Legislature(2015 - 2016)HOUSE FINANCE 519
03/19/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB116 | |
| HB49 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 49 | TELECONFERENCED | |
| + | HB 116 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 19, 2015
1:30 p.m.
1:30:46 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:30 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Laura Stidolph, Staff, Representative Kurt Olson;
Representative Paul Seaton, Sponsor; Taneeka Hansen, Staff,
Representative Paul Seaton.
PRESENT VIA TELECONFERENCE
Cynthia Franklin, Executive Director, Alcoholic Beverage
Control Board, Department of Commerce, Community and
Economic Development.
SUMMARY
HB 49 BENEFIT CORPORATIONS
HB 49 was HEARD and HELD in committee for further
consideration.
HB 116 EXTEND ALCOHOLIC BEVERAGE CONTROL BOARD
HB 116 was HEARD and HELD in committee for
further consideration.
HOUSE BILL NO. 116
"An Act extending the termination date of the
Alcoholic Beverage Control Board; and providing for an
effective date."
1:32:04 PM
LAURA STIDOLPH, STAFF, REPRESENTATIVE KURT OLSON, reviewed
the sponsor statement with the committee.
HB 116 extended the sunset date for the Alcoholic
Beverage Control (ABC) Board to June 30, 2018. Each
year the Division of Legislative Audit reviewed boards
and commissions to determine if they should be
reestablished in accordance with Title 24 and Title 44
of the Alaska Statutes. The Division of Legislative
Audit reviewed the activities of the Alcoholic
Beverage Control Board. The purpose of the audit was
to determine whether there was a demonstrated public
need for the board's continued existence and whether
it had been operating in an effective manner.
The board had addressed all issues found in prior
audits with two being resolved and one being partially
resolved. As the members might have noted from the
most recent audit there were five findings and
recommendations. First, the board's director should
ensure that all board meetings were properly published
on the State's Online Public Notice System. Second,
the board should notify local governing bodies of
applications for new and transfer licenses within 10
days of receipt. Third, the board should issue
catering permits in accordance with statutory
requirements. Fourth, the board should issue
recreational site licenses in accordance with
statutory requirements. Finally, the board should
implement a process to monitor and track all
complaints to ensure they were resolved in a timely
manner.
As the members noted in their review of the audit in
their packets it was the opinion of the Division of
Legislative Audit that the board be extended three
years to June 30, 2018. In the opinion of the auditors
the board was serving the public's interest by
effectively licensing and regulating the manufacture,
barter, possession, and sale of alcoholic beverages in
Alaska. To speak to the recommendations mentioned
earlier, Kris Curtis, Legislative Auditor, Alaska
Division of Legislative Audit and Cynthia Franklin,
Director, Alaska Alcoholic Beverage Control Board were
available online from Anchorage.
In closing, the ABC Board served an important role in
guarding the health and safety of Alaskans by
protecting the general public through the issuance,
renewal, revocation, and suspension of alcoholic
beverage licenses. The continuation of the board was
very important.
Ms. Stidolph thanked committee members for supporting HB
116.
Representative Wilson asked about the fiscal note. She
noted there was money coming from the general fund. She
wondered why the fees collected from serving alcohol did
not pay for operating expenditures making the program cost
neutral.
1:34:38 PM
CYNTHIA FRANKLIN, EXECUTIVE DIRECTOR, ALCOHOLIC BEVERAGE
CONTROL BOARD, DEPARTMENT OF COMMERCE, COMMUNITY AND
ECONOMIC DEVELOPMENT (via teleconference), spoke to
Representative Wilson's question. She explained that if the
licensed premise was inside a municipality, by statute the
entire fee was refunded to the municipality for law
enforcement efforts to do with Title 4 provisions. Many of
the licensing fees in alcohol were returned to the
individual communities where the licensed premise existed.
In non-municipality settings the license fees were placed
into the general fund. Although the ABC Board collected
licensing fees its costs were not technically cancelled out
by the licenses because the bulk of the funds received were
returned to the municipalities by statute.
Representative Wilson asked if the municipalities were
required to provide enforcement having to do with ABC Board
issues in their communities. She wondered about enforcement
outside of a municipality.
Ms. Franklin responded that the refunds were based on
enforcement of Title 4. Over previous years she reported
there had been different definitions of the statute.
Currently, the ABC Board required municipalities to report
their Title 4 activities annually. The report included the
number of Title 4 violations filed and prosecuted in their
jurisdiction. Presently, the board had five officers
statewide that were employed by the state that conducted
special enforcement efforts. The Alcoholic Beverage and
Control Board had a couple of programs that were law
enforcement related centering on preventing underage access
to alcohol. Officers of the ABC Board performed special
enforcement whereas municipalities focused on everyday
enforcement of Title 4 laws and rules around alcohol.
Typically municipalities had their own conditional use
permits or zoning requirements for alcohol licenses.
However, the responsibility of renewing licenses, preparing
for board meetings, and other activities fell on ABC Board
employees.
1:37:44 PM
Representative Wilson asked if there was anything
preventing the legislature from changing the fee structure.
She was not opposed to municipalities getting monies back
if they were doing enforcement. However, if the state was
also doing some of the enforcement activity she believed
the cost needed better distribution. She wondered if there
was a way to track the fees.
