Legislature(1997 - 1998)
02/11/1998 04:05 PM House TEL
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 345 - STATE ARCHIVES RECORDS CHAIRMAN PORTER announced the committee would hear HB 345, "An Act relating to electronic records and signatures, revising certain requirements that signatures be notarized or verified, and providing for electronic records in the state archives; relating to the permanency of records in the state archives; and providing for an effective date." He called on Andy Kline to present the bill. Number 0063 ANDY KLINE, Special Staff Assistant, Office of the Lieutenant Governor, advised members he is a special assistant for telecommunications to Lieutenant Governor Fran Ulmer, who chairs the Telecommunications Information Council (TIC), the main policy- making body in state government for telecommunications and information technology. Mr. Kline added that he staffs that council and had therefore been chosen to testify on this bill. MR. KLINE said through their telecommunications planning effort, the TIC had identified electronic signatures as an important issue to resolve in state government, and in December of 1996 they had released a state plan on telecommunications and information technology. In that plan, recommendation number 56 is that the state should address the use of electronic signatures, which will streamline many internal processes and will position the state for a method of authentication and verification of electronic communications with the public. MR. KLINE advised members that 28 other states have enacted electronic signature and digital signature legislation. Alaska is not on the leading edge but is trying to stay in the pack, ready and open for business on the Information Highway. Number 0216 MR. KLINE told members that a number of internal state government functions and other types of functions that electronic signatures will help have been identified nationwide, and even internationally. Utah is probably the leading state in electronic signatures, and many other states lean on Utah's progress and mistakes in developing statutes and regulations regarding electronic signatures. MR. KLINE stated, "I can tell you from Utah's point of view, they have a short list in that packet that I gave you of the things that they see as specific applications, including court filings and corporation filings, procurement, grant applications, motor vehicle titling, real estate transactions. I mean, the list kind of is endless, with the way that business interacts with state government, ... with the way that business interacts with other business in a state, and in the way the public interacts, in a transactional way, with state government." Mr. Kline said this allows a person, with a click of a mouse button, to encrypt a document and make it verifiable who sent it. Number 0303 MR. KLINE pointed out that someone receiving an E-mail message today has no way of really knowing whom it came from without verification, because there are simple ways to electronically modify addresses and so forth to indicate that a message came from another source. Verification can be done through a number of methods. MR. KLINE informed members that three kinds of legislation have been passed nationally dealing with electronic signatures, as described by the Internet Law and Policy Forum, a think-tank organization. The three types of legislation are: prescriptive, the most detailed; criteria-based, which is in the middle; and signature-enabling, which reduces barriers existing in law today that say things like "must be signed," which in legal terms means a piece of paper signed. MR. KLINE cited Utah's as the best example of prescriptive legislation. In Utah, they had set out detailed implementation in statute. Although on-target at the time, it became problematic because of rapidly changing technology, resulting in one revising piece of legislation already. Therefore, Utah's legislation is a good example of going too far. Number 0430 MR. KLINE said Massachusetts has the best example of signature- enabling legislation. It doesn't get into any technical standards or criteria upon which a signature is determined to be verifiable. Instead, it says electronic signatures are as good as written signatures. MR. KLINE advised members that California and Georgia have criteria-based legislation, which is middle ground. "And that's the model that we chose to go with," Mr. Kline explained. "We felt that there needed to be some language that talked about what the state would accept ... as a verifiable signature. So, that's in the law itself." MR. KLINE referred to page 2, beginning on line 29, which sets out criteria: "'electronic signature' means an electronic or digital method, executed or adopted by a person with the intent to be bound by or to authenticate a record, that is unique to the person using it, is capable of verification, is under the sole control of the person using it, and is linked to data in such a manner that if the data are changed the electronic signature is invalidated ...." Mr. Kline noted that Massachusetts' legislation hadn't gone that far. Number 0548 MR. KLINE said the main things they want to address in HB 345 are removing those legal barriers and setting these simple criteria for potential technologies. He pointed out that different methods exist to obtain digital