HOUSE FINANCE COMMITTEE February 17, 1998 1:40 P.M. TAPE HFC 98 - 31, Side 1. TAPE HFC 98 - 31, Side 2. TAPE HFC 98 - 32, Side 1. TAPE HFC 98 - 32, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:40 P.M. PRESENT Co-Chair Hanley Representative Mulder Co-Chair Therriault Representative Kohring Representative G. Davis Representative Martin Representative Grussendorf Representatives Moses, Kelly, Foster and J. Davies were not present for the meeting. ALSO PRESENT Representative Gene Kubina; Representative Norman Rokeberg; Craig Johnson, Staff, Senator Jerry Ward; Bernie R. Diamond, Senior Vice President & Secretary, Management & Training Corporation (MTC), Utah; Margaret Pugh, Commissioner, Department of Corrections; Margot Knuth, Assistant Attorney General, Department of Law; Margie Vandor, Assistant Attorney General, Department of Law; Ruth Blackwell, Powell Reality, Juneau; Pamela LaBolle, President, Alaska State Chamber of Commerce, Juneau; Lorraine Derr, Executive Director, Alaska State Hospital & Nursing Home Association (ASHNHA); Don Etheridge, Labor Union, Juneau. SUMMARY HB 33 An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date. CS HB 33 (FIN) was reported out of Committee with a "no recommendation" with a fiscal note by the Department of Commerce and Economic Development dated 1/30/98. HB 53 An Act relating to the authority of the Department of Corrections to contract for facilities for the confinement and care of prisoners, and annulling a regulation of the Department of Corrections that limits the purposes for which an agreement with a private agency may be entered into; authorizing an agreement by which the Department of Corrections may, for the benefit of the state, enter into one lease of, or similar agreement to use, space within a correctional facility that is operated by a private contractor, and setting conditions on the operation of the correctional facility affected by the lease or use agreement; and giving notice of and approving a lease-purchase agreement or similar use-purchase agreement for the design, construction, and operation of a correctional facility, and setting conditions and limitations on the facility's design, construction, and operation. CS HB 53 (FIN) was reported out of Committee with a "do pass" recommendation, a House Finance Committee Letter of Intent and a fiscal note by the Department of Corrections and zero fiscal notes by the Department of Administration and the Department of Revenue. SB 209 An Act relating to the Task Force on Privatization; and providing for an effective date. SB 209 was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Office of the Governor dated 1/21/98 and Legislative Affairs Agency dated 1/21/98. HOUSE BILL NO. 53 "An Act relating to the authority of the Department of Corrections to contract for facilities for the confinement and care of prisoners, and annulling a regulation of the Department of Corrections that limits the purposes for which an agreement with a private agency may be entered into; authorizing an agreement by which the Department of Corrections may, for the benefit of the state, enter into one lease of, or similar agreement to use, space within a correctional facility that is operated by a private contractor, and setting conditions on the operation of the correctional facility affected by the lease or use agreement; and giving notice of and approving a lease- purchase agreement or similar use-purchase agreement for the design, construction, and operation of a correctional facility, and setting conditions and limitations on the facility's design, construction, and operation." Representative Mulder MOVED to ADOPT work draft version 0- LS0194\X, Luckhaupt, 2/16/98, as the version before the Committee. There being NO OBJECTION, it was adopted. Co-Chair Therriault explained that the "X" version included new language that addressed the "local and special acts legal concern. Representative Grussendorf pointed out a conflict in language used on Page 2, Line 16 and Point #3 in the Letter of Intent. [Copy on file]. Co-Chair Therriault explained that 20 years referred to the utilization of the facility, whereas, Item #3 addresses the facility's operation. Representative Grussendorf asked who would be responsible to provide the original debt amount. Co-Chair Therriault noted that the company would be required to have their own bonding in order to secure the facility. BERNIE R. DIAMOND, SENIOR VICE PRESIDENT & SECRETARY, MANAGEMENT AND TRAINING CORPORATION (MTC), OGDEN, UTAH, introduced his company, a private firm located in Utah. Ninety percent of MTC's business is through the federal government with the Department of Labor (DOL). MTC is the largest contractor with the federal DOL in the job corp program. Mr. Diamond commended the Alaska State Legislature for considering privatizing their prisons. He noted that his company has secured contracts throughout the country because of their education and training programs. These programs help to cut recidivism. Mr. Diamond provided Committee members with a "Comparative Recidivism Analysis of Releases from Private and Public Prisons in Florida". [Copy on file]. He emphasized that the intent was not to take over the Department of Corrections, but rather to work in partnership