Legislature(2003 - 2004)
04/09/2003 03:29 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 9, 2003
3:29 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 234
"An Act relating to brewpubs, and continuing the existence of
the Alcoholic Beverage Control Board; and providing for an
effective date."
- HEARD AND HELD
HOUSE BILL NO. 224
"An Act relating to a tobacco product manufacturer's compliance
with certain statutory requirements regarding cigarette sales;
and providing for an effective date."
- MOVED HB 224 OUT OF COMMITTEE
HOUSE BILL NO. 195
"An Act relating to coverage offered under an individual policy
of health care insurance; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 234
SHORT TITLE:BREWPUBS; ABC BOARD
SPONSOR(S): REPRESENTATIVE(S)MCGUIRE
Jrn-Date Jrn-Page Action
04/02/03 0739 (H) READ THE FIRST TIME -
REFERRALS
04/02/03 0739 (H) L&C, FIN
04/09/03 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 224
SHORT TITLE:CIGARETTE SALES REQUIREMENTS
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
03/28/03 0673 (H) READ THE FIRST TIME -
REFERRALS
03/28/03 0673 (H) L&C, FIN
03/28/03 0673 (H) FN1: ZERO(LAW)
03/28/03 0673 (H) FN2: ZERO(REV)
03/28/03 0673 (H) GOVERNOR'S TRANSMITTAL LETTER
04/09/03 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REPRESENTATIVE LESIL McGUIRE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As sponsor of HB 234, presented the
proposed committee substitute.
GLEN BRADY, President
Silver Gulch Brewing; President
Alaska CHARR (Cabaret Hotel Restaurant & Retailers Association)
Fairbanks, Alaska
POSITION STATEMENT: Testified against the changes for brewpubs
in Sections 2 and 3 of HB 234.
MATT JONES
Moose's Tooth
Anchorage, Alaska
POSITION STATEMENT: Testified in favor of HB 234.
GARY KLOPFER, Owner
Snow Goose Restaurant
Sleeping Lady Brewing Company
Anchorage, Alaska
POSITION STATEMENT: Testified in favor of aspects of HB 234,
advocating removing all production caps for breweries.
BOB KLEIN, Chairman
Alcoholic Beverage Control Board
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Commented on the history of alcohol
industry legislation during the hearing on HB 234.
JUANITA HENSLEY, Special Assistant
Office of the Commissioner
Department of Public Safety
Juneau, Alaska
POSITION STATEMENT: Explained the amendments to HB 234 that
would move the ABC board from the Department of Revenue to the
Department of Public Safety.
PAT DAVIDSON, Legislative Auditor
Division of Legislative Audit
Legislative Budget and Audit Committee
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 234, explained the
recommendations from the most recent legislative sunset audit on
the ABC board.
DOUG GRIFFIN, Director
Alcoholic Beverage Control Board
Department of Revenue,
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 234, explained the
investigation of gambling on licensed premises.
MIKE BARNHILL, Assistant Attorney General
Commercial Section
Civil Division (Juneau)
Department of Law
Juneau, Alaska
POSITION STATEMENT: Presented HB 224 on behalf of the
administration.
JOHANNA BALES, Revenue Auditor
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Testified in favor of HB 224 for the
Department of Revenue; explained that she enforces aspects of
the Tobacco Master Settlement Agreement.
ACTION NARRATIVE
TAPE 03-31, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:29 p.m. Representatives
Anderson, Dahlstrom, Gatto, Rokeberg, Crawford, and Guttenberg
were present at the call to order. Representative Lynn arrived
as the meeting was in progress.
HB 234-BREWPUBS; ABC BOARD
Number 0058
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 234, "An Act relating to brewpubs, and
continuing the existence of the Alcoholic Beverage Control
Board; and providing for an effective date."
Number 0083
REPRESENTATIVE ROKEBERG moved to adopt committee substitute (CS)
for HB 234, Version 23-LS0862\I, Ford, 4/4/03, as the working
document. There being no objection, Version I was before the
committee.
Number 0103
REPRESENTATIVE LESIL McGUIRE, Alaska State Legislature,
explained that HB 234 is a reauthorization of the Alcoholic
Beverage Control (ABC) Board, which regulates the alcoholic
beverage dispensary industry. House Bill 234 extends the sunset
on the board, recognizing that it has served its function well.
The Joint Committee on Legislative Budget and Audit (LB&A)
conducted a recent audit of the ABC board, and one audit
recommendation is incorporated in Section 1. She said this
section amends AS 04.06.110 [Peace officer powers] by removing
language which previously authorized the board to investigate
prostitution, gambling, and other related offenses. She said it
was the position of LB&A that this activity was beyond the scope
of the ABC board.
Number 0232
REPRESENTATIVE McGUIRE noted that Section 2 of HB 234 would
change the amount that brewpubs are allowed to manufacture.
Another provision in Section 3 allows a brewpub, for example,
the Moose's Tooth [in Anchorage], to sell beer in the form of
growlers in quantities of five gallons or less to an individual.
The current law gives an unfair advantage of one business over
another because it states that beer must be brewed on the
premises in order to allow the sale of growlers with food. She
said that must have been an oversight. She said the point of
Sections 2 and 3 is the recognition of a free market. The
sunset provision of the bill will extend the board's life until
June 30, 2006. The legislature has a precedent of extending the
ABC board in three-year increments, requiring another LB&A audit
and legislative action.
Number 0460
REPRESENTATIVE ROKEBERG said its important for committee members
to understand that Section 3 was brought about by an anomaly in
the law that really applies to only one business in Alaska. The
Nineteenth legislature passed a law [creating a type of liquor
license] that was repealed in succeeding years. The brewpub
license requires that the brewing apparatus be on the same
premise as the beverage dispensary license. In this one
instance, the brewery was separate from the licensed premises,
and that has caused a lot of problems. When there was a change
in the growler amount last year, it was probably a drafting
error. This is why Sections 2 and 3 in the CS look so similar,
but there is a slight difference.
Number 0597
REPRESENTATIVE GUTTENBERG noted that Sections 1 and 4 are
addressed in the LB&A audit but questioned why Sections 2 and 3
on brewpubs are not covered in a separate bill.
REPRESENTATIVE McGUIRE said all the policy changes to the ABC
Board are relevant and fit within the title of the bill.
Number 0664
REPRESENTATIVE GATTO questioned if Sections 2 and 3 affect only
one business. He suggested that when the [law] was written, it
didn't address a specific operator, it was written as an idea,
and that the operator and the law finally collided.
REPRESENTATIVE ROKEBERG clarified that Sections 2 and 3 of the
bill are almost identical in affect, on page 2, starting on line
24, subsection (d), that language is unlike the rest of the
statute because of the circumstances. When the legislature
revised the type of license, it grandfathered in several
businesses under those licenses, so when the law was [later]
rewritten, the legislature had to create that special
subsection. He acknowledged that he wrote the language.
REPRESENTATIVE GATTO repeated his question, saying he did not
understand the history of the language.
Number 790
REPRESENTATIVE ROKEBERG explained that the legislature created a
brewpub license in statute, then later created the tavern
license. Six licensees received these tavern licenses. Later,
the legislature prohibited these tavern licenses, but
grandfathered in these businesses, so the legislature had to
write the law around these grandfathered businesses. After
that, the legislature required these businesses to get a
beverage dispensary license to wipe this whole thing out. But
there still remains an anomalous situation under the statute.
He said he has an idea of how to fix the confusion and do away
with all these legal distinctions. He wants to bring fairness
and clarity to the issue.
REPRESENTATIVE McGUIRE responded to Representative Gatto's
question. She said the language in Section 3 was specifically
drafted on the advice of a particular lobbyist to include a
specific business. She said she looks at the issue as a policy
maker. If the law is going to be fair, it ought not be based on
one small technicality of one business. The language [in the
law] was drafted to exclude that business from the marketplace.
Number 0988
REPRESENTATIVE ROKEBERG clarified that the existing law was
drafted to [mitigate] the problems of the business. The
legislature was changing its policy, and it had to grandfather
those businesses in so they could continue to operate. He said
her decision to remove sections from the law is a policy call.
REPRESENTATIVE GUTTENBERG said the law may have been directed at
one business, but when the playing field changes, other
businesses come into play, and the competitive nature of the
market changes.
REPRESENTATIVE McGUIRE said she favors businesses competing for
ideas and products. She does not want to craft legislation that
excludes or provides unfair advantage to one business over
another.
Number 1077
REPRESENTATIVE CRAWFORD noted that the Department of Public
Safety delivered amendments before the meeting, and he brought
the amendments to the attention of the sponsor.
REPRESENTATIVE McGUIRE said she will consider the department's
amendments and will respond at the committee's next meeting when
the bill is heard again.
Number 1184
GLEN BRADY, President, Silver Gulch Brewing; President, Alaska
CHARR (Cabaret Hotel Restaurant & Retailers Association),
testified against Sections 2 and 3 of HB 234. He described the
brewpub issue as a nuisance issue; it comes up every year. He
said he agreed with the sponsor's statements about the value of
the Alcoholic Beverage Control Board and the significance of
Sections 1 and 4 in HB 234. He reviewed the three-tier system
in Alaska law which heavily regulates the manufacture,
distribution, and retail sale of alcoholic beverages. He said
businesses in the industry support the board as an appropriate
mechanism to collect taxes and enforce regulations. But by
integrating two tiers of the system - production and retail -
the legislature is creating the potential for the "tied house"
system in Britain, he warned. He said he favors competition,
however, AS 04.11.450 [Prohibited financial interest]
specifically excludes him, a brewery owner, from having a
financial interest in a retail establishment. The law does not
permit him to do what these two [brewpub] licensees are trying
to do. He said it's incorrect to say that HB 234 levels the
playing field. He said he chose to be a brewery; he could have
chosen to be a brewpub; they are fundamentally different
business operations. He described Moose's Tooth and Glacier
Brewhouse as great businesses, that between the two of them,
have 500 employees. He explained that he produces as much beer
as both of them and has three employees. That should underline
the fundamental difference of the two types of businesses, he
said. He said there's enough room in the marketplace for
breweries and brewpubs alike. But HB 234 allows a brewpub to
act like a brewery, which is inappropriate for several reasons,
he said. He added that it's unfair competition; it shortcuts
two tiers of the three-tier system; it will make regulation of
beverage alcohol more difficult; and it benefits two operators
to the exclusion of all others. Even other Anchorage brewpubs
are not in favor of this bill, he said. He asserted that the
entire industry - package store owners, bar owners, restaurant
owners, breweries, and other brewpubs - are not in favor of HB
234. It is special interest legislation at its worst, he said.
He said his letter to the committee lays out a complicated issue
that has a long history and many facets. The situation has many
significant ramifications that aren't obvious in the simple
deletion of a section [of the law].
Number 1437
REPRESENTATIVE ROKEBERG said this is the old ABC board Christmas
tree battleground. He referred to AS 04.11.450. He said he'd
like to fix this law, once and for all. He said it might be
easier to fix the law and allow Mr. Brady as a brewer to also
own a restaurant.
MR. BRADY replied that he and other brewery owners formulated
their business plans, found capital and took risk, and chose to
develop a different type of business. He said he does not want
to be in the bar and restaurant business; it's an entirely
different business. That provision is the framework for the
three-tier system.
REPRESENTATIVE ROKEBERG said that during the "tavern wars," the
clause was added that restricted a brewery's ability to enter
into any other business. The law established a different type
of license which has since been taken off the books. Now the
issue is brewpubs and how can they do wholesale business, he
said. The more produce they sell wholesale, the more they
compete with the breweries. He summarized Mr. Brady's position
that because of the three-tiered system, he should be treated
differently because he's a wholesale manufacturer and the
brewpubs are retailers.
Number 1587
MR. BRADY clarified that his issue is not the brewpub's
production cap. When legislation raised the production cap from
75,000 to 150,000 gallons, the stated purpose was to meet the
demand of the on-premise pub. He said he believes that was a
misrepresentation of the brewpubs' intentions. His issue is not
how much beer brewpubs sell in their pubs; he said they should
be allowed to sell as much beer as they can within existing
regulations in their retail facilities. The crux of the issue
has always been, why are the brewpubs competing with the
breweries [in the wholesale market]. To allow breweries to open
restaurants is not a true compromise.
Number 1645
REPRESENTATIVE ROKEBERG said he is considering removing that
distinction [between brewpubs and breweries] thereby allowing
breweries to have retail premises. He also noted the
possibility of doing away with all caps and limitations. For
three of the last four years, the brewpubs have come back to the
legislature, and he said he's tired of it.
Number 1691
REPRESENTATIVE McGUIRE said that it's important that these
businesses keep coming back. If a citizen believes a policy is
wrong, the person will continue to return to lawmakers to get
the situation changed. She clarified that this is not special
interest legislation; it falls within her right as a lawmaker to
look at existing state policies. She said she is interested in
Representative Rokeberg's idea of a compromise which would
eliminate the distinction [between brewpubs and breweries]. The
policy arguments behind the law are not going to go away, she
said. She objected to statements about the other parties'
motives. She said she never heard the two brewpubs promise that
if last year's law was passed, they would be satisfied.
MR. BRADY explained that he competes with breweries in an
extremely competitive marketplace. Railway Brewing Company, one
of the four licensees with a brewery-restaurant combination
license, went out of business a few years back. The Moose's
Tooth bought that equipment at auction. Last year, when the
issue was raising the production cap, Moose's Tooth could have
started another brewpub attached to its other dispensary license
and doubled its own cap. However, he stated, it's cheaper to
hire a lobbyist and change the law than it is to comply with
existing law.
Number 1867
REPRESENTATIVE McGUIRE stated that government should not create
barriers so that businesses have to hire lobbyists to overcome
the law so they can participate in the marketplace. She said
the ABC board does have an important role, and regulations
regarding safety matters are important. The time for this
distinction [between brewpubs and breweries] is here and gone.
MR. BRADY said it boils down to the value of the three-tier
system.
Number 1915
REPRESENTATIVE GATTO confirmed with Mr. Brady that when he
started his business, there was a set of laws in place, which
have since changed and which have created a disadvantage for him
and other breweries. He said that HB 234 takes away the
protections that were in place for the breweries.
REPRESENTATIVE McGUIRE responded that the legislature changes
laws all the time. She said that legislators are policymakers;
times change, and the conditions change in all types of
industries and occupations. That's why one legislature cannot
bind a future legislature.
REPRESENTATIVE GUTTENBERG asked what happens to the market if HB
234 passes.
Number 2010
MR. BRADY replied that he is out in the market competing for
retail space on shelves and for tap handle space in bars and
restaurants. That is how he derives his income. House Bill 234
allows a brewpub to go into the marketplace in an unrestricted
manner and subsidize the sale of its beer. He said he cannot
afford to give beer away because that is his [profit] margin; he
has no other income to offset those marketing expenses. A
brewpub is primarily a retail establishment; it has income from
other sources - food service, on premise sales. When brewpubs
go into the marketplace, they go in with a tremendous advantage
because they can offset this expense and call it a marketing
expense because they derive their income from retail sales.
Having tap handles out in the market is a very effective
marketing tool. He said he shouldn't be competing with them in
that arena. If HB 234 doesn't pass, its not going to hurt
brewpubs, but it will hurt him and other brewery owners
tremendously, he said.
REPRESENTATIVE ROKEBERG asked Mr. Brady if the brewpubs will be
hurt if they don't get a raise in their caps.
MR. BRADY said that they have thrived under previous laws; he
said he thinks they would continue to thrive.
REPRESENTATIVE ROKEBERG asked him as a representative of CHARR
for the group's opinion. He said that the restaurant license
was added [to state law] in 1996, but now the legislature has to
look at the beverage dispensary license too because of brewpubs.
MR. BRADY replied that brewery restaurants are in competition
with holders of beverage dispensary licenses. He said CHARR
members have seen the value of their dispensary licenses eroded
significantly by other legislation. It's tough times for
everybody in the industry, he said.
Number 2190
MATT JONES, Moose's Tooth, Anchorage, explained that in 1996 he
received a restaurant license and a brewery license. At that
time, he could have purchased any number and combination of
restaurant licenses and brewery licenses. He said there were no
production caps on brewing beer, and there were no restrictions
on either wholesale or retail sales. After he received his
license, this changed. His company was frozen where it was; it
could only own one restaurant and one brewery, and from that
point on, there's a long history. He said from the very
beginning, his business used the proper channels and applied for
and was awarded the proper licenses that had no restrictions on
wholesale or retail. The law was changed on him. Currently he
owns a brewpub that consists of a retail side - the restaurant -
and the brewing side. Before legislative changes last year, he
had a 75,000-gallon production cap with no restrictions. Last
year, legislation changed the production cap from 75,000 to
150,000 gallons, basically doubling it, but froze the wholesale
level at the 2001 figure, which for the Moose's Tooth was 15,000
gallons. The legislature doubled his production cap but locked
him in at his 2001 figures, which was about 10 percent of what
he could produce. His company wants the legislature to allow
the Moose's Tooth to sell more on the wholesale market.
Generally, if a [another] state has a production cap on a
brewpub, it lets that business owner decide whether that product
is sold wholesale or retail.
Number 2353
MR. JONES discussed the issue of growlers. In his business, the
restaurant and the brewery are separated by some distance. The
original brewpub language allowed him to sell beer to a person
on the premises, a retail transaction.
TAPE 03-31, SIDE B
MR. JONES said when the law was rewritten, it prohibited his
company from selling quantities of beer out of his retail
[restaurant], the Moose's Tooth in midtown Anchorage; he could
only sell beer from the brewery at Ship Creek. This puts his
business at a disadvantage to other brewpubs. The growler
clause in HB 234 attempts to address this issue.
MR. JONES addressed the allowable level of wholesale activity.
He said he is asking the legislature to return to the earlier
law, allowing each brewpub to decide what it does with its
production cap, whether wholesale or retail.
CHAIR ANDERSON handed the gavel to Representative Rokeberg.
Number 2317
REPRESENTATIVE GUTTENBERG asked Mr. Jones about when the state
required him to have an alcohol beverage license. Didn't Mr.
Jones argue then that he didn't want to be a bar, that he wanted
to be a brewery or a different type of business?
MR. JONES replied that the Moose's Tooth has a full liquor
license; it can sell hard liquor under a beverage dispensary
license. However, the restaurant still only serves beer and
wine. When it first opened, he wanted to run a pizzeria, sell
beer and wine, and brew his own beer. He said the Moose's Tooth
is far from a [typical] bar. Food along with beer is the
primary formula for his business.
NUMBER 2260
REPRESENTATIVE ROKEBERG asked if the timing of the opening his
business was unfortunate.
MR. JONES confirmed that four or five companies in Anchorage
obtained restaurant and brewery licenses at the same time, but
his is the only business where the brewery is located apart from
the restaurant. He explained that occurred in order to comply
with Anchorage municipal code that states that only incidental
distribution can be done out of the business; moving kegs must
be located in an industrial area. So he located the brewery in
Ship Creek in order to comply with the municipal code.
Number 2206
REPRESENTATIVE ROKEBERG pointed out that Mr. Jones, because of
the separation of his restaurant and brewery, is a victim of the
laws that evolved over the years. That's why the legislature
drafted legislation that grandfathered his situation, to do as
little harm to his business as possible. He noted that the
grandfathering law was drafted after his situation occurred, not
in [advance].
Number 2167
GARY KLOPFER, Owner, Snow Goose Restaurant, Sleeping Lady
Brewing Company, said he is testifying because this issue
continues to come up, and the bills that pass don't clear it up;
they just make it worse. Years ago, he decided to start with a
restaurant license and a brewery license. Part of that decision
was financial; he didn't want to run a bar because buying a
liquor license is expensive for a new business. Several other
businesses followed suit. He attempted to open his
restaurant/brewery, then the legislature stepped in, more out of
fear than fact, to stop this type of license from existing
anymore. All of these businesses were stopped in their tracks.
So every year, when the legislature makes changes, its usually
against one party or another, which is unfair, he noted. He
said he favors going back and making the field level for
everybody, so that everybody can compete; it's unfair now. His
friends who own breweries - if they want to run a beer garden in
the summer and sell hamburgers, they can't do it. They're
restricted from doing that by [statute]. That's unfortunate, he
said. Then they look at him, who can sell as many hamburgers as
he wants and can also wholesale his beer. Its not fair, he
said.
Number 2190
MR. KLOPFER said that raising the production cap is ridiculous.
If the parties that operate breweries are successful, why
wouldn't the state want them to continue to grow, he asked. He
recommended removing the 150,000-gallon cap completely. He
suggested that breweries be allowed to buy any other license
they desire, so they can compete. Anytime the legislature
creates artificial boundaries, somebody's toes get stepped on,
he said. He said these businesses are good for the state and
the cities; they all employ people. The legislature should
encourage business, not discourage it, he added.
Number 1967
REPRESENTATIVE ROKEBERG said he is trying to find a long-term
solution. He confirmed that Mr. Klopfer has a brewpub with a
beverage dispensary license and that he's covered by the gallon
restrictions on his wholesale and retail sales. If the
legislature chose to change the economic interest prohibitions,
it would still have to deal with the gallon caps to make it a
completely level playing field. That would allow brewpubs to
produce as much as a brewery.
MR. KLOPFER said he could live with that, providing that the
breweries could also do the same thing, buy a restaurant license
and have a beer garden, or sell liquor if they want. It would
be unfair if he could do it but the breweries couldn't.
REPRESENTATIVE ROKEBERG said changing the economic interest
provision in current law [AS 04.11.450, Prohibited financial
interest] would help Mr. Jones but it wouldn't help Mr. Klopfer
regarding the issue of production caps. He surmised that to
make the playing field truly level, the legislature would have
to do both: remove the productions caps and remove the economic
restrictions. He added that would be difficult to do
politically.
Number 1891
REPRESENTATIVE GUTTENBERG asked Mr. Klopfer if there is any
restriction preventing him from opening another brewery and
using the same brand name.
MR. KLOPFER replied yes, because under current law, once he owns
a liquor license, it's illegal to buy a brewery license.
REPRESENTATIVE ROKEBERG pointed out that this is an example of
the economic interest barrier he's been talking about.
MR. KLOPFER said that's correct. The state could require that
he buy another license - and make more money on the additional
license.
Number 1837
REPRESENTATIVE CRAWFORD recalled that during the debate last
year on this law, the legislature was concerned about opening up
[the field] to competition from Miller or Budweiser that might
buy large restaurants or beer gardens, thereby damaging Alaska's
homegrown businesses. Is that still part of the debate, he
asked.
MR. KLOPFER replied that he's not sure that national competition
was the argument. The issue was more that the legislature
create a level playing field for Alaskans [in the brewing
business]. He said the real crux of the issue was when alcohol
- the beverage dispensary license - entered the picture. He
said he thinks its against federal statutes for Budweiser or
Miller to own liquor licenses. That used to be the Chinese Wall
that separated the different licenses, he said. This bill
essentially states that brewpubs are also de facto breweries,
which means that brewpubs own beverage dispensary licenses and
breweries too.
Number 1753
REPRESENTATIVE CRAWFORD said the 150,000-gallon limit was small
enough that Miller and Budweiser and the other large national
beers would be excluded from coming in and competing against
Alaska's small homegrown breweries and brewpubs. If its not
part of the debate anymore, perhaps the legislature needs to
open this issue of production limits. He said he is looking for
suggestions.
MR. KLOPFER said he doesn't understand why restaurant/brewery
combinations have been outlawed. If businesses in Homer or
Girdwood have a successful microbrewery operation, it's
ludicrous for the state to say they can't have a beer garden or
sell hamburgers during the tourist season.
Number 1690
BOB KLEIN, Chairman, Alcoholic Beverage Control Board,
Department of Revenue, referred to Representative Crawford's
comment about the past debate involving national breweries. The
restriction on breweries against owning other licenses precedes
the entire brewpub debate or any legislation, he said. The
restriction was instituted initially to prevent what is known in
the industry as "tied-houses." An example of a "tied-house"
would be Budweiser opening retail establishments throughout the
state and only allowing their product to be sold there.
Excesses have occurred in the history of the industry, he said,
and there was an attempt in Title 4, [Alcoholic Beverages,] of
state law to prevent that from happening in Alaska. He said the
ABC board prefers not to take a position on the brewpub issue
and will carry out the legislature's law through regulations.
He acknowledged that the brewpub issue is a very confusing one.
Trying to resolve it through regulation by the board is the
wrong approach, he said.
MR. KLEIN explained that the ABC board met last week and
unfortunately, the board had an earlier version of HB 234 that
did not contain the committee substitute's Section 1 [that
removes certain police powers from the board]. He said the
board disagreed with the original recommendation by LB&A that
ABC staff should not investigate violations of gambling or
prostitution laws on licensed premises. Basically, he said, the
ABC board is there [visiting the licensed facilities]. It has
demonstrated that it can and does a good job, and if the ABC
board doesn't do it, it just doesn't get done, he said. It's
not as if the ABC board is enforcing gambling laws throughout
the state; it's only on licensed premises.
MR. KLEIN said that the board is pleased to be extended to 2006,
per Section 4 of HB 234.
Number 1560
REPRESENTATIVE ROKEBERG reiterated that the ABC board does not
agree with Section 1 of HB 234, [which removes the investigation
of prostitution and gambling from the board' purview].
Regarding the economic interest prohibitions, AS 04.11.450, he
asked Mr. Klein to offer his personal opinion on how these
prohibitions are part of the three-tiered system.
Number 1514
MR. KLEIN said the issue is the public interest being served by
not allowing tied-houses in the state, by not allowing large
breweries to cross that line. He said if the state is concerned
about the big guys coming in and exercising undo influence, then
perhaps removing the restriction of cross-ownership from
breweries and or brewpubs that produce less than a given amount
might answer all the questions. He said he sees no objection to
Silver Gulch Brewing owning a restaurant; it makes sense. When
the whole brewpub issue came before the ABC board, members
questioned whether it's important where a retail product was
manufactured. He said the elements of alcoholic beverage
control are: is it legally obtained, is it sold in a controlled
environment, and is it sold to the proper customers, in other
words, not to minors or inebriates. The rest of it should be a
level playing field.
MR. KLEIN, at the request of Representative Rokeberg, explained
that a "tied-house" dates back to England when there were
excesses by breweries and attempts to control the marketing and
pricing of products. He answered questions from Representative
Gatto about the components of the three-tiered system. He said
the system begins with the producer - or the distiller, brewer,
or importer. The second tier is the wholesaler, and the third
tier is the retailer, which consist of bars, package stores, and
restaurants. The ABC board deals with the industry as an
entity.
REPRESENTATIVE GATTO asked if there are any problems if the
producers, wholesalers, and retailers are the same entity.
MR. KLEIN said that would not be a problem for the ABC board.
Number 1344
REPRESENTATIVE CRAWFORD asked if Mr. Klein could comment on the
amendments proposed by the Department of Public Safety.
MR. KLEIN said he had not seen the amendments.
Number 1302
JUANITA HENSLEY, Special Assistant to the Commissioner, Office
of the Commissioner, Department of Public Safety, referred to
the governor's Executive Order No. 110, now before the
legislature. This executive order moves the ABC board from the
Department of Revenue to the Department of Public Safety. After
reviewing the recommendations of the legislative audit, the
department proposed some changes through amendments to HB 234,
basically to make it easier for the department to assist the
industry and the board. The first change would place the board
and its employees in the Department of Public Safety. She noted
that the ABC board has not seen these amendments, and she
apologized that the department has not had the chance to talk to
the board.
Number 1205
MS. HENSLEY said another change would add two additional members
to the board, the commissioner of the Department of Public
Safety and the commissioner from either the Department of
Revenue or the Department of Health and Social Services, since
they deal with alcohol issues. The terms of these members would
last as long as the tenure of the commissioner. The third
change is to have the director of the ABC board serve at the
pleasure of the governor, as is the case with many other Alaska
boards and commissions. The final change deals with removing
the investigation of prostitution and gambling violations from
the board's purview. She said that prostitution and gambling
issues involving alcohol establishments certainly should be
reviewed by the investigators, but it's a process that should
include vice cops. The department would work directly with the
ABC investigators, who would work closely with local police or
the Alaska State Troopers. She said the department asked the
committee to consider the proposed amendments, all or in part.
Number 1051
REPRESENTATIVE GATTO commented that HB 234 is becoming an
omnibus bill.
MS. HENSLEY, in response to a question by Representative
Rokeberg, said the legislature must act on the executive order
by a resolution before May 5. The effective date of the
transfer from the Department of Revenue to the Department of
Public Safety is July 1.
REPRESENTATIVE ROKEBERG noted that there was no recommendation
in the legislative audit to place the commissioners of the
Departments of Public Safety or Revenue on the ABC board.
Number 0981
MS. HENSLEY noted that other boards and commissions include
department commissioners. She stated that there was a reference
in the audit to the Alaska Criminal Justice Assessment
Commission recommendation [in its May 2000 report] to add two
more members to the board. Since the board would be placed in
the Department of Public Safety, it would be good to have the
commissioner serve on the board, she said.
REPRESENTATIVE ROKEBERG commented that the ABC board is quasi-
judicial in nature and not like a typical board. He said he
doesn't agree with adding commissioners to the board.
REPRESENTATIVE GUTTENBERG questioned the amount of time a
commissioner has available to serve on such a board and noted
that the amendment does not provide for the commissioner's
designee to serve in the commissioner's place.
MS. HENSLEY suggested changing the department's amendment to
include "commissioner or commissioner designee."
Number 0869
REPRESENTATIVE ROKEBERG confirmed that increasing the number of
members on the board increases the number required for a quorum.
He asked why the department objects to ABC investigators acting
on illegal activities.
MS. HENSLEY replied that they are peace officers but not fully-
commissioned officers.
REPRESENTATIVE GUTTENBERG asked if cases have been dismissed
because of improper procedures by the investigators.
MS. HENSLEY said she did not know. She said this move of the
ABC board from the Department of Revenue to the Department of
Public Safety would align enforcement functions within state
government. The Department of Public Safety enforces the same
alcohol laws.
Number 0677
PAT DAVIDSON, Legislative Auditor, Division of Legislative
Audit, Legislative Budget and Audit Committee, Alaska State
Legislature, stated that the audit that was conducted [on the
ABC board] recommended a three-year extension; a four-year
extension is the rule of thumb [for most boards]. The audit
identified numerous areas of needed improvements, and so
recommended a three-year extension so that there can be timely
follow-up. Some of the issues are operational in nature and
some, addressed in the committee substitute to HB 234, are
statutory in nature. When the legislature directed the board to
investigate gambling and prostitution, it substantially
increased the mission of the ABC board, but the funding did not
increase. She said the focus of the board shifted away from
regulatory actions to enforcement actions. The board was not
issuing timely notices of violations. The auditors determined
that the original mission of the ABC board was being hampered by
this expansion. The audit recommended the legislature
reevaluate whether it wanted the board to do this kind of work.
The executive order that moves the board into the Department of
Public Safety aligns it more closely with law enforcement. The
investigator could alert law enforcement officials to suspicious
activities and then return to other work, for example, making
sure that licensees are not selling alcohol to minors. The
audit concluded that the gambling and prostitution
investigations were diluting the focus of the ABC board, she
said.
Number 0635
MS. DAVIDSON discussed the audit's second recommendation
regarding the increase in the number of members on the board.
During the sunset period, the audit noted that there was a
problem keeping members on the board and getting them appointed
through the governor's office. This five-member board is
particularly structured between industry and public members.
When the new appointments or reappointments are not timely, that
balance is affected and the board can't get its work done in a
timely manner, she said. The Alaska Criminal Justice Assessment
Commission made 21 alcohol recommendations, and two were
addressed to the ABC board. The recommendations proposed
increasing members of the board, one from the public health or
medical community, and the second from law enforcement. The
commission stated that having those two additional points of
view on the board would better protect the public's interest.
So that would increase the board to seven members: two industry
members, three public members, and two additional public members
with a particular focus.
Number 0407
DOUG GRIFFIN, Director, Alcoholic Beverage Control Board,
Department of Revenue, said the board has not been consulted or
briefed on the amendments from the Department of Public Safety.
He said he was not prepared to comment on them.
REPRESENTATIVE ROKEBERG explained that Chair Anderson intends to
hold HB 234 over for additional consideration.
Number 0375
MR. GRIFFIN explained that the legislature gave the ABC board
the task of investigating gambling and prostitution activities
[on licensed premises] four years ago. He said that the ABC
board has done this work historically. Almost all the gambling
cases on licensed premises over the last 25 years have been
investigated by ABC staff. He said the cases brought forward by
ABC investigators are not all prosecuted, not because of poor
investigation work, but because the district attorney's (DA)
office makes choices every day about resources and whether they
want to pursue a gambling case. Gambling is a low level,
victimless crime. Sometimes the DAs refuse a criminal
prosecution because they know that the ABC board can take
administrative action to suspend or fine a licensee for this
activity. Even for administrative violations, the penalties can
be severe. He said the Department of Law has noted that these
investigations fall outside the ABC board's statute, even though
it is an activity done on licensed premises. So the ABC board
needs a statutory change to allow it to do things like legally
serve a search warrant. The gambling cases are not complex; if
they are complex, ABC staff bring in other law enforcement
personnel. Most of the cases don't interest the local law
enforcement or State Troopers; they have higher priorities.
Number 0186
MR. GRIFFIN stated that a licensee who allows gambling gains an
unfair advantage over someone who follows the law. Gambling is
clearly an issue of competition between licensed premises at the
retail tier. The authority to do investigations has not added
to the ABC's burden, he said; it actually makes legal an
activity which the ABC board has historically done. If the ABC
board doesn't do it, its not going to get done, he stated. The
ABC board really does object to this audit recommendation. The
ABC board is very likely to come across gambling activities in
the course of doing other work. Staff know the bartenders, have
the contacts, get the tips. It was asked whether we have
dropped the ball or lost a case because we're inept at doing
this. We haven't, you won't be able to find it. It's a very
good question. The audit attempts to keep the ABC investigators
focused entirely on administrative matters.
TAPE 03-32, SIDE A
Number 0010
MR. GRIFFIN continued that there's a lot of low-level
misdemeanor activity that is appropriate for the ABC board to
address. "We are addressing it, we have historically addressed
it, and I think we should be able to continue to address it," he
said. He added that the ABC board supports the [sunset]
extension in HB 234. He said the board is functioning as it was
designed to function and is doing a very good job. He noted
that the legislative auditor sent questionnaires to various user
groups. He invited members to review the responses that came
back from the board's clients - from police departments, from
licensees, and from community councils. He said those responses
clearly demonstrate that the board is doing a good job for the
citizens.
Number 0149
REPRESENTATIVE ROKEBERG asked if he preferred a four-year sunset
extension to a three-year extension.
Number 0162
MR. GRIFFIN said yes. He said he agreed with the auditors that
some operational things needed improvement - upgrading the
database and tightening office procedures. He said the board is
working on those and will have them addressed in short order. A
lack of funding and staff turnover are partly responsible, he
said. Moving the board to the Department of Public Safety will
involve some very major changes. The ABC board is an
independent board and quasi-judicial. He expressed concern
about diluting the board's power and undermining its unique
nature and reasons why it was created.
REPRESENTATIVE ROKEBERG asked if he had any comments on the
gallonage issue.
Number 0307
MR. GRIFFIN said he started work as the director about the time
this issue started. There's no question that it has been very
frustrating for legislators and for breweries. It's frustrating
that the players haven't been able to come up with quite the
right solution. Everyone has his or her own definition about
what a level playing field is, he said. He added that he hopes
the legislature can find an equitable solution and put the issue
to rest, once and for all.
Number 0397
REPRESENTATIVE ROKEBERG announced that HB 234 will be held over
for future consideration.
HB 224-CIGARETTE SALES REQUIREMENTS
Number 0450
REPRESENTATIVE ROKEBERG, acting chair, announced that the final
order of business would be HOUSE BILL NO. 224, "An Act relating
to a tobacco product manufacturer's compliance with certain
statutory requirements regarding cigarette sales; and providing
for an effective date."
MIKE BARNHILL, Assistant Attorney General, Commercial Section,
Civil Division (Juneau), Department of Law, testified on behalf
of the administration, presenting HB 224. He explained that the
bill helps the state protect its revenues derived under the
Master Settlement Agreement (MSA). Alaska and 45 other states
entered into the MSA with the tobacco manufacturers in 1998.
MR. BARNHILL explained that under the settlement agreement,
Alaska's revenues are reduced in certain circumstances. To
avoid those reductions, Alaska enacted an NPM (non-participating
manufacturers) statute, AS 45.53, in 1999, and actively enforces
the statute. Unfortunately, he stated, it's difficult to
enforce the statute because the tobacco manufacturer that is
failing to comply may be a small manufacturer located in a far-
flung jurisdiction, such as India or the Philippines. Alaska
has, on occasion, filed suit against a tobacco manufacturer in
India, hiring a process server to serve the summons and
complaint in India, and has ultimately obtained a default
judgment. But that's the difficult way of [enforcing the
statute], he said.
Number 0575
MR. BARNHILL stated that in 2001, Alaska enacted AS 45.53.145
[Notification of noncompliance; confiscation of noncomplying
cigarettes], and other states followed suit. Last summer, the
National Association of Attorneys General set up a working group
to design uniform legislation that all states could enact, and
House Bill 224 is the product of that [model legislation].
MR. BARNHILL stated that HB 224 creates a directory of [tobacco
manufacturing] companies that have complied, either by signing
onto the Master Settlement Agreement or by depositing the
required amounts of escrow under AS 45.53. If the tobacco
manufacturers certify that they have [deposited the required
escrow], they get on the list; companies need to certify
annually. Their cigarettes can then be sold in Alaska. House
Bill 224 also provides for penalties for noncompliance. It
provides a process by which the Department of Law can serve a
summons and complaint against a tobacco manufacturer that has
failed to comply, not by hiring a process server and serving in
India, as Alaska has done in the past, but by serving the
complaint on the commissioner of the Department of Community and
Economic Development.
Number 0685
REPRESENTATIVE DAHLSTROM asked how much is the escrow from a
[nonparticipating manufacturer] tobacco company.
MR. BARNHILL replied that it changes every year, but in 2001,
the escrow was approximately 1.5 cents per cigarette.
Number 0703
REPRESENTATIVE ROKEBERG asked what he knew about the ability of
Altria Group [the parent company of Philip Morris] to pay [money
owed under the Master Settlement Agreement]. He also asked the
ramifications to Alaska's budget if Philip Morris does not pay.
MR. BARNHILL said he hasn't seen the confidential financial data
about Altria Group's ability to pay. He said Alaska is
expecting a [tobacco settlement] payment next week of $17.6
million, of which Philip Morris would pay 50 percent. Because
the State of Alaska securitized 80 percent of these revenues,
the ultimate impact to the general fund would be a loss of $1.7
million if Altria Group does not pay.
Number 0797
JOHANNA BALES, Revenue Auditor, Department of Revenue, explained
that she currently runs the tobacco tax program. She also
enforces certain provisions of the Master Settlement Agreement.
She said HB 224 will definitely be helpful in enforcement
responsibilities, especially with foreign manufacturers that are
very difficult to track down. This legislation is extremely
important, and she stated that the department supports it.
Number 0884
REPRESENTATIVE ROKEBERG, noting no additional witnesses, closed
the public hearing on HB 224.
Number 0888
REPRESENTATIVE DAHLSTROM moved to report HB 224 out of committee
with individual recommendations and the two accompanying zero
fiscal notes. There being no objection, HB 224 was reported
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
5:17 p.m.
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