Legislature(2003 - 2004)
02/25/2004 01:45 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 25, 2004
1:45 P.M.
TAPE HFC 04 - 30, Side A
TAPE HFC 04 - 30, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 1:45 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
MEMBERS ABSENT
Representative Mike Chenault
ALSO PRESENT
Representative Pete Kott, Speaker of the House;
Representative Harry Crawford; Sue Stancliff, Staff to
Representative Pete Kott; Tom Wright, Staff to
Representative Bill Williams; Michael Barnhill, Assistant
Attorney General, Commercial/Fair Business Section,
Department of Law; Darwin Biwer, Cabaret Hotel and
Restaurant Retailers; Mike Barnhill, Assistant Attorney
General, Commercial/Fair Business Section, Department of
Law.
PRESENT VIA TELECONFERENCE
Greg Peterson, Allied Charities, Ketchikan; Larry Meyers,
Deputy Director, Tax Division, Department of Revenue; Dave
Lambert, Fairbanks; Greg Petersen, Allied Charities;
Dale Fox, Executive Director, Cabaret Hotel and Restaurant
Retailers (CHARR); Gary Superman, (CHARR), Nikiski; Ed
Moeglein, Alaska Nonprofit Charitable Organization (ANCO),
Soldotna; George Wright, Volunteer ANB on Legislative
Committee.
SUMMARY
HJR 20 Proposing amendments to the Constitution of the
State of Alaska repealing the prohibition on
dedicated funds.
CS HJR 20(JUD) was REPORTED out of Committee with
one fiscal note and individual recommendations.
HB 503 An Act relating to the tobacco product Master
Settlement Agreement; and providing for an
effective date.
HB 503 was REPORTED out of Committee with a "do
pass" recommendation and with a zero fiscal note.
HB 509 An Act relating to establishing the Alaska Gaming
Commission.
HB 509 was heard and HELD in Committee for further
consideration.
HB 375 An Act making appropriations for the operating and
loan program expenses of state government, for
certain programs, and to capitalize funds; making
appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska; and providing
for an effective date.
HB 375 was heard and HELD in Committee for further
consideration.
HB 377 An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing
for an effective date.
HB 377 was heard and HELD in Committee for further
consideration.
HOUSE JOINT RESOLUTION NO. 20
Proposing amendments to the Constitution of the
State of Alaska repealing the prohibition on
dedicated funds.
Co-Chair Harris MOVED to report CS HJR 20(JUD) out of
Committee with the accompanying fiscal note and with
individual recommendations.
Representative Fate OBJECTED to state that there were
questions raised that had not been answered in the
committee. He expected that his questions would be answered
during the House floor debate, but said he would have
preferred the committee forum for further discussion of the
measure. Representative Fate WITHDREW his OBJECTION.
There being NO OBJECTION, CS HJR 20(JUD) was REPORTED out of
Committee with the accompanying fiscal note and with
individual recommendations.
HOUSE BILL NO. 509
An Act relating to establishing the Alaska Gaming
Commission.
Co-Chair Harris MOVED to ADOPT the Work Draft for HB 509,
23-LS1768\S.
SUE STANCLIFF, STAFF TO REPRESENTATIVE PETE KOTT, explained
that HB 509 establishes the Alaska Gaming Commission. It is
intended to establish regulatory oversight of all forms of
gaming in Alaska, including current forms and future forms
that may be authorized by the legislature under AS 05.15.
Gaming currently includes bingo, lotteries, raffles, pull-
tabs, pull-tab gaming, and fishing derbies. The oversight
presently rests in the Tax Division of the Department of
Revenue.
The bill includes protections for legalized gaming. Ms.
Stancliff discussed the bill's provisions relating to the
commission. She explained that the commission may not
administer charitable gaming or any other gaming unless the
activity is authorized and enacted into law by the
legislature.
Ms. Stancliff explained the changes in the work draft
Version S from the Labor & Commerce Committee Substitute.
Version S removes the requirement that two members of the
commission are involved in charitable gaming and hold
permits under AS 05.15.
The Labor & Commerce CS changed the structure of the
commission by reducing the number from 4 to 3 of the 7
members with the same political affiliation, nonaffiliation,
or party. Version S removed "nonaffiliation" [page 2, line
12]. Version S retains the appointment of one member from
each of the four judicial districts. One member must have
law enforcement experience and one must be a certified
public accountant in Version S.
