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 second hearing for this bill in the Senate Finance Committee. Co-Chair Wilken communicated that this legislation would create an independent office of hearing officers under the administration of a chief administrative law judge (ALJ), within the Department of Administration. The bill's sponsor would be providing further information in regards to the office's structure. An explanation pertaining to the fiscal note would be forthcoming. Co-Chair Wilken asked whether there was any objection to the adoption of the Version 23-LS0903\Z committee substitute as the working document. There being no objection, Version "Z" was ADOPTED. [NOTE: A formal request to adopt the Version "Z" committee substitute was offered later in the hearing.] DAVE STANCLIFF, Staff, Administrative Regulation Review Committee, Office of Senate President Gene Therriault, the bill's sponsor, explained the this committee substitute has been developed to address technical issues and to "clean up" various components of the bill as identified by the Legislative Legal Division and the Administration. He referenced a handout provided by the Regulation Review committee titled, "Changes Included in SB 203(FIN)" [copy on file] that specifies the eight changes made in the committee substitute. The first substantive change is located in Section 66, line 30, page 31 of the bill and reads as follows. Sec. 66. AS 39.52.170 is amended by adding a new subsection to read: (d) A public employee who is in a permanent full-time position as a hearing officer or administrative law judge may not accept employment as a hearing officer or enter into a contract to act as a hearing officer, administrative law judge, or judicial officer for the federal government, another state, a municipality, or a Native tribe. Mr. Stancliff stated that the municipal jurisdiction specification was added to the list to avoid possible conflicts of interest. Senator Olson understood the rationale for this section, as it would apply to such large communities as Anchorage or Fairbanks; however, he asked how Rural locations with limited numbers of hearing officers would be affected. ANDY HEMENWAY, Hearing Officer, Department of Administration, responded that currently the State has 25 hearing officers, all of whom are located in Anchorage, Fairbanks, or Juneau. These individuals travel to other locations or participate via teleconference as required. Therefore, this requirement would not affect smaller communities. Senator Olson continued to voice discomfort with the inclusion of municipality employees in the list. Mr. Hemenway stated that the purpose of this language is to avoid any conflict of interest that might arise regarding decision-making on behalf of one sovereign entity verses another's policies or interests. Senator Olson questioned how a hearing officer, whose role is one of neutrality, could have a conflict of interest. Mr. Hemenway expressed that the intent would be to avoid any "inherent" conflict of interest. There might be a perception that a hearing officer who works on behalf of the State might tend to rule in its favor in a situation involving the State and a municipality, for example. Senator Olson observed "that it sounds like we are trying to protect ourselves from ourselves." Mr. Stancliff commented that the second change is located in Section 65 on page 31 of the bill. While the bill provides protection to the ALJ from inappropriately contact or influence from agencies or Legislative agencies, it did not provide that protection to hearing officers. This is addressed in Section 65. Mr. Stancliff stated that recently enacted legislation incorporated new processes at the request of Associated General Contractors (AGC) in regard to dispute resolution. In order to allow that process to develop, those processes has been eliminated from the jurisdiction of the legislation. Mr. Stancliff continued that the Administration has requested that hearing officers be provided the same type of code as judicial officers have in that a person could request a different hearing officer preside over the hearing. This language is included in Section 3, Subsection 44.21.570(c) on page ten, beginning on line eleven. Mr. Stancliff stated that the definition of an administrative hearing is expanded in language in Section 3, Subsection 44.21.599 (1) on page 11. This section reads as follows. (1) "administrative hearing" means a quasi-judicial hearing before an agency, but does not include an informal conference or review held by an agency before a final decision is issued. Mr. Stancliff, addressing Senator Olson's concern about the prohibition of hearing officers working for the State and another jurisdiction specifically in regards to how this might affect a small Rural area, stated that this language would serve to address the concern. Highly contested cases would be heard at the higher administrative level. Mr. Stancliff stated that Number Six on the Regulation Review Committee list would address some conflicts the legislation incurred with agency's "cease and desist" authority. This language is located in Section 8, on page 13, beginning on line 16. Mr. Hemenway explained that this language would primarily address the bill's conflict with the Department of Community and Economic Development's crease and desist orders for regulated professions. Mr. Stancliff stated that a technical