CS FOR SENATE BILL NO. 24(JUD) "An Act relating to regulations; relating to administrative adjudications; amending Rule 65, Alaska Rules of Civil Procedure; and providing for an effective date." Senator Dave Donley, sponsor of the bill, testified on its behalf. This was part of a decades long effort that stemmed from the general frustration heard in the Legislature from the public as to how regulations were adopted and what was contained in regulations. Most people didn't understand that the Administration wrote the regulations as delegated by the Legislature, he stated. Once a regulation went through the procedure laid out in the Administrative Procedures Act and was adopted the Legislature could not repeal it but only pass a statute that made the regulation inconsistent. He detailed the regulation process, pointing out the differences with the legislative process. SB 24 would provide that when the Executive Branch proposed a regulation change, they would be required to notify the public of the substance of the change, rather than simply the intent to make a change, and allow for public comment. He noted that this would be a change from the normal operations of the Administration. However, he didn't feel this would cause as large a conflict as feared. He testified that SB 24 was an effort to try to increase public input into the regulatory process. Senator Dave Donley noted the bill had grown as it traveled the legislative process. He spoke to some of the changes. Page 1 dealt with the core of the relationship between the Legislature, the Executive Branch and the regulatory process. Section 2 was the existing law that guided how regulations were adopted in the State Of Alaska. It dictated there was to be a consistency between regulation and statute. However, it was written in an open manner in saying a regulation was not valid if it wasn't reasonably necessary to carry out the purpose of the statute. He felt it gave the Executive Branch very broad ranging powers to adopt regulations. Senator Al Adams asked if the sponsor was reading from the Judiciary version of the bill or the proposed finance committee substitute. Senator Dave Donley clarified Version M, CS SB 24 (JUD) was the version he was speaking to. The proposal from the Senate Judiciary Committee would make a significant change in this area by replacing the word, "reasonably" with "clearly". He anticipated arguments from the Attorney General claiming that the Administration knew what "reasonable" meant and had 20 years of case law to guide them but had no understanding of "clearly". Another argument would be that there would be litigation and regulators would be unable to perform their duties as in the past because of this language. Section 3 set out new, specific language providing that a new regulation should follow the intent of the statute it was implementing. Because of concerns raised by the Attorney General's office regarding litigation, the burden of proof on a regulation challenged under this section, would be on the challenger rather that the state to show that it was the intent. This section was a concession to the Executive Branch to make regulations easier to defend, Senator Dave Donley told the committee. A clause was inserted preventing anyone from obtaining a temporary restraining order, preliminary or permanent injunction on the regulation based on failure to comply with the intent of the Legislature. He said that was because many interest groups had used the regulatory process to block economic development and other aspects of changes to the society that the majority of the people would support. The Senate Judiciary Committee wanted the Executive Branch to follow the intent of the Legislature and the intent of the statute, not provide an inappropriate tool to people who just wanted to be obstructionists toward progress. Therefore, this would place the burden on the challenger if they wanted to contest a regulation. At the same time, it provided additional guidance to the Executive Branch, in his opinion. Section 4 dealt with the idea that the federal government had already incorporated into its regulatory process. That was to have a cost benefit requirement for regulations. Senator Pete Kelly interrupted asking about the cost benefits section, which he said he liked. He spoke to a bill last year that allowed adoption of "regulations by reference" for non-substance changes. He gave an example of Department of Health and Social Services and their dealings with pages of Medicaid code changes. Before the passage of the law, those changes had to go through the entire regulatory process for adoption. He wanted to know if this bill made allowances for those kinds of regulation changes. Senator Dave Donley responded that this legislation had specific exceptions for regulations that were necessary to meet federal requirements. He suggested it might be appropriate to add this situation to the section. Because of concerns raised by the Executive Branch on the cost benefits requirements, a provision was added that would allow department heads to make a finding that a particular item was not appropriate for a cost benefit analysis. A cost benefit requirement was currently in Policy, but the Administration was concerned that by having a cost benefit requirement in statute, it would be an item that could be litigated. Therefore, this legislation allowed for flexibility to give exceptions. Specific exemptions listed were the Board of Fisheries, the Board of Game and the Commercial Fisheries Entry Commission, since it would be particularly difficult to do cost benefit analysis for their functions. He suggested other departments could be added as exemptions to avoid challenges. Senator Al Adams referred to page 2 lines 17-20 in Section 4 regarding the cost benefit analysis. He read, ".most state agencies may not adopt a regulation covered by this section unless the benefit to the public outweighed the cost to the public." His concern was what would happen to public safety or the health of the constituents if the cost outweighed that in regulations. Senator Dave Donley responded that specific provisions were made to allow cost benefit analysis to consider non-tangible elements as well as specific tangible elements. In the public safety area, the purpose of public safety was to protect the public safety of the communities across the state and if a cost benefit analysis determined there was a more efficient way to deliver a service, that system of delivery should be considered. A more non-specific method of measurement could be used in public safety areas, he suggested. Line 15 allowed for that in stating that issues were non- quantifiable. Senator Dave Donley continued with Section 5 saying it continued with the changes from Section 4 requiring the notices posted on the Internet if the department had the technology. Section 6 