Legislature(1997 - 1998)
02/06/1998 01:45 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.
Co-Chair Therriault asked clarification from information
presented at a previous meeting regarding a nuclear power
plant located on the Ft. Greely site.
LT. COL. (TESTIFIED VIA TELECONFERENCE), DAVID ANDERSON,
U.S. ARMY, FT. GREELY, DELTA JUNCTION, noted that plant had
been in operation from 1962 through 1971. In 1971, it was
closed and all associated equipment and materials were
either moved or sealed inside the reactor itself. The Army
Reactor Agency routinely monitors it. In addition, there
exists a waste water line, which leads to a power plant at
a dissolution station, discharging into Jarvis Creek. At
the time it was in full operation, the dissolution station
and the discharge area met all requirements for regulated
reactor waste. Redemption of that line began last summer,
and a work schedule has been implemented to remove all the
line. To date, some of the pipeline has been removed as
well as 70-80% of the contaminated soil. The remainder
will be removed during this year's construction season.
The Army funded the project. None of the pipeline or the
old plant is in the area of the proposed prison site.
Representative J. Davies asked if the old reactor was
located within the active power line. Lt. Col. Anderson
stated that they were within the same facility. The
reactor is located at the North end of the power facility;
the power and heat generation is situated at the Southern
end of the plant. The power plant will provide the heat,
water and sewer support for any activity use within the
site.
MARGARET PUGH, COMMISSIONER, DEPARTMENT OF HEALTH AND
SOCIAL SERVICES, recognized the need to expand prison space
in Alaska. Her intent was to provide Committee members a
perspective of the State's commitment and involvement with
the Delta/Greely area and current prison and jail needs.
She added that the Administration has been involved with
that area, most recently with the red meat packing plant.
DOC has worked with feed lot owners there for many years.
MIKE IRWIN, COMMISSIONER, DEPARTMENT OF COMMUNITY AND
REGIONAL AFFAIRS, described the process that the Department
of Community and Regional Affairs (DCRA) has taken with the
Administration in working with the Delta/Greely community
to come to terms with the closure of the base. DCRA is
responsible for taking the lead within the community to
come to terms with the economic situation that results from
such a closure.
The Delta/Greely area is fortunate in that they also have
the financial support of the military and the Coalition.
Over the last 2.5 years, the State has funded or helped in
financing approximately $900 thousand dollars for planning
activities of recovery and reuse.
Mr. Irwin noted that the State had considered the
possibility of a prison. He emphasized that there has been
many considerations made. The community established their
own ground rules to clarify criteria for use of the space.
1. Market opportunity; and
2. Entrepreneurial resources to make it happen.
Early on, the community considered the prison. In the
second phase, they suggested privatization of the site. The
community of Delta/Greeley also considered light industrial
possibilities, tourism and the prospect of an educational
institution. Mr. Irwin pointed out that there have been
ongoing negotiations within the community for the past
three years.
Representative Martin believed that communities in general,
work better with the Legislature when making decisions then
they do the Administration. He pointed out that the
community has embraced the idea of a prison. Because of
overcrowding, the State will immediately be contracting out
an additional 300 prisoners to Arizona. Commissioner Pugh
acknowledged that the Court has made an order, which will
impact the number of prisoners housed outside the State.
Commissioner Irwin interjected that even if the facility
was converted, it would not be available for several more
years. In addition, there are jurisdiction concerns with
the City of Delta Junction.
Co-Chair Hanley questioned the March 15th deadline. He
asked if there had been any "real" prospects other than the
prison for the use of that space. Commissioner Irwin
replied that the community has been looking at
privatization use of the facility. There is a private
sector mining activity prospect. Co-Chair Hanley
reiterated that with the impact of loosing both the
civilian employees and the military, the community needs
more than the limited proposals put forth by DCRA.
Lt. Col. Anderson spoke to the significance of the March
15th deadline. That date establishes the deadline for a
reuse plan to be submitted by the local reuse enforcements.