Co-Chair Harris asked for clarification of the membership
requirement. Ms. Stancliff was not able to answer how
"experience in law enforcement," was interpreted by the
drafter.
In response to a question by Co-Chair Harris, Ms. Stancliff
explained the membership could include, for example, one
member who is nonpartisan, undeclared, Libertarian or
Republican Moderate.
Ms. Stancliff stated that the staggering of terms isn't
defined in the bill because it is defined in AS 39.05.055,
Subsection 5.
Ms. Stancliff continued discussing changes in Version S. On
page 4, lines 16-17, the language emphasizes that any new
gaming must be authorized by the legislature.
Ms. Stancliff noted a change to the original bill prior to
its hearing in House Labor & Commerce. Language on Page 7,
line 4 was removed that stated an officer or employee of the
Office of the Governor could not purchase a gaming product,
receive a gaming prize or participate in a gaming activity.
Ms. Stancliff referred to Amendment 1, which reads:
Page 4, line 31:
Delete "and other employees of the commission are"
Insert "is"
Page 8, line 25,through page 9, line 4:
Delete all material and insert:
"*Sec. 7. AS 39.25.110 is amended by adding a new
paragraph to read:
(40) the executive director of the
Alaska Gaming Commission."
Ms. Stancliff explained that the first change would move the
charitable gaming administrative employees in the Department
of Revenue over to the Commission. The seven positions are
state employees without exempt status. The sponsor was
asked to remove the language from statute and retain the
status of those employees, making only the director's an
exempt position. She cited a number of commissions with
exempt employees.
Co-Chair Harris MOVED to ADOPT Amendment 1.
Representative Croft OBJECTED for purposes of discussion,
asking for clarification of the first change on page 4, line
31. Ms. Stancliff explained it's a technical change.
Representative Croft WITHDREW his OBJECTION.
There being NO OBJECTION, Amendment 1 was adopted.
In response to a question by Representative Meyer, Ms.
Stancliff explained that the correct fiscal note version is
a net zero. The first fiscal note was indeterminate, but
the fiscal note dated 2/24/04 more accurately reflects the
costs. The commissioners are not paid but their travel and
per diem expenses are estimated, as well as expenses related
to the director, at $616 thousand under Personal Services.
Vice-Chair Meyer questioned the creation of a new
commission. Ms. Stancliff explained that charitable gaming
has grown since 1996 when the division was transferred to
the Department of Revenue. This legislation looks ahead at
needed regulation of expanded gaming activities.
Vice-Chair Meyer asked about current gaming. Ms. Stancliff
noted that 23 pieces of legislation affecting charitable
gaming have passed since the Eighteenth Legislature.
In response to a question by Vice-Chair Meyer, Ms. Stancliff
affirmed that DOR would move to the new commission, with
zero cost.
Vice-Chair Meyer asked the pay range of the executive
director. Ms. Stancliff could not answer specifically, but
indicated that it would be in line with salaries of other
commission directors.
In response to a question by Representative Stoltze Ms.
Stancliff advised that generating revenues is not a major
responsibility of the commission, but it would analyze
gaming in other states and make recommendations relating to
new revenue sources.
Representative Stoltze asked the parameters of multi-state
gaming on page 4, line 12 of the bill. Ms. Stancliff stated
that multi-state gaming would only occur if authorized by
the legislature.
Representative Stoltze asked if the language under Gaming
Activities on page 6 would authorize on-line gaming. Ms.
Stancliff answered that it's one of the sections the sponsor
changed because the Labor & Commerce version contained
ambiguous language. The language, "in the state," made it
unclear if gaming could be done on-line. The new language
addresses on-line gaming, which is not authorized.
In response to a question by Representative Stoltze, Ms.
Stancliff affirmed that the new language on page 2, line 3,
prohibits persons with a liquor license, including bar-
owners, from participating in gaming.
Co-Chair Harris asked how many other states have legalized
gaming for profit. Ms. Stancliff responded 47, excluding
Utah, Hawaii, and Alaska.
Co-Chair Harris asked if this legislation is modeled after
that of other states. Ms. Stancliff affirmed, the bill is
modeled after Idaho and Colorado gaming statutes, which are
more in line with Alaska's direction, and these states have
rectified their mistakes.
Co-Chair Harris asked if the commission would be allowed to
impose taxation levels on gaming. Ms. Stancliff replied
that the legislature would have to authorize taxation, but
the commission may recommend it.
