Legislature(2017 - 2018)HOUSE FINANCE 519
02/20/2018 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB273 | |
| HB299 | |
| Public Testimony | |
| HB301 | |
| Public Testimony | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 299 | TELECONFERENCED | |
| += | HB 273 | TELECONFERENCED | |
| + | HB 301 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 299
"An Act extending the termination date of the
Alcoholic Beverage Control Board; and providing for an
effective date."
2:28:48 PM
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, referenced the audit report pertaining
to the Alcoholic Beverage Control Board (ABC) dated
November 17, 2017 [Sunset Review Audit Control Number 08-
20099-17](copy on file). She read the report conclusions:
In all areas except licensing, the audit found the
board was operating in the public's interest. Meetings
were conducted effectively, investigations were
processed timely, and the board developed and adopted
regulations necessary to implement statutes. The audit
concluded the board should improve its procedures for
issuing renewals, recreational site licenses, and
beverage dispensary licenses that encourage tourism.
Testing found these licenses were not consistently
issued in accordance with statutes. Additionally,
operational improvements are needed in enforcing laws,
monitoring board-related local law enforcement
activity, and processing refunds to municipalities. In
accordance with AS 44.66.010(a)(1), the board is
scheduled to terminate on June 30, 2018. We recommend
the legislature extend the board's termination date to
June 30, 2022
Ms. Curtis cited page 8 of the audit and reported further
on the conclusions. She announced the boards "enforcement
efforts had declined, and operational improvements were
needed." She read the following:
The board, through AMCO investigators, has
historically conducted compliance checks where
investigators employ underage individuals who attempt
to purchase alcoholic beverages. Licensees who fail a
compliance check receive criminal summons or
citations. According to management, the federal grant
funding for this program was terminated at the end of
2012, and the board received supplemental funds to
keep the program going through June 2014. AMCO's
enforcement section continued to conduct compliance
checks funded by program receipts until April 2015.
Although there is no statutory or regulatory
requirement to conduct compliance checks, AMCO
management reported it is an integral part of the
enforcement of alcoholic beverage laws and is
evaluating alternative means for providing the
enforcement through shared services with other
agencies. The audit noted the board and AMCO
management have not established a written enforcement
plan to direct its limited enforcement resources.
(Recommendation 4) For example, the board has not
formally established how often licensed premises
should be inspected. Furthermore, the control office
does not monitor and track all complaints to ensure
complaints are assessed for follow up action and
investigated in a timely manner. (Recommendation 5)
Ms. Curtis turned to page 9 and read:
As discussed in the Background Information, for
communities
designated as a restricted area for controlling the
availability of alcoholic beverages, the board
enforces limits on alcoholic beverages purchased from
package stores. However, the audit found the board and
control office staff have not maintained the list of
restricted purchasers within the statewide database of
written orders in accordance with regulation,
potentially allowing persons convicted of illegally
selling alcoholic beverages to continue purchasing
alcohol via written order. (Recommendation 6)
Ms. Curtis indicated that the audit contained 8
recommendations for improvements that began on page 12.
2:30:47 PM
Vice-Chair Gara handed Co-Chair Foster the gavel.
Ms. Curtis continued to provide details about the audit
report. She addressed the first recommendation. "The
authority to renew licenses should be limited to the
board." She read the following from page 12:
Per AS 04.11.070, only the board may issue, renew,
transfer, relocate, suspend, or revoke a license under
AS 04. Alaska Statute 04.06.080 states that
notwithstanding AS 04.11.070, the board may delegate
authority to the director to temporarily grant or deny
the issuance, renewal, or transfer of licenses and
permits. In a past board meeting, the board voted to
delegate its authority to renew licenses to the
director under the incorrect understanding that such
delegation was legal. The AMCO director, in turn,
assigned the function to license examiners.