In the event that it is not complete, then a reassessment
will need to be made by the Delta/Greely Coalition and by
the Office of Economic Adjustment. This is the point at
which reassessment is made and then will require a long-
term environmental study. If no reuse proposal is made by
March 15th, then the U.S. Army will assume alternate
disposal methods for negotiated sales of the site for fair
market value. The economic development conveyance to the
local reuse authority would essentially be at no cost. Any
other alternative would have a cost associated with it.
Representative Mulder asked if the Department of Defense
would continue to financially support the community in
determining site options. Lt. Col. Anderson replied that
funding was limited. An assessment will be made in March;
there may be additional funding for the local reuse
Authority if a strong reuse potential proposal is evident.
Representative Mulder questioned the sincerity of the
Administration when addressing the Delta/Greely situation.
Commissioner Irwin stated that the Administration does not
have a vision; instead, they are working with the community
to establish one. He emphasized that it was not essential
that the community have one specific reuse plan established
by March 15th.
Co-Chair Therriault told Committee members that his
motivation is to help the community and at the same time
alleviate a State problem.
In response to the March 15th deadline, Lt. Col. Anderson
advised that the plan would make a recommendation on reuse
and would establish long and short-term goals as they
relate to jobs and economic activity. The report should
identify potential reuses, not necessarily by company name,
but by activity. The prison proposal does address those
concerns. Representative J. Davies asked if it was
mandatory that the Legislature had taken action by March
15th to continue the Brag process line. Lt. Col. Anderson
stated that it was not mandatory, although, the U.S. Army
would be requesting an indication to proceed.
Representative Martin reiterated that building the prison
at that site would be the most immediate answer to the
current over crowding situation.
(Tape Change HFC 98- 21, Side 1).
Commissioner Pugh stated that at this time, the State is
over capacity and the need is immediate. Any proposal that
comes before the Committee will take a period of time to
build or expand. Representative Martin stressed that in
less than two years, prisoners could be located at Ft.
Greely. Commissioner Pugh agreed that could be done, but
questioned if it could be done with the public's best
safety interest at hand and if it would be economically
practicable.
Co-Chair Therriault questioned what fundamental flaw the
Administration identifies in the current proposal before
the Committee. He reiterated that his main motivation was
to address the State's prison problem. Commissioner Irwin
interjected that DCRA anticipates further federal funding
to pass to the community. He reiterated that there is
major consideration being given to the mining industry in
that area. The number of jobs created in that industry
would be close to the number created with the prison.
Representative G. Davis questioned why the Administration
does not support the idea of the prison. Commissioner
Irwin stressed that the community must make the final
decision. Representative G. Davis pointed out that the
vote was taken and the community supports the idea.
Commissioner Pugh spoke to the Department's vision for
expansion of prisons and jails. There have been a number
of proposals put forth in the past years, none of which
have passed. She stressed that there are additional
issues, which address legal, financial, operational and
administrative concerns in opening new prisons.
MARGOT KNUTH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, stated that she has been working on issues of over-
crowding in the prisons with the Department of Corrections.
Ms. Knuth advised that it was important to understand that
Alaska is a unique State with a unified correctional
system, which addresses both misdemeanants, felonies, pre-
trial and sentenced populations. The biggest impact that
the State has in addressing any proposal dealing with the
overcrowding problem will require that both regional jail
needs and prison populations be addressed. To date,
inmates sent to Arizona are sentenced felons with long
prison sentences. In Alaska, there are 2,693 prison beds
for the jail population, with over 30,000 people a year
cycling through those beds.
Many of the prisoners cycle through the system in a very
short period of time. The result on such a proposal like
Ft. Greely is that a prisoner would be sent there only if
they had a substantial sentence to serve. It would be of
no help to the prisoner population serving a short
sentence. That population would need to be in a regional
facility. Consequently, Anchorage has made it a priority
to replace the Sixth Avenue jail. Such a population could
not be moved to a place like Delta or out of state. Any
decision by the Department of Corrections must address both
of those concerns.
