted the
committee substitute contains language to provide for a "reasonable
period" of time, to allow the prison to reach full capacity in
phases. She described the time required to bring the facility to
full operation.
AT EASE 6:41 PM / 6:43 PM
[Note: Audio recording resumes.]
MARGO KNUTH, Assistant Attorney General, Office of the
Commissioner, Department of Corrections, testified the bill is an
"out-growth" of HB 53 from several years prior, which authorizes
both a replacement jail in Anchorage and a private prison in Delta
Junction.
Ms. Knuth informed that the Anchorage jail project is about 65
percent complete and is expected to become operational in less than
one year.
Ms. Knuth noted the Delta Junction project "became mired in a
number of obstacles". She listed one as the selection of Fort
Greely by the federal government as a preferred site for an anti-
ballistic missile program. She shared that the City of Kenai has
since expressed an interest in becoming the location of a private
prison.
Ms. Knuth reminded when Governor Knowles signed HB 53 into law he
indicated five standards should be considered when planning a
correctional facility project. She listed the standards as
protecting the public's safety, addressing statewide and regional
needs, consistency with best correctional practices, community
participation through government-to-government relationships, and
cost effectiveness.
Ms. Knuth referenced an October 30, 2000 letter from Governor
Knowles addressed to the Honorable Dale Bagley, Mayor of the Kenai
Peninsula Borough. [Copy on file.] She cited the letter as
indicating the Kenai private prison project could meet the five
objectives. Ms. Knuth pointed out the governor qualified that
significant discussion would follow and requested the mayor apprise
the commissioner the Department of Corrections of changing
developments.
Ms. Knuth acknowledged that the public safety issue and the
consistency with best correctional practices could not be
determined at this stage of the planning process. She surmised
these matters would be the subject of negotiations between the
Department of Corrections and the City of Kenai with regards to the
type of facility and operation standards. She stressed that because
a government sponsors the project, it must involve community
participation, thus fulfilling the government-to-government
criterion.
Ms. Knuth spoke to the criterion of addressing statewide and
regional needs, noting the Administration had introduced
legislation that expands the number of prison beds in Alaska and
expands the regional jails, which the legislature has not yet acted
upon. She defined "jail beds" as accommodations for serving short
misdemeanor sentences and for pre-trial purposes, noting the inmate
must remain near the court during legal proceedings. She emphasized
the urgent need for space in Fairbanks and Bethel stating that
while many prison beds could be added in Kenai or Anchorage, the
problem would not be addressed in the communities of need. She
ascertained the Kenai prison project would satisfy statewide needs,
but the regional needs would remain.
Ms. Knuth concluded with the cost-effectiveness criterion. She
expressed concerns with the CS HB 149 (FIN)(title am), 22-
LS0436\T.a and SCS CS HB 149, 22-LS0436\W working draft versions of
the bill. Pointing to the provisions regarding the procurement
process on page 2, lines 24 and 25 of version "T.a" and lines 23
and 24 of version "W", she informed that the bill had originally
stipulated the Kenai Peninsula Borough procure one or more private
third-party operators through a competitive process similar to the
procedures established in AS 36.30, the state's procurement code.
She asked if the removal of this language relates to intent to not
follow the state procurement code. She suggested the Committee hear
from Vern Jones of the Department of Law, for additional
information on the matter.
Ms. Knuth continued on the subject, reading page 2, lines 24
through 27, "A municipality exercising its powers under AS
29.35.010(15) for procurement of land, design, construction, and
operation of a facility, that follows its municipal ordinances and
resolutions and procurement procedures, satisfies the procurement
requirements of this subsection." She referred to a letter to
Representative Pete Kott, Chair, House Rules Committee, from
Assistant Attorney General Marjorie Vandor on April 16, 2001 [Copy
not provided], which raised a concern with the language indicating
that a certain action satisfies the procurement requirement. Ms.
Knuth shared that Ms. Vandor wrote this could violate the
separation of powers mandate for the Department of Law.
Ms. Knuth described another concern relating to language on page 2,
lines 28 through 31, through page 3, lines 1 through 3 in version
"W". This language reads as follows.
(c) The authorization given by (a) of this section is
subject to the following conditions:
(1) the lease must have a minimum of 800 prison
beds, and the lease payments must be sufficient to cover
(A) the cost for the development and
construction of the facility; and
(B) The operating costs for a minimum of 800
prison beds in the facility for a period of five
years, less a reasonable period to achieve full
occupancy;
Ms. Knuth relayed that the contracts with Corrections Corporation
of America (CCA), which operates the private prison on Arizona, are
for three-years and stipulate the state pay a per diem rate of $54
per day per prisoner. She noted the per diem rate fluctuates
dependant upon the actual number of prisoners the state houses at
the facility. From this money, she explained, the operator covers
capital expenses and operating costs and retains a portion as
profit. On the contrary, she stressed, HB 149 requires the state to
enter into a 20-year lease and guarantees that the state pay the
capital costs of the prison.