signatures, such as using public and private keys; for example, a person may hold a private diskette that uses encryption technology, to put together with a public "key" for verification. Mr. Kline explained that they had not been specific with the criteria in the framework because of foreseeable technological changes. In addition, few citizens or industries in Alaska today are really ready to start using these complicated and sometimes costly methods of getting public and private keys. Mr. Kline said they want to allow industry to come in and answer those questions, with technology that fits into the law. Number 0669 CHAIRMAN PORTER recognized Representative Kemplen, who had joined members at the table. Noting that signatures are essential to some documents, he asked Mr. Kline what the thought is on litigation relating to lack of specific criteria for verification. MR. KLINE explained that the specifics of the technology that will be used to make verifiable signatures will be handled through a regulation process. The state will speak to what technologies are acceptable, but they believe it is best handled not through statute but through regulation, in order to adapt more easily to changing technologies. Mr. Kline said they are not leaving it wide-open. However, following the problems that Utah, especially, has had, they didn't believe it was appropriate to address that in the original legislation. Number 0781 CHAIRMAN PORTER advised members that present to answer questions were Sarah Felix from the Office of the Attorney General; John Stewart and George Smith from the Division of Libraries, Archives and Museums; and Mike Monagle from the Division of Banking, Securities and Corporations. Number 0795 REPRESENTATIVE J. ALLEN KEMPLEN asked which industries Mr. Kline envisions as most likely to take advantage of this change in the law. MR. KLINE said he believes banks will be the first to do so. From there, economies of scale come in. Large industries will find a small savings per transaction by using electronic signatures, and an entity with numerous transactions, or with transactions involving large dollar amounts, will benefit most. Mr. Kline said they see this as a wave of the future, noting that four years ago, many people wouldn't have predicted how much electronic mail has changed the business process. "And we feel that this is the next logical step," he concluded. Number 0879 REPRESENTATIVE KEMPLEN asked whether Mr. Kline has information from other states about the volume and rate of growth of the demand for electronic signatures. MR. KLINE answered that except in Utah, this really isn't happening much in practice. Utah, he explained, is forward-thinking when it comes to technology, and they are attracting technology businesses and industry through this type of legislation. There is some information on the Utah Website concerning demand, mostly around high technology industries that want to use electronic signatures as part of a paperless way of doing business. MR. KLINE noted that electronic signatures, inasmuch as they allow for paperless government and business transactions, can be a part of incredible efficiencies. As an example he cited Cisco Systems, a large company whose chief information officer had said that by going completely paperless - and by using other, purely electronic, ways of dealing with employees, including training, travel reimbursements and payroll - that company saves $360 million yearly. Mr. Kline suggested that high-technology industries with numerous transactions see this as something friendly to their businesses. Number 0998 REPRESENTATIVE KEMPLEN asked whether this is mostly interstate or intrastate. MR. KLINE replied, "It's both, and also internationally. And that's a difficult part of the law: How do you mesh what different states and different countries are doing, and are saying are verifiable signatures?" He indicated that isn't really addressed in HB 345, then added that it can be problematic to specify which types of technology will be accepted. Mr. Kline stated, "What we're saying is that ... if there's two parties and they're both agreeing, and the signature is verifiable through a mutually agreed verification process that the state has approved through regulations, then that's an acceptable signature." MR. KLINE pointed out that firms in Washington State and Pacific Rim countries are conducting business with electronic signatures. He said in Washington State, digital signature legislation was recently passed, largely because Microsoft wanted to see it passed because they want to conduct business this way. Number 1083 REPRESENTATIVE KEMPLEN asked whether if this legislation is passed, it would it be a significant incentive for some industry to locate here in Alaska because of the state's providing this flexibility. MR. KLINE replied that it is a signal to high-technology firms, especially, that Alaska is a technologically aware state. He hadn't seen anything that says industries are some quantifiable percent more likely to locate in an area that has electronic signature legislation. However, high-technology firms look for states that are forward-thinking in technology legislation when they are locating. Number 1149 REPRESENTATIVE ETHAN BERKOWITZ asked whether there is any provision for facsimile signatures. MR. KLINE replied that it doesn't