Legislature(1997 - 1998)
04/02/1997 01:07 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 53 - LEASE-PURCHASE CORRECTIONAL FACILITY Number 560 CHAIRMAN GREEN advised members they would next consider HB 53, "An Act relating to the authority of the Department of Corrections to contract for facilities for the confinement and care of prisoners, and annulling a regulation of the Department of Corrections that limits the purposes for which an agreement with a private agency may be entered into; authorizing an agreement by which the Department of Corrections may, for the benefit of the state, enter into one lease of, or similar agreement to use, space within a correctional facility that is operated by a private contractor, and setting conditions on the operation of the correctional facility affected by the lease or use agreement; and giving notice of and approving a lease-purchase agreement or similar use-purchase agreement for the design, construction, and operation of a correctional facility, and setting conditions and limitations on the facility's design, construction, and operation." CHAIRMAN GREEN informed members the bill had been heard before, public testimony had been taken, and the bill was now before committee members for discussion purposes. He pointed out that two amendments had been adopted at the previous meeting, and they would now consider any other proposed amendments. REPRESENTATIVE ELDON MULDER, Prime Sponsor of HB 53, pointed out that he had submitted two amendments for the committee's consideration. One of the amendments was brought forth by the department which was purely technical, and the other amendment was more dramatic, one he felt would address the major concerns expressed by people in South Anchorage. Representative Mulder stated, with the indulgence of the Chairman, he would request that the committee consider that amendment first which was titled "K.40, Chenoweth, 4/2/97, and explained that it related to the limitation of location. REPRESENTATIVE MULDER expressed that he was proposing, through the wording of the language to provide some security to the folks in South Anchorage, and throughout Anchorage, that the facility would not be located in Anchorage, Alaska. The new proposed language would insert a new section which would read as follows: "*Sec. 6. GEOGRAPHICAL LIMITATION. The Department of Administration or the Department of Corrections, as appropriate, may not enter into an agreement under sec. 3 or 4 of this Act concerning a correctional facility that is located or to be located within the boundaries of a municipality having a population of more than 100,000." Representative Mulder felt that would alleviate the concerns that had been expressed by the people of Anchorage. REPRESENTATIVE JAMES moved to adopt Amendment 4, HB 53. There were objections, and Chairman Green stated that he would object for the purpose of discussion. Number 758 REPRESENTATIVE MULDER advised members that he felt it was their obligation, as legislators, to promote ideas and try to accomplish the objectives as laid out by constituents. He felt that the proposal he submitted would address the four major issues, and major needs confronting the state of Alaska. Representative Mulder reiterated that the state was in need of additional prisoner bed space; it was necessary to relieve the jail problem in Anchorage, a female facility would be necessary at some point in time, and he would also like to bring the prisoners home from Arizona. REPRESENTATIVE MULDER noted that initially, a centralized facility located in the Anchorage area made sense, although it was not specified in the bill. He expressed that another part of a legislator's job, once an idea had been laid out, was to listen to the response of the people. Representative Mulder pointed out that it had become apparent to him that the people of Anchorage did not want a new prison, or a new jail, per se. Representative Mulder felt that was fine, that there were other communities that had stepped forward and were interested and he would like to be able to afford that opportunity to those other communities. Number 813 CHAIRMAN GREEN questioned whether the concept of Amendment 4 had passed muster as to whether there might be some concern that it would be prejudicial. He noted that even though the poll may have indicated that Anchorage did not want the facility, would it be possible for a judge to deem it prejudicial against one community, because everyone else in the state would have the right to select a jail site, but not the municipality of Anchorage. REPRESENTATIVE MULDER stated that that was a good question; however, he did not fear that from the practical standpoint of who would challenge it, given the fact that it was met with such huge resistance. REPRESENTATIVE ERIC CROFT expressed that the proposed amendment went a long way to reassure the members of the committee regarding that concern; however, he pointed out that the membership of the committee consisted of six Anchorage representatives, and one from North