Legislature(1995 - 1996)
04/23/1996 04:02 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE April 23, 1996 4:02 P.M. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator John Torgerson, Vice Chairman Senator Mike Miller Senator Jim Duncan Senator Judy Salo MEMBERS ABSENT All members present COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 436(TRA) "An Act relating to purchase and sale of mobile homes by mobile home dealers; to mobile home titles; and providing for an effective date." SENATE BILL NO. 323 "An Act relating to investments by fiduciaries; and providing for an effective date." CS FOR HOUSE BILL NO. 533(L&C) am "An Act relating to the board of directors of the Alaska Aerospace Development Corporation." CS FOR HOUSE BILL NO. 428(FIN) am "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; and giving notice of and approving a lease-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." PREVIOUS SENATE COMMITTEE ACTION HB 436 - No previous action to consider. SB 323 - No previous action to consider. HB 533 - No previous action to consider. HB 428 - See Labor and Commerce minutes dated 4/18/96. WITNESS REGISTER Tom Anderson, Staff Representative Terry Martin State Capitol Bldg. Juneau, AK 99801-1182 POSITION STATEMENT: Staff to sponsor of HB 436. Rod Shipley, Senior Vice President Manager, Trust Department National Bank of Alaska Anchorage, AK POSITION STATEMENT: Supported SB 323. Kevin Sullivan Federated Securities, Inc. Charles Campbell 3020 Douglas Hwy. Juneau, AK 99801 POSITION STATEMENT: Opposed HB 428. Gary Damron, Correctional Officer Highland Mountain Correctional Center Department of Corrections P.O. Box 600 Eagle River, AK 99577 POSITION STATEMENT: Opposed HB 428. Glenn Schrader P.O. Box 1264 Kenai, AK 99611 POSITION STATEMENT: Opposed HB 428. Bill Parker HC 1, Box 1418 Soldotna, AK 99669 POSITION STATEMENT: Opposed HB 428. Richard Seward P.O. Box 60351 Fairbanks, AK 99709 POSITION STATEMENT: Opposed HB 428. Chester Zeigler 1043 W. 74th Ave. Anchorage, AK 99501 POSITION STATEMENT: Opposed HB 428. Chuck O'Connell, Business Manager Alaska State Employees Association AFSVME Local 52 3510 Spenard Rd., #200 Anchorage, AK 99503 POSITION STATEMENT: Opposed HB 428. Ross Kinney, Deputy Commissioner Department of Revenue P.O. Box 110405 Juneau, AK 99811-0400 POSITION STATEMENT: Commented on HB 428. Bob Cole, Director Division of Administrative Services Department of Corrections P.O. Box 112000 Juneau, AK 99811-2000 POSITION STATEMENT: Commented on HB 428. ACTION NARRATIVE TAPE 96-29, SIDE A Number 001 CHAIRMAN KELLY called the Senate Labor and Commerce Committee meeting to order at 4:02 p.m. and said they would first take up the Governor's confirmations of Pam Aldersebaes for the Board of Chiropractic Examiners and Mr. Clair Ramsey and Gordon Severson for the Real Estate Commission. SHERMAN ERNOUF, Staff to Senator Kelly, said their office had received no comments on the nominees. SENATOR KELLY directed staff to send a letter to the President of the Senate saying while reserving their right to vote for or against, we recommend they go to the Joint Conference. HB 436 MOBILE HOME DEALERS & TITLES TOM ANDERSON, Staff to sponsor, Representative Terry Martin, said HB 436 is a consumer protection bill establishing procedures for licensing and regulating mobile home dealers. There is inequality with the way realtors are licensed and the way mobile home dealers are not. The bill requires a bond of $50,000 to be maintained and requires mobile homes to be titled through the Division of Motor Vehicles. MR. ANDERSON explained they first wanted to license mobile home agents who might sell mobile homes, but the American Manufactured Housing Association recommended they delete the word agent and maintain it as a dealer affected bill. He said that the Division of Occupational Licensing concurs with their changes and they have letters of support from different mobile home dealers as well the Alaska Public Interest Research Group. SENATOR KELLY asked if there was a fiscal note. MR. ANDERSON replied that Division of Occupational Licensing submitted one for 1997 and 1998 for $24,200 and Public Safety provided one with $0. SENATOR KELLY asked if there was any opposition to the bill. MR. ANDERSON replied there was some opposition several weeks ago regarding the bond amount and there was talk of reducing it to $25,000, but that didn't happen. He didn't know if the opposition was still there. Number 85 SENATOR TORGERSON moved to pass HB 436 from committee with individual recommendations. There were no objections and it was so ordered. SB 323 INVESTMENTS BY FIDUCIARIES SENATOR KELLY announced SB 323 to be up for consideration. ROD SHIPLEY, Senior Vice President and Trust Manager for the National Bank of