Legislature(2005 - 2006)HOUSE FINANCE 519

03/08/2006 01:30 PM FINANCE

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Heard & Held
Heard & Held
Moved Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 8, 2006                                                                                            
                         1:44 P.M.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 1:44:08 PM.                                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Beth Kerttula                                                                                                    
Representative Carl Moses                                                                                                       
MEMBERS ABSENT                                                                                                                
Representative Jim Holm                                                                                                         
Representative Bruce Weyhrauch                                                                                                  
ALSO PRESENT                                                                                                                  
Suzanne  Cunningham,   Staff,  Representative   Kevin  Meyer;                                                                   
Heather Brakes,  Staff, Senator Gene Therriault;  Joe Balash,                                                                   
Staff, Senator  Gene Therriault; Whitney  Brewster, Director,                                                                   
Division  of Elections,  Office  of the  Lt. Governor;  Devon                                                                   
Mitchell,  Executive  Director,  Alaska Municipal  Bond  Bank                                                                   
Authority, Department  of Revenue; Anne Carpeneti,  Assistant                                                                   
Attorney  General,  Legal Services  Section-Juneau,  Criminal                                                                   
Division,  Department  of  Law; Annette  Kreitzer,  Chief  of                                                                   
Staff,  Office of  the  Lieutenant Governor;  Kevin  Ritchie,                                                                   
Executive  Director,  Alaska  Municipal  League;  Carl  Rose,                                                                   
Alaska  Association of  Alaska  School Boards,  Juneau;  Bill                                                                   
Byork,  President,   National  Education  Association   (NEA)                                                                   
PRESENT VIA TELECONFERENCE                                                                                                    
Carol  Samuels, Northwest  Securities  Corporation,  Seattle,                                                                   
Washington;  Doug Griffin,  Alcohol  Beverage Control  Board,                                                                   
Department of  Public Safety;  Captain Ed Harrington,  Alaska                                                                   
State  Troopers, Department  of Public  Safety; John  Shively                                                                   
Holland America, Anchorage; Eric Whaley, Merril Lynch                                                                           
HB 278    An Act  relating to the Alaska Municipal  Bond Bank                                                                   
          Authority;  permitting  the Alaska  Municipal  Bond                                                                   
          Bank Authority or a  subsidiary of the authority to                                                                   
          assist state  and municipal governmental  employers                                                                   
          by  issuing  bonds and  other  commercial paper  to                                                                   
          enable the governmental  employers to prepay all or                                                                   
          a portion of the governmental  employers' shares of                                                                   
          the  unfunded  accrued   actuarial  liabilities  of                                                                   
          retirement  systems  and  authorizing  governmental                                                                   
          employers  to  contract with  and  to issue  bonds,                                                                   
          notes, or commercial  paper to the authority or its                                                                   
          subsidiary   corporation  for  that   purpose;  and                                                                   
          providing for an effective date.                                                                                      
          HB 278 was HEARD and HELD in Committee for further                                                                    
SB 172    An Act relating to the  presentation of initiatives                                                                   
          and referenda on the ballot.                                                                                          
          SB 172 was HEARD and HELD in Committee for further                                                                    
SB 210    An   Act   relating    to   the   manufacture   and                                                                   
          transportation of alcoholic  beverages; relating to                                                                   
          forfeitures   of   property   for   violations   of                                                                   
          alcoholic   beverage    laws;   and   relating   to                                                                   
          violations of alcoholic beverage laws.                                                                                
          SB 210 was reported out of Committee with                                                                             
          "individual" recommendations  and with zero note #1                                                                   
          by the Department of Public Safety.                                                                                   
1:45:18 PM                                                                                                                    
HOUSE BILL NO. 278                                                                                                            
     An  Act  relating  to the  Alaska  Municipal  Bond  Bank                                                                   
     Authority;  permitting the  Alaska  Municipal Bond  Bank                                                                   
     Authority  or a subsidiary  of the  authority to  assist                                                                   
     state  and municipal governmental  employers by  issuing                                                                   
     bonds  and   other  commercial   paper  to   enable  the                                                                   
     governmental  employers to  prepay all  or a portion  of                                                                   
     the  governmental  employers'  shares  of  the  unfunded                                                                   
     accrued actuarial liabilities  of retirement systems and                                                                   
     authorizing governmental  employers to contract with and                                                                   
     to  issue  bonds,  notes,  or commercial  paper  to  the                                                                   
     authority  or   its  subsidiary  corporation   for  that                                                                   
     purpose; and providing for an effective date.                                                                              
REPRESENTATIVE MIKE  HAWKER, SPONSOR, stated that  one of the                                                                   
biggest issues  facing the  State of  Alaska is the  unfunded                                                                   
pension liability.   It has become  a growing issue  the last                                                                   
several years; last year, a determination  was made on how to                                                                   
best address  it.  HB  278 recommends  a way to  address that                                                                   
Representative  Hawker stated  there is  a $6 billion  dollar                                                                   
deficit.  He knew that the State  could not come up with that                                                                   
amount of money, however, the  amount could be amortized over                                                                   
time.  The issue  before the Committee is how  to pay it off,                                                                   
understanding the compound growth rate of 8%.                                                                                   
HB 278  provides a tool within  the financial market  to help                                                                   
pay off  the obligation with the  least possible cost  to tax                                                                   
payers.  The idea is to borrow  from an entity, asking a less                                                                   