Ms. Franklin stated that there was a desire and an effort
to see that more of the licensing receipts remained within
the agency for the purpose of funding the ABC Board's
efforts. She mentioned that there was a 2.5 year Title 4
stakeholder process that began in May 2012 which resulted
in a Title 4 revision package that was currently in the
hands of the legislature but not introduced in the session
in progress. In the course of the stakeholder's
(stakeholders included Department of Public Safety,
Department of Health and Social Services, and members of
the public sector) review the board's licensing fees were
found to be too low and had not been raised for several
decades. She reported that most of the fees were returned
to the municipalities. She elaborated that the idea behind
the rewrite was to raise fees and to include in legislation
an outline of where the fees were distributed including
dispersal to the ABC Board for licensing and enforcement.
The draft bill had not yet been introduced but hoped that
it would be in the current session.
Co-Chair Thompson asked if the bill would have additional
fiscal impacts. Ms. Franklin responded affirmatively. She
indicated that the rewrite was extensive and increased
licensing fees. She opined that the question as to whether
it added money was difficult to answer because there was
nothing in the language that was submitted that would
direct the money anywhere. The legislation did increase
licensing fees. The fiscal note before the committee
reflected the fees currently in statute under Title 4.
There was no specific funding mechanism that related the
licensing fees to the cost of the agency.
Co-Chair Thompson recognized Representative Pruitt at the
table.
1:40:31 PM
Representative Wilson wanted to better understand the fees
that were currently in place. She was unclear why certain
board funds were placed in the general fund versus other
accounts. She wanted to be able to better assess fee
increase amounts. She suggested the legislature would be
asking for increases high enough to cover expenses in order
for each board to become self-sufficient. She requested a
copy of a stakeholder report if there was one.
Co-Chair Thompson noted that his staff would try to find a
copy of the report and provide it to committee members.
Representative Gattis asked about the three-year extension
and the fiscal note. She noticed that the out-year
estimates were predicted at a flat rate. She wondered about
raises and inflation rates. Ms. Franklin asked if
Representative Gattis was referring to the out-year
estimates.
Representative Gattis responded that she was referring to
the three years including the out-years. Ms. Franklin
stressed that the out-years were very difficult to predict
due to the new substance assigned to the agency by AS
17.38. She did not have any idea how regulating a new
substance was going to affect the agency financially and
whether tax revenues would be directed to the agency to
offset costs. She added that in other states where
marijuana was legal costs of regulating the substance had
been offset by taxes received. She was not aware of any
place in statute that offset costs with licensing fees
having to do with the regulation of alcohol. It was her
understanding that offsets did not occur because of refunds
to municipalities. She pointed out that the first refund
check to the municipalities for a six month period totaled
$660 thousand. The entire budget of the agency prior to
adding marijuana was $1.75 million. She continued that when
discussing $1.2 million per year in refunds to
municipalities it came close to equaling the ABC Board's
entire budget. There was a large sum of money going back to
the municipalities. She suggested that in the future years
until certain questions were answered concerning tax
revenue and how many positions would be needed at the ABC
Board to safely regulate the new substance the out-years
would be difficult to predict.
1:44:58 PM
Representative Gattis clarified that she was only looking
at FY 16, FY 17, and FY 18. All three years appeared
relatively flat according to the fiscal note in terms of
raises or increases. She wanted to know if an awareness of
the state's fiscal crunch was reflected in the fiscal note.
Ms. Franklin responded affirmatively. She elaborated that
the agency's decision was a reflection of not knowing what
the requirements might be to safely regulate the new
substance. She did not have a financial estimate
anticipating future staff needs. However, the board, with
all other things being equal, anticipated trimming costs
along with all state agencies.
Co-Chair Neuman referred to the fiscal note. He opined that
the fiscal note should be more detailed. He commented that
the fiscal notes for the marijuana policy board were much
more detailed. He asked Co-Chair Thompson for a revised
fiscal note.
Co-Chair Thompson responded that there would be some major
questions regarding present legislation.
1:48:46 PM
Representative Gara noted that the legislative audit
summarized the duties of the ABC Board which included
protecting the public's health and safety. He was concerned
about two neighborhoods within his district. He wanted to
know more about what was being done. He discussed a
particular assault in Anchorage. He asked if the board had
the power to take proactive steps to work with bars on
public safety matters or did the ABC Board wait until after
an incident or at the time of relicensing. Ms. Franklin
asked if Representative Gara's question was directed
towards her.
Representative Gara responded affirmatively. He restated
the question. He wondered if the board had the power and
took proactive steps to protect public safety. He wondered
if the board waited until after a violation to respond. Ms.
Franklin answered that the board did both. She explained
that the board had some proactive education-type activities
that it engaged in including attending the Anchorage
Downtown Partnership meetings. The board did not have the
power to proactively take a license without some other
occurrence. She furthered that a municipality in which a
licensed premise was located had the option to protest the
issuance, transference, or renewal of a license and could,
mid-renewal period, protest the continued operation of a
license. The board worked in cooperation with the
municipalities and local governing bodies to identify
problem operators and licensees. There could be some
reliance on municipal governments to identify the operators
by their protest tool. She reported the board was aware of
the current problems in downtown Anchorage and was in
communications with individual liquor licensees and with
the Anchorage Downtown Partnership. However, the statutes
did not permit the board to revoke a license in response to
a violation of Title 4.
Representative Gara wanted to make sure that the ABC Board
was taking proactive safety steps in working with bars
before incidents occurred. He wanted to reconfirm that she
was responding affirmatively to his question. Ms. Franklin
responded in the affirmative. She furthered that the board
identified a bouncer safety course and had started
recommending that licensees engage in the educational
course. She relayed that all of the board's Anchorage
enforcement officers attended the course, which was
originally offered by CHARR [Alaska Cabaret, Hotel,
Restaurant and Retailers Association]. She added that the
course information was also listed on the ABC Board's
website.