Alaska, said he was responsible for all of NBA's fiduciary activities. He said that SB 323 updates and clarifies provisions in Title 13 and amends Title 6, the Alaska Banking Code. MR. SHIPLEY said that 35 states have enacted legislation the same as SB 131 which Governor Knowles signed in April '96. The obligations of the U.S. Government has been interpreted in the 35 other states to include agencies or instrumentalities such as federate securities corporations. However, a minority of states have interpreted obligations of the U.S. Government to include only treasury obligations. SB 323 removes the ambiguity. Agencies or instrumentalities of the U.S. Government include the Federal Home Administration (FHA), General Services Administration, U.S. Maritime Association, and Small Business Administration, the Government and National Mortgage Association, Housing and Urban Development, Farms Home Administration, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, Federal Land Bank, Central Bank For Cooperatives, the Federal Intermediate Credit Bank, Student Loan Marketing Association, and the Federal Home Loan Banks. SB 323 also provides for fiduciary investment or interest in other investment companies whose portfolios are restricted to obligations of the U.S. Government. This amendment is aimed at capturing the administrative efficiencies and cost savings generated by very recent structural changes in the manner in which some investment companies conduct their business. Section two achieves consistency between Title 6 and Title 13. It clearly establishes a law which pertains to entities which operate simultaneously under both titles. Number 159 SENATOR TORGERSON questioned the effective date of sections 3 and 4. KEVIN SULLIVAN, Federated Securities, Inc., explained that the effective date ties in with SB 131, the underlying piece of legislation this is speaking to. There will be no window in time when SB 131 goes into effect based upon when it was signed by the Governor. SENATOR TORGERSON moved SB 323 from committee with individual recommendations. There were no objections and it was so ordered. HB 533 ALASKA AEROSPACE DEVELOPMENT CORP. BOARD SENATOR KELLY announced HB 533 to be up for consideration. SENATOR TORGERSON moved to pass HB 533 from committee with individual recommendations. There were no objections and it was so ordered. HB 428 LEASE-PURCHASE CORRECTIONAL FACILITY SENATOR KELLY announced HB 428 to be up for consideration. CHARLES CAMPBELL, Juneau resident, said he was Director of Corrections during the last three years of the Hammond Administration. More recently he served as standing compliance monitor in the Cleary case. However, he had no role in reaching the settlement, but he had a responsibility for monitoring compliance with the decision. He said he had a variety of roles in Corrections over a period of about 45 years including assignments to seven different federal prisons. During recent years he has spent much of time researching and writing in the field of penal history and he believed that when it comes to making public policy it is a big mistake to ignore the lessons of history, especially when the lessons are clear and applicable as they are where imprisonment for profit is concerned. He said we especially need to remember the appalling results and sad legacy, especially in the Southern States, of turning imprisonment over to private, profit seeking interests as was done at the end of the civil war. MR. CAMPBELL opposed HB 428 or any legislation that would move Alaska toward privatization of prisons. He said the core problem here is not so much the lack of space to house convicts as it is the really alarming number of Alaskans in prison. The privatization idea is a way of accommodating a problem rather than looking for ways of solving it. Privatization will become a matter of relying on folks whose corporate survival depends on the problem not being solved or alleviated very much. MR. CAMPBELL said we need to keep in mind the Alaska Constitutional requirement reiterated in the Cleary settlement that the State's prisons provide rehabilitative opportunities. The privatization of a facility does not relieve the State from this requirement. We ought to be able to assume that the people running rehabilitative programs or facilitating those programs in a State prison genuinely want the programs to be successful. How could we ever make that assumption when the financial interests of the company running the prisons are served best by the failure of rehabilitation programs? Recidivism is a plus factor for the private prison industry. He said that he didn't think that people getting six figure salaries were the kind of folks who would be using their skills and influence to encourage legislation that