HOUSE FINANCE COMMITTEE February 6, 1998 1:45 P.M. TAPE HFC 98 - 20, Side 1. TAPE HFC 98 - 21, Side 2. TAPE HFC 98 - 22, Side 1. TAPE HFC 98 - 22, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:45 P.M. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative J. Davies Representative Martin Representative G. Davis Representative Mulder Representative Foster Representatives Grussendorf and Moses were not present for the meeting. ALSO PRESENT Jeff Logan, Staff, Representative Joe Green; Representative Gene Kubina; Representative Ivan Ivan; Senator Georgianna Lincoln, (Teleconference Listen Only); Lt. Col. Anderson, (Testified via teleconference) U.S. Army, Ft. Greely, Delta Junction; Margaret Pugh, Commissioner, Department of Correction; Mike Irwin, Commissioner, Department of Community and Regional Affair; Margot Knuth, Assistant Attorney General-Corrections, Department of Law; Margie Vandor, Assistant Attorney General, Department of Law; Forrest Browne, Debt Manager, Treasury Division, Department of Revenue; Vern Jones, Chief Procurement Officer, Department of Administration; Bob LeResche, Private Financing Counsel, ALLVEST Inc., Juneau. SUMMARY 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. HB 53 was HELD in Committee for further consideration. HJR 36 Proposing amendments to the Constitution of the State of Alaska relating to redistricting of the legislature, and repealing as obsolete language in the article setting out the apportionment schedule used to elect the members of the first state legislature. HJR 36 was HELD in Committee for further consideration. HOUSE JOINT RESOLUTION NO. 36 Proposing amendments to the Constitution of the State of Alaska relating to redistricting of the legislature, and repealing as obsolete language in the article setting out the apportionment schedule used to elect the members of the first state legislature. Co-Chair Therriault distributed a new version of HJR 36 - 0-LS0939\F, CS HJR 36 (JUD). [Copy on file]. Co-Chair Therriault proposed a conceptual amendment to the version before the Committee. He noted the confusion in language used to describe election districts versus Senate districts. Election districts as described in the bill are actually House districts. Co-Chair Therriault proposed that the word "election" be replaced with "House" on Page 1, Lines 7 and 9, and Page 2, Lines 12 and 13. He MOVED that as Amendment #1. JEFF LOGAN, STAFF, REPRESENTATIVE JOE GREEN, commented that in the original constitution, Senate districts were not changed each time there was a census. Senate districts were set based on geography. Therefore, there was no need in changing those lines, although, House numbers did change with the census. The drafters placed "election" districts rather than "House" in those spots. He agreed that inserting "House" would diminish the confusion and that Representative Green would support the change. Legal Counsel will make the changes elsewhere in the bill to make it conform to the Alaska State Constitution. Representative J. Davies referenced Section 5, suggesting that section specify House and Senate districts. Co-Chair Therriault stated that he intended to offer an additional amendment changing that language. There being NO OBJECTION to Amendment #1, it was adopted. Co-Chair Therriault MOVED to adopt Amendment #2. [Copy on file]. He commented that Amendment #2 would modify Section 5 of the Resolution, leaving the proposed language. Representative J. Davies recommended deleting "and" in the first line. Representative Martin opposed using the word "contiguous". Co-Chair Therriault pointed out that "contiguous" is used instead of "compact". Representative Martin reiterated his concern with that language. Representative J. Davies noted that if "contiguous" was not used, two separate compact territories could result. Using "contiguous" guarantees that it remains one area. Representative J. Davies offered a friendly amendment to Amendment #2 adding "each" before House. Co-Chair Therriault agreed to that change. Representative Martin OBJECTED to Amendment #2. A roll call vote was taken on the Motion. IN FAVOR: J. Davies, G. Davis, Foster, Kelly, Kohring, Hanley, Therriault OPPOSED: Martin The MOTION PASSED (7-1). Representatives Foster, Moses and Mulder were not present for the vote. Representative J. Davies MOVED to adopt Amendment #3. [Copy on file]. Because of previous action taken, he noted that the second portion of the amendment would be deleted. Co-Chair Therriault OBJECTED to the new Amendment #3 for the purpose of discussion. Representative Martin requested to add language to the amendment on Page 2, Line 13, changing "contiguous" and adding the word "adjacent". Representative J. Davies OBJECTED. He noted that it was his intent to remove the word "contiguous" when addressing circumstances relative to Senate districts composed of contiguous House districts. He advised that dropping "contiguous" could alleviate the possibility of a lawsuit for the State. Co-Chair Hanley thought that removing "contiguous" could create a situation in which unconnected areas were grouped inappropriately together. Representative Martin WITHDREW his motion to amend Amendment #3. Representative J. Davies WITHDREW Amendment areas "shall" be adjacent unless impractical. There being NO OBJECTION, Amendment #3 was WITHDRAWN. Co-Chair Therriault recommended that the Committee wait to receive the new redraft before further changes were adopted. Representative J. Davies MOVED to adopt Amendment #4. [Copy