Legislature(2007 - 2008)HOUSE FINANCE 519

04/28/2007 12:00 PM FINANCE

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11:07:03 AM Start
11:07:41 AM HB187
02:03:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Rescheduled to 11:00 am>
Heard & Held
Sectional Analysis by Pat Galvin,
Commissioner, Dept. of Revenue
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 28, 2007                                                                                           
                       April 29, 2007                                                                                           
                         11:07 A.M.                                                                                             
CALL TO ORDER                                                                                                                 
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 11:07:03 AM.                                                                                                         
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Harry Crawford                                                                                                   
Representative Richard Foster                                                                                                   
Representative Les Gara                                                                                                         
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Mary Nelson                                                                                                      
Representative Bill Thomas Jr.                                                                                                  
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Representative   Kyle    Johansen;   David    Scott,   Staff,                                                                   
Representative Kyle  Johansen; Diane Casto,  Section Manager,                                                                   
Prevention  and  Early  Intervention   Section,  Division  of                                                                   
Behavior Health,  Department of  Health and Social  Services;                                                                   
Richard Godfre, Mendenhall Valley  Tesoro, LLC., Juneau; Joan                                                                   
Cahill, Juneau                                                                                                                  
PRESENT VIA TELECONFERENCE                                                                                                    
Cindy     Drinkwater,     Assistant     Attorney     General,                                                                   
Commercial/Fair    Business     Section,    Civil    Division                                                                   
(Anchorage),  Department  of   Law,  Anchorage;  Steve  Rush,                                                                   
Holiday   Stationstores,   Inc.,  Anchorage;   John   Trebow,                                                                   
Attorney,   Holiday  Stationstores,   Inc.,  Anchorage;   Kip                                                                   
Knudson,  External Affairs  Manager,  Tesoro Alaska  Company,                                                                   
Anchorage; Jason Moulton, Safeway  Carrs, Anchorage; Michelle                                                                   
Toohey, Director, Public Relations  & Advocacy, American Lung                                                                   
Association of  Alaska, Anchorage; Suzanne  Meunier, American                                                                   
Heart  Association-Alaska, Anchorage;  Stephen Warren,  Youth                                                                   
Tobacco Prevention Manager, Sitka  Community Hospital, Sitka;                                                                   
Roger  Hames,  President,  Sea-Market   Grocery  Association,                                                                   
HB 187    An  Act relating  to  holders  of business  license                                                                   
          endorsements for sales of tobacco products.                                                                           
          HB 187 was HEARD & HELD in Committee for further                                                                      
11:07:41 AM                                                                                                                   
HOUSE BILL NO. 187                                                                                                            
     An Act relating to holders of business license                                                                             
     endorsements for sales of tobacco products.                                                                                
DAVID SCOTT, STAFF, REPRESENTATIVE  KYLE JOHANSEN, noted that                                                                   
HB  187  addresses the  lack  of  Due  Process under  the  5                                                                    
Amendment  of   the  Alaska   and  U.S.  Constitutions   that                                                                   
retailers   face   during   business    license   enforcement                                                                   
proceedings under  AS 43.70.075.  He pointed  out the handout                                                                   
from the State of Alaska Superior  Court decision in the case                                                                   
of Holiday  Alaska Inc. versus  the State of  Alaska, decided                                                                   
on October  26, 2006.   The Court  held that AS  43.70.075(d)                                                                   
was  unconstitutional  because   it  violated  Holiday's  due                                                                   
process rights.                                                                                                                 
Mr. Scott advised  that a facet of AS 74.70,075  was broken &                                                                   
that HB  187 provides  a fix  for it.   The bill  recommended                                                                   
that business  license holders with a tobacco  endorsement be                                                                   
afforded   a  "meaningful  hearing"   where  mitigating   and                                                                   
aggravating  facts are  considered by  an Administrative  Law                                                                   
Judge  (ALJ).   In current  license enforcement  proceedings,                                                                   
the  State  is  not  obligated   to  prove  negligence  by  a                                                                   
retailer,  as the  conviction of  the employee  who made  the                                                                   
sale  is  the  only  admissible  evidence.    A  retailer  is                                                                   
prohibited  from introducing  the  evidence  of its  policies                                                                   
prohibiting  illegal   sales,  its  good  faith   efforts  at                                                                   
education  and training  of  its employees,  as  well as  the                                                                   
sanction  imposed  on  employees  who  do not  abide  by  the                                                                   
retailer's requirements.                                                                                                        
   ·    Section 1 would establish that a hearing must be                                                                        
        held before a business license endorsement can be                                                                       
   ·    Section 2 makes the hearing meaningful by expanding                                                                     
        the evidence that the ALJ should consider.                                                                              
   ·    Section 3 consists of two parts.  The first part,                                                                       
        Subsection (T) creates policy for  license holders to                                                                   
        comply with,  if  they  want  an  ALJ to  consider  a                                                                   
        reduction of sentence.   The  second part  allows the                                                                   
        license holder  and  the Department  to  agree to  an                                                                   
        informal  disposition  of  suspension  &  allows  the                                                                   
        Department to reduce the suspension.   The Department                                                                   
        may reduce  the  period  of  suspension only  if  the                                                                   
        license  holder  has  previously   never  received  a                                                                   
        suspension.  In essence, the reduction  is a one-time                                                                   
Mr. Scott continued, it is not  the intent of HB 187 to allow                                                                 
businesses  that  routinely  and knowingly  sell  tobacco  to                                                                   
minors, a decrease  in fines and penalties.   The legislation                                                                   