might reduce the rate of imprisonment. MR. CAMPBELL said he didn't think we could build our way out of this problem. It is not just here in Alaska; it's a national problem - an increase of the prison population of almost 150 percent over the last 15 years. Here in Alaska we have outstripped that growth. He added that after WWII the U.S. sent thousands of young Americans off to colleges, universities, and technical schools. The whole nation benefited. Now we are sending thousands of young Americans off to penal institutions that hardly make a pretense anymore of having rehabilitative programs. We will be sure to reap the consequences of the new and revised kinds of training these thousands of Americans are receiving in jails and prisons across the country. It is not a happy prospect. MR. CAMPBELL said he did not believe the American people are so inclined to violent, criminal behavior as to justify the highest incarceration rate on earth. He asked what happened to the Criminal Justice Planning Commission or to the Corrections Master Plan that was developed in the late '70's and early '80's. He asked what happened to the Sentencing Commission. He said we are paying the price for failing to appreciate the importance of analysis and long range planning. He said we need to reject the privatization idea, go with the Governor's plan that is the best approach for dealing with the immediate problem, and then set up some arrangement to seek out the factors that have contributed and are still contributing to the problem of over imprisonment. He said we need to revamp the sentencing statutes of the State, making sure dangerous offenders stay confined a long time and that nondangerous offenders take up less bed space in conventional prisons. We need to make expanded use of alternatives to imprisonment for prisoners who are not dangerous and we need to give serious support to drug and alcohol treatment programs and other kinds of preventative measures like better schools and better resources for young people and better parenting for our children. Number 313 SENATOR SALO said she agreed with much of what Mr. Campbell said, but in the event they were not going to lay aside HB 428 she had some amendments that would make this bill better public policy. SENATOR SALO moved amendment #1. SENATOR KELLY apologized and said there were a number of people waiting on teleconference to testify before they voted on amendments. SENATOR SALO said that was o.k. GARY DAMRON, Shift Supervisor, Department of Corrections, said he spoke on behalf of 800 correctional officers with ASEA and over 75,000 correctional officers who have contacted him nationally. MR. DAMRON said that private corrections throughout the United States has a long history or failure. He noted a number of institutions in the 1700 and 1800s that had to be taken over because of abuses against the prisoners. New York's most prominent prisons, Auburn and Singsing, were once private facilities run by corporations. In the late 1880's private prisons were so popular they were the norm, not the exception. Around 1900, due to abuse complaints from the private sector, the states were forced to accept responsibility to manage and operate the facilities. MR. DAMRON said there is a substantial conflict of interest for a private company to run a public prison. The Alaska Constitution requires reclamation of the defender, but private companies want to keep their cells filled to keep their profits up. There is no incentive for them to run quality rehabilitation programs, because if you reform a defender, he or she becomes a productive member of society and you lose our revenue. Rehabilitation programs are very expensive. Another conflict of interest comes to disciplinary problems inside the prison. One of their best management tools currently is statutory good time for good behavior. A private prison would have no incentive to use that tool. The two companies, Wackenhut and Correction Corporation of America, seem to be the force behind the privatization effort in Alaska. Wackenhut used unlicensed investigators in Alaska to quiet Alyeska Pipeline Service Company critics and they broke the law in three states investigating congressmen. The Correction Corporation of American is currently being investigated for a bribery kickback scam involving a $1 million contract for operating a correctional center. In conclusion, MR. DAMRON said that the State of Alaska wants a correction system that concentrates on the humane treatment and reformation of the prisoner and not merely warehouse a convicted person. The Alaska Department of Corrections is the finest correctional system in the United States. We have excellent programs including sex offender treatment, drug and alcohol abuse, male and female