1:52:59 PM
Representative Gara asked about another neighborhood at
13th and Gamble in Anchorage. He explained that there were
two liquor stores across the street from each other and had
one of the highest concentrations of publicly intoxicated
people in Anchorage. He wondered if the board had the power
to grant two liquor stores in such a close distance from
one another. He wondered if it was beyond the board's power
to avoid issuing two licenses in the same area.
Ms. Franklin explained Title 4 was structured such that
local governing bodies were responsible for informing the
board about community issues concerning the location or
zoning of a licensee. She reported that the board was aware
of the stores Representative Gara was referring to. As the
Anchorage municipal prosecutor she had visited the area
several times. The board was aware that there had been
controversy regarding the licenses. She informed the
committee that Title 4 allowed protests of renewals,
transfers, initial applications for licensees or potential
licensees. At any time a governing body could protest a
licensee's continued operation even at a mid-renewal
period. Once a protest was issued the ABC Board would
uphold the protest according to AS 4.11.480 unless the
board found that the protest was arbitrary, capricious, and
unreasonable. She relayed that it was up to the Anchorage
Assembly to file a protest against the particular stores.
1:56:27 PM
Co-Chair Thompson suggested that Representative Gara
approach his municipality. He reported a problem in
Fairbanks where three liquor stores had similar issues with
public intoxication. The municipality told each of the
stores that it was going to protest their license renewals
unless they did something. He reported that they were all
working on reducing their hours of operations at the times
in which problems were occurring.
Representative Gara indicated that the local municipality
was currently working on the issue. He had just wanted to
hear from the ABC Board.
Vice-Chair Saddler asked about licenses for clubs,
particularly patriotic clubs. He mentioned a previous bill
that passed allowing spouses of service members and certain
under aged service members to attend functions at patriotic
clubs without drinking. He wanted to know about any
problems to do with alcohol control enforcement resulting
from the legislation. Ms. Franklin responded in the
negative. She relayed that clubs had been very orderly,
quiet, and respectful of the rules.
1:58:13 PM
Vice-Chair Saddler indicated that some ABC enforcement
agents wanted to obtain access cards to certain patriotic
clubs. He wondered if the effort was still underway. Ms.
Franklin believed the issue had been resolved. She had not
had the issue come up in the prior six months.
Vice-Chair Saddler said that the administrative home of the
board had changed from Department of Public Safety to
Department of Commerce, Community and Economic Development.
He wanted to know if the change had diminished the ABC
Board's ability to achieve either its commerce supporting
role or its public safety enforcement role.
Ms. Franklin relayed that she had only been a part of the
agency since it had been under the umbrella of commerce.
She opined that the board was functioning well following
the change. She believed that licensees were satisfied with
the board's performance in meeting its public safety
mission and making sure licensees understood specific
rules. The tone of the agency and its relationship with
DPS, DHSS, and with licensees was excellent. She suggested
the success of the board was due to the move between
departments as well as the legislative audit. She discussed
the stakeholders' workgroup in which members were forced to
talk through some very difficult issues. She reported that
the three board meetings she attended had focused
significantly on public safety. The ABC Board took its job
seriously and had a fresh perspective with the change to
DCCED.
Vice-Chair Saddler commented that the results of the ABC
Board's survey on page 23 of the audit indicated
participants thought there would be a need for new laws or
regulations. He wondered what type of new laws would be
needed.
Ms. Franklin shared that some of the details were decided
in the stakeholders group. She did not know what laws were
indicated in the survey. Department of Public Safety was at
the table in the stakeholders group when discussing large
issues regarding Title 4. She relayed that one of the
public safety issues that came up had to do with dry
villages and bootlegging penalties. The perception from law
enforcement was that the penalties were not effective. The
way in which the group addressed the problem was to rewrite
the penalties so that the amount of alcohol that was
brought into a dry village resulted in increased penalties.
In other words, a fine structure was tied to the amount of
alcohol imported into a dry village. This was an example of
the issues addressed with the stakeholders' workgroup.
2:02:24 PM
Representative Wilson asked that the revised fiscal note
include a list of categories, a breakdown of license fees
collected within each category, and the amount of fees
given to municipalities. She felt the information would
help in determining a revised fee structure aiming for
self-sufficiency.
Co-Chair Thompson directed Ms. Franklin to provide the
information to his staff to distribute to members. Ms.
Franklin would provide the information.
Representative Edgmon asked about new areas of regulation.
He wondered about powdered alcohol and whether it would be
included in the rewrite of the bill that was coming
forward. He wanted to know if powdered alcohol was under
the current jurisdiction of the ABC Board. Ms. Franklin
reported powdered alcohol was already illegal in Alaska.
She referred to AS 04.16.110 and conveyed that a person may
not sell alcoholic beverages in powdered form if intended
for human consumption. The law was enacted in 1995 and was
a Class "A" misdemeanor. The board was very satisfied with
the powdered alcohol prohibition and had no intention of
revisiting its corresponding law. She was aware of its
recent publicity but felt that the issue was already
addressed in statute.
2:04:02 PM
Representative Guttenberg asked about the authorities being
extended. He relayed that her position had moved over from
public safety. He suggested that the board would have more
to do with the agricultural community with the growing,
sale, and distribution of marijuana. He wanted her
perception of how the board was handling the marijuana
initiative.