Pole. He felt that those members were reassured, although he would wonder how Representatives Hudson, Elton, Brice, Davies and Therriault would feel about the proposed new language and restriction. Representative Croft noted that he did want to see a solution for the process to take place with public input, but the bill before members would not allow a facility to be constructed in Anchorage, Alaska. Number 934 REPRESENTATIVE MULDER advised members that there had been resolutions passed by a number of communities. He expressed that since the whole South Anchorage issue had exploded, people and communities had been voicing their interest in having a facility constructed in their localities because they wanted the economic opportunity and jobs. Representative Mulder advised members that Seward, Alaska and the Mat-Su Valley had passed resolutions, and interest had also been expressed by Adak, Alaska, Delta Junction, Alaska, and folks throughout the state in support of having a facility built in their respective areas. REPRESENTATIVE CON BUNDE felt what they were considering might be a broad axe approach to what might need a scalpel, pointing out that the proposed amendment would preclude Fire Island, which a number of people felt could be a possible location for a prison facility. He noted that it would also limit any private-state partnership expansion in Eagle River, Alaska, he would assume. Representative Bunde pointed out that rather than take such a global approach, why not consider a local site selection apparatus. REPRESENTATIVE MULDER responded that his reasoning was largely due to what he felt was a fairly solid and consistent response to the public. He noted that Eagle River residents were not in favor of expanding that facility, and were presently resisting the conversion of a sex offender treatment program facility at Hiland Mountain to a female facility. Representative Mulder expressed that he did not believe that necessarily made sense, but the people were opposed to the conversion of that facility. He advised members that to expand the Hiland Mountain Correctional Facility it would require an enlargement of the water capacity, and the community, basically, had the ability to thwart that effort. Representative Mulder pointed out there was always a handful of people that recognized the economic opportunity, but there had been a hysteria that had convinced him that the better course of action was, "you can't lead where people don't want to follow". So, he would like to see the facility constructed where the people wanted one. Number 1137 REPRESENTATIVE BRIAN PORTER advised members that he certainly understood the pressure that some members had been under because of the proposed legislation, and the concerns that the committee was attempting to address. He stated that the committee was being somewhat inconsistent with what he thought was a progressive step when they said they would not just lay something before the public without making sure that an entire package was presented to them; all the facts, in order that the people could make a reasonable decision. Representative Porter felt that if a dollar sign were placed on a proposal that would construct a correctional institution at Adak, Alaska, or Fire Island, that the dollars would drive them away. He noted that he was not even sure that Delta Junction, Alaska was a feasible location. REPRESENTATIVE PORTER felt what was currently before the committee was, quite frankly, a cop out. He did not see the question on the survey, noting that he had had some experience in that area and was very familiar with the NIMBY (Not in My Backyard) syndrome; however, he believed that it could be overcome with general education and acknowledgement that the criminal justice system exists and had to be reckoned with. Representative Porter expressed that it had to be reckoned with in a monetarily efficient manner. He pointed out that just the statement that any neighborhood's crime rate was more affected by its neighbors than it was by any escaped prisoners, would probably enlighten a number of people. REPRESENTATIVE PORTER stated with that, he did not believe it was the job of the legislature to set the kind of standard as was proposed through Amendment 4. He advised members that it was something that the Department of Corrections and individual communities should work out. Representative Porter informed members that to that extent, he would resist any amendment that would put an institution in a community, or prohibits an institution from being constructed in any given community. REPRESENTATIVE ETHAN BERKOWITZ advised members he would agree with Representative Porter. He pointed out that he was concerned with an amendment that would essentially preclude a given outcome, that did not go further in defining the process. Representative Berkowitz stated that as much as he would like to find a way of saying, "Not in my back yard", he thought it was necessary that it be accomplished through a process, rather than just bluntly prohibiting