on file]. Co-Chair Therriault OBJECTED for the purpose of discussion. Representative J. Davies commented that Amendment #4 would address who could be on the Advisory Board to the Governor. Currently, the proposed legislation specifies that the board will consist of five members, none of whom can be public employees or officials. He pointed out that such a broad statement disenfranchises over 50% of the State population. Co-Chair Therriault replied, when the Constitution was written, there were a smaller number of people who fell into that category, at that time it was acceptable. He did not see a compelling reason to change that. Representative J. Davies stressed that 50% of the population would not be eligible to serve on the board with that language. Mr. Logan noted that the sponsor of the legislation would oppose the amendment as written. He asked that a clearer definition of what a "public" employee is be determined. Mr. Logan said that the language would not exclude all public employees, pointing out that there have been military personnel on the board. Representative J. Davies WITHDREW Amendment #4. There being NO OBJECTION, it was withdrawn. Representative J. Davies requested that the sponsor consider adding language, which would address the concerns in Amendments #4 & #5. [Copy on file]. Co-Chair Therriault asked for further clarification regarding census taking of people in hotels. Mr. Logan noted that the Director of Census, Martin Turner, has advised that hotel guests are counted, but there is a procedure used called "key night" when at the census date, enumerators are sent to those locations. Persons who are staying at the hotels on the census date that are transient are asked if they have another permanent address and then crosschecked at the other address. If they are permanent residences of the hotel, they then are included in the census. Representative Martin pointed out that many hotels are for homeless. Co-Chair Therriault stated that a new draft of the proposed legislation will be distributed to Committee members at a later date. Representative J. Davies stated for the record that he does not propose to discriminate against military residents. Mr. Logan addressed a previous accusation from the Department of Law regarding the sponsor's intent for the legislation. In the House Judiciary Committee, the intent was to establish a clear record in order to maintain the status quo. There is a preference that two House districts touching create a Senate district, but in those cases where there is a geographical challenge due to water, the current configuration is acceptable. Mr. Logan quoted material indicating the U.S. Supreme Court preference toward single member districts. Representative J. Davies commented that the fact of the Court preference does not establish that it is an absolute requirement. He stated that it should not be concluded from those findings that some single member districts could violate representation. Mr. Logan summarized, there are seventeen (17) states that allow multi member districts. HJR 36 was HELD in Committee for further consideration. 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. Co-Chair Therriault asked clarification from information presented at a previous meeting regarding a nuclear power plant located on the Ft. Greely site. LT. COL. (TESTIFIED VIA TELECONFERENCE), DAVID ANDERSON, U.S. ARMY, FT. GREELY, DELTA JUNCTION, noted that plant had been in operation from 1962 through 1971. In 1971, it was closed and all associated equipment and materials were either moved or sealed inside the reactor itself. The Army Reactor Agency routinely monitors it. In addition, there exists a waste water line, which leads to a power plant at a dissolution station, discharging into Jarvis Creek. At the time it was in full operation, the dissolution station and the discharge area met all requirements for regulated reactor waste. Redemption of that line began last summer, and a work schedule has been implemented to remove all the line. To date, some of the pipeline has been removed as well as 70-80% of the contaminated soil. The remainder will be removed during this year's construction season. The Army funded the project. None of the pipeline or the old plant is in the area of the proposed prison site. Representative J. Davies asked if the old reactor was located within the active power line. Lt. Col. Anderson stated that they were within the same facility. The reactor is located at the North end of the power facility; the power and heat generation is situated at the Southern end of the plant. The power plant will provide the heat, water and sewer support for any activity use within the site. MARGARET PUGH, COMMISSIONER, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, recognized the need to expand prison space in Alaska. Her intent was to provide Committee members a perspective of the State's commitment and involvement with the Delta/Greely area and current prison and jail needs. She added that the Administration has been involved with that area, most recently with the red meat packing plant. DOC has worked with feed lot owners there for many years. MIKE IRWIN, COMMISSIONER, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, described the process that the Department of Community and Regional Affairs (DCRA) has taken with the Administration in working with the Delta/Greely community to come to terms with the closure of the base. DCRA is responsible for taking the lead within the community to come to terms with the economic situation that results from such a closure. The Delta/Greely area is fortunate in that they also have the financial support of the military and the Coalition. Over the last 2.5 years, the State has funded or helped in financing approximately $900 thousand dollars for planning activities of recovery and reuse. Mr. Irwin noted that the State had considered the possibility of a prison. He emphasized that there has been many considerations made. The community established their own ground rules to clarify criteria for use of the space. 