Ms. Curtis highlighted the second recommendation: "The
board should issue recreational site licenses in accordance
with statutory requirements." She reported the following
findings:
Ten of 29 recreational site licenses active during the
audit period were judgmentally selected for testing.
All 10 did not meet the statutory definition of a
recreational site?. This same finding was reported in
the prior 2014 sunset audit. Alaska Statute
04.11.210(c) defines recreational sites as locations
where baseball games, car races, hockey games, dog
sled racing events, or curling matches are regularly
held during a season. The 10 noncompliant licensees
noted above included travel tour companies, bowling
alleys, an art council, a pool hall, movie theater,
and a spa?.
Review of board meeting minutes revealed that board
members
understood these businesses did not meet the
definition of a recreational site license yet believed
it to be in the public interest to issue them.
Furthermore, board members anticipated the criteria
for recreational site licenses would be addressed in a
future rewrite of AS 04.06. The issuance of these
licenses expanded the number of establishments
licensed to sell alcohol over the number allowed by
statute.
Ms. Curtis summarized recommendation 3: "The board should
issue beverage dispensary licenses in accordance with
statutory requirements." She read:
In a sample of 169 of 126 beverage dispensary licenses
issued to encourage tourism, the audit found five
licenses were transferred and six were renewed despite
not meeting statutory requirements. Alaska Statute
04.11.400(d) states the board may approve the issuance
or transfer of ownership of a beverage dispensary
license without regard to statutory population limits
if it appears that the issuance or transfer will
encourage tourism. Statutes provide for the minimum
number of rental rooms that must be met by a business
to encourage the tourist trade. Alaska Statute
04.11.330(a)(4) states the renewal of a license shall
be denied if the board finds the issuance of an
existing license under AS 04.11.400(d) has not
encouraged the tourist trade. The board believed it
was appropriate to approve the licenses, as the
original licenses were issued before June 1985;10
however, there was no statutory provision to
"grandfather" the licenses. The issuance of the
licenses expanded the number of establishments
licensed to sell alcohol over the number allowed by
statute.
Ms. Curtis reviewed Recommendation 4: "The board, AMCO
director, and enforcement supervisor should work together
to formally establish an enforcement plan to direct AMCO's
limited enforcement resources." She noted that the same
recommendation along with recommendation 5 were included in
the Marijuana Control Board audit. She moved to
Recommendation 5: "The board and AMCO director should
implement a process to monitor and track complaints to
ensure they are assessed for follow up action and
investigated in a timely manner." Ms. Curtis underlined
Recommendation 6: "The board and AMCO director should
develop written procedures for updating the statewide
database with restricted purchasers." She cited the
Background Information section of the audit and explained
that the section described the Statewide Database of
Written Orders. She explained that the database was used to
control and monitor the sale of alcohol to restricted areas
of the state. Furthermore, regulation 3 AAC 304.645
requires the board to maintain a list of persons convicted
of a violation of AS 04.11.0103 [illegal sale or
manufacture of alcohol] and provide the listing of these
restricted purchasers to package store licensees. Package
store licensees were prohibited from selling alcoholic
beverages to a person who is identified as a restricted
purchaser in the statewide database. She noted that
restricted purchasers were not entered in the statewide
database, and reports of convictions were not routinely
forwarded to the office from the Court System.
Ms. Curtis pointed to Recommendation 7: "The board and AMCO
director should improve procedures to ensure municipalities
report violations of alcoholic beverage laws." She reported
that municipalities must report the information as a
condition to receive half of the biannual license fees.
The audit discovered that only four of 40 locations
submitted reports in FY 17 regarding enforcement efforts by
municipalities, yet the fees were routinely funded.
2:36:28 PM
She summarized Recommendation 8: "The AMCO director should
develop and implement procedures to ensure refunds to
municipalities are appropriately reviewed." She indicated
that the audit found one employee in the control office was
responsible for calculating the amounts to be refunded to
municipalities, and the calculation was not reviewed prior
to processing the refund. By not having procedures that
require a separate review, the risk that refunds were
inaccurate was increased.