The Governor's proposal has a replacement recommendation
for the Anchorage Sixth Avenue Jail and an expansion of the
Yukon Kuskokwim jail in Bethel, in addition to expanding
the prison in Palmer. The State's proposal would expand
Palmer by 221 beds in Phase #1 and Wildwood by 256 beds
during Phase #2. Ms. Knuth recommended that Committee
members compare the proposal submitted by the Greely
Coalition and that put forward by the Department of
Corrections. She emphasized that regional jails also
should be expanded. The ALLVEST proposal before the
Committee would provide 800 beds but would not address the
other pressing needs.
Ms. Knuth questioned the wisest allocation of funds
available to meet current needs. She encouraged the
Committee to look closely at the financing mechanism being
proposed with the State in a declining revenue situation.
The State proposal indicates that Phase #1 has been
incorporated into the Governor's bill. Future projects are
Wildwood, Mat-Su Pre-trial, Fairbanks and Lemon Creek.
To compare the Palmer and Wildwood facility to the
Delta/Greely site, a five-factor consideration should be
incorporated. The site needs to be:
1. Safe;
2. Consistent with correctional practices;
3. Involves community participation;
4. Cost effective; and
5. Reaches the State's regional needs.
Co-Chair Hanley agreed with the five points. He pointed
out that the bill states that the Department of Corrections
"may" enter into an agreement with the City of Delta
Junction with a Letter of Intent to establish criteria. He
again questioned what was wrong with the bill, stressing
that the final decision would be left to the Department.
Commissioner Pugh responded that the Department has a
number of concerns regarding the proposed legislation; she
stated that it had no established financial perimeters.
Once the fiscal numbers have been submitted, the Department
will then be able to provide a better fiscal analysis. She
added that there are unresolved legal concerns.
Co-Chair Hanley requested an analysis of the number of
medium security prisoners in jails around the State and the
projected growth of that population. Ms. Knuth offered to
submit that information for the Committee's attention. She
thought that it was problematic that the legislation
stipulates the 800 minimum capacity. Co-Chair Hanley asked
that the researched info to be made available provide the
number of prisoners outside the State also.
MARGIE VANDOR, ASSISTANT ATTORNEY GENERAL, GENERAL
SERVICES, DEPARTMENT OF LAW, stated that in the original
proposal, the State would contract with the City of Delta
Junction, a second class city with limited powers. One of
essential powers would be "prison power" to operate such a
facility. Even though any class city can own property,
whether they can operate it or not, they will need to have
the appropriate power. She pointed out that in the current
work draft, all cities are given the power to operate a
prison.
Ms. Vandor continued, the underlining problem with the bill
is that the municipality will not own the facility and will
not have a lease to it. This presents a concern as to
where the city would fit into the picture. Delta/Greely
assumes that jobs will be there for them. The Letter of
Intent indicates different information than the body of the
bill. The proposal stipulates that the State would enter
into an operational lease with the City of Delta, and Delta
would then have a lease with ALLVEST. Delta Junction would
have no liabilities or money invested. She asked, would
the State be contracting with the municipal government? Ms.
Vandor questioned the role of the State as a conduit,
stressing that ALLVEST will operate and have the ownership
rights. For the State to have the lease and an operational
agreement without being part of the original arrangement is
odd. She asked if the City of Delta has the corpus to
lease the concern to the State.
Representative Kohring voiced support for privatization of
the prison and the proposed legislation. He acknowledged
concerns of the people living in the Delta Junction area
regarding the safety of their city. He believed that the
Letter of Intent had addressed those concerns.
Representative Martin pointed out that the Courts for
overcrowding in the jails are suing the Legislature.
Representative Kelly asked if there was a possibility that
the proposed arrangement could work out. Ms. Vandor
replied that the concern is if Delta Junction would be a
meaningless conduit in the contract since the procurement
code requires competitive bidding. The contract would then
be a contract for a service from that entity. In the
proposed legislation, the services would not be coming from
the community. She asked if this would be a meaningful
lease between ALLVEST and Delta Junction, and from where
would the operational concept to exercise their powers
originate. The original version of the bill does not
accommodate any of those concerns.
