03/28/2001 03:25 PM House L&C
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 28, 2001
3:25 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Andrew Halcro, Vice Chair
Representative Kevin Meyer
Representative Pete Kott
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 157
"An Act relating to trust companies and providers of fiduciary
services; amending Rules 6 and 12, Alaska Rules of Civil
Procedure, Rule 40, Alaska Rules of Criminal Procedure, and
Rules 204, 403, 502, 602, and 611, Alaska Rules of Appellate
Procedure; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 67
"An Act requiring proof of motor vehicle insurance in order to
register a motor vehicle; and relating to motor vehicle
liability insurance for taxicabs."
- MOVED CSHB 67(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 106
"An Act relating to the authorizations for state financial
institutions; relating to confidential financial records of
depositors and customers of certain financial institutions;
relating to the Alaska Banking Code, Mutual Savings Bank Act,
Alaska Small Loans Act, and Alaska Credit Union Act; and
providing for an effective date."
- BILL HEARING POSTPONED
PREVIOUS ACTION
BILL: HB 157
SHORT TITLE:TRUST COMPANIES & FIDUCIARIES
SPONSOR(S): REPRESENTATIVE(S)MURKOWSKI
Jrn-Date Jrn-Page Action
02/28/01 0463 (H) READ THE FIRST TIME -
REFERRALS
02/28/01 0463 (H) L&C, JUD
03/28/01 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 67
SHORT TITLE:MOTOR VEHICLE REGISTRATION/INSURANCE
SPONSOR(S): REPRESENTATIVE(S)ROKEBERG
Jrn-Date Jrn-Page Action
01/17/01 0111 (H) READ THE FIRST TIME -
REFERRALS
01/17/01 0111 (H) L&C, JUD
03/26/01 (H) L&C AT 3:15 PM CAPITOL 17
03/26/01 (H) Bill Postponed
03/28/01 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
TERRY LUTZ, Supervisor
Banking Section
Division of Banking, Securities and Corporations
Department of Community and Economic Development (DCED)
P.O. Box 110807
Juneau, Alaska 99811
POSITION STATEMENT: Testified on HB 157 for the division.
TERRY ELDER, Director
Division of Banking, Securities and Corporations
Department of Community and Regional Affairs (DCED)
P.O. Box 110807
Juneau, Alaska 99811
POSITION STATEMENT: Testified on HB 157 for the division.
DOUGLAS BLATTMACHR
Alaska Trust Company
1029 West Third Avenue, Suite 601
Anchorage, Alaska 99501-1981
POSITION STATEMENT: Testified on HB 157 regarding a memorandeum
he submitted to the committee.
JANET SEITZ, Staff
to Representative Norman Rokeberg
Alaska State Legislature
Capitol Building, Room 118
Juneau, Alaska 99801
POSITION STATEMENT: Introduced HB 67 for the sponsor,
Representative Rokeberg.
MARY MARSHBURN, Director
Division of Motor Vehicles
Department of Administration
3300 B Fairbanks Street
Anchorage, Alaska 99503
POSITION STATEMENT: Testified on HB 67.
ACTION NARRATIVE
TAPE 01-41, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:25 p.m. Members
present at the call to order included Representatives Murkowski,
Kott, Rokeberg, Crawford, and Hayes. Representatives Halcro and
Meyer joined the meeting as it was in progress.
HB 157-TRUST COMPANIES & FIDUCIARIES
Number 0035
[Contains discussion of HB 106 relating to confidentiality
provisions.]
CHAIR MURKOWSKI announced that the committee would hear HOUSE
BILL NO. 157, "An Act relating to trust companies and providers
of fiduciary services; amending Rules 6 and 12, Alaska Rules of
Civil Procedure, Rule 40, Alaska Rules of Criminal Procedure,
and Rules 204, 403, 502, 602, and 611, Alaska Rules of Appellate
Procedure; and providing for an effective date."
CHAIR MURKOWSKI, speaking as the sponsor of HB 157, explained
that she has been working on this bill for three years, and said
proposed amendments and suggestions are still being received.
CHAIR MURKOWSKI directed the committee to the bill sectional
analysis entitled "Overview of HB 157," submitted by the
Division of Banking, Securities and Corporations, which she said
was helpful. She explained that she didn't sit down and write
this legislation herself; division personnel had asked her to
work with them to update the Trust Company Act, which dates back
to the late 1940s.
CHAIR MURKOWSKI stated that several years back there were
substantial changes in the trust world through the Alaska Trust
Act, and since [Alaska] is going to have a trust industry, there
needs to be regulation of it like what is being done in the
banking industry.
Number 0281
TERRY LUTZ, Supervisor, Banking Section, Division of Banking,
Securities, and Corporations, Department of Community and
Economic Development (DCED), remarked that the current Act dates
back to 1949, with few changes over the years. In writing HB
157, he said, [the division] worked with the trust industry,
attorneys both inside and outside the trust industry, and
Representative Murkowski. He prefaced his testimony by saying
that he would go over the areas lacking in the law.
MR. LUTZ commented that in putting the bill together, [the
division] reviewed trust Acts from several states. [The
division] chose from [examples provided by] other states and
from the model Act from the Conference of State Bank Supervisor
(CSBS). Mr. Lutz pointed out that committee members had a copy
of the letter of requested amendments dated March 15 [2001].
Number 0433
MR. LUTZ said a new Act is needed because the current one is
lacking in the following areas: it lacks direction as to who
should be chartered; it gives limited guidance on the formation
process of trust companies; it provides no provisions for
branching either intrastate or interstate; it provides no
provisions for liquidations, mergers, or sales of trust
companies; and it is limited regarding the powers of the
department. Mr. Lutz explained that [the current Act] merely
says that [the division] has the power to supervise trust
companies.
MR. LUTZ, referring to Section 2, AS 06.26.010, pages 1 and 2 of
the bill, explained that this section states who can undertake a
trust business in the state, including: a trust company
chartered by [the division]; state financial institutions
(indisc.) for which [the division] has asked and received
authority to [create] a trust business; national banks with home
offices in Alaska; interstate national banks with branches in
[Alaska]; national trust companies; interstate-state banks with
trust powers; and interstate trust companies.