Ms. Curtis highlighted the Agency Response from the Office
of the Governor on page 27, of the audit report. She
relayed that the administration agreed that the board
sunset should be extended. She pointed out that the
department's response was found on page 29. She indicated
that the agency concurred with all the audit's finding
except Recommendation 1. The commissioner [Mike Navarre}
believed that an alternative interpretation of statute
existed but agreed to move forward with corrective action.
She mentioned that the board's response was found on page
33. The board concurred with all recommendations except
Recommendation 3 that related to issuing beverage
dispensary licenses to encourage tourism. The board chair
felt that grandfathering the licenses issued before June
1985 was appropriate. In response to the board's
conclusions regarding recommendation 3, the division of
audit wrote a letter found on page 35, that reaffirmed the
audit's conclusion and recommendation. She noted that the
board chair provided no legal basis for his disagreement.
2:38:26 PM
Representative Wilson asked if the last audit was performed
in 2014. Ms. Curtis answered in the affirmative.
Representative Wilson thought the audit had several
recommendations that were very serious. She asked when a
board "could finally get shut down" due to repeatedly
ignoring findings and recommendations. Ms. Curtis qualified
her earlier statement. She revealed that the audit
originally granted the board a conditional 6-year extension
that was reduced to 3 years if the marijuana initiative
passed. She interpreted Representative Wilson's question to
mean how bad findings would have to be to reduce the
extension to one year. She specified that a bad audit would
never receive less than a two-year extension due to the
time it took to perform an audit. She referred to the list
of "License Count by Type" on page 7. She noted that there
were only 27 recreational site licenses out of a total of
1,800 licenses. She indicated that "materiality" was
factored into the audit conclusions. The issues regarding
enforcement plans and complaint tracking was a symptom of
the two boards lack of resources, sharing staff, and
defining their organizational structure. She wanted to give
at least 4 years to allow time to establish a working
structure between the two boards and allow the Marijuana
Control Board to become functional. She was very concerned
about the decrease in enforcement activities and how the
issue factored into the public's interest. Representative
Wilson responded that if there was not enough money for
enforcement then the fees needed to be adjusted. She
related that the lack of enforcement was her largest
concern. She wondered whether money was the issue.
2:42:59 PM
Representative Kawasaki contended that the audit was not
"clean" and wanted the bill held over. He repeated some of
the findings. He commented that in Recommendation 3 the
auditor sampled 16 of 126 beverage dispensary licenses and
discovered that 11 did not meet statutory requirements. In
Recommendation 1, 36 out of 40 licenses were renewed by
AMCO license examiners without board approval, contrary to
statute. All 10 of 10 recreational sites tested in
Recommendation 2 did not meet statutory definition. He
believed the audit was "bad." He wondered whether the
issues were related to AMCO and the consolidation of the
functions between both boards. He discerned that merging
two boards under one administrative organization was
problematic. He questioned how AMCO was functioning. Ms.
Curtis responded that she did not routinely hear that AMCO
was "the cause of findings."
Vice-Chair Gara apologized for not allowing the sponsor to
present his bill before Ms. Curtis testified.
2:45:32 PM
LAURA STIDOLPH, STAFF, REPRESENTATIVE ADAM WOOL, thought
that the members had already heard a significant amount
about how the ABC Board functioned. She reiterated some of
the findings. She related that the sponsor felt the ABC
Board served an important function in public safety and
appreciated the support of the committee.
Vice-Chair Gara mentioned the testimony that the marijuana
board set its license fees for marijuana through regulation
and the ABC board fees were set through statute. He
mentioned a change in the ABC board's fees and asked
whether the fees were changing.
REPRESENTATIVE ADAM WOOL, SPONSOR, remarked that renewal
fees remained the same and acknowledged that other fees
were increasing but did not have access to the information.
