CS FOR SENATE BILL NO. 203(JUD) "An Act relating to administrative hearings, to hearing officers, and to administrative law judges; establishing the office of administrative hearings and relating to that office; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated that this bill, which is sponsored by the Senate Rules Committee by Request, would create an independent office of hearing officers, directed by a chief administrative law judge, within the Department of Administration. Therefore, he continued, the administrative hearing officer would be removed from the affected State agency that writes, promulgates, and enforces regulations. He noted that 25 other states have created similar offices. DAVE STANCLIFF, Staff to Senator Gene Therriault and Aide, Administrative Regulation Review Committee, opined that "it is infrequent" that issues are presented that are good for constituents, good for the Government, good for the Legislature, and good for judicial practice. He stated that this bill is "considered a good government bill and has garnered bipartisan support throughout the country and so far here in the Alaska State Legislature." He noted that, to date, there has been no opposition to the measure. He declared that the premise of the bill is that "the people who challenge the laws and rules of government deserve to have fair, impartial, and efficient and professionally conducted hearings when they do make those challenges." He shared that these challenges could originate from major corporations or from individuals. Mr. Stancliff pointed out that the idea "is to rebalance the powers of our three branches of government" as presently, he noted, the Administrative Branch "has legislative ability in its power to write rules that become law." Furthermore, he attested, it has in its power, an ability "that is normally reserved for the Judicial Branch of government in that it has a form of captive judges within the State administration" who are called hearing officers. He specified that currently the State's hearing officer functions are scattered throughout the State and are comprised of people who have a variety of backgrounds, some with legal training and some with none. In addition, he noted that some hearing officers work full time, some part time, and that a variety of pay ranges are offered, But, he explained, what makes this system "worthy of reform" is the fact that "they work for the agency that signs their paycheck; gather at the water cooler; and play golf on the weekends." He stated that, "it has been discovered throughout the country" that it is disconcerting to those challenging "a regulation or a rule of law and discover that the person who is going to sit in judgment of their appeal actually works for the agency they are challenging." Mr. Stancliff stated that, in addition to being supported by Senate President, Senator Gene Therriault, this legislation is supported by Governor Frank Murkowski and Mike Miller, the Commissioner of the Department of Administration. Continuing, he asserted that in order "to work for Alaska," this legislation must minimize disruptions as the change occurs. Mr. Stancliff specified that the major change resulting from the legislation would be the creation of a central model, independent hearing office, in which the hearing officers would be re-titled Administrative Law Judges. The Administrative Law Judges would report, he continued, to a Chief Administrative Law Judge (Chief ALJ) who would establish standards of conduct, similar to the State's judicial system code of conduct. He stated that the Chief ALJ's standard of conduct would have as its "primary goals," good due process, high levels of adjudication, and an efficient system. Mr. Stancliff specified "that once the upfront transition costs are in place" and the model becomes operational, government agencies could avail themselves to it. Furthermore, he commented that rather than hearing officers working part time, the system would have full time hearing officers, and instead of having hearing officers specializing in one field, the hearing officers would be cross- trained. These changes, he opined, would allow the hearing office to become a very efficient unit of State government. He stated that the fiscal savings would be better defined once the fiscal notes are developed. Mr. Stancliff stated that one of the "residual" effects of this reform would be "that when you have high levels of adjudication," the people who conceive, write and enforce the regulations "start doing their job differently because they no longer have in-house hearing officers inclined to protect what they write and what they enforce." He stated therefore, that businesses that have been tied up in the regulatory process for up to ten years or more could actually get through the administrative process quicker, get a resolution, "and decide whether they want to take their case to court or not." Additionally, he stated that the entire system, both inside and outside the model, would start "to behave differently," because a new level of expertise would be required. Mr. Stancliff explained that the new process would create a new model that would absorb the hearing officers currently existing within agencies, would serve to curb expense, would keep the model flexible so that it could continue to work with other Administrative Procedure Act (APA) hearing functions in the State; and, "and most importantly," would provide the Chief ALJ with the ability to have Statewide oversight whenever there is a complaint filed or a problem arises outside the model. He informed that the Chief ALJ would report