Legislature(2003 - 2004)
04/02/2004 03:35 PM House L&C
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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 2, 2004
3:35 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Carl Gatto, Vice Chair
Representative Nancy Dahlstrom
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 426
"An Act relating to the levy and collection of an assessment on
certain tourism-related and recreation-related goods and
services, to tourism marketing contracts, and to vehicle rental
taxes; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 540
"An Act relating to workers' compensation insurance rates; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 488
"An Act relating to actionable claims against state employees;
relating to the state's defense and indemnification of its
employees and former employees with respect to claims arising
out of conduct that is within the scope of employment; amending
the Public Employment Relations Act regarding claims against the
state or state employees; and providing for an effective date."
- MOVED CSHB 488(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 502
"An Act relating to dispensing opticians and dispensing optician
apprentices."
- MOVED HB 502 OUT OF COMMITTEE
HOUSE BILL NO. 542
"An Act relating to specialty construction contractors and to
construction contractor exemptions."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 426
SHORT TITLE: TOURISM & RECREATION ASSESSMENT/CAR TAX
SPONSOR(S): REPRESENTATIVE(S) KOTT
02/04/04 (H) READ THE FIRST TIME - REFERRALS
02/04/04 (H) EDT, L&C, FIN
02/12/04 (H) EDT AT 10:00 AM CAPITOL 120
02/12/04 (H) Heard & Held
02/12/04 (H) MINUTE(EDT)
02/17/04 (H) EDT AT 10:00 AM CAPITOL 120
02/17/04 (H) -- Meeting Canceled --
03/16/04 (H) EDT AT 5:15 PM CAPITOL 120
03/16/04 (H) Moved CSHB 426(EDT) Out of Committee
03/16/04 (H) MINUTE(EDT)
03/18/04 (H) EDT RPT CS(EDT) NT 5DP 1NR 1AM
03/18/04 (H) DP: DAHLSTROM, KOTT, CISSNA, MCGUIRE,
03/18/04 (H) HEINZE; NR: CRAWFORD; AM: KOHRING
04/02/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 540
SHORT TITLE: WORKERS' COMPENSATION INSURANCE RATES
SPONSOR(S): LABOR & COMMERCE
03/22/04 (H) READ THE FIRST TIME - REFERRALS
03/22/04 (H) L&C
03/31/04 (H) L&C AT 3:15 PM CAPITOL 17
03/31/04 (H) <Bill Hearing Postponed to Fri. 4/2/04>
04/02/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 488
SHORT TITLE: CLAIMS AGAINST STATE EMPLOYEES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
02/16/04 (H) READ THE FIRST TIME - REFERRALS
02/16/04 (H) L&C, JUD
03/01/04 (H) L&C AT 3:15 PM CAPITOL 17
03/01/04 (H) Heard & Held <Assigned to Subcmte>
03/01/04 (H) MINUTE(L&C)
04/02/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 502
SHORT TITLE: DISPENSING OPTICIANS: BOARD & REGULATION
SPONSOR(S): REPRESENTATIVE(S) HOLM
02/16/04 (H) READ THE FIRST TIME - REFERRALS
02/16/04 (H) L&C, HES
03/31/04 (H) L&C AT 3:15 PM CAPITOL 17
03/31/04 (H) Heard & Held
03/31/04 (H) MINUTE(L&C)
04/02/04 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
SUE STANCLIFF
House Majority Office
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 426 on behalf of Speaker Kott,
sponsor of the bill.
CHIP THOMA
Juneau, Alaska
POSITION STATEMENT: Testified in opposition to HB 426.
JOSHUA ADAMS, Manager
Alaska Hotel and Bar
Juneau, Alaska
POSITION STATEMENT: Testified in opposition to HB 426.
BETTYE ADAMS, Owner
Alaska Hotel and Bar
Juneau, Alaska
POSITION STATEMENT: Testified in opposition to HB 426.
MIKE WINDRED, Director of Operations
Alaska Travel Adventures (ATA)
Juneau, Alaska
POSITION STATEMENT: Testified in favor of HB 426.
DENNIS McDONNELL
ERA Helicopters
Anchorage, Alaska
POSITION STATEMENT: Testified in favor of HB 426.
SCOTT REISLAND, Owner
Denali Grizzly Bear Park
Fairbanks, Alaska
POSITION STATEMENT: Testified in favor of HB 426.
