ALASKA STATE LEGISLATURE  HOUSE LABOR AND COMMERCE STANDING COMMITTEE  April 5, 2017 3:22 p.m. MEMBERS PRESENT Representative Sam Kito, Chair Representative Adam Wool, Vice Chair Representative Andy Josephson Representative Louise Stutes Representative Chris Birch Representative Gary Knopp Representative Colleen Sullivan-Leonard MEMBERS ABSENT  Representative Mike Chenault (alternate) Representative Bryce Edgmon (alternate) COMMITTEE CALENDAR  HOUSE BILL NO. 195 "An Act relating to insurer actions based on credit history and insurance scores at insurance policy renewal; and providing for insurer consideration of consumer requests for exceptions of credit history or insurance scores." - HEARD & HELD HOUSE BILL NO. 171 "An Act authorizing the commissioner of corrections to enter into contracts and cooperative agreements for the productive employment of prisoners; authorizing the Department of Corrections to receive money from the productive employment of prisoners; and providing for an effective date." - HEARD & HELD PREVIOUS COMMITTEE ACTION  BILL: HB 195 SHORT TITLE: INSURER'S USE OF CREDIT HISTORY/SCORES SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR 03/24/17 (H) READ THE FIRST TIME - REFERRALS 03/24/17 (H) L&C 04/05/17 (H) L&C AT 3:15 PM BARNES 124 BILL: HB 171 SHORT TITLE: EMPLOYMENT OF PRISONERS SPONSOR(s): WESTLAKE 03/10/17 (H) READ THE FIRST TIME - REFERRALS 03/10/17 (H) L&C, FIN 04/05/17 (H) L&C AT 3:15 PM BARNES 124 WITNESS REGISTER LORI WING-HEIER, Director Division of Insurance Department of Commerce, Community, and Economic Development Anchorage, Alaska POSITION STATEMENT: On behalf of the administration introduced HB 195.  KRISTIE BABCOCK, Agent State Farm Insurance Kenai, Alaska POSITION STATEMENT: Testified in support of HB 195. ARMAND FELICIANO, Esq. Property Casualty Insurers Association of America Sacramento, California POSITION STATEMENT: Testified in support of HB 195. DANIEL LYNCH Soldotna, Alaska POSITION STATEMENT: Testified in opposition to HB 195. REPRESENTATIVE DEAN WESTLAKE Alaska State Legislature Juneau, Alaska POSITION STATEMENT: As the sponsor introduced HB 171. DEAN WILLIAMS, Commissioner Department of Corrections Juneau, Alaska POSITION STATEMENT: Provided invited testimony on HB 171 and answered questions about the bill. TIMOTHY WARD, Vocational Instructor Wildwood Correctional Center Department of Corrections Kenai, Alaska POSITION STATEMENT: Testified regarding how HB 171 would benefit his facility and its inmates. JEFF JESSEE, Legislative Liaison Alaska Mental Health Trust Authority Anchorage, Alaska POSITION STATEMENT: Testified in support of HB 171. L. DIANE CASTO, Behavioral Health Policy Advisor Office of the Commissioner Department of Health & Social Services (DHSS) Juneau, Alaska POSITION STATEMENT: Testified in support of HB 171. CHRISTINA LOVE, Community Resources Coordinator Aiding Women in Abuse and Rape Emergencies (AWARE) Juneau, Alaska POSITION STATEMENT: Testified in support of HB 171. KARA NELSON, Director Haven House Juneau, Alaska POSITION STATEMENT: Testified in support of HB 171. ACTION NARRATIVE 3:22:55 PM CHAIR SAM KITO called the House Labor and Commerce Standing Committee meeting to order at 3:22 p.m. Representatives Kito, Sullivan-Leonard, Stutes, Knopp, Birch, Josephson, and Wool were present at the call to order. HB 195-INSURER'S USE OF CREDIT HISTORY/SCORES  3:23:25 PM CHAIR KITO announced that the first order of business would be HOUSE BILL NO. 195, "An Act relating to insurer actions based on credit history and insurance scores at insurance policy renewal; and providing for insurer consideration of consumer requests for exceptions of credit history or insurance scores." 3:24:08 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community, and Economic Development (DCCED), on behalf of the administration introduced HB 195. She noted that using credit history or insurance scores to rate personal lines insurance is a complex matter, whether the insurance is for legislators or their constituents. There is a misconception, or people tend to think, that credit scores are discriminatory or not a true indicator of a risk when writing an insurance policy. The policies being talked about today are personal lines, she explained, such as auto and homeowner's policies, motorcycles, and recreational vehicles (RVs). For commercial lines, it is common for insurers to ask for financial statements. MS. WING-HEIER stated that Alaska's current statutes allow for the use of credit scoring, or insurance scores, when applying for new business. So, anyone going into a local broker in any community in the state is asked to allow their credit history or insurance score [to be used] and, based on that insurance score, the person may receive a preferred risk. The worst that can happen, she said, is that people without a credit history are given a neutral score. MS. WING-HEIER said one reason for bringing forth HB 195 is that Alaska statute does not allow for the insurance score to be used on renewal unless the insurance broker or insurance company asks for, and receives from the person, a waiver upon each renewal. This is time consuming and costly, she pointed out. Another reason for the bill is that, like legislators, many people travel for their work because they are fishermen, miners, or North Slope workers. The waivers come in the mail and are either disregarded or not returned in a timely manner. Then someone suddenly receives his/her insurance bill or notices that his/her homeowner's [insurance] has been paid out of escrow and the premium has doubled because the credit score or insurance score was not applied to the renewal. It is a cost to the insurance brokers to ensure that everyone is sent the waivers, and it is a cost to consumers when they realize they would have qualified for a preferred rate. But, she continued, to get a preferred rate, Alaska statute requires that this piece of paper be signed every renewal, which could be annually or every six months depending on the policy. 3:27:26 PM MS. WING-HEIER addressed the question of whether [credit history or insurance scores] could have a negative and answered yes. Bad credit will be a negative implication on a person's insurance premiums, she said. Studies have proven that there is a correlation between credit history or insurance scores and a person's likelihood to file an insurance claim. Perhaps it is because those people who keep good credit and pay their bills also take care of their homes and their autos, she continued. Perhaps they are the ones least likely to have speeding tickets. There is a correlation between the insurance score that is derived and an insurance risk. MS. WING-HEIER reiterated that the use of an insurance score is already allowed in new business and that HB 195 would be applied for renewals. In addition, she noted, Governor Walker has asked that the bill contain some important provisions. First, the governor is asking that the consumer be notified of what is called an "adverse action". If someone's credit or insurance score is going to result in the person having a detrimental policy premium, the person must receive written notices from the insurance company. Additionally, that notice must tell the person as a consumer, a policyholder, that they are qualified to go through an appeals process. Part of the appeals process would be based on extenuating life circumstances, she explained, which are outlined in Section 5 of the bill and which include things like medical, job loss, death of a spouse, deployment overseas, and other conditions that a prudent person would consider an extraordinary life circumstance. The consumer would have to appeal the insurance company within 60 days of receiving this adverse action. The insurance company would then make the first determination. Second, she continued, Governor Walker didn't like that last year's Senate Bill 127 said that after this appeals process went through, the final decision maker would be the insurance company. So, HB 195 has been changed to reflect that the final decision maker will be the director of the Division of Insurance through processes and procedures that [the division] already has established for handling other types of appeals for consumer compliance. MS. WING HEIER summarized by stating that HB 195 is about: allowing for credit scoring to be used for renewal; defining an adverse action and what an insurance company must do upon determination that there is an adverse action on a policyholder; and providing an appeals process that goes to the director of the Division of Insurance for adjudication if the policyholder doesn't like the [insurance company's] decision on an appeal filed in regard to extenuating life circumstances. 