address faxes specifically, and faxes are problematic. Most digital signature legislation assumes use of a computer and that a person can encrypt something using a logarithmic encryption device; that is not really possible on a fax. Mr. Kline pointed out that faxes are some of the most easily forged types of documents, because everything is already fuzzy and it is easy to make something look authentic. Number 1207 REPRESENTATIVE BERKOWITZ explained that part of the reason he'd asked is that on page 21, it says, "'electronic record' means any information that is recorded in machine-readable form." He suggested that signatures could be read into machines. MR. KLINE said that is a good point, for which he didn't have a specific answer. Number 1240 REPRESENTATIVE IVAN IVAN referred to the zero fiscal note and asked about any technological requirements to use this. MR. KLINE responded that it is difficult to answer only because they haven't specified a technology associated with this bill. However, most encryption programs are software, which work on existing mainframe computers or existing personal computers (PCs). Although he couldn't say that there wouldn't be a penny spent on software or a scanner, for example, there certainly are no widespread, large costs associated with passing legislation about using verifiable electronic signatures on legal documents. Number 1321 CHAIRMAN PORTER noted that to be consistent with this law, if data on the document were altered, the electronic signature would be invalidated. He suggested it would require software. MR. KLINE agreed, saying it requires software on both ends. He suggested that if the state is concerned about costs, they could say, "The state recognizes a certain type of signature as a verifiable electronic signature, but we're not going to be the certifying agency; we're not going to be the certification authority. Key Bank, National Bank of Alaska, will be the certification authority. They will buy a license from us to become that certification authority. They'll own the software, own the hardware, ... and people will have to take a document to them to verify it." Mr. Kline pointed out that there are different ways of doing it. It could be set up in-house, with the Department of Administration, for example, having a certification authority within it that verifies electronic signature documents. "And we've left that up to regulation, as well," Mr. Kline added. Number 1387 CHAIRMAN PORTER asked about the evolution in other states, and whether this might become a nationally recognized system, for example. MR. KLINE referred to a 133-page document from the American Bar Association, which he said was an attempt to make a nationwide model legislation. "They couldn't do it," he explained. "They came up with digital signature guidelines, which ... actually shaped what Utah ended up doing. But the short answer is no, different states have tended to want to do different types of things. As I said, Washington's very concerned about dealing with Japan, for instance. Other states are concerned with other types of activities. ... And then ... there are different philosophies on how detailed ... the initial statute should be. And for that reason, there isn't a nationwide standard yet." MR. KLINE continued, "And that's one reason why we're holding back on specifying a standard, because ... we're recognizing here that this is technology that is not fully and widespread developed to this point. The technology is there, and people understand how to use it. There's not a huge, widespread demand at this point. There may be by next January. Next February, there may be a huge demand, and we all know how fast technology moves. And that's why ... we don't want to have unnecessary legal barriers in the way of that happening, if it becomes a widespread-type of thing, or something that industry ... is demanding." Number 1475 REPRESENTATIVE BERKOWITZ said, "The reason why we're addressing this sort of legislation, it seems to me, is the banks, or whatever group decides to use electronic signatures, is going to do so at its own peril. But we need to put some kind of enabling legislation down in order that they can venture out into that minefield?" MR. KLINE replied, "That's right. That's one part of it. And the other part of it is we want state government to be able to interact with business and citizens, and do it in a way that's consistent with our laws. ... And in large part, it's recognizing something brand new, that wasn't envisioned when laws were passed about having a signature on a piece of paper, to verify that." Number 1520 CHAIRMAN PORTER asked whether there were further questions. He expressed his understanding that the bill is not trying to answer all questions available to be asked on this type of technology. Chairman Porter added, "And I think if there was ever an area that was conducive to regulation, as opposed to statute, it would be telecommunications." He asked the wish of the committee. Number 1545 REPRESENTATIVE FRED DYSON responded, "Move it." CHAIRMAN PORTER noted the motion to move the bill with individual recommendations and fiscal notes as attached. He asked whether there was any objection. There being none, HB 345 was moved from the House Special Committee on Telecommunications.
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