1. Market opportunity; and 2. Entrepreneurial resources to make it happen. Early on, the community considered the prison. In the second phase, they suggested privatization of the site. The community of Delta/Greeley also considered light industrial possibilities, tourism and the prospect of an educational institution. Mr. Irwin pointed out that there have been ongoing negotiations within the community for the past three years. Representative Martin believed that communities in general, work better with the Legislature when making decisions then they do the Administration. He pointed out that the community has embraced the idea of a prison. Because of overcrowding, the State will immediately be contracting out an additional 300 prisoners to Arizona. Commissioner Pugh acknowledged that the Court has made an order, which will impact the number of prisoners housed outside the State. Commissioner Irwin interjected that even if the facility was converted, it would not be available for several more years. In addition, there are jurisdiction concerns with the City of Delta Junction. Co-Chair Hanley questioned the March 15th deadline. He asked if there had been any "real" prospects other than the prison for the use of that space. Commissioner Irwin replied that the community has been looking at privatization use of the facility. There is a private sector mining activity prospect. Co-Chair Hanley reiterated that with the impact of loosing both the civilian employees and the military, the community needs more than the limited proposals put forth by DCRA. Lt. Col. Anderson spoke to the significance of the March 15th deadline. That date establishes the deadline for a reuse plan to be submitted by the local reuse enforcements. In the event that it is not complete, then a reassessment will need to be made by the Delta/Greely Coalition and by the Office of Economic Adjustment. This is the point at which reassessment is made and then will require a long- term environmental study. If no reuse proposal is made by March 15th, then the U.S. Army will assume alternate disposal methods for negotiated sales of the site for fair market value. The economic development conveyance to the local reuse authority would essentially be at no cost. Any other alternative would have a cost associated with it. Representative Mulder asked if the Department of Defense would continue to financially support the community in determining site options. Lt. Col. Anderson replied that funding was limited. An assessment will be made in March; there may be additional funding for the local reuse Authority if a strong reuse potential proposal is evident. Representative Mulder questioned the sincerity of the Administration when addressing the Delta/Greely situation. Commissioner Irwin stated that the Administration does not have a vision; instead, they are working with the community to establish one. He emphasized that it was not essential that the community have one specific reuse plan established by March 15th. Co-Chair Therriault told Committee members that his motivation is to help the community and at the same time alleviate a State problem. In response to the March 15th deadline, Lt. Col. Anderson advised that the plan would make a recommendation on reuse and would establish long and short-term goals as they relate to jobs and economic activity. The report should identify potential reuses, not necessarily by company name, but by activity. The prison proposal does address those concerns. Representative J. Davies asked if it was mandatory that the Legislature had taken action by March 15th to continue the Brag process line. Lt. Col. Anderson stated that it was not mandatory, although, the U.S. Army would be requesting an indication to proceed. Representative Martin reiterated that building the prison at that site would be the most immediate answer to the current over crowding situation. (Tape Change HFC 98- 21, Side 1). Commissioner Pugh stated that at this time, the State is over capacity and the need is immediate. Any proposal that comes before the Committee will take a period of time to build or expand. Representative Martin stressed that in less than two years, prisoners could be located at Ft. Greely. Commissioner Pugh agreed that could be done, but questioned if it could be done with the public's best safety interest at hand and if it would be economically practicable. Co-Chair Therriault questioned what fundamental flaw the Administration identifies in the current proposal before the Committee. He reiterated that his main motivation was to address the State's prison problem. Commissioner Irwin interjected that DCRA anticipates further federal funding to pass to the community. He reiterated that there is major consideration being given to the mining industry in that area. The number of jobs created in that industry would be close to the number created with the prison. Representative G. Davis questioned why the Administration