offender rehabilitation, and mental health treatment and education. Number 330 RICHARD SEWARD, Fairbanks, opposed HB 428. He said he wasn't a correctional officer, but he had spent time visiting correctional centers and looking into Alaska correction issues. When you are enforcing the captivity of citizens there is always a threat of the use of force. He thought it was bad public policy to let the use of force be a profit making endeavor. He said it is very clear to him that the liability of the use of force will always be with the State of Alaska. GLENN SCHRADER, Kenai, said he was totally against privatization of the prison system. A private operator is in it to make money and they will try to cut corners and cut costs. He endorsed Governor Knowles proposal to add on to existing facilities. Number 440 BILL PARKER, Soldotna, said he agreed with the previous testimony because they are correct. Private jails were tried in this country years ago and they didn't work. He said it didn't make a lot of sense to spend a whole lot of money shuffling inmates all over the State from one location for meetings with their attorneys and court. CHESTER ZEIGLER, Anchorage, said he had talked to a lot of people from different walks of life and found no one who supports this bill. MR. ZEIGLER said it becomes a dehumanized task to handle prisoners, but it becomes more so when you don't have State responsibility and oversite of it. He said the Governor's plan is the best plan we have right now and is a better way to go than getting involved with privatization. Number 485 CHUCK O'CONNELL, ASEA, said he read an article in a national publication concerning privatization. Last summer there was a major riot at a privately run facility in northern New Jersey. Previous to that riot the Federal Bureau of Prisons had contracted to build four additional private prisons. Following the riot and the tremendous liability the Federal Government found themselves facing with the deaths and injuries that occurred in the riot, they canceled all of their private contracts with the exception of one that is about to open. He thought it was important to note that we have never had a riot in Alaska. In Minnesota and Louisiana when private contracts were let, they came in with very low bids, but in all (three) instances they came back for and received additional money. Number 515 ROSS KINNEY, Deputy Commissioner, Department of Revenue, said they have one concern with this bill and that is with the financing mechanism being proposed. He explained that lease purchase is a viable option for financing. However, in this case, the concerns they have from the State bond community's perspective is the fact that the financing is rolled into an overall contract that deals with construction and operation. There are a number of inherent risks association with that type of activity from a financing perspective. The concerns they have are simple. They feel as though the State bonding community can issue debt on behalf of the State of Alaska cheaper than anyone else can issue on our behalf. The revenue stream that would arrive from the lease payments associated with the contract would be pledged as security for this debt. That is subject to annual appropriation by this legislature and as a result will receive a rating that is significantly less than our general obligation bond rating. Where we have a AA rating for GO bonds, our rating on a prison facility under a COP issue would be rated A. Rates that could be utilized under an insured issue for a AAA rating are substantially below what a AA GO rate would be. If a private contractor were to finance this obligation, there would be risks associated with that, not only in the area of appropriation risk, but a construction risk. He said you need to be aware of the fact that they need to deal with a contractor who is rated or is highly rated in order to assure we will get the best interest rates for the kinds of debt that is being issued. If there is a problem with either the construction or the operation of this contract, it has to be unbundled to separate the financing portion. This could be extremely expensive. There is a question also if the State will benefit from interest rates moving in our favor and being able to utilize refinance mechanisms to lower our interest costs over the life of the debt. MR. KINNEY said on our current revenue stream and the unrestricted portion of the general fund revenue our debt rating is predicated on the fact that we are looking at a situation whereby oil is decreasing in production quantity and that over time our budget is going down accordingly. For that reason the issuance of debt according to the rating agencies by the State of Alaska should not be extended beyond the year 2013 until the legislature come to grips with the need for a long range fiscal plan and a capital improvements program that covers six years, but also covers the broad spectrum of needs that we have. If we want to extend beyond that, he assured them that he could issue that debt, but there is an extremely high probability that we will have to accept reduction in the State's rating and therefore an increase in the interest cost. This is the case for either G.O. debt or lease purchase, he concluded. SENATOR TORGERSON asked why we didn't have this problem with construction of the Seward Prison. MR. KINNEY replied in that case they were using a municipality for that purpose, as a conduit, and not a contractor. The State remained liable for everything. This is entirely different from having an independent contractor utilizing our credit rating and our stream of money for those operations. Number 568 SENATOR SALO moved to adopt amendment #1. SENATOR MILLER objected. SENATOR SALO explained that amendment #1 requires the facility to demonstrate that they can operate 10 percent below the cost of a comparable State facility. REPRESENTATIVE MULDER opposed the amendment strongly because there is no other facility in terms of size or scope in the State of Alaska to compare it to. Also the jury is not impartial since the Commissioner opposes the private concept. He noted that the operations is only a portion of the cost. SENATOR KELLY asked all those in favor of amendment #1 to raise their hands. Upon a show of hands SENATOR SALO voted yes; SENATOR MILLER, SENATOR TORGERSON, and SENATOR KELLY voted no; and the amendment failed. SENATOR SALO moved and asked unanimous consent to adopt amendment SENATOR SALO explained that currently the bill does not allow the State to operate the facility unless the contractor defaults. TAPE 96-29, SIDE B Number 586 It takes out the language saying "the State may not operate" and gives the Commissioner some latitude to deal with problems like if the bids are not responsive, what if the operator is unacceptable, etc. It could easily be in the State's interest to take over an operation before an emergency situation exists. REPRESENTATIVE MULDER opposed the amendment saying the only time the bill allows the State to operate the facility is when the private contractor has defaulted and only until they have put in another private contractor. He thought the State employees were afraid of some competition and this specifies there will be competition. Upon a show of hands SENATOR SALO voted yes; SENATOR MILLER, SENATOR TORGERSON, and SENATOR KELLY voted no; and the amendment failed. SENATOR SALO commented that she is repeatedly getting a response that somebody is afraid of competition or the Commissioner is somehow to be distrusted. She thought the State of Alaska has invested authority into the Commissioner of Corrections for a very good reason and she trusted that authority and the Commissioner. SENATOR SALO moved to adopt amendment #3. She said the bill requires correctional officers to meet certain standards, but it is permissive relating to guards. The proposed amendment requires guards to meet the current standards of training for correctional officers. The intent of the amendment is to make sure, whether they are privately or publicly run, the guards are well trained. REPRESENTATIVE MULDER responded that the bill already allows for the Commissioner to direct officers within the private facility be trained to the same level as their public counterparts. It makes training mandatory and not at the option of the Commissioner. MR. DEWITT, Staff to Representative Mulder, said AS18.65 requires things other than training and this amendment limits the requirements to training. SENATOR TORGERSON said he thought they should divide the question. The first part of the amendment doesn't hurt anything, but he agrees with the later part. SENATOR TORGERSON moved to divide the question. REPRESENTATIVE MULDER said he had no opposition to that amendment. SENATOR SALO commented that she thought removing the Commissioner reference in the beginning of that sentence would be shifting responsibility somewhat to the Department of Administration. She said if the statutes talk about training and more, then it didn't matter to have the Commissioner in the first part. SENATOR TORGERSON removed his motion. Upon a show of hands SENATOR SALO AND SENATOR DUNCAN voted yes; SENATOR MILLER, SENATOR TORGERSON, and SENATOR KELLY voted no; and amendment #3 failed. SENATOR SALO moved to adopt amendment #4. SENATOR MILLER objected. She explained that this bill does not allow the State to operate the facility unless the contractor defaults, but the amendment would allow the Commissioner to operate this facility if the contractor does not meet the 