does  allow for  an  ALJ to  reduce the  suspension  if at  a                                                                   
hearing, the license holder can  prove they had fulfilled the                                                                   
requirements  of Section 3,  Subsection (T).   He added  that                                                                   
the ALJ  is not required to  reduce the suspension  but would                                                                   
have   the  discretion   to  impose   full  civil   penalties                                                                   
delineated in Section 1.                                                                                                        
11:12:27 AM                                                                                                                   
Vice Chair Stoltze asked when  the license could be suspended                                                                   
under the proposed bill.  Mr.  Scott replied, not until there                                                                   
had been  a hearing,  requesting that  the Department  of Law                                                                   
address the penalty issues.                                                                                                     
11:13:57 AM                                                                                                                   
Representative  Gara indicated concern  with the  Due Process                                                                   
portion  of  the  bill  as it  makes  it  more  difficult  to                                                                   
penalize tobacco  companies who sell  to minors.   He advised                                                                   
it be addressed through regulation,  noting the court opinion                                                                   
and not  changing the  penalties.   Mr. Scott explained  that                                                                   
the ALJ  does not have to  reduce penalties; the  bill allows                                                                   
discretion in that decision.                                                                                                    
11:15:53 AM                                                                                                                   
CINDY DRINKWATER,  (TESTIFIED VIA TELECONFERENCE),  ASSISTANT                                                                   
ATTORNEY  GENERAL,  COMMERCIAL/FAIR BUSINESS  SECTION,  CIVIL                                                                   
DIVISION   (ANCHORAGE),   DEPARTMENT   OF   LAW,   ANCHORAGE,                                                                   
testified on behalf of the Department  of Commerce, Community                                                                   
&   Economic  Development   in   administrative   proceedings                                                                   
involving tobacco  endorsements & the Department  of Health &                                                                   
Social  Services  investigators,   who  conduct  the  Tobacco                                                                   
Compliance Program.                                                                                                             
Ms.  Drinkwater  addressed  the penalties.    She  referenced                                                                   
Subparagraph   (M-4),  Page  3,   Line  13,  language   which                                                                   
establishes   procedures  for  the   hearing  process.     As                                                                   
currently drafted,  there are three narrow issues  that could                                                                   
be  considered.   In  the Superior  Court's  decision in  the                                                                   
Holiday case,  there was no option  for the party  accused to                                                                   
confront the issues of the case.   That language does not get                                                                   
to the "heart"  of the Due Process question  & is problematic                                                                   
in  a number  of ways.   The  language runs  contrary to  the                                                                   
purpose   of  the  statute,   requiring   an  abiding   or  a                                                                   
possibility  of  employers for  the  unlawful  acts of  their                                                                   
employees.  Ms. Drinkwater encouraged  the Committee to amend                                                                   
that  provision, eliminating  the requirement.   The  initial                                                                   
language  of that  section makes  the rest  of the  paragraph                                                                   
ineffective.   The purpose  of the  language was intended  to                                                                   
give  incentive   to  endorsement  holders  to   determine  a                                                                   
training and compliance  program for their employees.   It is                                                                   
important  for  the  ALJ to  consider  the  training  program                                                                   
offered  by  the  employer,  but it  does  not  address  that                                                                   
11:20:08 AM                                                                                                                 
Ms.  Drinkwater   referenced  Subparagraph  (T),   where  the                                                                   
compliance  program  is established.    She  thought that  as                                                                   
currently drafter, it would be  easy for any employer to come                                                                   
up  with  a  paper  trail  of  compliance  with  requirements                                                                   
without going the extra step of  being pro active in terms of                                                                   
how they address issues with their  employees.  She urged the                                                                   
Committee to  add additional  requirements that required  the                                                                   
employer to have a training program  in place relating to how                                                                   
to implement and check identifications (ID).                                                                                    
Ms.  Drinkwater   recommended  requirements   that  employers                                                                   
monitor  their employees.   Also,  the  employer should  make                                                                   
sure  that  there has  been  a  determination made  that  the                                                                   
employee has the ability to perform the job they are given.                                                                     
Ms. Drinkwater  continued, Subparagraph  5, Page 3,  Line 18,                                                                   
allows the ALJ  to consider other evidence that  would reduce                                                                   
and  increase the  suspension  period or  the civil  penalty.                                                                   
The  ALJ  can  reduce  the  suspension   time,  there  is  no                                                                   
provision that  increases time.   She urged the  Committee to                                                                   
adopt  language that  allows  the State  the  ability to  add                                                                   
evidence and that the penalty  might not be sufficient in any                                                                   
given case.                                                                                                                     
11:22:40 AM                                                                                                                   
Ms. Drinkwater referenced Subparagraph  (W), Page 4, Line 15,                                                                   
the ALJ could reduce the suspension  period to a floor of 10-                                                                   
days.   The  Department suggests  that a  reduction would  be                                                                   
appropriate in  certain first-time  circumstances and  that a                                                                   
reduction of 10-days  would be acceptable but  clarified that                                                                   
for  subsequent  offenses,  there   should  be  no  reduction                                                                   
Ms. Drinkwater recommended amending  language on Page 1, Line                                                                   
9,  "after   the  opportunity   for  a  hearing"   for  those                                                                   
situations in which retailers  do not request a hearing, then                                                                   
the   Department  could   implement   a  suspension   period.                                                                   
Additionally, there is an allowance  for disposition short of                                                                   