Ms. Knuth noted that in addition, this legislation requires the
Administration pay the operating costs for a minimum of 800 beds
for a period of five years. She qualified she appreciated the
inclusion of "less a reasonable period to achieve full occupancy"
in the language of version "W". She said this recognizes that a
prison does not begin operations with a full capacity because it is
unsafe to do so. However, she pointed out this legislation
obligates the state pay $89 per day for at least 800 beds, whether
occupied or not.
Ms. Knuth told of an outbreak of tuberculosis at the Spring Creek
prison, which precipitated a quarantine of the inmates at the
facility and suspended the arrival of new prisoners. As a result,
she said, the population of this facility dropped and she cautioned
that a similar situation could occur at the proposed Kenai
facility. She also stressed that even without such a situation, it
is difficult to accurately predict the continuous number of inmates
present at a particular facility. She stated the contract with CCA
provides that the state pay for the prisoners actually housed at
the facility.
Co-Chair Kelly requested further explanation of the separation of
powers concerns.
Ms. Knuth deferred to Ms. Vandor of the Department of Law. Ms.
Knuth referenced Section 2 (b), page 2, lines 21 through 24 of
version "W" and read, "The commissioner of corrections shall
require in the agreement with the Kenai Peninsula Borough that the
Kenai Peninsula Borough procure one or more private third-party
operators through a competitive procurement process." She explained
this section directs the commissioner of the Department of
Corrections to ensure the Borough conduct a competitive bid
process. However, she continued, the following sentence on lines 24
through 27, as quoted earlier, stipulates that the Borough conforms
to procurement codes, which could be different then those the
legislature employs. She referenced Ms. Vandor's previously
mentioned letter, opining that if the legislature directs the
executive branch to perform a function, the legislature should then
allow the executive branch to actually do so. Ms. Knuth elaborated,
"On the one hand the executive branch is asked to do something but
then the next part of the legislation directs what the answer is
supposed to be." This, she stated, raises a separation of powers
issue.
RONALD ROZAK testified via teleconference from Kenai about his
concerns that the Kenai Peninsula Borough is "sole-sourcing" a
major project on the Peninsula for at least the first stage of the
project, with the intent to negotiate the second phase. He did not
approve of the partnership between the local government and the
proposed private contractor to gain approval from the legislature
and to counter any public opposition. He was also concerned with
the Borough's activities in fast-tracking the project. He stressed
that this type of project should not be rushed given the long-term
impacts. He disagreed with the Borough assembly's decision to by-
pass an election on the project, which he stated is required for
capital projects exceeding $1.5 million. He opined the reason the
assembly superceded the voter approval process is because of the
lack of information necessary to make an informed decision on the
matter. He questioned the 800 bed minimum provision and suggested a
lesser amount could be acceptable to local residents. He shared his
reservations about a privately operated prison facility.
MARVIN WEIBE, Cornell Companies, testified via teleconference from
California, to address the issue of why the state and borough
should enter into a contract with an operator such as Cornell that
would ensure an occupancy payment for 800 prison beds. He asserted
this is not atypical in the private prison industry, noting the
Federal Bureau of Prisons has converted to a minimum guarantee of
95 percent occupancy on larger prisons, with incremental payments
for any inmates over the minimum. He added that these contracts are
for ten years and stressed other states have entered into similar
types of agreements.
Mr. Weibe stated the contract proposed in this legislation is
different from others in that the prison is to be located in
Alaska. Because of this location, he explained, the operator would
be unable to transfer inmates from other states as is done with
facilities such as the prison in Arizona that houses 2500
prisoners, only 800 of which are Alaskans. He described the various
inmates housed in Southwestern United States prisons including
immigration violators and those sent by the US Marshall Service. He
informed that this allows the operators more flexibility to keep
the facilities occupied.
Mr. Weibe told the Committee the per diem equivalency is actually
18-20 percent below the statewide average that is used for federal
calculation and does not include all the costs associated with the
operation of the facility. Instead, he said, the amount is a "fixed
cap" determined to be appropriate for a private operation.
Senator Austerman asked if the witness could further explain the 95
percent occupancy issue.
Mr. Weibe responded that the Federal Bureau of Prisons handles all
federal inmates and contracts a significant number of prison beds
to private operators. These federal contracts, he explained, are
for ten years with a minimum monthly payment that reflects 95
percent occupancy and an incremental per diem rate for additional
inmates above the 95 percent rate. He pointed out these payments
cover all operational costs of the facility with the incremental
per diem covers the cost of food, insurance and utilities. He
stressed this is so the private operator is able to maintain the
facility fully staffed, fully trained and fully operational.