amount of interest and the difference  would be a net savings                                                                   
over time for the State.                                                                                                        
1:50:59 PM                                                                                                                    
Representative Hawker  suggested a possible savings  close to                                                                   
$1.5 billion  dollars over the time  of the loan if  the debt                                                                   
is bonded out.   He reiterated that this savings  would be to                                                                   
the taxpayers of the State of Alaska.                                                                                           
Representative Hawker  acknowledged that borrowing  the funds                                                                   
would create a  profound constitutional change  and that such                                                                   
a mechanism was available within the international markets.                                                                     
The  bill  was  brought  forward  because  it  addresses  the                                                                   
capital  market;  municipalities   would  like  to  have  the                                                                   
consideration of  that option and the statutory  authority to                                                                   
pursue  it.   He  noted that  the Municipality  of  Anchorage                                                                   
supports the concept.  The Alaska  Municipal League (AML) has                                                                   
passed  a resolution  indicating  that  they  would like  the                                                                   
statutory authority  to consider the option.   The bill would                                                                   
provide  statutory  authority  to  municipalities  to  pursue                                                                   
pension obligation bond transactions.                                                                                           
1:55:08 PM                                                                                                                    
Representative  Hawker stressed the  simplicity of  the bill.                                                                   
The   most  complicated   aspect   of  the   legislation   is                                                                   
understanding  what  pension  obligation  bonds are  and  the                                                                   
associated benefits  and risks.    He recommended  that staff                                                                   
and  legislators   carefully  read  the  back   up  materials                                                                   
regarding  the   transactions.    Two  firms   interested  in                                                                   
pursuing  the  transactions  are  on  line  for  testimony  &                                                                   
1:58:31 PM                                                                                                                    
Representative  Hawker  said pension  bonds  would be  better                                                                   
than the  alternatives to solving  the pension  fund concern.                                                                   
Most municipalities do not have  the ability to write a check                                                                   
to  solve their  pension fund  issues.   The annual  required                                                                   
payment into the  Teacher Retirement System (TRS)  amounts to                                                                   
50% of  the teacher's gross pay.   A pension  bond obligation                                                                   
would allow the  State to reduce their  matching requirement.                                                                   
The local  taxpayers end up paying  most of the cost  for the                                                                   
local school districts.                                                                                                         
Representative  Hawker   summarized  significant   points  of                                                                   
   · Too risky - risk that the State would not be able to                                                                       
     invest at 8% and borrow at  5%.  The spread between what                                                                   
     can  be borrowed  and  what can  be  invested is  called                                                                   
     arbitrage.     Arbitrage  has been  illegal since  1986.                                                                   
     There is  a specifically  allowed federal provision  for                                                                   
     pension   obligations.     Representative   Hawker   was                                                                   
     comfortable  that investors  would be  able to  continue                                                                   
     the 8% profit on investments.                                                                                              
   · The mechanism of the bill is to grant the authority to                                                                     
     the   Alaska  Municipal   Bond  Bank   to  execute   the                                                                   
     transactions on  behalf of the municipalities,  in order                                                                   
     to  facilitate  reaching  all  capital  markets  in  the                                                                   
     country.   The risk  becomes obligated  to the  State if                                                                   
     that authority  faults.  There is a moral  obligation to                                                                   
     the State, if the municipality defaults.                                                                                   
   · Some say that Wall Street would "frown on the benefit"                                                                     
     of  issuing  obligation  to  the  municipalities.    The                                                                   
     current pension obligation  is a moral obligation to the                                                                   
     State of Alaska.                                                                                                           
   · There is fear that the municipalities would not "pay                                                                       
     up".  Representative Hawker did not agree.                                                                                 
Representative  Hawker urged  support for  HB 278,  believing                                                                   
that  capital markets  are extremely  self-governing and  the                                                                   
investors  would not take  a high  risk with those  accounts,                                                                   
given the high degree of self-regulation.                                                                                       
2:09:46 PM                                                                                                                    
Representative Hawker  urged that the fiscal  note be changed                                                                   
to indeterminate.                                                                                                               
2:11:04 PM                                                                                                                    
Co-Chair   Meyer  pointed  out   that  representatives   from                                                                   
Northwest Securities  Corporation were present  to testify on                                                                   
Representative  Hawker advised that  several firms  had taken                                                                   
an  interest  in  the  State  of Alaska.    No  one  firm  is                                                                   
authorizing   a  transaction,   only  providing   educational                                                                   
2:12:26 PM                                                                                                                    
Representative  Kelly noted support  for the legislation  and                                                                   
asked if Fairbanks had indicated support for the option.                                                                        
2:13:39 PM                                                                                                                    
Representative Hawker replied  that the bill does not address                                                                   
specific concerns.                                                                                                              
2:14:28 PM                                                                                                                    
CAROL  SAMUELS,  (TESTIFIED  VIA  TELECONFERENCE),  NORTHWEST                                                                   