something. REPRESENTATIVE CROFT pointed out that revised Amendment 3 addressed some of the concerns that had been raised. The next amendment related to the geographic limitation, and asked the Chairman in which order he wanted to consider those. CHAIRMAN GREEN advised members that Representative Mulder's amendment had been offered and objected to, and they were now, basically, in a dilemma of having to set Amendment 4 to the side, or to go ahead and take a vote on it. REPRESENTATIVE CROFT moved to table Amendment 4, and offered Amendment 3 for committee consideration, as a solution to the situation they now found themselves in. The intent of Representative Croft's motion was to table Amendment 4 until members had the opportunity to consider proposed amendment 3. There being no objection, Amendment 4 was tabled. CHAIRMAN GREEN pointed out that Amendment 3 was a result of the subcommittee process and asked if Representative James wanted to present the amendment as Chairman of the subcommittee, or if she wished to defer to Representative Croft. CHAIRMAN GREEN asked that Representative Croft provide a brief overview of the work accomplished by the subcommittee assigned to HB 53, and offer the amendment after providing his summary. REPRESENTATIVE CROFT advised members that the subcommittee attempted to find a process that the municipalities were used to which was achievable, and they also addressed Chairman Green's concern that there be an effective two mile radius which would allow for an approval process. They addressed Representative James' concern that there be some type of option on the land price that would not allow a landowner to hold up the construction of a facility once approved. Representative Croft advised members that the subcommittee also addressed his concern that there be, with those two general guidances, a general process that the municipalities were used to, and could follow. REPRESENTATIVE CROFT pointed out that after talking to several representatives from municipalities, and talking to Sheila Selcraig [Ph] in Anchorage, Alaska, what he had learned was that they were very used to conducting special assessment districts. He noted that they said that that was done all the time. When asked if they would have a problem if he provided a map and asked for a 2 mile radius around any given site, for the purpose of asking landowners for approval, that the response he received was that they did that sort of thing all the time with very oddly shaped districts to see if people wanted to pay more taxes for some sort of improvement assessment. Representative Croft stated that there was always the question of, did the people in a particular area want to be taxed for a given improvement. He explained that the process for doing that, which was set in statute for special improvements, as well as by ordinance in some municipalities, was one where the affected landowners, in this case the two mile radius, were given a certain amount of time to register that they agreed. It would be necessary for a 51 percent vote to allow for something to happen and if that percent was reached, the plan would be implemented; if not, it would not be. REPRESENTATIVE CROFT pointed out that the amendment included a site selection process whereby if a site were chosen, it would effectively implement a special assessment type of election. In this case, it would first be published and then followed by a letter asking if the people would agree to a correctional facility constructed within a given boundary. He reiterated that that process worked all the time to have people tax themselves if they so wished. Representative Croft wanted to tie the language as close to that process as possible, because it had worked and municipalities were comfortable with the process. He stated that the only change members of the subcommittee had discussed, with respect to proposed Amendment 3, was on line 15 of the amendment, to possibly eliminate the two words "who vote". CHAIRMAN GREEN advised members he would address that matter. REPRESENTATIVE CROFT offered Amendment 3. Representative Porter Objected. REPRESENTATIVE JAMES pointed out that it was interesting that Amendment 4, which had just been presented by Representative Mulder, solved a problem that members had concern with. Now, without Amendment 4, it was her belief that another problem had been created through proposed Amendment 3 because it set out a system that would have to be used everywhere in the state, and modeled after a system that was practiced in the municipality of Anchorage. She expressed also that members did not know if other communities followed the same practice, and there was also the possibility that a municipality did not exist, which could create a potential problem. Representative James stated that as happy as she was with the amendment initially, she now saw some flaws in it. She noted that the subcommittee had arrived at the amended language specifically because of Anchorage's concerns, and if members would consider Amendment 4, the concerns expressed