Legislature(2001 - 2002)

04/26/2001 06:17 PM Senate FIN

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

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