Co-Chair Harris questioned if the legislature authorizes
full casino gambling, would the commission or the
legislature recommend and set taxation levels. Ms. Stancliff
replied that this bill would give the commission authority
to do what is needed to regulate gaming, but taxation would
be addressed separately.
Through discussion, Representative Hawker noted that his
question about enforcement is answered on page 3, line 25,
which states that the authority of the commissioner is to
enforce the charitable gaming laws.
Representative Fate asked if the "Statement of Odds" on page
7 is "boilerplate" language taken from other statutes. Ms.
Stancliff affirmed. She pointed out that nothing is
authorized under AS 05.18.350.
Co-Chair Harris asked if the fiscal note dated 2/23/04
showing $548 thousand from program receipts is derived from
operators of charitable gaming. Ms. Stancliff affirmed, and
discussed the shift from the Department of Revenue,
commenting that $616 thousand reflects the department's
personal services.
GREG PETERSON, ALLIED CHARITIES, KETCHIKAN, VIA
TELECONFERENCE, expressed that the current laws are working
fine and he feels that the intent of this bill is only to
introduce video poker machines.
DAVE LAMBERT, VIA TELECONFERENCE, FAIRBANKS, expressed
concern over the change in commission membership in the work
draft, stating that there should be people in the industry
involved in the meetings and decision-making process. He
discussed multi-state gaming.
ED MOEGLEIN, ALASKA NONPROFIT CHARITABLE ORGANIZATION
(ANCO), VIA TELECONFERENCE, SOLDOTNA, listed all the groups
that his organization represents, and indicated that the
ANCO would like to meet with legislative committees to be
involved with current and future gaming legislation.
GARY SUPERMAN, CABARET HOTEL and RESTAURANT RETAILERS
(CHARR), VIA TELECONFERENCE, NIKISKI, expressed support for
the legislature's shift to look at gaming in the state. He
noted that HB 240 did not move through the process last
year. He said that passage of this bill would bring a
rational scrutiny of gaming, and would identify a revenue
stream if gaming were expanded.
TAPE HFC 04 - 30, Side B
Mr. Superman continued his testimony. He agreed with a
previous testifier that people involved in gaming should be
a part of the commission.
In response to a question by Representative Stoltze, Mr.
Superman clarified that he hopes the legislature is afforded
a wider perspective on gaming.
DALE FOX, EXECUTIVE DIRECTOR, CHARR, VIA TELECONFERENCE,
spoke in support of creating a commission in a legitimate
body to establish oversight in the same way that other
states have addressed gaming. He expressed that it seems
logical to make a cohesive package out of the many bills
that address gaming.
DARWIN BIWER, CHARR, JUNEAU, expressed that CHARR is totally
in favor of HB 509 that would create the commission. He
recommended looking first at consolidating pull-tabs, bingo,
and raffles, and the $300 million in total reported sales.
He noted the current ten bills on gaming. The CHARR regards
HB 509 as a housekeeping bill, not a pro-gambling bill. He
concluded, "run it like a business" and ensure strict
enforcement.
In response to a question by Representative Hawker, Mr.
Biwer stated that CHARR feels the commission should include
members of the industry to deal with the practicalities.
REPRESENTATIVE HARRY CRAWFORD asked whether the bill would
fix the gaming system or make the shift to new gaming. Mr.
Biwar replied that CHARR feels that the gaming industry is
not well run. Representative Crawford asked for instances of
the state or charities not receiving their share. Mr. Biwar
replied that there is no accurate reporting without
enforcement.
Representative Crawford followed up by asking if those
organizations in violation would be issued licenses for
electronic video machines. Mr. Biwar pointed out that the
commission would make that decision.
GEORGE WRIGHT, VOLUNTEER, ALASKA NATIVE BROTHERHOOD (ANB)
LEGISLATIVE COMMITTEE, spoke in favor of the commission. He
felt that the fiscal note is too low, but he supported the
idea of the commission if it has a balanced representation
and the legislature makes the decisions on new gaming.
SPEAKER KOTT commented that the bill is irrelevant to the
expansion of gaming activities. He addressed the issue of
taxation. The Commission would make recommendations if there
were options available throughout the State. Currently, the
Governor has legislation regarding the pull-tabs. Both the
voluntary unpaid members on the commission and the provision
of the quarterly reports would benefit the state. The
accounting of annual revenues currently does not exist. He
added that currently there are not many problems in the
pull-tab and bingo industries. The legislation is a
framework to oversee the industry and to control current and
potential activities. The number of members on the
commission should be left to the discretion of the
committee. Other states do not have industry members.