RON PECK, President and Chief Executive Officer
Alaska Travel Industry Association (ATIA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 426.
ERIC DOWNEY, Member
Board of Directors
Alaska Wilderness Recreation & Tourism Association (AWRTA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 462, but noted
concerns as well.
DAVE KARP, Vice President and Chief Operating Officer
Hawaiian Vacations
Anchorage, Alaska
POSITION STATEMENT: Testified that HB 426 is a step in the
right direction.
KAREN ROGINA, President/CEO
Alaska Hospitality Alliance (AHA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of the concept for a
broad-based hospitality and visitor industry self-assessment to
be used exclusively for tourism marketing.
CRAIG NOOTTVEDT
Alaska National Insurance Company
Seattle, Washington
POSITION STATEMENT: Testified that HB 540 is designed to bring
insurers and other key parties with strong local Alaskan
knowledge back into the process as well as create a mini-
hearing.
BARBARA THURSTON, Independent Consulting Actuary
Alaska National Insurance Company
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 540, answered
questions.
LINDA HALL, Director
Division of Insurance
Department of Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Testified that she didn't have a problem
conceptually with the bill, but mentioned serious concerns with
timelines and other areas in the legislation.
GAIL VOIGTLANDER, Chief Assistant Attorney General - Statewide
Section Supervisor,
Torts and Worker's Compensation Section
Civil Division (Anchorage)
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Explained the changes encompassed in CSHB
488, Version 23-GH2, 3/30/2004.
KRISTY BRAND, President
Opticians Association of Alaska
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 502.
JAMES D. ROTHMEYER, Chairman
State Board of Dispensing Opticians
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 502.
ACTION NARRATIVE
TAPE 04-38, SIDE A
Number 0001
VICE CHAIR CARL GATTO called the House Labor and Commerce
Standing Committee meeting to order at 3:35 p.m. Representatives
Gatto, Dahlstrom, Lynn, Rokeberg, Crawford, and Guttenberg were
present at the call to order. Representative Anderson arrived
as the meeting was in progress.
HB 426-TOURISM & RECREATION ASSESSMENT/CAR TAX
VICE CHAIR GATTO announced that the first order of business
would be HOUSE BILL NO. 426, "An Act relating to the levy and
collection of an assessment on certain tourism-related and
recreation-related goods and services, to tourism marketing
contracts, and to vehicle rental taxes; and providing for an
effective date."
Number 0078
SUE STANCLIFF, Staff to Speaker of the House Pete Kott, Alaska
State Legislature, presented HB 426 on behalf of Speaker Kott,
sponsor of the bill. She noted that before the committee is
CSHB 426(EDT). The bill provides for the levying and collection
of an assessment on certain tourism-related and recreation-
related goods and services, she explained. The bill would levy
a 2 percent assessment on the tourism industry in order to raise
the funds for tourism marketing and is a self-assessed tax, she
said. It is at the request of the tourism industry, which has
been asked many times previously by the legislature to come
forward with a self-assessed mechanism to be able to fund
tourism marketing, she noted.
[CHAIR ANDERSON arrived.]
MS. STANCLIFF mentioned that this modified version of the bill
is a 2 percent tax, which does leave in the vehicle rental tax
that the legislature passed last year. She said that several
issues have been raised about the tax related to hotel taxes,
especially seasonal rates. Ms. Stancliff noted that this tax is
modeled after the Alaska Seafood Marketing Institute (ASMI)
model, which has worked very successfully.
MS. STANCLIFF said that she plans to offer several conceptual
amendments and asked when the committee prefers to have her do
that.
CHAIR ANDERSON suggested that Ms. Stancliff decide when to offer
them.
MS. STANCLIFF said she prefers to offer them before the
testimony.
Number 0320
MS. STANCLIFF explained that Conceptual Amendment 1 would take
the 2 percent assessment and reduce it to a 1 percent
assessment, which is per the industry's request.
Number 0400
REPRESENTATIVE GATTO moved to adopt Conceptual Amendment 1,
which would, on page 3, line 10, change "two percent" to "one
percent".
REPRESENTATIVE LYNN objected in order to ask a question. He
wondered why that change is being made. He stated that he is
not opposed to it, just wondering why.
MS. STANCLIFF replied that the industry requested that amount so
that it would be more palatable across the board.
REPRESENTATIVE GATTO asked if that amount is adequate to promote
the travel industry association, and if it's not should it be
kept at 2 percent.