with them. In Texas, the Management and Training Corporation (MTC) operates the largest private prison in the country. The building was completed and paid for under the proposed schedule; a facility with 1700 beds, built in under a year. He elaborated on MTC's good record, recommending that with passage of the proposed legislation a competitive bidding process could be opened up. Mr. Diamond suggested that rather than the State putting up the money to build the facility, MTC could use the State's bonding authority; then the City of Delta Junction would not be liable to pledge. The State contract would be presented to MTC's private investors to provide the $30 million dollar allocation cost. Once those funds were paid, MTC would give that facility to the City of Delta Junction, which would then provide them in the future with an income stream. Mr. Diamond acknowledged that his firm was disturbed to read in the Anchorage paper that the deal had been sealed with another company. He emphasized that language in HB 53 would strike the competitive nature of the bid. Mr. Diamond urged the Committee to consider an amendment to HB 53 to provide for competitive procurement. He cautioned that if the bill's language remains as written, and if it was the intent of the Department of Corrections (DOC) to contract in that way, and if federal funds were used, it would be illegal. All federal contracts specify that any funds used as federal funds must be competed for, otherwise, much more State money would have to be appropriated. Representative Martin spoke to the value of privatization; although, he suggested that the proposal presented by MTC had been submitted too late. Mr. Diamond stressed that MTC has a large interest in pursuing SB 179. He believed that participation would require the addition of language to change the intent in order to a create competitive procurement. Mr. Diamond stressed that Alaska has the responsibility to solicit bids from more than one firm. In response to Representative Mulder, Mr. Diamond explained that Adak was too far away to be workable in relationship to costs related to inmates. Representative Mulder continued to question Mr. Diamond regarding a past proposal to use the Adak Island for a private prison facility. He emphasized that MTC has had the opportunity to look at Ft. Greely for the past two years. Mr. Diamond countered that the proposal had been brought to MTC's attention only two weeks ago. Representative Mulder inquired about the substance abuse program, which MTC had implemented. Mr. Diamond replied that program was situated out of Merana, a small community near Tucson, Arizona. About 60% of the inmates are in the last period of substance abuse treatment, while the others are there for alcohol treatment. He offered to mail Committee members the studies and results from that facility. Representative Mulder inquired how realistic the $70 dollar per day rate was. Mr. Diamond recommended that portion of the legislation should be amended. The other twenty-nine states that have permissive legislation include language listing a 3% - 15% percent decrease. Also, language could be added stating that there must be savings of at least 10% under the State per diem rate for the same service offered. He pointed out that the $70 dollar rate should include capital costs, which was not realistic. Co-Chair Therriault pointed out that the wording of the bill does not preclude the Commissioner of the Department of Corrections from requiring a competitive bidding process. Mr. Diamond commented that Section #4 would strike that requirement. He recommended adding a 6th point by amending the Letter of Intent and calling for competitive procurement. MARGARET PUGH, COMMISSIONER, DEPARTMENT OF CORRECTIONS, voiced appreciation for opening up the debate on the competitive bidding process. She provided Committee members with a handout addressing the Department's concerns. [Copy on file]. She pointed out that the State count is, currently, 3,218 prison beds filled, and that is 518 above emergency capacity. She cautioned, the trend is upward. Commissioner Pugh reminded Committee members that public protection is the first mandate of the Department of Corrections. A schedule has been ordered to be submitted to Judge Hunt by March 9th. Commissioner Pugh reiterated that the current concern is the short-term need. Co-Chair Therriault suggested that the short-term concerns could be addressed in the Supplemental. He added that passage of HB 53 is not the solution to the State's problem, although, a part of the long-term solution. MARGOT KNUTH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, provided Committee members with handouts, "Cost Comparison for the House Finance Committee" and "Private and Public Prisons, Studies Comparing Operational Costs and/or Quality of Service". [Copies on file]. She spoke to the cost comparisons of a publicly versus a privately operated 800-bed medium custody prison. Studies comparing the operational costs of public and private prisons have been of interest to many jurisdictions around the United States General Accounting office. Ms. Knuth pointed out that the Governor's proposal to address prison bed needs in Alaska is to expand the Palmer Medium Correction Facility. In