3:31:19 PM REPRESENTATIVE BIRCH related that he recently had a personal impact where his insurance company was going to ramp up the cost of his car insurance because he needed to sign something, but because he is in Juneau and not home there is a delay in receiving his mail. He said HB 195 is great as well as timely and he appreciates that the bill is being brought forward. 3:32:15 PM REPRESENTATIVE JOSEPHSON offered his understanding that when there has been no insurance policy issued an insurance company can use credit scoring, but not for renewals. MS. WING-HEIER replied that during the original application the applicant still must give permission, but yes, the insurance company can use the applicant's credit score to determine an insurance score. She added that when a person doesn't sign the form it sometimes ends up becoming what is called "churning" because the person always wants to be a new customer, an applicant, as opposed to a renewal. REPRESENTATIVE JOSEPHSON asked what happens if in the initial application the applicant declines to give permission. MS. WING-HEIER qualified she is unable to speak for insurance companies, but that in most cases the applicant would be treated as neutral, meaning not given a preferred rate. 3:33:26 PM REPRESENTATIVE KNOPP noted Senate Bill 127 passed both bodies last year before being vetoed by the governor. He further noted that the language in Senate Bill 127 and HB 195 is identical except for the small tweaks mentioned by Ms. Wing-Heier, which he thinks are good. He asked whether a homeowner's insurance policy that is wrapped into the policyholder's mortgage and automatically paid each month is looked at annually by the insurance company and subject to renewal every year. MS. WING-HEIER answered that that would be subject to HB 195, and even though it is paid through escrow the policyholder could end up with an increased premium if the policyholder does not sign and allow the insurance company to obtain the policyholder's credit history to determine an insurance score. REPRESENTATIVE KNOPP stated he isn't clear on the difference between an insurance score and a credit score. He inquired how they vary and how the insurance score is derived; for example, whether the credit score is used to establish the insurance score. He further inquired whether a new credit history is pulled up every time the policy comes up for renewal or whether the insurance score is used. MS. WING-HEIER replied that a credit score is a part of the insurance score. The overall insurance score may include things that are already allowed, and which are not changed in the bill, such as where the policyholder lives, the number of miles driven to work, the kind of car, and age. Responding further, she said HB 195 requires that an insurance company order a policyholder's credit score at least every 24 months. The administration's intent is that if anyone were to have a poor credit score or insurance score that the person is allowed to improve it. The bill also asks that the insurance company not use a credit report or credit history that is more than 90 days old so that the data is current. 3:36:34 PM REPRESENTATIVE WOOL offered his understanding that if a new homeowner applies for homeowner's insurance, the homeowner is not required to submit a credit score and so might be deemed neutral. He asked whether the credit score requirement is waived when a year later the policy renewal comes up and the policyholder signs something. MS. WING-HEIER responded that what is being waived is the statute and allowing the insurance company to order the policyholder's credit score upon renewal because right now it is not allowed upon renewal. In other words, she continued, a person signing as a new insurer is only allowing the insurance company to order it once, the company cannot do it twice without getting another signature, and the third year the company would need to get yet another signature from the policyholder. REPRESENTATIVE WOOL stated he has a fundamental problem with a person's insurance rate being determined by their insurance score which is somewhat based on a credit score. He said he understands insurance is based on actuarial [science] and the likelihood of having to pay out for a claim, but he pointed out that things can happen to alter a person's credit score that don't necessarily mean the person is more likely to have a house fire. People might lose a job or become divorced causing their credit score to go down, but in his opinion that shouldn't negatively affect them. He noted that when buying a house, a person's credit score will determine if the bank will approve a loan, but it won't determine how much the house costs. He asked whether there are other things where the amount of charge is dependent upon a person's credit score. MS. WING-HEIER answered that she considers insurance a financial product, not a service. She said she is not aware of any service, such as a contractor, where one's credit score is looked at for performing the service. However, she continued, most financial products do look at a person's credit to determine whether to extend the credit, how much credit will be extended, and the rate. REPRESENTATIVE WOOL stated he would call a bank loan a financial product for which a person's credit score is evaluated and the bank determines whether it will make the loan as well as what the interest rate will be. But, he continued, once that is established it remains stable and the bank doesn't do another credit check and raise the interest rate if the credit score has changed. 3:41:09 PM REPRESENTATIVE JOSEPHSON offered his assumption that when it is said that the [director] will make a determination, [the director] doesn't have a file that is looked at but rather a system is used and [the director] delegates it to a subordinate. MS. WING-HEIER confirmed she would as director assign it to a staff member to gather the information and give her a report that it either did or didn't meet the determination or criteria for an extenuating life circumstance. She would not be personally obtaining the information and making a determination. 3:42:11 PM REPRESENTATIVE WOOL surmised that insurance companies probably like this because it must bring them more revenue with a net result of more people paying more money. He asked why some insurance brokers have said they don't like this credit score being used. MS. WING-HEIER answered she thinks it could be controversial because some see it as a negative and don't understand the positives of how this can positively impact consumers. Is there a negative? Certainly, she said. If someone has poor credit it may result in a poor insurance score. It is one factor in determining the insurance score. The statute specifically says that insurance companies cannot just use the credit history to assign an insurance premium. They must use other factors or risk characteristics, such as age, where the policyholder lives, kind of vehicle driven, and driving history. In some cases, she continued, it is perhaps a misunderstanding of how much has been put into this bill to protect consumers to ensure there is an appeal process if they feel that they've been improperly graded, and how much it is to administer the renewals for consumers to sign the waiver. 