Legislature(1995 - 1996)

02/01/1995 01:05 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HJUD - 02/01/95                                                               
 HB 103 - COMPETITION W/PVT SECTOR:  CORRECTION IND.                         
 Number 685                                                                    
 ROD MOURANT, Aide to Representative Kott, sponsor of HB 103, stated           
 Representative Kott is a strong endorser of the correctional                  
 industries program.  Current statute allows correctional industries           
 to enter into a competitive environment with previously existing              
 private industry operations.  This legislation attempts not to                
 force the correctional industry to back out of those circumstances,           
 but merely to charge their prices competitively in those                      
 circumstance; thereby not defeating the purpose of the correctional           
 industries program, but rather protecting a circumstance where a              
 government subsidized operation at a correctional industry is                 
 competitive with the private sector.  Its investments are therefore           
 protected.  Specifically, there are letters from different meat               
 packing industries, both of whom are affected by the current                  
 circumstances described.  In a slaughterhouse/meatpacking                     
 operation, which is actually under state control, there is no                 
 requirement to charge competitive overhead and wage expenses.  They           
 are able to price their product at a considerably less than market            
 value price.  That adversely affects these companies in the private           
 sector.  In those circumstances where competition exists with the             
 private sector, this bill calls for the correctional industries'              
 workers to be paid a competitive wage for the service.  Those wages           
 would be paid over to the Commissioner of Corrections; for paying             
 both to the inmate and for deposit into the state general fund.  A            
 negative fiscal note accompanies the bill, indicating if they had             
 to charge higher prices for their services, they would lose                   
 Number 750                                                                    
 REPRESENTATIVE CYNTHIA TOOHEY asked if the Palmer facility was the            
 only registered slaughterhouse in Alaska.                                     
 Number 760                                                                    
 MR. MOURANT thought there were two slaughterhouses, but there is no           
 competition in the slaughterhouse industry.  Therefore the                    
 slaughterhouse operation is not affected by this legislation at               
 all.  The two slaughterhouses are in two different environments.              
 One is a federally inspected slaughterhouse and the other is a                
 state licensed and inspected facility; two different categories,              
 and there is no competition within the state in that regard.                  
 Number 764                                                                    
 REPRESENTATIVE TOOHEY was confused by the letters from Mikes'                 
 Quality Meats and Indian Valley Meats, complaining about the                  
 competitiveness of the Palmer slaughterhouse.  Are we not talking             
 about apples and oranges?                                                     
 MR. MOURANT said there is no competition in regards to slaughter              
 operations.  The competition is within the cutting, packaging and             
 marketing of products.  The slaughterhouse provides both functions.           
 Number 781                                                                    
 REPRESENTATIVE BUNDE asked if the meat was currently on the market            
 at below market prices.                                                       
 Number 785                                                                    
 MR. MOURANT thought that the wholesale purchase price for the                 
 finished product was considerably lower than the fair market rate.            
 Number 795                                                                    
 REPRESENTATIVE FINKELSTEIN asked why the existing system was not              
 working and what the negative impact was.                                     
 Number 800                                                                    
 MR. MOURANT understood that it falls through the cracks in the                
 existing statutes because it is not privately owned, and that is,             
 in fact, what the current legislation speaks to, in regard to the             
 commission not entering into competition with a privately owned               
 facility.  The facility we are dealing with is one that used to               
 have a loan through the Agricultural Revolving Loan Fund.  That               
 loan was foreclosed on in 1986.  The state now owns that Mt.                  
 McKinley operation.                                                           
 Number 825                                                                    
 REPRESENTATIVE FINKELSTEIN understood the statute to mean that                
 within the system, they are supposed to look at the impact of these           
 activities on private industry;  that private industry being other            
 folks who might want to do it.  If the correction industries is               
 involved with it, they have to make the determination that it will            
 not adversely impact other companies out there who are offering the           
 same services.  He thought there was a system in place to handle              
 these types of conflicts - a commission to make these                         
 determinations.  He was confused as to why that did not work.                 
 TAPE 95-6, SIDE B                                                             
 Number 000                                                                    
 WALLY ROMAN, Corrections Industries Program (CIP) Manager,                    
 Department of Corrections, gave a little background about CIP to              
 bring the committee up to date.  The purpose of the CIP is to                 
 reduce idleness and to employ prisoners in realistic work                     
 experiences.  Recently, they have developed two cooperative                   
 ventures with the private sector.  The part of the statute being              
 talked about is the part that allows them to do that.  During                 
 hearings four years ago, the legislature clearly defined more                 
 requirements on establishing new markets and new industries to                
 minimize the impact on the private sector.  Since 1992, CIP has               
 striven to communicate all of its activities to the public sector             
 through advanced advertising, citizens advisory groups, chamber of            
 commerce presentations, and more hearings to receive public                   
 comment.  The program has been very conservative in ensuring that             
 all proposed ventures are scheduled for discussion before the CIP             
 implements any operations.  In addition, the program has promoted             
 cooperative ventures with the private sector that would control the           
 possibility of competition.  Of the total $2,000,000 in gross                 
 sales, approximately 20 percent have been sales to nonprofit                  
 organizations, private individuals, and wholesale to the private              
 sector businesses.                                                            
 MR. ROMAN said the department does have several concerns with the             
 provision of HB 103.  It is anticipated that the proposed                     
 provisions may be difficult to define and implement, and in                   
 addition, there are existing statutes that already provide for the            
 defined process we are talking about, and can be addressed under              
 the Correctional Industries Commission.  We believe they should               
 evaluate and regulate the potential competition of the private                
 sector.  He said their primary concerns were that the statute                 
 establishing free venture businesses has been utilized to implement           
 several different models of correctional industries operations in             
 conjunction with the private sector.  This section of the bill was            
 put in there in 1986 to allow them to take advantage of a program             
 called the Prison Industry Enhancement Act, which was under the               
 United States Department of Justice.  It was specifically put in              
 there to design a level playing field with the private sector.                