MR. LUTZ, referring to Section 2, AS 06.26.020. Exemptions,
pages 3 and 4 of the bill, pointed out that this section lists
many exempt trust activities, a few of which include: attorneys
with limitations, broker-dealers, investment advisers, insurance
companies, cemetery associations, certified public accountants
(CPAs), family members, homeowner associations, court-appointed
conservators, representatives, and business partners.
Number 0606
MR. LUTZ, referring to Section 2, AS 06.26.050. Powers of Trust
Companies, pages 5 and 6 of the bill, explained that this
expands trust powers for trust companies, including: acting as
a trustee under written agreement; receiving money as a trustee
for investment in real estate property; acting as a trustee by
court appointment; acting as an executor for an estate; [acting
as a] custodian for minors and incapacitated persons; [ensuring]
safekeeping for any type of personal property; acting as an
investment adviser in an agreed-upon activity; and other
incidental powers that are reasonable and necessary to exercise
powers exclusively conferred.
Number 0658
MR. LUTZ, referring to Section 2, AS 06.26.060. Organizers, page
7 of the bill, said it gives details of how to obtain a charter.
He then referred to Section 2, AS 06.26.120, page 10 of the
bill, which addresses the minimum capital requirements for trust
companies. It has been increased in the bill to a minimum of
$400,000 plus [maintaining] 20 percent of that amount in
surplus. [The division] looked at what other states required,
he said, and [Alaska] is probably at the low end because other
states require millions of dollars for capitalization of a trust
company. [The division] met with Jonathan Blattmachr, Alaska
Trust Company, who was comfortable with that number. The
current provision in law [indicates] a minimum of $100,000, but
is [at the discretion] of the director.
MR. LUTZ, referring to Section 10, page 63 of the bill, remarked
that it has a grandfathering transition period for existing
trust companies, giving them until 2007 to obtain the minimum
capital.
Number 0795
MR. LUTZ, referring to Section 2, Article 3, Operation of
Offices, AS 06.26.150, Trust Company Home Office, page 12 of the
bill, said this section requires a state trust company to
maintain its home office and records in Alaska, and each
executive officer is an agent for service of process for the
trust company. It provides for interstate and intrastate
branching, he explained, and details the processes with the
authority to branch.
MR. LUTZ, referring to Section 2, AS 06.26.400, page 22 of the
bill, said it requires trust companies to disclose conflicts of
interest.
Number 0823
CHAIR MURKOWSKI directed Mr. Lutz to page 13 of the bill where
it discusses branch and representative offices. She asked about
the distinction between the two.
MR. LUTZ referred back to AS 06.26.990, Definitions, paragraph
(26), page 59 of the bill, which read: "'representative office'
means an office that provides support services for a trust
company, but at which the trust company does not provide
fuduciary services". So a branch could provide fuduciary
services, he explained, but the representative office could not.
Mr. Lutz further explained that a representative office would
probably be a small office set up with someone who isn't a trust
expert to solicit business. If an actual trust were going to be
set up, it would need to be sent to a branch or home office
where the expertise lies.
CHAIR MURKOWSKI asked if it is something that [Alaska] actually
does. She said she didn't understand why there would be a
representative office if it couldn't do any of the fiduciary
things that a trust company does. She asked for a specific
example of how this would work in a "real-world setting."
Number 0914
MR. LUTZ replied that he didn't know if there would ever be any
representative offices in Alaska, but he pictured credit unions
having similar offices, not in Alaska, but in many states where
customers are solicited. The model Act is used by the CSBS and
in other states, and in almost every instance, has
representative offices. Upon being asked whether [this language
is in the bill] in case people want to avail themselves of it
although it isn't something that is currently happening in
Alaska, Mr. Lutz responded affirmatively.
REPRESENTATIVE CRAWFORD asked Mr. Lutz to explain cumulative
voting from Section 2, AS 06.26.140, page 12 of the bill.
Number 1031
TERRY ELDER, Director, Division of Banking, Securities and
Corporations, Department of Community and Regional Affairs
(DCED), explained that cumulative voting is allowed in the
corporations code, but is an option that companies can avail
themselves of; the purpose is to allow minority shareholders a
better opportunity to obtain representation on a board. It is a
mechanism and procedure for voting so that, for example, if
there are three people running for a board and a person has 100
shares, that person actually gets 300 votes, not just 100 votes.
It is the number of shares times the number of people running,
he explained, so that a person could give all 300 votes to one
person. It would afford a better opportunity for minority
shareholders to get representation on the board.
MR. LUTZ, referring to Section 2, AS 06.26.450 to AS 06.26.470,
pages 22 to 24 of the bill, stated that this legislation
provides for transfer and ownership of a trust company. The
department has the right to prevent the sale in the best
interest of the public, should a trust company become for sale.
Before someone purchased it, [the department] could deny the
purchase for safety and soundness concerns.
Number 1160
MR. LUTZ, referring to Section 2, AS 06.26.610, Customer Records
Confidential, page 29 of the bill, said it provides for
confidentiality of customer records similar to what is found in
the banking code and in HB 106. He explained that he had
considered taking it out of this bill; however, if HB 106 goes
nowhere, then [Alaska] would be without confidentiality for
trust companies.
CHAIR MURKOWSKI asked if it is similar to what is being done in
HB 106 and in compliance with Gramm-Leach-Bliley Act (GLBA), so,
if HB 106 should pass, then the two wouldn't conflict.
MR. LUTZ replied that he didn't believe that GLBA would come
into play here since [a trust company] is not a bank; it doesn't
conflict with what is in the banking code currently but would
require an [opportunity to] "opt in," rather than "opt out."
CHAIR MURKOWSKI asked whether the tie-in with HB 106 is because
of the changes being made to the banking code.
MR. LUTZ answered affirmatively. He said he had mentioned HB
106 because the committee was probably more familiar with that
language.