would add to the proposed public notices regarding regulation changes, a statement saying that a cost-benefit analysis was available if one were prepared. Section 7 was a technical provision necessary to implement Section 8. Section 8 addressed the supplemental public notices when substantial changes were made to the content of a proposed regulation. It would set out a system by which, if an agency provided the initial notice and after public comment, decided to significantly change the proposed regulation, the agency would issue another public notice detailing the changes. This was with the exception of federal requirements, emergency regulations and the Board of Game, Board of Fisheries and the Commercial Fisheries Entry Commission. Section 9 was another technical provision to implement some of the other sections. Section 10 expanded on the emergency regulations making exceptions for them. Section 11 was not mentioned. Section 12 was added because of public testimony heard in the Senate Judiciary Committee complaining about delays in the time it took to adopt some regulations to carry out new statutes. He gave an example of the ignition interlock legislation that took a lawsuit to compel the state to finally adopt regulations. He surmised that this method was a way for the Executive Branch to essentially veto statutory provisions by simply not adopting necessary regulations. Therefore, the Senate Judiciary committee inserted a two-year maximum deadline for a department to adopt regulations pertaining to a particular statute. Senator Dave Donley said agencies voiced concerns about what would happen if after the two-year time period, no regulations were adopted. Would that then prevent them from ever writing regulations? Senator Dave Donley said that was not the intent. The intent was to encourage agencies to get them done. To do so without stopping the regulatory process, the provision stipulated that if an agency failed to adopt regulations within two years, they would need to file a written report containing the reasons for the failure and submit it to the Legislature. Senator Al Adams asked if there was a provision to allow for the public and their initiatives. Was there a time period for them to challenge a statute? He suggested that the deadline should allow an agency to delay implementing regulations until the initiative process was completed. Senator Dave Donley felt the best place for that would be with the court. He repeated the option agencies would have in filing a report listing the legitimate reasons for delays. Section 13 dealt with the issues involving what grounds of invalidity could be used for overturning a regulation. He wanted to adopt the concept that regulations accomplish their goals in the least intrusive way to individual and property rights. He noted that this was part of the Governor's regulation policy. Although sometimes the common good had to override the individual rights and property rights, but they should be considered wherever feasible, Senator Dave Donley stressed. Another intent of this section was to prevent people from taking advantage of the situation and cause unnecessary delay of regulation implementation. Under the provision, if a court reviewed the validity of a regulation it must consider the least intrusive method for people affected by the regulation. If another method other than the least obtrusive was chosen, it could be shown that a substantial state interest was required. This would serve as a safety valve. There were also special provisions that placed prohibitions on the court from stopping necessary regulations based on lawsuits on this issue of least intrusive method. The intent was that the regulations would proceed and this argument could not be used as a tool to stop regulations. He suggested this would be important for natural resource development projects. Senator Al Adams pointed out certain exemptions listed in the bill. Senator Dave Donley said they were put in specifically to avoid the holdup with court proceedings. The new language could otherwise be used as a tool to block necessary regulations for the Department of Corrections and Department of Natural Resources. Therefore, they were specifically excluded. Another exception was added base on comments received from the Attorney General's Office. Because the board or commission regulation process involved greater public participation, they were also exempted. Senator Dave Donley wanted to note a reoccurring theme, if members felt there was a particular area that this would cause a problem, that area could be exempted. He said this process was a tremendous and complicated step and if there were areas of concern, they could be exempted. He felt it might be appropriate to exempt the Department of Natural Resources. He also suggested this could be turned into an experimental bill and only target some problematic departments. Section 14 imposed time limits on departments to handle the challenge to regulations. Part of the regulatory process was not just producing new regulations, but to make decisions based on those regulations, he argued. Before going to court, a challenger to a regulation had to get a final administrative adjudication. If that was delayed, justice was delayed. In response to public testimony, the Senate Judiciary Committee added a method to ensure that the departments made the decisions in a reasonable and timely manner. A deadline required hearing officers to close the record with a final administrative order within a timely manner or two years after the statement of issue. Other complaints were with once a hearing officer issued a final order, there was no standard for the exception to allow the Commissioners to overrule the decision and request additional facts on the issue, which put the process back at the beginning. Therefore standards were added to provide when an agency could order a record reopened for additional factual findings. The Commissioner would have to get permission from the Lieutenant Governor as an outside party. The intent was to give some avenue for finality if the department was unresponsive. Section 15 addressed applicability issues and gave an effective date of July 30, 2000. Senator Dave Donley suggested that the different sections of the bill were each strong enough to stand as a separate bill. The bill had grown much larger than he anticipated and he offered to break it down into areas the committee wished to address. He supported a flexible approach. Senator Al Adams suggested looking at the functions of the Regulation Review Committee and their workload. He pointed out the high cost of implementing this statute. He also suggested a pilot program for some agencies that could be worked within their budgets. He offered working on a subcommittee. TERESA WILLIAMS, Assistant Attorney General, Fair Business Practices Section, Civil