by Anchorage residents would no longer exist. Representative James now wondered which way members wanted to address the issue. Number 1738 CHAIRMAN GREEN pointed out that the amendment only applied to municipalities, so that would take care of one of Representative James' concerns. He stated that it seemed to him that whether in Anchorage, or somewhere else, there should be some right of the people to voice their opinion of whether they wanted a correctional facility or not, which was the concept of the proposed Amendment 3. REPRESENTATIVE PORTER felt that through the discussion on Amendment 3 so far, it touched on the problem of getting into municipal business at the depth expressed in the amendment that it would create. He pointed out that if members wanted to be city councilmen in Seward, or planning zoning commissioners in Anchorage, they should run for that office. Representative Porter explained that for members to sit there and say that in the city of Seward, who already had a resolution stating that they wanted the new facility, that if the commissioner would have to initiate and complete a site selection process, and then be required to hold an election, would amount to what he would consider an unfunded mandate. He informed members that he was a former member of the Anchorage Municipal Assembly, and had spent three years coming to Juneau to approach the legislature asking that things not be done to the municipality. Representative Porter advised members that what they were considering was another attempt of trying to solve a perceived problem in Anchorage. He felt Anchorage should be able to solve the problem, if there was one. Number 1821 REPRESENTATIVE BUNDE was also concerned as to who would pay for the election and the various advertizing costs. He asked if the developer would be expected to pay those costs. Representative Bunde pointed out that he had a lot of confidence in the amendment until Representative Croft started using the analogy of the special assessment areas and taxes, because he had lost confidence in Anchorage's ability to follow the law in those special assessment districts. CHAIRMAN GREEN returned to the issue of the words "who vote", on line 15 of proposed Amendment 3, and explained that the thought process there was that a poor voting turnout could occur, and if it did not stipulate who voted, you would never, perhaps, get 50 percent of the voters. He expressed that if it was limited to those who did vote, that at least they could realize 50 percent of that group. Chairman Green advised members if that would create a problem, he would support the deletion of those two words. REPRESENTATIVE JAMES stated that it was always her intention, when going through the process, that the cost would be born by the person responding to the RFP, not a financial burden on the municipality or creating an unfunded mandate. Number 1936 REPRESENTATIVE CROFT referred to lines 52 and 53 of proposed Amendment 3, which stated, "the entity making the proposal may, at the expense of the entity", and explained that it was also his intention, as well, that it be at the cost of the entity. REPRESENTATIVE CROFT stated with respect to the second point brought forth by the Chairman and Representative Bunde, that rather than a day event, where one would not know how many of people would show up to vote, that by providing a period of time, as in the case of a special assessment, for people to reply to the concept put forth. That process would have a cut-off date, and from that point, if 51 percent of the people agreed, the project could go forward. REPRESENTATIVE CROFT stated with regard to the frustration voiced regarding municipalities overriding local concerns, that he felt the amendment reinforced local power to make those decisions. With respect to Representative Porter's concern, Representative Croft did not see their mission as solving Anchorage's problem, so much as writing a public participation process that both was doable, and had some teeth in it to assure that those places who were begging for a correctional facility, should have it. He stated that those areas who were begging not to have a correctional facility constructed in their vicinity, have the right to voice their opinion. Number 2050 CHAIRMAN GREEN pointed out that in places such as Seward, it was very likely that the facility would be constructed outside the city limits, and would not be affected by that language in any case. REPRESENTATIVE PORTER thought one of the things that was necessary to understand when getting into the types of situations members were discussing, was the diversity of the state. He pointed out that when they try, at the state level, to cram some specific procedure into every municipality and borough, it just would not fit. Representative Porter expressed that what the amendment called for, basically, would work great in a small community in New Hampshire that is used to town meetings to decide everything, but Anchorage had a population of over a quarter million that had a nice