Representative Pruitt opined that there were 2 policy calls
beyond an extension. He asked why the director was not a
member of the board and what regulation the board was
annulling. Representative Wool responded to his question as
to why the director was no longer able to cast a tie-
breaking vote nor a voting member. The related statute had
been repealed, but the regulation remained. He wanted
regulations to remain consistent with statute. He indicated
that the board hired the director and he thought the
director's tie-breaking vote was a conflict of interest. He
deferred to Ms. Stidolph to answer his second question.
Ms. Stidolph cited the Administrative Code, AAC 304.025
"Conduct of Board Meetings" Section C and read the
following:
For the purposes of AS.04.06060 the whole membership
is all persons appointed in serving as members of the
board if necessary the director shall cast a
tiebreaking vote with consent of the board executed at
the beginning of the meeting.
Ms. Stidolph identified the regulation as the one that was
annulled.
2:50:44 PM
Representative Guttenberg asked for Representative Wool's
perspective on the audit based on his own personal
experience from the industries' perspective. Representative
Wool remarked that he agreed with the staff's handling of
the renewal process due to the high volume of renewals. He
had been satisfied with the answer form the board chairman
and director regarding the issue. Overall, even though
there were administrative issues with the board and AMCO,
he believed the entities were working through the initial
growth stage of the new organizational structure. He
thought it was a heavy lift to combine the two boards and
previously shared some of Representative Kawasaki's
concerns but believed that things were leveling out.
^PUBLIC TESTIMONY
2:53:04 PM
Co-Chair Foster OPENED Public Testimony.
Co-Chair Foster CLOSED Public Testimony.
2:53:34 PM
AT EASE
2:53:58 PM
RECONVENED
Representative Wool had an additional response to
Representative Guttenberg's question. He referred to the
questions regarding enforcement and whether the board had
adequate resources to carry out the function properly. He
surmised that considering its limited resources the board
should prioritize enforcement of more serious violations.
Representative Wilson declared that the board had the
authority to raise fees. She was concerned that ABC was not
enforcing serious violations like underage drinking. She
asked whether he discussed the matter with the board. She
wondered what it would take to change the fees to maintain
sufficient staff to carry out adequate enforcement.
Representative Wool replied that he did not engage in
discussions over the issue and was uncertain how much fees
needed to increase. He related his personal experience
paying licensing fees and would not advocate for the amount
to increase. He knew that some of the fees were increasing
and was uncertain whether the increases were sufficient to
provide adequate enforcement. Representative Wilson knew
that licensees would not want fees increased. She imagined
that a budget would be proposed by the board that enabled
them to carry out its statutory duties and generate the
fees from the bottom line. She wanted to know how much
would be needed to comply and fix the concerns. She
requested budgetary information and reiterated her concern
over lack of enforcement. Representative Wool understood
her request.
2:58:29 PM
Representative Guttenberg ascertained that currently the
board's resources were spread across both boards causing
the loss of priorities by the ABC. He guessed that the
problem was created by combing the two boards since the ABC
was self-sustaining when it operated as a single entity. As
a license holder, he wondered whether Representative Wool
thought things were in a state of flux until the marijuana
board's costs were determined and if ABC was "suffering"
under the combined organization and newness of the
marijuana board. Representative Wool had not heard any
concerns from the alcohol industry consistent with
Representative Guttenberg's supposition. He referred to
"sting operations" to determine whether underage youth was
being served alcohol. He understood that a large federal
grant previously supported sting operations and had been
eliminated, which affected the frequency of current sting
operations. He did not feel that his industry lacked proper
enforcement and oversight and believed the industry "had
done a good job" carrying out enforcement. He was uncertain
whether the limited resources were due to the inception of
the marijuana board. He related that most ABC revenues
collected were from license renewals and that marijuana
licenses were new and there were more revenue streams for
its board. He suggested that an examination of whether less
revenue from some of the ABC fees could be directed from
municipalities and more redirected to the state. He
believed that the issue of limited resources should not
fall directly on the alcohol industry to raise fees.
3:03:22 PM
Co-Chair Seaton referred to the analysis on page 2 of the
fiscal note that stated the license fee were mostly set in
statute. He wondered whether the issue was related to the
statutory fee structure and if he thought it was necessary
for a fee structure change in statute. Representative Wool
deferred to the AMCO director for the answer.
Ms. McConnell reported that the fiscal note was almost
identical to that of HB 273. She reiterated that 8
positions would be eliminated if one board was not
reauthorized and noted that the positions were detailed in
the fiscal note analysis as well as the portion of travel,
services and commodities that would not be expended. She
reported that the ABC was fully supported through license
and application fees and if the board was not extended the
revenue loss would total of roughly $1.6 million. Co-Chair
Seaton inquired whether "it was a characteristic of the
board that it did not set the fees to actually fund the
enforcement by the department." Ms. McConnell clarified
that the license fees for alcohol were set mostly by
statute and the application fees were set by regulation.
She was uncertain of when the last statutory fee increase
occurred. She explained that ABC recently increased its
application fees for FY 2019. She listed the fee increases
from $200 to $300 totaling $570 thousand for 1,900
applications. She informed the committee that SB 76
(Alcoholic Beverage Control; Alcohol Reg) was a "re-write
of Title 4" statutes that included a reexamining of alcohol
license fees, but she was uncertain whether the fees
increased. Prior to the inclusion of the marijuana board,
ABC had 5 enforcement officers that had "clear" priorities.
Currently, AMCO had 8 enforcement officers. She shared
Representative Wilson's concerns about enforcement and
agreed with the audit's findings on the need to establish
priorities on how resources would be distributed. She
thought 8 enforcement officers based on the number of
licenses in the state might be inadequate but deferred to
the legislature to make the determination. She commented
that marijuana licenses were generally on the road system
due to challenges related to transporting the substance
that was still illegal on the federal level. The alcohol
licenses were much more distributed around the state
including many rural areas and travel costs related to
enforcement was higher. She indicated that the matters she
just mentioned were the types of issues needed to be worked
out in terms of setting priorities as directed by the
audit.
3:10:42 PM
Co-Chair Seaton asked whether the extra $570,000 in
increased revenue was sufficient enough to fulfill the
recommendations listed in the audit. Ms. McConnell
apologized for the mix-up and clarified that the $570,000
was the total revenue over a two-year period. Currently,
AMCO collected $280,000 in renewal fees and the increase
amounted to approximately $310,000. The board had two
programs and 8 enforcement officers and believed that there
was only a certain amount the board could do to mitigate
the situation, since some of its fees were set through
statute. Co-Chair Seaton inquired whether the $310,000 was
sufficient to address the audit recommendations. Ms.
McConnell determined that the additional funds would help.
She could not speak to the decisions that would be made by
the board.
3:13:13 PM
Representative Kawasaki compared the two board's fiscal
notes and highlighted that both boards showed each had 8
full-time positions. He referenced slide 12 from the
previous bill and asked what the yellow lines through
certain position titles denoted. Ms. McConnell answered
that the yellow "X" represented those positions that would
be eliminated if one board was not extended.
Co-Chair Foster relayed that amendments were due on
Thursday, February 22, 2018.
HB 299 was HEARD and HELD in committee for further
consideration.
Representative Wilson wondered whether the policy to
combine the two boards was appropriate. She believed the
question was over sufficient resources and understood it
was difficult to determine given the newness of the
marijuana board. She wanted to ensure that one board was
not being disadvantaged due to the other board's inclusion.
She requested further information regarding whether
combining the board's administration and sharing
enforcement was the reason for the lack of enforcement. She
did not want to "stifle" either industry.
Co-Chair Foster agreed with getting things right the first
time and wanted the committee to take deliberate action.
3:16:29 PM
AT EASE
3:17:14 PM
RECONVENED