to the Legislature on an annual basis and discuss issues that must be addressed. Furthermore, he noted that the Legislature would be able to include individuals in the hearing process if so desired. Mr. Stancliff pointed out that some states have established models that "have "worked well to an extent, but has been problematic" in that the rulings are not allowed to be challenged. The model proposed in this legislation, he continued, would allow State commissioners to overturn a decision based upon sound rather than "arbitrary reasons." He expanded that the Commissioner would be required to review the record and evidence "and put the reasons for overturning the ruling into writing." Mr. Stancliff declared that constituents have found the current administrative hearing model "very difficult to exhaust" in that "it is almost impossible to get beyond the administrative system in the State of Alaska if the administrative system does not wish you to get beyond it." He contended therefore that, "it is very difficult to get your case before the courts." Continuing, he noted that "what is even more damaging to small entrepreneurs and business people is that the first time they confer with an attorney or anyone who is familiar with the State system, the advise is that "unless you have about five years of time and a lot of money to invest," you may want to consider whether to challenge the ruling or regulation. He stated that this situation, combined with the desire to rebalance power, has been the driving force for this legislation. He stated "that a bundle of horror stories" could have been presented relating to previous administrative actions. Mr. Stancliff contended that the model being presented in this bill is a model that is being reviewed by numerous other states, as it is a hybrid of many models. He requested that further changes to this legislation be made either in the form of amendments or a new committee substitute. He noted that some of the accompanying fiscal notes "aren't exactly correct yet," as some of the departments have developed fiscal notes based on incorrect "assumptions" about what this legislation would or would not do. Therefore, he requested that the fiscal notes be reviewed during future hearings on the bill. Co-Chair Wilken asked for a review of the changes made in the Judiciary Committee's version of the bill. Mr. Stancliff explained that the Department of Law had requested each department affected by this legislation to determine how this bill would affect current procedures and to identify any area that might be problematic. One issue that was raised, he noted, involved jurisdictional conflicts between those hearings operating under APA law and those operating separate from the APA requirement. Therefore, he continued, "the Judiciary Committee addressed those mechanical changes that would make this new model and the authority within it more user friendly for this Administration to put into affect." Other concerns addressed in the Judiciary Committee version of the bill, he continued, was how to provide the Chief ALJ with the ability to allow an agency who needs a high level of expertise "to come in and sit at the hearings," as well as how "to allow agencies who are not swept into the model" to use the model if they so choose. He pointed out that a component that is garnering support on the national level is the fact that the State has allowed its commissioners to voice their support of using the Central model, and he continued, the commissioners voiced support for allowing the Central model ruling be final rather than requiring the commissioners to weigh in on the decision. Furthermore, he noted, even though the Central Model's Chief ALJ might have jurisdiction over an agency, a well-functioning, existing hearing office could be allowed, after review, to continue what its been doing. Co-Chair Wilken agreed with Mr. Stancliff's comments that the fiscal notes should be further reviewed as the fiscal notes "do not jive" with the legislation's intent of being a consolidating bill. Co-Chair Wilken inquired as to whether the average cost of conducting a hearing is $10,000 or $100,000. Mr. Stancliff responded that one of the determining factors would be the length of time that the Administration "holds on to the issue before it." He informed the Committee that neither the hearing expenses nor the affect of the hearings on the public sector are tracked. He stated that not only is the State unable to ascertain how many contract hearing officers are being used, it is also unable to ascertain the length of time required for them to conduct their business. He stated that this information is being sought, and if it were determined to be an accurate reflection, the information would be supplied to the Committee. He pointed out that one thing that could save the State money is that the Legislature would be provided an annual review of the model, which could include a public survey. He noted that because the Central Model is funded separately from other agencies, the Legislature would be able to get a good idea of what is being provided by the funding. Mr. Stancliff shared knowledge of a situation in which the existing model addressed a case for more than five years and, as a result, caused the affected business to go bankrupt. In other cases, he shared, delays regarding actions in which the State was found liable for millions of dollars have not only tied up State employee time, but are accruing liabilities which the State would eventually be required to pay, perhaps with interest. He stressed that it is not in the best interest of the State "to