Ms. Franklin reported that the ABC Board was working very
diligently in regards to the marijuana initiative. The
board's management team met with state regulators of
Colorado. State regulators from Oregon and Colorado meet
with the Alaska team to discuss in detail the challenges
they faced. She reported that marijuana was a very
different substance from alcohol and that cultivation and
growing were new areas to the ABC Board. She detailed that
she and her enforcement officer spent time with the owner
of Bells Nursery in Anchorage to better understanding about
growing plants indoors in Alaska and what type of issues
and challenges that might arise. She also reported spending
time with Department of Environmental Conservation
discussing testing facilities, labs, and standards for a
plant and how to write them into regulations. She
maintained that the agency's experienced licensing and
enforcement staff could be counted on to deal with the new
challenge.
2:07:07 PM
Representative Guttenberg noted the federal banking
restrictions that made it illegal for marijuana businesses
to do their banking in the United States. He wondered how
the ABC Board was addressing a change in banking
regulations the marijuana community.
Ms. Franklin mentioned that the ABC Board was working with
Ms. Kevin Anselm, Director, Division of Banking and
Securities, Department of Commerce, Community and Economic
Development, regarding associated issues. She pointed out
that Ms. Anselm attended a conference in the fall of 2014
with other banking regulators from legalized marijuana
states and would have an answer for Representative
Guttenberg's questions. She assured the committee that the
banking experts at state agencies were involved,
interested, and engaged in figuring how to bank the
marijuana industry.
Representative Wilson made some calculations from the
information on the fiscal note and pointed out that the
operation cost of the ABC Board totaled $279,208 per month.
She wondered if it would be more cost effective to
subcontract the board's duties more affordably. She thought
the figure was high. Ms. Franklin asked if Representative
Wilson was referring to the fiscal note that included
marijuana.
Representative Wilson responded affirmatively. She added
that she was unable to tell how much of the amount applied
to marijuana and how much applied to the ABC Board. Ms.
Franklin informed the committee that the previous year's
budget for the board was $1.75 million. She believed the
work of the board's relatively small staff could not be
contracted out more economically. There were 10 statewide
employees and herself, the director. She clarified in the
fiscal note the board had to include marijuana with the
passing of legislation. The budget in the fiscal note
reflected six additional employees to handle marijuana
issues for the period of FY 15 and FY 16. She reviewed
there were 16 employees statewide to enforce marijuana and
alcohol regulations in statute. In comparing Alaska's 16
employees to the number of regulators in other states such
as Colorado and Washington and adjusting for population,
she concluded that the state was getting the best bang for
its buck with the current employees in the division. She
did not think a private company could carry out duties more
efficiently. She pointed out that ABC Board shared many
resources with the rest of DCCED and across agencies. She
did not believe it was possible to scrape any closer to the
bone in the agency's budget.
2:10:48 PM
Representative Wilson clarified that her question was not
intended to imply that agency employees were not working
diligently. She believed that $279 thousand was a
significant amount of money per month. She surmised that
perhaps the costs reflected what the legislature had asked
the agency to do based on statute. She asked Co-Chair
Thompson about whether it was appropriate to have the
fiscal note detail the costs for both marijuana and
alcohol. She was wondering if the information would be
provided in lieu of or additionally in another piece of
legislation. She highlighted that the cost to the state was
$136 thousand per month to regulate and monitor alcohol.
She was unclear about potential duplication.
Co-Chair Thompson relayed that the bill would not be passed
out of committee because of so many unanswered questions.
He relayed that his office would try to get a breakdown of
costs associated with alcohol and with marijuana. He
reiterated that the new bills could influence the policies
around marijuana.
2:12:15 PM
Co-Chair Thompson asked about the five recommendations from
the legislative audit report. He wondered about the status
of addressing each of the issues. Ms. Franklin indicated
that all five issues had been addressed. A couple of them
had been address prior to her recent tenure in September.
The first addressed notifications to municipalities. There
was a staff change and with the changeover corrected the
notification procedure so that the 10-day deadline was
currently being met. All of the recommendations were
accepted by the agency and had been corrected. She
addressed the issue of multiple fiscal notes and multiple
marijuana bills, it was her understanding that it was
required that the agency had a fiscal note attached to each
bill because it was unknown whether any individual bill
would pass. She explained that it might be that in other
bills regarding marijuana a fiscal note for the staffing
and board to effectively regulate the substance. A fiscal
note was in each bill.
Representative Gara commented that the board was roughly
$1.5 million short of the fees the agency took in and
expenditures. He asked Ms. Franklin if he was accurate. Ms.
Franklin responded positively.
Representative Gara asked if all of the fees that the
agency took in were from liquor license sales or from other
fees. Ms. Franklin answered the fees that were taking in
were from liquor license fees. The reason the amount fell
short was because the agency did have a fee structure for
marijuana at present. She indicated that the agency would
not be able to determine the quantity of licenses that
would be issued or for what dollar amount prior to the
industry start-up. The fiscal note that was before the
committee reflected financial outlays for the regulation of
marijuana without any revenue currently. She spoke of the
City of Denver with 650 thousand people, 100 less people
than in Alaska, had issued approximately 900 marijuana
licenses. In 2014 Denver took in $15.9 million in taxes and
added 37.5 fulltime employees solely for the regulation of
marijuana. The employees' costs were fully covered by the
tax revenues collected.
Representative Gara asked if the ABC Board would be
breaking even without the marijuana component. Ms. Franklin
responded approximately.