representative form of government in their municipal assembly, which was the way they had elected to solve those types of things. REPRESENTATIVE PORTER pointed out that he could find a person who would want a prison in Anchorage, just as well as someone could find a person who did not. He stated that that was not the point, and reiterated that Anchorage had a system set up to resolve those issues, even though the legislature might like to interpose its will on them. Representative Porter did not believe it was proper, and the only thing that they do when attempting to do that was create problems in other areas. He advised members that he did not read the amendment as the entity paying for anything they did not want to pay for because it states; "the entity making the proposal may at the expense of the entity contract with the administrator of the municipality"; it did not say anything about who would fund the election, but that it consisted of counting ballots. REPRESENTATIVE PORTER felt what was being considered was something that started on the wrong premise; that it was a problem that the legislature should solve, and every time it's attempted to be done it results in other alternatives that each has a different kind of problem, which, eventually should bring people to the conclusion that it was something they should not be doing. CHAIRMAN GREEN called a brief at ease at 1:45 p.m., and reconvened the meeting at 2:13 p.m. REPRESENTATIVE CROFT withdrew Amendment 3, and moved Amendment 3-B. REPRESENTATIVE PORTER objected for the purpose of explanation. CHAIRMAN GREEN advised members that Amendment 3-B would remove all references to a "legal subdivision". He explained that only becoming aware of the problem that afternoon, that unless the bill provided for a definition of a legal subdivision, it should not be used. Chairman Green thought it was a defined term, but finding otherwise, the language would only refer to a municipality. REPRESENTATIVE BUNDE pointed out that "legal subdivision" was still referred on line 15 of Amendment 3-B. CHAIRMAN GREEN agreed, stating that should have been removed. REPRESENTATIVE BERKOWITZ offered a friendly amendment to strike [or legal subdivision] on line 15 of Amendment 3-B. CHAIRMAN GREEN had no objection to the friendly amendment, and it was struck from line 15 of Amendment 3-B. CHAIRMAN GREEN continued explaining the changes and advised members that on the old Amendment 3, line 14, which referred to "residential landowners", that there could be a problem in not allowing people who rent in the area to vote. That language was then changed to reflect a "majority of the voters". CHAIRMAN GREEN pointed out that there had been an oversight on line 34 which referred to approval under subsection (f), and it should have referred to subsection (g), and that was corrected in the new Amendment 3-B. The only other change reflected in the new proposed amendment was a change in the wording on the old amendment, line 56, to read "The entity making the proposal shall pay for the cost to count the ballots". Chairman Green advised members that would remove the possibility of the municipality having to pay those costs. CHAIRMAN GREEN directed members attention to Amendment 3-B, page 2, line 9, to insert the phrase at the expense of the private entity after the word "shall". And on line 11, deleted [residential landowners] and insert voters. Chairman Green asked if the objection was maintained. Representative Porter maintained his objection, so a roll call vote was taken. In favor: Representatives Bunde, James, Croft, Berkowitz and Chairman Green. Opposed: Representative Porter. Representative Rokeberg was absent. Amendment 3-B, HB 53, was adopted 5 to 1. CHAIRMAN GREEN advised members that would bring them back to Amendment 4, which had earlier been tabled. REPRESENTATIVE CROFT moved to bring Amendment 4 back before the committee. There being no objection, Amendment 4 was before members for consideration. CHAIRMAN GREEN pointed out that with the concurrence of Representative Mulder, proposed Amendment 4 had been modified, and would add a new section which states; the provisions of sections 3, 4 and 6 are not severable, and renumber the following bill sections accordingly. Chairman Green explained that the intent was to say that if that particular issue was not held constitutional that it would not be severed from the rest of the bill. Chairman Green reiterated that Representative Mulder had no objection to that amendment. REPRESENTATIVES PORTER and BUNDE objected. There being objection, Chairman Green requested a roll call vote: In favor: Representatives James, Croft and Chairman Green. Opposed: Representatives Bunde, Porter and Berkowitz. Representative Rokeberg was absent. Amendment 4 failed adoption by a vote of 3 to 3. TAPE 97-49, SIDE B Number 000 CHAIRMAN GREEN advised members that Representative Mulder had submitted an amendment which would be considered as Amendment 5, HB 53. REPRESENTATIVE MULDER advised members that proposed Amendment 5 made a small