Number 1234
MR. LUTZ went on to explain that HB 157 provides a detailed
process for mergers and consolidations of trust companies, and
provides a process for voluntary liquidation of trust companies
should they wish to discontinue business without going through a
sale or merger. It also provides a process for involuntary
liquidation; for example, if [the division] determines there to
be safety and soundness concerns, or for other reasons that a
trust company needs to be close, it gives [the division] the
authority to close it.
MR. LUTZ, referring to Section 2, AS 06.26.9000, pages 51 to 53
of the bill, stated that it details a list of powers of the
department including the ability to: exercise general
supervision over trust companies, which was the only thing
covered in the current trust Act; adopt regulations; review and
approve applications; determine minimal capital needs; approve
transfer of ownership of trust companies; relieve a trust
company of examination requirements contained in AS 06.01.015,
requiring annual examinations; approve branch applications;
require a trust company to maintain adequate capital; charge off
assets not lawfully acquired; write down assets to market value;
to record liens; maintain insurance; require directors to hold
meetings; [allow] removal of directors under AS 06.26.510; to
take possession of a trust company; and issue orders.
Number 1340
MR. LUTZ explained that [the division] hopes all of the various
scenarios have been encountered and [addressed] in the
exemptions contained in AS 06.26.020, those in the private
fiduciary section, and those in AS 06.26.010 where it talks
about who can [form] a trust business in this state.
CHAIR MURKOWSKI asked for some idea about the implementation and
transition [period], since the 2007 date for grandfathering
seemed longer than normal.
MR. LUTZ stated that the trust industry felt that it would need
this amount of time to attain the minimal capital requirements
proposed in the bill. Part of that transition period, he said,
is for [the companies] to come up with a plan that has to be
approved by [the division], addressing how they are going to
meet those requirements. When asked whether that plan has to be
submitted by April 1, 2002, Mr. Lutz replied affirmatively. And
when asked whether - provided that the department signs off on
the plan - [trust companies] then have until 2007 to meet the
capital requirements. Mr. Lutz responded affirmatively.
CHAIR MURKOWSKI asked Mr. Lutz to speak to the zero fiscal note
and the impact to the department in regulating a new area.
Number 1486
MR. ELDER said while this bill fleshes out and gives details on
how [the department] will go about regulating trust companies,
[the department] actually regulates them now, he remarked; there
are only two trust companies in Alaska now and they are already
examined by [the department]. [The department] has to look to
the banking code for guidance in terms of when they are examined
and the process. This just sets it up under their own chapter;
it really doesn't add anything new. If there were a big growth
of trust companies in Alaska, more trained staff would be
required. He said training needs to be increased and improved
for the current examiners regarding trust examination, because
only one examiner was sent to a trust examination school.
Number 1597
REPRESENTATIVE ROKEBERG asked whether trust departments with
interstate national banks are considered trust companies.
MR. ELDER replied affirmatively. And he confirmed that federal
law regulates them. He explained that the [interstate national
bank's trust departments] are addressed under AS 06.26.010, but
when talking about the two [existing] trust companies, he said
he is speaking about two Alaska chartered state trust companies.
REPRESENTATIVE CRAWFORD asked if this is going to affect the
trust company that manages pension funds.
MR. LUTZ said he didn't believe it would. He clarified that he
didn't believe it would be disrupting any current business.
Number 1718
REPRESENTATIVE ROKEBERG asked whether the [Division of Banking,
Securities and Corporations] had a chance to look at the
memorandum from the Alaska Trust Company regarding Article 4,
the private fiduciary section, and asked whether there had been
any discussions on it.
MR. ELDER stated that [the division] just received the
memorandum. When asked if there was any conflict there, he
replied that this is a work in progress and that amendments will
continue to be proposed. And when asked if this has been a bone
of contention, Mr. Elder responded that he didn't believe it to
be; ideas have been worked through, he said, but there hasn't
been any disagreement.
REPRESENTATIVE ROKEBERG added that it looked like a pretty
substantial difference [between what the two groups are
proposing], because [the Alaska Trust Company] wants to have a
change in the definition of a private fiduciary, which he said
might not be entirely appropriate. The concept of a private
trust company may need to be an addition rather than a
supplement. [The Alaska Trust Company] had indicated that [the
two] are the same, although he wasn't sure.
MR. ELDER said [the department] didn't think it was necessary
because in looking at [the definition of a] private fiduciary,
it could be any person, which could be a company or an
individual. He confirmed that [the Alaska Trust Company's]
definition is different from what is in the bill; however, he
said a private fiduciary could already be this. The key, he
pointed out, is not to be offering the services to the public.
Number 1867
REPRESENTATIVE ROKEBERG asked if this bill is what is referred
to as the trust company regulations, or whether there are
additional regulations.
MR. ELDER responded that he didn't believe that [the division]
was working on trust company regulations. Mr. Lutz works in the
section that has spent a year or so drafting this; it has been
ongoing, he remarked. And he verified that [the division]
doesn't have a regulation project. Upon being asked if there
has been ongoing discourse with the trust attorneys and
companies in the state, Mr. Elder replied affirmatively and said
he has worked closely with them since 1998. He said there are
no existing regulations for trust companies at this time;
however, as a result of this Act, there probably will be some
areas where [the division] will be required to write some
regulations.
REPRESENTATIVE ROKEBERG referred to the new model trust Act and
said [Alaska] doesn't have a model trust statutory regime. He
asked Mr. Lutz, in drafting this, whether he looked at the whole
body of law that [Alaska] has passed.
MR. LUTZ explained that this Act doesn't affect all of the
legislation that passed in the last five years for the Alaska
trust, rules of perpetuity, and so forth. [The division] has
not done anything here that would affect any of that, he said.
MR. ELDER added that the Department of Law had also reviewed
this [legislation]. He pointed out that this is a trust company
Act, not a trust Act. This is just how the companies are
regulated as providers of service and doesn't really affect the
provisions in a trust.
MR. ELDER explained that the letter from the division [dated
March 15, 2001] addresses four suggested amendments to the
exemptions at Section 2, AS 06.26.010. In the bill, there is
language that says that this kind of person, whether a broker-
dealer, attorney, or whatever, is exempted when the trust
activity is solely incidental to their business. [The division]
was trying to say that such are not people really in the trust
business, so [the division] doesn't want to regulate them as
trust companies. The idea for using the "solely incidental"
[language] was taken from the securities Act because it provides
that one doesn't have to register as an investment adviser if
the advice is solely incidental to one's work as a broker-
dealer. However, as [the division] looked at it further, it
became apparent that it would be better to be more precise now,
because there would always be the question of the definition of
"solely incidental." So [these suggested amendments] were
offered as a way to be more precise. The language here is based
on the language in the CSBS model Act for those sections. These
amendments proposed in the division's letter read:
1. (Section 2, page 3, lines 3-5) Replace language in
lines 3-5 (AS 06.26.020(1)) with the following
language:
is licensed to practice law in this state, is acting
within the scope of the license, and neither the
attorney, or the attorney's law firm, is trustee of
more than 50 trusts;
2. (Section 2, page 3, lines 10-14) Replace language
in lines 10-14 (AS 06.26.020(4)) with the following
language:
engages in a securities transaction or provides an
investment advisory service as a licensed and
registered broker-dealer, agent of a broker-dealer,
state investment adviser, investment adviser
representative, or noticed federal covered adviser
provided the person is acting within the scope of the
notice filed or the license conferred and the activity
is regulated by the Department of Community and
Economic Development under AS 45.55 or by the U.S.
Securities and Exchange Commission;
3. (Section 2, page 3, lines 15-18) Replace the
language in lines 15-18 (AS 06.26.020(5)) with the
following language:
engages in the sale and administration of an insurance
product as an insurance company licensed under AS 21
or an insurance producer licensed under AS 21;
4. (Section 2, page 3, lines 22-25) Replace the
language in lines 22-25 (AS 06.26.020(8)) with the
following language:
renders services customarily performed by a certified
public accountant licensed under AS 08 in a manner
authorized by law, and neither the certified public
accountant or the certified public accountant's firm
is trustee of more than 50 trusts;
Number 2155
CHAIR MURKOWSKI turned the committee's attention to another
subject. She said she would like to see if [the division] and
[the Alaska Trust Company] could look at the points that have
come up and give feedback about private fiduciaries in
preparation for a committee substitute (CS). She said Mr.
Blattmachr and Mr. Greer have been instrumental in working
through this process, but she thought it might alleviate some of
the questions if the two groups got together and talked about
what could be done.
CHAIR MURKOWSKI asked Mr. Blattmachr and Mr. Greer if they
wanted to add testimony. [Both men deferred their testimony
until a later date.]
REPRESENTATIVE ROKEBERG asked Mr. Blattmachr about the
memorandum he had submitted to the committee. He said it
suggested changing the definition of a private fiduciary to
private trust company. Representative Rokeberg asked if that is
the common term used in the industry. He further asked if the
[term] private trust would be in addition to a private
fiduciary, or whether they are incompatible.
Number 2291
DOUGLAS BLATTMACHR, Alaska Trust Company, via teleconference,
responded that the way he read the exemption from offering
service to the public, referring to AS 06.26.990(a)(24)
Definitions, page 58 of the bill, is that services are being
provided to the general public unless it says "the person to
whom the fiduciary services are provided is offered (A) by a
family member of an individual who owns 100 percent of the
person providing fiduciary services".
MR. BLATTMACHR explained that the only place where services were
originally offered to the general public was under the private
fiduciary section, also known as a private trust company. It
seems that one has to be some form of an entity, he said, to be
able to get this exemption under this definition. [The Alaska
Trust Company] thought it might be clearer. A lot of wealthy
families want to be able to setup private trust companies, and
they are starting to look at different states that have easy set
up procedures for private trust companies for their own family
trust businesses, which was one of the reasons why "we" put this
in at a late date. It is a real issue now which could produce a
lot of new activity in Alaska if [Alaska] has friendly statutes
to accommodate what some of the other states have.
REPRESENTATIVE ROKEBERG asked if the term and concept of a
private fiduciary are common in trust law.
Number 2363
MR. BLATTMACHR said it is an old concept, but people like the
Rockefeller Trust Company used it when it started years ago; it
was a private trust company just for them; however, over the
years, it has gone into offering services for the general
public. He thought the term "private trust company" had been
around for a long time, but there has been a lot more interest
in recent years. The actual term isn't that important, he said,
but it could be limited to some extent to more of a defined
activity that constitutes a private fiduciary.
Number 2417
REPRESENTATIVE HALCRO referred to Mr. Blattmachr's memorandum
dated March 28, 2001. He said Mr. Blattmachr points out that
the definition on page 4, subparagraph (18), lines 27 to 29 of
the bill, seems confusing. Representative Halcro pointed out
the additional sheet faxed to the committee by Mr. Greer dated
March 27, 2001, amends it. He asked Mr. Blattmachr if he'd seen
[the amendment].
MR. BLATTMACHR said he hadn't seen it, but he and Mr. Greer had
spoken about it today.
[HB 157 was held over.]
HB 67-MOTOR VEHICLE REGISTRATION/INSURANCE
[Contains references to HB 68 and HB 39.]
TAPE 01-41, SIDE B
Number 2428
CHAIR MURKOWSKI announced that the committee would hear HOUSE
BILL NO. 67, "An Act requiring proof of motor vehicle insurance
in order to register a motor vehicle; and relating to motor
vehicle liability insurance for taxicabs."
REPRESENTATIVE ROKEBERG, speaking as the sponsor of HB 67,
stated that the bill has a companion bill, HB 68, which is a "no
civil liability for taxis transporting drunks or the tipsy-taxi
bill." He said it allows a taxi company to provide two drivers
to drive a patron and his or her car home. Many people don't
want to take a cab home, he said, because leaving a car at the
establishment would [put it in jeopardy] of being vandalized.
REPRESENTATIVE ROKEBERG explained that during exploration of
that issue, the discovery was made that there is no requirement
for taxi cab companies to have any liability insurance in
[Alaska], which would be considered a necessity if one is going
to be transporting anyone. Therefore, this separate bill was
introduced. And he said he'd had the idea of requiring further
proof of insurance at the point of registration, similar to HB
39, which is in the bill and has caused there to be a large
fiscal note.
Number 2348
JANET SEITZ, Staff to Representative Norman Rokeberg, Alaska
State Legislature, explained that HB 67 includes the statement,
"The ... Division of Motor Vehicles shall refuse to register a
vehicle if [the] applicant fails to provide evidence
satisfactory that the applicant has motor vehicle insurance."
There are a lot of drivers out there who don't have motor
vehicle insurance. She said she served on the driving-under-
the-influence (DUI) taskforce in Anchorage, and the taskforce
discussed proof of insurance for cars registered in Alaska.
This [bill] is an attempt to move in that direction, she
explained.
MS. SEITZ commented that the rest of the bill deals with taxicab
liabilities. There are some local governments and
municipalities that have minimums for taxicab policies, which
she included in the committee's packet. There is nothing
contained in the bill that would interfere with the ability of a
local government/municipality to set a higher standard for
operators.
Number 2287
REPRESENTATIVE ROKEBERG added that this was done because of the
"single-subject rule," so there had to be two different bills.
MS. SEITZ concurred and said the drafters advised against having
the taxicab insurance requirements and the civil liability
coverage exemption in the same bill.
CHAIR MURKOWSKI referred to the sponsor statement. There is
mention of developing an electronic notification system in the
event that the insured goes out and gets registration for the
vehicle, and then cancels it after-the-fact. She asked if this
was included as a part of the fiscal note and how that system
would work.
MS. SEITZ deferred the question to Mary Marshburn of the
Division of Motor Vehicles (DMV), but said it was the intention
that with the [available] technology, a notice could be sent out
from an insurance company when a person canceled coverage.
CHAIR MURKOWSKI asked if it would be required that the state be
notified when insurance is canceled.
MS. SEITZ remarked that this was the hope. She said the bill
just says that a person has to provide proof that he or she has
insurance to register the automobile.
Number 2225
REPRESENTATIVE HALCRO referred to page 2 of the fiscal note from
the DMV. He said the only effective way to implement this would
be by having constant communication with the insurance
companies, which would cost $2 per vehicle, equating to $1.4
million per year. This, he said, is obviously not covered in
the fiscal note.
REPRESENTATIVE HALCRO said he has had discussions with Mary
Marshburn regarding this same thing. He said constituents had
contacted him complaining about uninsured motorist insurance.
He and Ms. Marshburn had similar discussions about the automatic
notification [system], and Ms. Marshburn relayed the same cost
to him.
Number 2173
CHAIR MURKOWSKI referred to Section 1 of the bill, the
requirement to register the vehicle. Is there a rural exemption
available for registration of the vehicle, she asked, as opposed
to insurance?
MARY MARSHBURN, Director, Division of Motor Vehicles, Department
of Administration, via teleconference, clarified that there is
an exemption for rural areas not connected to a highway system,
or those areas with an average vehicular traffic count of less
than 499 for registration of a vehicle. A vehicle is only
covered by mandatory insurance if it is subject to registration.
When asked how [Section 1] might affect that, she said it
wouldn't because if the vehicle isn't required to be registered,
it would have no effect on those vehicles.
Number 2121
REPRESENTATIVE HALCRO asked the sponsor if he'd spoken to the
Alaskan Automobile Dealers Association or to financial
institutions that register vehicles about the [possible] impact
on business. He also asked if there had been discussion with
any outside groups that provide the service that allows people
to forgo a trip to the DMV when a car is purchased.
MS. SEITZ replied in the negative; however, she noted that when
she recently purchased a car, she had to provide her financial
institution with a binder showing coverage or that coverage was
being sought through an insurance company and that [the
insurance company] would notify [the car dealer] if coverage was
canceled.
REPRESENTATIVE HALCRO said he, too, went through the process
recently. He went to the credit union and filled out the forms,
the car was registered, then a month later the credit union sent
him a letter saying a copy of his insurance binder hadn't been
received yet, although he already had a copy of the registration
at his home. He said if there is no lien holder when a person
goes to a dealer, and if the car is registered there, a person
might fall through the cracks if the onus isn't put on the
seller of the car.
Number 2032
REPRESENTATIVE ROKEBERG said the notice should be on the person
registering. He said he appreciates [hearing about that]
because this does occur. The DMV's lack of proper computer
systems is causing a huge dislocation and is a matter of public
safety in the state, and he added that it is almost reaching
critical proportions. There is a public outcry, he remarked.
CHAIR MURKOWSKI referred to [requiring] mandatory insurance for
taxicabs, and asked if the [taxi drivers] are having any
problems with what is being proposed.
MS. SEITZ commented that [Representative Rokeberg's office sent
out notices], but hadn't heard anything back.
Number 1984
REPRESENTATIVE MEYER said anytime the Anchorage Assembly brought
up anything to do with taxicabs, [the taxi drivers] came out in
"hordes." He said he is surprised that the committee isn't
hearing anything; however, maybe the [cab drivers] in Anchorage
already have the insurance and are all right with it. On the
local level they watch ordinances closely, he remarked.
MS. SEITZ pointed out that the minimums established in the bill
don't interfere with local ordinances, and are, for the most
part, less than what most [communities] have anyway. In
Anchorage, for example, [a taxicab diver] would be required to
carry insurance under the local ordinance that is higher than
what is required in the proposed bill.
Number 1930
CHAIR MURKOWSKI mentioned that the sponsor had provided the
committee with the ordinances from Anchorage, Fairbanks, and
Juneau. She asked if [ordinances] were available for other
communities such as Kenai or Ketchikan.
MS. SEITZ stated that Kenai's [ordinances] are online; however,
there was no reference to insurance provisions for taxicab
operators.
REPRESENTATIVE ROKEBERG said the committee could separate that
[portion] and delete the first section [of the bill]; it could
be taken up as a committee bill, he said, because it is a huge
issue that deserves consideration by this committee.
REPRESENTATIVE MEYER mentioned requiring that everyone have
insurance, which is currently the law, and then requiring that
the state patrol or local police ask for proof every time they
pull someone over. If a person didn't have insurance, he said,
then he or she would get a "fix-it" ticket and would have five
days to get insurance; if the person didn't comply, then there
would be a $200 or $300 fine.
REPRESENTATIVE ROKEBERG said he is more concerned about
[drivers] having insurance when in an automobile accident and
harming innocent citizens, because it raises the underinsured or
uninsured motorist premiums on all policies. He said this is
going to cost millions of dollars to really do anything about
it; the fiscal note is $1.7 million, which doesn't include
having the troopers out busting people for failure to have
insurance.
REPRESENTATIVE ROKEBERG said [the legislature] is losing
credibility in the public's eye by not being able to make this
enforceable. He asked Ms. Marshburn about the car registration
process and proof of insurance.
Number 1761
MS. MARSHBURN replied that the state requires that the
individual registering a vehicle affirm that the necessary
policy is in place and will continue as long as the vehicle is
registered and used. This allows the electronic venues to be
used for registration, and doesn't impose a burden on the
[emission inspection] (IM) stations and car dealerships that
also register vehicles. The majority of people are law-abiding,
she said. The national average for uninsured motorists is about
15 percent, and Alaska was below that last year at 14 percent;
she added that it has been as high as 20 percent and is trending
downward.
MS. MARSHBURN said the most effective way of dealing with the
mandatory insurance issue is through electronic verification.
Requiring a binder or paper proof of insurance is really no
proof at all. A person could obtain a binder and have a card
from the insurance company in the car saying that there is
coverage for the next year, when, in truth, that person hadn't
paid the premium. That is not an effective method of providing
proof of coverage, she emphasized.
MS. MARSHBURN pointed out that she thought there was merit to
considering Representative Meyer's suggestion. She explained
that from the standpoint of raising public [awareness], a person
needs to carry proof, and to make sure that the insurance is in
effect. Requiring that it be carried in a vehicle would be
good, with noncompliance resulting in a "fix-it" ticket or a
fine.
Number 1639
MS. MARSHBURN said short of electronic verification, there
really is no good way to significantly reduce [the number of
people who don't carry the] mandatory insurance.
REPRESENTATIVE HALCRO said he and Ms. Marshburn had discussed
the needs of her department overall. He said for a $5 or $6
"bump" in the cost of renewing a driver's license, or $5 for the
license and $2 additional for one's vehicle, [Alaska] could
implement and pay for the technology necessary to [realize] some
of these ideas.
MS. MARSHBURN explained that the driver's license is a five-year
license that costs $15; either a digital-license-technology fee
or an additional fee could be added to help get an electronic
verification system for "MI [IM]."
Number 1541
REPRESENTATIVE HALCRO said he is concerned about passing
legislation that puts an additional burden on the DMV without
passing the cost along to the user because [the DMV office] is
currently maintaining numerous vacancies.
MS. MARSHBURN reported that there are now 21 vacancies held
vacant. [Alaska] is just shy of 500,000 drivers, with 742,260
registered vehicles in the state.
MS. MARSHBURN, when asked what the cost is for [vehicle]
registration, she replied that for a run-of-the-mill passenger
vehicle the fee is $68 plus any applicable motor vehicle
registration tax if within a municipality where [the DMV]
collects the tax - Anchorage or Fairbanks. It is $68 every two
years [for a car], and $158 for a commercial vehicle.
REPRESENTATIVE HALCRO asked what percentage gets "kicked back"
to the community where the car is registered.
Number 1460
MS. MARSHBURN responded that the motor-vehicle tax goes back to
the community. The division collects about $45 million a year
total, including driver's license and registration [fees], and
[the DMV] returns about $10 million in taxes to the
municipalities in Alaska.
REPRESENTATIVE HALCRO asked why the $10 million is rebated.
MS. MARSHBURN said the motor vehicle registration tax is a tax
that the state collects as the property tax on vehicles. A
municipality can elect to have the state collect that tax, and
that is done for 14 municipalities.
Number 1400
REPRESENTATIVE ROKEBERG asked for clarification that the $45
million includes the ad valorem tax.
MS. MARSHBURN responded affirmatively. She said $35 million
goes into the general fund, and about $10 million is returned to
the municipalities. Responding to a question about how many
[staff] work at the DMV with 21 current vacancies, she responded
that there are not many. When asked why there are so many
vacancies, she responded that it has to do with the boat
registration program and supplemental funding, and also the fact
that [the DMV] only collected revenue for part of this year, and
had a large program startup cost. She said [the DMV] only
collects for the boat registration program and had a full year
of costs, because the bill passed at the end of the last
legislative session and was implemented on January 1 [2001]. So
[the DMV] only collected revenue from January 1 onward, she
remarked, and people don't really register boats until the water
thaws.
REPRESENTATIVE KOTT asked Ms. Marshburn how the proof of
insurance applies to those private sector vendors who currently
issue tags, and asked how it would work with the mail-in system.
Number 1335
MS. MARSHBURN replied that there are two ways that it can
happen. One way would be to have the dealers and the IM
stations that register vehicles either require proof of a binder
before completing the sale and registering the vehicle, or have
a sign which states that the vehicle can't be registered until
the individual can furnish proof of insurance; the dealer would
push that responsibility off onto the DMV. The dealer would
complete the sale, bundle the paperwork, and send it to DMV and
it would be up to the DMV to refuse the sale if there were no
proof of insurance.
MS. MARSHBURN explained that the Web and the interactive voice
response (IVR) are completely automated. She said the DMV would
have to require the individual to mail in proof of registration
and then do a physical match-up in-house on the registration and
proof of insurance. She said it is something that she doesn't
even want to think about in terms of the volume, trying to do a
match-up, and then scanning the proof of insurance or reviewing
the person's insurance to make sure that it meets the
requirements of the law.
MS. MARSHBURN said [the DMV] would probably discontinue the
electronic venues at that point and just bring all of those
transactions in-house if a "live body" has to be inserted.
Number 1234
REPRESENTATIVE HALCRO asked if the fee for a driver's license is
set in statute or is set by regulation.
MS. MARSHBURN replied that it is set in statute, as are all of
the fees from the DMV.
Number 1113
REPRESENTATIVE ROKEBERG reiterated that this is a serious issue
that needs to be investigated. He said the fix-it ticket might
have some value, although he wasn't sure what the cost would be.
It is illegal now, he said, so why don't "they" bust people now?
REPRESENTATIVE KOTT asked Ms. Marshburn if other states are
doing what [Alaska] is contemplating.
MS. MARSHBURN replied that some states do require proof of
insurance; however, uniformly, the reply from other states has
been that it is not effective. Second, the law only requires
proof of insurance to be shown if a person is in an accident;
right now the law requires that the vehicle be covered, but it
doesn't require a person to carry or show that proof of
insurance.
CHAIR MURKOWSKI asked if a person, when being stopped for having
a taillight out, for example, couldn't be asked for proof of
insurance at that time.
MS. MARSHBURN answered affirmatively. She said [the
police/trooper] can ask for it, but there is currently no
requirement that it be carried and furnished in law now, so
there is no way to cite for it.
Number 0994
REPRESENTATIVE KOTT said when a person is in an accident, and it
is reported to the state, a form is filled out and the person
has to indicate insurance coverage at that time; if a person
wasn't insured, he asked, what would be the penalty?
MS. MARSHBURN commented that when the officer cites a person, he
or she gives the person forms that need to be completed and
returned to the division. When the forms come into the
division, a person supplies some insurance information such as
who the carrier is, what the [policy] number is, and so forth.
[The DMV] audits every third one of those via the insurance
company to verify that the individual is telling the truth. If
a person is in violation of the law, then the license is
suspended for failure to have the vehicle covered, and the first
suspension is for 90 days.
MS. MARSHBURN said the municipalities could decide to require
that proof of insurance be carried in the vehicle, and she
thought Anchorage was contemplating that.
Number 0881
REPRESENTATIVE HALCRO asked when the driver's license fee was
last raised.
MS. MARSHBURN said probably ten years ago, in 1991.
REPRESENTATIVE HALCRO said it appeared there was an amendment
effective July 3, 1991.
REPRESENTATIVE HAYES explained that in the military, to get on
post, a person has to have the insurance information in the car,
because proof of insurance is asked for. It wouldn't be much of
a stretch for the cities, he remarked, because they are already
doing it in the military.
REPRESENTATIVE KOTT commented that there is a requirement to
show proof of insurance when the vehicle is registered, but the
military police in stopping and citing people for traffic
violations on the post or base don't ask for proof of insurance;
they just want to see the driver's license.
Number 0764
CHAIR MURKOWSKI remarked that she wasn't sure that there were
any easy fixes. [The committee] could do one of two things:
separate this out and send on the taxicab insurance [portion],
or work through an active subcommittee to figure out if there is
a way to address it. She asked for clarification that the only
thing that can work is an electronic format to track things.
MS. MARSHBURN answered affirmatively. She reiterated that a
person could bring in proof of insurance. However, it could
have been canceled that morning; a piece of paper is not proof
that the policy is in effect. If [the DMV] has the ability to
electronically link [up with] the insurance companies, then the
data would be much more accurate.
Number 0672
REPRESENTATIVE ROKEBERG said there is a huge fiscal note, and
the "poor" DMV has a manpower shortage; Ms. Marshburn notes that
it would be an additional two minutes per transaction, which
causes four and a half extra state positions. If there is a
"fix-it" ticket written for failure to provide proof of
insurance, how come it isn't necessary to register the vehicle?
It shouldn't be a burden to dealers because they require it
before releasing a car, or at least require a binder.
Number 0611
REPRESENTATIVE HALCRO said if a person goes into a car
dealership on Saturday looking for a car and does the
transaction, that person may or may not finance through the
dealership. All of the loan paperwork would be done there, but
there is no way that an insurance agent can be accessed. State
law says that a person is covered for 30 days if there is
insurance. It is the customer's responsibility or the lien
holder's responsibility; if someone comes in and says he or she
has insurance, "we" take their word for it if the car has been
paid for. And, in the case of the lien holder, "we" already
procure a security agreement or some kind of written contract
with the financial institution. The credit union gives the
person 30 days to let them know when the insurance is received;
"they" do the DMV work, and the person gets the title and copy
of registration in the mail. If proof of insurance isn't
provided within two week, [the company] may be forced to go out
and get the person insurance and then bill him or her for it
because [the company] wants to protect its collateral.
Number 0449
REPRESENTATIVE ROKEBERG said [the legislature] is not going to
disrupt commerce by adopting this provision, because it is going
to be accommodated for anyway.
REPRESENTATIVE HALCRO pointed out that many people sell their
cars through the newspaper. After being paid for the car, the
person selling the car doesn't care whether the purchaser has
insurance.
REPRESENTATIVE KOTT said when renting a car, there is no
guarantee [that a person has insurance], if he or she is waiving
the car-rental insurance.
REPRESENTATIVE ROKEBERG said the title could be changed and the
car reregistered. The bill says that a person would have to
fill out proof of insurance there. The secondary market is not
affected at all, he remarked.
REPRESENTATIVE KOTT said if [the legislature] is trying to get
those uninsured motorists off the roads, in that particular
scenario they are going to be driving until they go down and
register that vehicle so, "You are not going to get them." He
said getting to this problem in its entirety couldn't be done;
the only way to get to the problem is if $1.3 million is funded.
This is why, he said, after talking to Ms. Marshburn, he opted
not to pursue that course of action in the other bill.
Number 0340
REPRESENTATIVE KOTT made a motion to amend the bill by removing
Section 1.
REPRESENTATIVE HALCRO said the problem could be that a person
could pay the insurance company for a month, go down to the DMV
and register the car, and then fail to pay the bill when it
comes in a month, but the person would still have the card that
the insurance company sent. He said the only real way to
address the problem is by investing in the technology that
allows the DMV to be in constant communication with various
insurance companies that would give automatic notification if
insurance lapses or is canceled. He said if he were an
insurance company in the state, that is something that he would
want to be onboard with, because the fewer people driving around
without insurance, the better off clients are going to be.
Number 0248
REPRESENTATIVE ROKEBERG said he didn't objected to the motion to
amend the bill. He suggested that the long-term policy
committee raise the fees so digital licenses can become a
reality.
REPRESENTATIVE ROKEBERG said the DMV's [information technology]
needs to be [improved] because it doesn't work and is affecting
public safety.
REPRESENTATIVE HAYES said for a public policy call, he doesn't
think that it is a bad bill, even with that section. He
suggested that if the House Finance Committee wants to pull a
section, that is fine. The reality of the situation, he
remarked, is pay now or pay later.
Number 0046
REPRESENTATIVE HALCRO asked for verification that the concern
from the Division of Legislative Legal and Research Services was
that of the single-subject rule, [that the two bill subjects]
have to be split up regardless.
REPRESENTATIVE ROKEBERG said he is trying to [raise awareness]
of the problem.
REPRESENTATIVE CRAWFORD commented that it is a good public
policy, and he said [the bill] should be moved as it is.
REPRESENTATIVE KOTT reaffirmed that he was going to continue to
offer his amendment.
TAPE 01-42, SIDE A
Number 0067
REPRESENTATIVE KOTT said if the bill passes this year, it would
take another year for the system to "come onboard" with the
technology and so forth.
REPRESENTATIVE MEYER stated that Ms. Marshburn had mentioned
that 14 percent of the drivers don't have insurance. If [that
amount was dropped down to] 4 percent, would that reduce
everyone's insurance rates in the state, he asked. By spending
some money here, he said, will a rebate be given back to
constituents through lower insurance rates?
REPRESENTATIVE HALCRO remarked that the only way that the rate
of [uninsured motorists] is known is from the number of traffic
accidents and the number of people involved, and then that is
broken out into the percentage of people who don't have
insurance. If a person were wondering if that would equate to
an across-the-board decrease in uninsured motorist rates, a
person would have to be able to make sure that everyone was
"lifted" up. It would come down to the insurance companies
making more money, thereby lowering rates and giving it back to
policyholders.
Number 0184
REPRESENTATIVE KOTT asked Ms. Marshburn if that percentage [14
percent for uninsured motorists] includes those rural
communities that don't require vehicle registration.
MS. MARSHBURN answered affirmatively. She said if [a vehicle]
is not required to be registered, [the vehicle owner] is not
subject to the mandatory insurance (MI) provision.
REPRESENTATIVE HALCRO asked Ms. Marshburn if he is making a
correct assertion in saying that 11 or 14 percent of people in
accidents don't have insurance, and that percentage doesn't
cover those who are driving around without insurance that never
get in accidents.
MS. MARSHBURN replied affirmatively. She said an assumption can
be made that the percentage of uninsured motorists in the state
can be somewhat inflated because it is the irresponsible drivers
who drive without insurance; however, that is purely subjective,
and there is no way to really assess that. If that is the case,
then there are more law-abiding drivers. She reiterated that
this bill is trying to do something that is truly effective in
reducing the MI rate. The division doesn't believe that
requiring paper proof of insurance is effective, she reiterated,
and the money that the DMV has described as necessary to
implement this would be better used on a more effective
solution.
Number 0352
CHAIR MURKOWSKI suggested that Ms. Marshburn is saying, then
that if this [legislation] were to pass with this section in
place, with the fiscal note attached, [the legislature] would be
throwing good money after bad because an effective policy is not
being implemented. She asked whether the recommendation from
Ms. Marshburn is that [the legislature] not do it, if it can't
be effective.
MS. MARSHBURN remarked that this is correct.
REPRESENTATIVE KOTT said maybe this is more of an issue for the
insurance companies; if [insurers] required drivers to post
whatever the requirements are for their policy for a period of
two years and wouldn't cancel [a policy] under any
circumstances, then a person would have insurance. He said if
Representatives Halcro, Rokeberg, and Meyer would like to meet
with the division during the interim, he would be happy to sit
in on a meeting or two.
Number 0480
REPRESENTATIVE HAYES objected to the amendment [deleting Section
1].
A roll call vote was taken. Representatives Halcro, Kott,
Crawford, and Murkowski voted in favor of adopting the
amendment. Representatives Meyer, Hayes, and Rokeberg voted
against it. Therefore, the amendment was adopted by a vote of
4-3.
REPRESENTATIVE KOTT made a motion to move HB 67 [as amended] out
of committee with individual recommendations and the attached
fiscal note.
Number 0667
MS. MARSHBURN commented that the fiscal note is $314,000 and
that she would rather put that money towards an electronic
verification system. She clarified that she hadn't commented
about local option, but said it is one way of raising the
profile on the need to carry insurance.
REPRESENTATIVE HALCRO said he voted for [the amendment] because
[the legislature] is going to have to do it sooner or later;
however, it was his understanding that because of the single-
subject rule, this bill wasn't going to be able to go anywhere.
REPRESENTATIVE ROKEBERG stated that he has another bill. And,
when asked about having two subjects in the same bill, he
responded that both are insurance [issues].
Number 0773
CHAIR MURKOWSKI announced that there had been a motion to move
HB 67 as amended from committee with individual recommendations.
She added that there would be a new fiscal note. There being no
objection, CSHB 67(L&C) moved out of the House Labor and
Commerce Standing Committee.
CHAIR MURKOWSKI noted that there had been some discussion about
what needed to be done, and the need for more money to do it
right. She said it is something that this committee should look
at during the interim.
Number 0806
MS. MARSHBURN, when asked to confirm that without Section 1, the
bill now carries a zero fiscal note, responded, "It does
indeed." [CSHB 67(L&C) was moved out of the committee.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:10 p.m.
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