3:43:52 PM CHAIR KITO stated that the use of age as a criterion for what someone's insurance rate might be is something he went through before age 25 and having to pay a higher premium. He was not necessarily a higher risk, he said, but was in that age category, which means he was an individual that met that statistic. That is accepted because nobody can change their age and it is accepted that there is a correlation between age and risk, but that doesn't mean everybody who is under 25 is going to be driving more poorly. Therefore, [the legislature] cannot change the use of age to establish a credit or insurance score because everybody does. He said he doesn't think correlation means causation, but to find ways to decrease the overall cost of insurance, companies look to try to find risk characteristics that correlate to actual things that can be measured. 3:45:15 PM CHAIR KITO opened public testimony on HB 195. 3:45:39 PM KRISTIE BABCOCK, Agent, State Farm Insurance, testified in support of HB 195. She said she employs eight individuals and markets insurance and financial services to fellow Alaskans. She recalled that last year a similar bill passed the legislature by a large margin but was vetoed. She stated her customers see the impact of the current law every day. They hear about the impact of the current law when her agency calls them and lets them know that the rate they received two years prior when their policy was originally written is going to dramatically change. Her agency lets them know the rate change isn't because of anything they've done. It is not a simple conversation, she advised. Her agency must explain that current law allowed the use of their credit history in their original rate but after two years that credit history must be stripped out. Her agency then explains that there is an option for the customer to give specific permission to use their credit for that policy for the coming year and hopefully avoid the increase. If her agency is successful in reaching them, getting the form to them, getting the form back from them, and all in time to avoid the increase, then there won't be a rate increase for a year. Then the next year comes. MS. BABCOCK said her agency has been doing this for many years now and she has one team member who exclusively deals with the difficulty that this current law presents for her customers. Customers are hard to reach and are busy, and they ask her why she can't just charge them the rate they deserve. They further tell her that they shopped around for their insurance when they first came to her and that's why they chose her. Customers ask why they must get a phone call or letter every year on every policy just to ensure that they don't get over-charged. She noted she has customers of all demographics, of all ages, that have tried hard to keep their credit strong and their driving record strong. She would like to charge them the rate they deserve and that is what HB 195 is about. Alaska is the only state currently that makes the insurance companies take out the credit component on the policy's renewal and it creates this frustrating consumer experience. MS. BABCOCK stated she doesn't see a public purpose served by the current system and urged that the committee help fix it. She related that some people have asked her what the impact of HB 195 on the public would be. First, she said, it would alleviate the dramatic swings in rates, which to customers seems like bait and switch when their starting rate changes at renewal. Second, HB 195 would eliminate the frustrating and cumbersome process of getting a manual waiver signed, thereby automating the renewal process. Lastly, she continued, HB 195 would allow customers to shop with confidence knowing there is stability in both the initial and renewal rating factors. 3:49:46 PM REPRESENTATIVE WOOL asked whether the majority of Ms. Babcock's clients would pay less if credit scores were allowed. MS. BABCOCK replied correct, the majority of Alaskans have favorable credit characteristics that would give them a decrease over the base rate, rather than just paying the base rate. REPRESENTATIVE WOOL inquired whether insurance companies would be losing money if credit checks were allowed. MS. BABCOCK responded it might be thought about as insurance being a zero sum. Insurance companies are going to try to collect the correct premium to take care of the claims for the risk pool that they represent. One of the ideas behind insurance is to try to charge the correct rate for each person for the risk they present. Rates are always changing and the risk of the consumer base that a company insures is always changing. So, she reiterated, the idea is to charge the correct rate for each risk and the insurance company on the backend has the duty to make sure it is charging the overall right rate so that it is able to pay future claims. 3:51:08 PM REPRESENTATIVE KNOPP expressed his appreciation for Ms. Babcock talking about customer dissatisfaction. He said Ms. Babcock has been his insurance agent for 15-20 years and he insures 5 or 6 personal vehicles with her and has both commercial and personal policies. He shared that he is a customer who has called Ms. Babcock's office to complain about all the forms he receives in the mail all the time and asking why he can't just have his rate left alone and the bill sent to him, so he can pay it. This is an important component of HB 195, he said. 3:52:13 PM The committee took a brief at-ease. 3:53:26 PM ARMAND FELICIANO, Esq., Property Casualty Insurers Association of America, testified in support of HB 195. He stated that his association is part of an insurance coalition supporting the bill that includes members such as Alaska USA, American Insurance Association, and the National Association of Mutual Insurance Companies. In the coalition's collective view, he related, HB 195 is a reasonable middle ground that would allow consumers to see the full benefits of credit scoring and put in place an equitable process to solve credit disputes. The bill would address the unnecessary market construction inherent in existing statute, which removes credit scoring upon renewal. Also, he continued, the bill would broaden extraordinary life circumstances and authorize the Division of Insurance to resolve credit disputes. He added that HB 195 is a commonsense approach to fix Alaska's existing credit scoring rules. 3:54:41 PM REPRESENTATIVE WOOL observed that Mr. Feliciano is calling from California and inquired whether California allows credit scores for insurance assessment. MR. FELICIANO replied that California is one of two states that doesn't allow for a credit score. About 23 other states follow the national model, he said, and about half of the other states follow a variation of the national model. REPRESENTATIVE WOOL asked whether there is a lack of insurance companies in California due to being disallowed from using credit scores. He further asked whether it is hard to find insurance in California. MR. FELICIANO responded no, and said California is a very competitive market with lots of insurance companies, so it is not an issue. 