revision which was identified necessary by the department, and would insert; and the land on which it is located, on page 5, line 17 following the word "facility". There being no objection, Amendment 5 was adopted. REPRESENTATIVE BERKOWITZ moved Amendment 6, HB 53. REPRESENTATIVE PORTER objected. CHAIRMAN GREEN called a brief at ease at 2:25, and reconvened the meeting at 2:27 p.m. REPRESENTATIVE BERKOWITZ explained that proposed Amendment 6 was an "unbundling" amendment. He reminded members that as stated by the Department of Revenue, there was a large, potential fiscal repercussion relating to state bonding. Representative Berkowitz advised members that Amendment 6 would divorce the private entity from the state. He noted that there was a concern that without that provision the state would not be able to refinance, easily, the state's debt. Representative Berkowitz noted that Forrest Browne with the Department of Revenue would be able to further explain what proposed Amendment 6 would accomplish. FORREST BROWNE, Debt Manager, Treasury Division, Department of Revenue, reminded members that in previous testimony the department had indicated that even if the contract consisted of a straight lease with a private developer, the financing portion would be considered by the financial markets and by the bond rating services as state debt. He explained that if the bill passed and was enacted it would result in $90 million of additional state debt. Mr. Browne pointed out that it would affect the state's debt capacity to do other things, irrespective of whether it was described as a lease or not. He stated with that premise, the department had considered the alternatives, and the Department of Revenue felt they could minimize the cost of that debt, minus the operations and the construction which would be left to the private developer, by borrowing the $90 million, and the orderly repayment of it over the term of the lease could be most efficiently put into place by the state arranging the debt directly. Mr. Browne pointed out that the department did not believe any private developer could go to New York, make presentations to the bond rating services, plead the case of the state of Alaska's fiscal situation and get the highest possible bond rating and the lowest cost of capital. MR. BROWNE stated that because the department knew, through previous lease financing of the type described, that as interest rates go down there were opportunities to refinance state debt. He noted that he was currently in the process of doing that for the third time with the Spring Creek Correctional Center. Mr. Browne explained that each time the state refinanced, they save potentially millions of dollars in interest costs over the balance of a term. If the state arranged the debt directly they would have the opportunity, over the 20 year term when interest rates take a dip, to refinance, just as one would do with their home mortgage. MR. BROWNE advised members that the third reason for the amendment involved the area of flexibility. He noted that from time to time it would be necessary to expand a facility, and subject to legislative approval if the state controlled the debt, they would merely go out and add to the debt the monies to expand the facility, which would preclude having to go "hat in hand" to the private entity that controlled the mortgage. Mr. Browne added that whatever rate the private entity should quote for expansion purposes, the state would have no ability to negotiate. It was the suggestion of the Department of Revenue that the state pay cash for the construction, pursuant to whatever bids that came in, and the same on the operations in order to have control of that debt over the 20 year term. CHAIRMAN GREEN asked if that would make it a state owned facility, rather than a private entity. MR. BROWNE explained that the structure was, whether it was a private entity or state financed, that the trustee would hold the facility for the bond holders as security, pursuant to a deed of trust until the debt was repaid. He stated that that was irrespective of whether a private developer arranged the debt for the state, or the state did it itself. Mr. Browne stated that in either instance, the trustee would step in an hold it for the term of the lease. CHAIRMAN GREEN asked if that would in any way impact the privatization of the operation the facility. MR. BROWNE advised members that the financing was neutral to the construction and the operations, and could be done completely by the private sector as the bill dictated. The only difference was that through financing, the payments in either case, would be going through the trustee. CHAIRMAN GREEN stated that if change orders were to arise, which normally did, would the change order be approved by the state or the private contractor. MR. BROWNE stated that there would not necessarily be any change. He explained that whatever the contract called for would be followed, that the payment from the trustee would be made as soon as invoices were approved by who