Legislature(2013 - 2014)

04/18/2014 12:01 AM FIN

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* first hearing in first committee of referral
+ teleconferenced
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                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 18, 2014                                                                                            
                        12:00 a.m.                                                                                              
[Note: Continuation of 4/17/14 9:00 p.m. meeting]                                                                               
12:00:56 AM                                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Senator  Peter  Micciche;  Wojtusik,  Staff,  Senator  Lesil                                                                    
McGuire; Bill  Peddler, Alaska Tourism  Association; Roberta                                                                    
Graham,  Assistant  Commissioner,  Department  of  Commerce,                                                                    
Community and Economic Development.                                                                                             
PRESENT VIA TELECONFERENCE                                                                                                    
Kathleen  Martin, Self,  Cooper  Landing;  Ed Martin,  Self,                                                                    
Cooper Landing;  Ed Sniffen,  Department Of  Law, Anchorage;                                                                    
Al  Nagel, Department  Of Labor  And Workforce  Development,                                                                    
SB 193    CONTRACTORS: BONDS; LICENSING                                                                                         
          SB 193 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
CSSB 194(FIN)                                                                                                                   
          TOURISM MARKETING BOARD                                                                                               
          HCS CSSB  194(L&C) was  REPORTED out  of committee                                                                    
          with a  "do pass" recommendation and  with one new                                                                    
          zero fiscal note from  the Department of Commerce,                                                                    
          Community   and  Economic   Development  and   one                                                                    
          previously published fiscal note: FN2 (LEG).                                                                          
CS FOR SENATE BILL NO. 194(FIN)                                                                                               
     "An Act creating the Alaska Tourism Marketing Board;                                                                       
     and relating to tourism marketing."                                                                                        
12:00:56 AM                                                                                                                   
BILL  PEDDLER,   ALASKA  TOURISM  ASSOCIATION,   replied  in                                                                    
response to  a question by Representative  Wilson related to                                                                    
a  quorum of  members  from  each region  of  the state.  He                                                                    
stated  that the  representatives  from  the legislature  or                                                                    
agency were not  counted with the designated  regions of the                                                                    
state. He noted that he had  never had a problem achieving a                                                                    
quorum,  as  the  subject was  passionate  amongst  industry                                                                    
Representative Wilson stated that  she served as a Fairbanks                                                                    
assembly representative  and a board member  for the tourism                                                                    
association. She appreciated the legislation.                                                                                   
12:02:08 AM                                                                                                                   
Representative  Munoz   described  the  similarity   to  the                                                                    
marketing board  established by  the Alaska  Travel Industry                                                                    
Association  (ATIA).  She  wondered  about  the  benefit  of                                                                    
placing the association in statute.                                                                                             
12:02:27 AM                                                                                                                   
ROBERTA  GRAHAM,   ASSISTANT  COMMISSIONER,   DEPARTMENT  OF                                                                    
COMMERCE,  COMMUNITY AND  ECONOMIC DEVELOPMENT,  stated that                                                                    
the  marketing committee  of ATIA  was  affiliated with  the                                                                    
Qualified Trade Association in statute.                                                                                         
Representative  Munoz understood  that  one  of the  primary                                                                    
purposes   of   the   organization    would   be   to   make                                                                    
recommendations on the future of the marketing funds.                                                                           
Ms.  Graham  concurred,  she  noted  that  the  relationship                                                                    
maintained by the state and industry existed for decades.                                                                       
12:03:38 AM                                                                                                                   
Representative  Gara  asked  if the  board  was  represented                                                                    
Ms.  Graham   replied  that  the  bill   did  have  regional                                                                    
representation. She mentioned the  five regions of the state                                                                    
Representative Holmes opined that  ATIA had done a fantastic                                                                    
job representing  different aspects  of the  tourism sector.                                                                    
She credited  Ms. Graham  with her  work. She  supported the                                                                    
12:04:56 AM                                                                                                                   
Representative Thompson appreciated  the legislation and the                                                                    
travel industry.                                                                                                                
12:05:21 AM                                                                                                                   
Co-Chair  Austerman  noted  that  the board  and  the  trade                                                                    
association  promoted Alaska.  He mentioned  the improvement                                                                    
between  other  industries  and  the  tourism  industry.  He                                                                    
wished to continue funding marketing efforts for Alaska.                                                                        
Co-Chair Stoltze asked  what would be done  differently as a                                                                    
result of the legislation.                                                                                                      
12:06:50 AM                                                                                                                   
Mr.  Peddler  replied  that  the  industry  participated  in                                                                    
sucessful  joint-marketing   adventures.  He   stressed  the                                                                    
benefits  of   collaboration  between  the  state   and  the                                                                    