Co-Chair Therriault suggested that those concerns would be
discussed with attorneys before the Commissioner of
Corrections would make the decision to go forth with a
contract. Commissioner Pugh pointed out that the newly
submitted Letter of Intent had addressed that concern for
the first time. She commented that information being
discussed at today's meeting was answering some of the
Department's concerns.
Representative J. Davies noted that if the legislation
requires something that can not work, it is important that
the Administration know it before hand. He commented that
the discussions are very relevant and the questions which
need to be carefully examined.
Co-Chair Hanley agreed. He pointed out that there is
nothing in the bill that states that the City of Delta
Junction can not have ownership in the facility. We will
not know until there is a contract. The legislation
stipulates that they "shall" contract with a third party
contractor who will operate the facility. He asked the
legal problem which could result from creating only a
"shell". The Court must make that decision and at what
point is ownership equity taken.
Ms. Vandor pointed out that if Delta/Greely owned the
facility, there would be no legislation or need for
discussion. It would be municipal to municipal. Co-Chair
Hanley asked how much would need to be owned in order for
it to be municipal to municipal. In the end, the
Department will make the ultimate decision. Co-Chair
Hanley emphasized that he would not support using "shall".
Ms. Vandor advised that the contracting language is
problematic.
(Tape Change HFC 98- 21, Side 2).
Representative J. Davies asked if ALLVEST would be exempt
from public bidding. Ms. Vandor replied that they would be
exempt through language used in Section 4.
Representative J. Davies questioned why the Letter of
Intent established standards. Commissioner Pugh echoed
that concern specifically regarding the exemption of
provisions. She noted that Section 3(a) contained a number
of provisions, which exempted the Department.
REPRESENTATIVE GENE KUBINA asked if the State could own the
facility and contract out with a private firm. Ms. Vandor
noted that there are exemptions to the competitive bidding
requirement even with the State code.
FORREST BROWNE, DEBT MANAGER, TREASURY DIVISION, DEPARTMENT
OF REVENUE, stated that there are three components of the
proposed legislation:
1. Location;
2. Privatization;
3. Fiscal.
He commented that he would testify to the fiscal liability
of the proposal, and would provide a counter-proposal. The
fiscal concerns are in two general areas. A twenty-year
lease agreement substantially uses the State's credit to
obtain financing without the State realizing the benefit of
those twenty years of payment. The proposed structure
would give the State nothing at the end of the twenty
years, and essentially would provide a windfall for the
private developer. He emphasized that the twenty-year sole
source contract would not be in the best interest of the
State.
Mr. Browne advised that there are recommendations, which
follows sound principles of public finance, and could
accomplish the goals of the Department of Corrections. The
State would arrange financing independently with financial
markets. He distributed an illustrated "FLOW CHART".
[Copy on file].
The best fiscal policy would have the State deal directly
with the municipality, which then would become a conduit
for financing. Assuming that the legal issues were
addressed and the city had a contract of ownership so that
they could provide that use, the State would then evoke
public financing. At that time, it would become a security
interest, which the bondholders would hold through a
trustee. In terms of the State's relationship to a private
contractor, there would be essentially two contracts. The
contracts would be placed out for competitive bid. Mr.
Browne provided an overview of the handout, concluding that
in using the recommendations prescribed in the chart would
result in fiscal responsibility, open competitiveness and
providing the lowest effective costs during the twenty
years.
Mr. Browne understood that the private contractor would
provide the financing and then the ownership of the
facility and then twenty years later it would belong to
ALLVEST. Co-Chair Hanley countered that would be part of
the City of Delta's choice regarding the contents of the
contract, although, before the Commissioner would sign a
contract, there would need to be many negotiations. His
understanding of the bill was that an agreement would be
predicated on an agreement between the City of Delta
Junction and a third party contractor as to where they
operate the facility.
Co-Chair Hanley noted that he preferred that the State
makes the least number of policy calls and give the
flexibility to the community and the Commissioner.