ever the approving authority was. Mr. Browne assumed that if they had a private contractor, that contractor would assume responsibility for the design, construction, subcontracts and the approval of the invoices. Those approvals would go directly to the trustee, the bank, who would then make disbursements directly to either the contractor, suppliers or subcontractors. Number 406 REPRESENTATIVE JAMES advised members that it appeared to her that Mr. Browne was making an argument as to why the private sector could not build a prison cheaper than the state. MR. BROWNE disagreed with Representative James, and further explained that what the department was saying was that in arranging the financing the effective interest costs that the state pays initially, and over the entire term when considering refinancing, would be less costly to the state than if the state arranged the debt. Mr. Browne advised members it would not affect the ability of the department to negotiate, or accept bids on the construction from a private developer, or the operations from a private developer. He stated that the only difference was that in one instance the state would pay cash when the building was completed and accepted by the Department of Corrections, and in the other case, the building would be accepted by the state and make payments to the third parties, which in turn would go to the trustee. In either case, Mr. Browne explained that the payments would go directly to the trustee. REPRESENTATIVE JAMES asked if what Mr. Browne was saying was that the state wanted to do the bonding and not allow a city, for example, to do the bonding. MR. BROWNE stated that in either instance, whether the private developer arranged the financing, or whether the state arranged the financing, they would find what was called nominal issuer of the bonds. The nominal issuer might well be a municipality; if it were located in the Anchorage area it could be the city of Anchorage, but did not necessarily have to be the municipality where the project was geographically located but a municipality within the state of Alaska that would serve as the nominal issuer. The nominal issuer of the bonds was a technical requirement to separate the Department of Administration, that would be signing the lease, from the issuer of record. In any case, whoever was selected for that would show up at the closing and would have the lease in their possession for about 5 minutes before they signed the documents and then everything would be turned over to the trustee as a protector for the bond holder. MR. BROWNE advised members that in that instance, they would most likely select a local municipality to be the nominal issuer, which was not really the gist of what the department was suggesting. He stated that what the department was suggesting was to allow the state to make the financial arrangements, rather than the private developer, because it was felt there would be financial advantages that truly should accrue to the state because it was the state's credit. Mr. Browne pointed out that the Department of Revenue was in the business of refinancing state debt from time to time, and might as well do it in this instance as the situations become favorable sometime in the future. He noted that that would surely occur; however, he could not say when interest rates would dip, but knew within a 20 year period, there would be times in which refinancing could happen. Mr. Browne advised members that the department felt it should be pursued aggressively and that the savings should accrue to the state. REPRESENTATIVE JAMES asked if the language would give the state the authority to bond for any amount of money, or if there was a restriction on the amount that could be spent on the proposed facility. MR. BROWNE advised members that there was a $90 million total project cost, which was identical language as was in the original bill. He noted that the state would finance less than that amount if the bids came in lower, but could not issue bonds in excess of that amount without legislative approval. CHAIRMAN GREEN asked if the arrangement, as proposed by the Department of Revenue, would restrict the private entity's ability to draw against the bid amount because the state would be paying cash upon completion and acceptance of the facility. MR. BROWNE advised members that he believed he would be involved in the process and would suggest that the state fund on a progress payment basis because there was no cheaper money on the 4 percent, or 5 percent tax free money the state might be able to obtain if the state did it directly. Number 670 REPRESENTATIVE PORTER pointed out that the only difference he could see, in a practical application, was if the entity got their own financing he would agree that the state would be on the hook to underwrite the financing, but asked if the private entity would have the ability to take all the money up front, if they chose, as opposed to payment by the state in phases. MR. BROWNE stated that he would think in either case, the RFP and