a  hearing &  recommends correcting  that  language before  a                                                                   
suspension or penalty is imposed.                                                                                               
Page  4,  Line  7, Paragraph  (V),  referenced  an  "informal                                                                   
disposition", &  that the Department recommends  the language                                                                   
be  changed  to  a  Memorandum   of  Agreement.    Also,  the                                                                   
Administration  requests that a  reduction in the  suspension                                                                   
periods lapse  or reflect  the limitation reductions  through                                                                   
the  settlement process.   Paragraph  (X), Page  4, Line  17,                                                                   
addresses  an important  concept relating  to Due Process  in                                                                   
contesting  the central  issues of  the case.   Through  (X),                                                                   
there is a mechanism by which  an employer could raise issues                                                                   
related to the sale, conducted by the employee.                                                                                 
11:27:44 AM                                                                                                                   
Representative Gara inquired which  points of the opinion the                                                                   
legislation  addresses.   Ms. Drinkwater  explained that  the                                                                   
decision discussed what the Department  could have done as an                                                                   
alternative;  the Department  made the  decision to  say only                                                                   
the employee, however, they could  have sighted the employer,                                                                   
which  is  an  option  available   through  AS  11.15.130,  a                                                                   
criminal provision providing for  the legal accountability of                                                                   
organizations.  There was nothing  in that opinion that would                                                                   
requires a direct citation of  the employer.  In terms of Due                                                                   
Process,  under   HB  187,  the   employer  would   have  the                                                                   
opportunity  to   introduce  evidence  that  there   was  not                                                                   
negligence of a sale by the employee.                                                                                           
Representative Gara  asked if there was anything  else in the                                                                   
opinion indicating a short coming  in the law in terms of Due                                                                   
Process, needing  to be fixed.   Ms. Drinkwater  responded on                                                                   
reducing the suspension  period, clarifying it  does not make                                                                   
sense to have a fuller hearing  process.  The Department does                                                                   
not  oppose  the  opportunity  for  the  employer  to  see  a                                                                   
reduction   in   the   suspension    period   under   certain                                                                   
circumstances.   She  added,  a mandatory  suspension  period                                                                   
should be mandatory and is justified.                                                                                           
Representative  Gara  asked  if  there was  anything  in  the                                                                   
opinion  requiring  that  law  be changed.    Ms.  Drinkwater                                                                   
responded, it  is an option to  not change the  law, however,                                                                   
there  are  reasons  to  address   Due  Process  through  the                                                                   
administrative process.                                                                                                         
11:32:04 AM                                                                                                                   
MICHELLE  TOOHEY, (TESTIFIED  VIA TELECONFERENCE),  DIRECTOR,                                                                   
PUBLIC  RELATIONS  AND ADVOCACY,  AMERICAN  LUNG  ASSOCIATION                                                                   
(ALA) OF  ALASKA, ANCHORAGE,  acknowledged  the need  to make                                                                   
statutory changes to provide Due  Process.  The American Lung                                                                   
Association has been working with  the Administration to that                                                                   
end.   However,  it  is important  that  the  changes do  not                                                                   
compromise the  enforcement of law prohibiting  tobacco sales                                                                   
to  kids.   The  main concern  with  the current  draft  goes                                                                   
beyond  the  Due Process  and  significantly  undermines  the                                                                   
effective enforcement of State  law regarding illegal selling                                                                   
of tobacco to children.                                                                                                         
Ms.  Toohey highlighted  specific  areas  of  concern in  the                                                                   
House  Judiciary   Committee  version  of  the   bill.    She                                                                   
highlighted   the  requirement   for  the   State  to   prove                                                                   
negligence  on  the  part  of   the  employer  to  receive  a                                                                   
reduction in suspension & the  ability of repeat offenders to                                                                   
receive reduced suspension.                                                                                                     
Ms. Toohey  stressed that HB  187 goes far beyond  addressing                                                                   
Due  Process,  while  weakening  the  enforcement  program  &                                                                   
reduces  a retailer's  incentive  to prevent  sales to  minor                                                                   
tobacco consumers.  She encouraged  that the Committee accept                                                                   
the changes recommended by the  Department of Health & Social                                                                   
11:37:16 AM                                                                                                                   
Co-Chair  Meyer  understood that  American  Lung  Association                                                                   
does  not support  the  language of  CS HB  187  (JUD).   Ms.                                                                   
Toohey reiterated  that ALA prefers the  recommendations made                                                                   
by  the  Department  of  Health  &  Social  Services  and  as                                                                   
currently written, they oppose the House Judiciary version.                                                                     
11:38:24 AM                                                                                                                   
Representative  Gara pointed out  statistics indicating  that                                                                   
previously,  30% of  sales go  to minors;  however, with  the                                                                   
mandatory  suspension  laws,  that number  has  decreased  to                                                                   
around 13%.   Ms. Toohey  explained that the  statistics were                                                                   
based  on a  compliance check,  a federal  law requiring  the                                                                   
State to  offer the check.   The statistics are based  on the                                                                   
compliance rates  of kids  that attempted to  buy and  36% of                                                                   
them had a successful purchase.                                                                                                 
11:39:31 AM                                                                                                                   
STEVE   RUSH,   (TESTIFIED   VIA   TELECONFERENCE),   HOLIDAY                                                                   
STATIONSTORES,  INC.,  ANCHORAGE,  voiced  support  from  the                                                                   
Anchorage business  community for hearing and  passage of the                                                                   
proposed  bill.    The  bill  addresses  issues  of  business                                                                   
license enforcement  proceedings that the retailer  faces for                                                                   
the  sale  of  tobacco  products to  underage  buyers.    The                                                                   
statute  as  currently  drafted  is  unconstitutional  as  it                                                                   
deprives  the   fundamental  right   to  Due  Process.     He                                                                   
referenced comments  made by Ms.  Drinkwater.  At  this time,                                                                   
the  State  is  not  obligated  to  show  negligence  by  the                                                                   
retailer as the  conviction of the sales associate  that made                                                                   
the sale.   The statute specifically prohibits  consideration                                                                   
of evidence  of  the retailer  concerning policy  prohibiting                                                                   
illegal sales and good faith efforts of the employers.                                                                          
Mr. Rush  mentioned the  sanctions imposed  on employees  not                                                                   
abiding  by the requirements.   The  consequences facing  the                                                                   
retailer are onerous.  The retailer  will automatically loose                                                                   
their business license  for 20-days.  The loss  is severe and                                                                   
will  affect sales  in other  categories including  gasoline.                                                                   
He urged passage of HB 187.                                                                                                     
11:43:18 AM                                                                                                                   
Representative Hawker  noted that the bill had  moved through                                                                   
the House  Judiciary Committee  and asked if these  arguments                                                                   
had been  significantly addressed.   Mr. Rush  requested that                                                                   
his attorney expound on those questions.                                                                                        
Representative  Gara  worried  that  the bill  had  not  been                                                                   
introduced  until  testimony  had  been  taken  in  the  last                                                                   
committee of referral.  He noted  that if cigarettes are sold                                                                   
to a  minor, the operation  does not  loose their  ability to                                                                   
sell other products.   Mr. Rush acknowledged  that they would                                                                   
not be prohibited from selling  other items; however, being a                                                                   
convenience store operation, people want one stop shopping.                                                                     
Representative Gara advised that  the legislation attempts to                                                                   
change State policy;  he asked why.  Mr. Rush  stated current                                                                   
law will  not be changed; the  sanctions are too severe.   He                                                                   
pointed out  many states have  better compliance  than Alaska                                                                   
without mandatory periods of suspension.                                                                                        
Representative  Crawford  noted that  the  Department of  Law                                                                   
recommended that  the licensee must be  directly responsible;                                                                   
if that language is left in, the  other penalties in the bill                                                                   
would be  virtually mute.   The  licensee could  use it  as a                                                                   
defense.    He   did  not  think  that  language   should  be                                                                   
negotiable and  that the business  should be responsible  for                                                                   
their employees.   Mr.  Rush countered  that business  is not                                                                   
attempting  to  avoid  responsibility  for  their  employees;                                                                   
however, the  results can impact  each business greatly.   It                                                                   
is  inconsistent  with  the  notion  of  Due  Process  for  a                                                                   
business to  suffer an automatic  penalty with no  ability to                                                                   
offer  evidence of  good  faith efforts.    He worried  about                                                                   
loosing licensing for such a significant period of time.                                                                        
11:51:18 AM                                                                                                                   
Representative  Gara stressed  it is not  a violation  of the                                                                   
Due  Process   rights  to  be  held  responsible   when  your                                                                   
employees  sell  cigarettes to  a  minor.   The  employer  is                                                                   
liable for their  employee's negligence and that  this is not                                                                   
a Due  Process issue.  Mr.  Rush differed, pointing  out that                                                                   
the  businesses   are  liable  for  loosing   their  business                                                                   
license.   The State Supreme  Court has recognized  that this                                                                   
type of  property interest  is one that  can not  be deprived                                                                   
without  a hearing,  in  order to  provide  evidence of  good                                                                   
faith and lack of negligence.                                                                                                   
Representative  Nelson  agreed  there should  be  a  hearing,                                                                   
however, if  the employee did  sell the tobacco product  to a                                                                   
minor,  how   would  they  prove   differently.     Mr.  Rush                                                                   
responded, in the  current system, the business  would not be                                                                   
charged  as the  license  holder until  the  party was  found                                                                   
guilty; the  timing of  the enforcement  action is  not being                                                                   
contested.  The process moves quickly.                                                                                          
Representative  Nelson noted that  there is a  distributor in                                                                   
Bethel, who  is lamenting the  difficultly in the  training &                                                                   
retaining  of  employees and  the  loss  of licensure.    She                                                                   
emphasized it  is a  simple law and  that the cashier  should                                                                   
look at the ID of each customer.                                                                                                
11:56:14 AM                                                                                                                   
JOHN  TREBOW, (TESTIFIED  VIA  TELECONFERENCE), ATTORNEY  FOR                                                                   
HOLIDAY STATIONSTORES,  INC., ANCHORAGE, commented  about the                                                                   
decision made  by Judge Morris  regarding the  Holiday versus                                                                   
State of  Alaska decision.   He questioned  why the  issue of                                                                   
the  Constitution had  been involved  during the  discussion;                                                                   
the determination made by Judge  Morris was the determination                                                                   
that the tobacco endorsement is  a piece of property entitled                                                                   
to  Due Process.   Holiday  has  a property  interest in  its                                                                   
ability to sell products and that must be protected.                                                                            
Mr.  Trebow  pointed  out  that   Alaska  has  the  strictest                                                                   
prosecuting  laws  for selling  tobacco  in  the country  and                                                                   
addressed the  consequences of those actions.   He identified                                                                   
criminal offense to negligently  selling tobacco as the issue                                                                   
of concern.  The conviction of  the employees can not be used                                                                   
as proof of  suspension of the endorsement  holder's license.                                                                   
Fundamental fairness  requires that the endorsement  holder's                                                                   
conduct  be reviewed  and evaluated  before  action is  taken                                                                   
that would  affect constitutional  rights.   He advised  that                                                                   
the  issue is  the employees  conduct  & the  conduct of  the                                                                   
endorsement holder.                                                                                                             
12:00:07 PM                                                                                                                   
Representative  Thomas inquired if  Mr. Trebow supported  the                                                                   
amendments  recommended  by  Ms.   Clearwater.    Mr.  Trebow                                                                   
focused on the  amendment that specifically addresses  if the                                                                   
person  holding  the  business   license,  which  negligently                                                                   
violates the statute.  The language  meets concerns expressed                                                                   
by Judge Morris.                                                                                                                
12:00:53 PM                                                                                                                   
AT EASE:       12:01:41 PM                                                                                                    
RECONVENE:     12:02:11 PM                                                                                                    
RICHARD  GODFRE,  MENDENHALL  VALLEY  TESORO,  LLC.,  JUNAEU,                                                                   
related  his   own  experience  with  the  tobacco   laws  as                                                                   
currently written.   He noted that he owns  three convenience                                                                   
stores.  He was the first person  to contest the tobacco law.                                                                   
He stated  that he took his  case to the State  Supreme Court                                                                   
because upon notification of suspension  hearing, the outcome                                                                   
was predetermined  as an  employee had  sold cigarettes  to a                                                                   
minor.  That employee  was fined and fired.   He stressed the                                                                   
verdict  had been based  on a  preceding in  which he  had no                                                                   
legal standing,  the license  was subject  to suspension  and                                                                   
that violated his own Due Process.                                                                                              
Representative  Gara pointed out  that Mr. Godfre's  case was                                                                   
still pending  for a decision  and recommended that  the bill                                                                   
be  TABLED until  the Supreme  Court determines  how the  law                                                                   
should read.  He  did not think that the lower  Court opinion                                                                   
should  stand and  that  the consideration  should  not be  a                                                                 
priority at this time in session.                                                                                               
Vice  Chair  Stoltze stated  that  the  concern is  a  public                                                                   
policy issue, which should not  be affected by what the court                                                                   
does or  does not do.  He  thought that public  policy should                                                                   
be addressed  by the Legislature  regarding Due  Process, not                                                                   
by the Court.                                                                                                                   
Co-Chair Meyer agreed, pointing  out that there is no license                                                                   
suspensions being  issued or  enforced until the  Legislature                                                                   
does take  action.   Business owners do  not know  where they                                                                   
stand  nor does  the State  of Alaska;  there needs  to be  a                                                                   
resolution.    The Administration  supports  the  Legislature                                                                   
addressing these concerns.                                                                                                      
Representative Kelly interjected  that Due Process is a valid                                                                   
issue and that he did not support tabling the bill.                                                                             
12:10:34 PM                                                                                                                   
Representative Crawford  noted that language on  Page 3, Line                                                                   
13, "negligently  violates", is  an extremely high  standard.                                                                   
Mr.  Godfre clarified  that by  nature of  the product,  they                                                                   
regularly  hold the establishment  with multiple  violations,                                                                   
and that  the negligence  would be a  high standard  to prove                                                                   
otherwise.  He thought that the  hearing officers could level                                                                   
the playing  field.  The  State of Alaska regularly  sponsors                                                                   
training  programs,  but  ultimately, the  outcome  would  be                                                                   
based on  a hearing.  He  wanted to see penalties  higher for                                                                   
the person who actually commits the crime.                                                                                      
RECESSED:      12:14:08 PM April 28, 2007                                                                                     
RECONVENED:    1:07:32 PM  April 29, 2007                                                                                     
DIANE   CASTO,   SECTION  MANAGER,   PREVENTION   AND   EARLY                                                                   
INTERVENTION   SECTION,   DIVISION    OF   BEHAVIOR   HEALTH,                                                                   
DEPARTMENT OF HEALTH AND SOCIAL  SERVICES, explained that the                                                                   
Division of Behavioral Health  is responsible for enforcement                                                                   
of illegal sale of tobacco to  youth under the age of 19.  In                                                                   
addition, as required  by the federal SYNAR  legislation, the                                                                   
State must maintain an illegal  sell rate to minors of 20% or                                                                   
face  federal  monetary  penalties  to  the  Substance  Abuse                                                                   
Prevention & Treatment Block Grant.                                                                                             
The  Department opposes  CS HB  187 (version  K) as  written.                                                                   
The primary areas of concern are:                                                                                               
   1) Section 2 - Currently the State has to prove that the                                                                     
     employee negligently  sold tobacco  to a minor.   HB 187                                                                   
     would  require the  State to prove  also the  employer's                                                                   
     negligence  in that  sale.   The intent  is to hold  the                                                                   
     employer accountable for the acts of the employee.                                                                         
   2) Section 3 - Allows retailers to develop, on paper, a                                                                      
     loosely identified  and monitored "training"  program to                                                                   
     inform  employees of  the  State's laws  related to  the                                                                   
     sale  of   tobacco  to  minors,  thereby   reducing  (or                                                                   
     eliminating),  their responsibility  for the actions  of                                                                   
     their employees  and reducing  the period of  suspension                                                                   
     to sell tobacco for the illegal sale.                                                                                      
   3) Section 3, Paragraph (w) - While the bill does add a                                                                      
     10-day  floor  for  suspension,  guaranteeing  that  all                                                                   
     citations   would   include   some  level   of   tobacco                                                                   
     endorsement  suspension,  the floor  appears  to be  the                                                                   
     same  for  all violations,  which  would  provide for  a                                                                   
     retailer  with a history  of non-compliance  to continue                                                                   
     to have their suspensions  reduced to 10 days instead of                                                                   
     45, 90 or  100 days.  While the Department  does support                                                                   
     a suspension  floor, it should be graduated  in relation                                                                   
     to the indicated number of  days or not available at all                                                                   
     to those who repeatedly violate the law.                                                                                   
Ms. Casto  pointed out that the  current system of  fines and                                                                   
suspensions  is working.   State law was  amended in  2002 to                                                                   
ensure  that  retailer  violations  resulted  in  consistent,                                                                   
temporary suspensions of tobacco  sales, in addition to fines                                                                   
to the clerk of the sale.  In  2002, the State's illegal sell                                                                   
rate was  30%; following a change  in law, the 2003  rate was                                                                   
10%.   In addition to reducing  youth access, youth  usage of                                                                   
tobacco also has  decreased.  The Department  supports a fair                                                                   
fix to  the due process issue  for Alaska retailers  and does                                                                   
not  support dismantling  the  current  system  of fines  and                                                                   
suspensions  for business  that sell tobacco  to youth  under                                                                   
the age of 19.                                                                                                                  
Ms. Casto  addressed previous  points brought forward  to the                                                                   
Committee on 4/28/07:                                                                                                           
   · Alaska does have the most stringent laws related to                                                                        
     enforcement of illegal sale  of tobacco to minors and is                                                                   
     not the  only state  to impose  suspensions, but  is the                                                                   
     only  State to  have a  mandatory  number of  suspension                                                                   
     days  per violation.    One problem  noted  by the  U.S.                                                                   
     General   Accounting   Office    is   the   inconsistent                                                                   
     application  of  fines and  suspension  in many  states,                                                                   
     which  reduces the  quality of  the tobacco  enforcement                                                                   
     programming.      Alaska's   laws  are   equitable   and                                                                   
     consistently   applied   to  all   retailers   violating                                                                   
     Alaska's tobacco laws.                                                                                                     
   · As noted, there are other states with sell rates as low                                                                    
     as  or  lower  than  Alaska's  rate,  without  mandatory                                                                   
     suspension.   While true, there are varied  reasons, one                                                                   
     of which is that many states  are using youth ages 14-15                                                                   
     to conduct  the purchases.  Alaska's program  uses youth                                                                   
     who are primarily  15-17 years old.  The  use of younger                                                                   
     kids  naturally  produces  fewer  sales.    The  federal                                                                   
     government  is reviewing  the  age of  youth buyers  and                                                                   
     considering  changes to  the SYNAR  methodology.   Other                                                                   
     methodology   inconsistencies  affect  the   ability  to                                                                   
     compare outcomes state-by-state  and are under review by                                                                   
     the General Accounting Office.                                                                                             
   · It is also important to remember that the number of                                                                        
     compliance checks the Department  does each year is very                                                                   
     small; there  are only  three (3) Tobacco  Investigators                                                                   
     that  cover  the entire  State.    In  a report  by  the                                                                   
     Schneider Institute  for Health Policy, it  is estimated                                                                   
     that  "even aggressive  compliance inspections  programs                                                                   
     will observe far less than  1/100  of 1% of all [tobacco                                                                   
     sale]  transactions."   The  majority  of tobacco  sales                                                                   
     occur  when Tobacco  Investigators are  not observing  &                                                                   
     that compliance  and enforcement work is  not a constant                                                                   
     intrusion on retailers.                                                                                                    
1:16:55 PM                                                                                                                    
Co-Chair Chenault asked  if any 18 or 19 year  olds were used                                                                   
in the study.  Ms. Casto said no.                                                                                               
Co-Chair Chenault noted that he  had spoken with someone that                                                                   
was out of compliance and understood  that the kid was within                                                                   
a week of  turning 19 years  old.  That person  was extremely                                                                   
frustrated with the  current law.  Ms. Castro  clarified that                                                                   
when the program begun, there  was much more attention to the                                                                   
age;  now however,  18  year olds  are  not  used.   Co-Chair                                                                   
Chenault said  the business owner  believed the  language was                                                                   
an entrapment.                                                                                                                  
1:20:20 PM                                                                                                                    
Co-Chair Meyer asked  if the Department preferred  to get the                                                                   
issue resolved.   Ms. Castro  commented that internally,  the                                                                   
Department has  discussed the case before the  Supreme Court.                                                                   
That  case could  indicate that  the State's  Due Process  is                                                                   
fine.   At  this  point, with  the current  Holiday  decision                                                                   
pending,  the  State's  Due  Process   has  been  deemed  not                                                                   
appropriate.   The Administration  is currently handling  the                                                                   
compliance &  enforcement checks  and all suspension  notices                                                                   
are  going  to  the  Department   of  Commerce,  Community  &                                                                   
Economic  Development.   The Department  is  sitting in  wait                                                                   
until a  remedy is reached and  intends to move  forward with                                                                   
the suspensions,  not negating  it until  the Due Process  is                                                                   
fixed.   The Department of  Health and Social  Services wants                                                                   
to see some conclusion in order  to make it cleaner through a                                                                   
language fix.                                                                                                                   
Ms.  Casto  added,  the  Department   looked  at  finding  an                                                                   
internal fix  so not  to have to  go through the  legislative                                                                   
policy change to fix the regulation.   That resulted in a fix                                                                   
that  could address  about  90% of  the  cases; however,  the                                                                   
remaining 10% could  not be handled in that  way because they                                                                   
are  sole proprietors.   The  Department would  not have  the                                                                   
authority to address  such businesses.  The  program includes                                                                   
three departments, Department  of Health and Social Services,                                                                   
Department of  Commerce, Community  & Economic Development  &                                                                   
Department of Law.                                                                                                              
1:24:36 PM                                                                                                                    
Representative  Gara noted  that  he generally  supports  the                                                                   
department's  position;  however,  asked  why  they  had  not                                                                   
appealed  the  case.    Ms. Castro  did  not  know  why  that                                                                   
decision had been made.                                                                                                         
Representative  Gara asked if  the Department wanted  the law                                                                   
changed.  Ms.  Castro responded that she could  not speak for                                                                   
the  entire Department  on  that particular  issue;  however,                                                                   
pointed  out  that  a temporary  fix  does  not  address  the                                                                   
problem.   It would be  good to have  the issue  resolved, to                                                                   
meet  the   intent  of   the  Tobacco  Enforcement   Program.                                                                   
Representative Gara suggested  that the Department's position                                                                   
places the Legislature in a difficult position.                                                                                 
1:28:02 PM                                                                                                                    
SUZANNE  MEUNIER,  (TESTIFIED VIA  TELECONFERENCE),  AMERICAN                                                                   
HEART   ASSOCIATION-ALASKA,   ANCHORAGE,  stated   that   the                                                                   
American Heart  Association agrees  that all are  entitled to                                                                   
Due Process, however, HB 187 goes  beyond what is required by                                                                   
the Court.   Current law helps prevent illegal  tobacco being                                                                   
sold   in  Alaska   and  incorporates   the  best   practices                                                                   
recognized by  the National Centers  for Disease  Control and                                                                   
Prevention.     Alaska's  program  combines   tobacco  vendor                                                                   
education with random  compliance checks.  No  store would be                                                                   
cited if  they made the minimum  effort to verify the  age of                                                                   
the buyer.   The  State has  seen the  direct benefit  of the                                                                   
Ms. Meunier listed  concerns with the current  version of the                                                                   
bill.   The proposed  legislation has  language which  allows                                                                   
for the reduction  of suspension down to 10-days.   She noted                                                                   
that she supports adding language  to clarify that on a first                                                                   
violation, the suspension could  be reduced to 10-days, based                                                                   
on mitigating  factors.  She  urged the Committee  to address                                                                   
the deficiencies of the legislation.                                                                                            
1:32:14 PM                                                                                                                    
STEPHEN   WARREN,  (TESTIFIED   VIA  TELECONFERENCE),   YOUTH                                                                   
TOBACCO PROTECTION MANAGER, SITKA  COMMUNITY HOSPITAL, SITKA,                                                                   
stressed that  relaxing the  penalties was  not a good  idea.                                                                   
He encouraged that penalties instead  be increased.  He urged                                                                   
that  store owners  be  held  responsible on  strict  tobacco                                                                   
sales as tobacco is addictive  to kids.  Stores in Sitka have                                                                   
used the penalties  as a marketing tool and  that some stores                                                                   
receive a  discount on tobacco  products by using  aggressive                                                                   
advertising by  the tobacco industry.   Mr. Warren  commented                                                                   
on  the misguided  State law  that allows  under-age kids  to                                                                   
sell tobacco  products.  He  encouraged a more  active system                                                                   
to educate the  clerks about the responsibilities  of selling                                                                   
1:36:59 PM                                                                                                                    
ROGER HAMES,  (TESTIFIED VIA TELECONFERENCE),  PRESIDENT, SEA                                                                   
MART - GROCERY RETAILER, SITKA,  indicated strong support for                                                                   
HB 187.   He understood the penalties, which  cause retailers                                                                   
compliance.    He stressed  that  it  is  not easy  being  in                                                                   
business, which  complying with the  laws.  He said  his last                                                                   
suspension dramatically affected the business sales.                                                                            
Representative   Gara  inquired   about  previous   testimony                                                                   
regarding  a  bonus  from  cigarette   outlets  to  advertise                                                                   
tobacco  products in  an effective  way.   Mr. Hames  replied                                                                   
that  is called  a  "buy  down"  from the  tobacco  industry,                                                                   
reflecting the price  incentive passed on to  the consumer to                                                                   
remain competitive.   Representative  Gara asked if  that was                                                                   
based on  where the cigarettes  are placed on the  shelves or                                                                   
the actual  advertising.  Mr.  Hames replied it was  both and                                                                   
that  visibility is  important  for receiving  the  discount.                                                                   
The   stores  are   inspected   through  tobacco   compliance                                                                   
guidelines & are affected by visibility.                                                                                        
1:42:29 PM                                                                                                                    
JOAN  CAHILL, JUNEAU,  indicated that  she is  active in  the                                                                   
tobacco  control field  and encouraged  that  current law  be                                                                   
tightened and enforced.  She endorsed  comments by Mr. Warren                                                                   
regarding  tightening and  enforcing the  current law  versus                                                                   
relaxing  it.    There  are repercussions  when  the  law  is                                                                   
enforced, which  is the point.   It is the incentive  for the                                                                   
merchant  to   "beef  up"  their   systems  to   insure  that                                                                   
cigarettes  do not  get passed  to juveniles.    The  tobacco                                                                   
industry is now marketing to children.   She opposed relaxing                                                                   
the standards.                                                                                                                  
Co-Chair  Meyer  mentioned  a law  placing  tobacco  products                                                                   
behind the  counter.   He advised that  HB 187 could  provide                                                                   
Due Process to  business owners.  Ms. Cahill  stated that Due                                                                   
Process currently exists and should not be amended.                                                                             
1:47:12 PM                                                                                                                    
KIP  KNUDSON,   (TESTIFIED   VIA  TELECONFERENCE),   EXTERNAL                                                                   
AFFAIRS MANAGER,  TESORO ALASKA COMPANY, ANCHORAGE,  spoke in                                                                   
support  of restoration  of the  Due Process  language in  HB                                                                   
187.   He  emphasized  that Tesoro  supports  a no-under  age                                                                   
tobacco   sales  culture,   accomplished   through   rigorous                                                                   
training.   In  the  31 stores  currently  being operated  by                                                                   
Tesoro,  they have  received 18  violations since  2000.   He                                                                   
stressed that  a twenty-day suspension  has a huge  impact on                                                                   
stores even  as big  as the Tesoro  company.  Every  employee                                                                   
charged in a  sales violation is immediately  terminated.  He                                                                   
addressed  the costs and  burdens of  business.  Mr.  Knudson                                                                   
reiterated support of the Due Process language.                                                                                 
Representative  Crawford hoped to  see a generation  of young                                                                   
Alaskans that have  no desire to smoke.  He  knows kids still                                                                   
get tobacco  products and  are smoking at  a very  young age.                                                                   
He asked why  Tesoro has failed by selling  tobacco to under-                                                                   
age customers.   Mr. Knudson  did not know; however,  thought                                                                   
that  often, the  employee  is only  attempting  to keep  the                                                                   
lines moving.                                                                                                                   
1:53:23 PM                                                                                                                    
Representative Gara observed that  the suspension only occurs                                                                   
where a sale  was made to a  minor.  Mr. Knudson  pointed out                                                                   
that the employees  involved admit to the sales  and then the                                                                   
business  is   held  accountable.     He  added   that  State                                                                   
enforcement   officials   are  not   allowed   to  use   fake                                                                   
PUBLIC TESTIMONY CLOSED                                                                                                       
1:56:00 PM                                                                                                                    
Representative  Gara questioned  why  the case  had not  been                                                                   
Ms. Drinkwater noted that she  could not discuss that case at                                                                   
this  time.  She  explained  that  on  another  similar  case                                                                   
(Godfre) raised  Due Process issues,  similar to  the Holiday                                                                   
case.  The hearings occurred at  a time when the Division had                                                                   
not   yet  issued   regulations   implementing  the   tobacco                                                                   
enforcement  statute.   At  that  time, the  hearing  officer                                                                   
decided  the regulations  weren't  in place  and would  allow                                                                   
Mendenhall  Tesoro  to raise  any  defenses  they wanted  to.                                                                   
Mendenhall  Tesoro  raised  a   number  of  issues  regarding                                                                   
entrapment  &  government  overreaching   but  they  did  not                                                                   
succeed.    The  Superior  Court  advised  that  the  hearing                                                                   
allowed the  issues to  be raised.  She could not  hypothesis                                                                   
the decision of  the Supreme Court, but felt  that they might                                                                   
take a more narrow approach.                                                                                                    
Ms. Drinkwater  observed that  it would  be difficult  to fix                                                                   
the issue through  statute.  Hearings are limited  in statute                                                                   
and can not be fixed by regulation.                                                                                             
2:00:25 PM                                                                                                                    
Representative  Gara  summarized,  the  negligence  issue  is                                                                   
before the  Court.  Ms.  Drinkwater explained that  the Court                                                                   
could reach a  decision that would affect the  way the issues                                                                   
are addressed.                                                                                                                  
Representative  Gara asked  if changes  in the  law could  be                                                                   
made contingent on  the outcome of the Supreme  Court ruling.                                                                   
He explained  that statute for  a shorter sentence,  if there                                                                   
is good  policy could  retain existing  statute if  the court                                                                   
found it appropriate.  Ms. Drinkwater  could not answer that.                                                                   
2:03:18 PM                                                                                                                    
Representative  Kelly  questioned the  place  number in  law,                                                                   
where  guilt  is automatic  and  licenses  are  automatically                                                                   
lost.   Ms.  Drinkwater  could not  respond,  but noted  that                                                                   
there are  a number of areas,  in general context,  where one                                                                   
event causes automatic results.                                                                                                 
HB  187  was   HEARD  and  HELD  in  Committee   for  further                                                                   
The meeting was adjourned at 2:07 P.M.                                                                                          

Document Name Date/Time Subjects