does not support the idea of the prison. Commissioner Irwin stressed that the community must make the final decision. Representative G. Davis pointed out that the vote was taken and the community supports the idea. Commissioner Pugh spoke to the Department's vision for expansion of prisons and jails. There have been a number of proposals put forth in the past years, none of which have passed. She stressed that there are additional issues, which address legal, financial, operational and administrative concerns in opening new prisons. MARGOT KNUTH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, stated that she has been working on issues of over- crowding in the prisons with the Department of Corrections. Ms. Knuth advised that it was important to understand that Alaska is a unique State with a unified correctional system, which addresses both misdemeanants, felonies, pre- trial and sentenced populations. The biggest impact that the State has in addressing any proposal dealing with the overcrowding problem will require that both regional jail needs and prison populations be addressed. To date, inmates sent to Arizona are sentenced felons with long prison sentences. In Alaska, there are 2,693 prison beds for the jail population, with over 30,000 people a year cycling through those beds. Many of the prisoners cycle through the system in a very short period of time. The result on such a proposal like Ft. Greely is that a prisoner would be sent there only if they had a substantial sentence to serve. It would be of no help to the prisoner population serving a short sentence. That population would need to be in a regional facility. Consequently, Anchorage has made it a priority to replace the Sixth Avenue jail. Such a population could not be moved to a place like Delta or out of state. Any decision by the Department of Corrections must address both of those concerns. The Governor's proposal has a replacement recommendation for the Anchorage Sixth Avenue Jail and an expansion of the Yukon Kuskokwim jail in Bethel, in addition to expanding the prison in Palmer. The State's proposal would expand Palmer by 221 beds in Phase #1 and Wildwood by 256 beds during Phase #2. Ms. Knuth recommended that Committee members compare the proposal submitted by the Greely Coalition and that put forward by the Department of Corrections. She emphasized that regional jails also should be expanded. The ALLVEST proposal before the Committee would provide 800 beds but would not address the other pressing needs. Ms. Knuth questioned the wisest allocation of funds available to meet current needs. She encouraged the Committee to look closely at the financing mechanism being proposed with the State in a declining revenue situation. The State proposal indicates that Phase #1 has been incorporated into the Governor's bill. Future projects are Wildwood, Mat-Su Pre-trial, Fairbanks and Lemon Creek. To compare the Palmer and Wildwood facility to the Delta/Greely site, a five-factor consideration should be incorporated. The site needs to be: 1. Safe; 2. Consistent with correctional practices; 3. Involves community participation; 4. Cost effective; and 5. Reaches the State's regional needs. Co-Chair Hanley agreed with the five points. He pointed out that the bill states that the Department of Corrections "may" enter into an agreement with the City of Delta Junction with a Letter of Intent to establish criteria. He again questioned what was wrong with the bill, stressing that the final decision would be left to the Department. Commissioner Pugh responded that the Department has a number of concerns regarding the proposed legislation; she stated that it had no established financial perimeters. Once the fiscal numbers have been submitted, the Department will then be able to provide a better fiscal analysis. She added that there are unresolved legal concerns. Co-Chair Hanley requested an analysis of the number of medium security prisoners in jails around the State and the projected growth of that population. Ms. Knuth offered to submit that information for the Committee's attention. She thought that it was problematic that the legislation stipulates the 800 minimum capacity. Co-Chair Hanley asked that the researched info to be made available provide the number of prisoners outside the State also. MARGIE VANDOR, ASSISTANT ATTORNEY GENERAL, GENERAL SERVICES, DEPARTMENT OF LAW, stated that in the original proposal, the State would contract with the City of Delta Junction, a second class city with limited powers. One of essential powers would be "prison power" to operate such a facility. Even though any class city can own property, whether they can operate it or not, they will need to have the appropriate power. She pointed out that in the current work draft, all cities are given the power to operate a prison. Ms. Vandor continued, the underlining problem with the bill is that the municipality will not own the facility and will not have a lease to it. This presents a concern as to where the city would fit into the picture. Delta/Greely assumes that jobs will be there for them. The Letter of Intent indicates different information than the body of the bill. The proposal stipulates that the State would enter into an operational lease with the City of Delta, and Delta would then have a lease with ALLVEST. Delta Junction would have no liabilities or money invested. She asked, would the State be contracting with the municipal government? Ms. Vandor questioned the role of the State as