MS. STANCLIFF said Representative Gatto is right. The goal was
set to raise $20 million and 1 percent would only bring in $10
million. She said she does not know if that amount will meet
the needs of the travel industry and she deferred to someone
from the Alaska Travel Industry Association (ATIA).
REPRESENTATIVE GATTO reported that he has talked to ATIA on this
issue and they said they needed $20 million.
REPRESENTATIVE LYNN suggested hearing from an industry
representative before acting on the amendment.
Number 0607
CHAIR ANDERSON asked Representative Gatto to withdrawn
Conceptual Amendment 1.
REPRESENTATIVE GATTO withdrew Conceptual Amendment 1.
Number 0620
MS. STANCLIFF continued her testimony, and explained that
another amendment would reduce the industry match from 60
percent to 50 percent. Therefore, she requested that members
from ATIA speak about their concerns before it is offered as an
amendment.
CHAIR ANDERSON asked if there are any further questions for Ms.
Stancliff.
REPRESENTATIVE GUTTENBERG asked if there are segments of the
industry that aren't supporting this bill.
MS. STANCLIFF replied yes, and specified that many hotels and
some small recreation companies oppose [HB 426]. She said that
she has heard from other states that when there is a tax such as
a hotel tax, the hotel will report the rate as, "$75, plus tax"
and that has been an issue for some folks. "Tourism is down and
now we're going to saddle our visitors with more of a burden,"
is a concern she has heard, she reported. She said she has a
request into Legislative Legal and Research Services to find out
if it is true that Alaska is the only state that does not have a
tourism tax.
REPRESENTATIVE GUTTENBERG asked if there is an analysis of hotel
taxes in Alaska compared to other states in the Pacific
Northwest.
MS. STANCLIFF said she did not know, but offered to find out.
REPRESENTATIVE GATTO asked if ferry and airplane tickets are
taxable.
Number 0828
MS. STANCLIFF said that was addressed in the House Special
Committee on Economic Development, International Trade and
Tourism. One of the concerns is that a lot of people in
Southeast Alaska use the Alaska Marine Highway System (AMHS) as
their main mode of transportation. There was a conceptual
amendment adopted to exempt Alaska residents, but there was a
constitutional issue, so it was agreed that AMHS could offer a 2
percent discount to Alaska residents. As far as airlines, Ms.
Stancliff opined that because of federal regulations a discount
cannot be offered, except on small aircraft.
Number 0907
REPRESENTATIVE LYNN inquired as to the kind of recreation
business with which Ms. Stancliff is involved.
MS. STANCLIFF replied that in her private life she has a
backcountry excursion business.
REPRESENTATIVE LYNN asked if the money from the tax would go to
market the tourism industry.
MS. STANCLIFF said yes.
REPRESENTATIVE LYNN suggested that by going too far with
marketing, a diminishing return results.
MS. STANCLIFF responded that if this does not work there is a
mechanism built into the bill that would turn off the self-
assessment tax.
REPRESENTATIVE LYNN noted that it is a balance between spending
money on marketing and on having reasonable prices for [tourism
packages].
MS. STANCLIFF agreed, and added that it's dependent on effective
marketing, which has been the case so far.
Number 1016
CHIP THOMA testified in opposition to HB 426. His testimony is
as follows:
Imagine being told by the government that you must
advertise your product, even if you don't want to.
That's the issue before us today. So, consequently, I
maintain my opposition to HB 426 on constitutional
grounds; the effect of this bill is to compel those
being assessed a tourism tax to subsidize speech with
which they may disagree.
According to very well-documented, federal case law,
this bill violates the First Amendment, which both
prevents government from prohibiting individuals from
speaking, and also prevents government from requiring
them to speak.
MR. THOMA provided examples of many cases from the Supreme Court
and the 9th Circuit Court of Appeals in his written testimony.
He said it comes down to, "We can't have government collecting
taxes and going to an industry-sponsored group that's going to
be advertising." He pointed out that it does not jeopardize
ASMI because no one has ever filed suit against it, but that
"this kind of a group that's just being formulated right now,
though, will be challenged and it will probably be brought to
summary judgment." He said he wanted to bring that to the
committee's attention.
Number 1145
REPRESENTATIVE GATTO asked if Mr. Thoma is representing any
specific group.
MR. THOMA replied that he is testifying as an individual.