stall" through the administrative process. In summary, he stated that he would attempt to develop costs and time scenarios. Senator Bunde asked whether there are any State divisions that would be exempt from this bill. Mr. Stancliff responded yes. He shared that the original jurisdiction list was quite extensive and was projected to incur more expensive startup costs than could be supported. Therefore, he continued, the list has been pared down on three separate occasions. He explained that as currently proposed, approximately 15 percent of hearing officers would be included in the new model. However, he stated, all hearing officers would "be affected by the general reforms that occur in the bill." Senator Bunde inquired as to which of the plans in the "Independent Administrative Hearings Through a Central Panel, Informal Legislative Brief" provided by Senator Therriault, [copy on file] has been chosen for this legislation's Central Panel model. Mr. Stancliff responded that the plan that is being proposed would involve "the building of a small model, put into it the jurisdictions that you could afford to put in, give the model the ability to render a decision that's final if the Commissioner does not act within 30 days, and if it is going to be overturned," mandate that it be based on good reasons. Continuing, he noted that the Chief ALJ must be provided the ability to come "to the Legislature and the Administration and the attorney general and say here's what's broken, here's what needs to be fixed, here's how the APA needs to be amended to resolve some of the problems that are occurring with hearing officers." So, he concluded, that the plan being proposed is a "hybrid" consisting of many plans, without the final authority, and encompassing in a select number of people as authorized by the Administration. Senator Bunde understood, therefore, that a hybrid of the various plans is being presented rather than a single plan being considered. Mr. Stancliff concurred. Senator B. Stevens understood that while the bill would affect all State agencies, not all of them would be under the jurisdiction of the new Central Panel hearing procedure. However, he questioned whether the bill's language in Section 3, Subsection Sec. 44.21.550. Code of hearing officer conduct. located on page eight, lines 6-10 indicates otherwise as it appears to state that "the Chief Administrative Law Judge has maximum control over all other hearing officers, even though they are not under the jurisdiction of the agency." This language reads as follows. …The code shall apply to the chief administrative law judge, administrative law judges of the office, and hearing officers of each other agency. Mr. Stancliff stated that, "this has been the most difficult point to resolve." He pondered how much authority should be given to the Chief ALJ as were that person "given too much, the agencies get very nervous." He noted that language to the affect of "to the maximum extent possible, without conflicting with applicable statutes" has been included in the bill to raise the comfort level of agencies and to "sufficiently" assure the agencies that were they doing their jobs well, that they could continue to do them without the Chief ALJ saying "hey, its my domain, I'm taking over now, step aside." Senator B. Stevens reiterated that the question is whether the Chief ALJ would have jurisdiction over agencies that are not listed in Section 3 of the bill. Mr. Stancliff stated that the language "does say that." Senator B. Stevens asked the reason for this language being included. ANDY HEMENWAY, Hearing Officer, Procurement & Longevity Bonus, Department of Administration, noted that Mr. Stancliff might have misspoken in regards to this issue. He qualified that "the hearings that are mandatorially within the jurisdiction of the Central Panel, the Chief Administrative Law Judge would be able to issue regulations governing the conduct of those hearings." Continuing, he stated that this section would not apply to "other agencies that are not within the mandatory jurisdictions." Senator B. Stevens clarified therefore, that this section would not apply to those not within the mandatory jurisdictions. Mr. Hemenway concurred. Mr. Hemenway noted that the applicable language in the bill is located in Sec. 3, subsection Sec. 44.21.560, on page seven, line 31 through page eight, line 2 that reads as follows. Sec. 44.21.560. Procedure for hearings. (a) The chief administrative law judge shall, by regulation, establish procedures for administrative hearings conducted by the office… Mr. Stancliff apologized as he had misunderstood the question. Mr. Hemenway continued that the specific answer to the question is included in the aforementioned Section 44.21.560 as follows. …However, to the extent regulations adopted by an agency for the conduct of an administrative hearing conflict with regulations adopted by the chief administrative law judge under this subsection, the regulation adopted by the chief administrative law judge control to the maximum extend possible without conflicting with applicable statures. In other words, Mr. Hemenway continued, the Chief ALJ's regulations would supercede regulations of the hearings within the jurisdiction of the agencies that the Chief ALJ might adopt to govern. Continuing, he clarified that the Chief ALJ's regulations would not affect any agency's on-going proceedings or hearing functions that are not included in the Central Panel. However, he noted that an agency that is not included in the Central Panel could voluntarily elect to send a case to the Central Panel, and that, as part of their