a conduit, stressing that ALLVEST will operate and have the ownership rights. For the State to have the lease and an operational agreement without being part of the original arrangement is odd. She asked if the City of Delta has the corpus to lease the concern to the State. Representative Kohring voiced support for privatization of the prison and the proposed legislation. He acknowledged concerns of the people living in the Delta Junction area regarding the safety of their city. He believed that the Letter of Intent had addressed those concerns. Representative Martin pointed out that the Courts for overcrowding in the jails are suing the Legislature. Representative Kelly asked if there was a possibility that the proposed arrangement could work out. Ms. Vandor replied that the concern is if Delta Junction would be a meaningless conduit in the contract since the procurement code requires competitive bidding. The contract would then be a contract for a service from that entity. In the proposed legislation, the services would not be coming from the community. She asked if this would be a meaningful lease between ALLVEST and Delta Junction, and from where would the operational concept to exercise their powers originate. The original version of the bill does not accommodate any of those concerns. Co-Chair Therriault suggested that those concerns would be discussed with attorneys before the Commissioner of Corrections would make the decision to go forth with a contract. Commissioner Pugh pointed out that the newly submitted Letter of Intent had addressed that concern for the first time. She commented that information being discussed at today's meeting was answering some of the Department's concerns. Representative J. Davies noted that if the legislation requires something that can not work, it is important that the Administration know it before hand. He commented that the discussions are very relevant and the questions which need to be carefully examined. Co-Chair Hanley agreed. He pointed out that there is nothing in the bill that states that the City of Delta Junction can not have ownership in the facility. We will not know until there is a contract. The legislation stipulates that they "shall" contract with a third party contractor who will operate the facility. He asked the legal problem which could result from creating only a "shell". The Court must make that decision and at what point is ownership equity taken. Ms. Vandor pointed out that if Delta/Greely owned the facility, there would be no legislation or need for discussion. It would be municipal to municipal. Co-Chair Hanley asked how much would need to be owned in order for it to be municipal to municipal. In the end, the Department will make the ultimate decision. Co-Chair Hanley emphasized that he would not support using "shall". Ms. Vandor advised that the contracting language is problematic. (Tape Change HFC 98- 21, Side 2). Representative J. Davies asked if ALLVEST would be exempt from public bidding. Ms. Vandor replied that they would be exempt through language used in Section 4. Representative J. Davies questioned why the Letter of Intent established standards. Commissioner Pugh echoed that concern specifically regarding the exemption of provisions. She noted that Section 3(a) contained a number of provisions, which exempted the Department. REPRESENTATIVE GENE KUBINA asked if the State could own the facility and contract out with a private firm. Ms. Vandor noted that there are exemptions to the competitive bidding requirement even with the State code. FORREST BROWNE, DEBT MANAGER, TREASURY DIVISION, DEPARTMENT OF REVENUE, stated that there are three components of the proposed legislation: 1. Location; 2. Privatization; 3. Fiscal. He commented that he would testify to the fiscal liability of the proposal, and would provide a counter-proposal. The fiscal concerns are in two general areas. A twenty-year lease agreement substantially uses the State's credit to obtain financing without the State realizing the benefit of those twenty years of payment. The proposed structure would give the State nothing at the end of the twenty years, and essentially would provide a windfall for the private developer. He emphasized that the twenty-year sole source contract would not be in the best interest of the State. Mr. Browne advised that there are recommendations, which follows sound principles of public finance, and could accomplish the goals of the Department of Corrections. The State would arrange financing independently with financial markets. He distributed an illustrated "FLOW CHART". [Copy on file]. The best fiscal policy would have the State deal directly with the municipality, which then would become a conduit for financing. Assuming that the legal issues were addressed and the city had a contract of ownership so that they could provide that use, the State would then evoke public financing. At that time, it would become a security interest, which the bondholders would hold through a trustee. In terms of the State's relationship to a private contractor, there would be essentially two contracts. The contracts would be placed out for competitive bid. Mr. Browne provided an overview of the handout, concluding that in using the recommendations prescribed in the chart would result in fiscal responsibility, open competitiveness and providing the lowest effective costs during the twenty years. Mr. Browne understood that the private contractor would provide the financing and then the ownership