3:55:47 PM DANIEL LYNCH testified in opposition to HB 195 and said he believes in privacy and logic. He stated that in his 20-plus years on the Kenai Peninsula there are now more insurance companies, and none have gone out of business because of credit scores. He maintained that credit scores are irrelevant to insurability. An insurer can go to the Division of Motor Vehicles (DMV) and get a person's complete driving history for $10. An insurer can go to Google Earth and plug in a person's address to find the distance to a fire station, flood plain, or beetle-killed forest. He noted that in 1978 he cut up his last credit card and that his last loan from a financial institution was in 1975. Other than three seatbelt violations he hasn't had a ticket or accident in over 35 years. He is free money to the insurance company, he said. What does the committee think his credit score is? Why do his premiums go up every renewal when the values of his vehicles are less, he is retired, and he drives fewer miles? MR. LYNCH stated that vehicle insurance in Alaska is like "Obamacare" [the Affordable Care Act]. Residents are forced to purchase from a private entity or else they can be fined, incarcerated, and their vehicle impounded. Yet the insurance company can cancel, increase rates, or refuse coverage willy- nilly with no logical reason. He pointed out that Wells Fargo opened two to three million new accounts without customer request, which affected the people's credit scores. MR. LYNCH noted that the previous witness is also involved in new financial investment opportunities that have nothing to do with insurance. He said the governor's transmittal letter for the bill talks about the insurance code and the director and that from last year to this year [the bill] adds many consumer protections. But, he continued, requesting a life circumstance exception is his business. He asked whether he would need to hire a secretary and/or attorney to file an appeal and said this would be cumbersome for the consumer, especially for people who travel and might miss the paperwork and who would then have no recourse. He questioned the final judge being the director [of the Division of Insurance] because it is not an elected position and because a previous director was a 20-year employee of the insurance industry. He further pointed out that if a person shops around for insurance and goes to six different companies that would mean six hits against the person's credit scores and a loss in points with each hit. MR. LYNCH stated that if the legislature would like to pass a law to help insurance companies, citizens, and all drivers and pedestrians, then it could eliminate all cell phone use while driving. He closed by asking whether committee members went to Juneau to represent the citizens of Alaska or corporate America and lobbyists. He urged that HB 195 and SB 98 not be passed. 4:00:51 PM REPRESENTATIVE BIRCH asked whether Mr. Lynch has insurance. MR. LYNCH answered correct. REPRESENTATIVE BIRCH inquired as to how an insurer could best size up Mr. Lynch as an insurable party. MR. LYNCH replied that if it were for driving insurance it would be through his driving record. REPRESENTATIVE BIRCH offered his understanding that credit score is a pretty good indicator for insurance companies to validate how good a credit risk someone is or how reliable someone might be for taking care of their possessions. He asked whether Mr. Lynch objects to the insurance companies having access to that information. MR. LYNCH suggested that if he pays his bill every six months that establishes his credit, and he usually pays cash. If one has nothing to do with the other, he continued, the insurance company can go to the DMV and see that he hasn't had a ticket or an accident in 35 years and he will voluntarily tell the company that he doesn't use a cell phone while in his vehicle. One has nothing to do with the other to make it convenient for insurance companies. "Who are we going to make it convenient for next time?" he asked in conclusion. "Fred Meyer, a sporting goods store?" 4:02:53 PM REPRESENTATIVE KNOPP offered his appreciation that Mr. Lynch is probably a person for whom the bill would have a neutral or negative effect as far as using Mr. Lynch's credit score for rating purposes. He noted that about 15 years ago legislation was approved to allow the use of credit scores for rating clients. However, he continued, that is not what HB 195 is about, it is about consumer protection. Since the industry uses credit reporting as a method to rate people, not passing HB 195 would be detrimental to consumers because if [a signed waiver] is not received by the insurance company it will err on the side of caution. Compared to Senate Bill 127 of last year, the adjustments made in HB 195 make it a consumer protection bill. He reiterated that the issue here isn't using credit scores for rating a person as that issue was addressed 15 years ago. MR. LYNCH responded he has been testifying on these bills for the last four or five years because it comes back every year with a change here or there. He recounted Director Wing-Heier stating that HB 195 is about individual policies, not commercial customers, and asked why they are not treated the same. He further recounted Director Wing-Heier stating that the bill does have potential negative consequences if a person has a bad credit score, or, as in his case, no credit score at all. He reiterated his question as to whether committee members are representing the citizens of Alaska or corporate America. 4:05:46 PM CHAIR KITO ascertained no one else wished to testify on HB 195. 4:06:02 PM REPRESENTATIVE STUTES inquired whether HB 195 is also applicable to medical insurance. MS. WING-HEIER answered that it is not applicable. She said it is personal lines, such as auto, homeowners, motorcycles, and recreational vehicles. It is not commercial insurance, workers' compensation, property insurance on a commercial building, general liability, commercial auto, or any type of health or life insurance. REPRESENTATIVE STUTES asked whether there is a reason this isn't affecting commercial insurance. MS. WING-HEIER replied that financial statements are asked for in most commercial accounts. The commercial insurance companies will look at Dun & Bradstreet (D & B) reports. Or, if it is a larger company, they will look at Moody's or S&P and those types of reports, which in essence are a credit report, and then that would be factored into an insurance score. REPRESENTATIVE STUTES, regarding the process for appeals, noted that the industry would be judging its own appeals, rather than an independent body determining whether an individual had a valid appeal. The industry, which stands to profit, would be making the determination, she said. MS. WING-HEIER responded that that is one reason the bill was vetoed last year. Regarding extenuating life circumstances and the appeal process, [under HB 195] the consumer would present written documentation to the insurance company stating why they think they qualify, and if the consumer doesn't receive a favorable response, they bring it to the [Division of Insurance]. The division director has the final say in whether the consumer qualifies through the appeal for a preferred rate and if the consumer should be given a waiver for an extenuating life circumstance. So, she said, the [Division of Insurance] becomes the third party. 4:08:45 PM REPRESENTATIVE KNOPP offered his understanding that under HB 195 something related to medical on a person's credit report could not be used to negatively impact the person's rating as far as insurance. MS. WING-HEIER answered that medical circumstances, medical bills, for the person or family member is one of the extenuating life circumstances that can be appealed for why the person's credit score has taken a turn and why the person deserves a better rate. 4:09:45 PM REPRESENTATIVE WOOL posed a scenario in which he has large medical bills and misses a payment to a hospital, thereby affecting his credit score and in turn his insurance score so that he is then assessed a higher [insurance] fee. He offered his understanding that this would be the point at which he would have to go through the appeal process. MS. WING-HEIER replied that if the medical bills were to such a point that they impacted a person's credit score, then, yes, the person could ask for an appeal. That would be part of the extenuating life circumstances that are defined in the bill. 4:10:36 PM CHAIR KITO held over HB 195. HB 171-EMPLOYMENT OF PRISONERS  4:10:42 PM CHAIR KITO announced that the final order of business would be HOUSE BILL NO. 171, "An Act authorizing the commissioner of corrections to enter into contracts and cooperative agreements for the productive employment of prisoners; authorizing the Department of Corrections to receive money from the productive employment of prisoners; and providing for an effective date." 4:11:03 PM REPRESENTATIVE DEAN WESTLAKE, Alaska State Legislature, as the sponsor, introduced HB 171. He