SECURITIES  CORPORATION,  SEATTLE   WASHINGTON,  provided  an                                                                   
overview of a power point presentation  included in the file.                                                                   
(Copy on File).  She testified in favor of the bill.                                                                            
2:16:46 PM                                                                                                                    
Ms. Samuels referred  to Page 1, the pension  obligation bond                                                                   
description.  A  pension obligation bond is  a financing used                                                                   
to  defray  unfunded pension  costs.    It is  a  replacement                                                                   
financing rather  than a new obligation.   Many jurisdictions                                                                   
have used  pension obligation  bonds to refinance  the system                                                                   
loans at rates lower than the amortization rate.                                                                                
Ms.  Samuels  referred  to Page  2,  addressing  why  pension                                                                   
obligation bonds might be useful in Alaska.                                                                                     
   ·     According to the recently released 2004 valuation,                                                                     
         assuming above average growth  in population, Public                                                                   
         Employees Retirement  System  (PERS)  rates rise  to                                                                   
         32% of payroll beginning in 2011  and do not decline                                                                   
         until 2029 and the Teachers Retirement  System (TRS)                                                                   
         rates rise to  50% of payroll  in 2011  and continue                                                                   
        increasing to 56% by 2028 before declining.                                                                             
   ·     Pension obligation bonds can be an effective tool                                                                      
         for immediately reducing payroll rates and                                                                             
         producing long-term savings for jurisdiction.                                                                          
   ·     In Oregon, jurisdictions are projected to save over                                                                    
         $1.3 billion dollars from use of that technique.                                                                       
Ms. Samuels  continued,  Page 3 provides  a graph  indicating                                                                   
the  Alaska Pension  system, asset  base, covered  employees,                                                                   
*average  employer  rate,  funded   ratio  and  the  Unfunded                                                                   
Accrued Actuarial Liability (UAAL) as of 2003 valuation.                                                                        
2:23:11 PM                                                                                                                    
Page 4  provides a  graph of  the bonding  used as a  popular                                                                   
tool.  Many jurisdictions throughout  the country have chosen                                                                   
to finance their PERS liability with bonds.  In Oregon:                                                                         
   · A total of 133 school districts, cities, counties and                                                                      
     the State have issued $5.4 billion dollars of pension                                                                      
   · Savings projected at $1.3 billion overall, assuming an                                                                     
     8% rate of return.                                                                                                         
   · Original statutory authority provided to local                                                                             
     governments and school districts in 2001 for issuance                                                                      
     of "full faith and credit obligations".                                                                                    
   · School districts also granted authority to enter into                                                                      
     an intercept agreement with the State, whereby,                                                                            
     operating funds were additionally pledged.  The                                                                            
     approach resulted in "State" credit rating.                                                                                
   · State constitutional amendment approved by voters in                                                                       
     2003 authorizing the State to issue General Obligation                                                                     
     (GO) bonds for its share of the liability.  Voter                                                                          
     approval margin was 55.25%.                                                                                                
2:25:05 PM                                                                                                                    
Page 5  highlights the  arbitrage issue.   Issuing  a pension                                                                   
bond is  not like refinancing  a mortgage.  The  success from                                                                   
borrowing depends on the market  returning more than the cost                                                                   
of the bond.                                                                                                                    
2:27:47 PM                                                                                                                    
Ms. Samuels  continued,  Page 6 indicates  the Alaska  Public                                                                   
Retirement System (PERS) history  of investment results.  She                                                                   
pointed  out that  in  Oregon,  PERS has  a  long history  of                                                                   
strong investment performance:                                                                                                  
   ·     10 year average: 12.38%                                                                                                
   ·     15 year average: 12.69%                                                                                                
   ·     56 year average: 10.84%                                                                                                
2:29:44 PM                                                                                                                    
Page 9 demonstrates  the Alaska PERS system-wide  refinancing                                                                   
analysis.   A  refinancing  of the  $3.4  billion PERS  could                                                                   
result  in  net present  value  savings  of over  $1  billion                                                                   
2:31:40 PM                                                                                                                    
Page 10  examines the  savings available  in refinancing  the                                                                   
Teachers  Retirement  System  (TRS).   She  estimated  a  $37                                                                   
million dollar  savings, which might be redirected  back into                                                                   
the classroom.                                                                                                                  
2:32:15 PM                                                                                                                    
Page 11 summarizes the lessons learned over the past.                                                                           
   1.   Payment to PERS does not guarantee UAAL will be paid                                                                    
        off in full.                                                                                                            
   2.   What happens if UAAL is subsequently reduced or                                                                         
        increased - reduction and lump sum  payment would put                                                                   
        jurisdiction  in  surplus.     Funds  would   not  be                                                                   
        returned to jurisdiction,  but surplus would  be used                                                                   
        to reduce payroll rates further.                                                                                        
   3.   Structure of the financing matters - inappropriate                                                                      
        to  use  unrealistic   assumptions  about   rates  of                                                                   