Division, Department of Law, testified via teleconference from Anchorage. She addressed Section 14, the time limits provision on Version M of the bill. It provided for a final decision within 60 days of the closing of the hearing record. Tape: SFC - 99 #50, Side A During that timeframe, if parties wished to submit briefs, that would come out of the time frame. The hearing officer would have to prepare a proposed decision. The final decision maker must review the decision and if there were a determination to review the record, the record would need to be prepared and reviewed within that time period. There were complex and controversial cases that came before hearing officers and agencies for determination and this deadline could not be met in those kinds of cases, she stressed. She gave an example of a recent Medicaid rape case where an attorney for the private party indicated that the transcript was 1500 pages long and had taken about four and a half weeks to prepare. That person wanted to have more than a month to prepare the brief that would be filed after the record had been closed so the hearing officer would be able to benefit from the analysis by the party. Clearly, that process could not be allowed within a sixty- day window between the close of the record and a proposed decision. That was a concern for the interest of the parties as well as whether the administrative hearing process could even work. Teresa Williams continued with the other deadline requiring the hearing to be concluded within two years. Again, there were complex proceedings in which both parties agreed that there was a need to develop testimony, talk to experts, find out what the facts were before the actual hearing, and do briefing. Sometimes there was a parallel criminal proceeding, which much conclude before the administrative proceeding could start. Other times there was a parallel civil proceeding that also must conclude first. To require both proceedings to go on simultaneously would double the cost for the party, she advised. If a stay were requested there was no provision under the bill to provide that any request for an extension would stop the clock. The administrative hearing would be cancelled. Another concern was that the preparation of the transcript took time. The final decision-maker could not change the proposed decision made by the attorney how acted as the hearing officer without reviewing the record. Some agencies did that by listening to the tape. For instance the Human Rights Commission listened to the tapes and it sometimes took weeks. In Teresa William's opinion, the bill needed to be drafted I such a way to recognize that respondents sometimes legitimately request delays and other times cause the delay by not being cooperative, not meeting deadlines, etc. They could manipulate the process and move it to the Superior Court. Any of that time should be excluded from the clock. The remedy provided in the bill was extreme. Currently, parties had the power to petition the Superior Court to request the agency to act if it was felt the agency was acting unreasonably. Under the provision in the bill, the process would have to start over in the Superior Court. As a result, the agency's cost and the respondent's costs incurred in the proceedings would be lost when the process started over in state court, which was more expensive. Another concern Teresa Williams voiced was with the role of the Lieutenant Governor that had been injected in a couple stages in the proceedings. That would open administrative adjudication to the political process with political pressure. That may not be the public interest and would be an unknown quantity since there was no provision stating the standards the elected official must exercise. There also was no preclusion of ex partay contact. Co-Chair John Torgerson requested her comments in writing. Senator Dave Donley said his proposed committee substitute addressed some of the testifier's concerns. He asked that the committee adopt the CS so future public comments could be addressed to that version. Senator Al Adams said he had no objection and asked about the sectional analysis between the two versions. Senator Dave Donley spoke to the changes made in the CS. Section 2 tried to reach a middle ground by replacing the word "clearly" with "reasonable". The new language would say that the reasonable approach was clearly within the intent of the statute. The bill drafters suggested the new language. Section 12 was the adoption time limit section. The CS made a specific exception indicating that when a regulation did not get adopted within the two-year deadline, the court would not hold the regulation invalid. This was to encourage agencies to adopt regulation, not to give a reason to hold a regulation invalid. Section 13 was rewritten to reverse the presumption from the Judiciary CS that the regulation was automatically invalid if it did not meet the specified criteria. The new language stated that the regulation was valid and the challenger had the burden of proof to show the specific criteria were not met. Section 14 replaced the term "final administrative order" with the term "proposed administrative order". It also added an additional 30 days to the 60-day period by which time a final administrative order would be provided. He felt this should alleviate some of the witness's concerns. He referred to a proposed Amendment #1 and said his motion to adopt the CS would include the changes listed in Amendment #1. The amendment added a specific exemption for situations with a simultaneous criminal case to wait until the criminal case was resolved. The amendment also added a provision to allow a period of time until the next regularly scheduled board meeting, plus an additional 30 days after the board meeting, for regulations written by a board or commission. He felt these changes tried to address specific issues worked on since the adoption of the Judiciary CS. There was nothing radical, but changes that tempered the effect of the legislation. Senator Dave Donley moved to adopt the Version "N" committee substitute incorporating Amendment #1. Senator Al Adams objected for question. He wanted to know if, with the two differences to Sections 12,13 and 14, did any of those changes alter the numerous fiscal notes accompanying the bill. Senator Dave Donley said all the departments had their own positions on the fiscal notes and he couldn't speak for the departments. He noted that the changes would give them more time and mitigate the impacts of the bill, so they would not increase the fiscal notes. Senator Al Adams removed his objection. The committee adopted CS SB 24 Version "N" incorporating Amendment #1, without objection. Co-Chair John Torgerson ordered the bill held in committee. He reminded the committee that amendments to the FY99 Supplemental Budget bills were due by 11:00 AM.