HOUSE FINANCE COMMITTEE March 3, 1999 1:55 P.M. TAPE HFC 99 - 32, Side 1. TAPE HFC 99 - 32, Side 2. TAPE HFC 99 - 33, Side 1. CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 1:55 P.M. PRESENT Co-Chair Mulder Representative G. Davis Co-Chair Therriault Representative Grussendorf Vice-Chair Bunde Representative Foster Representative Austerman Representative Kohring Representative J. Davies Representative Williams Representative Moses was absent from the meeting. ALSO PRESENT Barbara Ritchie, Deputy Director, Department of Law; Dean Guaneli, Chief Assistant Attorney General, Criminal Division, Department of Law; Kathryn Daughtee, Director, Division of Administrative Services, Department of Law; Alison Elgee, Deputy Commissioner, Department of Administration; Sharon Barton, Director, Division of Administrative Services, Department of Administration. TESTIFIED VIA TELECONFERENCE Barbara Brink, Director, Public Defender Agency; Brant McGee, Public Advocate, Office of Public Advocacy. SUMMARY HB 100 "An Act making and amending capital, supplemental, and other appropriations, and appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." HB 100 was HELD in Committee for further consideration. HOUSE BILL NO. 100 "An Act making and amending capital, supplemental, and other appropriations, and appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." Members were provided with a memorandum dated March 3, 1999, from the Office of Management and Budget, requesting three amendments to HB 100 (copy on file). Amend Section 4 as follows to reflect two cases removed because of appeals and three cases added: *Sec. 4. JUDGMENTS AND CLAIMS. The sum of $1,883,30 [$2,110,200] is appropriated to the Department of Law to pay judgments and claims against the state for the fiscal year ending June 3 0, 1999, from the following sources: General fund 1,868,00 [2,094,900] Public employees retirement fund 15,300 Amend Section 7 to read . *Sec. 7. DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS. The sum of $1,400,000 [$1,700,000] is appropriated from the power cost equalization and rural electric capitalization fund (AS 42.45. 100) to the Department of Community and Regional Affairs for the power cost equalization program for the fiscal year ending June 30, 1999. Amend Section 20, page 22, and line 17 as follows: MISCELLANEOUS CLAIMS. DEPARTMENT APPROPRIATION Fish and Game $1,600.40 [$1,120.40] Section 4. JUDGMENTS AND CLAIMS. BARABARA RITCHIE, DEPUTY DIRECTOR, DEPARTMENT OF LAW discussed judgments and claims. Ms. Ritchie provided members with a list of the judgements and claims against the state of Alaska, as of 3/2/99 (copy on file). She noted that most of the judgments are out of the Civil Division. A few items are from the Criminal Division. A memorandum from Annalee McConnell, Director, Office of Management and Budget, Office of the Governor, dated 3/3/99 clarified that two cases are being removed because they are under appeal and three small child support cases were added (copy on file). She noted that the amended number is $1,868,000 million dollars. Ms. Ritchie noted that the Committee also received a letter from Senator Parnell, dated 2/26/99 in response to questions asked in the Senate Finance Committee (copy on file). Co-Chair Mulder asked Ms. Ritchie to discuss claims or judgements over $10 thousand dollars. Ms. Ritchie discussed item 6, Robert Boyd v. State, Department of Transportation and Public Facilities - $175 thousand dollars. She explained that the complaint occurred as the result of a dismissal. She explained that the issue was not the actual discharge of the employee, but the manner in which it was handled. He was removed from two different jobs. The performance evaluation process was a problem with how the employee was treated. He was a senior level employee. One of the significant legal issues was the evaluation process. She discussed the employees' evaluation process. Mr. Boyd was unemployed for 90 weeks. His total claim was $1.8 million dollars. The case was settled at $175 thousand dollars. Interest was added to this amount. Co-Chair Mulder asked if steps have been taken to make commissioners aware of how employees should be terminated. Ms. Ritchie noted that training is being provided to eliminate similar problems in the future. She noted that employment law is an area of growth. There is an array of laws that cover employee issues. Representative Bunde questioned what the state policy is for a manager that does not follow state policy. Ms. Ritchie explained that individuals are sometimes sued, along with the state, in their official capacity or individual capacity. Punitive damages cannot be granted against the state of Alaska. The state, as a rule, does not compensate someone if they are awarded punitive damages against them. The facts are reviewed. If the defendant took action toward someone that was not within the scope of their employment the state would not defend them or compensate them for any