Representative Gara asked if there was any way for the
state to benefit from the sales of liquor licenses rather
than any windfall going to a bar owner. He purported that
what happened was that there was a limited number of
licenses that people sold them for a significant amount of
money. Was there any way to restructure the transferring of
a license and if so, would it have to be changed in
statute.
Ms. Franklin agreed that the secondary market value of
liquor licenses came from a combination of the population
limits on licenses creating a limited availability. She was
unaware of any other way to correct the issue of
transferability for alcohol licenses except to rewrite the
statute. She was advocating for non-transferable licenses
without population limits for marijuana.
Co-Chair Thompson invited Ms. Franklin to make any closing
comments. Ms. Franklin thanked committee members for their
time.
2:17:50 PM
Co-Chair Thompson reiterated that the bill would be set
aside.
HB 116 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 49
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an
effective date."
2:18:44 PM
REPRESENTATIVE PAUL SEATON, SPONSOR, read the sponsor
statement for the bill:
HB 49 expands the options for Alaskan entrepreneurs
and investors by placing a new type of corporate
entity, the Benefit Corporation, in Alaskan statute. A
benefit corporation is a for-profit corporation which
incorporates public benefits and community improvement
into its business practices, no matter the principal
service or product provided. Allowing the creation of
benefit corporations will give business owners more
choice in how to run their business and will bring to
Alaska a slice of the $6.6 trillion that is invested
nationally in similar corporations.
Corporate law generally requires a corporation to
consider the financial impact to their shareholders as
the top priority when making decisions. Under the
benefit corporate structure, owners and boards have
the freedom to take actions which positively impact
their communities without fear of violating a
fiduciary duty. Benefit corporations are formed
voluntarily and have the same tax status of any other
for-profit corporation. By electing in their articles
of incorporation to become a benefit corporation, a
business simply gains the flexibility to include
mission and social impact in their business practices.
Twenty-seven other states have passed benefit
corporation legislation and many more have benefit
bills in process. Over 1400 benefit corporations have
incorporated in those states, including Ben & Jerry's,
Patagonia, Rasmussen College, Epic Coffee, and King
Arthur Flour Company (America's oldest flour company).
Each of these companies works to benefit the public
and their communities in the way that matters most to
them.
HB 49 also includes measures to ensure accountability
and transparency. Just as a traditional corporation
provides their shareholders with financial reports, a
benefit corporation will additionally create and
publish a biennial benefit report describing how the
company has pursued the general public benefit. This
report, which is held against a third party standard,
allows shareholders, investors, and the public to
confidently invest in benefit corporations that share
their values.
The goal of HB 49 is to give businesses more
flexibility and control over their decisions and to
provide investors with a clear social investment
option.
Representative Seaton relayed that the bill idea was
brought to him by some of his constituents who were looking
for ways for corporations to be accountable and to allow
mission-based or social impact-based investments to
advance. He had received feedback from Dianne Hughes, an
owner from the Earth Friendly Coffee Company in Homer, and
Gordon Blue, the director of Alaska Sustainable Fisheries
Trust in Sitka. He pointed out letters in member packets
from people around the state. He was available for
questions.
Co-Chair Thompson mentioned that there were agency folks
available for questions.
2:24:34 PM
Representative Gattis wanted to know what corporations were
unable to do currently without passing new legislation.
Representative Seaton mentioned that someone with a stock
portfolio has probably noticed a plethora of stockholder
lawsuits that have come about. He claimed they were
typically a result of shareholders being disgruntled with
the maximization of their returns. House Bill 49 allowed
corporations to pursue a community or statewide goal as a
general or specific benefit. All of the people investing in
a B Corporation would be aware that the purpose of their
investment was not only to make a profit but also to pursue
a benefit goal. He furthered that often corporations were
held back from doing what was socially responsible because
of the potential of being sued by their stockholders.
Representative Seaton continued that corporate law defines
the primary purpose of a C Corporation; to earn money for
its shareholders. In the case of a B Corporation, the
corporation, the board of directors, and the investors
could pursue mission or social impact investments without
the fear of being sued. He spoke of the success of the B
Corporation all around the country in terms of the pursuit
of sustainability. A large corporate farm, as a C
Corporation, might not be able to use sustainable farming
practices if it meant lower profits for its shareholders.
Shareholders might sue a corporation if they thought the
farming method took away from their bottom line. Whereas, a
B Corporation could select a general and specific public
benefit.
Representative Gattis had a difficult time thinking about a
corporation that did not have profit as a primary goal. She
understood the concept but was struggling with the idea.
Representative Seaton responded that B Corporation's main
mission could be to make a profit but could also have a
goal of providing a general or public benefit. The B
Corporation status benefited a corporation in certain other
ways such as: maintaining a certain persona, being able to
get action in the legislature, or providing an economic
advantage to the corporation over others. Many of the
stockholder lawsuits were based on certain kinds of things.
2:29:12 PM
Co-Chair Thompson referred to an email he received from a
supporter of the bill. The supporter suggested that, first,
the bill provided legal protection to directors and
officers to consider the interest of all stakeholders.
Secondly, it created additional rights for stake
shareholders to hold directors and officers accountable.
Co-Chair Thompson believe that the two ideas conflicted
with each other.
Representative Seaton responded that the way in which
people were held accountable was to select a public benefit
and to measure themselves against third party standards.
Directors and officers that did not pursue the
corporation's general goal could be sued. However, a suit
was not limited to the measure of financial benefit but
also to the measure of meeting a public purpose. People in
B Corporations to make a profit and to fulfil a public
purpose. A benefit report had to be filed every two years.