change incorporated in this committee substitute is that the clarification of the duties and responsibilities of ALJs and hearing officers is clearly defined in the bill. Senator Bunde mentioned that separate legislation relating to worker's compensation would incorporate a panel of ALJs. Therefore he asked how these two pieces of legislation would interact. Mr. Stancliff replied that this is an unknown, as the integration stage of the procedure has not been conducted. However, this should be addressed as the processes advance. Senator Bunde stated that the bill in question is SB 311-INSURANCE & WORKERS' COMPENSATION SYSTEM. Mr. Stancliff acknowledged. SFC 04 # 22, Side A 10:40 AM Senator Hoffman asked whether the possible conflict of interest issue that might arise by a hearing officer being employed in a second job is addressed in this committee substitute. Mr. Stancliff responded that substantial discussion has occurred in this regard, specifically whether hearing officers should be allowed to practice law outside of their public employee position. This bill is restrictive in regards to possible conflicts. Mr. Hemenway noted that language in Section 3, Subsection 44.21.540(c) on page six, lines 24 through 27 addresses the concern regarding a second job. However, while this bill contains language in this regard, it does not expressly prohibit work in a second job outside of their employment with the State. (c) An administrative law judge employed by the office must devote full time to the duties of the office unless appointed to a position that is less than full-time. An administrative law judge employed by the office may not perform duties inconsistent with the duties and responsibilities of an administrative law judge. Mr. Hemenway understood the intent of this language to be that a person employed as an ALJ should "not also hold a second job within the Administration," such as being a Deputy Commissioner, for example. Senator Hoffman stated that rather than being concerned about an individual's ability to hold a second job, his primary concern was their ability to privately practice law. Mr. Stancliff responded that while this concern was addressed, the decision was made not to include it. However, the Chief Administrative Law Judge would be developing a judicial canon similar to that currently in place for the State Judicial Branch. New regulations governing ALJS would also be developed that might address this issue. It is not, however, required, in Statute. Senator Hoffman asked whether the independent practice of law would present a conflict of interest for hearing officers. Mr. Hemenway shared that this issue is a primary concern. The Judicial Canon does prohibit judges from practicing law. The essential question is whether this should also apply to administrative hearing officers. This is worth considering. Responding to Senator Hoffman's question, Mr. Hemenway declared that there is certainly the potential for conflicts of interest in this area. The question is whether it should be addressed through regulation or Statute. Senator Hoffman declared that if there is the potential for conflict of interest, it should be included. Mr. Stancliff stated that the State currently contracts with a number of hearing officers and this process would be continuing. Therefore, consideration must be given to this situation. Mr. Stancliff stated that the final change in the bill pertains to Section 46(b) on page 26 of the bill and regards the amount of time that hearing officers might spent in regard to insurance rate setting. Currently, the Director of the Division of Insurance currently spends more that 1,000 hours in this regard. Were the rate setting responsibility to shift over to the ALJs, it would significantly increase the fiscal note. There are some Division of Insurance duties however, that could be transferred to the Central Panel without much impact. Mr. Hemenway voiced that rate setting responsibilities should not be conducted by the Central Panel. Mr. Stancliff concurred and stated that were those responsibilities to become the responsibility of the Central Hearing Panel, the fiscal note would be cost prohibitive and the bill would falter. Co-Chair Wilken asked regarding the validity of the University of Alaska's two-page brief [copy on file] requesting an exclusion from the jurisdiction of the bill. Mr. Stancliff commented that the brief might have some validity. The determination regarding the University is under review. However, he voiced, "that no State hearing officer should be exempt from the protections and higher standards" being developed in the bill. The University has a high quality process and meets those standards. Co-Chair Wilken asked how the University's request would be addressed. Mr. Stancliff replied that an amendment would be developed to address their exemption. Co-Chair Green moved to adopt the Version 23-LS0903\Z committee substitute as the working document. There being no objection, the Version "Z" committee substitute was formally ADOPTED as the working document. Co-Chair Wilken stated that the fiscal note discussion would occur during the next hearing on the bill. Senator Hoffman asked whether there is a shortage of hearing officer applicants in the State. Mr. Hemenway responded that in his perception, as positions open, there are a number of good applicants. Co-Chair Wilken noted that the bill would be HELD in Committee.