action taken against them. Co-Chair Mulder asked for information on claim number 4, Trustees for Alaska Kachemak Bay Conservation Society v. state of Alaska. Ms. Ritchie noted that this was a challenge to oil and gas lease sale 85(a). She explained that the Superior Court issued a decision on lease sale 78, while this case was pending. This decision concluded that the Department of Natural Resources needed to take a closer look at accumulative effects of oil and gas leases. The Department of Natural Resources did not take an accumulative look at the effect of lease sale 85(a). The local coastal policy council had looked at accumulative effects. The Department of Natural Resources took the determination from the local coastal body and applied it in making a consistency determination and a best interest finding. The plaintiffs were found to be public interest litigants. They were awarded 100 percent of their legal fees. They sought $60 thousand dollars in attorney fees. The Department of Law negotiated this amount down to $39 thousand dollars by agreeing outside of court to an apportionment of the fees to the different issues. Co-Chair Mulder asked how the statutes could clarified the state's intent in regards to public interest litigants and the overall impact to the state of Alaska. He pointed out that future lease sales could be endangered. Ms. Ritchie noted that the Department of Natural Resources would make their own independent consistency determination to make sure they comply with the court ruling. Representative Williams asked how the interest is paid. Ms. Ritchie clarified that it would be from the general fund. Co-Chair Therriault explained that if money was taken out of the general fund and put into a note for interest it would still be a general fund appropriation. The general fund does incur interest. Co-Chair Mulder asked what would happen if the state did not pay one of the claims. Ms. Ritchie explained that the settlement would fall apart and the case would be re- litigated. She observed that someone holding a judgement cannot execute against state property. She noted that departments do not have funding set aside to pay judgements. Ms. Ritchie discussed Muhammed Khan v. State - $500 thousand dollars. She noted that this is a judgement that was entered by federal court. Mr. Khan claimed that his layoff was not legitimate and that he had been discriminated against while employed by the Department of Military and Veterans Affairs. There were a number of workers that submitted depositions which detail instances of discrimination. He was laid off during reductions. She observed that layoffs due to budget cuts need to be documented in regards to why the position was reduced. Mr. Khan had also entered a grievance. The arbitrator found that the department had failed to demonstrate that it had a legitimate financial reason for laying off Mr. Khan. He also had a proceeding pending before the Human Rights Commission. The Human Rights Commission substantiated his complaints. The case was brought to federal court since it was a discrimination case. The trial had begun when a settlement was reached. He received full attorney fees since it was a discrimination case. The judgement is not contingent on other funding. Representative Bunde asked if the defendant is still employed by the state. Ms. Ritchie stated that none of the defendants in the case are employed by the state. Representative Bunde referred to the letter by Attorney General Bruce Botelho, dated 2/26/99. He observed that the letter states that it might be helpful for managers to receive more training. Ms. Ritchie explained that the letter reflects that there is no way to ensure against employment cases. Ms. Ritchie discussed item 8, Earthjustice Legal Defense Fund Inc., Weiss v. State - $456,225.08 thousand dollars and item 9, Earthjustice Legal Defense Fund Inc., Alaska Environmental Center v. Weiss - $1,299.61 thousand dollars. She observed that Weiss v. State was the Alaska Mental Health Trust lands case. The settlement is payable to a group of environmental organizations that filed in the Weiss case as intervenors. She discussed the history of the case. She observed that the intervenors opposed the first settlement. The judge denied approval of the settlement and did not award attorney fees to the environmental groups because they were not the prevailing party. She explained that the new settlement was approved in 1994 and the Weiss case was dismissed. The Superior Court denied attorney fees. There was an appeal to the Alaska Supreme Court. The Supreme Court reversed the Superior Court's ruling. It found that since the settlement was denied the environmental groups were the prevailing party. The case was remanded to determine the amount of attorney fees. They were viewed as public interest litigants. The state argued that it would be improper to award fees on time spent lobbying the legislation. The Superior Court did not apportion fees. The total