        return; amortization structure of  bonds should match                                                                   
        amortization of  UAAL that the  PERS system  uses; it                                                                   
        is not  prudent  to  have  back  weighted  structures                                                                   
       where all savings are produced in early years.                                                                           
2:34:04 PM                                                                                                                    
Ms. Samuels noted  several examples of debt  financing, which                                                                   
had been accomplished in inappropriate  ways.  She noted that                                                                   
8% was used  as a reasonable  rate of return, whereas  9% was                                                                   
not appropriate in their opinion.                                                                                               
2:34:58 PM                                                                                                                    
Page 12 continues outlining the  "house keeping" issues.  She                                                                   
noted that  regulations would  need to  be drafted  to ensure                                                                   
that funds were accounted for  and payroll rates were reduced                                                                   
in a rational manner.  She opined  that work would need to be                                                                   
done on the system to ensure funds were protected.                                                                              
2:38:19 PM                                                                                                                    
Ms. Samuels  noted Page 13 summarizes  the intent of  HB 278.                                                                   
The  bill  authorizes  access  to  capital  markets  for  the                                                                   
purpose  of  financing  pension  liabilities.    It  provides                                                                   
express  authorization  for  all types  of  jurisdictions  to                                                                   
issue  obligations for  that purpose  either individually  or                                                                   
thorough another entity.  It also  provides authorization for                                                                   
individual  jurisdictions to  pool together  through a  state                                                                   
entity  such as  Bond  Bank to  achieve  economics of  scale.                                                                   
Additionally,  it will  allow for credit  support to  enhance                                                                   
access  to the  market such  as, intercept  of funding,  bond                                                                   
reserves and bond insurance.                                                                                                    
2:38:59 PM                                                                                                                    
Vice Chair  Stoltze questioned  the number  of agencies  that                                                                   
sell this type  of bond.  Ms. Samuels replied  that there are                                                                   
multiple  firms  eager  to  help   with  selling  the  bonds.                                                                   
Representative Hawker added that  any capital market would be                                                                   
available to pursue such a transaction.                                                                                         
2:39:54 PM                                                                                                                    
Representative  Kelly  referred  to  the  mechanism  used  to                                                                   
determine  a  credit  rating,  inquiring  if  that  would  be                                                                   
available  and/or useful.   Representative  Hawker  commented                                                                   
that was  being researched and  there would be  a forthcoming                                                                   
Representative  Kelly  followed  up with  queries  about  the                                                                   
taxation   structure  of   bonds.     Representative   Hawker                                                                   
responded that in  a 1986 federal statutory  change, in order                                                                   
to take advantage of arbitrage,  the bonds become executed on                                                                   
a taxable basis.                                                                                                                
ERIC WHALEY,  (TESTIFIED VIA  TELECONFERENCE), MERRIL  LYNCH,                                                                   
noted  questions that  many municipalities  raised  regarding                                                                   
how the legislation  would impact either the  municipality or                                                                   
the State's  bond  rating.  Mr.  Whaley pointed  out that  an                                                                   
unfunded liability  already exists.   One unfunded  liability                                                                   
would be replaced by another.                                                                                                   
A question was asked if the risk  was not positive over a 20-                                                                   
30 year time period, would the  State have been better off if                                                                   
the pension  bond had not been  issued.  Mr.  Whaley provided                                                                   
historical  examples  since 1926  of  when portfolios  had  a                                                                   
return  less than  the  bond rates  and  the  only time  that                                                                   
happened  was   just  before   the  Great  Depression.     He                                                                   
acknowledged risk, commenting it is minimal.                                                                                    
Mr. Whaley offered to answer questions of the Committee.                                                                        
2:45:04 PM                                                                                                                    
KEVIN RITCHIE,  EXECUTIVE DIRECTOR,  ALASKA MUNICIPAL  LEAGUE                                                                   
(AML), JUNEAU,  testified in favor  of the legislation.   AML                                                                   
supports  the   State  to  allow  employers   the  option  of                                                                   
refinancing  the PERS  & TRS  debt  to avoid  the 8.25%  rate                                                                   
imposed  by the system.   He  emphasized that  it would  be a                                                                   
tool for only some  municipalities; it is not a  fix for all.                                                                   
He  added that  the relationship  between the  State and  the                                                                   
schools are important.                                                                                                          
2:46:58 PM                                                                                                                    
Mr.  Ritchie pointed  out that  the municipalities  currently                                                                   
are asking,  given the funding  provided last year  to reduce                                                                   
the 5%  increase, questioning what  that meant for  the long-                                                                   
term health  of the  system.   He maintained  that these  are                                                                   
important policy questions that must be addressed.                                                                              
Representative   Kelly   referred  to   previous   discussion                                                                   
regarding  the  refinancing  a  portion  of the  fund.    Mr.                                                                   
Ritchie deferred to the finance  specialists to better answer                                                                   
that question.                                                                                                                  
2:48:30 PM                                                                                                                    
Mr.  Ritchie reiterated  that the  municipalities do  support                                                                   
the legislation.                                                                                                                