Commissioner Pugh asked if the requirement to be exempt
from the procurement code would be an impediment. Co-Chair
Hanley stated that there is no requirement to be exempt; it
could be a sole source.
Representative J. Davies agreed with Representative Hanley,
although, pointed out that language was not consistent with
Item #3 in the Letter of Intent. Co-Chair Therriault
agreed and noted that he had spoken with Representative
Mulder regarding the competitiveness. He reiterated
concern to keep the operational costs down. Representative
J. Davies suggested that if the debt service was lower, the
per diem cost should be lower.
Representative Mulder agreed, pointing out that one of the
arguments against the privatization of prisons is that
public debt is cheaper than private debt. He hoped that
would not out-weigh the other advantages that privatization
does offer. The community of Delta Junction should make
the ultimate decision.
Representative J. Davies reiterated that the Letter of
Intent would need to be modified to make the legislation
work. Representative Mulder stated that the Letter of
Intent was created to give a broad directive.
VERN JONES, CHIEF PROCUREMENT OFFICIER, DEPARTMENT OF
ADMINISTRATION, voiced concerns when contracting with an
entity that is not actually providing the service or
performing a function.
Co-Chair Hanley requested information on the per diem costs
per day to run the facility. He advised that the
attraction of the facility is that it is already built and
the federal government is willing to give it to the State.
Per diem cost in other facilities does not include debt
service. To build a new facility, capital costs would be
placed in the debt service line.
BOB LERESCHE, PRIVATE FINANCING COUNSEL, ALLVEST
CORPORATION, JUNEAU, spoke to how the arrangement would
work. He suggested that would be a common arrangement.
The bill is permissive enough to meet the criteria
recommended by Mr. Browne, Department of Revenue. Under
the ALLVEST proposal, the City of Delta will not own the
facility, although, will have 100% lease hold interest in
it. He agreed with the attorney general that the contracts
must be in place so that Delta has something to lease to
the State.
Representative J. Davies asked the bond rating that ALLVEST
expected to get. Mr. LeResche was confident that they
could sell investment bonds. He would not dispute the fact
that a State Certificate of Participation (COP) would
receive a lower interest rate. Mr. LeResche stated that
what the legislation proposes would be to give the
Department of Corrections the option to purchase beds. As
long as the price is competitive and saves the State money,
nothing else is relative to the State.
Representative J. Davies suggested that a lower rate on the
bonds should provide a lower daily per diem rate offered to
the State. Mr. LeResche replied that the client will
negotiate that at market. Representative J. Davies asked
if the twenty-years could be changed to ten-years. Mr.
LeResche replied that it could be ten years, which would
require ALLVEST to charge $5 dollars more per bed per day.
The operating contract could be made shorter without
affecting the price.
Representative J. Davies questioned in the event that
bankruptcy should occur, where would the bondholders go to
get remedy. Mr. LeResche replied that they would go to the
facility and the corpus. Representative J. Davies asked
whether the State would become involved, given the twenty-
year lease. Mr. LeResche emphasized it would not. The
State will only owe money when the facility is completed
and ready to care for prisoners.
Commissioner Pugh asked for further clarification regarding
the State's obligation. Mr. Browne assumed that if a State
lease was pledged to a trustee, it would be to the benefit
of the bondholders. If there is a default, and the lease
payments were transferred to debt service payments, the
bondholders would come to the State. He reiterated that if
the State's credit was used and the lease was pledged, the
bondholders would seek payment from the State.
Mr. LeResche noted that Mr. Browne was correct assuming
that it was a COP lease; however, the proposal that ALLVEST
has made is that the lease would not be used as security.
It would be used as a demonstration to bond holders as
ALLVEST's source of income.
Representative Gene Kubina questioned the value of the
facility if the State was not protecting it. Mr. LeResche
agreed that it would not have value if it was not being
used. If someone else seized it, the action would void the
lease. The money would pass through directly from the City
to the bondholders.
Representative J. Davies pointed out that the Department of
Corrections had not had an opportunity to give testimony
regarding operational concerns in running the proposed
facility.
HB 53 was HELD in Committee for further consideration.
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