Senator Austerman clarified that it is not feasible to bring
inmates into an Alaskan facility but it is feasible to send
Alaskans to facilities outside the state.
Mr. Weibe corrected that it is not likely that another state would
transport inmates to Alaska. He opined that it is not practical and
that there are other available resources in the Lower 48 states to
locate offenders as needed.
Senator Wilken asked if an 800-bed facility is large or small
compared to other facilities operated by Cornell Company.
Mr. Weibe replied the company has facilities that house over 2,000
inmates, but that the Kenai facility is "good sized". He noted that
prison facilities of minimum security or higher have 800 or more
beds. He listed several facilities the company operates in various
states.
Senator Wilken asked if Cornell is a publicly traded company.
Mr. Weibe affirmed and said the company is listed on the New Your
Stock Exchange (NYSE).
Senator Wilken asked the exchange letters used in the listing.
Mr. Weibe answered: CRN.
Tim Navarre, President, Kenai Peninsula Borough Assembly, testified
in Juneau in favor of the committee substitute, version "W". He
told of the competitive process the Assembly employed to "pick a
team," which he defined as one private company responsible for
designing, building and operating the prison. He assured that this
minimizes the financial risk to the state and avoids lawsuits over
discrepancies about the particular components of the project. He
said this approach was chosen because there is not a firm set of
plans for the facility, or set criteria for an operating agreement.
He remarked that the Assembly does have "the community's
willingness to consider a prison in its backyard."
Mr. Navarre detailed the process of selecting the team, based on
the necessary security, where employees would come from, how those
employees would be trained, whether union labor would be utilized
and what wages would be paid. He noted the Assembly intended
workers would be paid approximately $14 per hour rather than $9 per
hour, pointing out the Department of Corrections starting wages for
correctional officers is $14.79 per hour. He continued listing
selection criteria of how the facility would be constructed, who
would build it and what subcontractors would be used. He inserted
that the team ultimately selected has a "comparable" retirement
package to the state's plan.
Mr. Navarre continued that the Assembly received four bids in
response to the approximate 30 Request for Quotes (RFQ)
distributed. Of the four, he stated, three are the top
correctional companies in the country, including the company that
operates the facility in Arizona that currently houses Alaskan
inmates. He assured the competitive bidding process was open and
fair and included all the factors he listed. He said an evaluation
committee selected two of the bids and the Assembly chose one
during an executive session. The executive session, he asserted,
was recommended by the Borough's finance director to prevent any
lobbying for a particular contractor.
Mr. Navarre expressed that the successful bidder, Cornell
Companies, Inc, has a "good involvement with the Native
Association" and with Native programs. He informed that Alaska
Natives comprise seven to eight percent of the population in Alaska
yet 35 percent are incarcerated.
Mr. Navarre stressed that the Assembly, the Borough's Financial
Director and legal staff are of the opinion they could defend the
competitive process undertaken. He therefore requested the
legislature allow the team that was selected through an involved
process to negotiate with the Borough and the Department of
Corrections for a private prison facility. He emphasized this
legislation only provides for this negotiation and does not
guarantee actual construction.
Mr. Navarre spoke of the benefits of housing all inmates in Alaska
rather than locating 800 in Arizona, which includs the opportunity
for rehabilitation.
Mr. Navarre stated he could not speak to separation of powers issue
contained in the committee substitute.
Co-Chair Kelly directed member's attention to and April 17, 2001
memorandum from the Division of Legal and Research Services to
Representative Mike Chenault that addresses separation of powers
and special legislation issues. [Copy on file.]
Senator Austerman commented that he supports a private prison
somewhere in Alaska. However, he stressed, some of the questions
raised during the testimony "raised a flag", such as the high cost.
He compared the average daily per diem rate for the proposed Kenai
facility at $89 to the $54 at the Arizona facility. He assumed
transportation costs had been taken into account when compiling the
per diem rates.
Mr. Navarre conceded the cost would be higher at the Kenai prison,
but noted different factors contributing to the higher cost. He
listed construction and food as more expensive in Alaska than in
Arizona. He pointed out that the medical costs are calculated and
paid separately.
Senator Austerman calculated a 35 to 40 percent difference in the
cost of housing prisoners at the two facilities.
Senator Ward clarified $54 is not the actual daily per diem and
that there are other costs incurred with the housing of inmates in
the Arizona prison. He gave an example of an additional $16.5
million appropriated to the Arizona facility during the current
budget year.
Co-Chair Kelly asked the true daily cost for Alaskan inmates
interned at the Arizona facility.
Senator Ward replied that he has asked the Department of
Corrections for this figure but it had not yet been provided. He
repeated there are medical expenses in addition to the per diem
rate.
Co-Chair Kelly commented that during earlier discussions, he heard
the amount to be over $70, when factoring all the costs.
Senator Austerman stressed this is an important figure to know for
informed consideration of this bill.