Co-Chair Harris thought it would be a good idea to have at
least one or two members with industry experience, and asked
if the Speaker had a personal position on that concern.
Speaker Kott deferred that consideration to the committee.
He agreed that there should be some industry representation
but he questioned how the determination would be made. He
did not want to see industry dominate the membership.
Co-Chair Williams noted that HB 509 would be HELD in
committee for further consideration.
HOUSE BILL NO. 503
An Act relating to the tobacco product Master
Settlement Agreement; and providing for an effective
date.
CO-CHAIR HARRIS, SPONSOR, briefly introduced HB 503. The
bill addresses the Master Settlement Agreement (MSA) with
the tobacco industry and would close a current loophole with
the non-participating tobacco manufacturers and place money
into an escrow account held by the state.
TOM WRIGHT, STAFF TO REPRESENTATIVE JOHN HARRIS, explained
that the legislation was suggested by the National
Association of Attorneys General. The statutory change would
ensure that the non-participating manufacturers (NPMs) in
the MSA place in escrow approximately 1.5 cents per
cigarette sold in the state, rather than an allocable share.
Alaska's allocable share nationwide is .34%. Currently, the
NPMs are able to take out of escrow any amount that exceeds
its allocable share, which in some states may be a
significant amount. Mr. Wright commented that the bill
sections are confusing. He explained that Section 1 is the
"heart" of the bill, and Section 2 and Section 3 contain
conditional language in the event that either Section 1 or
Section 2 is found to be unconstitutional.
Co-Chair Harris asked for an explanation of the Master
Settlement Agreement and the loophole.
MIKE BARNHILL, ASSISTANT ATTORNEY GENERAL, COMMERCIAL/FAIR
BUSINESS SECTION, DEPARTMENT OF LAW, provided background on
the Master Settlement Agreement (MSA). In 1997 most of the
states sued the four principal tobacco manufacturers and the
litigation was settled in 1998 under the MSA. Under the
agreement, all manufacturers that have signed onto it pay a
certain amount of money on every cigarette sold and the
money is distributed on an annual basis to all the states
that participated in the MSA. It has generated about $100
million in revenue for the state of Alaska.
Mr. Barnhill explained that some manufacturers were not
going to participate in the MSA, which created an "unlevel
playing field". The participating members raise the price
of their cigarettes by the amount they estimate they'll need
to contribute to the MSA revenues, while the non-
participating members don't raise their price. This
undermines the MSA because the non-participating members can
capture market share by undercutting. The MSA proposed that
all participating states would enact legislation to level
the economic playing field and require all non-participating
manufacturers to deposit money into an escrow account. The
money is calculated on an annual basis, at about 2 cents per
cigarette this year. The amount is designed to reflect what
the non-participating members would have paid in the MSA.
All the manufacturers in the participating states either pay
into an escrow account or the MSA revenues that are
approximately the same amount of money per cigarette.
Mr. Barnhill explained the circumstances in which the non-
participating manufacturers (NPMs) can request that money be
released from escrow:
* If the state sues the NPM, recovers a judgment and that
manufacturer is judgment-proof, the money can be claimed
from the escrow account; or
* If more is paid into a state's escrow account than the
NPM would have paid as a participating manufacturer under
the MSA; or
* If the money has been sitting in the escrow account for
twenty-five years.
Mr. Barnhill noted the spreadsheet in the packets, "NPM
Escrow Release Calculations for hypothetical non
participating manufacturer Cheap Smokes, Inc." (copy on
file.) The spreadsheet indicates that under current law,
the market advantage has shifted to the non-participating
manufacturer who pays less than a penny per cigarette. This
is the loophole that HB 503 is trying to solve.
Representative Croft thought that the amount would keep
sliding. There would be more sales by NPMs and a big Alaska
market share that would grow. Mr. Barnhill acknowledged
that was correct. He stated that the good news for Alaska
is that the State ranks last in the country in terms of the
size of the NPM market. Alaskans smoke brand cigarettes.
Mr. Barnhill noted that specialty non-participating
manufacturers cater to price because a percentage of the
market buys the lowest cost cigarettes that are available.
In response to a question by Representative Croft, Mr.