REPRESENTATIVE GATTO asked if Mr. Thoma has any vested interest
in this legislation.
MR. THOMA replied that he does not.
REPRESENTATIVE LYNN said that there are certain social issues
that the government favors, but that he opposes, and yet he
still pays taxes. He asked if this issue is not the same thing.
MR. THOMA said it is a hybrid of that. "You're taxing a select
group of people and you're taking that money and you're using it
for speech, so it's government-supported speech." He maintained
that so far the court has come down against it.
REPRESENTATIVE LYNN said that the government is collecting a lot
of taxes in areas with which he disagrees.
REPRESENTATIVE GUTTENBERG asked if the program was challenged,
would it be challenged from someone inside or outside the
program.
MR. THOMA said outside.
REPRESENTATIVE GUTTENBERG asked if anyone inside ATIA disagrees
with this or if it speaks as one voice.
MR. THOMA said he did not know if he wanted to make that
assumption and suggested that there would be testimony today
from members of ATIA. He added that he does not plan on it
being Thoma vs. the State of Alaska.
Number 1258
JOSHUA ADAMS, Manager, Alaska Hotel and Bar, said that he and
his staff will be victimized by this legislation, not
represented. He said that his advertising budget is minimal and
local as 75 percent of his clientele are Alaska residents. He
opined that [HB 426] is philosophically wrong because he is
being forced to speak and to pay someone else to speak for him,
which is contrary to the First Amendment. He called it
regressive to force this class of people, mostly "weekly"
working people, to pay the tax.
CHAIR ANDERSON asked how much hotel tax is in Juneau.
MR. ADAMS said 12 percent; 5 percent sales tax and 7 percent
hotel tax.
REPRESENTATIVE GATTO stated that he has to think about what Mr.
Adams said. He guessed that this tax would do very well for
Anchorage and the [Matanuska-Susitna Valley], that don't have
tourists arriving on a cruise ship. He suggested that Mr. Adams
would be paying a tax to promote tourism in the remainder of the
state. He asked if that is the way Mr. Adams sees it.
MR. ADAMS replied that is the way he sees it. He questioned the
benefit of advertising hotels in Juneau when the cruise ships do
not stay overnight.
CHAIR ANDERSON surmised that Mr. Adams' point is that he is
opposed to the tax because the hotel clients are already paying
enough tax, and he would not be getting any direct benefit from
the advertisement it purchases compared to larger companies in
different cities.
MR. ADAMS said he also personally opposes it because it is
regressive, it punishes the small businesses and forces them to
pay for the big businesses, and it is constitutionally wrong.
REPRESENTATIVE GUTTENBERG asked if Mr. Adams' hotel is a member
of the trade association.
MR. ADAMS replied yes.
REPRESENTATIVE GUTTENBERG asked if he feels that he has a voice
in that organization.
Number 1448
BETTYE ADAMS, Owner, Alaska Hotel and Bar, opined that [HB 426]
is a "big Trojan horse." She pointed out that the industry did
not ask for this; ATIA, which is an organization that only some
in the industry can afford to be a member of, asked for it. She
noted that she is a member of ATIA, but has no impact in it.
Ms. Adams pointed out that she was not notified that this
legislation was coming up, and she was told that a majority of
the people at the convention agreed to this. She opined that
ATIA represents the cruise industry, big business, and people
who do not have to pay the tax.
MS. ADAMS characterized the bill as "taxation without
representation," and noted that it would help the Railbelt, not
Southeast. She wondered what the administrative costs will be
and opined that 1 percent is only a way [for the cruise
industry] to get its the "a foot in the door."
MS. ADAMS questioned the dedication of state funds for a
specific purpose and the surrendering of the power of taxation
contained in this bill. She referred to a memo from Legislative
Legal and Research Services.
Number 1767
CHAIR ANDERSON clarified the description of dedicating funds and
having no direct accountability for them.
MS. ADAMS maintained that ASMI's model is not constitutional,
either, and it will come to the court.
REPRESENTATIVE DAHLSTROM requested a copy of the memo from
Legislative Legal and Research Services to which Ms. Adams
referred.
Number 1837
REPRESENTATIVE GUTTENBERG asked for clarification about the
state not being able to give away its authority to tax.
MS. ADAMS replied that is in the Legislative Legal and Research
Services' memo that is being duplicated for the committee. She
explained that if ATIA's board assesses the 1 percent tax, and
then says, "Oh, it went into the general fund and not to us."