Otherwise, stockholders could claim that the director and
board members were not fulfilling the goals of the
corporation.
Vice-Chair Saddler commented that it appeared that someone
was trying to graft the efficiency and energy of the
corporate capital model with the social idealism of public
interest efforts. He had a difficult time completely
understanding the idea because he believed corporations
were in the business to make money. He asked about the tax
implications for the State of Alaska. He wondered if
benefit corporations would be exempt from or subject to
paying taxes.
Representative Seaton responded that there would be no tax
implications. As a for-profit corporation a benefit
corporation would be subject to the same taxes as a C
Corporation without credits or benefits.
2:31:56 PM
Vice-Chair Saddler asked Representative Seaton if he had
any idea how many existing C Corporations would switch to a
benefit corporation structure if the legislation passed.
Representative Seaton responded that Nevada passed similar
legislation in January 2014. Since that time 499 companies
had either formed or converted to a benefit corporation. He
relayed that it took a two-thirds vote of stock holders to
convert. Conversion standards were outlined in the bill.
Vice-Chair Saddler anticipated that more corporations would
start out as a benefit corporation and make a change to a C
Corporation later. He asked about the practical impact on
the state economy with the passage of HB 49.
Representative Seaton responded there was a significant
amount of money invested in social responsible and
sustainable companies that would not invest in corporations
in Alaska if they were not sustainable. There was 6.6
billion in capital available, according to Pew Charitable
Trusts, for the investment in social responsible
corporations. Some of the money could be brought to Alaska,
but he did not know an amount.
Vice-Chair Saddler spoke of seeing some non-profits had
taken advantage of public laws such as water rights
reservations with an avowed purpose not to use the water
but to prevent other development projects from using it. He
was concerned whether a benefit corporation might use the
tools available to a for-profit corporation to deprive
other for-profit corporations from developing Alaska's
resources. He would address additional questions in the
future.
Representative Seaton suggested that becoming a benefit
corporation did not establish additional rights to state
resources. However, it did allow a benefit corporation to
define its investment parameters to include a social impact
element as part of its general purpose.
Vice-Chair Saddler emphasized wanting be sure of the answer
to his question prior to creating a new type of
corporation.
2:35:29 PM
Representative Gara told a story of a law case regarding
Buster Brown Shoe Company. They wanted to attract employees
by providing daycare at their business. The corporation was
challenged by a shareholder that claimed that it was not
maximizing profits under standard corporate law. Buster
Brown lost in court. He asked if owners and shareholders of
the benefit corporations were given notice of a change.
Representative Seaton responded positively. As a benefit
corporation, a corporate structure, was established in law
with reporting requirements. There was a much higher
threshold to convert to a B Corporation because of having
to have an agreement among stockholders.
Representative Gara wondered if one of the motivations in
establishing a benefit corporation was to avoid litigation.
Representative Seaton believed it was one motivation. He
elaborated that the purpose was to allow corporations to
have a specific public benefit as well as making money for
shareholders without fear of a lawsuit.
2:38:29 PM
Representative Gara asked if the proposed legislation would
allow a group to donate profits to, for example, a veterans
group or a faith-based cause as a for-profit corporation
and still adhere to its values.
Representative Seaton confirmed that Representative Gara
was correct. He relayed it was not a non-profit and
therefore could make money but could have a specific or
general public benefit. The examples given were well within
the aspects of the legislation.
Representative Munoz believed her question had been
answered regarding the proposed requirements to gain the
approval of the existing shareholders of a C Corporation.
She recalled a two-third majority vote of a corporation's
shareholders was necessary to institute a change to the
status of a benefit corporation. She was wondering if
percentages were defined in statute.
Representative Seaton deferred to his staff.
TANEEKA HANSEN, STAFF, REPRESENTATIVE PAUL SEATON, asked if
Representative Munoz was referring to a specific statute.
Representative Munoz referred to page 2, Section 2 of the
bill where it outlined the minimum voting requirement to
establish a benefit corporation. She felt the voting
prerequisites were not laid out clearly in the bill. She
mentioned Representative Seaton alluding to the necessity
of a two-thirds vote. Ms. Hansen confirmed that there was a
two-thirds vote requirement. She would provide the
information to the committee.
Representative Munoz wanted to make sure that the
requirement was referenced in the bill.
2:42:03 PM
Representative Wilson wanted to better understand why a new
type of corporation would be necessary in order for a
corporation to change its vision. She suggested conferring
with shareholders but making changes within the already-
established laws.
Representative Seaton responded that without establishing a
benefit corporation a C Corporation would be without
protection from shareholder litigation having to do with
pursuing anything other than profit. In forming a B
Corporation a company would be able to pursue not only a
profit but also an identified public benefit. All
shareholders would be aware of what they were buying and
what benefits were being invested in. The filing of a
benefit report by all B Corporations would be required.
Representative Wilson was referring to the process of
communicating with shareholders to inform them as to the
goals of the company outside of making a profit. She
wondered if a C Corporation could operate in such a way as
long as shareholders were aware of the terms.
Representative Seaton explained that the reason benefit
corporations were springing up was because of lawsuits
resulting from shareholders not agreeing to new terms. He
furthered that unless there was a corporate structure that
specifically defined terms and a corporation was required
to produce benefit reports then the people in a corporation
were at risk. He believed that within a closely held
operation, such as a business with only five people, a
group might be able to reach an agreement. However, a
corporation pursuing the $6.6 billion in available
investment monies designated for sustainable corporations,
would purchase stock rather than negotiating around a
table.