2:48:58 PM                                                                                                                    
Representative  Hawker concurred  that the legislation  would                                                                   
be  more  beneficial  if  it   refinanced  the  entire  fund,                                                                   
however,  knew   that  some   municipalities  might   not  be                                                                   
comfortable with  that risk.   It would  be best to  let them                                                                   
each decide.                                                                                                                    
2:49:53 PM                                                                                                                    
Vice Chair Stoltze  asked  if  each municipality's  level  of                                                                   
debt   would    affect   their   ability    to   participate.                                                                   
Representative Hawker    responded        that        indeed,                                                                   
municipalities  would have  to consider  their own debt  load                                                                   
and  rating  circumstances.    It  represents  a  substantial                                                                   
obligation and noted that each  circumstance would need to be                                                                   
considered on an individual basis.                                                                                              
Vice Chair Stoltze  thought    that    net-caps    for    the                                                                   
municipalities  could  be  considered and  wondered  if  that                                                                   
potential exists.                                                                                                               
Representative  Hawker acknowledged  that  caps could  affect                                                                   
the  municipality's   ability  to  participate   or  prohibit                                                                   
financing options.                                                                                                              
2:51:56 PM                                                                                                                    
Representative Kerttula  asked  how a  municipality could  go                                                                   
about obtaining authorization  for financing.  Representative                                                                   
Hawker responded,  it would happen  through the  same process                                                                   
used   for   current  financial   obligations   incurred   by                                                                   
municipalities.   He referred  to AS 29, regarding  authority                                                                   
of  municipal  debt  and  outlined   the  methods  to  obtain                                                                   
authorization for municipal debt.                                                                                               
2:53:35 PM                                                                                                                    
CARL  ROSE,  ALASKA  ASSOCIATION  OF  ALASKA  SCHOOL  BOARDS,                                                                   
JUNEAU, noted  that on  February 12,   2006, Ms. Samuels  had                                                                   
addressed  their   Board.    He  advised  that   the  numbers                                                                   
impressing  him was  the projected  50% anticipated  increase                                                                   
rate in  payroll by  2011; increasing again  to 56%  by 2028.                                                                   
AASB supports  the option for municipalities  to refinance to                                                                   
reduce  the   high  rates  affecting   payroll.     He  noted                                                                   
appreciation for all the work done on the bill.                                                                                 
2:56:17 PM                                                                                                                    
BILL BYORK, PRESIDENT, NATIONAL  EDUCATION ASSOCIATION (NEA),                                                                   
ALASKA, expressed  the organization's  desire to  explore the                                                                   
proposed  refinancing options.   It  is a  critical tool  for                                                                   
addressing the State's unfunded  liability and that HB 278 is                                                                   
2:57:30 PM                                                                                                                    
Representative  Hawker  summarized,   noting  that  both  the                                                                   
financial  and educational  communities  view the  bill as  a                                                                   
viable  tool   but  not  supported  by   the  Administration.                                                                   
Amendments  will  be forthcoming  to  address  concerns.   He                                                                   
disagreed that the risks outweigh the benefit.                                                                                  
Co-Chair Meyer stated  that the Administration  could testify                                                                   
when the  bill incorporated  the amendments,  making  it more                                                                   
2:58:55 PM                                                                                                                    
HB 278 was HELD in Committee for further consideration.                                                                         
3:00:22 PM                                                                                                                    
SENATE BILL NO. 210                                                                                                           
     An Act  relating to  the manufacture and  transportation                                                                   
     of  alcoholic  beverages;  relating  to  forfeitures  of                                                                   
     property for violations of  alcoholic beverage laws; and                                                                   
     relating to violations of alcoholic beverage laws.                                                                         
HEATHER BRAKES, STAFF, SENATOR  GENE THERRIAULT, related that                                                                   
in 2004,  Congress passed  legislation recognizing  that many                                                                   
rural  communities  and  their  residents  face  the  highest                                                                   
alcohol abuse and family violence  rates in the country.  The                                                                   
Alaska  Rural  Justice  and Law  Enforcement  Commission  was                                                                   
established  and  it released  a  Draft Interim  Report  that                                                                   
contains  recommendations,  including amendments  to  several                                                                   
provisions  in  Alaska  statutes.    Senate  Bill  210  is  a                                                                   
response to some of the recommendations  made in that report.                                                                   
3:01:44 PM                                                                                                                    
Ms.  Brakes  pointed out  several  changes.   The  first  one                                                                   
allows seizure  of alcohol transported  by common  carrier in                                                                   
violation of  current law.   It allows  for the authority  to                                                                   
seize property determined to have  been purchased or obtained                                                                   
through  the  proceeds  of illegal  importation  or  sale  of                                                                   
alcohol, and it outlines procedures  for a person claiming an                                                                   
interest in property  that has been seized.   It also defines                                                                   
"manufacture"  of  alcohol  and clears  up  inconsistency  in                                                                   
statutes regarding  allowable quantities  of alcohol  and the                                                                   
presumption of possession for sale.                                                                                             
Ms.  Brakes  reported  that  there  are  currently  over  100                                                                   
communities  in Alaska  that have  chosen a  local option  to                                                                   