the resulting construction contract would call for progress payments of approximately 90 percent of the work that was done. Also, monthly inspections would take place by a third party to ensure that the work was in place, as well as the performance bonds and payment bonds required in the contract. MR. BROWNE advised members that one of the concerns the department had when they were tracking through the mechanics of how they would evaluate an RFP, was if different entities came in with different lease terms, how could the state figure out which was the better deal. With Amendment 6, they would be evaluating the lump sum construction amount that the private developer had designed and come up with, and then whatever the annual or periodic payments were for the operation of the facility. This would allow everyone to be on a level playing field, with the state paying cash as the project moved forward. Number 762 REPRESENTATIVE BUNDE asked if what Mr. Browne was saying was that the department was doubtful that a private entity could build a prison as cheaply as the state might want to purchase it. MR. BROWNE advised members that he was convinced that the private enterprise could figure out a way to finance the project, and would never suggest otherwise. However, his point on the financing end was that there was no one who could do it more efficiently than the state itself, and the state should reserve the financing for itself because it was state debt, and over the long term had the potential to save many millions of dollars. REPRESENTATIVE BUNDE asked if by stating "efficiently" meant less expensively. MR. BROWNE agreed with that. CHAIRMAN GREEN asked that Mr. Browne, or Representative Berkowitz walk the committee through the contents of proposed Amendment 6. Number 872 MR. BROWNE advised members that what he had done, because the bond counsel's language was so extensive, was mark a copy of the original bill with the changes that would result with the adoption of proposed Amendment 6. MR. BROWNE referred to page 1, line 8, and advised members that by giving notice, authorizing and approving the lease agreement, it would be pursuant to the bonding statute. He explained that the state would need to provide notice of such financing in legislation. MR. BROWNE explained that the next change on line 10, would delete the words [construction and], and insert; construction of a correctional facility, authorizing an agreement for the, which would unbundle the construction and operation of the facility from the lease purchase agreement. Mr. Browne asked that members keep in mind that the lease purchase agreement was the financing instrument. He stated that under the constitutional limitation of state debt, they could not say they would incur debt, but could say they could enter into a long term lease agreement and then the Certificates of Participation was a technical term of what sold to the bond holders on a tax exempt basis. That would result in each bond holder getting a fractional share of the state's semi-annual lease payment that was made to the trustee which would become tax free income, if structured correctly. Number 1047 REPRESENTATIVE BUNDE expressed his appreciation of the explanation provided by Mr. Browne; however, advised members that he would be more comfortable if members had a committee substitute before them that would reflect all the changes proposed by Amendment 6. CHAIRMAN GREEN asked if Representative Bunde was suggesting that the amendments that had passed, as well as proposed Amendment 6, be incorporated into a new draft committee substitute prior to adopting Amendment 6. REPRESENTATIVE PORTER stated with that, he would consent to a general description as to what Amendment 6 would do, rather than a line by line explanation. Number 1119 CHAIRMAN GREEN called a brief at ease at 2:49 p.m., and reconvened the meeting at 2:58 p.m. Due to a taping malfunction, the remainder of the meeting was not recorded; however, the following is a synopsis of what occurred. CHAIRMAN GREEN pointed out that because Amendments 6 and 7 related to the financing aspects of the bill, it would be his suggestion to incorporate the amendments already passed by the House Judiciary Committee into a new committee substitute. They could then forward proposed Amendments 6 and 7, with the House Judiciary Committee Substitute, to the House Finance Committee with a recommendation that they be incorporated into CSHB 53 (JUD). REPRESENTATIVE JAMES, with that recommendation, moved to report CSHB 53 (JUD) out of committee with individual recommendations and attached fiscal notes, as well as notice to the House Finance Committee that the House Judiciary Committee would recommend adoption of amendments 6 and 7. REPRESENTATIVE CROFT objected. CHAIRMAN GREEN requested a roll call vote. In favor: Representatives Bunde, Porter, James and Chairman Green. Opposed: Representatives Croft and Berkowitz. CSHB 53(JUD) was reported out of committee by a vote of 4 to 2.
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