And then if they stop assessing the tax, or change it, that is
the legislature delegating its right to tax to someone else,
which is unconstitutional, she opined.
REPRESENTATIVE GATTO asked if it's Ms. Adams' impression that
would happen.
MS. ADAMS replied yes. There is a clause that if the money
should somehow go into the general fund, the tax would be
stopped. She called that "legislating."
REPRESENTATIVE GATTO pointed out that all taxes are typically
regressive. He asked if Ms. Adams would be so concerned if the
tax was based on the exact amount of benefit obtained.
Restating the question he asked, "If you got a fair deal, would
you object?"
MS. ADAMS replied that she does not think a fair deal is
possible because the private sector can do a better job than
government can. She pointed out that the tax is also regressive
toward the people who stay in her hotel, which are mostly
Alaskans and people who work for the tourist industry.
REPRESENTATIVE GATTO noted that the Railbelt is not tax-free.
Number 1992
MIKE WINDRED, Director of Operations, Alaska Travel Adventures
(ATA), said that one of the reasons the change was made from 1
percent to 2 percent is because Juneau has a fairly high bed and
sales tax combination already. He reported that most bed taxes
already work exactly as this assessment would, to bring in
marketing dollars. He maintained that the ATIA board is
representative of a good cross section of businesses. He spoke
in favor of HB 426, saying it would be a good opportunity for
business to fund marketing.
Number 2178
REPRESENTATIVE GATTO pointed out that the cruise industry is not
paying much in taxes at all. He asked if they are exempt from
this tax.
MR. WINDRED replied that they are exempt for the portion of the
cruise. He said there is a commitment from the cruise industry
to help with the match for this tax.
CHAIR ANDERSON asked if ATIA had polled its membership on
issues.
MR. WINDRED said that it depends on the issue. This issue has
gone through different phases as to what it is going to be, and
it was brought up at the convention and everyone got a chance to
speak on it. There wasn't a vote, and the ability to stay
flexible has been important, he said.
CHAIR ANDERSON spoke about his parents who own an RV rental
company in Anchorage, who, along with other car rental agencies,
make up a large group that opposes the city rental tax. He
related that there is a fear that any tax would be the start of
the "slippery slope." The hope that any advertising as a result
of the tax would come back to help the company, although the
concern is that it might not.
MR. WINDRED highlighted that the bill is written so that the
board has control over what happens, so that if the money went
away from the marketing into the general fund, a 51 percent vote
could change that.
REPRESENTATIVE GUTTENBERG asked about the legality of what Mr.
Windred just said and if anyone could address it.
CHAIR ANDERSON named the witnesses and determined that none are
able to discuss the legal aspects of the issue.
TAPE 04-38, SIDE B
REPRESENTATIVE LYNN asked Mr. Windred which RV park ATA owns in
Anchorage.
MR. WINDRED replied Ship Creek Landing RV Park.
REPRESENTATIVE LYNN asked what it costs to belong to ATIA.
MR. WINDRED said $350 and up, depending on the size of the
business.
Number 2364
MR. WINDRED suggested changing "two percent" to "one percent" on
page 3, line 14 of the bill, to agree with Conceptual Amendment
1.
Number 2325
DENNIS McDONNELL, ERA Helicopters, related that he has had a lot
of experience in the tourist industry. He said it has been
increasingly difficult to market to foreign countries because of
the expense, an area in which ATIA can help, especially for
smaller businesses. He said he feels the 1 percent tax is good
for aviation businesses. He pointed out that even though the
cruise industry does not pay the tax, it brings up all of the
people who do. He spoke strongly in favor of the 1 percent tax,
but not the 5 percent tax listed in another bill.
Number 2198
SCOTT REISLAND, Owner, Denali Grizzly Bear Park, reported that
business has not been good for the independent traveler. In the
past three years there has been a 13-17 percent decline in
occupation rate, which is representative of campgrounds around
the state, and is of major concern, he said. He noted that he,
as a small business owner, has a limited marketing budget and
depends on ATIA to help out with marketing needs such as the
German tourist market. He reported that in the Lower 48 the
campground business is booming, whereas Alaska's market needs
help. He said he would be happy to collect an additional 1
percent tax if it goes toward tourism marketing.