explained the bill would allow the commissioner of the Department of Corrections to broaden the stakeholders who are being consulted throughout the work procedures and pricing process within the employment of prison inmate section of Alaska Statute (AS) 33.30.191. Currently this statute reads that the commissioner will consult with local union organizations prior to contracting, he continued. The bill would broaden the language to "industrial representative", which would include the union representatives but would also include other groups, allowing the commissioner to coordinate with a broader array of entities. REPRESENTATIVE WESTLAKE stated that the intention of HB 171 is to increase inmate employment opportunities and increase employment amongst inmates. This would reduce idleness, reduce recidivism, improve mental health, increase the amount of restitution paid, and increase the work experience of inmates. He related that conversations with labor unions have already been started to find win-win scenarios. REPRESENTATIVE WESTLAKE said HB 171 is being presented because many people who are incarcerated owe restitution payments, child support, court fees, and more. The bill would help provide a way for inmates to try to get back on their feet, get a sense of self-worth as they work, and find a job before being released. 4:14:06 PM REPRESENTATIVE BIRCH remarked he is happy to see this bill. He noted that he served the Department of Corrections for several years as project manager in the Anvil Mountain Correctional Center as well as other projects. He said he has long recognized the merits of a program like this and recalled the [former] Prison Industry Program that built furniture. He asked whether HB 171 would be resurrecting something that existed in the past but had fallen by the wayside. REPRESENTATIVE WESTLAKE replied the aim of the bill is getting these folks back on their feet. Regarding recidivism, he said that many times inmates have no job skills and no work even though they may want to do something, and so they end up back on the streets and need to eat and end up back in front of a judge. REPRESENTATIVE BIRCH referenced the Percent for Art Program and said he recommended buying raw ivory to be used for a [prisoner] training program or classwork. 4:16:02 PM REPRESENTATIVE JOSEPHSON stated that HB 171 looks like a good bill. He inquired as to the catalyst for the bill. REPRESENTATIVE WESTLAKE responded that it's been a long time coming. He said sometimes only the industries close by are considered "when we're in Juneau." He indicated that "when you just pick one," [that excludes others]. He continued: You want other people in there, ... whether they're working and getting paid; ... my hope is they can volunteer. The thing in my region is we dig the graves ourselves. We do it whether it's winter, if it's forty below or, in my case, one time sixty below. We do that; we make our own coffins; we make our crosses; things like that. And there are people in jail now that aren't going to be home for these things, and they've lost that privilege to be free. It was their choosing; they understand that. But maybe being able to help build a cross or a coffin could help bring them back and get that sense of self- worth in there. 4:17:17 PM REPRESENTATIVE KNOPP brought attention to page 1, line 11, of the bill, which states, "require payment to the commissioner". He noted it doesn't talk about where that wage is going or what the intent is. He asked whether the wages would go towards incarceration, would be kept by the commissioner, would be dedicated to restitution, or would be kept by the inmates for when they are released. REPRESENTATIVE WESTLAKE deferred to the commissioner of the Department of Corrections to answer the question. DEAN WILLIAMS, Commissioner, Department of Corrections, State of Alaska, offered his appreciation for the bill's introduction and answered that thus far the bill is very generalized in terms of how that is going to be set up. As contracts are entered, he explained, the inmates would be paid for the work that they do. One focus of the bill is to provide people with the opportunity to pay the restitution and child support that they owe, and this would be articulated in the administrative code for people in the program. When a person leaves prison with $100 in his or her pocket, the question is now what and where does the person go without any place to start. So, he reiterated, while it isn't articulated in the bill, it would be part of how the structure is set up through regulation. REPRESENTATIVE KNOPP stated he is going to look for that detail before supporting the bill. He said he also wants to look at details regarding whether the prisoners would be employees covered under workers' compensation and unemployment insurance. 4:20:16 PM REPRESENTATIVE WOOL observed the bill provides that the prisoners would be paid at least minimum wage. He said he doesn't know what kind of work they would be doing and whether they would be competing with the private sector and what kind of coverage the prisoners would get. He further observed the bill provides that payment would go to the commissioner. He offered his understanding that many prisoners have obligations through the crime they committed or because they have kids and owe child support, and he asked what the distribution formulation would be. He further asked what prisoners are paid when they do work within the prison. COMMISSIONER WILLIAMS replied that presently it is from $.60 per hour on up to $1.00 per hour for cleaning jobs and other routine work inside the facility. Inmates are hired to do chores at the facility, which is a standard thing around the country, so the bill is not needed for what is being done right now. REPRESENTATIVE WOOL offered his understanding that HB 171 is about taking contracts for jobs outside the prison in the private sector and so potentially competing with private sectors. He inquired whether inmates would retain any of their wages or whether it would all go toward payment of their debts. COMMISSIONER WILLIAMS requested he be allowed to present his invited testimony to answer this and other questions. CHAIR KITO agreed. 4:23:22 PM COMMISSIONER WILLIAMS explained why HB 171 is being brought forward. He said the prison industry in Alaska should not compete with current labor markets. He suggested similar work is done in virtually every other state in the U.S. He stated the bill would open the door to a public-private partnership in ways that have not been seen. The reason why he is in his job is because he thinks prison industries are a way to provide services or products to the department and the state that would not otherwise be provided. COMMISSIONER WILLIAMS said the current language, which was changed a number of years ago, became very restrictive in how the Department of Corrections was allowed to enter into contracts. He stated he was not commissioner at that time, and doesn't know why the state got there, but he thinks there was concern back then when the state had a lot of money that it did not want to be competing with private industries and private labor pools. The problem with that, he submitted, is the state's current fiscal environment and that several things should be thought about. He said incarcerated individuals are going to be there for either short or long periods of time and providing productive and meaningful activities to them would prevent a situation of idle hands and make the prison facilities safer for both inmates and staff. Second, it would provide business opportunities that don't [currently] exist to pay the department's own way. The correctional systems in other states, he said, start to pay their own way by virtue of prison industries. 