Legislature(1999 - 2000)

03/17/1999 01:40 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           HOUSE FINANCE COMMITTEE                                                                                              
              March 17, 1999                                                                                                    
                 1:40 P.M.                                                                                                      
                                                                                                                                
TAPE HFC 99 - 46, Side 1                                                                                                        
TAPE HFC 99 - 46, Side 2                                                                                                        
TAPE HFC 99 - 47, Side 1                                                                                                        
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Co-Chair Therriault called the House Finance Committee                                                                          
meeting to order at 1:40 p.m.                                                                                                   
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Co-Chair Therriault   Representative Foster                                                                                     
Co-Chair Mulder    Representative Grussendorf                                                                                   
Vice-Chair Bunde    Representative Kohring                                                                                      
Representative Austerman   Representative Moses                                                                                 
Representative J. Davies   Representative Williams                                                                              
Representative G. Davis                                                                                                         
                                                                                                                                
ALSO PRESENT                                                                                                                    
Representative Norman Rokeberg; Senator Dave Donley;                                                                            
Representative Jeannette James; Alison Elgee, Deputy                                                                            
Commissioner, Department of Administration; Rebecca Gamez,                                                                      
Director, Employment Security Division, Department of Labor;                                                                    
Dan Kanouse, Budget Analyst, Employment Security Division,                                                                      
Department of Labor; Don Dapcevich, Advisory Board on                                                                           
Alcohol and Drug Abuse.                                                                                                         
                                                                                                                                
TESTIFIED VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Chris Anderson, Glacier Brew House, Anchorage; Ron Hancock,                                                                     
Moose's Tooth Brewing Company, Anchorage; Douglas B.                                                                            
Griffin, Director, Alcohol Beverage Control Board; Don D                                                                        
                                                                                                                                
SUMMARY                                                                                                                         
                                                                                                                                
HB 69 "An Act relating to the Alcoholic Beverage Control                                                                        
Board; and providing for an effective date."                                                                                    
                                                                                                                                
 HB 69 was HELD in Committee for further                                                                                        
consideration.                                                                                                                  
                                                                                                                                
HB 87 "An Act relating to money credited to the account                                                                         
of the state in the unemployment trust fund by the                                                                              
Secretary of the Treasury of the United States;                                                                                 
and providing for an effective date."                                                                                           
                                                                                                                                
 HB 87 was REPORTED out of Committee with a "do                                                                                 
pass" recommendation and with a fiscal impact note                                                                              
by the Department of Labor, dated 3/5/99.                                                                                       
                                                                                                                                
HB 112 "An Act establishing the Alaska public building                                                                          
fund; and providing for an effective date."                                                                                     
                                                                                                                                
HB 112 was REPORTED out of Committee with a "do                                                                                 
pass" recommendation and with a zero fiscal note                                                                                
by the Office of the Governor, dated 3/10/99.                                                                                   
HOUSE BILL NO. 69                                                                                                               
                                                                                                                                
"An Act relating to the Alcoholic Beverage Control                                                                              
Board; and providing for an effective date."                                                                                    
                                                                                                                                
REPRESENTATIVE NORMAN ROKEBERG, SPONSOR testified in support                                                                    
of HB 69. He observed that HB 69 would extend the                                                                               
termination date of the Alcoholic Beverage Control Board                                                                        
(ABC) until June 30, 2003.  He explained that the date was                                                                      
chosen by the House Labor and Commerce Committee to conform                                                                     
to the recommendation of a 1997 Legislative Budget and Audit                                                                    
Committee audit. During the last Legislature, the                                                                               
termination date was extended to June 30, 1999. Without the                                                                     
passage of this legislation the board would be in its wind                                                                      
down year.                                                                                                                      
                                                                                                                                
Representative Rokeberg maintained that the bulk of the                                                                         
legislation adds limited liability organizations, such as                                                                       
limited liability companies and limited liability                                                                               
partnerships, under the licensing authority of the Board.                                                                       
The Board requested this addition.                                                                                              
                                                                                                                                
Representative Rokeberg noted that sections 4 and 5 speak to                                                                    
a problem that arose in 1995, regarding the establishment of                                                                    
an exempt license for restaurant or eating-place                                                                                
establishments in combination with a brewery. He maintained                                                                     
that this allowed combined restaurant and brewery                                                                               
establishments to essentially create a tavern/brewpub                                                                           
without a dispensary license. Prior to this brewpubs were                                                                       
required to have a beverage dispensary liquor license. He                                                                       
asserted that this change created an unfair playing field.                                                                      
Tavern exempt licenses were allowed to compete with beverage                                                                    
dispensary licenses, which cost at that time, upwards of                                                                        
$200 thousand dollars. He noted that HB 372 was passed in                                                                       
1996. This category of license was deleted under HB 372 and                                                                     
the five existing licenses were grandfathered in. Since that                                                                    
time, one business has gone out of business and another                                                                         
business only produces about 100 kegs of beer a year. The                                                                       
three main establishments are in the Anchorage area. House                                                                      
Bill 69 would allow these businesses to buy a beverage                                                                          
dispensary license and permit the holder of a beverage                                                                          
dispensary/brewpub license to sell their beer at another                                                                        
licensed premises of the same licensee. They would buy a                                                                        
beverage dispensary license and become brewpubs and give up                                                                     
their exempt brewery/restaurant license. Two of the three                                                                       
existing license holders support the measure the other will                                                                     
remain grandfathered into the exempt license by the                                                                             
legislation. There would be two less licenses when the                                                                          
exempt licenses are replaced by beverage dispensary                                                                             
licenses.                                                                                                                       
                                                                                                                                
Representative Rokeberg noted that the legislation also                                                                         
permits a package store licensee to deliver not more than                                                                       
two bottles of wine or champagne in a gift basket with a                                                                        
floral arrangement to a cruise ship passenger or hotel                                                                          
guest. It also permits a package store licensee to deliver                                                                      
alcoholic beverages to a responsible adult at a social                                                                          
event, such as a wedding reception.                                                                                             
                                                                                                                                
Representative Rokeberg added that the legislation permits a                                                                    
"corkage" policy to be adopted by the licensee. "Corkage" is                                                                    
where a person is permitted to bring a bottle or bottles of                                                                     
fine wine into a restaurant, with the permission of the                                                                         
licensee.  The wine is then turned over and served by                                                                           
employees of a licensee and a "corkage fee" is charged.                                                                         
                                                                                                                                
In response to a question by Co-Chair Therriault,                                                                               
Representative Rokeberg discussed businesses in Anchorage                                                                       
that would be affected by the legislation. Moose's Tooth and                                                                    
the Glacier Brewhouse would be the main parties affected.                                                                       
The legislation would allow these businesses to purchase                                                                        
another premise and deliver beer from the existing brewery                                                                      
to the new establishment. This is currently prohibited. The                                                                     
previous statute prohibited joint ownership of a brewery or                                                                     
a restaurant license.                                                                                                           
                                                                                                                                
Representative Rokeberg noted that the March 12, 1999,                                                                          
letter of support by the Moose's Tooth provides a good                                                                          
explanation of the legislation (copy on file).                                                                                  
                                                                                                                                
Representative Rokeberg maintained that the Cabaret, Hotel,                                                                     
and Restaurant Retail (CHARR) and the Anchorage Restaurant                                                                      
and Beverage (ARBA) associations support the legislation. He                                                                    
stressed that the legislation is a compromise of competitors                                                                    
doing business with each other. He maintained that without                                                                      
the legislation business competition is not level.                                                                              
                                                                                                                                
DOUGLAS B. GRIFFIN, DIRECTOR, ALCOHOL BEVERAGE CONTROL BOARD                                                                    
testified via teleconference in support of the continuation                                                                     
of the sunset date and the limited liability organization                                                                       
language (LLO). He observed that the Board does not object                                                                      
to the other issues added by the House Labor and Commerce                                                                       
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Therriault questioned if the LLO reporting                                                                             
provisions are identical to requirements for other                                                                              
businesses. Mr. Griffin stated that they are identical to                                                                       
what is required for corporations. Mr. Griffin noted that                                                                       
the corporation or entity would have to be in existence for                                                                     
one year. There is a residency requirement for the                                                                              
corporation.                                                                                                                    
                                                                                                                                
Vice-Chair Bunde referred to section 7, which allows                                                                            
delivery to social events. Mr. Griffin stated that the                                                                          
provision needs to be explained in regulation. He observed                                                                      
that there are restrictions on deliveries. Deliveries must                                                                      
be made to a responsible adult, between the hours of 8:00                                                                       
a.m. and 5:00 p.m. He stressed that a balance must be struck                                                                    
between commercial interest and public protection.                                                                              
                                                                                                                                
Co-Chair Therriault asked how the delivery provision in                                                                         
section 7 would impact their enforcement budget. Mr. Griffin                                                                    
estimated that there would only be 10 - 20 businesses                                                                           
statewide that would take advantage of the provision. He did                                                                    
not expect the provision to greatly impact enforcement.                                                                         
                                                                                                                                
Co-Chair Therriault questioned if "wine" on page 6, line 29                                                                     
would cover champagne. Mr. Griffin stated that champagne                                                                        
would be included.                                                                                                              
                                                                                                                                
CHRIS ANDERSON, GLACIER BREW HOUSE, ANCHORAGE testified via                                                                     
teleconference in support of the legislation. He observed                                                                       
that the bill represents a compromise. It would allow them                                                                      
to expand their businesses.                                                                                                     
                                                                                                                                
Representative J. Davies questioned why the cost of the                                                                         
beverage dispensary licenses is so high. Mr. Anderson                                                                           
explained that there are approximately 10 licenses available                                                                    
in Anchorage at the current time. The number will not                                                                           
increase with population.                                                                                                       
                                                                                                                                
Representative Moses felt that it is unfair to require a                                                                        
beverage dispensary license. He stated that it would make                                                                       
more sense to require them to get a restaurant or eating-                                                                       
place license. He stressed that the microbrewery industry is                                                                    
new and growing. He felt that the legislation would be                                                                          
restrictive.                                                                                                                    
                                                                                                                                
Representative Rokeberg spoke against Representative Moses'                                                                     
suggestion. He referred to HB 372, passed in 1996. He                                                                           
maintained that the goal of the industry is to repeal the                                                                       
grandfathered licenses. He stated that nothing prohibits                                                                        
breweries from selling their beer independently or becoming                                                                     
a brewpub.                                                                                                                      
                                                                                                                                
Representative J. Davies expressed support for comments by                                                                      
Representative Moses. He questioned why a brewery that wants                                                                    
to sell beer on the premises should have a beverage                                                                             
dispensary license. Any form of alcohol can be sold under a                                                                     
beverage dispensary license. He stated that it would make                                                                       
more sense for them to have a restrictive license.                                                                              
                                                                                                                                
Representative Rokeberg observed that his office compiled a                                                                     
legislative history of the issue (copy on file).  He                                                                            
reviewed the legislative history. He maintained that the                                                                        
1995 legislation provided an unfair advantage. He noted that                                                                    
there are approximately 12 inexpensive restaurant or eating-                                                                    
place licenses available, while beverage dispensary licenses                                                                    
(required to be a brewpub) cost between $125 - $175 thousand                                                                    
dollars and must be bought on the secondary market.                                                                             
Anchorage is over licensed in terms of beverage dispensary                                                                      
licenses. Legislation in 1988 required that brewpubs have a                                                                     
beverage dispensary license. He maintained that unfair                                                                          
competition was created when this was changed in 1995.                                                                          
                                                                                                                                
Representative Moses pointed out that it would be similar to                                                                    
requiring restaurants to have a beverage dispensary license                                                                     
before they can sell wine and beer. He observed that a                                                                          
beverage dispensary license allows the sale of any alcoholic                                                                    
beverage. The cost of a beverage dispensary license is                                                                          
similar to the cost of the equipment needed to begin a                                                                          
brewery. He did not think that the legislation leveled the                                                                      
playing field.                                                                                                                  
                                                                                                                                
Representative Rokeberg asserted that there is not a big                                                                        
market for brewpubs in Alaska. Mr. Griffin noted that there                                                                     
are four brewpub licenses in the state of Alaska. He                                                                            
reiterated that a beverage dispensary license allows the                                                                        
sale of any alcoholic beverage. The brewpub license allows                                                                      
the holder, who formerly held a brewery license and a                                                                           
restaurant or eating-place license, to manufacture limited                                                                      
quantities for sale on the licensed premises and to remove                                                                      
not more than five gallons a day from the premises.                                                                             
                                                                                                                                
Representative J. Davies observed that in 1988, the                                                                             
Legislature required brewpubs to have a beverage dispensary                                                                     
license.                                                                                                                        
                                                                                                                                
In response to a question by Co-Chair Therriault, Mr.                                                                           
Griffin explained that a restaurant or eating-place license                                                                     
is required to sell beer and wine with food. There is only                                                                      
one beverage dispensary license for every 3,000 population.                                                                     
There can be one restaurant or eating-place license for                                                                         
every 1,500 population. Food sales must be at least 50                                                                          
percent.                                                                                                                        
                                                                                                                                
(Tape Change, HFC 99 - 46, Side 2)                                                                                              
                                                                                                                                
Representative Rokeberg reiterated support by CHARR and                                                                         
ARBA. He emphasized that the rules of the game need to be                                                                       
consistent.                                                                                                                     
                                                                                                                                
In response to a question by Representative J. Davies,                                                                          
Representative Rokeberg clarified that the exempt licenses                                                                      
were allowed between the adoption of SB 87 in 1995 and HB
372 in 1996.                                                                                                                    
                                                                                                                                
Representative J. Davies observed that a restaurant or                                                                          
eating-place license allows the sale of beer and wine. He                                                                       
questioned the difference between a restaurant that wants to                                                                    
sell beer and a restaurant that wants to sell beer that it                                                                      
makes on the premises. Representative Rokeberg responded                                                                        
that it has to do with the changing patterns of alcohol                                                                         
consumption and the greater popularity of microbreweries.                                                                       
                                                                                                                                
Representative J. Davies suggested that the 1988 law should                                                                     
be reversed to level the playing field. He did not                                                                              
understand why a brewpub that wants to sell beer is being                                                                       
treated substantially different from a restaurant that sells                                                                    
beer and wine.                                                                                                                  
                                                                                                                                
Representative Rokeberg observed that the brewpubs had                                                                          
limited menu options.                                                                                                           
                                                                                                                                
Mr. Anderson clarified he was originally licensed with a                                                                        
brewery and a restaurant or eating-place license. This                                                                          
allowed them to brew unlimited beer and sell beer and wine                                                                      
in the restaurant. He clarified that their food sales are 77                                                                    
percent of their total sales. Beer accounts for only 12                                                                         
percent of their total sales. They are asking to be able to                                                                     
expand. He observed that they would need to brew 200,000                                                                        
barrels of beer a year to be profitable without the sale of                                                                     
beer.                                                                                                                           
                                                                                                                                
RON HANCOCK, MOOSE'S TOOTH BREWING COMPANY, ANCHORAGE                                                                           
testified via teleconference in support of HB 69. He stated                                                                     
that their food sales are over 70 percent of the total. Beer                                                                    
sales account for 10 - 20 percent of the total. He stressed                                                                     
that they need the opportunity to grow as other restaurants                                                                     
do. He stressed that it is not logical that the brewery,                                                                        
which is a small part of their business, should hold them                                                                       
back from growth.                                                                                                               
                                                                                                                                
Co-Chair Therriault clarified that if they expanded to                                                                          
another location that the brewery would not be duplicated.                                                                      
Mr. Hancock stated that at the time they created their                                                                          
business that the statutes allowed them to open multiple                                                                        
locations. That right was taken away. Their intention at                                                                        
inception was to open multiple restaurants.                                                                                     
                                                                                                                                
Representative Rokeberg clarified that the restriction is                                                                       
under AS 04.11.450. Senator Halford introduced this language                                                                    
in 1996.                                                                                                                        
                                                                                                                                
"A person who is a representative or owner of a                                                                                 
wholesale business, brewery, winery, bottling works, or                                                                         
distillery may not be issued, solely or together with                                                                           
others, a beverage dispensary license, a restaurant or                                                                          
eating-place license, or package store license. A                                                                               
holder of a beverage dispensary license may be issued a                                                                         
brewpub license, subject to the provisions of AS                                                                                
04.11.135. The prohibition against issuance of a                                                                                
restaurant or eating-place license imposed under this                                                                           
subsection does not apply to a restaurant or eating-                                                                            
place license issued on or before October 1, 1996 or a                                                                          
restaurant or eating-place license issued under an                                                                              
application for a restaurant or eating-place license                                                                            
approved on or before October 1, 1996."                                                                                         
                                                                                                                                
Co-Chair Therriault observed that Mr. Larry Hackenmiller,                                                                       
CHARR indicated that CHARR supports the bill, but that they                                                                     
have some concerns over whether or not the brewhouse                                                                            
operators are satisfied with the language. Representative                                                                       
Rokeberg pointed out that the legislation is a negotiated                                                                       
compromise between CHARR and the brewhouse operators.                                                                           
                                                                                                                                
Mr. Hancock emphasized that the legislation allows them to                                                                      
grow. Mr. Anderson added that it is a compromise that can                                                                       
work.                                                                                                                           
                                                                                                                                
Representative G. Davis asked for more information regarding                                                                    
section 12, corkage fee. Representative Rokeberg noted that                                                                     
the provision would be at the discretion of the licensee.                                                                       
                                                                                                                                
DON DAPCEVICH, ADVISORY BOARD ON ALCOHOL AND DRUG ABUSE                                                                         
testified in support of the original legislation. He                                                                            
observed that the Board has not reviewed the House Labor and                                                                    
Commerce Committee amendments. He noted that the Advisory                                                                       
Board on Alcohol and Drug Abuse and the Alcohol Beverage                                                                        
Control Board work together. He stated that if beverage                                                                         
dispensary licenses were calculated only by population that                                                                     
there would need to be a population of 1.6 million people to                                                                    
accommodate the existing number of licenses.                                                                                    
                                                                                                                                
Representative J. Davies questioned if comparisons have been                                                                    
made between restaurants and taverns. Mr. Dapcevich observed                                                                    
that the number of alcohol related instances are less when                                                                      
food is sold in addition to alcohol. He observed that the                                                                       
concern in 1995 was that a new tavern industry was being                                                                        
created. He stressed that there is a difference between                                                                         
having a primary emphasis of alcohol and entertainment or                                                                       
food service.                                                                                                                   
                                                                                                                                
Representative J. Davies pointed out that businesses that                                                                       
sell more than 70 percent food are being required to get                                                                        
beverage dispensary licenses that would allow them to sell                                                                      
more forms of alcohol. He thought that the legislation moves                                                                    
in the wrong direction as a matter of public policy. He                                                                         
stressed that allowing these establishments to be a                                                                             
restaurant with a beer and wine license should solve the                                                                        
problem.                                                                                                                        
                                                                                                                                
Co-Chair Therriault asked if a second location could be                                                                         
opened and the beer purchased from the first establishment.                                                                     
Representative Rokeberg replied that they would not be                                                                          
allowed to sell their beer at the second location.                                                                              
                                                                                                                                
Representative Rokeberg acknowledged that the fears of                                                                          
competitors in regards to the alcohol/food ratio have proven                                                                    
in practical application not to be justified. He pointed out                                                                    
that if a new type of license were created that they would                                                                      
be in competition with existing beverage dispensary                                                                             
licensees.                                                                                                                      
                                                                                                                                
Representative J. Davies asked if Mr. Anderson and Mr.                                                                          
Hancock would support the ability to operate under a                                                                            
restaurant or eating-place license and a brewery license.                                                                       
Mr. Anderson stated that he would support such a scenario.                                                                      
He observed that CHARR and ARBA rejected similar                                                                                
legislation, which was introduced at the request of the                                                                         
Alcohol Beverage Control Board. He acknowledged that HB 69                                                                      
is a compromise. Mr. Hancock pointed out that after they                                                                        
purchase a beverage dispensary license and convert their                                                                        
original license they would only have to buy restaurant or                                                                      
eating-place licenses for additional locations.                                                                                 
                                                                                                                                
Mr. Griffin clarified, in response to a question by                                                                             
Representative Rokeberg, that there are two brewpubs that                                                                       
have beverage dispensary licenses. He noted that the first                                                                      
brewpub was established in 1994. He noted that the Alcohol                                                                      
Beverage Control Board was asked to present a recommendation                                                                    
for the issue in 1996. The Alcohol Beverage Control Board                                                                       
introduced SB 138 during the 1997 session. They recommended                                                                     
that a restaurant or eating-place establishment be allowed                                                                      
to purchase a brewpub license. The Board expanded what a                                                                        
brewpub could do through marketing. The reason the                                                                              
legislation did not move was that the beverage dispensary                                                                       
licensees objected. He observed that the legislation by the                                                                     
Alcohol Beverage Control Board tried to push the industry                                                                       
toward beverage moderation. The Senate Finance Committee                                                                        
introduced the legislation on behalf of the Alcohol Beverage                                                                    
Control Board.                                                                                                                  
                                                                                                                                
SENATOR DAVE DONLEY provided information regarding the                                                                          
extension of the Alcohol Beverage Control Board's sunset                                                                        
date. He observed that the Legislative Budget and Audit                                                                         
Committee made recommendations in their sunset audit                                                                            
(September 8, 1997, copy on file). The Senate adopted some                                                                      
of the audit's recommendations. He discussed concerns and                                                                       
recommendations of the audit. The House only adopted one of                                                                     
the audit's recommendations. The Senate limited the sunset                                                                      
to a one-year extension. Members of the Senate felt that it                                                                     
was important that the audit's recommendations be addressed.                                                                    
He suggested that the title be broad enough to consider the                                                                     
recommendations of the Legislative Budget and Audit                                                                             
Committee's audit. He noted that the current title would not                                                                    
allow the Senate to address concerns raised by the audit                                                                        
without a title change.                                                                                                         
                                                                                                                                
(Tape Change, HFC 99 -47, Side 1)                                                                                               
                                                                                                                                
HB 69 was HELD in Committee for further consideration.                                                                          
HOUSE BILL NO. 112                                                                                                              
                                                                                                                                
"An Act establishing the Alaska public building fund;                                                                           
and providing for an effective date."                                                                                           
                                                                                                                                
REPRESENTATIVE JEANETTE JAMES, SPONSOR testified in support                                                                     
of HB 112. She observed that HB 112 would establish the                                                                         
Alaska Public Building Fund as recommended by the Deferred                                                                      
Maintenance Task Force. The fund would be established within                                                                    
the general fund. The money in the fund would not lapse at                                                                      
the end of the year. The Administration plans to set up a                                                                       
rent schedule for state owned office space. The rent would                                                                      
be deposited into the Alaska Public Building Fund. It could                                                                     
then be used for maintenance.                                                                                                   
                                                                                                                                
Co-Chair Therriault pointed out that the House Finance                                                                          
Committee reviewed similar legislation during the previous                                                                      
session. The legislation failed to pass in the final hours.                                                                     
                                                                                                                                
Representative James clarified that agencies would pay rent                                                                     
for the space they utilize in state buildings. The rent                                                                         
would be calculated based on the depreciation and value of                                                                      
the property. The rent money could then be used for                                                                             
maintenance issues. She observed that money needs to be                                                                         
accumulated for long term maintenance.                                                                                          
                                                                                                                                
Co-Chair Therriault pointed out that the money would still                                                                      
be general funds. There would be no prohibition on future                                                                       
legislatures. He asked if the money would be identified as                                                                      
other funds. Representative James felt that it would be                                                                         
general funds.                                                                                                                  
                                                                                                                                
Co-Chair Therriault noted that "agencies" was changed to                                                                        
"occupant" in order to take into account private occupancy                                                                      
in the Bank of America building.                                                                                                
                                                                                                                                
Representative Grussendorf spoke in support of the                                                                              
legislation.                                                                                                                    
                                                                                                                                
Co-Chair Therriault noted that pressure to spend the funds                                                                      
for other items would remain.                                                                                                   
                                                                                                                                
Representative J. Davies expressed concern that not all                                                                         
agencies would participate in the program equally. He                                                                           
suggested that participation be based on a square foot                                                                          
formula. He asked the meaning of "use" on page 2, line 1.                                                                       
                                                                                                                                
Representative James observed that maintenance has to be                                                                        
described. She emphasized the need to fund long term                                                                            
maintenance.                                                                                                                    
                                                                                                                                
ALISON ELGEE, DEPUTY COMMISSIONER, DEPARTMENT OF                                                                                
ADMINISTRATION testified in support of the legislation. She                                                                     
explained that there are a variety of federal rules that                                                                        
govern the way rental rate funds are established. The                                                                           
Administration is working with a statewide indirect cost                                                                        
consultant to develop a rate schedule to take to the federal                                                                    
government for approval. The rate schedule includes annual                                                                      
maintenance costs, janitorial service, and utilities. These                                                                     
costs are currently appropriated in the Department of                                                                           
Transportation and Public Facilities's budget for public                                                                        
facility maintenance. She stressed that it allows them to                                                                       
add depreciation. Depreciation would be added into the                                                                          
rental structure and collected for major maintenance renewal                                                                    
and replacement components. Each program will pay based on                                                                      
their space occupancy. The money will go into the fund.                                                                         
Annual operating and maintenance costs would be appropriated                                                                    
out of the fund. The capital budget would use the fund for                                                                      
replacement of building components. The monies would be                                                                         
accounted as general fund in the agency's program budget.                                                                       
When the funds are appropriated out of the building fund                                                                        
they would be accounted as an internal service fund source.                                                                     
The legislation would allow the state to leverage other                                                                         
funds.                                                                                                                          
                                                                                                                                
Co-Chair Therriault questioned if the same dollar would be                                                                      
counted twice. Co-Chair Mulder explained that the funds                                                                         
would be backed out. Co-Chair Therriault questioned if the                                                                      
funds carried forward for renewal and replacement would also                                                                    
be backed out. Ms. Elgee clarified that the capital                                                                             
expenditure would also be backed out as duplicated                                                                              
expenditures.                                                                                                                   
                                                                                                                                
Representative J. Davies summarized that there would be                                                                         
annual operating expenses and capital expenses. He asked the                                                                    
definition of "use". Ms. Elgee clarified that "use" is                                                                          
intended to encompass all of the components of the                                                                              
maintenance schedule. She observed that the components of                                                                       
the rental schedule would be the management (administration                                                                     
and overhead of operating maintenance personal), operations                                                                     
(utilities), maintenance (janitorial), and the depreciation                                                                     
costs (renewal and replacement). "Use" was used to clarify                                                                      
the sentence. She emphasized that everything would be                                                                           
covered under management, operation, maintenance and                                                                            
depreciation.                                                                                                                   
                                                                                                                                
Representative Austerman observed that major maintenance and                                                                    
depreciation are the two new things that would be                                                                               
accomplished by the legislation. Ms. Elgee explained that                                                                       
the failure to provide sufficient funding on an annual basis                                                                    
creates problems.  The deferred maintenance backlog has                                                                         
developed because of an inability to replace major building                                                                     
components on a timely basis and because major building                                                                         
components have deteriorated more rapidly then anticipated.                                                                     
The legislation would allow an expansion of dollars                                                                             
available for annual maintenance by leveraging other fund                                                                       
sources that are not being charged for their space cost and                                                                     
provide a pool of funds for major building component                                                                            
replacements.                                                                                                                   
                                                                                                                                
Representative Grussendorf asked if the federal government                                                                      
or other entities occupy space in state buildings. Ms. Elgee                                                                    
stated that there is federal and private occupancy in the                                                                       
Bank of America building and private occupancy in the Court                                                                     
Plaza building. Representative Grussendorf observed that                                                                        
"use" broadens the language, but that the wording                                                                               
"management, operation, maintenance, and depreciation" would                                                                    
be sufficient.                                                                                                                  
                                                                                                                                
Co-Chair Therriault noted that there is a zero fiscal note.                                                                     
                                                                                                                                
Representative Kohring MOVED to report HB 112 out of                                                                            
Committee with the accompanying fiscal note. There being NO                                                                     
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
HB 112 was REPORTED out of Committee with a "do pass"                                                                           
recommendation and with a zero fiscal note by the Office of                                                                     
the Governor, dated 3/10/99.                                                                                                    
HOUSE BILL NO. 87                                                                                                               
                                                                                                                                
"An Act relating to money credited to the account of                                                                            
the state in the unemployment trust fund by the                                                                                 
Secretary of the Treasury of the United States; and                                                                             
providing for an effective date."                                                                                               
                                                                                                                                
REBECCA GAMEZ, DIRECTOR, EMPLOYMENT SECURITY DIVISION,                                                                          
DEPARTMENT OF LABOR testified in support of HB 87. She                                                                          
observed that HB 87 provides statutory language to allow a                                                                      
federal Reed Act distribution. She explained that the                                                                           
current statute AS 23.20.145(f) allows Reed Act funds to be                                                                     
used for the payment of unemployment benefits and the                                                                           
administration of both the Employment Services program and                                                                      
the Unemployment Insurance program. Under the Balance Budget                                                                    
Act of 1997, Congress specified that the distribution of                                                                        
these funds could only apply to the administration of                                                                           
unemployment insurance. The Balance Budget Act also required                                                                    
states to pass enabling legislation. The Reed Act                                                                               
distribution is a transfer of excess funds that are                                                                             
collected through the federal Unemployment Tax Act. When                                                                        
these funds have met a proscribed federal ceiling they give                                                                     
the excess back to the state. The last Reed Act distribution                                                                    
was in 1958. The legislation would allow the state to                                                                           
receive the funds.                                                                                                              
                                                                                                                                
In response to a question by Co-Chair Therriault, Ms. Gamez                                                                     
explained that the administrative funds would be used for                                                                       
equipment purchases. They anticipate a distribution of $600                                                                     
- $700 thousand dollars. She observed that $500 - $600                                                                          
thousand dollars were shifted from an unemployment tax                                                                          
redesign capital improvement project to meet their Y2K                                                                          
needs. The Reed Act distribution would be used to replace                                                                       
the capital project funds. There are no general funds in                                                                        
this component. The department has two years to obligate the                                                                    
funds.                                                                                                                          
                                                                                                                                
Representative Kohring asked how much of the money was paid                                                                     
into the system by Alaskan business. Ms. Gamez stated that                                                                      
the Alaska base is divided by the federal base. Alaskan                                                                         
employers do not pay in as much as other states. The state                                                                      
receives more back then it pays in. Representative Kohring                                                                      
asked if Alaskan businesses could receive a rebate. Ms.                                                                         
Gamez stated that they have not considered a rebate. She                                                                        
noted that Alaska receives 320 percent back for                                                                                 
administrative funding. The next highest state receives 120                                                                     
percent. She did not think that a rebate would substantially                                                                    
lower employer taxes.                                                                                                           
                                                                                                                                
Co-Chair Mulder asked if the funds were limited to                                                                              
administration of unemployment compensation. Ms. Gamez                                                                          
stated that they were limited to administration of                                                                              
unemployment compensation.                                                                                                      
                                                                                                                                
Co-Chair Therriault asked if a square footage fee charged to                                                                    
the program for their space in a state building would be                                                                        
covered under administrative costs. Ms. Gamez thought that                                                                      
the rental fee would be covered under administration as long                                                                    
as it was square footage for offices that administered the                                                                      
unemployment insurance program or tax sections. She noted                                                                       
that there are offices in Juneau, Anchorage and other parts                                                                     
of the state.                                                                                                                   
                                                                                                                                
In response to a question by Co-Chair Therriault, Ms. Gamez                                                                     
clarified that the department expects three distributions                                                                       
beginning in 1999.                                                                                                              
                                                                                                                                
Co-Chair Mulder observed that the funds would have to be                                                                        
appropriated by the legislature. He summarized that a                                                                           
portion could be appropriated to an Alaska Public Building                                                                      
Fund. Ms. Gamez explained that the funds would be                                                                               
appropriated from the rent collections to the Unemployment                                                                      
Security Division. The money could then be applied to the                                                                       
square footage of maintenance in state buildings.                                                                               
                                                                                                                                
Co-Chair Therriault clarified that it is not an                                                                                 
appropriation bill.                                                                                                             
                                                                                                                                
DAN KANOUSE, BUDGET ANALYST, EMPLOYMENT SECURITY DIVISION,                                                                      
DEPARTMENT OF LABOR explained that the Department of Labor                                                                      
would receive the funds on October 1, 1999 for use in FY00.                                                                     
                                                                                                                                
Representative J. Davies MOVED to report HB 87 out of                                                                           
Committee with the accompanying fiscal note. There being NO                                                                     
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
HB 87 was REPORTED out of Committee with a "do pass"                                                                            
recommendation and with a fiscal impact note by the                                                                             
Department of Labor, dated 3/5/99.                                                                                              
ADJOURNMENT                                                                                                                     
                                                                                                                                
The meeting adjourned at 3:50 p.m.                                                                                              
House Finance Committee 13 3/17/99                                                                                              

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