limit or ban the  sale of alcohol.  She referred  to the 2004                                                                   
Annual Drug Report  by the Department of Public  Safety (copy                                                                   
on  file.) She  noted  that on  pages  7 and  8,  bootlegging                                                                   
remains a lucrative  business.   SB 210 provides  clarity and                                                                   
consistency  in the  beverage  control statutes  in order  to                                                                   
assist  law  enforcement  and  communities  in  fighting  the                                                                   
illegal importation of alcohol.                                                                                                 
3:04:41 PM                                                                                                                    
Representative Hawker inquired  about a change from 12 liters                                                                   
to 10 ½ liters  in the provision for possession  of distilled                                                                   
spirits.  Ms. Brakes replied that  AS 04.11.010(c) in Section                                                                   
1 is being amended regarding the  sale of spirits in order to                                                                   
make language consistent throughout statutes.                                                                                   
Representative Hawker  summarized that this change  makes the                                                                   
provision  consistent  with  other statutory  language.    He                                                                   
referred  to earlier  testimony  about forfeiture  provisions                                                                   
and the  concern that  a person  could lose  their home.   He                                                                   
inquired  about   the  judicial   process  related   to  that                                                                   
situation.   Ms. Brakes explained  that the intent of  SB 210                                                                   
is to mirror  the controlled substances statutes.   Loss of a                                                                   
person's home  was a  concern in a  previous committee.   The                                                                   
sponsor's concern  remains about someone who paid  for a home                                                                   
from proceeds  of an illegal  activity.  That  property would                                                                   
be  subject   to  forfeiture,   but  there  would   be  court                                                                   
proceedings  to  make  the  determination.     Representative                                                                   
Hawker stated  that there would  be a judicial process.   Ms.                                                                   
Brakes agreed.                                                                                                                  
3:08:03 PM                                                                                                                    
Representative Kerttula noted  that she would ask for a legal                                                                   
opinion  about  what happens  to  family  members in  such  a                                                                   
DOUG GRIFFIN,  ALCOHOL BEVERAGE CONTROL BOARD,  DEPARTMENT OF                                                                   
PUBLIC SAFETY, offered to answer questions.                                                                                     
CAPTAIN ED HARRINGTON,  ALASKA STATE TROOPERS,  DEPARTMENT OF                                                                   
PUBLIC SAFETY, also offered to answer questions.                                                                                
3:09:47 PM                                                                                                                    
Representative  Kelly  presented  a  scenario  in  a  village                                                                   
involving a  common air carrier  that lands in a  dry village                                                                   
with illegal alcohol on board  before continuing on to a non-                                                                   
dry village.   He  asked what the  consequences would  be for                                                                   
the plane.   Captain Harrington  said that is not  a problem.                                                                   
The troopers  deal with it when  the alcohol reaches  the dry                                                                   
village.   Representative  Kelly  expounded  on the  possible                                                                   
scenario  when  the  plane  reaches  the  dry  village.    He                                                                   
wondered  about  an unintended  consequence.    He  suggested                                                                   
another scenario  involving a  boat on a  river passing  by a                                                                   
dry   village   and  wondered   about   possible   unforeseen                                                                   
Vice Chair Stoltze noted those are valid questions.                                                                             
Co-Chair Chenault closed public testimony.                                                                                      
3:13:25 PM                                                                                                                    
Representative  Kerttula redirected  her  question about  the                                                                   
family members of a bootlegging  situation to Anne Carpeneti.                                                                   
ANNE CARPENETI,  ASSISTANT ATTORNEY  GENERAL, LEGAL  SERVICES                                                                   
SECTION-JUNEAU,   CRIMINAL  DIVISION,   DEPARTMENT  OF   LAW,                                                                   
responded that the provision allowing  the state to seize and                                                                   
forfeit  items purchased  from illegal  activity has  been in                                                                   
statute since  1982 and a house  has never been seized.   The                                                                   
family is protected under forfeiture law.                                                                                       
Representative Kerttula asked  about the family vehicle.  Ms.                                                                   
Carpeneti replied  that there are safeguards  for those types                                                                   
of situations.                                                                                                                  
3:16:04 PM                                                                                                                    
Representative Kelly asked for  a response from Ms. Carpeneti                                                                   
regarding his  previous scenarios.   Ms. Carpeneti  explained                                                                   
that there should  be no problem in either  situation because                                                                   
the plane and boat would be in  transit and the alcohol would                                                                   
stay  on  the vessel.    There  is a  statute  that  requires                                                                   
labeling of alcohol intended for damp villages.                                                                                 
Representative  Hawker  noted  on page  3  of the  bill  that                                                                   
"items of value purchased from  the proceeds" are being added                                                                   
to  the list  of forfeitures.    He wondered  if an  innocent                                                                   
person  who is  paid from  illegal proceeds,  or given  items                                                                   
purchased by  illegal proceeds,  is subject to  consequences.                                                                   
Ms.  Carpeneti  said  that situation  is  also  protected  by                                                                   
remission procedures in current  law that are not affected by                                                                   
this bill.                                                                                                                      
Co-Chair  Chenault  asked  what is  being  changed  regarding                                                                   
transporting  alcohol  by common  carriers  in dry  villages.                                                                   
Ms. Carpeneti said this bill refers  only to alcohol that has                                                                   
been illegally  transported in  violation to this  particular                                                                   
statute, which has particular labeling requirements.                                                                            