4:26:20 PM COMMISSIONER WILLIAMS pointed out that [the Department of Corrections] spends about $200,000 on frozen vegetables, yet there is an agricultural community in the Matanuska-Susitna Valley that is waiting to grow. One fundamental, he continued, is that if a fresh product is not sold right now, it either won't be picked or it will be gone, so the capacity of agricultural development is limited by what can be done. Other people already started working on that and developing plans before he was commissioner, he said, which is why he has already started to meet with the Department of Agriculture and others. A large freeze plant operated by a stable work force would expand agricultural development in the Matanuska-Susitna Valley. It would be a huge opportunity for nominal cost. The Department of Corrections could pay for the piece of equipment in five years given the department is currently spending $200,000 for frozen vegetables to feed to inmates. COMMISSIONER WILLIAMS said he is asking the committee to understand that he wants this proposal to be well. He has already consulted with labor unions, he continued, and wants them to understand that the department is not attempting to take out existing jobs; that is not the focus of this. But, he explained, he needs more permissive language and such language may need to be gone through to find the right balance. He added that he is keenly aware of that and is listening hard to concerns. He said he has seen how this works in other states, and it is amazing and provides products and services that the private market is not covering. He reiterated that he is including people in unions and urged that this not be seen as a threat, but rather an enhancement opportunity for how the Department of Corrections can pay its way while also providing a service and business opportunities. 4:28:41 PM REPRESENTATIVE SULLIVAN-LEONARD, regarding contracts, noted that the City of Wasilla has at times had inmates working around town, such as sweeping, cleaning, and brush clearing, which has been good. She inquired whether Commissioner Williams would look at contracts with the cities to develop and increase the wages for inmates for labor work, should the bill pass. COMMISSIONER WILLIAMS replied he is not sure what that would look like that far down the road, but the department may be able to do some of that right now. He said he is pushing the department to do things and there are no restrictions on some of the things the department is doing in terms of having inmates work for local municipalities doing things that normally are not funded. These inmates are highly motivated and have a high work ethic, he added. While the department can do some of those things right now, the difference in having this bill is that it allows the department to scope things differently, such as a product or something the city needs done that a private business can't do it because the cost overhead is too hard or because a worker can't be found to do that job. COMMISSIONER WILLIAMS continued. He said Mr. Ward, a vocational director, would be speaking to a specific example of what he is working on in Kenai. However, he explained, going to the next step is prevented because certain metal fabrication can only be done in certain sheet metal plants where people are paid much higher wages, making it too costly. If the department were to make it at a lower cost and sell it back to the business at wholesale, then the business could still make money on it and expand an area of the market that it can't get a corner on right now. So, he continued, conversations are going on. Going slowly and strategically is critical because he doesn't want to offend someone and begin a fight that he doesn't want to have. There are some things the department can do now, but there are other opportunities for which the department would need legislation like this to be able to expand into. 4:31:33 PM REPRESENTATIVE BIRCH cautioned that there was recently a huge tangle with the Mount McKinley Meat and Sausage plant. He urged that the department have a business plan in place to seek professional assistance and to map out a step-by-step path forward. Regarding the furniture industries, he said he knew a furniture retailer in Anchorage who was upset about the beautiful furniture that was being made in Seward and put in a number of offices. He noted he is very intrigued by the academic and vocational education potential that would help inmates advance themselves. He asked what are the things that can be done. COMMISSIONER WILLIAMS, regarding furniture industries, stated that there are some amazing skills and pieces of furniture coming out of the woodshop at the Point Mackenzie Correctional Farm. High quality furniture is being made because the inmates have time on their hands. The furniture is as good as any being brought into the state, he said, and it would be awesome to have the same ability to do that quality level of furniture in state. He explained that he is prevented from selling the farm's products to a wholesaler or a store because he is not able to enter into contracts. There is potential there that would not hurt anyone else in the business community; it would enhance a product, plus there would be the social impact of development of this furniture people would be paid to get a second chance at life and be able to pay restitution and get education. Those are win-win opportunities. COMMISSIONER WILLIAMS said there are other examples that could be done, such as providing laundry services for cruise ships. Currently, he related, laundry is being done in Juneau for the Alaska Marine Highway System. However, if there was a way to enter into contracts, the department could work in conjunction with other businesses to provide laundry services for the smaller cruise ships that are currently using laundry services out of state because there is not enough laundry service capacity in Juneau. The department, inmates, and laundry businesses would all make money. Those are the scenarios that he wants, he continued. He is not interested in scenarios where the department can't grow it and he will stay away from anything that is too difficult. That is the vision of how this could be different, he said, and far more impactful for the state and how the business community could win. 4:36:26 PM REPRESENTATIVE BIRCH suggested getting some Sitka spruce wood for making nice [furniture]. COMMISSIONER WILLIAMS, regarding a business plan on the freeze plant, noted there is a businessman on line who has been working on having large commercial freezer space and the timing is right for exploring this. The business people are looking for a stable workforce that could be committed to the effort. There are many people in the private business community who are very interested in this bill and this effort. 4:38:03 PM TIMOTHY WARD, Vocational Instructor, Wildwood Correctional Center, Department of Corrections, stated that his facility does steel manufacturing and could offer that toward this proposal. He said he has spoken with three businesses in the [Kenai] area that do manufacturing with steel and aluminum and that are very interested in getting onboard. The hurdles must be jumped to see if this can be made to happen and to do some good for the community and inmates. COMMISSIONER WILLIAMS requested Mr. Ward to provide an example about a piece of equipment that someone wants manufactured but cannot do on their own and so is looking for alternatives such as an inmate force to help develop the product. MR. WARD responded that one of the businesses he talked to was making a product for the City of Soldotna and was welding 200 units. The business owner would be very interested in getting onboard with the department, he related, if the correctional facility could come up with a way to get the units welded and lower the business's cost for selling them. That would free the business's shop to continue another project as well as finish this product in a timelier manner than the business could otherwise do. COMMISSIONER WILLIAMS explained there is a piece of recreational equipment that the business must either make itself or buy from somebody else. It is hard to do, and the labor costs make it prohibitive to get very much involved in the market. If the business could find a lower cost