going with the Ft. Greely proposal instead, the handout compares the cost of care of inmates at Arizona and then added the total cost of care for an inmate at Palmer. The cost at Arizona is $82.34 dollars per day; at Palmer the cost is $86.60 dollars per day. Co-Chair Hanley recommended that the analysis be based on the capacity divided by the cost, not the actual numbers. He commented that it was not fair to count the over- capacity cost given the number of prisoners to be shipped out. Ms. Knuth pointed out that there will be a decrease cost of care, which will off set those costs. Co-Chair Hanley reiterated that Palmer is 1/3 over capacity and when it is brought down to capacity, there will be a substantial increase in the per diem rate. Co-Chair Hanley asked the anticipated cost to build the Palmer Correctional facility. Ms. Knuth replied that there currently is not an 800-bed facility in Alaska. She suggested that it was not fair to compare the costs of a 300-400-bed facility in Palmer to an 800-bed facility. The 800-bed facility would indicate the economy of scale. Co-Chair Hanley pointed out that there would be a capital cost included in the Delta facility. He commented that it was important to add up the creation of 800 beds in the Governor's proposal and compare that to the 800 bed cost in Delta on a cost comparison basis. Ms. Knuth pointed out that when leasing space in Arizona, the State does not consider the capital costs; we would not at Delta either because eventually it will become their asset. She stressed that it is important when considering a location for medium security prisoners, to compare what the cost would be as compared to shipping the prisoners out of state. Co-Chair Hanley asked the Governor's cost for the Palmer expansion. Ms. Knuth replied it would be $75 thousand dollars per bed, capital cost. Commissioner Pugh added that the Governor's total proposed cost would be $16 million dollars. Co-Chair Hanley noted that amount would not be included in the per diem rate. Ms. Knuth responded that there would not be an offset to the proposed Ft. Greely plan as there will be no asset. Co-Chair Hanley questioned the value of the asset. Ms. Knuth noted that the State would use it indefinitely at no additional cost, except maintenance. Co-Chair Hanley argued the long-term cost factors involved. (Tape Change HFC 98- 31, Side 2). Representative G. Davis questioned the City of Delta/Greely's responsibility within the negotiations. REPRESENTATIVE GENE KUBINA referenced Section #4, which stipulates that, the provisions of AS 33.03.031 (a) and (c) would not apply to the lease agreement. He questioned why (a) was being exempted. MARGIE VANDOR, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, spoke to exemption of paragraph (c). She stated that the language is permissive and that the Department could still go out to competitive bid. The confusion is that the lease of the facility is under section (a) with the the State and the City of Delta. Within that lease, stated in subsection (b) is the operational lease with a private third party. Under subsection (b), the agreement to lease must provide for an agreement between the City of Delta and a private third party, which would then create a separate agreement. Ms. Knuth spoke to subsection (a). The major impact of that section is that it would allow the Commissioner to continue to send prisoners to Arizona, even if there was space available at Ft. Greely. She was troubled in deleting the last sentence of (a) as it specifies that the Commissioner "may not enter into an agreement with an agency, unable to provide a degree of custody, care, and discipline similar to that required by the laws of the State". Co-Chair Therriault stated that passage of the bill or the building of the facility would not preclude utilizing out- of-state beds in the future. He added that the Letter of Intent specifies that the State does not intend anyone to be housed below the established standards. Representative Kubina argued against deletion of section (a). He asked if the purpose of exempting (a) was so that all laws would then be applicable to apply to both a private and public facility. Co-Chair Therriault reiterated that custody, care and discipline are all covered in the intent language according to the American Correctional Standards. Representative Mulder spoke to exemption of (a). That section pertains to the commissioner's findings. In deliberations, there has been concern with the Commissioner's willingness to proceed with the plan. He thought, that in order for the statute to require a "finding" by the Commissioner, that could provide another opportunity for the Commissioner to "sand-bag" the proposition. He summarized that the exemption would provide more direct authority. Representative Kubina reiterated his concern with the proposed action and the fast track that the bill is on. In conclusion, he urged that the last sentence of the paragraph should be applicable to a prison facility. Representative Mulder stated that it was his intent that the legislation meet or exceed the accreditation standards. He added that the Letter of Intent was not intended to limit important criteria. Representative Grussendorf asked if Point #5 was a realistic goal in