Legislature(1999 - 2000)
03/03/1999 03:20 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
March 3, 1999
3:20 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Jerry Sanders
Representative Lisa Murkowski
Representative John Harris
Representative Sharon Cissna
MEMBERS ABSENT
Representative Tom Brice
COMMITTEE CALENDAR
* HOUSE BILL NO. 87
"An Act relating to money credited to the account of the state in
the unemployment trust fund by the Secretary of the Treasury of the
United States; and providing for an effective date."
- MOVED HB 87 OUT OF COMMITTEE
HOUSE BILL NO. 82
"An Act relating to immunity for certain claims arising out of or
in connection with the year 2000 date change; and providing for an
effective date."
- MOVED CSHB 82(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 79
"An Act relating to letters of credit under the Uniform Commercial
Code; and providing for an effective date."
- MOVED HB 79 OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 87
SHORT TITLE: UNEMPLOYMENT TRUST FUND
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/10/99 189 (H) READ THE FIRST TIME - REFERRAL(S)
2/10/99 190 (H) L&C, FINANCE
2/10/99 190 (H) ZERO FISCAL NOTE (LABOR)
2/10/99 190 (H) GOVERNOR'S TRANSMITTAL LETTER
3/03/99 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 82
SHORT TITLE: IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS
SPONSOR(S): REPRESENTATIVES(S) ROKEBERG, Dyson
Jrn-Date Jrn-Page Action
2/05/99 144 (H) READ THE FIRST TIME - REFERRAL(S)
2/05/99 144 (H) L&C, JUDICIARY
2/12/99 (H) L&C AT 3:15 PM CAPITOL 17
2/12/99 (H) HEARD AND HELD
2/12/99 (H) MINUTE(L&C)
2/16/99 228 (H) COSPONSOR(S): DYSON
2/26/99 (H) L&C AT 3:15 PM CAPITOL 17
2/26/99 (H) HEARD AND HELD
3/03/99 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 79
SHORT TITLE: UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT
SPONSOR(S): LABOR & COMMERCE BY REQUEST
Jrn-Date Jrn-Page Action
2/03/99 132 (H) READ THE FIRST TIME - REFERRAL(S)
2/03/99 133 (H) LABOR AND COMMERCE, JUDICIARY
2/26/99 (H) L&C AT 3:15 PM CAPITOL 17
2/26/99 (H) HEARD AND HELD
3/03/99 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
DWIGHT PERKINS, Deputy Commissioner
Department of Labor
P.O. Box 21149
Juneau, Alaska 99802-1149
Telephone: (907) 465-2700
POSITION STATEMENT: Explained HB 87.
CHARLES BLANKENSHIP, Program Manager
Unemployment Insurance
Division of Employment Security
Department of Labor
P.O. Box 25509
Juneau, Alaska 99802-5509
Telephone: (907) 465-5930
POSITION STATEMENT: Answered questions on HB 87.
DANIEL KANOUSE, Budget Officer
Division of Employment Security
Department of Labor
P.O. Box 25509
Juneau, Alaska 99802-5509
Telephone: (907) 465-2711
POSITION STATEMENT: Answered questions on HB 87.
JANET SEITZ, Legislative Assistant
to Representative Norman Rokeberg
Alaska State Legislature
Capitol Building, Room 24
Juneau, Alaska 99801
Telephone: (907) 465-4968
POSITION STATEMENT: Explained changes in proposed Version I
committee substitute for HB 82 on behalf of sponsor.
JERRY WEAVER, Senior Vice President
and Manager of Commercial Lending
National Bank of Alaska;
Secretary-Treasurer, Alaska Bankers Association
P.O. Box 10600
Anchorage, Alaska 99510-0600
Telephone: (907) 265-2920
POSITION STATEMENT: Testified in strong support of HB 79.
ART PETERSON, Alaska Uniform Law Commissioner
National Conference of Commissioners on Uniform State Laws
350 North Franklin Street
Juneau, Alaska 99801
Telephone: (907) 536-4000
POSITION STATEMENT: Testified in support of HB 79.
ACTION NARRATIVE
TAPE 99-19, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:20 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Sanders, Murkowski, Harris and Cissna.
HB 87 - UNEMPLOYMENT TRUST FUND
Number 0079
CHAIRMAN ROKEBERG announced the first order of business would be HB
87, "An Act relating to money credited to the account of the state
in the unemployment trust fund by the Secretary of the Treasury of
the United States; and providing for an effective date."
Number 0096
DWIGHT PERKINS, Deputy Commissioner, Department of Labor (DOL),
came forward to explain that HB 87 provides the state authority to
receive federal funds for the administration of the unemployment
insurance program, as required in the Balanced Budget Act of 1997
[federal]. That Act provided for disbursement from the federal
unemployment trust fund to the state unemployment trust fund; these
disbursements are known as "Reed Act distributions." States must
enact legislation restricting the use of those funds to the
administration of the unemployment insurance program, rather than
using them for unemployment benefits or services. This bill is
housekeeping language necessary to allow the state to accept the
funds from the federal government, and to ensure that the
employment insurance program continues to operate.