Senator Ward commented that sometimes inmates are transported to
Arizona for 30 days then returned to Alaska. He added that the
state Parole Board is sometimes sent to Arizona.
Ms. Knuth referenced a document, offering to provide it to the
Committee. [Copy not provided.] She detailed the contract cost per
inmate is $54.57 per day, plus inmate medical of $2.79 per day, and
transportation, $1.76 per day; totaling $62.42 per day. She
compared this with the $89 per inmate, per day contract price
proposed in this legislation, emphasizing that inmate medical and
transportation costs are not included and must be added to
determine the total actual cost. She stated medical expenses are
more expensive in Alaska. She calculated the total cost per inmate,
per day in the proposed Kenai facility to be $104.88.
Ms. Knuth posed a scenario of a state-constructed 800-bed prison
facility in Kenai at an estimated cost of $110 million, which would
incur a per inmate capitalization cost of $33.48 per day. She
qualified the construction cost is an estimate, because no studies
have been done to determine the actual costs of building a prison
in Kenai. She stated the departmental operating cost of $65.95 per
inmate per day, daily medical and transportation costs, plus the
capitalization cost, equal $116.79 per day. Therefore, she ensured,
the Arizona facility is the least expensive option for housing
inmates. She informed it would be less expensive to expand existing
facilities in the state than to construct a new facility.
Senator Austerman shared Mr. Navarre had made the statement that
the cost would be an additional $7 to 8 million each year.
Ms. Knuth clarified this is the difference between the total
contract price in Arizona of $16 million and the $24 million total
contract price of the proposed Kenai prison, which she noted is
approximately one-third higher.
Senator Ward stated for the record he is a shareholder of the
Native Corporation that owns part of the property proposed as the
site of the new prison. He also stated that he has inherited stocks
in the other Native Corporation involved in the project.
Additionally, he disclosed, his wife "does the real estate" for
both corporations. He stressed that neither he nor his wife have a
"vested interest" in the prison project.
SFC 01 # 86, Side B 07:23 PM
Senator Ward asked if the commissioner is familiar with a recent
Alaska Law Journal, which prescribes that a prisoner has a
constitutional right to receive rehabilitation.
Ms. Knuth affirmed she was familiar with the article.
Senator Ward asked if she is familiar with an article determining
that incarceration in Arizona is in violation of that right.
Ms. Knuth clarified the article suggests that the Alaska Supreme
Court should find as such, but she emphasized the article also
acknowledges the court has not done so.
Ms. Knuth addressed Senator Ward's next question regarding the cost
savings to the state associated with reduced recidivism, stressing
the department "firmly believes in rehabilitation efforts and
trying to reduce recidivism. Without a doubt that is the most cost
effective approach to correctional practices."
Senator Ward asked if returning Alaskan inmates currently housed in
an Arizona facility would reduce recidivism of these offenders.
Ms. Knuth did not have enough information to make such a
determination.
Senator Ward commented on the difficulty for family members to
travel to Arizona to visit inmates housed at that facility and
asked if the witness thought more interaction between inmates and
family, elders and other community members, would reduce
recidivism.
Ms. Knuth shared that she recently traveled to Arizona with
representatives from Cornell Companies, and the Kenai Peninsula
Borough to demonstrate what "the State of Alaska considers good
medium-security prison." She stated she is "very impressed" with
the programs offered to Alaskan Natives at the Arizona facility.
Therefore, she stated, these programs need to be considered and
balanced against the disadvantage of not having "ready visitation."
Senator Ward asked if one-fourth of recidivism is "to do with
family and community involvement".
Ms. Knuth was unsure.
Senator Ward asserted, "That is the answer." He surmised that one-
forth of the inmates housed in the Arizona are "condemned because
they don't have contact with their elders, and their uncles and
their wives and their community in Alaska. They're in the desert."
RICHARD VAN HUTTEN, President, Correction Officers Bargaining Unit
of the Public Safety Employees Association testified via
teleconference from Anchorage representing approximately 670
correctional officers in opposition of the bill. He noted his home
is in Kenai. He opined, "this bill is not only bad for the Kenai
Peninsula, it's bad for the entire state." He remarked that the
bill is too restrictive and only allows for the most expensive of
options to be made available to resolve the state's prison space
problem. He stated that because the legislature is considering
imposing an income tax and other revenue generating measures, it
does not make sense that less expensive prison options are
eliminated. He asserted this bill "lacks even the most basic
protections or guarantees that might insure that the un-recommended
privatization of this state service would save money for the State
of Alaska." He pointed out that a federal court ruling has found
that contracting prison services does not mitigate any liability
associated with prison operations.
Mr. Van Hutten continued that "privateers" compare the rate they
would charge the state, to the cost of operations in Nome, Bethel
or Ketchikan. He remarked that there would be no cost savings in
operating a prison in Kenai.