request, the agency or the Chief ALJ could specify that for cases being referred, that agency's regulations would be used. Mr. Stancliff added that the Chief ALJ would be able "to receive input from people outside the process who might be having problems with people outside the process and make recommendations to the Administration and to the Legislature as to how to resolve those problems." He asserted that the Chief ALJ would be "empowered with a great deal of authority" within the Central Panel model. Furthermore, he continued, the Central Panel's model' would create a new atmosphere of how hearings are conducted and held outside of the model. He stated that this point of balance proved the most difficult to resolve within the Administration. Senator B. Stevens asked for confirmation that the Chief ALJ's procedures would supercede administrative hearing regulations that an agency might currently have in place. Mr. Stancliff responded that this would be true for those agencies that are included in the model. He reiterated that those agencies not jurisdictionally included in the model would not be subject to the Chief ALJ's new procedures and regulations. He stated that this was the compromise. Senator B. Stevens understood therefore that the agencies not specifically included in the Central Panel would not be subject to the Chief ALJ's regulations and procedures. Mr. Hemenway stated that the list of agencies included in Sec. 3, subsection Sec. 44.21.530. Jurisdiction of the office, located on page four and five of the bill, would be subject to the jurisdiction of the Central Panel and the regulations and procedures as determined by the Chief ALJ. Senator B. Stevens asked for confirmation that the agencies not listed in that section would not be required to report to the Central Panel. Mr. Hemenway concurred. Co-Chair Wilken noted that Sec. 2, subsection (c), on page 2, line 21 specifies that the Chief ALJ could not serve in that capacity for more than three five-year terms. Mr. Stancliff commented that upon review of several other states' models, it was determined that "institutionalizing the judges within the Administrative system" might not serve the best interests of the model. Therefore, he shared, that this term timeframe was a compromise "between two schools of thought," in that some states specified eight-year terms and others "forever." Mr. Stancliff pointed out that "this new model is pretty much insulated from Legislative" and Administrative influence, and he noted that this new model is supported by people within the hearing officer community as well as those who have retired from the system, as it is felt that people cannot perform their job well when under duress or threat. Therefore, he continued, once a code is developed, and the hearing officers are protected and treated "like true judicialists," then high levels of adjudication would follow. Co-Chair Wilken asked whether the Chief ALJ could be re-appointed after the specified 15-year term. Mr. Stancliff responded that while this is not specifically addressed in the legislation, he understood the answer to be no. Senator Bunde suspected that, in the future, the model would expand, and that agencies could be influenced by it even were they not directly controlled by it. Mr. Stancliff responded that those agencies not desiring to be "sweep into the model by the Legislation must do a better job outside the Model." In addition, he noted, agencies might come to the realization that the model "is working very well" and choose to be included in it. DAN HOUGHTON, Representative, Alaska Regional Hospital, testified via teleconference from an offnet site and shared the hospital's experience regarding the hospital's appeal, in 1994, pertaining to the official rate settings established for the years 1991, 1992, and 1993 year-ends. He noted that due to a number of different issues, a hearing officer was unavailable for approximately two years, and the appeal was not heard until March 1997. Continuing, he stated that, in May 2000, the hearing officer issued a favorable decision in favor of the hospital that involved approximately four million dollars. He continued that in June 2000, the decision was turned over to the Department of Health and Social Services, and the Commissioner at the time, issued a decision that reversed the majority of the hearing officer's decision. At the point, he noted, the hospital appealed in April 2001, to the State's Superior Court, issued its decision in January 2003. SFC 04 # 18, Side B 10:50 AM Mr. Houghton stated that the Superior Court ruling in favor of the hospital was then submitted to Department of Health and Social Services Commissioner, Joel Gilbertson, for action, and, he continued, in March 2003, he re-manned the Superior Court decision back to the hearing officer for further ruling or action. Unfortunately, he continued, the hearing officer who had previously worked on the issue was unavailable for health reasons, and the oral arguments were again postponed and have, to date, not been heard. Therefore, he summarized that eight years after the initial hearing, the hospital is still "battling" through this administrative process. Mr. Houghton voiced support for SB 203, as the hospital's experience attests to the fact that "a larger pool of hearing officers" should be available to address the multitude of professional issues that might arise rather than hearings being delayed as the result of one hearing officer being familiar with an issue. Co-Chair Wilken stated that the bill would be HELD in Committee to allow for further review and development of fiscal notes.