2:45:53 PM
Representative Wilson commented that they would not all be
around a table, the majority would rule, 50 percent plus 1.
She asked if a benefit corporation and B Corporation were
the same thing. She asked if there was a difference.
Representative Seaton indicated that a benefit corporation
was statutorily designated. He volunteered that B Lab,
similar to Pew Charitable Trust, provided a B Corporation
certification which had no force in law. He provided other
examples such as sustainable salmon labels, and certified
LEED buildings that have no official recognition in state
statute. He clarified that B Corporation was generally a
shorthand for a benefit corporation.
Representative Edgmon referred to page 2, lines 22 to 24,
which allowed a corporation to amend its articles of
incorporation to add an extra layer of indemnification. He
clarified that when the board of directors purchased
directors and officers insurance they would be protected
from an errant lawsuit. Otherwise, as a corporation, it
could spin off of subsidiaries, or form a limited liability
corporation, or incorporate as a non-for profit. However,
as a for-profit corporation it would allow for a provision
such as day care like in Representative Gara's earlier
example. He saw the bill being complicated in terms of many
pages in length, but he felt the substance was one theme.
Representative Seaton agreed that Representative Edgmon was
correct in his interpretation.
2:48:58 PM
Representative Pruitt relayed a scenario in which instead
of being sued by a shareholder who felt that the
corporation was not effectively running the business to
make them money they sued the corporation because they felt
the corporation was not investing enough capital into the
public benefit. He suggested that at any point an investor
of a benefit corporation could take issue with the amount
being invested in the benefit. He asked if a B Corporation
could be sued for a reason opposite of making a profit.
Representative Seaton directed his attention to page 9,
Article 5. He confirmed that claims against a corporation
for failing to pursue or create a general public benefit
could be filed but not for monetary damages. He used the
example of a retail sports complex that was supposed to
benefit little league but had not spent money on it as
reflected on a benefit report. A shareholder could litigate
against the corporation influencing the entity to invest
money to benefit little league.
2:52:11 PM
Representative Pruitt was uncertain that litigation would
be avoided by establishing a new type of B Corporation in
Alaska. He opined that litigation would still occur but on
another footing.
Representative Seaton responded that the difference was
that someone could sue but not for a financial gain.
Representative Pruitt argued that a shareholder could sue
for financial gain even if they were not receiving money
directly. They could claim that not enough money was being
directed to an entity or organization of which they were a
beneficiary.
Representative Seaton indicated that Representative Pruitt
was correct. He pointed out that it was totally voluntary
for a B Corporation to have a general or specific benefit.
The bill provided protection for a corporation that wanted
to have a general or public benefit as part of its mission.
There was nothing requiring a change to or the
establishment of a B Corporation. He furthered it was
totally up to the vote of the shareholders.
Representative Pruitt understood that a two-thirds vote was
required to establish a B Corporation. He wondered if the
voting requirement was the same for a corporation wanting
to convert from a B Corporation to a for-profit
corporation.
Representative Seaton responded positively. He conveyed
that he had to leave the committee meeting to chair another
but his staff would remain to answer any further questions.
2:56:36 PM
Co-Chair Neuman pointed out the simplicity of the bill. He
highlighted that the bill allowed a company to structure
itself as a B Corporation and outlined that a specified
percentage would be given to a public purpose or non-
profit. A benefit corporation paid taxes on its total
profits but was required to inform its stockholders what
portion of the profits would go to a certain non-profit
company upon the approval of the board. He wondered if he
was accurate.
Representative Seaton confirmed that Co-Chair Neuman was
correct in his interpretation.
Co-Chair Thompson stated that the committee would be
hearing more complicated bills than HB 49 indicating the
potential need to hold morning meetings.
Ms. Hansen provided additional information. She reported
that the bill allowed a corporation to define its purpose
in the articles of incorporation so that the shareholders
were informed. It was not only for the purpose of
contributing to non-profits. There were many corporations
that did things such as paying for volunteer hours to
promote employee and community wellness. There were other
options but corporations needed to articulate them in their
benefit report and to their shareholders through their
articles of incorporation.
Co-Chair Neuman opined that further involving private
industry was essential based on the state's fiscal
situation. The legislation before the committee helped
towards that end. He reiterated that shareholders expected
to have a maximum profit and the bill established that part
of the profit would go towards a non-profit. He used Ben
and Jerry's as an example. He did not believe the ice cream
company had ever been sued.
Ms. Hansen indicated that Ben and Jerry's was the model for
the legislation. She reported that they would have been a
benefit corporation but they were currently a subsidy of
Unilever. Ben and Jerry's pursued their status through a
certification process. They did not have legal protection.
Upon being taken over there was a requirement to seek the
best financial offer but somehow the board was able to
remain part of the decision making process to protect its
social benefit. HB 49 would protect a corporation's mission
and upon a change in ownership social benefit could be part
of the consideration.
Co-Chair Neuman talked about public radio seeking other
funding sources other than through the state. The
legislation would allow a corporation to help non-profit
corporations. He reiterated that there were budgetary costs
that the state could no longer support like public radio.
He commended Representative Seaton for bringing HB 49
forward.
3:01:14 PM
Vice-Chair Saddler asked if there was an exclusion for
making money under a benefit corporation. He asked if a
benefit corporation was a solution to a problem in Alaska.
Ms. Hansen indicated that it was more prominent in states
that had a greater number of publically owned corporations.