12:08:10 AM                                                                                                                   
Representative Costello discussed the  two fiscal notes, one                                                                    
zero note and one indeterminate.                                                                                                
Vice-Chair Neuman MOVED  to REPORT HCS CSSB  194(L&C) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
HCS CSSB 194(L&C)  was REPORTED out of committee  with a "do                                                                    
pass" recommendation and with one  new zero fiscal note from                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development  and  one   previously  published  indeterminate                                                                    
fiscal note: FN2 (LEG).                                                                                                         
SENATE BILL NO. 193                                                                                                           
     "An Act relating to bonds required for contractors."                                                                       
12:10:09 AM                                                                                                                   
SENATOR PETER MICCICHE, SPONSOR,  testified that the purpose                                                                    
of  the construction  surety bonds  was to  provide consumer                                                                    
protection. The bonds amounts remained  the same since 1982,                                                                    
while  material costs  and wages  had  quadrupled. The  bond                                                                    
rates  remained  the  same  at   $10  thousand  for  general                                                                    
contractors and  $5 thousand for specialty.  The majority of                                                                    
contractors took  pride in their  work. The  bill modernized                                                                    
the  surety  bond  protection  level,  which  would  provide                                                                    
additional  protection. The  legislation increased  the rate                                                                    
for  general  contractors  to  $25  thousand,  added  a  new                                                                    
residential-only endorsement for  $20 thousand, a mechanical                                                                    
or  specialty  contractor  bond   for  $10  thousand  and  a                                                                    
handyman category for those performing small projects.                                                                          
Senator  Micciche pointed  out that  the bill  ignored those                                                                    
people  attempting  projects  costing  $2500  or  less.  The                                                                    
definition of  a contractor remained  the same.  He provided                                                                    
an  example about  cost increases.  He mentioned  a list  of                                                                    
supporters.  He estimated  that the  cost of  increasing the                                                                    
bond  would  fall  between  $125   and  $500  per  year  for                                                                    
contractors. The  additional cost  included a great  deal of                                                                    
protection to the consumer.                                                                                                     
12:13:34 AM                                                                                                                   
Co-Chair Stoltze OPENED public testimony.                                                                                       
KATHLEEN MARTIN, SELF,  COOPER LANDING (via teleconference),                                                                    
(via  teleconference) reported  to  the  committee that  she                                                                    
found  out  about the  legislation  relatively  late in  the                                                                    
session.  She  contacted  other  contractors  on  the  Kenai                                                                    
Peninsula who were  also unaware of the  proposed changes to                                                                    
Alaska's bonding  requirements. She expressed  concern about                                                                    
the  lack   of  information  provided  to   contractors  and                                                                    
wondered if polls were taken  prior to introducing the bill.                                                                    
She suggested  a method of punishment  for those contractors                                                                    
acting in a  less than professional manner.  She stated that                                                                    
small  claims court  provided necessary  recourse for  those                                                                    
consumers  that were  poorly served.  She expressed  concern                                                                    
that the higher costs would be passed on to the consumer.                                                                       
Co-Chair  Stoltze apologized  for  the late  hour of  public                                                                    
12:18:38 AM                                                                                                                   
Representative  Wilson asked  how much  Ms. Martin  paid now                                                                    
and what the increase would mean to the business.                                                                               
Ms. Martin  replied that  the inception  of her  business in                                                                    
2008 as a  specialty contractor required $500,  but with the                                                                    
upgrade to general contractor the  price increased to $1000.                                                                    
She stated  that she  did not contact  her bond  company for                                                                    
the precise increase, but she predicted a $1250 cost.                                                                           
Representative  Wilson  asked   about  her  annual  business                                                                    
Ms.  Martin replied  that her  business earned  between $250                                                                    
thousand and $400 thousand annually.                                                                                            
Representative Wilson appreciated the information.                                                                              
Co-Chair Stoltze appreciated the patience of the testifier.                                                                     
12:20:31 AM                                                                                                                   
ED  MARTIN,   SELF,  COOPER  LANDING   (via  teleconference)                                                                    
testified with  concern about  the legislation's  impact. He                                                                    
had  difficulty believing  that the  additional cost  to the                                                                    
consumer was  beneficial. He noted  that he was a  member of                                                                    
the   Associated  General   Contractors  (AGC)   while  many                                                                    
contractors  were not.  He hoped  that  the committee  would                                                                    
hold  the  bill to  obtain  further  testimony from  Alaskan                                                                    
contractors. He reminded  that AGC represented approximately                                                                    
350  contractors in  the state.  He stated  that many  small                                                                    
contractors  could  not  afford   the  small  dues  for  the                                                                    
membership at $1800  to $2500 per year.  He anticipated that                                                                    