attorney fees were reduced by almost $35 thousand dollars. Attorney fees were awarded at $456,225.08 thousand dollars. Co-Chair Mulder asked if the Alaska Mental Health Trust Fund should pay for the attorney fees. Ms. Ritchie observed that it would be problematic to use that funding source. Co-Chair Mulder expressed concern that the public interest status attorney fees were awarded to a public interest group that he felt had to stretch to make a public interest. Representative J. Davies maintained that it is not a big stretch for people concerned about the disposal of large acres of public land to have an interest in the disposal. Co-Chair Mulder pointed out that they were not the affected party. Representative J. Davies disagreed. Co-Chair Therriault noted they were not the main party. Ms. Ritchie stressed that the state argued that they were not the essential party to the case. Co-Chair Mulder stressed that the environmental groups did not win the court case. They were not the affected party. Ms. Ritchie noted that the state also made the argument that the environmental groups were not the prevailing party. Co- Chair Therriault expressed concern that the case invites intervenors. He asked if the environmental groups had to be approved as a class. Ms. Ritchie did not think that they had to be a class. Co-Chair Mulder asked if "public interest litigants" is defined in state or federal law. Ms. Ritchie explained that Court Rule 82 addresses attorney fees. The Alaska Supreme Court developed a doctrine regarding public interest litigants in 1974. Fees are not awarded against a public interest litigant. However, if a public interest litigant wins a case they are awarded attorney fees. The intent of the court was to encourage lawyers to initiate cases without a strong economic interest that would effectuate strong public policies and benefit numerous people. She discussed the determination of public interest litigants. Representative J. Davies pointed out that the attorney fees do not go to the group. Ms. Ritchie discussed item 10, Newton v. State - $100 thousand dollars. She noted that the case was based on a federal whistle blower complaint brought against the state Department of Labor. Mr. Newton was an electrical inspector assigned to the joint pipeline office. He was laid off in 1996 due to budget reasons. He alleged that his layoff was the result of his raising concerns regarding electrical hazards on the pipeline. The case was filed as a federal complaint with the US Department of Labor. There were 17 witnesses disposed in the case. The testimony demonstrated that there were reasons that his termination would problematic. She noted that the attorney fees alone would have been greater than $100 thousand dollars. (Tape Change, HFC 99 - 32, Side 2) Ms. Ritchie explained that the treatment of whistle blowers by the Alaska pipeline was problematic. DEAN GUANELI, CHIEF ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF LAW discussed item 15, Perkins Cole, Cleary v. Smith - $17,751.75 thousand dollars and item 16, Rice, Volland, Taylor, Cleary v. Smith - $37,034.16 thousand dollars. He noted that litigation relating to the Cleary case is being reduced as overcrowding is reduced. He observed that the amount was less than previous years. The fact that many of the issues have been resolved, especially in regards to overcrowding, are reflected in lower attorney fees. Co-Chair Mulder asked how much has been paid to Mr. Volland and if litigation would continue. Mr. Guaneli responded that Mr. Volland has only been paid a few hundred thousand dollars. Mr. Guaneli discussed item 17, Verne Explained Rupright v. Burton - $9,497.51 thousand dollars. He explained that item 17 was a challenge to the Sex Offender Registration Act. He explained that the case was remanded to the Superior Court from the Court of Appeals. Co-Chair Mulder asked what happened to the case after it was remanded. Mr. Guaneli explained that it was refilled in Superior Court. He noted that there is a lot of sex offender litigation awaiting in the Superior Court and the Alaska Supreme Court. Co-Chair Mulder observed that the state did not lose the underlying case. The state lost the case based on the right of the individual to file anonymously. Ms. Ritchie discussed item 18, Robert H. Wagstaff, Howard Bess v. Fran Ulmer - $11,623.27 thousand dollars. She explained that the case occurred as a result of the same sex marriage amendment. The court awarded $11,623,.27 thousand dollars in attorney fees. Co-Chair Mulder asked the basis of the court's decision. Ms. Ritchie explained that the court found that there were prevailing parties. The court did not breakout the parties. The court was urged not to expedite the case. There was a simultaneous briefing schedule. The Alaska Supreme Court has not issued their final decision. The same sex marriage amendment was modified and the prisoner's rights amendment was stricken. Ms. Ritchie discussed item 22, Lee Holen Law