of the facility and then twenty years later it would belong to ALLVEST. Co-Chair Hanley countered that would be part of the City of Delta's choice regarding the contents of the contract, although, before the Commissioner would sign a contract, there would need to be many negotiations. His understanding of the bill was that an agreement would be predicated on an agreement between the City of Delta Junction and a third party contractor as to where they operate the facility. Co-Chair Hanley noted that he preferred that the State makes the least number of policy calls and give the flexibility to the community and the Commissioner. Commissioner Pugh asked if the requirement to be exempt from the procurement code would be an impediment. Co-Chair Hanley stated that there is no requirement to be exempt; it could be a sole source. Representative J. Davies agreed with Representative Hanley, although, pointed out that language was not consistent with Item #3 in the Letter of Intent. Co-Chair Therriault agreed and noted that he had spoken with Representative Mulder regarding the competitiveness. He reiterated concern to keep the operational costs down. Representative J. Davies suggested that if the debt service was lower, the per diem cost should be lower. Representative Mulder agreed, pointing out that one of the arguments against the privatization of prisons is that public debt is cheaper than private debt. He hoped that would not out-weigh the other advantages that privatization does offer. The community of Delta Junction should make the ultimate decision. Representative J. Davies reiterated that the Letter of Intent would need to be modified to make the legislation work. Representative Mulder stated that the Letter of Intent was created to give a broad directive. VERN JONES, CHIEF PROCUREMENT OFFICIER, DEPARTMENT OF ADMINISTRATION, voiced concerns when contracting with an entity that is not actually providing the service or performing a function. Co-Chair Hanley requested information on the per diem costs per day to run the facility. He advised that the attraction of the facility is that it is already built and the federal government is willing to give it to the State. Per diem cost in other facilities does not include debt service. To build a new facility, capital costs would be placed in the debt service line. BOB LERESCHE, PRIVATE FINANCING COUNSEL, ALLVEST CORPORATION, JUNEAU, spoke to how the arrangement would work. He suggested that would be a common arrangement. The bill is permissive enough to meet the criteria recommended by Mr. Browne, Department of Revenue. Under the ALLVEST proposal, the City of Delta will not own the facility, although, will have 100% lease hold interest in it. He agreed with the attorney general that the contracts must be in place so that Delta has something to lease to the State. Representative J. Davies asked the bond rating that ALLVEST expected to get. Mr. LeResche was confident that they could sell investment bonds. He would not dispute the fact that a State Certificate of Participation (COP) would receive a lower interest rate. Mr. LeResche stated that what the legislation proposes would be to give the Department of Corrections the option to purchase beds. As long as the price is competitive and saves the State money, nothing else is relative to the State. Representative J. Davies suggested that a lower rate on the bonds should provide a lower daily per diem rate offered to the State. Mr. LeResche replied that the client will negotiate that at market. Representative J. Davies asked if the twenty-years could be changed to ten-years. Mr. LeResche replied that it could be ten years, which would require ALLVEST to charge $5 dollars more per bed per day. The operating contract could be made shorter without affecting the price. Representative J. Davies questioned in the event that bankruptcy should occur, where would the bondholders go to get remedy. Mr. LeResche replied that they would go to the facility and the corpus. Representative J. Davies asked whether the State would become involved, given the twenty- year lease. Mr. LeResche emphasized it would not. The State will only owe money when the facility is completed and ready to care for prisoners. Commissioner Pugh asked for further clarification regarding the State's obligation. Mr. Browne assumed that if a State lease was pledged to a trustee, it would be to the benefit of the bondholders. If there is a default, and the lease payments were transferred to debt service payments, the bondholders would come to the State. He reiterated that if the State's credit was used and the lease was pledged, the bondholders would seek payment from the State. Mr. LeResche noted that Mr. Browne was correct assuming that it was a COP lease; however, the proposal that ALLVEST has made is that the lease would not be used as security. It would be used as a demonstration to bond holders as ALLVEST's source of income. Representative Gene Kubina questioned the value of the facility if the State was not protecting it. Mr. LeResche agreed that it would not have value if it was not being used. If someone else seized it, the action would void the lease. The money would pass through directly from the City to the bondholders. Representative J. Davies pointed out that the Department of Corrections had not had an opportunity to give testimony regarding operational concerns in running the proposed facility. HB 53 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 4:35 p.m. H.F.C. 17 2/06/98