Mr. Van Hutten pointed out that the bill has no guarantee that the
people hired for the private prison would meet the current state
standards for correctional officers. He informed that currently the
Department of Corrections is unable to hire enough qualified
workers to fill existing vacancies. He agreed Alaska prisoners
should be brought back to Alaska to serve their sentences, he
thought they should be in state operated correctional facilities.
Mr. Van Hutten spoke as a Kenai Peninsula resident, saying there is
more public support for a state operated prison than a privately
operated facility. He told of the growing number of residents
speaking out against the proposed project.
MARGE HAYS testified via teleconference from Kenai in opposition to
the bill. She took issue with the claim made by a legislator that
"everyone on the Kenai Peninsula" wanted this prison. She qualified
she did not attend the publicly held hearings on the matter, but
noted that there was not unanimous support at these meetings. She
preferred no additional prisons on the Peninsula, noting the
existence of two prisons and a juvenile detention center project
underway. However, she stressed that especially a private prison is
"unwise".
Ms. Hays reiterated the previous witness's statement of the
shortage of qualified prison guards, the amount of abuse they incur
and the notorious low wages paid at private facilities. She listed
Arkansas, Oklahoma and Kansas as other states unable to retain
qualified prison guards and the alternative steps they must take to
operate their prisons. She predicted real estate agents and
developers of low-cost housing projects were among the few who
would gain monetarily from the project. Ms. Hays asserted Cornell
Companies, as with all private prison corporations, is "out to make
money". She stated that state-employed correctional officers are
not over-paid.
Ms. Hayes listed questions she had about the proposed project. She
asked about plans for rehabilitation of inmates housed in the
prison. She wanted to know what party is financially liable in the
event of "shoddy" construction. She stated that private prison
corporations are known for having poor management. Giving an
example of six inmates that recently escaped from a private prison
in Birmingham, Alabama, she noted that private prisons have a
poorer security record then that of government operated facilities.
Ms. Hayes concluded by extolling the virtues of the Kenai Peninsula
and expressed that an additional prison, especially a private
prison, would changed the culture of the area.
AT EASE 7:34 PM / 7:47 PM
[Note: The following portion of the meeting failed to record on
Committee equipment. An alternate recording made by the Legislative
Information Office is available, but is of poor sound quality; see
tapes titled SFC-01 #86/II and SFC-01 #86/III.]
RICHARD SEGURA, President, Kenai Native Association, testified via
teleconference from Kenai in support of the legislation. He stated
that the association has a vested interest in the project, which he
expressed is more compassionate than fiscal. He told of learning of
the high incarceration rate of Alaskan Natives and the
association's intent to conduct specialized Native programs. He
assured that the intent is not for a Native-only prison, but to
incorporate all inmates. He did not think the state does an
adequate job meeting the special needs of Native prisoners.
JAMES PRICE, resident on the Kenai Peninsula, testified via
teleconference from Kenai that he does not think it proper to award
"an enormous public contract" to one company without allowing bids
from competitive contractors. He remarked that the decisions were
being made before public testimony has been completed. He
expressed, "I think it's wrong to award Cornell $100,000 of our
borough's money if we chose not to allow them to build and operate
our prison, with our money on their terms." He pointed out the only
way to prevent this is if the legislature does not pass enabling
legislation, such as this bill. He requested the legislature
relieve the borough taxpayers of the obligation the borough has
made to Cornell Companies. He questioned what the actual costs of
this project and operation would be and stressed the matter should
be decided through a vote of the people.
ELSIE HENDRYX testified via teleconference from Kenai in support of
the bill saying it would provide a desperately needed economic
boost to the area. She stressed the private prison project would
directly and indirectly benefit Kenai Peninsula residents. She
spoke of the benefits of housing Alaskan offenders in a prison
located in the state.
SUSAN WELLS, Kenai resident, testified via teleconference from
Kenai that she prefers Alaskan money stays in the state and that
Alaskans should be helped in the state. She relayed the story of
person incarcerated in Arizona, then released but required to stay
in the area. She said he violated parole and is currently in prison
in California. She surmised this person would not have re-offended
if he had been closer to his family and community.
MIKE CARPENTER testified via teleconference from Kenai in support
of the bill and to respond to local concerns about the project. He
stated the major concern raised by residents pertains to wages. He
opined that the state would succeed in obtaining fair wages for
employees of the private prison. He did not understand the
opposition of the correctional officers organization.
CAROL SEGURA testified via teleconference from Kenai that all
inmates should be incarcerated in the state for economic reasons
and to give inmates an opportunity to prepare for their release.
She added that parole officers should be located in the villages so
parolees and probationers don't have to remain in large cities.
DEE HUBBARD testified via teleconference from Anchorage that while
she agreed all inmates should be housed in Alaska, she questioned
the sole-source contract method of selecting a private operator.