meeting the $70/day cost. Co-Chair Therriault replied that by placing that number within the Letter of Intent, the Legislature would be giving clear direction to the Commissioner where the costs are expected to be. Representative Mulder noted that he would review AS 33.30.031(a) and if necessary would offer to amend that concern on the floor. Representative Martin MOVED to report CS HB 53 (FIN) out of Committee with individual recommendations, the Letter of Intent, and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 53 (FIN) was reported out of Committee with a "do pass" recommendation, a House Finance Committee Letter of Intent and with a fiscal note by the Department of Corrections and zero fiscal notes by the Department of Administration and the Department of Revenue. (Tape Change HFC 98- 32, Side 1). HOUSE BILL NO. 33 "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." REPRESENTATIVE NORMAN ROKEBERG reviewed the changes made to the work draft, 0-LS0197\R, Lauterbach, 2/14/98. Co-Chair Therriault clarified that a realtor could still take less of a commission in the new language. Representative Rokeberg agreed and noted that if there should be mitigation inside a transaction, the commission amount could be reduced and the market place would then again have free range. Representative Martin MOVED that version 0-LS0197\R, Lauterback, 2/14/98, be the version before the Committee. There begin NO OBJECTION, it was adopted. Representative Rokeberg spoke to Amendment #1, which would address a miscalculation made by the drafters in the original legislation. [Copy on File]. Co-Chair Therriault MOVED to adopt Amendment #1. There being NO OBJECTION, it was adopted. Co-Chair Therriault MOVED to adopt Amendment #2. [Copy on File]. Representative Rokeberg explained the intent of Amendment #2, which would clarify the meaning of "by employment" or the act of employment for an independent contractor. Many licensees are independent contractors and not employees. This language would help them. There being NO OBJECTION, Amendment #2 was adopted. Representative Mulder disclosed a conflict of interest as he holds a real estate license. Co-Chair Therriault MOVED to adopt Amendment #3. [Copy on File]. Representative Rokeberg spoke to the amendment, which redrafts the entire section on "conflict of interest". He suggested that the new language would minimize litigation, although, would not restrict the types of claims resulting from cause of action that could be brought forward. Co-Chair Therriault supported the inclusion of the language, which stipulates that the private person still has the right to sue if there is misrepresentation. Representative Martin voiced concern regarding an audit, which involved the Alaska Housing Finance Corporation (AHFC). Representative Rokeberg replied that recommendations in the audit indicated that the Real Estate Commission should address the issue. The recommendations of the audit are fully addressed through the proposed language. Representative Mulder referenced the conflict of interest language in addressing who is a "relative". He asked the problem in representing a niece or nephew. Representative Rokeberg replied that relative had been clearly defined in the exception section. The exception was intended to cover a relative managing property without licensure. He added that language resulted from concerns by AHFC who felt that integrity of the Real Estate Commission could come into question. There being NO OBJECTION, Amendment #3 was adopted. Representative Grussendorf questioned Section #22 and language regarding disclosure of a sex offender. Representative Rokeberg explained that the laws as they apply to real estate licensees have changed dramatically over the past few years. He mentioned case law around the U.S. dealing with disclosure of everything from ghosts to murders. The laws create duties, which are enforced. The duties to disclose can be cross-purposed. Co-Chair Hanley questioned if there was a requirement to disclose a ghost in a home. Representative Rokeberg stated there was not. Co-Chair Hanley asked if it was the "duty" of the agent to disclose sex offenders. Representative Rokeberg stated that a duty could arise between the agency relationship of the client and licensee. Co-Chair Hanley asked the type of situations, which are required to be disclosed. Representative Rokeberg replied that those disclosures generally have to do with the condition of the property. RUTH BLACKWELL, POWELL REAL ESTATE, JUNEAU, reported that in Juneau, everything known is disclosed. Co-Chair Hanley noted that with concern to a physical defect, the law will protect if it is unknown, whereas, some information such as a homicide occurrence would not legally have to be submitted. Discussion followed regarding the legality of types of information being disclosed. Co-Chair Hanley reiterated his concern resulting from suits of selling a property, which is located next door to a sex offender. He questioned why that liability would differ from other pertinent info. Co-Chair Therriault pointed out that anyone can access the database to find out where a sex offender lives. Ms. Blackwell added that federal law prohibits a real estate agent from disclosing who lives next door. Although, she