MR. PERKINS explained that these are excess funds from the Federal
Unemployment Tax Act (FUTA), known as the FUTA tax. The federal
government has several billions of dollars in excess; when
overfunded, they are to refund to the states their portions. What
members see before them is the state's share of those FUTA taxes to
run the unemployment insurance program, administratively only, for
the next three years; language in the bill says this will go away
in 2002. Mr. Perkins reminded members that HB 87 is enabling
language that helps the state. He noted that with him to answer
technical questions, both from the DOL's Division of Employment
Security, were Charles Blankenship, the program coordinator, and
Daniel Kanouse, the "budget person."
Number 0289
CHAIRMAN ROKEBERG referred to the revised fiscal note, dated
3/1/99. He asked whether the change in revenue of $700,000 is per
annum.
MR. PERKINS affirmed that.
CHAIRMAN ROKEBERG noted that the $700,000 from the federal
government is for the administration only of the funds, and it
cannot be paid out in benefits. He asked whether that language is
within the "BBA" [Balanced Budget Act].
MR. PERKINS affirmed that, as well. He reminded members that the
Division of Employment Security is wholly funded by federal
dollars; there are no general fund receipts.
Number 0366
CHAIRMAN ROKEBERG expressed his understanding that state employees,
uniquely, pay into the unemployment compensation monies.
MR. PERKINS said the federal dollars pay for programs, with the
exception of the State Training Employment Program (STEP). Alaskan
employees pay towards their unemployment benefits, with about an
80/20 split. Alaska is one of five or six states nationwide where
employees contribute to weekly unemployment benefit amounts.
Number 0448
REPRESENTATIVE MURKOWSKI referred to the fiscal note attachment,
which indicates funds will be utilized to enhance data processing
upgrades and to redesign the automated Unemployment Insurance tax
system; she said she assumes that will be coming in 2000 to 2001.
She asked whether, with the Y2K [year 2000] funds allocated
recently for upgrades to state systems, anything was specifically
allocated towards unemployment insurance taxes.
MR. PERKINS indicated that although the DOL had put in such a
request, the current Y2K-related legislation from the
Administration has no dollars for the DOL.
CHAIRMAN ROKEBERG indicated the House and Senate have passed bills
regarding use of general funds and program receipts money for that.
He asked whether the DOL is authorized to use those for Y2K
problems.
Number 0540
MR. PERKINS affirmed that, pointing out that he and Representative
Murkowski had been referring to new funds. He stated, "And the
answer is no, we don't have any new dollars for Y2K issues. The
employment security division does have funds, but those are federal
dollars, and we are doing it internally, if you will, with the
funds that we have." He emphasized that the DOL is not requesting
new state general fund dollars for the Y2K issue.
CHAIRMAN ROKEBERG asked if there are any general fund dollars that
the monies in HB 87 can replace, for a savings to the state.
MR. PERKINS said no. These are additional monies, to enhance the
administrative side of the unemployment insurance program by
purchasing state-of-the-art hardware and software, running the
day-to-day program, and helping unemployed workers by getting
checks out in a timely manner, for example. At a recent overview,
Rebecca Gamez, director of the Division of Employment Security, had
explained about direct deposits of checks and other improvements.
CHAIRMAN ROKEBERG noted that from other testimony before the
committee, the money would be used to enhance a system that
apparently is not broken.
Number 0735
MR. PERKINS said unfortunately these funds cannot help reduce the
state's general fund dollars in other areas. These funds are from
the FUTA tax, collected by the federal government from the state.
This Reed Act was started in 1954, and there have been three
distributions since: 1956, 1957 and 1958. When the federal
government gets overfunded in this area, they like to reimburse
money to the states for shoring up the state programs.
Number 0812
CHARLES BLANKENSHIP, Program Manager, Unemployment Insurance,
Division of Employment Security, Department of Labor, came forward.
He stated, "The money that we expect to receive from this Reed Act
distribution does have some intended purposes. We currently have
a capital improvement project with a price tag of about $2.6
million for redoing our tax collection ... automated system. Some
of that money has been diverted - operating expenses toward Y2K
efforts - and we intend to replace that money, then, with the Reed
Act distribution that's coming in the next three years." He added,
"Money that we had set aside from the operating budget and other
sources to do the project have been diverted to Y2K."
CHAIRMAN ROKEBERG requested that before this goes to the House
Finance Standing Committee, the DOL provide the intended uses of
those funds, as well as the federal language that restricts the use
to administrative purposes.
MR. PERKINS agreed to that.
Number 0911
REPRESENTATIVE SANDERS asked if the money invested in hardware
wouldn't relieve the DOL's needs for Y2K money.
MR. BLANKENSHIP replied, "Yes, to some degree. The tax project is
largely a software project. We have invested money in hardware for
testing for Y2K compliance and replacing the equipment that wasn't
compliant."
REPRESENTATIVE SANDERS asked what that savings might be.
MR. BLANKENSHIP said he couldn't provide a figure.
Number 0959
REPRESENTATIVE HALCRO commented that when any commissioner talks
about increasing the administration side, it makes him nervous. He
then asked, "What is your department's burden on the general fund?"
MR. PERKINS said he believes it is just short of $8 million. He
stated the Division of Employment Security's budget is about $43
million. He stated, "I think the legislature took the remaining
balance of $1,500 last year when they did their budget reductions."
Number 1009
REPRESENTATIVE HALCRO asked about the $2.6 million capital
improvement project against which they had borrowed for Y2K issues.
MR. BLANKENSHIP explained that initially that was a Y2K project.
He stated, "When we saw that we wouldn't be able to get the system
redone by the requisite deadline, we remediated the old system; and
part of what we thought would go into the project that was to start
on revising the tax system has now been used, instead, for Y2K
preparedness. The capital improvement project had basically been
planned to come out of the operating grant for the three-year
period. This will assist us in making up some of the money that's
been diverted."
REPRESENTATIVE HALCRO asked how much of the $2.6 million has been
used to date.
DANIEL KANOUSE, Budget Officer, Division of Employment Security,
Department of Labor, said approximately $.5 million dollars.
MR. BLANKENSHIP clarified that it had been spent on the Y2K issue.
Number 1093
REPRESENTATIVE HARRIS requested confirmation that if the
legislature doesn't pass HB 87, the DOL won't receive the money.
MR. PERKINS confirmed that.
REPRESENTATIVE HARRIS referred to the fiscal note attachment, which
says the national distribution is anticipated to be $100 million
annually for three years. He asked whether Alaska's share of
$600,000 to $700,000 is per year, for the next three years.
MR. BLANKENSHIP said that is correct.
REPRESENTATIVE HARRIS asked whether that is to offset the $2.6
million. He then asked whether that is in the Y2K legislation and
what HB 52 relates to.
Number 1142
MR. PERKINS indicated HB 52 is the Governor's capital budget, under
which the DOL has requested equipment. He re-emphasized that if HB
87 is not adopted, the state will not receive that $600,000 to
$700,000 per year.
REPRESENTATIVE HARRIS asked whether the $600,000 to $700,000 per
year will be used to offset the request of $2.6 million in the
budget.
Number 1216
MR. KANOUSE explained, "This is a collection of revenues to be
applied against the expenditure authorization we're requesting in
the capital budget. We were intending to use part of our normal
unemployment insurance federal grant, ... part of it to go to the
ongoing operating costs, and part of it to the capital budget,
because we had to divert some of those dollars back to the
operating budget to cover our Y2K expenditures. We're taking these
revenues and applying them against our capital budget request."
CHAIRMAN ROKEBERG asked, "Which are embodied in HB 52 and SB 32?"
MR. KANOUSE affirmed that, indicating they have to stay in there to
give the DOL authorization to spend those revenues.
CHAIRMAN ROKEBERG suggested HB 87 is not a spending or
appropriation bill, but merely an authorization bill.
MR. KANOUSE agreed.
CHAIRMAN ROKEBERG suggested they actually need two bills from the
legislature, then, to deal with this money.
MR. KANOUSE said that is his understanding.
Number 1302
REPRESENTATIVE HALCRO asked whether the DOL knew that the $600 or
$700 [thousand] was coming down the road before they came up with
the $2.6 million.
MR. KANOUSE replied, "Our request for capital funds happened before
... it was clear to us exactly what we could anticipate from the
Reed Act distribution. They were fairly close together; it
happened in the fall, early winter."
Number 1340
REPRESENTATIVE MURKOWSKI asked whether she had heard correctly that
a portion of these monies, in addition to upgrading systems, could
be towards job training.
MR. PERKINS said no.
CHAIRMAN ROKEBERG noted that the DOL would provide the federal
statute delineating the use of the monies.
Number 1361
REPRESENTATIVE SANDERS asked for confirmation that the state will
save no money from the $600,000 to $700,000 per year.
MR. PERKINS affirmed that.
REPRESENTATIVE SANDERS asked whether, without the money, the DOL
would simply not do these things.
MR. PERKINS deferred to Mr. Blankenship.
Number 1402
MR. BLANKENSHIP answered, "Your question's a good one. ... We had
planned the capital project, $2.6 million, before we anticipated
this revenue. We had also anticipated starting that capital
project a little earlier. In the interim, we have had to use some
of the operating money that would have gone to a capital project
for Y2K expenses, and we anticipate more through the balance of
this year. This apparent windfall will help us offset some of
that, as well as add additional enhancements to the program. The
money coming in is not replacing any state general fund money that
the department has used for the program. The basis for this
distribution, at the national level, is the USDOL's [United States
Department of Labor] attempt to make up for frozen administrative
funding that has been a shortfall over the last several years. And
that's part of the driver behind this distribution. So,
unemployment programs across the nation have been cutting back,
trying to do more with less, and USDOL is making up for some of
that now with this distribution."
MR. BLANKENSHIP explained that two tax streams go into unemployment
insurance. The federal FUTA tax collected by the IRS [Internal
Revenue Service] is largely offset by the employers' participation
in Alaska's state employment security tax; the FUTA tax goes only
for administration of the program. All of the salary dollars and
overhead dollars come back from that FUTA tax, through the federal
government. The money that the state collects from the employers
and employees also goes into a nationally-maintained trust fund, in
Alaska's name, and that is dedicated strictly for benefits, with
the exception of the small portion that can be diverted for the
STEP program.
Number 1509
CHAIRMAN ROKEBERG asked whether the DOL would have asked for
general funds for a capital appropriation.
MR. BLANKENSHIP replied, "We never thought there would be any."
CHAIRMAN ROKEBERG asked whether they would have taken it right out
of the other tax revenue dollars.
MR. BLANKENSHIP affirmed that.
CHAIRMAN ROKEBERG requested confirmation that in those tax income
streams, there would not have been general fund appropriations,
either through general funds or the capital budget.
MR. BLANKENSHIP replied, "As the deputy commissioner indicated, the
last general fund money that our division had was about $1,500 last
year for some equipment maintenance."
Number 1545
REPRESENTATIVE HALCRO asked whether the $600,000 to $700,000 was
originally contributed by taxpayers.
MR. BLANKENSHIP said it was contributed by the employers.
REPRESENTATIVE HALCRO asked whether instead of going to pay for new
programs or expansion, it shouldn't instead fill the DOL's need.
MR. BLANKENSHIP asked whether Representative Halcro was suggesting
it would be more logical to offset or lower employer taxes, since
that is where the money came from originally.
REPRESENTATIVE HALCRO replied, "Yes, either that or use that
$600,000-$700,000 to offset the costs your department burdens the
general fund with."
MR. BLANKENSHIP said there are no costs.
Number 1600
MR. PERKINS concurred, emphasizing that there are absolutely no
state general fund dollars in the Division of Employment Security,
and there is no burden to the state from the division.
REPRESENTATIVE HALCRO asked whether they shouldn't, then, look at
putting this $600,000 to $700,000 back into the pockets of the
people who originally paid it.
CHAIRMAN ROKEBERG said that is a good idea, but this is mandated by
the federal law.
Number 1622
REPRESENTATIVE MURKOWSKI stated her understanding that the last
time there was a windfall like this was in the late 1950s.
MR. BLANKENSHIP said that is correct.
REPRESENTATIVE MURKOWSKI suggested that the DOL couldn't really
have anticipated that this would come along, and that it couldn't
have allocated accordingly.
MR. BLANKENSHIP told members there are various statutory ceilings
to the accounts in the federal unemployment trust fund. As those
ceilings are reached, the overflow eventually will trickle back to
the states. Since the late 1950s, those ceilings have been raised
by Congress four times, essentially prohibiting such distributions.
Number 1654
CHAIRMAN ROKEBERG asked if there was further testimony, then closed
the public hearing. He confirmed there was no further discussion.
Number 1688
REPRESENTATIVE HARRIS made a motion to move HB 87 out of committee
with individual recommendations and the attached revised fiscal
note dated 3/1/99. There being no objection, HB 87 moved out of
the House Labor and Commerce Standing Committee.
Number 1747
CHAIRMAN ROKEBERG called a brief at-ease at 3:51 p.m.; the
committee came back to order within less than a minute.
HB 82 - IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS
Number 1752
CHAIRMAN ROKEBERG announced the next order of business would be HB
82, "An Act relating to immunity for certain claims arising out of
or in connection with the year 2000 date change; and providing for
an effective date." He pointed out that the new proposed committee
substitute (CS), Version I [1-LS0398\I, Ford, 3/2/99], reflects the
conceptual amendments adopted by the committee the previous week.
He indicated the committee packets additionally contained an
executive summary of the Senate Year 2000 Problem report,
"Investigating the Impact of the Year 2000 Problem," issued by the
United States Senate Special Committee on the Year 2000
Technological Problem; chairman, Senator Bob Bennet; vice-chairman,
Senator Chris Dodd. The chairman noted the material provided to
the committee contained a web page address for anyone interested in
reviewing the entire report [homepage address for the United States
Senate special committee, with links to the report:
http://www.senate.gov/~y2k/home.html]. The chairman indicated the
report was issued on February 24, 1999, and became available March
2 on the Internet. Chairman Rokeberg commented the committee had
also received additional information from Scott Thorson who
testified on HB 82 on February 26, 1999. He invited Ms. Seitz
forward to briefly explain the changes in the proposed Version I
CS.
Number 1802
JANET SEITZ, Legislative Assistant to Representative Norman
Rokeberg, Alaska State Legislature, came forward. She told members
that Version I incorporates the three conceptual amendments adopted
by the committee on February 26. Amendment 1 added language
similar to that contained in S.96, the federal legislation; these
changes appear page 1, lines 12 and 13, and page 2, lines 14
through 18. Amendment 2 added "curing" language to give the
business an opportunity to cure its problems before any legal
action was instituted; this language appears on page 3, lines 7
through 14. Amendment 3 added some language covering people who
developed software, firmware, et cetera, and [those] who only sell,
rent or lease those items; that language is on page 2, line 20,
with the addition of the word "develops", and on line 25, with the
addition of the word "sells".
Number 1863
REPRESENTATIVE HALCRO made a motion to adopt the proposed committee
substitute, 1-LS0398\I, Ford, 3/2/99, as a work draft. There being
no objection, Version I was before the committee.
Number 1881
CHAIRMAN ROKEBERG confirmed no one wished to testify on HB 82. He
thanked members for their work on the bill at the previous hearing.
The chairman commented on two areas that had been discussed at that
hearing. He indicated Representative Murkowski had expressed some
concerns, and that he was also concerned, about "those provisions
of a plan of due diligence," page 1, line 14, through page 2, line
13. This language specifies specific steps, making good faith
efforts, and demonstrating to the courts what due diligence is.
The chairman expressed concern about these provisions; however, he
indicated he would like to leave the current language for the House
Judiciary Standing Committee, where the provisions as specific
steps would probably be removed or possibly modified depending on
legal input. Chairman Rokeberg commented he did not think this
would hurt the intention of the legislation. He noted he would
like to have further discussion of these issues by the public for
education purposes.
CHAIRMAN ROKEBERG referred to page 2, line 27, subsection (b)(2)
["(b) The defense in (a) of this section may not be asserted ...
(2) in an action based on a contract."]. The chairman indicated he
believes this section should probably be removed but wishes to
allow the House Judiciary Committee to debate the issue regarding
the legal aspect of the legislation. He based his reason for
removal on allowing the defense contained in the bill to come into
action, noting most causes of action brought under this "theory"
will be "actions in contract." The chairman expressed his belief
in the privy of contract and allowing the agreed performance to
take place, but said, conversely, if the action is not allowed the
defense the bill's purpose is defeated. Chairman Rokeberg stated
he would like to move the current version of the legislation out of
committee, asking for recommendations and discussion from the
committee.
Number 2020
REPRESENTATIVE HALCRO thanked the chairman for his work on the
legislation. He commented on large articles in both the February
27 and 28 Seattle Times on year 2000 (Y2K) problems.
Representative Halcro noted this is one issue garnering bipartisan
support: Dianne Feinstein [Senator, California, Democrat] is
working with Orrin Hatch [Senator, Utah, Republican] in addressing
this. According to Representative Halcro, both have indicated that
if some form of immunity is not granted to businesses "there's just
gonna be a flood of litigation that this country has never seen
before." Representative Halcro stated he thinks the chairman is
"ahead of the curve on this," and he agrees the legislation needs
to get moving.
REPRESENTATIVE HARRIS said he echoed Representative Halcro's
comments. He added that the federal legislation, S.96, is being
taken up by the United States Senate, possibly this day on the
floor.
Number 2076
REPRESENTATIVE MURKOWSKI commended the chairman for getting this
moving; however, she noted the somewhat "loose language" in the
cure provision, page 3, line 12, gives her some concern although
she notes she thinks the provision is absolutely critical
[subsection (d)(2)(B), "(B) gives the business the opportunity to
fix the problem, including reasonable access to electronic
computing devices or software affected by the failure described
under (A) of this paragraph;"]. She felt that language should be
"tightened up," indicating a business could say it would fix the
problem, but never do so. Representative Murkowski further
expressed some concern with the itemization in Section 1, the
drafter's either/or language: business either does the following
six steps or it follows the generally accepted standards of care.
Commenting she was somewhat thinking out loud, she questioned
whether the specific steps would be construed to be a business's
standard of care, indicating the possibility that something
critical might be overlooked because it was not included in those
six steps, and that the standard of care might be vary by industry.
In response to the chairman's comment, she agreed the disjunctive
disconnecting subsections (1) and (2) solves a lot of the concerns.
She reiterated her own concern, however, that the standard of care
within the industry not automatically revert back to the specific
steps. Representative Murkowski indicated she is much more
comfortable with the flexibility of the "or" language.
CHAIRMAN ROKEBERG said he tended to agree regarding the tightness
of the language. He inferred that Representative Murkowski, as a
member of the House Judiciary Committee along with the chairman,
could provide some possible wording.
Number 2237
REPRESENTATIVE CISSNA indicated she had missed the majority of the
previous hearing, but had listened to a taped copy. She confirmed
she was correct in her hearing that the chairman would like to see
the contract language deleted. She further confirmed the chairman
did not wish to amend the bill in this committee.
CHAIRMAN ROKEBERG said he thought the issue needed further
discussion and the House Judiciary Committee is the proper place
for that discussion. This issue is one of whether or not the
defense raised in the bill is defeated, he said, "By having the ...
exception of the contract, action (indisc.) contract left in."
Noting he is unsure of that dynamic, he believes it is best served
by removal, and, as the bill sponsor, he will make sure it is fixed
properly before it reaches the House floor.
REPRESENTATIVE MURKOWSKI questioned whether the legislation had
other committees of referral besides Judiciary.
CHAIRMAN ROKEBERG answered in the negative, noting there was a zero
fiscal note.
Number 2354
REPRESENTATIVE HALCRO made a motion to move the proposed CS for HB
82, Version I, out of committee with the attached two zero fiscal
notes and individual recommendations. There being no objections,
CSHB 82(L&C) moved out of the House Labor and Commerce Standing
Committee.
Number 2373
CHAIRMAN ROKEBERG called a brief at-ease at 4:06 p.m. The time the
committee came back to order was not noted.
TAPE 99-19, SIDE B
Number 0001
HB 79 - UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT
Number 0005
CHAIRMAN ROKEBERG announced the committee's next order of business
would be HB 79, "An Act relating to letters of credit under the
Uniform Commercial Code; and providing for an effective date." He
stated the committee would continue the public hearing. He invited
Jerry Weaver forward.
JERRY WEAVER, Senior Vice President and Manager of Commercial
Lending, National Bank of Alaska (NBA); Secretary-Treasurer, Alaska
Bankers Association, came forward testify in strong support of HB
79 on behalf of both organizations. He indicated Mr. Art Peterson,
Alaska Uniform Law Commissioner, is much more knowledgeable
regarding the Uniform Commercial Code (UCC). Mr. Weaver indicated
the legislation is part of the regular UCC revisions which is an
ongoing process of the full commercial and consumer code through
the National Conference of Commissioners on Uniform State Laws
(NCCUSL), as Mr. Peterson will testify. These revisions and this
legislation affects a rather arcane group of letters of credit, a
small area of commercial law. Mr. Weaver noted there is another
well-known version called the "stand-by letter of credit." The
negotiable letters of credit primarily affect international trade.
Mr. Weaver indicated these negotiable letters of credit are
guarantees, usually by banks to banks or large commercial companies
with rated credits. These institutions can substitute their credit
for a small firm either unknown in the international market or
without the credit rating necessary to carry out the transaction.
These letters of credit are typically issued by banks, usually
through their international banking departments; the process is
done bank to bank. In Alaska, a letter of credit is needed in any
of the export and many of the import (indisc.) to guarantee that
payment will be forthcoming and to ensure that supplier's details
are met. Mr. Weaver said his knowledge concerns the practical
side; he does not deal with the close technical parts but he
indicated NBA has personnel who do. Mr. Weaver mentioned several
other banks had reviewed the legislation in detail and approved it.
He indicated the bill has been worked on for an extended period of
time.
Number 0118
MR. WEAVER gave the example of shipping lumber from Southeast
Alaska to a large firm in Tokyo, Japan, that wishes to buy this
lumber but ensure it receives exactly what it buys by grade,
quantity, et cetera, and ensure that the lumber is on the ship.
The firm goes to its bank - in this example the Industrial Bank of
Japan, Limited - to have the bank issue a letter of credit. While
the Japanese firm may or may not be known to the Southeast Alaska
timber supplier, the Industrial Bank of Japan, issuing a letter to
NBA, certainly is known because it is rated. What this credit
rating immediately says to the Southeast firm is that if it
delivers the lumber, it will be paid.
Number 0163
MR. WEAVER noted the letter of credit will primarily deal in
documents. The bankers will never see the timber but they will see
the documents stating it is there. The letter of credit and this
legislation speak about some of the documents that might or might
not be included: 1) a bill of lading showing the lumber got on the
ship, the shipping documents, an individual authorization issued by
the shipping company. He indicated these were the documents that
allow one to get the lumber off the ship when it reaches Japan as
well. 2) Some form of grading and rating of the lumber by an
authority independent of the transaction that states it put so many
thousand board feet of such and such grade and type on that ship.
3) Some insurance documents in case of loss at sea. The letter of
credit issued by the Industrial Bank of Japan would say that if
those documents are sent and are in proper order, it will pay on
those documents. At this point the ship is underway and the
buyer's bank would extend credit to the buyer for some short period
of time through whatever credit lines, et cetera, that had been set
up.
Number 0220
MR. WEAVER referred to some discussion at the previous hearing
regarding time delays. He noted "float" and similar things were
not issues because money had not been exchanged in this
transaction; they are simply speaking of guarantees. Mr. Weaver
commented the other side is time for delays. In a large commercial
project such as this, there will typically be minor discrepancies
in the contract. "'Gee, we don't have as much hemlock as these
guys want, is it okay if we send them spruce?'" The bank needs
time to wire the other bank and ask whether a substitution is
acceptable. Another issue could be a dramatic price change in the
commodity with the seller requesting a possible small change in
price. Those wires go back and forth between the two banks'
international banking departments, they agree on firm detail, and
then the transaction is concluded. The material is on its way, the
letter of credit is presented for payment, that bank wires funds to
the seller's bank who in turn credits its customer. Mr. Weaver
indicated that described the practical workings of these letters of
credit.
CHAIRMAN ROKEBERG stated he thinks Mr. Weaver's description helps
explain the practical application of the legislation on a
fundamental basis.
Number 0282
REPRESENTATIVE MURKOWSKI agreed Mr. Weaver's description was very
well-put. She commented that NBA issued the letter of credit for
a fee.
MR. WEAVER agreed that is correct when NBA is issuing one. In his
example, the Industrial Bank of Japan, as the issuer, would receive
the initial fee. There would be also be some small fees on the
other bank's side assessed for handling.
REPRESENTATIVE MURKOWSKI said she asked because she noticed
consideration is not required in the legislation. She questioned
why this requirement had been deleted, noting she had always
assumed fees were a part of letters of credit.
Number 0317
MR. WEAVER answered that cases where fees were not drawn had come
up somewhere in the revision. He indicated sometimes the size of
the parties involved might determine this, commenting that a
company like Exxon Corporation could probably negotiate its way out
of a fee. This allows that room. Mr. Weaver indicated HB 79 is
simply the revision of a 30-year old law that works very, very
well. This somewhat arcane thing affects about 5 percent of the
banking business and, for the most part, the UCC revisions are just
refinements. The UCC commissioners asked the bankers worldwide
who deal in these for suggestions. He confirmed to Representative
Murkowski, however, that in most cases there is a fee.
REPRESENTATIVE HALCRO referred to the initial bill hearing on
February 26, 1999, and asked if the seven day time period for
denial is adequate for letters of credit.
MR. WEAVER responded he doesn't deal with letters of credit daily,
but the international bankers and specialists present last week say
it is adequate. He noted NBA has numerous customers in Alaska that
use this as a vehicle and it seems to work well.
Number 0440
ART PETERSON, Alaska Uniform Law Commissioner, National Conference
of Commissioners on Uniform State Laws, came forward to testify.
Mr. Peterson stated he was an attorney in private practice with the
law firm Dillon and Findley, P.C., in Juneau, and was present in
his capacity as a uniform law commissioner for the state. He
commented on Mr. Weaver's excellent capsule description of how
letters of credit are used. Noting it has been 40 years since this
was originally drafted, Mr. Peterson commented a number of issues
have arisen since then and a number of technologic developments
have occurred. The legislation is mainly aimed at: 1) addressing
and solving issues that have arisen, and avoiding litigation; 2)
recognizing the existence of computers. He exhorted the committee
to also keep in mind that although letters of credit may be a small
part of this entire commercial area, it is a $200 billion a year
industry. Half of exports from the United States are financed by
letters of credit.
Number 0525
MR. PETERSON stated the UCC, including Article 5, has been adopted
in all 50 states, the District of Columbia, Guam, Puerto Rico, et
cetera. It serves as something of an international model; in
practice it somewhat governs many transactions. A corresponding
body of material has developed in the area of letters of credit,
the Uniform Customs and Practices for Documentary Credits (UCP 500)
promulgated by the International Chamber of Commerce. Mr. Peterson
indicated in response to the chairman's question that the uniform
law had been revised from the previous year. Mr. Peterson stated
approximately 30 states had enacted this, including Illinois and
California, two of the major financial centers. He explained New
York usually lags a year or so behind on UCC enactments and
revisions because of an elaborate procedure with the bar. For the
chairman, Mr. Peterson said that Washington, Idaho, California,
Hawaii, et cetera, have already adopted this.
MR. PETERSON indicated this legislation recognizes the UCP 500 and
also specifically recognizes international customs and practices
that have developed over the years outside of that formal material.
The bill recognizes that various entities involved in letters of
credit are in positions to negotiate to avoid fees. He has not
heard anything to suggest the lack of consideration would be a
problem. Mr. Peterson offered to make the formal published UCC
revision with the official commentary by the NCCUSL available to
the committee. Mr. Peterson indicated the revisions anticipate a
number of problems, solve a number of old issues and generally
update the approximately 40-year old law; it is necessary for
Alaska to keep up-to-date.
Number 0760
CHAIRMAN ROKEBERG asked for an citation within the bill which could
be used as an example of a needed update.
MR. PETERSON referred to the UCP 500. The use of computers has
been recognized in those customs and practices.
CHAIRMAN ROKEBERG asked if those were being adopted by reference or
if the concepts were basically embodied.
MR. PETERSON replied it was essentially adopting by reference. The
material he provided to the committee notes that UCC Article 5
recognizes the UCP 500, which is used in most international letters
of credit, providing operational rules and standards that have
international acceptance. They could not have that international
acceptance unless they were recognizing modern practices and
technology.
CHAIRMAN ROKEBERG asked if the UCP 500 was periodically revised via
additions.
MR. PETERSON indicated it might be contained in the commentary from
the NCCUSL, but said he hadn't reviewed that material in a long
time.
Number 0863
CHAIRMAN ROKEBERG referred to the "Northern Lights case et al,"
stating adopting things by reference becomes problematic in Alaska
statutory construction. He asked Mr. Peterson for further
information regarding that question.
MR. PETERSON said wording to the effect of "is hereby adopted by
reference" now had to be used.
CHAIRMAN ROKEBERG noted, "The problem is we have a supreme court
case (indisc.) the UBC (ph) as it relates to adoption by
reference." Chairman Rokeberg commented he thought one way to get
around that was adoption by reference of a dated addition because
that, therefore, is then revised.
Number 0914
MR. PETERSON stated that has long been the rule in the regulations.
Any adoption in the regulations had to be by specific edition with
the adopting agency named, and, at least in the footnote,
information provided on where it can be obtained. The statutes
have been somewhat looser. When the state had an income tax, it
adopted the federal income tax by reference. However, every time
the federal law was amended it did not have to be updated in the
Alaska Statutes.
CHAIRMAN ROKEBERG referred to the "OSG case" [State of Alaska v.
OSG Bulk Ships, Inc.] the previous year which was about adopting
parts of the United States tax code. The chairman noted there is
a lot of precedent in the statutes to withhold that; it is an issue
that would probably come up in the House Judiciary Standing
Committee. The chairman referred to the sectional analysis, page
9, of Section 18, Sec. 45.05.116(c), [Theresa Bannister,
Legislative Counsel, 2/17/99]. This portion of the sectional
analysis reads:
"AS 45.05.116(c). States that, except as provided
otherwise in this subsection, the liability of certain
listed persons is governed by rules of custom or practice
that the parties expressly select for the letter of
credit or confirmation, or undertaking. Gives as an
example the Uniform Customs and Practices for Documentary
Credits. States that if both this chapter and the rules
of custom or practice apply to the liability, the rules
govern, unless they conflict with a provision of this
chapter that cannot be changed (see AS 45.05.103(c))."
CHAIRMAN ROKEBERG commented it appears there would be an agreement
within the credit documents to be bound by those, unless overcome
by superior statutory right.
MR. PETERSON agreed, noting the default position is stated and the
parties can overcome that by their agreement.
Number 1055
REPRESENTATIVE MURKOWSKI referred to the mention of standard
practice in Section 10, page 7, indicating she did not see how
standard practice was incorporated into the text of the statute
because subsection (e) says that it will be determined by court.
She questioned how one knows what the standard of practice is,
wondering whether it was possibly the UCP 500 - a separate document
known within the industry.
MR. PETERSON said, "I've never seen it myself, but it is a
substantial body of material."
REPRESENTATIVE MURKOWSKI commented, "But it is something that
someone can refer to -- look at it and say, 'Ah, that's what it
is.'" She confirmed Mr. Peterson agreed. Representative Murkowski
asked if this legislation is the same language received from the
"National Commission on Uniform Code" or if it was adapted for
Alaska.
Number 1140
MR. PETERSON said it adheres very closely to the official version,
with minor stylistic changes made by the Legislative Affairs
Agency, and there should not be any substantive change.
REPRESENTATIVE MURKOWSKI noted she had some technical questions
-like could one waive being an adviser? - she felt comfortable not
addressing if Mr. Peterson could assure her that Alaska's law would
be consistent with the recommendations of the national
commissioners and what had been accepted in 38 other states.
MR. PETERSON assured her this was correct. He did not know what
changes other states might have made, but he is not aware of any
particular issue causing some states to opt in one direction and
other states to opt differently. In some uniform acts produced by
the national conference a provision a state could accept or reject
is placed in brackets. Mr. Peterson did not offhand recall any
such options, especially any of major importance, in this.
Number 1288
CHAIRMAN ROKEBERG suggested Representative Murkowski contact Mr.
Peterson for the answers she desired before the legislation is
heard in the House Judiciary Committee.
REPRESENTATIVE HALCRO asked for clarification on page 2, lines 20
through 22, "... the applicant may recover damages resulting from
the breach, including incidental but not consequential damages,
less any amount saved as a result of the breach."
Number 1357
MR. PETERSON replied they were speaking of a dollar amount
transaction. In the example of lumber sold to a Japanese buyer who
had the bank issue the letter of credit, if that applicant had
planned to sell the lumber to another party but lost the benefit of
that contract, that would be consequential damages and are avoided
by this provision. Incidental damages might be the applicant's
expenses involved in shipping the product over there; those would
be incidental to the basic transaction and it could collect that
somehow if the deal went wrong. Thirdly, he addressed the
language, "less any amount saved as a result of the breach". If,
for example, the price has gone wrong and therefore the applicant
has saved money by the failure of this contract, or hasn't lost the
full dollar value of the original contract, that would be
subtracted from any damages the applicant could recover.
CHAIRMAN ROKEBERG noted this could be currency fluctuations and he
would also suspect it to be a duty of mitigation. He asked if
there isn't normally a duty to mitigate.
MR. PETERSON said that assuming there is the possibility to
mitigate or one makes reasonable efforts.
CHAIRMAN ROKEBERG said, "Right, and (indisc.) brokering or the cost
of securing a new buyer (indisc.) product.
MR. PETERSON answered probably.
Number 1490
REPRESENTATIVE MURKOWSKI noted she thought there was no duty to
mitigate, but if you did then you could...
MR. PETERSON note he did not remember the no duty to mitigate
provision, questioning if it is in the same section, Sec.
45.05.111.
CHAIRMAN ROKEBERG commented he thought there would be a duty to
mitigate.
Number 1530
REPRESENTATIVE MURKOWSKI noted Section 13, lines 12 through 16,
which read:
Sec. 45.05.111. Remedies. (a) ... The claimant is not
obligated to take action to avoid damages that might be
due from the issuer under this subsection. If, although
not obligated to do so, the claimant avoids damages, the
claimant's recovery from the issuer is reduced by the
amount of damages avoided. The issuer has the burden of
proving the amount of damages avoided. ...
MR. PETERSON stated he believed there is discussion of that
provision in the official commentary he has provided.
Number 1598
CHAIRMAN ROKEBERG indicated the legislation had had a thorough
hearing the previous session. Chairman Rokeberg confirmed there
were no further questions for Mr. Peterson. He asked Mr. Peterson
to give the chairman's regards to Mr. Kurtz, and thanked them both
for their work on behalf of the state as uniform law commissioners.
Confirming no one else wished to testify, he stated the public
hearing on HB 79 is closed.
Number 1715
REPRESENTATIVE HALCRO made a motion to move HB 79 out of committee
with the attached zero fiscal note and individual recommendations.
There being no objection, HB 79 moved out of the House Labor and
Commerce Standing Committee.
ADJOURNMENT
Number 1742
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 4:48 p.m.
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