3:19:08 PM                                                                                                                    
Representative  Kerttula referred to  Section 3, the  30 days                                                                   
notice, and  asked if the innocent  spouse is included.   Ms.                                                                   
Carpeneti replied  that they would  have to file a  notice of                                                                   
their interest.   She  clarified that  Section 3  streamlines                                                                   
procedures  when  no  one  files a  notice  of  interest  and                                                                   
addresses civil forfeitures, which don't happen often.                                                                          
Representative  Kerttula  asked about  the  right  to a  jury                                                                   
trial.   Ms. Carpeneti  replied that  she thought  forfeiture                                                                   
proceedings were not subject to  a jury trial.  She suggested                                                                   
Captain Harrington respond to the question.                                                                                     
Representative  Kerttula redirected  her question to  Captain                                                                   
Harrington, who replied that he  does not know.  He said that                                                                   
most forfeitures have been adjudicated at a criminal trial.                                                                     
Co-Chair  Meyer corrected  his statement  that the  committee                                                                   
has seen the bill previously.                                                                                                   
3:22:50 PM                                                                                                                    
Co-Chair Chenault  MOVED to  REPORT SB  210 out of  Committee                                                                   
with  individual recommendations  and  with the  accompanying                                                                   
zero  fiscal note.    There being  NO  OBJECTION,  it was  so                                                                   
SB   210  was   reported  out   of  Committee   with  a   "no                                                                   
recommendation" and with a zero  note #1 by the Department of                                                                   
Public Safety.                                                                                                                  
3:23:51 PM                                                                                                                    
SENATE BILL NO. 172                                                                                                           
     An Act relating to the presentation of initiatives and                                                                     
     referenda on the ballot.                                                                                                   
3:24:42 PM                                                                                                                    
JOE  BALASH, STAFF,  SENATOR GENE  THERRIAULT, addressed  the                                                                   
bill.   He noted that current  law provides direction  to the                                                                   
lieutenant  governor to  prepare both  a ballot  title and  a                                                                   
summary for the  election ballot.  The summary  must be "true                                                                   
and  impartial"  and  is  limited  by  the  number  of  words                                                                   
allowed.  There is a separate  limitation for a ballot title.                                                                   
SB 172 began as a measure to increase  the number of words in                                                                   
the title.  As laws become more  complex, more than six words                                                                   
are often needed  to describe them.  It became  apparent that                                                                   
more  words to  describe  the summary  were  also needed.  He                                                                   
stated  that the  fiscal note  was generated  by the  maximum                                                                   
allowable words per section, as set forth in the bill.                                                                          
Representative  Hawker  expressed  a desire  to  discuss  the                                                                   
fiscal note.                                                                                                                    
WITNEY BREWSTER,  DIRECTOR, DIVISION OF ELECTIONS,  commented                                                                   
on the  fiscal impact of  the bill.   She explained  that the                                                                   
bill  would make  it likely  that the  Division of  Elections                                                                   
would  have to  move to  two ballots.   She  stated that  the                                                                   
fiscal  note  reflects  anticipated   expenses  for  upcoming                                                                   
elections.  She also noted that  two initiatives would likely                                                                   
appear on the 2006 general election and primary ballots.                                                                        
3:28:31 PM                                                                                                                    
She noted that the division conducted  a special election for                                                                   
the Municipality  of Anchorage  in 2004, which  generated the                                                                   
figure to determine the cost for  forty districts to have two                                                                   
ballots.  She  added that this could potentially  increase to                                                                   
three ballots.                                                                                                                  
Ms.  Brewster   pointed  out   that  costs  included   hiring                                                                   
additional  temporary  employees, ballot  shipping,  postage,                                                                   
ballot  translation  into  indigenous   language,  additional                                                                   
information in  the election  pamphlet, advertisement  in the                                                                   
newspaper,  and an increase  in costs  for archiving  ballots                                                                   
after the election.  She also  noted that additional language                                                                   
on a  ballot increases  the time  used in  a voting  booth to                                                                   
read the language.                                                                                                              
3:31:22 PM                                                                                                                    
Co-Chair Meyer opened the floor for public testimony.                                                                           
JOHN  SHIVELY,  HOLLAND  AMERICA,   ANCHORAGE,  testified  in                                                                   
support  of  the  bill.   He  pointed  out  that  initiatives                                                                   
pertaining  to his  industry  could not  be  captured in  100                                                                   
words.   He suggested that  as initiatives are  becoming more                                                                   
complicated, more words are required on ballots.                                                                                
3:33:08 PM                                                                                                                    
Co-Chair Meyer CLOSED  PUBLIC   TESTIMONY.    He  stated  his                                                                   
intention to hold the bill until  conversations could be held                                                                   
with the  Division of Elections,  and to hold  any amendments                                                                   
until that time.                                                                                                                
Representative Hawker  raised questions regarding  the fiscal                                                                   
note.    He  conceded that  the  trend  of  more  complicated                                                                   
initiatives required  some action, but expressed  surprise at                                                                   
the extent of the fiscal note.                                                                                                  
Representative  Hawker  asked  whether  the fiscal  note  was                                                                   