Office, Minder v. State - $94,533.66 thousand dollars. She explained that it is another employment case. The issue involved a layoff. Mr. Minder alleged that he was discriminated against as a whistle blower and that he was wrongfully discharged. She observed that it could be difficult to prove that a discharge was not the result of whistle blower actions. She emphasized the need to carefully document that the layoff was the result of a specific budget reduction. Co-Chair Therriault questioned if the legislature needs to identify positions that would be reduced. Ms. Ritchie stressed that there are only 5 cases among the thousands of employees that are eliminated. She did not think that there is a huge pervasive problem. Co-Chair Therriault expressed concern that the five cases resulted in a cost to the state. Ms. Ritchie stated that training relating to how layoffs should be documented is the best insurance that layoffs would not result in liability. Co-Chair Therriault noted that any employee that has run afoul of budget reductions could save himself or herself by becoming whistle blowers and claiming that they were laid off as the result. He questioned if agencies would be removed from retaliation if the legislature identified which positions should be eliminated. Ms. Ritchie stated that legislative identification would not solve the problem. Representative Austerman did not think the state could get around the problem. Representative J. Davies noted that the legislature is not immune from a lawsuit. Co-Chair Mulder questioned if employees are being encouraged to initiate whistle-blowing actions if they think their position is about to be eliminated. Representative J. Davies emphasized that the facts have to substantiate the claim. Co-Chair Therriault questioned how determinations are made. He asked if they are based on economics or the ability to win the case. Ms. Ritchie stated that all factors are used in making a determination of which cases should go to trial. There is a settlement committee that evaluates cases. If a lawyer has a case they must go to the settlement committee to have the case reviewed. She referred to the Brockman case, item 23. CHRIS CHRISTENSEN, STAFF COUNSEL, ALASKA COURT SYSTEM discussed item 25, Claim of Gaylene's Word Services against the Alaska Court System. He explained that the Alaska Court System must transcribe a large number of proceedings. The transcription function was privatized. A contractor filed a contractor claim that they were not paid as much as they felt that they should be paid. Representative Bunde questioned why they felt that they were not paid enough. Mr. Christensen explained that there were several contractors and items were moved around between contractors. The contractor felt that she did not receive the amount of work that she should have. There was also a dispute over accuracy. Mr. Christensen noted that the claim was settled at .10 cents on the dollar. Representative J. Davies observed that there was a number of Child Support Enforcement Division cases and asked if there were any recommendations regarding these cases. Ms. Ritchie did not have any recommendations. Representative Austerman observed that the judgements are from 1998. He asked if there is an average annual amount of claims and judgements against the state. Ms. Ritchie stated that she would compared other years. She stated that lawyers are instructed to keep them informed about cases that could result in large claims or judgements against the state. KATHRYN DAUGHTEE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF LAW observed that the FY99 amount is lower than other years. In response to a question by Representative Austerman, Ms. Ritchie clarified that the appropriation amount is up to date. There are about 80,000 open cases. She felt that the department's success rate is good. DEPARTMENT OF ADMINISTRATION SECTION 6(a) The sum of $35,000 is appropriated from statutory designated program receipts to the Department of Administration, division of finance, for additional operating costs for the fiscal year ending June 30, 1999. SHARON BARTON, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF ADMINISTRATION discussed section 6(a). The appropriation is for travel savings analysis. She stressed that travel has been kept to a minimum. Representative Bunde questioned if the state could use a credit card that accrues mileage to pay for travel. ALISON ELGEE, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION explained that the state of Alaska competitively bid credit card services in the same manner as other state procurement services. The state of Alaska has a procurement card with the 1st Bank of Chicago that was bid in conjunction with the University of Alaska. It is currently being used in a limited way, the Department of Administration hopes to roll out a procure card program later in the spring. SECTION 6(b) The sum of $100,000 is appropriated from the surplus property revolving fund (AS 44.68.130)(c) to the Department of Administration, property management program, for additional operating costs for the fiscal year ending June 30, 1999. Ms. Elgee explained that $100 thousand dollars would be appropriated for environmental assessment of a ground oil spill in the Bethel region. The spill occurred on property that belonged to the Bureau of Indian Affairs. The state of Alaska is involved as an intermediary for the federal government in the transfer of the surplus fuel oil. The surplus oil was sold to Bethel for .10 cents a gallon. During the transfer a valve was left open and oil spilled into the ground. The case is currently under litigation and the assessment is necessary to determine the extent of liability Co-Chair Therriault asked how much oil was sold. Ms. Elgee noted that the state sold 375 thousand gallons. In response to a question by Representative G. Davis, Ms. Elgee explained that surplus federal property was offered to the state. The state declined the property, but acted as an intermediary to the city of Bethel. The liability cannot be apportioned until the damage is assessed. (Tape Change, HFC 99 - 33, Side 1) In response to a question by Representative Austerman, Ms. Elgee stated that the state could look at the available contractual documentation. She reiterated that there is active litigation. Representative Austerman asked if the there is a policy statement covering the liability aspect. Ms. Elgee assured him that they would make available additional information. Co-Chair Mulder asked if the money could be used for other obligations in terms of administration if the state denied the appropriation. Ms. Elgee replied that it could. Representative G. Davis questioned if authorization of the appropriation would be viewed as an indication of responsibility. Representative J. Davies questioned if any other parties are contributing to the assessment. Ms. Elgee did not think that the other parties had been asked to contribute to the assessment. The federal government was involved in some of the initial cleanup work to curtail damage. The requested funds would allow the state to assess the extent of the damage. Representative J. Davies asked if it would be appropriate to ask the federal government for assistance. Ms. Elgee stressed that it would be appropriate to assess the degree of federal participation to date. She estimated that the participation of the federal government in the cleanup has been significant. Representative Austerman questioned why the department is undertaking the assessment. Ms. Elgee explained that the assessment is at the direction of the attorneys undertaking the lawsuit. She reiterated that liability cannot be apportioned until the extent of the liability is understood. Representative G. Davis observed that the assessment will provide that number. He asked if there was a containment dike. Ms. Elgee did not know. Co-Chair Mulder asked for additional back up on section 6(b). SECTION 6(a) Co-Chair Mulder asked what additional operating costs are being requested in subsection (a). Ms. Barton explained that the funding would go to startup costs for implementing the new travel card procedure. Co-Chair Mulder asked if these costs were unanticipated. Ms. Barton stated that they knew that the contracts were starting. The additional startup costs were not factored into the FY99 budget. The appropriation would be from statutory program receipts. Co-Chair Mulder observed that the statutory program receipts would be available as additional general fund revenue if they are not authorized for this appropriation. Ms. Barton agreed that they would fall into the general fund. Co-Chair Mulder asked how the funding would be spent. Ms. Elgee explained that it has been difficult to assess cost savings in the travel arena due to a lack of information regarding state employees' travel patterns. The intent of the travel card is to obtain information regarding state employee travel volume in order to establish discounts with vendors. SECTION 6(d) The sum of $563,000 is appropriated from the general fund to the Department of Administration, office of public advocacy, for operating costs for the fiscal year ending June 30, 1999. BRANT MCGEE, PUBLIC ADVOCATE, OFFICE OF PUBLIC ADVOCACY discussed section 6(d). He noted that this is the agency's 14th request for a supplemental in the last 15 years. He noted the inability to predict caseload. The caseload for children's cases increased by 42 percent from FY97 to FY98. The agency spent $429 thousand dollars more in FY99 than was spent in the comparable period of FY98. Caseload data indicates that FY00 will be 10 percent more than FY98. The request is twice as much as last year. The funding would be used to pay for services from the private sector. Co-Chair Mulder asked for further substantiation in relation to their budgeted number, actual caseload, and remaining balance in order to justify the additional request. Representative J. Davies asked