She told the Committee she is building a home in Seward. She
referenced reports issued by other state legislatures, including a
1995 report from the State of Washington. She listed
recommendations in this report that any privatization should
include a requirement for cost savings, set design and construction
standards to lower costs, develop a contingency plan in the event a
private contractor ceases to operate a facility, should place an
on-site monitor at the facility to ensure the contractor provides
what the legislation mandates, and should establish comparative
efficiency and effective criteria to permit subsequent evaluation
of performance.
Ms. Hubbard continued by detailing a report presented to
International Conference on Penal Abolitions in May 2000 that found
that public officials were "tightening" requirements and monitoring
of privately operated prisons. She noted that private providers are
being fined and contracts terminated for those operators that fail
to comply with the terms of the contract. She also stated that some
privately operated prisons reverted to state control after it has
been found the private method has caused more problems then
provided benefits.
Ms. Hubbard told of discrimination based on race in private prison
facilities in the State of Arizona but a statutory rider that
reduces funding if more then ten-percent of the offenders from that
state are housed in another state. As a result, she said prisons
with severe overcrowding are unable or unwilling to transfer
inmates.
Ms. Hubbard wanted to know if the Kenai facility would be required
to only accept inmates from Alaska.
Co-Chair Kelly requested the witness provide the materials she
cited during her testimony.
MICHAEL SLEZAK testified via teleconference from Kodiak in support
of the legislation. He opposed the housing of Alaskan Native
inmates outside the state and expressed he thought the Department
of Corrections should be "ashamed" at the lack of culturally-
relevant rehabilitation programs.
DAVID CATHOLIC [last name unverified] testified in Juneau in his
native language and in English in support of the bill. He suggested
that money is not saved if the state pays $50 per day per inmate
but that inmate is not being rehabilitated because that person
remains a burden to society. He spoke of the various economic
benefits of a rehabilitated offender who is able to provide for
themselves and their family as well as contributing to a safer
community by not reoffending. He stated that most Alaskan inmates
housed in the private Arizona facility are misdemeanants rather
then felons. He suggested the state is a co-dependent when it
continues to pay the cost of repeat offenders rather then take
active steps to rehabilitate them.
There was a motion on the floor to adopt the committee substitute
and it was ADOPTED without objection at this time.
Amendment #1: This amendment inserts language between "facility"
and "will bring" in Section 1. LEGISLATIVE INTENT. on page 1 line
13 of the committee substitute. The amended language reads as
follows.
The legislature anticipates a privately operated correctional
facility procured by competitive bids open to private, for
profit or nonprofit contractors will bring competitive
management styles and operation to Alaska.
This amendment then replaces "operators" with "contractors" on page
2, line 23 in Section 2. AUTHORIZATION TO LEASE CORRECTIONAL
FACILITY SPACE WITH THRID-PARTY CONTRACTOR OPERATOR., subsection
(b). The amended language reads as follows.
(b) The agreement to lease entered into under this section is
predicated on and must provide for an agreement between the
Kenai Peninsula Borough and one or more private third-party
contractors under which private, for profit or nonprofit
third-party contractors construct and operate the facility by
providing for custody, care, and discipline services for
persons held by the commissioner of corrections under
authority of state law. The commissioner of corrections shall
require in the agreement with the Kenai Peninsula Borough that
the Kenai Peninsula Borough procure one or more private third-
party contractors through a competitive process similar to the
procedures established in AS 36.30 (State Procurement Code).
The adoption, by Kenai Peninsula Borough exercising its powers
under AS 29.35.010(15), of Ordinance No. 2000-59, for
procurement of land, design, construction, and operation of a
facility on a request-for-qualification basis satisfies the
procurement requirements of this subsection.
Senator Olson moved for adoption.
Senator Ward objected and asked the sponsor to withdraw the
amendment because Senator Torgerson planned to offer it on the
Senate floor.
Co-Chair Kelly stated this was irrelevant. He instead directed
attention to a memorandum from the Division of Legal and Research
Services, which addresses the separation of powers constitutional
concerns raised by Ms. Knuth.
AT EASE 8:13 PM / 8:20 PM
Senator Olson shared that after consultation with a representative
from the Alaska Federation of Natives (AFN), he recognized their
support of the legislation and he WITHDREW his motion to adopt the
amendment without objection.
Senator Ward thanked Senator Olson for withdrawing the amendment.
Co-Chair Kelly made reference to an Amendment #2, which was not
specified and was not offered.
[Note: Audio recording resumes.]
VERN JONES, Chief Procurement Officer, Division of General
Services, Department of Administration testified in Juneau at the
request of the Department of Corrections. He spoke to the proposal
for the Department of Corrections to make payments of approximately
$89 per day for all of the beds in the facility, whether they are
occupied with Department of Corrections prisoners or not. He noted
this would be a departure from the state's current practice of
paying the contractor for only those beds occupied with Alaska
prisoners.