generally  correct.   Mr.  Balash  noted that  the  sponsor's                                                                   
focus   had  been  on   the  number   of  ballots   required.                                                                   
Representative Hawker  followed up by commenting  on the size                                                                   
of the fiscal note.   Mr. Balash stated that  the sponsor did                                                                   
not question the assumptions of the fiscal note.                                                                                
3:39:06 PM                                                                                                                    
Representative  Hawker asked whether  a maximum of  500 words                                                                   
would   be  sufficient   to   describe   even  something   as                                                                   
complicated as  the cruise ship  tax initiative.   Mr. Balash                                                                   
recalled the previous year and  the sponsor's concern about a                                                                   
very large bill  with 129 words in the title.   He speculated                                                                   
what would  have happened  if that bill  was taken  through a                                                                   
referendum process.   He continued  that it was  difficult to                                                                   
describe the scope of such a large bill in few words.                                                                           
Representative Kerttula  expressed  concern that two pages on                                                                   
a ballot  might make  initiatives even  more confusing.   She                                                                   
also noted  that it  was more  difficult to  abridge than  to                                                                   
expand a description.   She suggested that it  is a difficult                                                                   
Representative Hawker  asked for the sponsor's  intentions on                                                                   
proceeding with the bill.                                                                                                       
Mr. Balash noted that his work  with the bill had ended after                                                                   
leaving the  Judiciary Committee,  but he expressed  openness                                                                   
to further suggestions.   He referred to discussion  with the                                                                   
Lieutenant Governor's  office regarding  the number  of words                                                                   
per  page.   He  referred  to  past ballots,  such  as  those                                                                   
contained  in  the  2004  general  election.    He  expressed                                                                   
concern from  the sponsor that  the type font not  be reduced                                                                   
in order to accommodate the number of pages.                                                                                    
3:44:34 PM                                                                                                                    
Representative  Kerttula explained  that  Amendment #1  would                                                                   
allow for  an attachment  to a petition  or referendum.   She                                                                   
proposed that  information be  made available at  the polling                                                                   
location,  as opposed to  having it  contained on the  actual                                                                   
Mr. Balash stated that the motivation  of the sponsor is that                                                                   
the  voters have  the  information.   He  asked how  absentee                                                                   
ballots would be addressed.                                                                                                     
Representative Hawker  recommended that for  absentee ballots                                                                   
a check box could be included,  or it could be printed in the                                                                   
official election pamphlet.                                                                                                     
3:47:59 PM                                                                                                                    
Mr.  Balash  thought  those would  be  reasonable  ideas  for                                                                   
Representative  Kelly asked  about  the $237,000  assumption.                                                                   
Mr.  Balash   said  he  understood   the  direction   of  the                                                                   
assumption, but preferred not  to speak for the division.  He                                                                   
asked if  the division would  speak to  that.  He  noted that                                                                   
the sponsor accepted the assumption.                                                                                            
Representative Kelly voiced concern about that.                                                                                 
3:50:07 PM                                                                                                                    
ANNETTE KREITZER,  CHIEF OF STAFF,  OFFICE OF  THE LIEUTENANT                                                                   
GOVERNOR, stated  that there is no pamphlet  during a primary                                                                   
election.  She said that her office  welcomes scrutiny on the                                                                   
fiscal note.   She asked  the director  to not use  the worse                                                                   
case scenario.                                                                                                                  
Ms.  Brewster  commented  on  posting  the  language  at  the                                                                   
polling place.  She said it is  currently required by law and                                                                   
is  posted in  three locations  in  the polling  place.   She                                                                   
offered to answer questions associated with the note.                                                                           
3:52:27 PM                                                                                                                    
Co-Chair Chenault asked about  the printing cost of $237,000.                                                                   
Ms. Brewster replied that it is  a hard cost at .37 cents per                                                                   
ballot.   The number of ballots  printed in the  2004 general                                                                   
election was 642,000.                                                                                                           
Co-Chair  Chenault asked  why 642,000  ballots were  printed.                                                                   
Ms.  Brewster   responded  that  the  number   included  test                                                                   
ballots.   The number  is based  on what  was printed  in the                                                                   
2004 election.                                                                                                                  
Co-Chair  Chenault inquired  how  many people  voted in  that                                                                   
election.  Ms. Brewster offered  to provide that information.                                                                   
Co-Chair  Chenault stated  his  intent to  hold  the bill  to                                                                   
discuss  the  fiscal  note costs.    Ms.  Brewster  addressed                                                                   
solutions.   She  offered  to  provide an  official  election                                                                   
pamphlet, which would  include all of the language  and would                                                                   
provide a smaller note.                                                                                                         
3:55:24 PM                                                                                                                    
Co-Chair  Chenault  stated that  would  be discussed  at  the                                                                   
Representative Kerttula  pointed out that the  pamphlet would                                                                   
allow both sides to present their information.                                                                                  
SB 210 was HELD in Committee for further consideration.                                                                         
The meeting was adjourned at 3:55 P.M.                                                                                          

Document Name Date/Time Subjects