She referred to Gordon Blue of Sitka. She explained that
his company was currently a Limited Liability Corporation
(LLC) which functioned somewhat to protect its mission of
being community centered. The company needed to generate
profit in order to do what it did but had a very specific
community goal. The LLC functioned for Mr. Blue but in
previous testimony he indicated it limited the company's
profits quite a bit which in turn limited its ability to
have funds to carry out its mission. She furthered that Mr.
Blue was closely tied to a non-profit which was complicated
with the LLC. He had expressed that the benefit corporation
structure could potentially be much simpler way to achieve
the same goal of protecting a community benefit.
Vice-Chair Saddler asked about page 12, lines 8 to 11. He
thought there would be public interest in seeing to what
extent a benefit corporation was achieving its benefit
mission. However, this section would limit the results of a
benefit audit to someone with a connection to the benefit
corporation. He wondered if a person with a benefit
corporation was a shareholder. In other words, he asked if
someone would have access to a benefit audit if they bought
only one share of a stock.
Ms. Hansen explained that the section clarified that a
benefit corporation was not required to have its benefit
report audited. However, there were third-party standards
that the report was required to meet. The report had to
include the third-party standards the company chose,
explain why the company selected them, and clarify any
financial connection between the third-party standards and
the benefit corporation. There was no requirement that
corporation select a particular third-party standard. It
was dependent upon the focus of the corporation. She
reported that Global Reporting Initiative was one of the
third-party standards. She mentioned a sustainable farm
standards, more appropriate for a business in agriculture.
The core of the third-party standard was currently accepted
best practice policy for employment and worker wellbeing
and community support.
3:05:23 PM
Vice-Chair Saddler commented that in the following section
of the bill it indicated that a benefit corporation shall
send a report to each shareholder. Therefore, a person
purchasing only one share received a report. Ms. Hansen
relayed that it was required that the benefit report be
available to the public. If the company had a website the
report had to be on the site.
Co-Chair Thompson asked if there were any further
questions.
Representative Pruitt wondered what kind of entity would be
interested in forming a benefit corporation. He
specifically asked if non-profits had expressed an interest
in moving from a non-profit structure to a B Corporation.
Ms. Hansen responded that although it was possible that a
non-profit would want to make the shift it would also
require a shift in philosophy. An entity would no longer be
a non-profit changing one of its main goals to making a
profit. Mostly she had seen new corporations or current C
Corporations that had nurtured certain social values.
Creating a benefit corporation was an opportunity to
protect what were already goals held by corporations.
Representative Pruitt did not see the simplicity of the
bill. He believed the legislation created a loophole for a
non-profit corporation to make a profit, potentially
competing against for-profit entities. If a corporation's
goal was to have a benefit and was shielded from lawsuits
for placing company profits into a benefit, the non-profit
essentially and legally made money. Whereas, previously the
corporation had to be a non-profit. He reiterated that
there was more to the bill than the committee was aware of
as well as potential ramifications.
Co-Chair Thompson commented that a corporation would be
responsible for paying taxes if it moved away from being a
non-profit to becoming a for-profit corporation.
Representative Pruitt responded that a benefit corporation
could take all of its profits and place them into a public
purpose benefit to avoid paying taxes. He believed that the
taxes would offset profits. Ms. Hansen relayed that the
bill did not allow for any special tax exemptions of any
sort. The only way that the money going towards a benefit
would be tax exempt was whatever was currently allowed
under corporate law for a charitable donation.
Representative Pruitt used the example of running a day
care, which he claimed was the cost of doing business. He
suggested that income monies [from a B Corporation] could
be placed into a benefit [purpose] claiming it as a
business expense, leaving the B Corporation without a tax
liability. Therefore, he surmised the B Corporation would
be competing with other for-profit businesses but would
have the ability to write-off tax liability. He referred to
a B Corporation as a for-profit non-profit. He stressed
that he bill was not simply to donate money towards a
certain benefit.
Co-Chair Thompson commented that there were more
complications in moving from a non-profit to a profit
corporation. He mentioned assets and loans and speculated
that it would not be advantageous for a non-profit to
become a B Corporation. The entity would end up paying
taxes one way or another.
3:09:44 PM
Representative Gara said there were a million ways to avoid
paying taxes. He provided examples such as increasing the
compensation for executives or managers who would then pay
taxes on their income. He saw the bill as an extension of
freedom to decide about what type of corporations they want
to form and for what purpose. The bill added a new option
to choose their investment. Like any part of the
marketplace a person had the freedom to go somewhere else
if they wanted. The legislation did not take away taxes nor
would it shrink businesses.
Co-Chair Thompson commented that executives would be paying
more money in taxes. He pointed out that the bill had a new
fiscal note dated 3/13/15. He commented that the original
note had a misprint and the new fiscal note reflected the
amounts.
HB 49 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson announced that the meeting scheduled on
Friday, March 20, 2015 was canceled.
ADJOURNMENT
3:11:55 PM
The meeting was adjourned at 3:11 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB049 Explanation of changes_H to E.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Sectional Analysis Ver E.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Sponsor Statement.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-2015 Legal FAQS-B Lab.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-2015 Sampling of Benefit Corporations.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-2015 States with Benefit Corporations.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-Letter Diane E. Hughes 2-4-2014.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-Letter Grodon Blue 2-2-2015.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB116 Supporting Documents - Legislative Audit 05-30-14.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 116 |
| HB116 Sponsor Statement.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 116 |
| HB 49 New FN DCCED.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB 49 Support Letter.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |