Legislature(2001 - 2002)
04/11/2001 03:25 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
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 11, 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
OTHER LEGISLATORS PRESENT
Representative Vic Kohring
COMMITTEE CALENDAR
HOUSE BILL NO. 182
"An Act relating to motor vehicles; and providing for an
effective date."
- HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE
HOUSE BILL NO. 225
"An Act relating to municipal taxation of alcoholic beverages
and increasing the alcoholic beverage tax rates."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 182
SHORT TITLE:MOTOR VEHICLE SALES AND DEALERS
SPONSOR(S): REPRESENTATIVE(S)MURKOWSKI
Jrn-Date Jrn-Page Action
03/14/01 0586 (H) READ THE FIRST TIME -
REFERRALS
03/14/01 0586 (H) L&C, FIN
03/14/01 0586 (H) REFERRED TO LABOR & COMMERCE
04/11/01 0970 (H) COSPONSOR(S): HALCRO
04/11/01 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 225
SHORT TITLE:ALCOHOLIC BEVERAGE TAX
SPONSOR(S): REPRESENTATIVE(S)MURKOWSKI
Jrn-Date Jrn-Page Action
03/30/01 0789 (H) READ THE FIRST TIME -
REFERRALS
03/30/01 0789 (H) L&C, FIN
04/03/01 0830 (H) COSPONSOR(S): HUDSON
04/09/01 (H) L&C AT 3:15 PM CAPITOL 17
04/09/01 (H) Heard & Held
MINUTE(L&C)
04/10/01 (H) L&C AT 3:00 PM CAPITOL 120
04/10/01 (H) Heard & Held
MINUTE(L&C)
04/11/01 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
RALPH SEEKINS, President
Seekins-Ford-Lincoln-Mercury, Inc.
1625 Old Steese Highway
Fairbanks, Alaska 99701
POSITION STATEMENT: Testified on behalf of the Alaska
Automobile Dealership Association on HB 182.
JOHN MECKE, Legislative Director
Franchise Affairs
Ford Motor Company
16800 Executive Plaza Drive
Dearborn, Michigan 48126
POSITION STATEMENT: Testified on HB 182.
MARK MUELLER, Manager
Retail Relationship
Daimler Motors
100 Renaissance Center
Detroit, Michigan 48265
POSITION STATEMENT: Testified on HB 182.
JIM MOORS
National Automobile Dealer Association
8400 Westpark Drive
McLeon, Virginia 99518
POSITION STATEMENT: Testified on HB 182.
WILLIAM HURST, Director
State Franchise Legislation and Strategy
Daimler Chrysler
1000 Chrysler Drive
Auburn Hills, Michigan 48326
POSITION STATEMENT: Answered a question on HB 182.
ACTION NARRATIVE
TAPE 01-57, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:25 p.m.
Representatives Murkowski, Halcro, Kott, and Crawford were
present at the call to order. Representatives Meyer, Rokeberg,
and Hayes arrived as the meeting was in progress.
HB 182-MOTOR VEHICLE SALES AND DEALERS
CHAIR MURKOWSKI announced that the first order of business would
be HOUSE BILL NO. 182, "An Act relating to motor vehicles; and
providing for an effective date."
Number 0209
REPRESENTATIVE HALCRO made a motion to adopt the proposed
committee substitute (CS) for HB 182, 22-LS0239\F, Bannister,
4/6/01, as the working draft. There being no objection, Version
F was before the committee.
RALPH SEEKINS, President, Seekins-Ford-Lincoln-Mercury, Inc.,
came forth on behalf of the Alaska Automobile Dealership
Association (AADA). He stated that (AADA) had been a fairly
loosely organized group until about five years ago. Some of the
members are also involved in the National Automobile Dealership
Association (NADA). Over time, as [the AADA] became organized,
members started to say they wished they had some of the
protections that the other states have as far as franchise laws
and consumer issues were concerned; concurrently, he said, [the
AADA] started getting letters from the Office of the Attorney
General.
MR. SEEKINS stated that [members of the AADA] became aware that
they did not have any legislation that existed in other states
regarding consumer issues and manufacturer-dealer relationships.
As a result, they asked the NADA if it had some background
information. [Mr. Seekins referred to a packet of information
the AADA had received from the NADA.] The AADA started then
asking its members what they thought they needed to strengthen
the relationships among the consumers, manufacturers, and
dealers. They began bringing in piecemeal deals, and [the AADA]
started searching for the basic laws that exist in the other
states. Finally, the [AADA] began compiling the legislation.
Number 0459
MR. SEEKINS stated that this legislation has been in formation
for two and a half years. He stated that [the AADA] started to
see an unfolding of a multitude of different concerns. It
started looking, with the assistance of the attorney general, at
those areas where consumers needed to have more clear guidelines
when dealing with their local dealers in terms of advertising
and installment sales contracts. Therefore, there is a huge
section [in the bill] dealing with advertising terms, because
with many of the terms used regularly in the automobile
industry, the buying public has no clue what they really mean.
For example, he said:
When you use the term MSRP ... it should be clearly
defined - what ... that manufacturers suggested retail
price [is]. And it should maybe say, "This is not
necessarily the price the vehicle sells for in this
marketplace." So, we've tried to roll in some of the
those suggestions from across the country. ... It's
not uncommon for ... [young people] to have gone into
a dealership and be there until 11 o'clock at night to
sign a contract that says, "Well, take it home and
we'll talk about the terms tomorrow" - only to come
back and find that they'd signed a one-payment
contract and they were subject to huge swings in the
interest rates.
MR. SEEKINS continued, stating that in reviewing the laws in
other states [the AADA] found out that it is very common for
family-owned dealerships to seek some kind of guarantee that if
the dealer principal were to pass on, the family would have a
fair shot at being able to own and operate the family-owned
business without the manufacturer's being able to pull the
franchise. He said there are also things that have to do with
[Alaska's] unique geographic location. Some manufacturers have
recognized that and have dealt with that, while others have not.
For example, he said [the AADA] felt it was only fair that if a
manufacturer had an equalized destination and delivery charge
for vehicles in the lower 48 states, it should be extended to
Alaska.
Number 0716
MR. SEEKINS stated that there are some further defining things
in [the bill]. For example, some dealers really want to know
when someone ships an automobile to the dealer, whether there
are potentially hazardous materials on the vehicle. He said
[the AADA] thought it was only fair that the manufacturers
provide the dealers with suggested handling and disposal
processes. If those [disposal processes] were later found out
to be improper, the manufacturer would indemnify the dealers for
having followed them. He stressed that [the AADA] felt that
clarifying the relationships between manufacturer and dealer is
good for the manufacturers, the dealers, and the consumers. For
example, in areas of warranty repair where a dealer is pushed
into a situation regarding the amount of money that the
manufacturer will pay the dealer to perform a repair, it
encourages the dealer to rush the repair and maybe not give the
same quality that he or she otherwise would have.
MR. SEEKINS said there are areas where it has become more
complex to be in the automobile business, especially in the area
of high technology that comes in the package of the vehicle.
Therefore, he stated, training is more important. For example,
Rick Morrison, an Alaska automobile dealer, will spend over
$100,000 in training his employees this year. In order to get
that training, he will have to send his employees out of the
state. Mr. Seekins noted that [the AADA] thinks it is only fair
when manufacturers provide training in other states for their
dealers that they provide that same level of training for
dealers in [Alaska] in order to get the same certification
requirements. He stated that [Alaskan dealers] are judged on
the same performance standards as dealers in the rest of the
United States in terms of the customer-satisfaction index.
MR. SEEKINS remarked that the harsh weather in Alaska has a
greater effect on mechanical parts in an automobile; therefore,
it is very common for manufacturers to put Alaskan dealers under
a program called prior approval. If expenses are high in a
particular area, [the manufacturers] could require the dealers
to call them and get prior approval in order to perform a repair
that a dealer in the lower 48 states might not have to get. He
noted that the manufacturers typically don't staff those prior
approval phone lines to the extent that the dealers can get the
prior approval in reasonable time. The dealers are saying,
"We're not objecting to you asking us to a prior approval, but
our mechanic is waiting on the line 20 minutes to talk to
somebody; pay him for the time that it takes him to do it. If
it's a non-voluntary prior-approval program and you're requiring
us to do that, well then, reimburse that technician, because he
has to feed his family too."
Number 1129
REPRESENTATIVE CRAWFORD asked whether there was any state [the
AADA] particularly patterned [the bill] after.
MR. SEEKINS responded that a lot of [the bill] came from North
Carolina and Idaho.
JOHN MECKE, Legislative Director, Franchise Affairs, Ford Motor
Company, came forth on behalf of Ford Motor Company and the
Alliance of Automobile Manufacturers, and stated that there has
been a lot of change in the business, and in recent years Ford
has purchased Land Rover, Volvo, and Jaguar. [Ford Motor
Company] also has a large captive credit company, Ford Credit,
that does about 75 percent of its dealers' retail sales. Ford
Motor Company also owns Hertz Rental Car Company, which has some
implications in the bill as well. Finally, [Ford Motor Company]
also owns Collision Team of America, which consists of body
shops; Green Leaf, which is a recycling company; and an
extended-service plan company. He added that [the alliance] is
made up of all the automobile manufacturers in the company -
about 13 in total.
MR. MECKE remarked that [the alliance] agrees that Alaska should
not be the only state that doesn't have a franchise law to some
degree. [The alliance] also agrees that these provisions should
be weighed by the type of public policy impact that they have.
Conversely, he said, there are some things [the alliance] has
concerns about in the bill as they pertain to public policy
issues. He said they are probably more purely business issues
or contractual issues that are already dealt with in other ways.
[Manufacturers] all have sales agreements with the dealers that
are contractual arrangements that specify quite a few things
that Mr. Seekins had talked about. For example, Ford Motor
Company acknowledges and stipulates that in a family situation
the surviving family members get the dealership. He stated that
the alliance and the manufacturers have a very strong interest
in working with the dealers on coming up with the right kind of
franchise bill. He emphasized that the consumer needs to be the
"litmus test," and that there need to be some protections for
the Alaskan business people.
Number 1630
MR. MECKE stated that he would ask the committee to assure that
any focus of any franchise provisions that are considered
restricted to the business activities are in accord with [the
manufacturers'] relationship with their dealers. He pointed out
that [Ford Motor Company] depends on its dealers and the dealers
depend on [Ford Motor Company]. [Ford Motor Company] willingly
has its dealers do all of its warranty work with the customers,
and thinks the franchise laws should concentrate on those
primary dependent relationships. He stated that a whole list of
things are related to the automobile business of selling new
vehicles, but [Ford Motor Company] isn't the exclusive supplier.
In those areas, he said, he doesn't think franchise laws should
restrict [Ford Motor Company], when other competitors that are
not manufacturers and also compete in that arena are not being
restricted by franchise laws.
Number 1735
MR. MECKE remarked that there are a couple of areas that he
would like to sensitize the committee to. For example, [Ford
Motor Company] sells extended-service plans through its dealers,
but also solicits customers directly if they haven't purchased
them through the dealerships. This bill, he said, prohibits
that from occurring. He noted that there are some things in
[the bill] that change the basic way [Ford Motor Company] does
business with its dealers on the distribution of vehicles. He
said he has a system whereby dealers earn the supply of vehicles
based on how they turn their inventory over and how efficient
they are in selling their vehicles. This bill, he said,
suggests that [manufacturers] "chuck" that system and just build
vehicles that are retailed for consumers without any regard to
how those inventories are being turned over by various
dealerships. He added that he also has incentive programs that
would make it easier for a smaller dealer to get into an
incentive program versus a larger dealer. Some of the
provisions of the bill would eliminate the ability for a small
dealer to get a certain amount of payment at a 3- or 4-unit
level versus a bigger dealer that could get it at a 15- or 20-
unit level.
MR. MECKE noted that some manufacturers have mandatory binding
arbitration in their sales agreements, and this bill would
negate that element. He pointed out that there is a federal law
that encourages mandatory binding arbitration. He added that
there are an awful lot of prescriptive provisions in the bill in
the area of warranty. He stated that there are a number of
unique circumstances in [Alaska] relative to things like
training and certification; however, there are other areas where
the bill gets a little bit too directive. He remarked that
[Ford Motor Company] has a situation whereby its dealers,
through this law, are exclusive providers of warranty, which is
fine; however, it is suggested in the bill to dictate the amount
of profit margin paid to the dealer of the different procedures.
Number 2074
CHAIR MURKOWSKI asked why Alaska has been the last state to put
dealer protections and provisions in place.
MR. MECKE answered that he thinks it is probably because there
are not that many dealers and the market areas are not that
large. The original franchise laws were to protect dealers from
arbitrary termination. From there, franchise law went into
creating protected areas around which a dealer could protest if
another dealer is added. Based on population, he said, there
has never been the need [for franchise laws in Alaska]. He
noted that a number of years ago Ford Motor Company bought a
number of dealerships. This caused an immense amount of fear in
the minds of its dealers throughout the country, because they
thought [Ford Motor Company] would put them out of business.
REPRESENTATIVE HALCRO asked Mr. Mecke whether he has a fairly
standard franchise agreement or if it varies per market.
MR. MECKE responded that every Ford dealer in the country
basically has the same sales agreement. He said there are a few
that may have a term agreement, but 99.9 percent have continuing
agreements. Other manufacturers have term agreements, but they
are the same for all the dealers.
REPRESENTATIVE HALCRO asked how those relate as far as
competition clauses. For example, if he has agreed to have a
Ford franchise and has invested millions of dollars establishing
an infrastructure, but five years later his term runs out and he
has to negotiate an extension, he asked whether there is a
standard method by which dealers are protected as far as
competition.
Number 2320
MR. MECKE responded that [the dealer] would get another
agreement at the end of the term, unless there was some
violation of the agreement. In the sales agreements at Ford
there is a laid-out explanation of what a market study is. He
explained that [Ford Motor Company] does market studies on
metropolitan areas every two to five years. They would first
see a trend toward a particular area. It starts out as a
monitored area growth, then goes to a future preferred location,
and then it may or may not go to an "add point" (addition of
dealership).
REPRESENTATIVE HALCRO asked Mr. Mecke whether he has a formula
that says, "It's time to add another dealership."
MR. MECKE answered that it is very complex.
REPRESENTATIVE HALCRO asked whether there is ever a situation
wherein a dealer is protected at all costs from competition.
For example, he said, in Anchorage there has been one Ford
dealership for 25 years. He asked at what point in time another
one would be added.
MR. MECKE responded that it is not a simple answer. The worst
thing he could do, he said, is cause a situation whereby adding
a second dealer weakened the first dealer or both.
TAPE 01-57, SIDE B
Number 2468
MR. SEEKINS remarked that this bill basically states that even
when manufacturers determine these things, there's still a
checklist that they have to go through in Alaska. He remarked
that [the AADA] is not precluding that; dealers would like a day
in court, not to allow an arbitrary decision to be made. He
remarked that Anchorage Chrysler filed a lawsuit within the last
week because it was allegedly encouraged to add additional real
estate, and another Chrysler dealership was granted to another
party to come into the Anchorage market. That dealer, he said,
would have liked to have had a checklist to say whether or not
it was necessary.
MARK MUELLER, Manager, Retail Relationship, Daimler Motors, came
forth and stated that he is concerned with the Internet and the
brokerage area, because there are third parties trying to get
into his business and work around the system. Most
manufacturers, he said, have joint programs with web sites that
are driving both sales and service customers to their dealers.
[Manufacturers] are trying to develop those at little or no cost
to the dealers, and are concerned that some of the proposed
legislation might hinder them from using their internal web
sites to drive customers into the dealers' showrooms.
Number 2260
JIM MOORS, National Automobile Dealer Association, came forth
and stated that NADA represents new car and truck dealers in the
50 states, and has about 90 percent of the dealers as members.
Dealers and manufacturers, he said, want the best relationship.
He said there is a history that led to the franchise's being
enacted. It started in 1936 in Wisconsin, and the issue was
termination of the franchise agreement. At the time, these
agreements could be terminated at will; the dealers made a
sizable investment. The agreement, he said, and who holds the
pen is in the manufacturers' hands. The dealer agreements
contain a lot of the provisions that are in these franchise laws
that are protections for the dealers. He stated that he doesn't
think the manufacturers are opposed to a lot of the protections,
but they can change them. Many of the protections are basic and
call for good cause. None of the laws say that a dealer cannot
be terminated. He remarked that in the bill there is a list of
criteria that asks, "Is the addition of a new dealer in the
public interest? What's the impact on competition? What's the
impact on the existing dealer's investment?"
MR. MOORS stated that for the most part these are family-owned
businesses around the country. When an "add point" is proposed
[the dealers] have the right to say to the manufacturer, "We
want a third party to decide whether that [additional
dealership] is justified." The manufacturers come in with their
statistics and their demographics, and they make their case to
the hearing body. If they can show that Anchorage has grown in
population and there needs to be another Ford dealership, it is
approved. He remarked that in the protests that have been filed
for additional dealer points, maybe 10 percent have resulted in
the additional dealer's being denied.
Number 2099
MR. MOORS explained that the successor issue is another issue
that is very important. This has been agreed upon, and it is in
the contract that the dealership should be passed on to the son
or daughter or to management, provided that the person is
qualified. This bill would codify this protection. He stated
that there is a lot of pressure put on dealers from time to time
for exclusive facilities or to upgrade facilities. He stated
that this is an incredibly competitive market; manufacturers
compete, and the competitive pressures at that level filter down
to the dealers, which can result in requests and encouragement
to build brand-new facilities because other manufacturers are
doing so. Under the bill there is limited protection whereby
the dealer has the right to protest those types of requests. He
noted that this bill is not much different other states' [bills]
on the core areas such as termination, exclusivity, and
successorship.
REPRESENTATIVE HAYES asked what the [the committee's] plan is
with this bill.
CHAIR MURKOWSKI responded that it would be her intention to
appoint a subcommittee.
MR. SEEKINS stated that [the AADA] thinks there is a good
foundation [with the bill], and would like to keep it moving.
REPRESENTATIVE ROKEBERG asked how this bill addresses the issue
of consolidation.
MR. SEEKINS responded that the bill does not give the
manufacturers any force to consolidate, nor does it give them
any ability to restrict consolidation.
REPRESENTATIVE ROKEBERG stated that he thinks the best example
would be when Daimler Benz purchased Chrysler, where there was a
Mercedes dealer, a Chrysler dealer, and then the residual
company. There could then be three potential dealerships in one
marketplace. He asked whether the manufacturer would be able to
kick out the additional product lines because they would come
under the umbrella of that manufacturer.
Number 1713
WILLIAM HURST, Director, State Franchise Legislation and
Strategy, Daimler Chrysler, came forth and stated that his
company has a program called Project 2000, which is designed to
put the Chrysler-Plymouth stores with the Jeep stores. That is
done through negotiations agreements with the dealers. In terms
of the Mercedes situation, the market plan is to not put
Mercedes and Chrysler-Jeep together. He added that there are a
lot of significant problems with the bill, but he thinks they
can be worked out.
REPRESENTATIVE HALCRO remarked that he wouldn't mind chairing
the subcommittee.
CHAIR MURKOWSKI stated that she and Representative Hayes would
work on the subcommittee as well.
[HB 85 was held over.]
CHAIR MURKOWSKI announced at 4:32 p.m. that the House Labor and
Commerce Standing Committee was recessed to a call of the chair.
TAPE 01-58, SIDE A
Number 0001
CHAIR MURKOWSKI reconvened the House Labor and Commerce Standing
Committee at 7:13 p.m. Members present at the call to order
were Representatives Murkowski, Halcro, Meyer, Rokeberg,
Crawford, and Hayes. Representative Kohring was also in
attendance.
HB 225-ALCOHOLIC BEVERAGE TAX
[Contains discussion of HB 3, HB 132, and HB 4.]
CHAIR MURKOWSKI announced that the committee would now take up
HOUSE BILL NO. 225, "An Act relating to municipal taxation of
alcoholic beverages and increasing the alcoholic beverage tax
rates." [Before the committee was a proposed committee
substitute (CS) Version L, 22-LS0806\L, Cook, 4/9/01, adopted as
a work draft on 4/9/01.]
CHAIR MURKOWSKI speaking also as the sponsor, informed the
committee that the public hearing on HB 225 had been closed at
the April 10, 2001, hearing. She announced her intention to
move this bill from committee today. She reminded the committee
that Representative Rokeberg had an amendment that he intended
to introduce. She pointed out that the committee had received
an outline entitled "Economic Costs Estimate for Alaska:
Negative Consequences of Alcohol Abuse and Dependence," which
specifies where the $250 million comes from. Additionally, the
committee should have a packet of written testimony that was
received since the last hearing.
Number 0240
REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 1 [22-
LS0806\L.2, Cook, 4/11/01], which read:
Page 2, line 9:
Delete "Every"
Insert "Except as provided in (c) of this
section, every [EVERY]"
Page 2, following line 20:
Insert a new bill section to read:
"* Sec. 4. AS 43.60.010 is amended by adding
a new subsection to read:
(c) A brewer shall pay a tax at the rate of 35
cents a gallon on sales of the first 120,000 barrels
of beer sold in the state each fiscal year beginning
July 1, 2001, for beer produced in the United States
if the producing brewery meets the qualifications of
26 U.S.C. 5051(a)(2). To qualify for the tax rate
under this subsection, the brewer must file with the
department a copy of a Bureau of Alcohol, Tobacco and
Firearms acknowledged copy of the brewer's Notice of
Brewer to Pay Reduced Rate of Tax required under 27
C.F.R. 25.167 for the calendar year in which the
fiscal year begins for which the partial exemption is
sought. If proof of eligibility is not received by
the department before June 1, the tax rate under this
subsection does not apply until the first day of the
second month after the month the notice is received by
the department. For purposes of applying this
subsection, a barrel of beer may contain no more than
31 gallons."
REPRESENTATIVE HALCRO objected.
REPRESENTATIVE ROKEBERG explained that Amendment 1 includes a
provision that would allow for an exemption of any increase in
tax above the current 35 cents a gallon on the first 120,000
barrels of beer sold be a local manufacturer or brewery. This
amendment is consistent with federal law and the provisions in
the Bureau of Alcohol, Tobacco, and Firearms regulations that
allow a partial exemption for a local manufacturer while
requiring that anyone considered a small brewery, 2 million
barrels, be allowed the same exemption for importation into
Alaska from the other 49 states. This would exclude any
foreign-brewed beer.
Number 0360
REPRESENTATIVE ROKEBERG explained that the purpose of Amendment
1 is to foster the development of breweries and brewpubs in
Alaska. This provision is modeled after the State of
Washington's provision, except that the Washington statute as
well as the standard provision in federal law is limited to
60,000 barrels of beer. Representative Rokeberg explained that
he chose to limit this to 120,000 barrels because it relates to
the largest manufacturer of beer in Alaska. The Alaskan Brewing
Company, with its new expansion, is projected to either reach
[120,000 barrels] or come close. Representative Rokeberg
commented that the Alaskan Brewing Company has done a marvelous
job of identifying Alaska [with its beer] and has created
significant economic activity in Juneau and throughout the
state.
REPRESENTATIVE ROKEBERG related his understanding that this
would comprise less than 15 percent of the total importation and
consumption of malt beverages in Alaska. Therefore, it would
have a modest effect on any revenue derived from this
legislation. Furthermore, this acknowledges the state policy of
fostering economic development in the state.
REPRESENTATIVE HALCRO related his understanding that this would
refer to Alaskan brewers as well as those outside the state.
Therefore, he inquired as to whom that would include.
REPRESENTATIVE ROKEBERG answered that he believes it would
include, for example, the Seattle microbreweries that already
sell in Alaska. Therefore, those that meet the federal
regulation of less than 2 million barrels would qualify and thus
be exempt from any increase in tax above 35 cents.
REPRESENTATIVE HALCRO inquired as to how one would apply for
this tax exemption. Furthermore, he inquired as to what checks
and balances are in place to ensure that one doesn't exceed the
limit.
REPRESENTATIVE ROKEBERG surmised that there is an application.
He related his belief that the Department of Revenue would have
to establish that policy.
Number 0579
CHAIR MURKOWSKI remarked that the 60,000-barrel [limit] in the
federal statute seems to have some justification. However, she
said that she wasn't able to make the leap [under Amendment 1]
to the 120,000 [barrel limit] other than [the fact that] the
Alaskan Brewing Company, the largest brewer, is almost at that
figure. She asked whether her understanding was correct.
REPRESENTATIVE ROKEBERG answered it was.
CHAIR MURKOWSKI inquired as to the next-largest brewers in the
state and the levels they are at.
REPRESENTATIVE ROKEBERG surmised from the testimony that [the
largest brewers] are the Moose's Tooth and the Silver Gulch,
both of which are not even approaching 150,000 gallons.
REPRESENTATIVE HALCRO specified that the Moose's Tooth brews
about 65,000 to 70,000 gallons and the Silver Gulch brews about
60,000 gallons.
REPRESENTATIVE ROKEBERG recalled that [a representative from the
Moose's Tooth] testified that if it could service outside
accounts under a beverage dispensary license, then it would
approach 120,000 gallons.
REPRESENTATIVE HALCRO said that [the next-largest brewers] were
the Moose's Tooth, Glacier Brewhouse, and then the Silver Gulch.
The next-largest brewer [after those] brewed about 20,000
gallons, and thus there is a fairly big difference.
REPRESENTATIVE ROKEBERG remarked that the only brewer that would
benefit at this juncture would be the Alaskan Brewing Company.
However, he noted that one can't predict the future.
CHAIR MURKOWSKI expressed her wish that [the legislation] didn't
have to provide "this reciprocity" but rather could specifically
address beer produced in Alaska. She agreed that this is a
fledgling industry that is growing and employing Alaskans.
Although she didn't object to helping with that, she expressed
the need to recognize that this also helps those microbreweries
from outside the state. Therefore, Chair Murkowski questioned
whether the increase to 120,000 barrels really helps Alaskan
brewers or the outside microbrewers. Chair Murkowski announced
that she objected to Amendment 1 with the 120,000 barrels and
thus noted she would be amenable to amending Amendment 1 to
refer to 60,000 barrels in order to reflect the federal statute.
REPRESENTATIVE ROKEBERG said that he stood by his amendment,
although he acknowledged that a smaller cap might be helpful
from an economic standpoint because it would give a distinct
advantage to some other outside microbreweries. The argument
can be made in both directions.
REPRESENTATIVE HAYES asked Representative Rokeberg whether he
was agreeing that 60,000 barrels would be more competitive for
Alaskan companies.
Number 0912
CHAIR MURKOWSKI moved that the committee adopt the following
amendment to Amendment 1, which would change "120,000" to
"60,000" in the new subsection (c).
REPRESENTATIVE ROKEBERG objected.
A roll call vote was taken. Representatives Halcro, Crawford,
Hayes, and Murkowski voted for the amendment to Amendment 1.
Representatives Meyer and Rokeberg voted against it.
[Representative Kott was absent for the vote.] Therefore, the
amendment to Amendment 1 was adopted by a vote of 4-2.
CHAIR MURKOWSKI asked if there was any objection to Amendment 1
as amended. There being no objection, Amendment 1 as amended
was adopted.
Number 1052
REPRESENTATIVE HAYES moved that the committee adopt the
following conceptual Amendment 2:
Page 2, line 15, after "beverages",
Insert "and hard cider"
CHAIR MURKOWSKI related her understanding that malt beverages
and hard cider would be in the same category.
REPRESENTATIVE MEYER objected.
REPRESENTATIVE HAYES, in response to Representative Meyer's
objection, explained that hard cider is packaged like beer and
looks like beer. However, it is classified as a wine and thus
he felt that hard cider should be classified the same as beer.
Hard cider has the same alcohol content as malt beverages.
CHAIR MURKOWSKI noted that committee members should have
received information regarding what is happening in other
states. Apparently, the trend is to change the classification
of hard cider from wine to beer. Chair Murkowski related her
belief that the tax probably doesn't matter because it's not a
very potable drink.
Number 1196
REPRESENTATIVE MEYER withdrew his objection.
REPRESENTATIVE HALCRO asked if the drafters should be provided a
definition of hard cider to include in statute because without a
definition it could be debatable.
CHAIR MURKOWSKI remarked that she was certain there is some
definition for malt beverage. She pointed out that this is a
conceptual amendment, which should afford the drafter the
ability to pen clarifying language, if necessary.
REPRESENTATIVE HAYES mentioned that he had language, if it was
needed.
CHAIR MURKOWSKI asked if there was any further discussion or
objection to conceptual Amendment 2. There being none,
conceptual Amendment 2 was adopted.
Number 1280
REPRESENTATIVE ROKEBERG moved that the committee adopt
conceptual Amendment 3, to would delete Sections 1 and 2 of
[version L].
CHAIR MURKOWSKI objected.
REPRESENTATIVE ROKEBERG related his belief that these two
provisions do several things that are contrary to the best
interest of state policy. For example, these [provisions]
remove the state's ability to directly tax the wholesale levels
of alcohol, which he believes should fall under the state's
purview. Representative Rokeberg expressed his concern about
giving municipal governments greater freedom to impose special
alcohol taxes. He pointed out that the Municipality of
Anchorage rejected this concept by election and has continued to
illustrate its [opposition] to any type of sales tax.
Representative Rokeberg reiterated that it's not in the best
interest of the state to devolve its taxing power to municipal
governments.
CHAIR MURKOWSKI noted that a couple years ago the portion
Representative Rokeberg is seeking to delete came before the
House Community and Regional Affairs Standing Committee
[through] Representative Davis, and at that time she supported
it. Although she still feels that it makes sense, she expressed
concern "that you're going to have this dime-a-drink thing and
then the municipalities or the city can then turn around and
give us a double whammy, and then we really, really, really will
be hurt." She emphasized that it is not her intent to drive
anyone out of business or leave hard-working Alaskans without a
job. Although she still feels that this provision makes sense,
perhaps the timing of it is creating too much paranoia in the
minds of the Alaskans in this industry, to which she is
sensitive. Therefore, although she would like for everything to
remain [in the bill], she reiterated that she is conscious of
messages that would place fear in the hearts of working
Alaskans. She concluded by saying that she would probably
support conceptual Amendment 3.
REPRESENTATIVE HALCRO agreed with Chair Murkowski. As discussed
at the prior hearing, this tax is not an attempt to demonize
those who sell alcohol but rather it attempts to recoup revenue
in order to defer some of the costs that this product causes for
state government. Since the state is paying most of the costs
of alcohol-related problems, Representative Halcro said that he
would not have a problem eliminating the ability for
municipalities to take it upon themselves to tax without proper
precautions. Therefore, Representative Halcro announced that he
would also support conceptual Amendment 3.
CHAIR MURKOWSKI withdrew her objection and asked if there was
any further objection to conceptual Amendment 3. In response to
Representative Meyer, Chair Murkowski explained that with the
adoption of conceptual Amendment 3, only Section 3 and the new
Section 4 would remain, which would be renumbered.
REPRESENTATIVE ROKEBERG pointed out that the adoption of
conceptual Amendment 3 would require a title change.
CHAIR MURKOWSKI announced that the committee had adopted
conceptual Amendment 3.
Number 1769
REPRESENTATIVE MEYER inquired as to where the dollar amounts for
each type of beverage were derived.
CHAIR MURKOWSKI explained that 10 cents a drink was added to the
existing tax; that was done for all three categories. Chair
Murkowski noted that [the legislature] has no control over the
markup that the industry would impose. This is the tax imposed
when the product leaves the bonded warehouse. Therefore, she
agreed that the retailer may absorb that tax or pass it on to
the consumer.
Number 1829
REPRESENTATIVE HAYES expressed his desire to see a statutory
designation for this new money to be used for alcohol
rehabilitation programs or as a piece in the long-term fiscal
plan. From the testimony, Representative Hayes said he
understood that people don't want this money to go into [the
general fund]. Therefore, he felt it would behoove the [House
Finance Committee members] to use this revenue for alcohol
rehabilitation programs or to openly admit that this revenue
will go towards the long-term fiscal plan.
CHAIR MURKOWSKI pointed out that without an amendment to the
Alaska State Constitution, the legislature can't dedicate
revenue.
REPRESENTATIVE HAYES interjected that there could be a statutory
designation.
REPRESENTATIVE ROKEBERG mentioned that this revenue could be
treated as was the tobacco tax, which was placed in the school
fund that is one of the few remaining pre-statehood dedicated
funds. He related his belief that the tobacco tax was placed
into the school fund largely to garner support for the
legislation. However, this is a tax. He pointed out that this
isn't a tax to increase treatment for those in Alaska or to
enforce a 0.08 blood alcohol level or deal with minors in
possession. He said, "The nexus between our constitution and
our general fund, if we raise this tax, is not there." He
remarked that this bill, even as amended, is extremely
regressive. He said that 300 percent increase in all categories
is too much. It makes no sense from a business standpoint, and
it is a tax.
REPRESENTATIVE ROKEBERG informed the committee that the House
Finance Committee had passed HB 3, which will provide an
additional $40 million in general funds this fiscal year.
Therefore, the money for the alcohol package can be taken from
that as well as money for treatment. He recalled that one of
the argument the committee has heard is the elasticity of
demand, which is that as prices increase, consumption decreases.
However, the committee heard that alcohol prices had increased
to extraordinary amounts when they heard the bootleg bill, HB
132. He related his belief that in the areas where many
problems occur, there is not much elasticity. He didn't believe
that the price elasticity argument worked when speaking of
[alcoholics]. Representative Rokeberg remarked that Alaska's
drinking patterns are a little different from those in the Lower
48. He expressed the need for more treatment and more money for
treatment. However, he has trouble supporting this tax,
although he announced that he would support legislation for
increased taxation on the alcohol industry but not a 300 percent
increase, which is too high. He likened this to the Volstead
Act and the endeavor to prevent the consumption of alcohol.
Number 2065
REPRESENTATIVE ROKEBERG informed the committee that he voted for
the tobacco tax because he didn't believe there was no redeeming
value for tobacco. However, the use of alcohol can have
medicinal and healthful benefits if it used responsibly.
Therefore, the problem in Alaska is that alcohol is abused. He
recalled that in 75 or 80 dry communities in Alaska bootlegging
goes on. In those communities, raising the price will have no
impact. He expressed his concern with the possibility of
shifting alcohol [problems] to drug [problems] because the drugs
are cheaper than the alcohol.
REPRESENTATIVE ROKEBERG reiterated that he would support a
reasonable tax. However, he didn't believe that this bill
embodied a reasonable tax due to the 300 percent increase.
Furthermore, he believes that the industry's testimony has
indicated that it, too, would agree to a modest increase.
Representative Rokeberg pointed out that the information the
committee has received indicates that an inflation-adjusted
amount from the last increase equals about $5.3 million.
Therefore, he said that he would be more comfortable with [a
tax] in that range. In conclusion, Representative Rokeberg
reiterated that he would have to oppose this bill because it is
bad public policy at this time, and furthermore, as a
Republican, he doesn't like taxes.
Number 2149
REPRESENTATIVE HALCRO noted that he didn't disagree with
anything Representative Rokeberg said. However, some of
Representative Rokeberg's comments actually made the case for an
increase in this tax. This tax hasn't been raised since 1983,
18 years, which alone isn't reason to raise the tax. However,
the money that the state spends on alcohol-related problems does
justify an increase in the tax. Furthermore, if there is no
effect on the increase in price, then the point for [increasing
the tax] has been made because [binge drinkers] cost the state
more. He pointed out that if the elasticity has an effect on
underage drinking, it would be beneficial to raise this tax.
REPRESENTATIVE HALCRO said that he understood where some of
these bar owners are coming from because he is in an industry
that was faced with a tax [increase] last year. He said, "It's
not fair for my customers to pay a tax simply so unrelated
people can have the benefits. But the fact is, there's no such
thing as a perfect tax." However, there is the fact that the
state spends more money each year on the cost of alcohol-related
illnesses. He stressed that everyone in the state pays for
these, and thus he didn't believe it is too unfair to ask for an
additional contribution. Even with this tax, Representative
Halcro said he had difficulty believing that anyone would be
driven out of business; he did believe that it would affect
underage drinkers and perhaps even deter them as well as provide
additional revenue to help fund some of the social service
programs that are used to pay for the effects of alcohol. In
conclusion, he emphasized that this is a user tax.
Number 2349
REPRESENTATIVE MEYER inquired as to how much revenue this
legislation, with the new Section 4, would generate.
REPRESENTATIVE ROKEBERG answered that he didn't think it would
be significant and estimated that it wouldn't be more than a
couple hundred thousand dollars a year.
CHAIR MURKOWSKI, in response to Representative Meyer, said that
before the amendment, the Department of Revenue estimated that
the revenue would be between $28 and $30 [thousand].
REPRESENTATIVE MEYER agreed that alcohol creates a lot of costs
to government. However, he believes that 10 percent of the
people are causing 90 percent of the problems related to
alcohol. Therefore, he indicated the need to deal with those 10
percent, which he believes would be dealt with under HB 4.
Frankly, the only way to decrease these costs to society is to
get those with serious drinking problems into treatment.
Therefore, he stated that he favors wellness and therapeutic
courts, and tough DWI (driving while intoxicated) laws rather
than taxation. He did express concern that the tax would effect
[social] drinkers, who aren't the people causing the problem.
He agreed that an increase was needed, but he, too, wasn't sure
that a 300 percent increase was necessary.
TAPE 01-58, SIDE B
REPRESENTATIVE HAYES remarked that the House Finance Committee
will make the actual dollar call. Therefore, he suggested that
people discuss financial concerns with House Finance Committee
members.
REPRESENTATIVE CRAWFORD related his belief that this is a step
in the right direction, because there are many problems caused
by the consumption of alcohol. He emphasized that he concurred
with raising the alcohol tax because he believes it is necessary
for treatment, education, and prevention.
REPRESENTATIVE ROKEBERG said that it's important for people to
realize that if he purchases a bottle at a local liquor store,
75 cents of that will go to the Department of Environmental
Conservation to close down the Red Dog Mine, because where the
money goes can't be controlled. He said that he didn't like
that.
Number 2339
CHAIR MURKOWSKI noted that she has "taken some hits" on the
amount [of this tax]. Therefore, she pointed out that there is
logic behind the number, which has been compromised
considerably. She noted that a Criminal study said that the
number one thing to do would be to raise the excise tax on
alcohol. Chair Murkowski pointed out that alcohol is a legal
drug and there are reasons why it is treated differently than
soda.
CHAIR MURKOWSKI acknowledged what the alcohol industry is doing
in order to be responsible with its product. She did believe
the industry is doing a good job in dealing with a legal drug
that causes people to do dangerous things when they use it
irresponsibly.
CHAIR MURKOWSKI, in conclusion, said those who choose to drink
have an obligation and possible consequences, which may include
a greater financial burden. She recalled a witness who spoke of
the Hickel philosophy of "owner state". That witness reminded
Chair Murkowski that currently everyone is paying the price of
alcohol.
REPRESENTATIVE HALCRO recalled an overriding theme of the
testimony, which was that this tax won't solve the problem. To
that, he emphasized that the tax is to help address paying for
the problem. For example, there is a gas tax that doesn't
prevent potholes but rather goes into a fund to help pay for the
repair of roads. Therefore, although the alcohol tax increase
won't solve all the problems, it will help pay for the costs.
Number 2080
REPRESENTATIVE HAYES made a motion to move CSHB 225 [22-
LS0806\L, Cook, 4/9/01], as amended, out of committee with
individual recommendations and the accompanying fiscal note.
REPRESENTATIVE ROKEBERG objected.
A roll call vote was taken. Representatives Hayes, Halcro,
Crawford, and Murkowski voted to move CSHB 225 [22-LS0806\L,
Cook, 4/9/01], as amended, from committee. Representatives
Meyer and Rokeberg voted against it. [Representative Kott was
absent for the vote.] Therefore, the motion to move CSHB
225(L&C) from the House Labor and Commerce Standing Committee
carried by a vote of 4-2.
REPRESENTATIVE ROKEBERG gave notice of reconsideration of his
vote on HB 225.
REPRESENTATIVE ROKEBERG moved that the committee adjourn.
[HB 225 was held over. It was later determined that notice of
reconsideration cannot be served in a committee, and thus at the
April 18, 2001, hearing CSHB 225(L&C) moved from the House Labor
and Commerce Standing Committee.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
8:11 p.m.
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