Mr. Jones recalled contracts held, approximately six years ago,
with halfway house service providers in which the state was
required to pay for a mandatory minimum number of beds. He shared
that the Department of Corrections found that because of several
factors beyond the control of the department, the state paid for a
significant number of vacant beds. This was rectified, he said with
modifications to the contracts to provide payment only for occupied
beds.
Mr. Jones relayed the Department of Corrections position that it is
good business practice to pay only for the services that are
actually provided rather that a set number of beds, as stipulated
in this legislation.
FRANK PRUITT, former Commissioner, Deputy Commissioner and Legal
Council, Department of Corrections testified in Juneau to offer his
assistance in providing information regarding the cost of housing
prisoners in Alaska.
Senator Leman referred to language in the committee substitute
indicating that the legislature expects the daily cost to be
approximately $89 per inmate, per day, saying he would prefer
greater assurance that this amount would be the actual maximum
cost. He understood the concerns that were raised during the public
testimony and agreed that the cost issue is a valid point.
Mr. Pruitt replied that the outsourcing of prison services to
private providers generally realizes a 10-15 percent reduction in
the cost of the services provided by a government entity. He
qualified it is somewhat different in Alaska.
Mr. Pruitt referenced the handout, "Anchorage Jail Annualized Costs
Projected for FY 2003". [Copy on file.] He cited the average
operating cost for the Anchorage facility is approximately $102 per
day, per inmate. He then included the debt service of this
facility, raising the cost an additional $34 to $36, making the
total cost approximately $138 per inmate per day. He listed the
"combined daily average cost of care per inmate" in Alaska is $111,
which he noted includes expensive facilities such as one located in
Ketchikan. He stated the Ketchikan facility has "limited economies
of scale" and that the cost is $138 for this facility.
Mr. Pruitt noted the existing medium-security state-operated
facilities located on the Kenai Peninsula costs $60 to $70 per day,
but stressed this amount does not include other costs such as
statewide programs, which are paid separately.
Mr. Pruitt explained the figure of $89 per inmate per day was
reached through consideration of the $111 daily average operating
rate of facilities operated by the Department of Corrections not
including debt service. This amount, he continued, was then used to
"give the private sector a target" of delivering the same services
at a rate 18 to 20 percent less.
Mr. Pruitt stated, "The private sector can deliver an 800-bed,
medium security prison, meeting American Correctional Association
standards and Department of Corrections' standards, for that per
diem rate, for both operation and debt service." He pointed out
this rate is "tight". He told of attempts over seven years to
configure a comparative model of a private delivery of correctional
services in Alaska.
Mr. Pruitt pointed out the Department of Corrections has been
partnering with the private sector for many other services
beginning in the 1980s. However, he noted a prison was different
from other services. He stated that a minimum payment for 800 beds
is "frankly, what it's going to cost to pencil out." He stressed
that without the full amount, "we simply don't have the economies
of scale for that particular per diem."
Mr. Pruitt summarized the State of Alaska would benefit with a
prison that operates at a cost 25 percent less than a state-
operated facility.
Senator Leman understood the witness is fairly confident that an
ultimate negotiation, after all negotiations are completed, the
actual per inmate per day rate would be less than $89.
Mr. Pruitt clarified the legislation provides a range of $89 to $90
within which the Department of Corrections could negotiate to
purchase these prison services, operations and debt services.
Senator Leman disagreed the language interprets as such, "but I
hope that's our objective". He stated that the language is not
specific. He asked if the witness suggested the limits should be
imposed in the legislation.
Mr. Pruitt asked if the committee substitute version "W" provides a
per diem rate that is 18 to 20 percent less than the statewide
average.
Senator Leman replied this is contained in the intent language and
read, "the legislature expects…" and applies only to the "initial
per diem" rate. He wanted to know how confident the witness is that
the actual contract would provide a per diem rate of between $89
and 90. He preferred to know a maximum amount, with the expectancy
that the actual rate would be lower.
Mr. Pruitt remarked it costs less money to house inmates in Arizona
and if the issue were only about money, the state should continue
to utilize that facility. He stressed if the issue is about jobs
and economic stability to the Kenai Peninsula, the "multiplier
effect" of spending additional money must be considered. He
asserted that a private prison in Kenai could not operate at a per
diem rate less than $89.
Senator Leman asked if the services could be delivered for $89.
Mr. Pruitt answered he believed it could.
Senator Leman asked "are you quite confident" that it actually
would be delivered for $89.
Mr. Pruitt read the legislation to stipulate that if the services
could not be delivered at a rate between the ranges of $89 to $91,
there is no authorization to the Department of Corrections to
purchase the service.
Senator Leman stated that the legislation does not say this, but
that it could be changed.
