Legislature(1999 - 2000)

03/15/1999 01:32 PM House JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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HB 102 - CIGARETTE SALES: AGREEMENT/ESCROW                                                                                      
                                                                                                                                
CHAIRMAN KOTT announced the next order of business is HB 102, "An                                                               
Act imposing certain requirements relating to cigarette sales in                                                                
this state by tobacco product manufacturers, including requirements                                                             
for escrow, payment, and reporting of money from cigarette sales in                                                             
this state; providing penalties for noncompliance with those                                                                    
requirements; and providing for an effective date."                                                                             
                                                                                                                                
CHAIRMAN KOTT called on Bruce M. Botelho from the Department of Law                                                             
to discuss the bill.                                                                                                            
                                                                                                                                
Number 0230                                                                                                                     
                                                                                                                                
BRUCE M. BOTELHO, Attorney General, Department of Law, stated the                                                               
purpose of the bill is simply to accomplish one aspect of the                                                                   
settlement reached last November between the attorneys general and                                                              
the tobacco industry.  It calls for the enactment of a model                                                                    
statute whose purpose is to deal with the non-participating                                                                     
manufacturers.  The purpose is to make sure that those companies do                                                             
not take advantage of the ability to undersell their products and                                                               
gain market share in any state in the union.  The state is not                                                                  
required, under the terms of the Master Settlement Agreement, to                                                                
pass this type of legislation nor is it a condition precept for the                                                             
state to receive monies from the settlement.  However, there is a                                                               
major penalty in the sense that if there is an increase in a market                                                             
share that increase is shared disproportionately with those states                                                              
that have not enacted the model legislation.  The material that has                                                             
been provided shows a hypothetical example of this kind of adverse                                                              
fiscal impact on the state.  At this stage, more than 99 percent of                                                             
the total are participating.  The legislation provides the option                                                               
of signing on or establishing an escrow account reflecting a                                                                    
manufacturer's percentage of its share of the market and cost that                                                              
it would otherwise bear under the terms of the agreement.                                                                       
                                                                                                                                
Number 0448                                                                                                                     
                                                                                                                                
CHAIRMAN KOTT asked Attorney General Botelho whether the bill                                                                   
applies only to cigarettes or is there a broader application to                                                                 
cover cigars or smokeless tobacco products.                                                                                     
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied it is targeted at all cigarettes.                                                              
There is a separate settlement regarding chewing or smokeless                                                                   
tobacco.                                                                                                                        
                                                                                                                                
Number 0490                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked Attorney General Botelho whether there                                                               
are any sales of tobacco products that are not made in the U.S.                                                                 
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied he doesn't know.                                                                               
                                                                                                                                
Number 0520                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN asked Attorney General Botelho whether the                                                                 
bill would have any affect on alien tobacco manufacturers.                                                                      
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied it would require any company or                                                                
person attempting to sell in the state of Alaska to sign on to the                                                              
agreement or pay money into an escrow account.  The incidence is                                                                
really the sale of tobacco in the state.                                                                                        
                                                                                                                                
Number 0549                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked Attorney General Botelho whether                                                                 
there have been any legal challenges to the model legislation.                                                                  
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied, to his knowledge, there hasn't                                                                
been any challenge to the model legislation.  There have been                                                                   
challenges in several states to the underlying settlement itself.                                                               
Most notably are California, New York, New Jersey and Pennsylvania.                                                             
In each instance, except for New York, they have challenged the                                                                 
overall efficacy of the settlement.  New York's battle has been                                                                 
over the allocation of monies between the local government and the                                                              
state.  In addition, a separate class action has been filed in                                                                  
Oklahoma for the overall settlement to be declared                                                                              
unconstitutional.                                                                                                               
                                                                                                                                
Number 0632                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked Attorney General Botelho whether                                                                 
this legislation would be thrown out, if everything is thrown out.                                                              
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied correct.                                                                                       
                                                                                                                                
Number 0650                                                                                                                     
                                                                                                                                
REPRESENTATIVE GREEN referred to Section 45.53.020 of the bill and                                                              
stated the schedule of increase is an unusual mill.  He wondered                                                                
whether it is an estimate of a cost of living increase, for                                                                     
example.                                                                                                                        
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied the numbers were negotiated at                                                                 
great length between the industry and the leading states in the                                                                 
settlement.  He cannot answer why they are at the 1/10,000 point.                                                               
                                                                                                                                
Number 0711                                                                                                                     
                                                                                                                                
CHAIRMAN KOTT stated this doesn't prevent any new revenue to the                                                                
state.  It prevents cherry picking.                                                                                             
                                                                                                                                
ATTORNEY GENERAL BOTELHO said correct.  The bill is not a revenue                                                               
source.  It is simply an escrow account by which the public may                                                                 
draw on monies in the event that the non-participating manufacturer                                                             
chooses to sell.                                                                                                                
                                                                                                                                
Number 0736                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Attorney General Botelho to comment                                                               
on the steps it would take to sell cigarettes in the state.                                                                     
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied any company that wishes to sell in                                                             
the state is required through its wholesaler to register and pay a                                                              
tax right now.  The bill would require a non-signatory manufacturer                                                             
of the settlement to establish a separate escrow account.                                                                       
                                                                                                                                