 They have had operations under that program and are in the process            
 of implementing a couple more.  They are concerned that adjusting             
 the provisions of 43.32.017 may affect future implementations of              
 cooperative ventures with the private sector.                                 
 MR. ROMAN explained the difficulty that would result from trying to           
 pay comparable wages to workers, since their workers are completely           
 untrained inmates.  If actual costs reflected training hours, the             
 prevailing rate would be so much higher, they would place                     
 themselves out of the market.  Another aspect that keeps them                 
 noncompetitive with the other slaughterhouses is that they are only           
 allowed to cut and wrap one animal per customer per year.  They are           
 unlimited in the number of animals they can slaughter for wholesale           
 distribution purposes.                                                        
 Number 330                                                                    
 REPRESENTATIVE BUNDE asked if the Department of Corrections' meat             
 prices in the stores are comparable to meat purchased from private            
 meat packing operations.                                                      
 MR. ROMAN explained that their meats would not be found in stores,            
 because they cannot keep up with the demand for volume.  They sell            
 to private restaurants.                                                       
 REPRESENTATIVE TOOHEY stated she was opposed to the state competing           
 at all with the private sector, if the playing field is not totally           
 level at all perceptions.                                                     
 Number 415                                                                    
 REPRESENTATIVE VEZEY commented that we have a large societal                  
 problem in incarcerating people.  He supported anything they could            
 do to make this cost of incarceration less of a burden to society.            
 He did not know of anything constructive that could be done that              
 does not, conceivably, compete with private sector.  He felt there            
 needs to be a balance between the need to have an affordable system           
 of incarceration and maintaining a healthy private sector.  He felt           
 the commission that is in place would be a much better forum to               
 address the fairness of this type of competition than a statute or            
 legislative committee.  If there is a problem, maybe the makeup of            
 the commission should be looked at, rather than trying to codify              
 what competition is.                                                          
 Number 450                                                                    
 HERB SIMON, resident of Nelchina, explained his frustrations with             
 the complications involved in conveying his public opinion to the             
 committee members in time for the meeting.  He then explained in              
 full detail, the slaughter process and how that relates to their              
 pricing formula.  He felt the Mt. McKinley facility to be unique in           
 its services due to the equipment used, quality of inspections, and           
 capacity for processing.  Also, it is the only facility that                  
 slaughters animals grown exclusively in Alaska.  He said it would             
 be hard for the Department of Corrections' operations to compete              
 with private sector wages.  He also thought the industry should be            
 Number 660                                                                    
 CHAIRMAN PORTER felt that if the committee were to consider this              
 bill, it would be more to the point to recognize that there is                
 already a system in place to deal with these issues.  He asked the            
 bill sponsor to meet with the Department of Corrections to see if             
 the constituent concerns could be addressed through another avenue.           
 REPRESENTATIVE DAVIS agreed with Chairman Porter.  She felt that              
 maybe the two private industries who expressed concern, do not                
 fully understand what Mt. McKinley does, exactly.  They need to be            
 educated and included in the discussion.  She felt there was a                
 difference between what is going on at the private meat packing               
 plants and the Mt. McKinley slaughterhouse.                                   
 Number 711                                                                    
 CHAIRMAN PORTER noted the statute provides a mechanism to deal with           
 the problem they are expressing, which is unfair competition.  The            
 competition comes in the sale, not what goes into the costs; and so           
 the sale price mechanism is there.                                            
 REPRESENTATIVE BUNDE observed that the competition question could             
 be answered by having comparable prices placed on the finished                
 Number 730                                                                    
 REPRESENTATIVE DAVIS asked about the pricing on products going to             
 the wholesalers.                                                              
 Number 735                                                                    
 MR. ROMAN explained that their prices are based on an agricultural            
 index and the restaurant index.                                               
 MR. SIMON mentioned that Alaska is known as a dumping ground for              
 the lower 48, for products they do not want; so the fresher                   
 products coming from Mt. McKinley are higher in quality.                      
 Number 750                                                                    
 REPRESENTATIVE BUNDE felt maybe Mt. McKinley's prices were too low            
 for what the product is.                                                      
 Number 825                                                                    
 CHAIRMAN PORTER asked what happens if there are no competitors when           
 starting a new business, and one pops up two years later.  Are you            
 then required to adjust, based on what that business does?                    
 Number 840                                                                    
 MR. ROMAN said that has happened, and what they did is stayed in              
 the business and tried to meet the prevailing market rate created             
 within the business.  The free venture statute allows for somebody            
 to come in and run a business inside the prison with their managers           
 completely.  It also allows them to sell to a private company at              
 wholesale, according to their specifications.  That is what they              
 are doing with Aurora Caskets right now.  It allows them to come in           
 and purchase a block of hours from the inmate work force.  It also            
 allows them to do some business with the public.  For all of those,           
 they have to go out and receive special certifications, and if it             
 is interstate commerce, they have to meet certain federal                     
 guidelines before they can do business.                                       
 CHAIRMAN PORTER announced the bill would be held.                             
 The House Judiciary Committee adjourned at 2:45 p.m.                          

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