labor market to make the piece, he continued, it could still mark it up 10 or 20 percent and make a profit, expand a business area, and keep everything in state and local instead of purchasing from China or out of state. That is one sector in Kenai that Mr. Ward has been working with and it is also the area where he has had a lot of business contacts. This is how a next step would provide opportunities for the business community and the Department of Corrections, he said. 4:41:01 PM REPRESENTATIVE WOOL stated that in reading the bill he didn't understand what the thrust of this is, although the testimony has helped. For example, prisoners are, or have been, making furniture in Seward and selling it, and other industry like laundry is already happening within prisons. He asked whether the bill is trying to expand that to go outside the prison to a farm or a metal fabrication facility and using prison labor in these places. COMMISSIONER WILLIAMS replied that the department is not selling any of the furniture that he talked about on a commercial, wholesale, or other basis. The furniture is either given away or raffled away for other things and the furniture pieces are highly prized items because they are that good and made from birch. He pointed out that the furniture items are not being sold to anybody because the restriction in current statute makes it very difficult, if not impossible, for him to enter into a contract. For example, he cannot enter into a contract with a store to sell the prison-made furniture instead of the store bringing up furniture from the Lower 48 to sell. He said he needs more balanced language that would allow him to enter those types of contracts. He could then sell furniture in a business opportunity because the contracts would allow him receipt authority to receive money, so he could pay a wage to the inmates who are doing the work, and out of the wage he would pay restitution. 4:43:35 PM JEFF JESSEE, Legislative Liaison, Alaska Mental Health Trust Authority, testified in support of HB 171. He said his agency is excited to see this legislation come forward. He allowed that some details will need to be worked out regarding what industries to get into, how to work with the community, and what industries are already in existence. He pointed out that three things are necessary to reduce recidivism and reduce the prison population: 1) a place for people to live, 2) employment that provides a legitimate income, and 3) support for recovery. The bill would be one of the three legs of the stool that would give inmates the opportunity to gain skills, gain self-worth, get experience, and have a leg up when they come back into the community. He urged the committee to support the bill. 4:45:19 PM L. DIANE CASTO, Behavioral Health Policy Advisor, Office of the Commissioner, Department of Health & Social Services (DHSS), testified in support of HB 171. She said her department is involved because the things that people need when they come out of prison are housing, employment, and treatment in health opportunities. She explained that her department is very actively involved in the issues. As people are moving out of prisons and coming back into the community, her department wants to ensure they have every opportunity to be successful as they move into re-entry. She recalled that during last year's consideration of Senate Bill 74, the Medicaid reform bill, and Senate Bill 71, it was very strongly stated many times that the opportunities the state has for getting people into treatment really help to reduce the number of people in prison. MS. CASTO noted that she spent a short time working at the Department of Corrections and that those individuals who had the opportunity to work, to learn job skills, and to develop confidence and self-worth were much more successful as they moved out into the community. The work that can be done through this bill will help build that confidence, will help build those job skills, and will help them develop strong and sustainable community involvement and not return to prison, which is the goal. Treatment is a critical piece of being able to hold a job, she pointed out, because even if a person has the skills but has an addiction that they cannot deal with, they often run into difficulty. She agreed with Mr. Jessee that the three legs of the stool - employment, housing, and treatment and recovery are critical to ensuring a smooth transition and strong healthy people in communities. 4:47:51 PM REPRESENTATIVE WOOL offered his support for the arguments about idle hands, self-worth, and learning job skills. Stamping license plates, making blue jeans, or doing some sort of prison industry day in and day out are good skills to a certain extent, he said, and may add to the other components. But, he continued, he would hope that if the commissioner is getting paid that minimum wage or some sort of wage that is not what could be called slave labor [would be paid] and would not be used to prop up an industry that otherwise wouldn't be sustainable. For example, if everyone had employees working at $.60 per hour, that employer could make a lot of things. Paying inmates somewhat normalized wages that they could access when they got released would give them more than just $100 and a bus ticket, it would be working towards something and not just helping the company. He said he hopes this can be incorporated [into the bill] somehow. MS. CASTO agreed that having the ability to save some money is important. She noted that there is a process within Alaska's correctional system where inmates can work and put money into savings and some into commissary costs. She also offered her agreement with Commissioner Williams' statements about restitution and child support. She said if inmates don't have an opportunity to pay down some of those things while incarcerated, they would be so far behind in financial ability when they get out of prison that it will oftentimes stifle their ability to move forward and become a productive citizen. The details must be worked out, she allowed, but overall and in the long run the bill would be a very positive thing for the inmates, their families, the communities, and the industries. 4:50:49 PM CHRISTINA LOVE, Community Resources Coordinator, Aiding Women in Abuse and Rape Emergencies (AWARE), testified in support of HB 171. She began by sharing that she is a person in recovery and that she was in and out of jail for almost a decade due to substance use. She later learned that her substance use was a coping mechanism for the physical and sexual abuse that she survived as a child. She said she considers herself a self- proclaimed professional in the world of trauma, substance use, and people re-entering the community. A big part of her education was her own experience in navigating through the system. She said the three things talked about by Mr. Jessee and Ms. Casto are what she calls the three pillars to successful re-entry, or recovery capital as it is called in the recovery world housing, employment, and recovery supports. MS. LOVE related her personal story, stating that the trades she had prior to incarceration were not trades she could go back to. Although she did learn things while in jail, they were not helpful in not going back to jail. Jail was traumatic for her, she said. Not being able to continue to use drugs as her coping mechanism was incredibly difficult for her. In coming out of jail there was a process of re-learning society and re-learning societal norms, she explained. As a felon applying for jobs, there were a lot of places that wouldn't hire her and there were a lot of places that she couldn't live. Today, much of the work she does is helping people navigate through that system and it is incredibly difficult with cognitive impairments. Eighty percent of incarcerated people have substance use disorders, she pointed out, and many of them have co-occurring disorders, such as mental health, cognitive impairments, traumatic brain injuries, and fetal alcohol syndrome. It is surprising how many people that she works with don't know how to accurately read, write, or understand paperwork, and they don't have a skill. A lot of people coming home from incarceration have learned their trade from their family, whether that is just living in the criminal world or selling and using drugs they have never had a job that was legitimate, they've never been trained or had a skill that could be profitable to provide a life with quality or sustained housing. Having HB 171 in place would open the doors for so many opportunities. MS. LOVE said her real dream would be to have jails that are trauma informed, to have opportunities for employment and continued education and really have rehabilitative services so that individuals who are entering into the criminal justice system could come out better or equipped to work. Putting in place HB 171 would reduce the time that is spent getting people into vocational rehabilitation, which is a process and has a waitlist just to begin the process to start a trade. The bill would help in so many different avenues as far as recovery capital and having a trade and reducing recidivism. 