Barnhill advised that taxing has no constitutional problems.
There have been proposals for a tax credit scheme; however,
the department tends to follow the National Association of
Attorneys General on these proposals, and strives for
uniformity with other states.
Representative Croft thought that the simplest solution
would involve raising the price to ten cents per cigarette,
giving everyone a credit for MSA participation, and leveling
the price. Mr. Barnhill acknowledged that there have been
similar proposals and stated that he did not know the
specific problems.
Representative Croft noted that he was attempting to
understand the details of the bill.
In response to a comment by Co-Chair Harris, Mr. Barnhill
stated that there is no direct financial impact to the state
as a result of the legislation. However, an indirect
financial impact resulted from implementation of the MSA
that raised cigarette prices and provided the NPM market
advantage. He added that it will have an indirect effect on
the state revenues when the market share of NPMs increases
on an aggregate basis.
In response to a question by Co-Chair Harris, Mr. Barnhill
affirmed that the NPMs and the MSA participants pay the same
tax to the state of Alaska.
Co-Chair Harris asked about taxing the non-participating
members more than the participants. Mr. Barnhill thought it
might cause equal protection problems. He offered to follow
up regarding the query.
Representative Croft noted his support for the bill.
Representative Croft referred to Mr. Barnhill's spreadsheet
and the hypothetical escrow of $20 thousand, asking how the
state could continue to escrow that amount when the MSA
would bring about $6800. Mr. Barnhill explained that the
amount is placed into escrow for 25 years unless a lawsuit
or judgment is filed, or the manufacturer is eligible for a
release. There are a variety of adjustments under the MSA
that can be implemented against a state. Alaska is obligated
to diligently enforce state law relating to NPMs and the
department has filed several lawsuits to force noncompliant
NPMs to deposit money into escrow.
Mr. Barnhill commented that there is not an economic
incentive for the State of Alaska to file suit against a
NPM. The total escrow account is less than $100 thousand
dollars spread between 30 manufacturers. The NPM market is
small so the corresponding escrow deposit requirement is
small. The state has only sued the big manufacturers as the
principal cause of alleged harm.
Representative Croft questioned the legality of holding $20
thousand in escrow when the NPM only owes the state $6800.
Mr. Barnhill advised that the state does not keep the money;
rather, the NPM opens an escrow account in their own name
and makes deposits. Commonly an NPM with nationwide sales
deposits money into segregated sub-accounts for each of the
states. Alaska is a potential beneficiary of that money.
In response to a question by Representative Croft, Mr.
Barnhill explained the three options of the contingency
language:
* Section 1 would require the NPM to pay the MSA amount
into escrow with no release, putting it on equal par with
the participating member. In Mr. Barnhill's opinion, the
legal drafters have been very cautious in the event the
states are sued and that provision is found to be
unconstitutional.
* Section two eliminates any ability of the NPMs to
request a release from escrow. The escrow amount is only
released after 25 years or to pay the state's lawsuit or
judgment.
* Section three reverts back to current law if Sections 1
and 2 are found to be unconstitutional. Mr. Barnhill
reiterated that it is cautious drafting.
Mr. Barnhill explained for Representative Croft how the NPM
sliding scale has the ultimate effect of undermining the
MSA.
Representative Hawker asked if this legislation ties into
the MSA issues of last session. Mr. Barnhill replied that
complementary legislation was designed to heighten
enforcement of Alaska's NPM statute. To prevent non-
compliance, a law was passed requiring all sellers of
cigarettes in the state to register with the Department of
Revenue.
Co-Chair Harris asked if the tobacco tax could be added to
this bill. Mr. Wright advised that the title would need to
be expanded.
Representative Foster MOVED to report HB 503 out of
Committee with individual recommendations and a zero fiscal
note. There being NO OBJECTION, it was so ordered.
HOUSE BILL NO. 375
An Act making appropriations for the operating and
loan program expenses of state government, for
certain programs, and to capitalize funds; making
appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska; and providing
for an effective date."
Representative Foster MOVED to ADOPT HB 375 with the
accompanying subcommittee reports. There being NO OBJECTION,
it was so ordered.
HOUSE BILL NO. 377
An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing
for an effective date.
Representative Foster MOVED to ADOPT HB 377 with the
accompanying subcommittee reports. There being no objection,
it was so ordered.
ADJOURNMENT
The meeting was adjourned at 3:22 P.M.
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