pointed out that the agent should always recommend that the buyer go to the City/Borough to find information regarding the neighboring houses. Co-Chair Hanley pointed out that sexual offenders have an 85% chance of recidivism. He recommended that there should be information added, which clearly defines whose responsibility it is to disclose where sex offenders live. Representative Rokeberg noted that it is estimated that less than half of the sex offenders are registered. He asked how much can we statutorily mandate an agent to provide. (Tape Change HFC 98- 32, Side 2). Representative Mulder commented that there must be consistency established by the law. He recommended that "everything you know should be disclosed". The liability for a real estate agent is sky high. Representative Rokeberg pointed out that there is a disclosure statement provided with each property sale, and perhaps a new section should be added to the disclosure statement warning potential buyers to seek information regarding sex offenders in the neighborhood. Ms. Blackwell noted that the Real Estate Commission is currently working on such a disclosure statement. Co-Chair Hanley supported that action, pointing out that the general public is more concerned about sex offenders than most other neighborhood information. Representative Hanley MOVED to ADOPT a conceptual amendment with language, which indicates that, the buyer is responsible for becoming aware of the location of sex offenders. Co-Chair Therriault recommended that language be added which provides direction as to where a person can be directed to find out information on sex offender's residence. Ms. Blackwell understood that information should be included on the property disclosure statement. There being NO OBJECTION, the conceptual amendment was adopted. Representative Martin MOVED to report CS HB 33 (FIN) out of Committee with individual recommendations and the accompanying fiscal note. Representative Rokeberg asked if the conceptual amendment would create greater fiscal impact. Ms. Blackwell responded that the form was already being changed so that it should not create a greater fiscal impact. There being NO OBJECTION, CS HB 33 (FIN) was reported out of Committee with "no recommendation" and with a fiscal note by the Department of Commerce and Economic Development dated 1/30/98. SENATE BILL NO. 209 "An Act relating to the Task Force on Privatization; and providing for an effective date." CRAIG JOHNSON, STAFF, SENATOR JERRY WARD, explained that privatization should be the fundamental political and economic reassessment within the role of government and the private sector for the State of Alaska. He suggested that markets are efficient only when they are competitive; however, efficiency should not be the government's only goal. Government must balance the pursuit of efficiency with effectiveness while maintaining the confidence of the people it represents. Mr. Johnson pointed out that SB 209 was introduced to establish a task force that will review functions of state government that could easily be transferred to the private sector. The task force will have members from the public, legislative and executive branches of government. He summarized that SB 209 will address the State's contracting procedures to make sure Alaskans are getting the most out of every contracting dollar spent. He pointed out that SB 209 is identical to previous proposed legislation SB 68, with slightly different fiscal notes. The House and Senate leadership has determined that the fiscal note should include per diem for legislators. Representative Kohring questioned the necessity of the proposed legislation; he recommended hiring a consulting agency. Co-Chair Therriault replied that the costs for an outside consultant would be higher, in addition, Senator Ward wants there to be cooperative effort between policy makers for the State and the Legislature. PAMELA LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE, JUNEAU, spoke in support of SB 209. The legislation sets forth that some government functions can be done more efficiently and less expensively within the private sector. LORRAINE DERR, EXECUTIVE DIRECTOR, ALASKA STATE HOSPITAL & NURSING HOME ASSOCIATION (ASHNHA), voiced support of the proposed legislation because of our dwindling State and federal dollar allocations. ASHNHA would be willing to work with the task force in addressing the ways other states are working with the privatization of health care. DON ETHERIDGE, LABOR UNION, JUNEAU, noted support of SB 209 although, voiced concern with the proposed time frame. He thought that there would not be enough interest in such a short time span especially, given that this is an election year. He urged a longer time frame be allocated for the study. Representative Martin asked if moving the date to January 15th would be better. Mr. Etheridge stated any change would help, although, he would propose a one year extension. Representative Martin MOVED to report SB 209 out of Committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. SB 209 was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Office of the Governor dated 1/21/98 and the Legislative Affairs Agency dated 1/21/98. ADJOURNMENT The meeting adjourned at 4:00 P.M. H.F.C. 14 2/17/98