Mr. McGee to provide the amount of their original FY99 budget request. SECTION 6(e) The sum of $297,000 is appropriated from the general fund to the Department of Administration, public defender agency, for operating costs for the fiscal year ending June 30, 1999. BARBARA BRINK, DIRECTOR, PUBLIC DEFENDER AGENCY discussed the agency's request. She observed that their request breaks down into three parts. The first part is a $200 thousand dollar personal services line request. She explained that an increment was requested in FY99 to fill vacant positions in remote bush locations. They received $200 thousand dollars less then the requested amount in the FY99 operating budget. This is the amount that is currently being requested in the supplemental. She stressed that positions could not remain vacant due to a 5 percent overall increase in caseload. There were almost 900 additional new cases over the previous year. She stated that additional attorneys were added in Nome, Bethel and Kotzebue due to increased caseloads. She stressed that staff positions must be sufficient to cover the court ordered proceedings. The average cost per case has been cut despite increasing caseload. They are below $500 dollars per case. Ms. Brink explained that the second part of their request is for a one-time remodel and expansion project. The cost would be $70 thousand dollars. She explained that staff has increased. Co-Chair Mulder requested backup on section 6(e). Representative Grussendorf noted that the Office of Public Advocacy and the Alaska Public Defenders Agency have been under-funded. He added that these agencies have not always received funding identified in new legislation. Co-Chair Mulder asked for backup regarding unfunded fiscal notes that affect their budgets. Representative G. Davis observed that the legislature was aware that additional funding would be needed. He suggested that positions in rural areas would be more cost effective. He questioned how many felony cases have been related to felony cases resulting from a failure to stop. Ms. Brink stated that there have been a large number of cases regarding the failure to stop. These cases are being prosecuted as felonies. Co-Chair Mulder asked if the cases stand-alone or are involved with additional charges. Ms. Brink stated that the cases run the gamut. Some cases would have been defended anyway. Representative J. Davies stressed that the law was promulgated to give enforcement an extra hammer and to recognize community concern. SECTION 6(c) The sum of $678,400 is appropriated from the general fund to the Department of Administration for the leasing program for the fiscal year ending June 30, 1999. Ms. Barton discussed section 6(c). She observed that the leasing budget is based on a projection of upcoming year costs. The leasing budget has been traditionally underfunded. It was short-funded by $996 thousand dollars in FY99, relative to projections at the time the budget was written. She explained that the Division of General Services was successful in managing down the supplemental need through negotiations of lease costs and space consolidations. The supplemental need for this component is $678,400 thousand dollars, which includes $40 thousand dollars for a final hearing officer associated with the Department of Environmental Conservation laboratory dispute. SECTION 6(f) The sum of $500,000 is appropriated from Pioneers' Home receipts to the Department of Administration, Pioneers' Homes, for increased operating costs for the fiscal year ending June 30, 1999. Ms. Elgee discussed section 6(f). She explained that this section would appropriate $500,000 thousand dollars in pioneers' home receipts. This funding is in excess of what the department projected would be available for FY99. The operating shortfall is primarily due to increased staffing needs. She explained that they were not able to leave positions vacant. She observed that one-on-one staffing has been needed during periods of aggressive behavior. She referred to an instance in Anchorage that resulted in the patient's discharge to the Alaska Psychiatric Institute. She noted that there is a similar situation in Sitka that is being handled successfully. Representative Grussendorf noted that he has heard concerns regarding the resident located in Sitka. Ms. Elgee explained that when the Sitka incident occurred they asked the Alaska Psychiatric Institute to assess the gentlemen's behavior. Most of the resident's problems were handled with medicine adjustments and one-on-one staffing. The staff feels that they are able to manage the client without danger to the residents. The man also has cultural issues. They are looking at transferring the client to the pioneer home in Fairbanks. Representative G. Davis observed that there are problems associated with dementia. He stressed that dementia issues will be looked at in the subcommittee. HB 100 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 4:00 p.m. HFC 14 3/03/99