Legislature(1997 - 1998)
04/24/1998 03:28 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 24, 1998
3:28 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Bill Hudson
Representative Jerry Sanders
Representative Joe Ryan
MEMBERS ABSENT
Representative Tom Brice
Representative Gene Kubina
COMMITTEE CALENDAR
* HOUSE BILL NO. 389
"An Act relating to an exemption from the requirement for payment
for overtime under a voluntary written agreement for certain
employees in the airline industry; and providing for an effective
date."
- HEARD AND HELD
* HOUSE BILL NO. 486
"An Act relating to the Alaska Securities Act; and providing for an
effective date."
- HEARD AND HELD
CONFIRMATION HEARINGS: BOARDS AND COMMISSIONS
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 477
"An Act relating to common interest communities; and amending Rule
72(k), Alaska Rules of Civil Procedure."
- REMOVED FROM AGENDA
* HOUSE BILL NO. 276
"An Act relating to the compensation and terms and conditions of
employment of the heads and deputy heads of principal executive
departments of the state."
- REMOVED FROM AGENDA
HOUSE BILL NO. 350
"An Act requiring that the cost of contraceptives and related
health care services be included in health insurance coverage."
- REMOVED FROM AGENDA
(* First public hearing)
PREVIOUS ACTION
BILL: HB 389
SHORT TITLE: OVERTIME WAGE EXEMPTION AIRLINE EMPLOYEES
SPONSOR(S): REPRESENTATIVES(S) COWDERY
Jrn-Date Jrn-Page Action
02/11/98 2279 (H) READ THE FIRST TIME - REFERRAL(S)
02/11/98 2279 (H) LABOR & COMMERCE
04/22/98 (H) L&C AT 3:15 PM CAPITOL 17
04/22/98 (H) MINUTE(L&C)
04/24/98 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 486
SHORT TITLE: ALASKA SECURITIES ACT
SPONSOR(S): LABOR & COMMERCE BY REQUEST
Jrn-Date Jrn-Page Action
04/16/98 3014 (H) READ THE FIRST TIME - REFERRAL(S)
04/16/98 3014 (H) LABOR & COMMERCE
04/24/98 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
DOUGLAS ORCUTT
P.O. Box 198043
Anchorage, Alaska 99519
Telephone: (907) 561-0436
POSITION STATEMENT: Testified in support of HB 389, suggested
additional language.
MICHELLE BUCKMASTER
P.O. Box 111306
Anchorage, Alaska 99511
Telephone: (907) 344-5878
POSITION STATEMENT: Testified in support of HB 389.
DANIEL SMITH
7453 Tana Circle
Anchorage, Alaska 99504
Telephone: (907) 333-1008
POSITION STATEMENT: Testified in support of HB 389.
MICHAEL BROADWAY
3536 East 19th Avenue
Anchorage, Alaska 99508
Telephone: (907) 258-5606
POSITION STATEMENT: Testified in support of HB 389.
DAVID ATHEARN
4237 Marion Drive
Juneau, Alaska 99801
Telephone: (907) 789-2331
POSITION STATEMENT: Testified in support of HB 389.
CHRIS MONAGLE
P.O. Box 34652
Juneau, Alaska 99803
Telephone: (907) 789-5674
POSITION STATEMENT: Testified in support of HB 389.
MANO FREY, President
Alaska State AFL-CIO
2501 Commercial Drive
Anchorage, Alaska 99501
Telephone: (907) 272-4571
POSITION STATEMENT: Testified against HB 389.
DWIGHT PERKINS, Special Assistant
Office of the Commissioner
Department of Labor
P.O. Box 21149
Juneau, Alaska 99802-1149
Telephone: (907) 465-2700
POSITION STATEMENT: Testified on HB 389.
FRANKLIN TERRY ELDER, Senior Securities Examiner
Division of Banking, Securities and Corporations
Department of Commerce and Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0807
Telephone: (907) 465-2521
POSITION STATEMENT: Testified in support of HB 486.
VINCE USERA, Assistant Attorney General
Commercial Section
Civil Division
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
Telephone: (907) 465-3600
POSITION STATEMENT: Provided information on HB 389.
ACTION NARRATIVE
TAPE 98-50, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:28 p.m. Members present
at the call to order were Representatives Rokeberg, Cowdery, Hudson
and Sanders. Representative Ryan arrived at 4:09 p.m.
HB 389 - OVERTIME WAGE EXEMPTION AIRLINE EMPLOYEES
Number 0101
CHAIRMAN ROKEBERG announced the committee's first order of business
was HB 389, "An Act relating to an exemption from the requirement
for payment for overtime under a voluntary written agreement for
certain employees in the airline industry; and providing for an
effective date."
Number 0103
REPRESENTATIVE JOHN COWDERY presented HB 389 as the legislation's
sponsor. He commented HB 389 was introduced at the request of an
ad hoc group of employees from United Airlines, noting one of the
employees was his neighbor. Representative Cowdery read the
sponsor statement, making some additional comments and omitting the
sentence, "However, we expect organized labor to oppose it." He
noted the current overtime practice made it difficult or impossible
for employees to trade shifts to have, for example, an extra day
off during salmon season. He said he thought this had been done
quite a lot in the past. Representative Cowdery stated he was sure
organized labor would prefer the status quo, but he said they have
indicated they will work with them on this bill and he indicated he
hoped the legislation would find a way to provide a mechanism for
the airline employees to legally trade shifts. Representative
Cowdery mentioned he was not feeling completely well that day and
Marco Pignalberi, a member of his staff, was present to answer
questions on the legislation. The sponsor statement read:
HB 389 was introduced at the request of an ad hoc group
of employees from United Airlines. Since its
introduction, support has broadened to include the entire
commercial airline industry in Alaska. The Alaska Air
Carriers Association, its individual constituent members
and their employees are asking the legislature to pass
this legislation. Management and employees support it.
However, we expect organized labor to oppose it.
HB 389 is intended to allow airline employees to trade
workdays with each other without invoking overtime pay
requirements. Under strict interpretation of current
statute, a substitute employee who works a shift for
another employee must be paid overtime if the substitute
employee already worked 8 hours in the same work day or
40 hours in the same work week. Consequently, shift
trading can only occur when the substitute employee has
a day off from his/her regular shift. This situation
narrows the available pool of substitute workers and
makes it impossible or very difficult to trade shifts.
Airline employees in Alaska are vexed under Alaska's
statute (A.S. 23.10.160) because we are the only state in
the U.S. that has a daily overtime requirement. This
bill gives Alaskan employees of airlines the same
treatment as their counterparts in the other 49 states.
Shift trading among employees in the airline industry is
a very common practice. Usually it is done informally
with tacit approval of the employer. HB 389 will
legitimize the practice that has become the custom in the
industry. Without it, employer airlines would violate
the law if they allow their employees to trade shifts.
Organized Labor would prefer the status quo. They are
against any weakening of the overtime pay requirements in
statutes. There is no problem with the status quo as
long as the Department of Labor doesn't enforce the
overtime statutes. However, neither the legislature, nor
the governor, should be party to any practice that
condones arbitrary enforcement. Either we must tell the
employees of the airline industry in Alaska that they can
no longer trade shifts, or, we must provide a mechanism
for them to do it legally.
Number 0385
CHAIRMAN ROKEBERG stated the committee would take teleconference
testimony and confirmed members of the audience wishing to testify
on HB 389 had signed the witness register. He asked witnesses to
limit their testimony to three minutes or less.
Number 0443
DOUGLAS ORCUTT testified via teleconference from Anchorage. He
stated he worked for Alaska Airlines and was the vice president for
the International Association of Machinists and Aerospace Workers
(IAM), representing Alaska Airlines employees out of District 143
in Seattle. Mr. Orcutt spoke from his prepared statement, "I've
worked for Alaska Airlines for 23 years. I've enjoyed the ability
to trade days and shifts off between the course of my employment
both in Seattle and in Anchorage. (Indisc.--coughing) practice of
trading days off or shifts by employees of Alaska Airlines have
been in effect for over 30 years. Alaska Airlines, like other
airlines in the industry, operates 24 hours a day 365 days a year.
The voluntary day and shift trading among employees is a
longstanding airline industry practice which allows an employee to
obtain additional time off from work to address personal and
professional needs which would otherwise be unavailable to them.
These needs can range from time off not covered by a working
agreement and the relative (indisc.) to the ability to spend
quality time with family when work and school schedule conflict or
to perform charitable work in the community and to obtain
additional education."
Number 0530
MR. ORCUTT continued, "The International Association of Machinists
and Aerospace Workers, the IAM, currently represents the mechanic
and related MRP [mechanic and ramp personnel] employees as well as
the clerical office and passenger service (indisc.) [COPS]
employees under separate contracts (indisc.) Alaska Airlines. ...
I have been elected and currently serve as an IAM District 143 vice
president for the union at Alaska Airlines and help administer and
enforce both contracts throughout the Alaska system. Although the
MRP agreement is silent, the practice of trading days off or shifts
has always been allowed and does not, and was never intended to,
jeopardize overtime rules or pay for that work group. Moreover,
the current working agreement between Alaska Airlines and the IAM
for the clerical office passenger service employees does have
negotiated contract language under its article 5, hours and
service, paragraph 'f,' page 14, which states, 'Employees in the
same classification and work group may participate in the trade of
days off or shift with their managers approval 48 hours in
advance.' I emphasize, 'employees shall be compensated as if they
remained on their original days off and shift. When employees
trade days off or shifts, they will be considered for pay purposes
to have remained in their scheduled days off and/or shifts.' The
mechanical-related employee group is currently in contract
negotiations with Alaska Airlines and with support from the carrier
is seeking to adopt contract language identical to the COPS
agreement."
Number 0622
MR. ORCUTT stated, "I have reviewed HB 389 and would offer only the
following suggestion. The Act should include further language
under paragraph 'd' which would clarify when employees trade days
off or shifts that they will be considered for pay purposes to have
remained in their scheduled days off or shifts, as it is described
in the COPS working agreement which I have read. As an employee
and a union representative of Alaska Airlines, I certainly support
HB 389 because it maximizes schedule flexibility for employees
while minimizing administrative scheduling for management, and
provides a positive voluntary benefit to all employees." Mr.
Orcutt indicated anyone who wanted further information on the
union's position on the legislation could phone either him or Tom
Gibbs (ph), the general chairman of Air Transport District 143,
Seattle, Washington, 1-800-248-0143.
Number 0727
REPRESENTATIVE BILL HUDSON asked Mr. Orcutt if it was correct this
had been a practice for 30 years.
Number 0730
MR. ORCUTT replied in the affirmative. He indicated Mr. Gibbs (ph)
had said the practice for at least 30 years and probably longer.
Mr. Orcutt noted Alaska Airlines has had a contract with the IAM
since 1958.
Number 0744
REPRESENTATIVE HUDSON asked why it needed to be changed if it had
been working for 30 years.
Number 0749
MR. ORCUTT indicated the process might need to be legitimized in
the state of Alaska.
Number 0762
REPRESENTATIVE COWDERY stated, "As I understand, even though it's
been in existence it ... could lead to the employer facing a
lawsuit - a class action lawsuit or something for -- or that time,
some sort of a legal problem if ... they endorse this as ... it
stands now." He asked if he was correct.
Number 0787
MR. ORCUTT replied, "Yes, I think I'm in - in agreement with that
although there's never been any times for many employees on ...
Alaska Airlines." Mr. Orcutt said he had spoken with Mr. Perkins,
of the Department of Labor (DOL) the other day who had indicated
the department had never received any complaints from Alaska
Airlines.
Number 0806
REPRESENTATIVE COWDERY said, "I understand, but that's not to say
some ambitious lawyer could come around and offer some employees
money (indisc.) enter into a suit ..."
MR. ORCUTT indicated he was not saying that could not happen and
stated he was in favor of the bill.
Number 0825
CHAIRMAN ROKEBERG asked Mr. Orcutt if he had had any communications
with the AFL-CIO (American Federation of Labor - Congress of
Industrial Organizations) or the International Brotherhood of
Teamsters.
MR. ORCUTT replied he had not.
CHAIRMAN ROKEBERG recommended he do so and try to get those
organizations behind his union. The chairman stated, "It's been
our experience that the organized labor takes a jaundiced eye at
amending this particular provision of the statute, so I recommend
that you get those chaps on your side where they belong as a pro-
worker group."
Number 0885
MICHELLE BUCKMASTER testified next via teleconference from
Anchorage. She stated she had worked for United Airlines for ten
years and noted she was a customer service representative for the
airline in Anchorage. She commented she had faxed several pages of
text to the committee the day before, including a revised copy of
HB 389 and a copy of a similar bill passed recently in the state of
Washington. Ms. Buckmaster stated, "In May 1997 United Airlines
informed (indisc.) employees in Alaska that because of the state
labor laws in our state, the trade policy and company regulations
would no longer pertain to us. This trade policy is a significant
benefit to us as employees as well as all airline employees in
Alaska. ... In an industry that spends 24 hour a day, 7 days a
week, 52 weeks a year in promoting and supporting the economic
growth of our state through tourism, conventions, sporting events
and numerous other activities, the trade policy is a valuable
benefit and tool to its employees who would otherwise miss out on
precious time with family, observance of religious holidays,
educational opportunities, summer vacations and extra time for
those who require it. In an industry where competition is always
a priority, we have come together to make a change that will
benefit and create a win-win situation for all airline employees.
Over the past year, employees from ... several air carriers have
worked together to encourage the implementation of this bill. As
you are aware from the numerous phone calls and letters from
concerned airline employees, there has been a great deal of grass
root support for this legislation. In closing, we understand and
respect the labor are here to protect us, however this particular
law which may be a protection in your eyes (indisc.) eliminating a
benefit in ours. Therefore I'm here on behalf of these employees
to request the amendment we have brought before you not only be
passed but be passed in a timely manner so that this valuable
benefit may be reimplemented as soon as possible."
Number 1020
REPRESENTATIVE COWDERY said Ms. Buckmaster had been the first
person to bring this problem to his attention and had done a lot of
work on it. He indicated she had gathered signatures from other
employees with similar concerns.
Number 1033
CHAIRMAN ROKEBERG indicated he had worked as a passenger service
agent for Northwest Airlines at the Anchorage International Airport
34 years ago and 31 years ago for Alaska Airlines. He said the
practice of trading days off and shifts existed at that time [tape
states "34 years" and "Alaska Airlines," Chairman Rokeberg
corrected information in further testimony].
Number 1065
DANIEL SMITH testified next via teleconference from Anchorage. He
stated he was an employee with United Airlines in Alaska and would
just like to reiterate the comments of Mr. Orcutt and Ms.
Buckmaster. He said the trade policy was an important tool to
assist the employees, and as previously mentioned, it was almost an
industry standard. Mr. Smith indicated Alaska was the only area
where they were having problems with this policy.
Number 1113
MICHAEL BROADWAY testified next via teleconference from Anchorage.
He stated he worked for United Airlines and was there to show his
support for what the people before him had basically said. He
indicated the trading policy was an airline industry standard; it
made a more friendly work environment, creating better jobs.
Number 1188
DAVID ATHEARN came forward to testify in Juneau. He stated he was
an Alaska Airlines employee and indicated he had been employed with
Alaska Airlines in Juneau for 22 years. He stated his airline
career extended back 35 years, noting the trade had been in effect
back in the "dark ages" of the industry as well. Mr. Athearn said
it had, if anything, become more of an integral part of the
business among the employee groups. He stated, "On a daily basis
in my work group there's probably 30 employees on the various
shifts throughout the 24 hour time period and about that number in
the COPS group, I being in the MRP, mechanic and related, and the
COPS, they're the ones at the ticket counter, the freight office
and what have you. ... I individually maintain a trade book to
keep track ... and there is anywhere from five to ten or a dozen
daily people that are very dependent upon a good, viable day trade
policy to have time off available for a variety of reasons -
vacation, personal time, et cetera. This is such an ingrained part
of ... the way we do business out at Alaska Airlines that there's
no way that I can conceive that we could operate unless we had the
policy like this in effect." He indicated he had a question about
the accountability of time which would be brought up by Mr. Monagle
and commented their appearance to testify had been on very short
notice. Mr. Athearn spoke in support of the legislation's passage
and commented it needed to be "cut in stone." He indicated the
language did not exist in the MRP contract but as Mr. Orcutt had
mentioned, the other half of their work group did have that
language.
Number 1338
REPRESENTATIVE COWDERY asked what the normal practice was for
trading days off, questioning whether it was done just between
individuals or if they worked through management.
Number 1348
MR. ATHEARN noted there was what they call a lead ramp service or
lead passenger service as management's representative for these
purposes. He said, "The person desiring a trade initiates the
paperwork between themselves with the approval ... of whoever
happens to be the straw boss of their work group that day, and then
it's entered into a trade log so when shifts change the new lead
coming on duty can just simply look at the piece of paper and say,
'Joe for Sam on such and such a shift,' and know who's going to be
there."
Number 1383
REPRESENTATIVE COWDERY asked what happened if one person fulfilled
his or her part of a trade agreement but the counterpart did not.
He asked, "Are you looking upon the management to do that -- to
step in and pay you for that?"
Number 1397
MR. ATHEARN said, "Then that becomes a -- if you've held up your
end of the bargain and someone, the person that had agreed to trade
with you did not show up, you're not going to be held accountable
for that because you had a viable trade established with them. If
the other person spaced out or called in sick or whatever, ...
you're not held responsible for that. It would be considered ...
unauthorized leave of absence or (indisc.)."
Number 1423
REPRESENTATIVE COWDERY confirmed that if an employee made a trade
it did not show up in his or paycheck, it was just in the operation
records.
Number 1427
MR. ATHEARN replied there was record made of it, noting there was
a provision on their timecards. He said, "You circle the day, say
you took Tuesday, and it says, 'Trade day worked,' you would circle
that, or 'Trade day off,' you would circle that."
Number 1443
REPRESENTATIVE COWDERY confirmed the practice was so common the
timecards were printed to indicate that possibility.
Number 1452
MR. ATHEARN agreed, stating it was an innovation which came eight
to ten years ago for accountability purposes.
Number 1463
REPRESENTATIVE HUDSON commented the committee had heard United
Airlines had essentially put its employees on notice the airline
was not continuing this practice because of the law. He asked Mr.
Athearn if Alaska Airlines had notified him the airline would not
continue the current trade practice.
MR. ATHEARN answered in the negative. He said, "They're pretty
much on the same page with us on this I think."
Number 1498
CHRIS MONAGLE came forward to testify next. He stated, "I
(indisc.) past president here the last five years ... of Local 2263
which is the local that covers all of Southeast [Southeast Alaska]
for Alaska Airlines, the ramp maintenance divisions. I think that
what we're looking for here is protection ... for things [to]
remain the same. The United [United Airlines] situation has ...
certainly given us a scare, taking away our trade benefits." Mr.
Monagle said people relied on trades benefits on a daily basis,
giving the example of how he used the trade practice to be able to
coach Little League Baseball without having Saturdays off. He said
he usually gave his days to returning college kids and he noted it
was common for people to use trades for an extra weekend day in the
summertime to go fishing. Mr. Monagle indicated the work group at
Alaska Airlines in Juneau felt very strongly about the issue. He
passed around a timecard for the committee members to see,
indicating the practice was so common it was on the timecard for
every employee. He added, "I wanted to say that when we do trade,
it's always at a regular straight-time rate, there's never ... any
advantage to stockpile overtime or to violate any state laws
regarding the use of, or accumulation of, overtime. ... I see it
as nothing but a benefit and would strongly favor the bill."
Number 1599
REPRESENTATIVE COWDERY said to Mr. Monagle, "You say ... it's a
common thing, but on the same token, your airline hasn't sent
notice, but we had -- I think I had communication with ... Alaska
Airline, well with the airline industry as a whole. They felt --
the management felt that if we didn't -- something similar to this
bill happen, that it could be selectively enforced to -- and - and
that was their concern. It wasn't that they -- the airline
industry as you said, and this testimony showed, that they're all
in favor of this, they just want to have it so they don't get
something stacked up on 'em and then they have to defend it."
MR. MONAGLE said he would agree.
Number 1642
CHAIRMAN ROKEBERG commented Alaska Airlines was the largest carrier
in Juneau but he noted there were other small commuter-type air
taxis and other scheduled carriers. He asked if those people were
members of any unions or generally nonunion.
MR. MONAGLE answered he thought most of the small carriers were
nonunion.
Number 1660
CHAIRMAN ROKEBERG asked, "How many people (indisc.) you think work
on the ramps and as passenger service agents or would be covered
under this bill with your firm working those same capacities for
all the other kind of carriers in 'Anchorage' that are not union
members?" [Note: "Anchorage" stated on tape, although it appeared
the question was in reference to Juneau.]
Number 1680
MR. MONAGLE confirmed Chairman Rokeberg was referring to people
working for the other carriers.
CHAIRMAN ROKEBERG indicated he was looking for a rough estimate.
MR. MONAGLE with an aside to Mr. Athearn, indicated the number in
Juneau would be probably less than 40 total. He said he was not
sure how many people Wings of Alaska employed, noting it was
probably the largest other carrier in Juneau.
CHAIRMAN ROKEBERG asked if that estimate included the pilots.
MR. MONAGLE answered in the affirmative.
Number 1738
MANO FREY, President, Alaska State AFL-CIO, testified next via
teleconference from Anchorage. Mr. Frey said he sincerely
appreciated the comments and questions, noting, "You have, I
believe, become enlightened about some of our concerns and issues
regarding overtime and wage and hour laws, and I appreciate you and
your committee members concern. As you know, we're ... very
reluctant when there are efforts to change the wage and hour laws."
Mr. Frey commented they have had many opportunities through the
last two legislative sessions to discuss with the chairman and the
committee members the AFL-CIO's concern about downgrading Alaska's
strong overtime and wage and hour laws. Mr. Frey indicated the
AFL-CIO thinks those strong laws are good, and not a negative. He
noted, "I think it's good for the workers of this state to know
that ... if they work overtime they're going to get paid overtime,
and, generally, it amounts to employers scheduling those employees
off rather than pay the overtime which really was originally the
... very intent of having overtime -- is to allow people more time
with their families and to do things ... that they'd rather do than
necessarily be working, even at an overtime rate. Having said
that, I take very seriously your questions with regards to Doug's
[Mr. Orcutt] testimony. We have not spoken about this until just
prior to the hearing and it is very rare that the state AFL-CIO is
in opposition to the bill supported strongly by one of its
affiliates, but that is the case today. We do oppose the bill.
But let me assure you that we will, when we push the button and
listen today to the rest of the testimony, the machinists' union
and the AFL-CIO will schedule a meeting to sit down and discuss
this, see if there are ways that would provide some reassurances
that - that we might feel necessary and if we can make the bill
palatable we would change our position ... we'll try to set up a
meeting as quickly as we can, depending on our schedules. ... We
will try to schedule a meeting so that we can see if there's not a
way to ... reach a middle ground on this, because it is a very
uncomfortable position ...." He indicated he agreed with
Representative Cowdery that a "rascal" attorney could cause some
legal problems with the current situation, noting he would do
almost anything to try to prevent that.
Number 1936
REPRESENTATIVE COWDERY said it wasn't his intention or he thought
the intention of the employees requesting the legislation to do any
downgrading of organized labor, but he commented it was something
they had to work out someway. He indicated he would be glad to
work with Mr. Frey to avoid some sort of selective enforcement or
a future class action lawsuit.
Number 1925
MR. FREY said he agreed with that and reiterated that they would
try to set up a meeting with the machinists' group. He indicated
they would attempt to reach something the AFL-CIO could support.
Number 1945
CHAIRMAN ROKEBERG indirectly asked Mr. Frey if he was serious about
meeting with the machinists before the end of the legislative
session on May 12.
MR. FREY. indicated he was serious about the meeting.
Number 1960
CHAIRMAN ROKEBERG stated, "As my constituent, I would not want to
do anything to ruffle your feathers but I think this is an
excellent piece of legislation and ... I am very familiar with this
situation from my own personal experience. ... This is a
longstanding traditional practice and it's so pro-worker I would
not even want to have ... any idea that you ... as a chief
representative of organized labor in this state would stand in the
way ... of workers of this state. I mean I just cannot conceive of
that, I mean it's beyond my understanding."
Number 1996
MR. FREY humorously commented to Chairman Rokeberg he was curious
why the chairman had downgraded himself by leaving the airline
industry represented by a good strong union to go into the real
estate business. He commented, "I can't believe it."
CHAIRMAN ROKEBERG discussed his employment history briefly, noting
he had worked for the airlines after college and the army. He said
he took a leave of absence from Alaska Airlines and opened his
first business, "The Birdhouse," commenting he never went back to
Alaska Airlines. He said he eventually sold "The Birdhouse" and
went back to college.
Number 2023
REPRESENTATIVE HUDSON declared a conflict of interest, noting his
son was a commercial pilot in Anchorage and his son's wife, his
daughter-in-law, was a flight attendant.
Number 2048
REPRESENTATIVE COWDERY asked Mr. Frey if he could come up with a
"date certain" for Mr. Frey's recommendation on this.
MR. FREY indicated he and Mr. Orcutt would meet the afternoon of
Monday, April 27, 1998. He stated he would contact the committee
as early as possible, either late Monday or early Tuesday.
Number 2064
CHAIRMAN ROKEBERG said the committee would look kindly upon Mr.
Frey's recommendation to the department not to try to enforce this
or anything else until it was resolved.
MR. FREY replied he absolutely would go on record supporting that.
He said they would not want to see any kind of conflict rise up on
the situation.
CHAIRMAN ROKEBERG asked him if he would make the "other step" and
put that into writing to United Airlines.
MR. FREY answered in the affirmative, asking to whom he should
address that.
CHAIRMAN ROKEBERG recommended he ask Ms. Buckmaster if she was
still at the Anchorage Legislative Information Office (LIO).
Number 2095
DWIGHT PERKINS, Special Assistant, Office of the Commissioner,
Department of Labor, came forward to testify. Mr. Perkins noted he
had had some discussion recently with the IAM's representative, Mr.
Orcutt. Mr. Perkins said in response to the sponsor's statement
regarding the other 49 states, he said he believed, in all due
respect to the sponsor, the research on that was slightly
incorrect. Mr. Perkins commented he had recently received a notice
from the state of Hawaii that similar legislation was going through
there. He said the state of Washington had adopted similar
legislation the past year. Mr. Perkins indicated he was not sure
how many states had similar legislation but he knew Alaska was not
the only state that did not allow this. He indicated he didn't
necessarily disagree with the legislation's intent but was just
clearing the record. Mr. Perkins commented United Airlines was
pushing the legislation in Hawaii, stating, "And based on testimony
that was made by a couple of United Airlines employees, I'm sorry
that it sounds to me like the employer is getting this whipped up
to a frenzy ... threatening the employees, 'If you don't take care
of it, we're not gonna do it,' and - and that's what it sounds
like, and I have a little concern with that ... if that's the
case."
REPRESENTATIVE COWDERY indicated he strongly did not feel that was
the case.
Mr. Perkins noted the employees had been put on notice the practice
would no longer be allowed if this legislation was not passed. He
said everyone had been on record and he would also go on record
saying it has been a past practice for many years. He indicated
the department did not have the finances to "go out and look for
trouble in this type of area." He stated "Mr. Orcutt did tell me
that in the 20-some years ... he's worked for Alaska Airlines,
there's been one or two people, employees, that have come and asked
them about this. After they explain it to them and how it's
worked, ... their opposition was withdrawn. Representative
Cowdery, you make a very good point as ... Mr. Frey said, there are
some ... not over-zealous, but ... out of employed attorneys,
maybe, that would like to ... make some money on this, and there
certainly is a concern there, and I would agree with you,
Representative Cowdery ... The department is in the process of - of
trying to reach out. We did, with Mr. Gibbs (ph) down in Seattle,
he got me in touch with Orcutt. I've talked to a couple friends
that work for Alaska Airlines out here, I understand the concern,
I've addressed the concern to the commissioner; he does want to
work this out. There is language that does touch on, and Mr.
Orcutt and I believe maybe the representatives from Alaska
Airlines, we want to make sure that ... and it's in federal
statute, to make sure ... that they aren't, for lack of other
words, cheated out of their overtime pay when it's due them.
(Indisc.--coughing) other (indisc.), and I only know of Alaska
Airlines because I live here in Juneau and they've been a good ...
employer to the employees of Alaska Airlines here. They have a
good track record ... with their employees. I ... personally have
several friends that work for Alaska Airlines that ... talk very
highly of that particular company." Mr. Perkins stated, however,
he would like to have the parties work together, indicating Mr.
Frey and Mr. Orcutt would be meeting on April 27. Mr. Perkins
indicated he had received some legislation from the state of
Washington the previous day which he would examine and compare to
the bill's language. He said, "It might be so that it is clear in
other states that we use some language that ... would fit this and
maybe offer a substitute to the ... legislation. But at this
point, ... I'd like to just say give us a few days to let us work
the constituent groups, to let us work with the air carriers
associations and try to come back in a timely manner and get this
taken care of."
Number 2328
CHAIRMAN ROKEBERG said Mr. Perkins's comment about United Airlines
was a bit injudicious. He indicated it was the chairman's reading
that the airline was trying to abide by the law the DOL was
mandated to enforce.
MR. PERKINS apologized for any misunderstanding he might have
presented. He stated, "It kind of bothered me that -- ... it
sounded to me like there ... may be undue pressure put onto the
employees for legislation ... that would cause a hardship for 'em
... and quite rightly give them some stress in their workplace."
Mr. Perkins apologized if he misinterpreted or misspoke or offended
anyone from United Airlines.
Number 2378
CHAIRMAN ROKEBERG asked if there was anything in the statutes the
DOL was in charge of enforcing that would allow for this type of
shift trading.
Number 2385
MR. PERKINS answered there was nothing under current statute.
CHAIRMAN ROKEBERG noted the people interested in the legislation
had identified a defect in Alaska's statutory construction and that
was the problem.
Number 2394
REPRESENTATIVE COWDERY indicated other carriers besides United
Airlines were involved, noting PenAir, the Alaska Air Carriers
Association and others had endorsed the legislation. He stated he
hoped Mr. Perkins thought it was a good bill and they could work it
out. He indicated the issue needed to be resolved.
Number 2422
MR. PERKINS said he believed the legislation had merit and it was
truly the employees coming forward wanting this done in light of
what one of the air carriers saw as a deficiency in Alaska's
statutes regarding wage and overtime laws. Mr. Perkins indicated
it was something they needed to resolve. He noted the commissioner
appreciated the opportunity to work with the Alaska Air Carriers
Association, with the constituent groups, the employees and with
the AFL-CIO, trying address this concern in a timely manner.
Number 2448
CHAIRMAN ROKEBERG stated, "Mr. Perkins ... I'm sure that the
commissioner wouldn't want to make himself open to the accusation
that he was ... not for the working man of the state. ... I'm sure
that ... the commissioner would not take kindly to that kind of a
charge if it was ... leveled against him under these circumstances,
I would think."
MR. PERKINS asked, "What leveled against the commissioner?"
CHAIRMAN ROKEBERG replied, "That he didn't support ..." [TESTIMONY
INTERRUPTED BY AUTOMATIC TAPE CHANGE]
TAPE 98-50, SIDE B
Number 0001
MR. PERKINS stated, "... (indisc.) I said, I believe I said, was,
I would like -- I believe he would like to have the opportunity to
work with the groups ... to try to come to a resolution so that it
can be moved forward. I think ... there is some potential, and Mr.
Orcutt addressed it, in the proposed legislation, there is some
potential for abuse, and we'd like to address that with some
possibility of some language ... that is being used around the
country that may make it simpler and address ... Mr. Orcutt's
concern about the overtime provisions."
Number 0023
CHAIRMAN ROKEBERG stated, "No, it wasn't what you said, it's what
I said."
Number 0027
REPRESENTATIVE HUDSON indicated he thought the department needed to
examine this in a general sense. He mentioned he had brought the
problem of his wife's hairdresser to Mr. Perkins, and commented,
"But at any rate, you know, we really got into this before, and I
can see it here and again, and I would really urge the department
to try to look at this in a more general sense, because there has
to be other sort of general applications like this that doesn't
totally blow away or violate, you know, the working man's right to
overtime pay when it's due and payable. So I would just urge you
to take a look at that and see if there isn't some way ...."
Number 0064
MR. PERKINS thanked Representative Hudson and said he would carry
the message to the commissioner.
Number 0070
REPRESENTATIVE COWDERY said he had been just told the federal
government exempted airline employees from this, asking if Mr.
Perkins was aware.
Number 0089
MR. PERKINS replied it was to some degree but not across the board.
He stated, "And that's something that I have ... and actually it's
... under the ... railway Act, and I believe it's US Code 181, and
so we are looking at that, and that is what I was referring to as
tying into this legislation."
REPRESENTATIVE COWDERY said he would provide Mr. Perkins a copy of
the statute they had.
CHAIRMAN ROKEBERG stated, "Mr. Perkins, I would suggest that you do
this very expeditiously or we'll remove the reference to airline
business in this thing and move the bill."
MR. PERKINS laughed and mentioned "fast track." He replied he
would contact Mr. Frey and Mr. Orcutt, commenting they might
possibly even have a teleconference over the weekend.
Number 0115
CHAIRMAN ROKEBERG indicated the commissioner should be informed as
well. He stated HB 389 would be held over.
Number 0119
CHAIRMAN ROKEBERG called a brief at ease at 4:19 p.m. The
committee came back to order at 4:21 p.m.
HB 486 - ALASKA SECURITIES ACT
Number 0154
CHAIRMAN ROKEBERG announced the committee's next order of business
was HB 486, "An Act relating to the Alaska Securities Act; and
providing for an effective date."
Number 0170
FRANKLIN TERRY ELDER, Senior Securities Examiner; Division of
Banking, Securities and Corporations; Department of Commerce and
Economic Development (DCED), came forward to testify in support of
HB 486 which he called an Act to amend the Alaska securities Act.
He thanked the committee for its willingness to introduce this
important piece of legislation which the department believes helps
preserve significant state revenues while improving investor
protection and providing new, easier access to capital markets for
Alaska businesses. He indicated the questions might be asked, "Why
are we amending the securities Act and why is the bill so long?"
He said they were amending the securities Act for a number of
reasons. Congress passed the National Securities Markets
Improvement Act (NSMIA) in 1996, which created a new class of
securities called "federal covered securities" and a new type of
investment advisers called "federal covered advisers." He said
NSMIA preempts states from requiring registration and collecting
registration fees for these securities and advisers. However, in
order to be revenue neutral, roughly, it allows states to amend
their statutes and regulations to require notice filings and notice
fees, which is what HB 486 does. Alaska currently receives annual
revenues from these sources in excess of $4 million and these
revenues have been growing at an approximately 14 percent rate over
the last few years. At that rate, the revenues from these sources
would roughly double in five years. Mr. Elder stated, "To preserve
our revenues, we must amend our Act to include these new types of
securities and investment advisers, and to provide for notice
filings and notice fees. We must also amend our Act to preserve
the authority NSMIA gives to the states to continue to provide
assistance to Alaska investors who complain about abusive sales
practices by their investment advisers. If we do not amend our
Act, the general fund loses this revenue and we lose the authority
to enforce the anti-fraud provisions of the securities Act with
respect to federal covered advisers and their representatives."
Number 0265
CHAIRMAN ROKEBERG asked, "Who are those (indisc.) people? Are they
investment banking account executives ... 'cause they are federally
licensed but you can also regulate them here in the state ...?
MR. ELDER replied that they are large investment advising firms
who, with NSMIA, only register with the Securities and Exchange
Commission (SEC). In the past these large firms registered with
both the SEC and the states. He said, "However, in NSMIA [it] said
that we can continue to require that they pay notice fees here and
we can continue to enforce the anti-fraud provisions of our Act.
So, the SEC sees the states as the cop on the beat 'cause we're
closer to the investors. ... If we don't do this, we don't have
the authority to help investors. We basically would have to tell
'em to call the SEC if they have a problem."
CHAIRMAN ROKEBERG asked if there was a threshold size for large.
MR. ELDER replied $25 million under management, roughly. He noted
it was more complicated than that but that was essentially the
threshold. He said that anything with $25 million or more under
assets is a "federal covered advisory (indisc.)."
CHAIRMAN ROKEBERG said, "A large local investment adviser like
McKinley Capital Management [McKinley Capital Management,
Incorporated] in Anchorage ..."
MR. ELDER said, "That's federal ..."
CHAIRMAN ROKEBERG continued, "... SEC, but then what relations or
what ..."
Number 0322
MR. ELDER stated that McKinley Capital Management, Incorporated, is
large enough; it will be a federal covered adviser, and therefore
it is registered with the SEC.
CHAIRMAN ROKEBERG asked what Mr. Elder's department had to do with
that company, for example.
MR. ELDER answered, "Nothing, except for enforcing anti-fraud
provisions. So, if they commit fraud, ... we could go after 'em.
We don't anticipate that of course, but ... that's what we could
do."
CHAIRMAN ROKEBERG asked about registered securities dealers and so
forth.
MR. ELDER replied that broker-dealers are not affected in that way.
They still register broker-dealers and still have similar authority
over broker-dealer to what they had before.
CHAIRMAN ROKEBERG asked, "Without regard to capital size or
anything?"
MR. ELDER said that was correct.
CHAIRMAN ROKEBERG indicated that could go from a one-man shop to
Merrill Lynch and Company, Incorporated.
MR. ELDER answered that was correct. He indicated NSMIA does
affect some areas regarding broker-dealers, noting the department
could no longer, for example, require different capital
requirements, or books and records requirements for broker dealers
than required by the SEC. Mr. Elder said there was no change in
terms of the general regulation of broker-dealers.
Number 0373
MR. ELDER continued, "The next question is, 'Why is the bill so
long?' First, NSMIA is the most significant change to federal
securities laws in the last 50 years. It affects not only
securities regulations by creating federal covered securities but -
but makes changes to the regulation of broker-dealers and
especially to the regulation of investment advisers. This means
that a lot of sections of our statute have to be changed to conform
to the new regulatory regime. Our current statutes do not include
notice filings and fees. They don't include federal covered
securities, federal covered advisers, investment adviser
representatives, state investment advisers - the smaller ones that
are no longer subject to SEC regulations at all but only to those
of the states, or prohibitions against specific unethical and
fraudulent business practices, especially for investment advisers,
which NSMIA provided was the proper domain for the states to
enforce. So, we have to make changes to accommodate all of those
... in our Act. All of these require numerous changes and
additions to the securities Act resulting in a long bill. Most of
the language of these changes ... in this bill was drafted by the
North American Securities Administrators Association (NASAA) ... I
call it the NASAA that doesn't go to the moon. ... It's an
organization of securities administrators of which we - we belong,
in all the 50 states including Puerto Rico and D.C. [Washington,
D.C.], also provinces of Canada and - and Mexico. We also worked
with industry and we have received and given you in your packets
copies of letters endorsing this legislation from the Investment
Company Institute and the Investment Council Association of America
(ph), both associations that represent the major players that are
affected by this legislation, mutual funds and investment
counselors."
CHAIRMAN ROKEBERG asked if he had had a chance to circulate this
among the people in the state who would be impacted.
Number 0466
MR. ELDER answered in the affirmative. He stated, "We provided
drafts of our proposed changes to persons who requested them,
mostly attorneys who are practicing in the field. We also
participated in a continuing legal education seminar in October of
'97 in Anchorage with the Alaska Bar Association, and we provided
the bar association copies of a draft of the changes and solicited
... comments .... In addition to the changes required by NSMIA, we
are proposing new or updated language to other sections of the
securities Act, sometimes to modernize language, and sometimes to
improve access to capital markets for Alaska businesses." He said
he would give a few examples, stating, "There's a new exemption
from registration that's added for businesses that are seeking
capital but limiting their search to a select category of wealthy
investors and institutions called accredited investors. It's
called the accredited investor exemption. This will allow Alaska
businesses to participate in new methods of raising capital such as
ACE-Net, that's the Angel Capital Electronic Network, which was a
creation of the Small Business Administration. There's a new
exemption added for businesses making their initial issuance of
shares to the people forming the business and not to the general
public. Some small businesses form and never intend to sell shares
to the public. This exemption will remove the requirement for
those people to file a request for exemption with the state.
There's a new exemption added for the sellers of a business who
transfer stock to the buyers of the business when ... the transfer
is solely incidental to the sale of that business. That'll remove
the potential liability that exists today when a small business
owner sells his business to someone and neglects, when he transfers
that stock because he had incorporated, ... to either file a
registration or exemption with - with the state. Next, there's a
new reciprocal limited registration created for Canadian broker-
dealers to provide service to their existing clients who happen to
be in Alaska for whatever reason, without having to be subject to
the full examination and registration requirements of the Act.
They are subject to the anti-fraud provisions of the Act. They
cannot compete for new customers, but only service their existing
Canadian customers who are in Alaska."
Number 0575
MR. ELDER continued, "It is reciprocal in that for a Canadian
broker-dealer to be able to do this, that Canadian province must
allow the same for a US [United States] broker-dealer. These are
probably the largest changes to the Act, so, in the interests of
the committee's time, I won't go ... into the other changes, but
will refer you to the comments that we have provided on sections of
the bill, both for all the sections and specifically for the non-
NSMIA sections ...." He noted he would be happy to answer any
questions after he finished his presentation, but commented there
were some corrects to the current draft of HB 486. He stated the
division worked with legislative counsel in drafting the bill, and
appreciated counsel's hard and careful work, but he said there had
not been an opportunity for the division to proofread the bill
before it was introduced. He referred to a letter from himself to
the the chairman, dated April 16, 1998, containing the needed 13
changes in amendment form. He stated, "The first 10 changes ...
that are numbered are replacements for sections as they exist in
the current draft of the bill, so it'd be simply a matter of
replacing the current sections with ... those that are in - in the
letter .... Change number 11 in the letter is a new paragraph
which is added to the definition of investment adviser. This is a
paragraph that I had discussed verbally with legislative counsel,
and we had agreed ... to insert it but somehow it got left out.
This is the only correction that would add a new paragraph to the
bill, and it would be on page 63. If adding a new paragraph to the
bill would cause a logistical problem in - in moving the bill, then
we can do without it, but ... if that wouldn't cause a problem then
- then this would be useful. The last two changes in the letter
are changes to the dates. ... When I was speaking with legislative
counsel they told me they were going to put in a November 1, 1998,
effective date, and I noticed that it's November 1, 1999, which
unfortunately would cause us to lose our authority to collect
notice fees ... and require notices."
Number 0750
CHAIRMAN ROKEBERG asked if there was anything in there that would
preclude the department from drafting regulations prior to their
effective dates, noting the committee had gone through this with
another bill that year. He said the committee was concerned
because the effective date in certain sections was "out some time,"
that without those sections being adopted, they didn't have
authority to do the "regs" until that effective date.
MR. ELDER stated, "My reading of this allows us to go out and - and
draft the regulations, but they wouldn't take effect until November
1, 1999."
CHAIRMAN ROKEBERG confirmed the authority was in specific language
in the bill.
MR. ELDER agreed, stating, "In the last page ... of the bill it has
-- Section 78, it says notwithstanding Section 82, the Department
of Commerce may immediately proceed to adopt regulations necessary
to implement the changes in the regulations take effect but not
before November 1, 1999. And so we - we could do that ... I'm
simply saying that that would be too late because the ..."
CHAIRMAN ROKEBERG noted the committee had gone into that before,
particularly on similar large things where there were prospective
future dates.
Number 0820
MR. ELDER indicated he suspected, based on his communication with
legislative counsel who had said, November 1, 1998, that this had
been a mistake.
REPRESENTATIVE HUDSON commented, because of his extreme confidence
in Willis Kirkpatrick [Director, Division of Banking, Securities
and Corporations] and Mr. Elder, he would like to consider the
suggested amendments 1 through 10 in Mr. Elder's letter as
Amendment 1.
CHAIRMAN ROKEBERG commented that was not a problem.
Amendment 1 (taken from Mr. Elder's April 16, 1998, letter) read:
1. (Section 1, page 2, line 14) Replace current AS
14.43.148(h)(1)(A)(xiii) with the following:
(xiii) registration as a broker-dealer, an agent, a
state [OR] investment adviser, or an investment adviser
representative under AS 45.55.030;
2. (Section 2, page 3, line 24) Replace current AS
25.27.244(s)(2)(A)(xii) with the following:
(xii) registration as a broker-dealer, an agent, a
state [OR] investment adviser, or an investment adviser
representative under AS 45.55.030;
3. (Section 3, page 5, line 5) Replace current AS
25.27.244(s)(2)(A)(xii) with the following:
(xii) registration as a broker-dealer, an agent, a
state [OR] investment adviser, or an investment adviser
representative under AS 45.55.030;
4. (Section 4, page 5, line 30) Replace current AS
37.23.050(a)(2) with the following:
(2) a state [AN] investment adviser registered under
AS 45.55.030 [AND UNDER 15 U.S.C. 80b-3 (INVESTMENT
ADVISERS ACT OF 1940)] or a federal covered adviser that
has made a notice filing under AS 45.55.040(h);
5. (Section 29, page 32, line 12) Replace current AS
45.55.060(d)(6) with the following:
(6) the administrator may by regulation provide for
an examination, which may be written or oral or both, to
be taken by any class of or all applicants, [AS WELL AS
PERSONS WHO REPRESENT OR WILL REPRESENT AN INVESTMENT
ADVISER IN DOING ANY OF THE ACTS WHICH MAKE THE
INVESTMENT ADVISER AN INVESTMENT ADVISER] including
applicants for registration as investment adviser
representatives of state investment advisers or federal
covered advisers, if [PROVIDED THAT] examinations
required by this paragraph are not required of a
registrant under this chapter who was doing business in
this state and was a resident of this state on May 9,
1959.
6. (Section 46, page 39, line 20) Replace current AS
45.55.900(a)(5) with the following:
(5) a security issued in connection with an
employee's stock purchase, savings, pension, profit-
sharing, or similar employee's benefit plan, or a security issued
by or an interest or participation in a church plan, company, or
account that is excluded from the definition of an investment
company under 15 U.S.C. 80a-3(c)(14) (Investment Company Act of
1940);
7. (Section 47, page 44, line 7) Replace current AS
45.55.900(b)(5)(C)(i) with the following:
(i) the persons are promoters as the administrator
may define "promoter" by regulation or order; and
8. (Section 47, page 44, line 18) Replace current AS
45.55.900(b)(5)(D)(ii) with the following:
(ii) the seller provides full access to the buyer of
the books and records of the enterprise or business; and
9. (Section 47, page 52, line 2) Replace current AS
45.55.900(b)(18)(H) with the following:
(H) dissemination of the general announcement of the
proposed offering to persons who are not accredited
investors will not disqualify the issuer from claiming
this exemption;
10. (Section 68, page 58, line 25) Replace current AS
45.55.980(f) with the following:
(f) AS 45.55.020, 45.55.023, 45.55.030(c),
45.55.030(e), 45.55.040(h), and 45.55.170, so far as
state investment advisers, federal covered advisers, and
investment adviser representatives are concerned, apply
when any act instrumental in effecting prohibited conduct
is done in this state, regardless of whether [OR NOT]
either party is then present in this state.
Number 0841
REPRESENTATIVE HUDSON made a motion to adopt Amendment 1. There
being no objections, Amendment 1 was adopted.
Number 0873
REPRESENTATIVE HUDSON made a motion to move the proposed amendment
11 in Mr. Elder's letter as Amendment 2, noting it was a complete
sectional addition to the bill.
Amendment 2 (taken from Mr. Elder's April 16, 1998, letter) read:
11. (Section 75, page 63, line 17) Add to AS
45.55.990(23) a new section (C) as follows:
(C) except for (37)(A)(ii) of this section,
"investment adviser representative" does not include a
person that would not be defined as an investment adviser
representative under 17 C.F.R. 275.203A-3 adopted under
15 U.S.C. 80b-3A (Investment Advisors Act of 1940).
CHAIRMAN ROKEBERG objected, indicating it was for discussion. He
asked Mr. Elder to explain what the new Section 75 would be doing.
Number 0896
MR. ELDER responded, "In NSMIA, the SEC is given the authority to
define 'investment adviser representative' and so we have crafted
... the definition in our ... Act according to the definition that
the SEC has already come up with." He said this paragraph would
allow the department to automatically track with the SEC, noting
investment adviser representative had never been defined before and
there could be changes, especially in the first few years. If the
SEC deleted someone from the definition of investment adviser, then
the person would be automatically deleted from Alaska's definition
as well. He noted the state could not differ from the SEC's
definition of investment adviser representative.
Number 0958
CHAIRMAN ROKEBERG asked for a definition of this representative.
MR. ELDER said essentially an investment adviser representative is
an agent of an investment adviser, whether it's a state investment
adviser or federal covered investment adviser. When you walk into
the office of a broker-dealer, the person you talk to about buying
and selling stocks is an agent of that broker-dealer; he said the
person actually giving the investment advice, representing that
investment adviser is called an investment adviser representative.
Number 0979
CHAIRMAN ROKEBERG asked where the line of demarcation was. He
asked if the person had to be an employee, an adviser with a
register corporation and additionally licensed themselves.
MR. ELDER replied the person would have to be a supervised person
of an investment adviser by definition, so he or she would either
be the representative of state investment adviser registered with
the state or a federal covered adviser registered with the SEC and
noticed with the state.
CHAIRMAN ROKEBERG confirmed that this person was advising in the
actual acquisition, sales and purchasing of securities.
Number 1019
MR. ELDER agreed, noting this person is giving the advice.
CHAIRMAN ROKEBERG asked if the distinction was made that this
person is not what is known as a financial planner or financial
adviser.
MR. ELDER said if a financial planner does not give investment
advice and does not receive income for that advice separate from
financial planning then that is correct.
CHAIRMAN ROKEBERG commented many times a no-fee financial planner
receives his or her compensation from fees provided by securities
companies when the planner recommends securities, asking if these
planners would be covered under this.
MR. ELDER indicated that person would be required to be registered
if he or she gives investment advice with respect to allocation of
assets and specific securities. He confirmed someone who
recommended a mutual fund purchase, for example, would be giving
investment advice and would have to a registered investment adviser
representative.
Number 1067
REPRESENTATIVE JOE RYAN asked if the father of a friend, who gives
very good investment advice, would have to become licensed under
this, or only if he asked for a fee.
MR. ELDER indicated the requirement would apply if the person held
himself out to the public for a fee.
Number 1077
CHAIRMAN ROKEBERG asked if the state of Alaska or the Division of
Banking, Securities and Corporations had any particular regulatory
authority over the area called financial planning unless these
planners fall under the investment adviser representative
definition.
MR. ELDER answered in the negative.
CHAIRMAN ROKEBERG said he wondered because it is a growing industry
with very little regulation, definition, educational requirements,
et cetera. He said there are national organizations that are
somewhat self-policing, but there seems to be little state or
federal regulation of these activities.
MR. ELDER said that was correct, noting the department adds some
language in here to make it very clear to people in that business
that if they are giving investment advice, then they are investment
adviser representatives.
CHAIRMAN ROKEBERG asked if fee-based financial planners not
compensated by mutual fund companies but receiving fees from the
clients they were advising would be covered under the definition.
MR. ELDER said it depends on what kind of advice the planners are
giving. If these planners are giving financial planning advice,
then they would not be covered by the investment adviser
representative. If these planners were recommending something like
additional equity exposure, specifying specific mutual funds that
would fit the client's objectives, then they would be giving
investment advice.
Number 1180
CHAIRMAN ROKEBERG withdrew his objection to Amendment 2. There
being no further objections, Amendment 2 was adopted.
Number 1196
REPRESENTATIVE HUDSON made a motion to adopt amendments 12 and 13
in the April 16, 1998, letter as Amendment 3, indicating both
suggested amendments were changing the date from November 1, 1999,
to November 1, 1998. There being no objections, Amendment 3 was
adopted.
Amendment 3 (taken from Mr. Elder's April 16, 1998, letter) read:
12. (Section 78, page 67, line 6) Change the date from
November 1, 1999 to November 1, 1998.
13. (Section 82, page 67, line 13) Change the date from
November 1, 1999 to November 1, 1998.
Number 1235
CHAIRMAN ROKEBERG noted Representative Ryan had provided an
amendment to the committee, asking if Mr. Elder had seen this
amendment.
Representative Ryan's amendment, labeled 0-LS1426\A.1, Bannister,
dated 4/24/98, later referred to as Amendment 4, reads:
Page 44, lines 4 - 12:
Delete all material and insert:
"(C) to 10 or fewer persons who are to receive
the initial issue of shares of a nonpublicly traded
corporation, limited liability company, limited
partnership, or limited liability partnership if a
legend is placed on the certificate or other
document evidencing ownership of the security
stating that the security is not registered under
this chapter and cannot be resold without
registration or exemption from it;"
Page 44, lines 4 through 12, in HB 486 read (as amended by
Amendment 1):
(C) to 10 or fewer persons in this state who are to
receive the initial issue of shares of a nonpublicly
traded corporation or limited liability company organized
in this state if
(i) the persons are promoters, as the
administrator may define "promoter" by regulation
or order; and
(ii) a legend is placed on the certificate or
other document evidencing ownership of the
security, stating that the security is not
registered under this chapter and cannot be resold
without registration under this chapter or
exemption from it;
MR. ELDER said he saw the amendment shortly before this meeting.
CHAIRMAN ROKEBERG stated it was not his intention to move HB 486
that day, he indicated it was his intention to move it at the next
meeting, April 27, 1998. He asked if Mr. Elder would like more
time to look over the suggested amendment or if he cared to comment
at this time.
Number 1278
MR. ELDER chose to comment, stating that the change that this would
make to the new exemption that they had proposed, "(b)(5)(C),"
would not affect the people they had in mind for "(b)(5)(C)." He
indicated the amendment would broaden the exemption but not affect
the people it was originally intended for. He said, "What we had
in mind specifically for the '(b)(5)(C)' exemption was people who
are incorporating their business and ... they're issuing the
initial shares to themselves and not to the general public ...."
He said this still deals specifically with the initial issuance,
but said he sees two primary differences. He noted they have
corporations and limited liability companies, and he said this adds
limited partnerships and limited liability partnerships. He
doesn't think that is a problem. The other thing it does is remove
a reference to a requirement that the entity be organized in the
state of Alaska; he also doesn't think that is a problem. The
third thing he said it does is removes the requirement that these
people, the ten or fewer persons, be promoters as defined by
regulation. Promoters are currently defined in regulation
essentially as people who directly or indirectly take an active
role in forming the company. He noted that since this exemption is
still limited to the initial issue of shares, presumably all of
those people probably would be involved in the formation of the
entity, and so that probably is also not a problem. On that basis,
he said, while it is not their proposal and therefore they are not
recommending it, they won't oppose it either.
Number 1400
REPRESENTATIVE RYAN noted it was his amendment and explained why it
was offered. He said, "Last year I submitted a bill, since the IRS
[Internal Revenue Service] restrictions on limited liability
companies (indisc.) criteria you had to meet depending on whether
you're gonna be treated for taxation as a corporation or you could
have passed from taxation or repealed by the IRS, and so we updated
the limited liability company Act to reflect that IRS update, which
makes it very easy to form, and so far Alaska's the only state
that's done that, so we have got a major stake in business with the
exception of this sticky point in registering these (indisc.).
Companies are getting the exemption. Now, the agency or the
department's been issuing a letter saying that, yeah, these aren't
securities as such. And this has been the fly in the ointment for
people who want to use these in the formations of trust and number
of other things throughout the world, not just in Alaska. Alaska
has this new updated limited liability company law and (indisc.)
have these limited (indisc.--rustling) various purposes they want
to outside of Alaska and there's no registration in other states,
but Alaska had this thing, so I'm putting this amendment here to
clean that up so that this will be open and we can take advantage
of that Act and we can do the business we want to do. There was a
very large company going to be (indisc.--coughing) million dollars
(indisc.) assets and because of this sticky provision, they don't
have to register in Florida and they don't want to register here,
so the deal went sour. We stand to make a lot of money, and part
of what this whole business in (indisc.) with trust and limited
liability companies and so forth -- like to have Alaska as a -
noticed as an estate planning venue, and this amendment would
facilitate that, that's why it was offered."
Number 1530
MR. ELDER added that simply because a security is exempt from
registration does not mean it is exempt from the anti-fraud
provision, so, if in fact, there was a problem with an abuse of
some type the department would have authority to go after the
issuer.
Number 1552
REPRESENTATIVE RYAN requested to offer his amendment as Amendment
4. He mentioned an accompanying letter from Richard W. Hompesch,
II, of Hompesch and Associates, Attorneys at Law.
CHAIRMAN ROKEBERG asked if deleting the term "promoter" caused any
problems, and if there were other purposes for having that term in
regulation.
Number 1612
MR. ELDER replied the reason they had added promoter was simply
that what they had in mind was to provide an exemption for people
who are forming their own companies, issuing stock to themselves,
and not to the general public, with the reasoning of, "Why make
them go through filing with the state?" He said they see this a
lot, giving the example of a fisherperson in Petersburg who decides
to incorporate, with the two spouses owning the business,
incorporating, putting the assets of the fishing business into the
corporation and issuing stock to themselves. In this example,
these people currently have to send the state a letter and the
department has to grant an exemption or write a letter stating the
department won't take action against them. He said the department
simply thought it would provide an automatic mechanism to cover
people in those situations. Mr. Elder said that because those are
people who are forming the company, they fit the definition of
promoter which is why it was in there. He said it was in
particular to distinguish these people from passive investors,
commenting the committee would notice there is no disclosure
requirement.
Number 1721
REPRESENTATIVE RYAN commented that when a corporation is formed, a
$40 fee and letter to the director of the Division of Banking,
Securities and Corporations stating that these stocks aren't going
to be publicly traded and are exempt from the SEC requirements.
Number 1746
CHAIRMAN ROKEBERG said he understood, but noted he had not seen
this letter and the department had not seen the letter. He said he
respects Mr. Hompesch, but Mr. Hompesch says that the department
"is gutting the benefit of new law by narrowly defining promoter,"
noting the chairman was not sure what that meant. Chairman
Rokeberg said, "I don't think we're gonna have any trouble with
this, but I certainly would have them have a chance to look at
this. Would you have any objections to that ...."
REPRESENTATIVE RYAN asked if he had seen the letter from Mr.
Hompesch.
MR. ELDER said he had not seen the letter.
REPRESENTATIVE RYAN apologized, indicating he thought copies had
been conveyed. Copies of the letter were distributed to the
committee. Mr. Hompesch's April 23, 1998, letter via facsimile to
Representative Ryan read:
You asked if HB 486 in its current form resolves the
securities bottleneck upon formation of Alaska limited
liability companies and limited partnerships. HB 486
does not eliminate the problem. Section 47 of HB 486
should be amended (AS 45.55.900(b)(5)(C); lines 4 through
12 on page 44). Proposed language is attached.
HB 486 adds new AS 45.55.900(b)(5)(C), but this provision
has three defects. There are three problems. First, the
exemption applies for sales made to 10 or fewer person in
this state. There is no reason why an exemption should
apply when sales are made in Alaska, but should not apply
when sales are made outside Alaska. Any sales made
outside Alaska are subject to regulation by federal and
other state law. Federal and other state law is
sufficient to regulate sales outside of Alaska without
additional regulation from Alaska.
Second, HB 486's version of AS 45.55.900(b)(5)(C)(i) does
not apply to limited partnerships.
Third, HB 486's version of AS 45.55.900(b)(5)(C)(i) would
allow the Division to "gut" the benefit of the new law by
narrowly defining "promotor" in such a way that few
transactions would qualify for this exemption. Alaska
would not benefit if HB 486 was passed and then the
Division "took-away" the benefits by administrative
order.
I understand that Bob Manley and Dave Shaftel spoke with
Terry Elder this morning and that Mr. Elder agreed to an
amendment that would allow an exemption for family
members. A copy of this amendment is attached along with
a cover sheet from Dave Shaftel's office. Unfortunately
the amendment does not include a good definition of
"family members." It is unclear whether step-parents
would be considered to be "family members."
If you have any questions, please call me.
Number 1800
CHAIRMAN ROKEBERG indicated his intention was allow everyone the
opportunity for review, taking HB 486 up first thing at the next
committee meeting. He noted that if the department wanted to look
at that, and if there were any other amendments, the committee
could take them up and proceed quickly with them.
REPRESENTATIVE RYAN asked if the chairman had any objection to his
amendment.
CHAIRMAN ROKEBERG indicated he brought it up to see if the
department had any objections. He asked for an explanation of
limited liability partnership, asking Representative Ryan if they
created that with the bill last year.
MR. ELDER said it was a relatively new entity.
REPRESENTATIVE RYAN commented he thought it was created a couple of
years ago in a bill by Representative Gene Therriault.
MR. ELDER said it is a fairly new entity and the department is
simply adding it because it and limited liability companies are
entities that didn't exist when the securities Act was passed.
CHAIRMAN ROKEBERG noted it was not in the department's version but
it was in Representative Ryan's.
MR. ELDER said that did not, by itself, present a problem.
CHAIRMAN ROKEBERG asked about limited partnerships, questioning if
there were restrictions relating to the ten or under, and how those
limited partnerships were handled because those entities are
brought into this amendment.
MR. ELDER answered in the negative, stating that limited
partnerships would not create a problem. He said the expansion
from corporations and limited liability companies to include
limited partnerships and limited liability partnerships would not
present a problem.
CHAIRMAN ROKEBERG asked if that was because of the numbers of
people.
MR. ELDER said because of the numbers of people and because this is
limited to the initial issuance.
CHAIRMAN ROKEBERG asked what the threshold was for limited
partnerships. He asked if registration was required for over ten
people or if it was a dollar amount.
MR. ELDER replied that was not his area and he did not know.
REPRESENTATIVE RYAN stated, "Basically limiting the liability of
the partners -- in previous in a partnership, everybody is
(indisc.) -- you owe whatever your partner runs up. In a limited
partnership you have ..."
CHAIRMAN ROKEBERG interjected he knew that, but was wondering what
the restrictions are in the balance of the laws related to limited
partnership because they are not spoken to in this section.
Number 1963
VINCE USERA, Assistant Attorney General, Commercial Section, Civil
Division, Department of Law, offered his assistance. He said the
limitation is no more than 10 investors and $500,000 for a limited
partnership that does not have to go through registration.
CHAIRMAN ROKEBERG noted, then, there was an another requirement
relating to the dollar amount.
REPRESENTATIVE RYAN commented it was (indisc.) capitalization.
CHAIRMAN ROKEBERG asked Representative Ryan if adding that would
have any bearing on this.
REPRESENTATIVE RYAN said the flexibility of limited liability
companies and partnerships are the reason for passing this law.
CHAIRMAN ROKEBERG confirmed Mr. Usera was familiar with the
amendment and had no comments on it.
MR. ELDER indicated he did not think the department's position on
the amendment would change between that meeting and the Monday,
April 27 meeting. He said that while they had something specific
in mind when they added the "(b)(5)(C)" exemption, he does not
think they would have any objection to this although they are not
recommending it. Mr. Elder said their major concern is to get the
bill through as expeditiously as possible.
Number 2125
CHAIRMAN ROKEBERG indicated the bill would be moved very rapidly at
the next meeting, but he was wondering about Mr. Hompesch's
statement that the department narrowly defines promoter, noting the
bill allows the department to define promoter by regulation in the
future and he wonders how narrow that is.
Number 2137
MR. ELDER noted he had not spoken with Mr. Hompesch about that and
he has never heard that the department defined promoter too
narrowly. He said it is defined in regulation and the department
will be redoing its regulations as a result of this legislation,
noting there would be ample opportunity for recommendations to the
department regarding the definition of promoter or anything else.
CHAIRMAN ROKEBERG asked if promoter was used elsewhere in the bill
so that its removal here would not damage the department's ability
to define it.
MR. ELDER said it is used elsewhere and this would not hurt that
ability of the department.
Number 2171
REPRESENTATIVE RYAN made a motion to move the amendment he had
submitted, labeled 0-LS1426\A.1, Bannister, dated 4/24/98, as
Amendment 4. There being no objections, Amendment 4 was so
adopted.
REPRESENTATIVE RYAN asked Mr. Elder for his opinion of Mr.
Shaftel's proposed amendment for family transactions included with
Mr. Shaftel's April 23, 1998, facsimile. Representative Ryan noted
the language "fourth degree of affinity or consanguinity (including
adoption)."
MR. ELDER indicated he was familiar with the amendment and the
department would not have any problem at all with that amendment.
CHAIRMAN ROKEBERG interjected that the committee did not have
copies of Mr. Shaftel's communication and amendment. Copies were
provided to the committee.
Number 2280
CHAIRMAN ROKEBERG called a brief at ease at 4:05 p.m. The
committee came back to order at 4:08 p.m. [THE TAPE WAS CHANGED
WHILE THE COMMITTEE WAS AT EASE]
TAPE 98-51, SIDE A
Number 0001
CHAIRMAN ROKEBERG stated the committee has before it an amendment
recommended by Mr. Shaftel regarding transactions involving family
members. He asked Mr. Elder to speak to the amendment.
Number 0038
MR. ELDER explained that he spoke to some members, including Mr.
Shaftel of the Anchorage Bar Association, who have worked in the
area of state planning and probate. He said, "They're also fairly
active in making filings with our division. They indicated a
desire to add an exemption, and this is the exemption they sent me,
which would essentially exempt transactions involving only family
members. And to a large extent, these are - the way they are now
these are limited partnerships often that are created and funded by
the parents that go into children's and grandchildren's trust
accounts and things like that, that currently they may not fit an
exemption. And the way it is now, the attorneys write us a letter
and ask us not to take action against them for not registering the
transactions and we routinely provide that letter to them. And so
on that basis, we wouldn't have a problem with this. This simply
says if you're doing something in the family then we won't get
involved, you're not doing it to the general public."
Number 0175
CHAIRMAN ROKEBERG said that it looks like there are 19 exemptions.
Number 0198
MR. ELDER agreed and said the proposed amendment would go under
[AS] 45.55.900 which lists the exemptions. In the bill it would be
on page 52 and it would probably be item 20.
Amendment 5 reads:
Add a new subsection to AS 45.55.900(b), as follows:
(Number) a transaction involving only family members who
are related within the fourth degree of affinity or
consanguinity (including adoption).
Number 0231
CHAIRMAN ROKEBERG said, "The committee will mark the amendment up
to make this subsection 20 and then mark it up as Amendment Number
5. The Chair would entertain a motion on Amendment 5."
REPRESENTATIVE JERRY SANDERS moved that Amendment 5 be adopted.
There being no objection, Amendment 5 was adopted.
CHAIRMAN ROKEBERG referred to the fiscal note and asked Mr. Elder
to explain the "notice and fee" comments. He asked how the money
is collected and how would it be jeopardized by the failure to
adopt the bill.
Number 0305
MR. ELDER stated that before NSMIA passed in 1996, securities had
to be either registered or exempted and with that, they had to pay
a registration fee or an exemption fee. When NSMIA passed and
created the federal covered security, it defined a certain type of
security that it calls "covered security" and it says that states
may not register those securities. If that's all it did, then they
would no longer have to register in the state to sell those
securities in the state and wouldn't pay any fees. But Congress
wanted NSMIA to be revenue neutral to the states so it said, "Even
though the states can't register them, we will allow the states to
require a notice filing so that the states will at least know that
those securities are being offered here and pay a notice fee,"
which is roughly equivalent to what they were paying before. He
said "What the -- the largest group of securities by far and away -
by far and away the largest group of securities affected here in
Alaska are mutual funds. The mutual funds that are sold here in
the past would be registered here and would file a registration and
pay a registration fee." He stated that currently, they give us a
notice and pay a notice fee. That can be done temporarily as that
ability runs out in 1999, and that is why the act has to be
amended.
MR. ELDER pointed out that the fiscal note refers to the revenues
lost and said 99.9 percent of the data the department is providing
to the committee is from mutual fund filings. They generate in
excess of $4 million per year and have been growing at 14 percent.
Number 0460
CHAIRMAN ROKEBERG said, "In the event that a mutual fund share is
sold in the state, there is a ultimate payback to the state
treasury or is it because they register and do business in this
state."
Number 0471
MR. ELDER responded, "Because they register to sell their fund
here, they have to -- they pay a fee and that fee, frankly, goes
toward offsetting the cost to the state for investor protection and
other things that make markets work well."
CHAIRMAN ROKEBERG asked if it is based on the fact that they want
to have the right to sell the fund in the state or is based on
their volume. He also asked if there is annual fee.
Number 0499
MR. ELDER stated that it is the right to sell in this state. In
the past, the fee has been based on volume. He said it doesn't
have to be based on volume as some states have a flat fee.
CHAIRMAN ROKEBERG asked if it is annual volume fee.
Number 0519
MR. ELDER stated that is set by regulation. In the past, it has
been a volume fee. In other words, the fee was $100 plus 1/10 of
1 percent of what you want to sell in Alaska up to a maximum of
$3,000. He indicated if a person wanted to register $100,000 worth
of his or her fund, it would cost $200. He reiterated that a lot
of states have gone to a flat fee, especially with the notices.
Mr. Elder noted the Investment Company Institute that represents
mutual funds supports this legislation.
CHAIRMAN ROKEBERG indicated the legislation would be held.
ADJOURNMENT
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Committee
meeting at 5:15 p.m.
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