Number 0784                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Attorney General Botelho how much                                                                 
would it deposit.                                                                                                               
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied it would be based on estimated                                                                 
sales according to a schedule.                                                                                                  
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether                                                                  
there is a stipulated schedule in the settlement.                                                                               
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied there is a schedule in terms of a                                                              
per pack.  Each manufacturer has given a different estimate of the                                                              
cost of the settlement to that manufacturer.  He reiterated this                                                                
would be primarily based on a representation of estimated sales; it                                                             
would be trued for actual sales.                                                                                                
                                                                                                                                
Number 0835                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the                                                              
bill gives any guidance to a manufacturer.                                                                                      
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied it is triggered in Section                                                                     
45.53.020(a)(2) of the bill.  The bill also provides additional                                                                 
authority to adopt regulations to implement the terms of the                                                                    
agreement.                                                                                                                      
                                                                                                                                
Number 0878                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the                                                              
"units sold" is an individual cigarette.                                                                                        
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied yes.                                                                                           
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the                                                              
formula is suppose to be close to the 45 cent tax surcharge put in                                                              
place in December of 1998.                                                                                                      
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied yes, in general.  The 45 cents is                                                              
an estimate that varies from company to company.  Some companies                                                                
have chosen to overstate their overall fiscal impact per pack.                                                                  
                                                                                                                                
REPRESENTATIVE ROKEBERG called the 45 cents an imprecise variable.                                                              
                                                                                                                                
ATTORNEY GENERAL BOTELHO stated correct.                                                                                        
                                                                                                                                
Number 0925                                                                                                                     
                                                                                                                                
REPRESENTATIVE CROFT asked Attorney General Botelho what other                                                                  
states have adopted something like this.                                                                                        
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied he doesn't have the current list,                                                              
but will provide one as quickly as possible.  All states this year                                                              
are considering it during their legislative session.  He is not                                                                 
aware of any state that has already enacted it.                                                                                 
                                                                                                                                
CHAIRMAN KOTT indicated Alaska could be the first.                                                                              
                                                                                                                                
Number 0958                                                                                                                     
                                                                                                                                
REPRESENTATIVE CROFT asked Attorney General Botelho whether there                                                               
are other bills to cover cigars and chewing tobacco.                                                                            
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied cigars are not covered in this                                                                 
bill.  He reiterated there is a separate agreement with smokeless                                                               
tobacco, but there isn't separate legislation.                                                                                  
                                                                                                                                
Number 1014                                                                                                                     
                                                                                                                                
REPRESENTATIVE CROFT asked Attorney General Botelho whether the                                                                 
attorneys general negotiated with the companies covered by the                                                                  
settlement, not the companies that opted out.                                                                                   
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied the states negotiated with the                                                                 
five largest manufacturers in the United States.  The terms of the                                                              
settlement itself provides an opportunity for other companies to                                                                
opt in, and for the most part they have.  He reiterated, at this                                                                
stage, those who are not included constitute less than .5 percent                                                               
of the overall market.  There really are only 5 major players in                                                                
the country, 20 minor players, and a slew of mom and pops that                                                                  
Alaska will probably never see.                                                                                                 
                                                                                                                                
Number 1084                                                                                                                     
                                                                                                                                
REPRESENTATIVE CROFT stated his question was directed at drafting                                                               
HB 102 and negotiating the numbers to the one-ten thousandth of a                                                               
cent.                                                                                                                           
                                                                                                                                
ATTORNEY GENERAL BOTELHO stated the numbers in the bill were the                                                                
result of negotiations specifically with the big five companies.                                                                
                                                                                                                                
Number 1106                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked Attorney General Botelho, for                                                                    
clarification, whether the bill would not apply to cigars.                                                                      
                                                                                                                                
ATTORNEY GENERAL BOTELHO replied that is his understanding.                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI referred to the "Definitions" section of                                                               
the bill and asked what a cigar is rolled in.                                                                                   
                                                                                                                                
REPRESENTATIVE CROFT read, "(i) any roll of tobacco wrapped in                                                                  
paper or in any substance not containing tobacco;", and stated                                                                  
tobacco wrapped in tobacco wouldn't be covered.                                                                                 
                                                                                                                                
REPRESENTATIVE GREEN noted a cigar is wrapped in a leaf.                                                                        
                                                                                                                                
Number 1158                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG complimented Attorney General Botelho for                                                               
placing the financial burden of cigarette smoking on the                                                                        
manufacturers and not the state of Alaska.                                                                                      
                                                                                                                                
CHAIRMAN KOTT closed the meeting to public testimony and called for                                                             
a motion to move the bill out of committee.                                                                                     
                                                                                                                                
Number 1199                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES made a motion to move HB 102 from the                                                                      
committee with individual recommendations and the attached zero                                                                 
fiscal note(s).  There being no objection, HB 102 was so moved from                                                             
the House Judiciary Standing Committee.                                                                                         

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