4:54:41 PM REPRESENTATIVE BIRCH asked what Ms. Love sees as the range of opportunities, training potentials, skill sets, and vocational education teaching that could be offered in a prison environment that would be constructive and add value so that inmates would come out with marketable capabilities. MS. LOVE replied that having a wage that reflects value in the inmates would be huge, as would recognition that these people are still part of the community. As far as what type of employment would be of benefit and successful, inmates would start off where ever they can. Anywhere that someone can start would be beneficial. Anything that would give someone the ability to work into any type of employment, but, she quipped, probably not folding laundry, which could be why she dislikes folding her own laundry now. There are so many different areas and HB 171 would open the door for more of those conversations. REPRESENTATIVE BIRCH commented that knowledge in technology and the Internet would gain leverage as a skillset that would be helpful for a long time. MS. LOVE concurred. 4:56:55 PM REPRESENTATIVE KNOPP related that he has put a few people to work in the prison ministry and has found that the ones who are successful and work well are those who had skills and a work ethic prior to incarceration. He said he has also put some people to work who had no skills going in, and although many of them were excellent workers that had a lot of potential, they couldn't seem to break the habit of what they've always known. He asked whether it was difficult for Ms. Love to be forced into a career change when she got out. MS. LOVE warned that she is going to be blunt, honest, and vulnerable in her response. She said she worked in a bar and as a stripper, industries she could not go back to, and she sold drugs. Those were businesses that made her a lot of money, she noted, so it was incredibly humbling when she walked out of jail and did not have enough money for the bus or to make a phone call. A lot of the people she works with go back to what they know because there is nothing else in place. Like a lot of people, every time she went to jail, she became a better criminal. She said it was incredibly difficult to navigate through that process and to literally start over from the very ground up and to learn new patterns of behavior. Treatment was a huge part of her recovery. For people who want to go to treatment and for people who don't want to go to treatment, it used to be said that the outcome was the same. But now statistics show that there is a higher percentage of people who are successful that don't want to do it but do it anyway. It is said in the recovery world that it's not for people who need it and it's not for people who want it, it is for people who do it. There is this process and this system, she continued, that is already in place where people can walk through literally the same steps that she has walked through to be a successful rehabilitated person and be successful. 5:00:19 PM KARA NELSON, Director, Haven House Juneau, testified in support of HB 171. She explained that Haven House Juneau is a faith- based peer-run recovery residence for women coming home after incarceration. She said she and Ms. Love work closely together in the re-entry recovery field as people of lived experience. She spent over 20 years in Alaska's criminal justice system and today she is almost six years clean. Her experience, she explained, allows her to walk and navigate the system both inside and outside with men and women. MS. NELSON related that this morning she was at the gate of the Lemon Creek Correctional Center to bring home a sister who had spent 13 consecutive years in prison. This woman, she related, has done so much work on her life through every kind of program and is a mentor and an example of restoration in her own life and her family's through her work in the prison system. This woman walked out with $118 and she worked the entire time she was in prison. Under HB 171 more partnerships would be opened to engage the community with people who are incarcerated and part of the community, she said. During this time of criminal justice reform and trying to find a solution amidst so many tragedies, there is a need to focus on inmates because they are Alaskans who will be going home and who want to work and be productive, and an avenue to do that is needed. MS. NELSON shared that when she brings someone into Haven House, the woman might not know that this is what she wants because she has never seen it before. But once the option is available, the picture opens, and it is incredible to watch what happens with that support. Regarding the question about the difference when coming out of prison and making a different career change, she said there is not one thing, but several, such as employment and education. What if those were put into place prior to release? People could be taken so much further if that portion had already been started prior to release, she pointed out. MS. NELSON expressed her support for HB 171. She said there are hundreds of stories of why this bill would bring hope to those who are incarcerated, formerly incarcerated, and their families. All the women in Haven House right now owe child support and restitution and have years and years of that built up. There is also the astronomical cost to inmates of staying in touch with their families, she noted. For example, the woman she picked up this morning said the cost of staying in daily touch with her family was over $300 a month. She underlined it displays a small snapshot into the effectiveness of implementing some workforce prior to release. 5:05:07 PM REPRESENTATIVE WOOL recalled it being mentioned that a decent wage would be a good thing. He further recalled the mention of $118 when someone walked out the door, as well as being able to pay off prior debt so there isn't insurmountable debt that cannot be paid off. He said it sounds like the proposed program would do a lot of these things. He asked whether Ms. Nelson is putting a lot of value on being able to pay off debt and being able to leave prison with more than $100. MS. NELSON answered that there is a lot of value on that, but said it also brings purpose and community to an inmate while inside and then while outside. For example, the woman she picked up this morning worked in all sorts of things and never made more than $1 an hour, which was a huge wage. She shared that she herself worked at Alaska Correctional Industries in 2008 for $.85, which was a huge wage. Just having hope and value [is important], she said, and if these women didn't have Haven House to come to then they would be back on the street and in recidivism. 5:07:16 PM CHAIR KITO held over HB 171. 5:07:36 PM ADJOURNMENT  There being no further business before the committee, the House Labor and Commerce Standing Committee meeting was adjourned at 5:07 p.m.