the  insurance  companies  would  be the  only  entities  to                                                                    
benefit  from  the  bond increases.  He  believed  that  the                                                                    
handyman provision was valid.                                                                                                   
12:25:08 AM                                                                                                                   
Co-Chair Stoltze CLOSED public testimony.                                                                                       
Vice-Chair Neuman discussed fees  and definitions related to                                                                    
the business of contracting. He  stated that he did not like                                                                    
the legislation  and wondered how so  few testifiers opposed                                                                    
the bill. He asked if only one contractor opposed the bill.                                                                     
12:27:25 AM                                                                                                                   
Senator Micciche  replied yes.  He believed  that Vice-Chair                                                                    
Neuman  misunderstood the  definition  of  a contractor.  He                                                                    
quoted that  a contractor was  "a person who in  the pursuit                                                                    
of an  independent business undertakes or  offers to perform                                                                    
or claims to  have the capacity to perform or  submits a bid                                                                    
for a project to construct,  alter, repair, move or demolish                                                                    
a building,  highway, road,  railroad or  any type  of fixed                                                                    
structure including excavation."                                                                                                
Vice-Chair Neuman  stated that the installation  would incur                                                                    
similar bonding issues as a result of the bill.                                                                                 
Senator  Micciche reported  to the  committee that  the bill                                                                    
would not change the definition of contractor.                                                                                  
12:28:47 AM                                                                                                                   
Representative   Wilson    wondered   what    prompted   the                                                                    
legislation. She asked  if some consumers had  not been able                                                                    
to  recoup their  costs following  a lawsuit  or was  it the                                                                    
lack of update since 1982.                                                                                                      
Senator  Micciche replied  that  both  reasons prompted  the                                                                    
introduction  of the  bill. He  stated that  the Martins  in                                                                    
Cooper  Landing  were  the only  testifiers  to  oppose  the                                                                    
legislation. He stated  that he tried to  return their calls                                                                    
for most  of the day.  He pointed  out that all  other costs                                                                    
had been  updated, but inadequate  coverage existed  for the                                                                    
bonding levels.  He noted support  from AGS of  Alaska along                                                                    
with many  other letters of  support that had  been received                                                                    
by  his office.  He  stated that  people  could continue  to                                                                    
operate without  licenses, bonding  or insurance.  He stated                                                                    
that  the   bill's  intent  was   that  of   basic  consumer                                                                    
protection. He mentioned the annual  cost for a $10 thousand                                                                    
surety bond of $500 per year.                                                                                                   
12:30:44 AM                                                                                                                   
Representative Wilson  stated that she also  received a call                                                                    
from the Martins  in Cooper Landing earlier in  the day. She                                                                    
wanted to  better understand their  concerns. She  wished to                                                                    
avoid  misrepresentations by  contractors  that would  leave                                                                    
the consumer without recourse. She  also understood the need                                                                    
to update the  statute. She wondered if  the handyman clause                                                                    
was applicable to any consumer with the limit of $2500.                                                                         
12:31:38 AM                                                                                                                   
Representative Wilson asked why  one fee was increased while                                                                    
the other was decreased.                                                                                                        
Senator Micciche  stated that  he did  not wish  to increase                                                                    
costs for business unless the  basic level of protection was                                                                    
not available for consumers. He  agreed that the prices that                                                                    
a handyman  would charge were  much less than  a contractor.                                                                    
He believed that  the bill addressed the  protection of each                                                                    
level of consumer. He opined that  the cost of bonding for a                                                                    
handyman was relatively  low at $125 to $200.  He noted that                                                                    
general liability insurance cost  $3 thousand to $6 thousand                                                                    
annually. The  cost of the  bond was much less.  He believed                                                                    
that  the small  increase in  cost was  advantageous to  the                                                                    
consumer. He deferred to the Department of Law.                                                                                 
12:34:03 AM                                                                                                                   
ED    SNIFFEN,   DEPARTMENT    OF   LAW,    ANCHORAGE   (via                                                                    
teleconference)  provided his  position.  He  noted that  he                                                                    
worked in the  consumer protection unit. He  stated that the                                                                    
department  supported  the   legislation.  He  mentioned  57                                                                    
complaints  against  contractors  since 2010.  Some  of  the                                                                    
complaints   led   to   lawsuits  where   collections   were                                                                    
impossible  due   to  the  low   bonds.  He   believed  that                                                                    
increasing the  bonding amounts would provide  some level of                                                                    
consumer  protection. He  spoke  to the  handyman issue  and                                                                    
noted  that  the majority  of  complaints  stemmed from  the                                                                    
Representative Wilson  asked how  many contractors  had been                                                                    
sued because of insufficient bonding.                                                                                           
12:36:48 AM                                                                                                                   
Mr.  Sniffen replied  that  he did  not  have the  requested                                                                    
number of  contractors. He  noted that  3 consumers  in 2013                                                                    
were   unable  to   collect   against  contractors   without                                                                    
sufficient  bonding.  He  pointed out  one  additional  case                                                                    
where a  contractor was sued  without sufficient  bonding to                                                                    
pay the creditors.                                                                                                              
Representative Wilson wondered if  criminal charges would be                                                                    
filed against  a contractor or handyman  operating without a                                                                    
12:37:43 AM                                                                                                                   
Mr. Sniffen replied  that the contractor may  be reported to                                                                    
the criminal  division and  to the  Department of  Labor and                                                                    
Workforce  Development. In  the past,  following a  criminal                                                                    
report, the  same people were discovered  performing similar                                                                    
tasks  under  different  business names.  He  mentioned  the                                                                    
benefits  of  hiding behind  the  corporate  structure of  a                                                                    
Limited Liability  Corporation. He  opined that  the problem                                                                    
regarding unlicensed contractors  would continue despite the                                                                    
passage of SB 193.                                                                                                              
12:38:49 AM                                                                                                                   
Representative Edgmon asked about  section 3, "the applicant                                                                    
may  file with  the  commissioner a  cash  deposit or  other                                                                    
negotiable   security."  He   requested   a  definition   of                                                                    
negotiable security.                                                                                                            
Mr. Sniffen replied that he  was unsure about the parameters                                                                    
of  the  negotiable  security. He  offered  to  present  the                                                                    
information to the committee.                                                                                                   
Senator Micciche  replied that  a person  could post  a cash                                                                    
bond rather than a surety bond for the same amount.                                                                             
Representative  Edgmon  noted  that the  bonding  capability                                                                    
might   not  represent   cash  out-of-pocket   to  pay   the                                                                    
additional fee.                                                                                                                 
Senator Micciche replied yes.  He stated that various prices                                                                    
were listed for different work.                                                                                                 
12:40:53 AM                                                                                                                   
AL  NAGEL, DEPARTMENT  OF LABOR  AND WORKFORCE  DEVELOPMENT,                                                                    
ANCHORAGE  (via  teleconference)  was  available  to  answer                                                                    
Representative Thompson addressed Mr. Nagel.                                                                                    
Mr.  Nagel  responded  to Representative  Wilson's  question                                                                    
about  unlicensed  individuals  and criminal  sanctions.  He                                                                    
stated that the  crime mentioned was a  Class B misdemeanor.                                                                    
In  2006,  the legislature  passed  a  statute allowing  the                                                                    
department  a civil  or  administrative  fine authority.  He                                                                    
addressed   Representative   Wilson's  additional   question                                                                    
related to the  number of claims exceeding  $10 thousand. He                                                                    
stated that most  claims were private litigation,  so he was                                                                    
unable  to  provide  an  answer.  He  stated  that  research                                                                    
contractor licensing  provided a number of  contractors that                                                                    
held a $10 thousand bond  with a $100 thousand claim against                                                                    
them.  He  noted  that  the  person  at  fault  might  be  a                                                                    
supplier, contractor  or subcontractor.  He stated  that the                                                                    
problem was sizable for the consumer.                                                                                           
12:43:23 AM                                                                                                                   
Co-Chair  Stoltze  informed  the  committee  that  he  would                                                                    
further address  the handyman provision  of the bill  in the                                                                    
Representative  Costello stated  that the  bill weighed  the                                                                    
value of the public protection.  She wondered about a way to                                                                    
quantify  public  protection versus  a  cost  incurred by  a                                                                    
business   person   resulting   from   an   increased   bond                                                                    
requirement. She wondered if the  value of public protection                                                                    
could be quantified.                                                                                                            
Senator Micciche  replied that  the level  of damage  to the                                                                    
consumer in  addition to the  money owed to the  supplier or                                                                    
equipment company contributed to  the amount owed. He opined                                                                    
that a  reputable contractor  would go out  of their  way to                                                                    
protect their bond. The bill merely modernized the level of                                                                     
protection for consumers.                                                                                                       
SB 193 was HEARD and HELD in committee for further                                                                              
12:48:17 AM                                                                                                                   
The meeting was adjourned at 12:48 a.m.                                                                                         

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