Senator Wilken asked if the Kenai private prison would house any
inmates who were not Alaskans.
Mr. Pruitt could not think of any scenario to indicate this would
happen. He stressed the standards of the facility and the inmates
who would occupy the facility are controlled by the Department of
Corrections. In the contract with the Department of Corrections, he
detailed, the commissioner has the responsibility and authority to
designate such. He stated that Cornell does not, and should not
have the ability to import prisoners. He assured that they would
not import prisoners because of the higher cost to deliver the same
services as in facilities in the Lower 48 states.
Senator Austerman clarified the facility would need to contain 800
beds to be a viable project.
Mr. Pruitt affirmed.
Senator Austerman quoted Senator Ward as saying there are
approximately 900 Alaskan prisoners currently housed in Arizona.
Senator Austerman expressed concern about the cost and viability of
housing 100 inmates in Arizona after the 800-bed, Kenai facility is
completed. He therefore asked why the proposed facility is not
larger to accommodate the entire overflow.
Mr. Pruitt responded the legislation specifies the proposed private
prison would have a minimum of 800 beds. This, he detailed, gives
the opportunity to design and plan for a larger facility if the
department has that need. He understood there are only 780
prisoners in Arizona at the present time, and noted the number has
fluctuated although he did not know why. He speculated the
"extraordinary growth rate in the prison system" during the 1980s
and 1990s has slowed. He determined that a minimum of 800 beds
would be sufficient. He informed of the intent to design the
facility to allow expansions, which would reduce the per inmate per
diem rate.
Senator Hoffman noted Senator Ward expressed he is interested in
returning Alaskan inmates "back home", but Senator Hoffman pointed
out the Bethel facility is overfilled by approximately 50 percent
and the Nome facility is overfilled as well. He stated that
applying Senator Ward's arguments in favor of a Kenai facility, it
actually makes more sense for many rural inmates to be closer to
their families in Nome and Bethel. Senator Hoffman asserted less
emphasis should be placed on filling the proposed 800 beds and more
consideration for addressing the needs in Nome and Bethel. He
emphasized that for a rural villager, traveling to Kenai is just as
far as Arizona. He suggested the legislature should address the
regional needs across the state rather that support one private
prison facility.
Mr. Pruitt responded that Alaska has unique correctional needs
compared to other states because it is integrated and houses
sentenced offenders, misdemeanants, and felons, serves as local
jails and provides probation and parole services. He characterized
the system as "one size fits all". He agreed the need in Bethel is
"extreme", but stressed that much of the regional needs are for
short-term sentence accommodations. He doubted the economic scale
of many regional locations could support "large sentence"
facilities. He instead supported a system of graduated release,
where offenders move from higher custody program facilities and
transition out to their communities before returning home. He
understood that South Central Alaska is still far away from some
communities, but stressed it is closer then Arizona.
Senator Ward offered a motion to move SCS CS HB 149, 22-LS0436\W,
from Committee with accompanying $165,500 fiscal note from the
Department of Corrections and new $50,000 fiscal noted from the
Department of Revenue.
Without objection, the bill MOVED from Committee.
SENATE BILL NO. 193
"An Act relating to a study of the economic and social effects
of the permanent fund dividend on the state."
[This bill was held earlier in the meeting. A motion to adopt
Amendment #1 was on the table.]
Senator Leman moved to amend his amendment to change the funding
source from the permanent fund earnings account to permanent fund
corporate receipts. The amended language reads as follows.
The sum of $200,000 is appropriated from the permanent fund
corporate receipts to the Legislative Council for a study of
the economic and social effects of the permanent fund dividend
on the state.
Senator Leman explained the change to the funding source as
recommended by the Division of Legislative Finance.
Senator Ward removed his objection to the adoption of the
amendment.
The amendment was AMENDED and ADOPTED without objection.
Amendment #2: This conceptual amendment deletes "the preparation
of" proceeding "a study of" from Section 1. LEGISLATIVE INTENT. On
page 1, lines 8 and 9 of the committee substitute. The amended
language reads as follows.
The legislature intends that the Legislative Council, in
consultation with the Department of Community and Economic
Development, the Department of Health and Social Services, and
the Department of Labor and Workforce Development, use the
appropriation made in sec. 2 of this Act to contract for a
study of the economic and social effects of the permanent fund
dividend on the state.
Co-Chair Kelly moved for adoption and explained this allows the
state to contract with a private organization to complete the
study.
Without objection, the amendment was ADOPTED.
Senator Green offered a motion to move CS SB 193, 22-LS0828\J, as
amended from Committee with new Legislature fiscal note for
$200,000.
The bill MOVED from Committee without objection.
AT EASE 8:46 PM / 8:46 PM
ADJOURNMENT
Co-Chair Pete Kelly adjourned the meeting at 08:46 PM.
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