10 percent cost savings assuring that the cost savings remains. REPRESENTATIVE MULDER commented that this was a combination of amendments #1 and #2 and the same arguments can be used. He added that his bill makes a statement that we want a private prison within the State to provide competition. Upon a show of hands SENATOR SALO and SENATOR DUNCAN voted yes; SENATOR MILLER, SENATOR TORGERSON, and SENATOR KELLY voted no; and amendment #4 failed. Number 487 SENATOR SALO moved to adopt amendment #5. SENATOR MILLER objected. She explained that amendment #5 requires the operator of the facility meet the Cleary settlement or else the State must step in. REPRESENTATIVE MULDER said that he originally included this language in his bill, but it was removed at the request of the Department of Corrections because the Commissioner felt she wanted to have that latitude. BOB COLE, Administrative Director, Department of Corrections, said that any facility operating within Alaska is bound by the Cleary settlement. SENATOR KELLY said there was no objection to amendment #5 and it was adopted. SENATOR SALO moved to adopt amendment #6. SENATOR MILLER objected. She explained that it requires the facility to seek, obtain, and maintain accreditation. This would hold the facility to a standard that she thought the State ought to be able to expect. REPRESENTATIVE MULDER said that not all of our State facilities are accredited. He thought that accreditation should be required of all facilities. SENATOR KELLY asked why some facilities aren't accredited. MR. COLE replied that it's mostly because of overcrowding. SENATOR KELLY commented why shouldn't they have to be accredited. SENATOR SALO moved to amend amendment #6 to delete "This requirement is effective only when, as a matter of policy, the Commissioner of Corrections seeks and obtains accreditation of State Correction facilities." There was discussion on the motion and SENATOR TORGERSON asked if there was a yearly process for reaccreditation. MR. COLE said he believed there was a reaccreditation process that occurs periodically. SENATOR KELLY asked who does the accreditation. MR. COLE answered the American Correctional Association. SENATOR KELLY moved to adopt, "In the award of a contract for the operation of the correctional facility to be constructed and operated under the notice and approval given in A of this section the Department of Administration shall require the contractor to seek, obtain, and maintain accreditation of the correctional facility by the American Correctional Association." SENATOR SALO said she like that language. SENATOR KELLY announced that there were no objections to that amendment and it was adopted. Number 400 SENATOR SALO moved to adopt amendment #7 and asked for unanimous consent. SENATOR MILLER objected and asked how they accounted for areas like Fairbanks where there is a second class Borough and there are home rule cities within that or if you want to put the prison in an unorganized borough. SENATOR SALO said there was an example like that in the Kenai district where a half way house was proposed that wasn't in a municipality or a zoned area and there was no method by which to hold hearings. One might argue that if it is in an area like that, it's not as densely populated as when it is within a municipality or the wording could be changed to provide a hearing process anywhere. She thought it was important to have a public process. REPRESENTATIVE MULDER opposed the amendment. He said the site selection is a public process already included in the fiscal note. He is sensitive to the public process, but the word "approves" troubles him because it sets up another hurdle. People don't want a prison in their back yard. SENATOR SALO responded that when it remains a public facility it is governed by existing rules and regulations, but if it moves to the private sector, those regulations and requirement for public input diminish significantly. She said in the spirit of cooperation she would withdraw the amendment and try to work on something that would meet their needs. SENATOR SALO withdrew amendment #7. SENATOR KELLY said he had his sympathies with this amendment in another form, but he didn't want to hold the bill in this committee waiting for the acceptable form to be drafted. He said he preferred that she work on it as it passes through. Number 330 SENATOR TORGERSON moved to adopt the CS to HB 428. There were no objections and it was so ordered. SENATOR TORGERSON moved SCSHB 428 from committee with individual recommendations. SENATOR SALO objected. Upon a show of hands SENATOR MILLER, SENATOR TORGERSON, and SENATOR KELLY voted yes; SENATOR SALO and SENATOR DUNCAN voted no; and the bill passed from committee. SENATOR KELLY adjourned the meeting at 5:45 p.m.