Number 1964
REPRESENTATIVE LYNN noted that in the Lower 48 there are few
places where it is safe or advisable to "boon dock" without
going to an established park. In Alaska there are a lot of
places to camp. He wondered if that could be a reason why the
campgrounds and RV parks are not as full here as they are in the
Lower 48.
MR. REISLAND replied that boon docking has been an issue, and
currently 16 percent of independent campers who come to Alaska
boon dock, which does have an impact on occupancy rate. He said
that problem was closed down in Denali National Park and
Preserve by putting up signs. He attributed the decline of 13-
17 percent as a result of people not coming to Alaska.
REPRESENTATIVE GUTTENBERG asked what Mr. Reisland's budget for
advertising would be if ATIA was not in existence.
MR. REISLAND said his family took a 50 percent cut in salary and
was making less than a first year teacher. He said his
marketing budget is about $4,000. The price for one nice ad in
the Lower 48 is $45,000, he added.
Number 1757
RON PECK, President and Chief Executive Officer, Alaska Travel
Industry Association (ATIA), reported that ATIA has been working
very closely recently with various travel organizations and
visitors' bureaus around the state to jointly craft a compromise
to bring before the legislature, which has garnered broader
industry support. The modified recommendations call for a 1
percent assessment on the following tourism-related sales: sale
of land and water transportation services such as same day
scenic and sightseeing tours, sale of recreation and adventure
services including guided rafting, kayaking, canoeing, hiking,
walking tours, and fishing charters, lease rentals of passenger
RV vehicles, accommodations including hotels, motels, and B &
Bs, sale of marine highway and railroad passenger fares,
lodging, and tourism-related gifts.
MR. PECK continued to say that this revenue would be
supplemented by continuing contributions that are already
received, but at a lesser amount from the following: matching
funding from the state, domestic marketing in organizations such
as conventions and visitors' bureaus, ATIA cooperative marketing
program revenues raised by advertising and marketing, and the
cruise industry. The ATIA board supports this approach for
several reasons: it makes Alaska's market more competitive; it
is less burdensome on small businesses; and it is broad-based,
he said. Mr. Peck concluded by saying that the revenue
collected will stay with the industry for marketing support.
Number 1624
REPRESENTATIVE ROKEBERG said that one of his concerns is that he
has been told by members of ATIA that a surcharge would not be
workable. He asked Mr. Peck to respond.
MR. PECK said he does not understand the question.
REPRESENTATIVE ROKEBERG pointed out that the bill provides for
taxation through the Department of Revenue and it seems to him
that the legislature could authorize ATIA to provide for a
surcharge and have it collected by ATIA and made voluntary.
Therefore, the state would not have to be involved with
collecting the tax and would not have to pay $2.4 - $2.6 million
in order to collect $4.8 million. He called that crazy.
MR. PECK related his belief that people won't pay a voluntary
surcharge.
Number 1541
ERIC DOWNEY, Member, Board of Directors, Alaska Wilderness
Recreation & Tourism Association (AWRTA), noted that although he
is also the Vice President of Marketing for Denali Lodges, he is
representing AWRTA today. He informed the committee that AWRTA
is an association of almost 200 small tourism business, most of
which are wilderness dependent. Mr. Downey said that AWRTA
supports the revised 1 percent assessment as proposed by ATIA.
However, AWTRA would prefer that this existing legislation
include a vote to turn on and off the assessment. Furthermore,
AWRTA would prefer the vote to be based on one vote per business
rather than one vote per dollar. Mr. Downey related that
although AWRTA doesn't believe that it's fair that the cruise
industry isn't subject to this assessment, the assessment is too
critical for the industry as a whole to be delayed by the cruise
industry's exemption. He further related that AWRTA is pleased
that the cruise industry has volunteered to contribute $1
million annually, but AWRTA urges the legislature to consider a
separate but similar 1 percent tax on the cruise industry, which
would generate about $5 million annually.
Number 1468
DAVE KARP, Vice President and Chief Operating Officer, Hawaiian
Vacations, informed the committee that he is a lifetime Alaskan
and the former executive director of Alaska Tourism Marketing
Council, the predecessor organization to the ATIA. With regard
to the compromise that has taken the legislation from 2 percent
to 1 percent, Mr. Karp specified that the compromise happened
over the last 10 days and through the efforts of many different
organizations coming together and having constructive dialogue.
"It is ... fairly rare that we all come to the table in
agreement on something, and I think that it's representative of
a good-faith effort that was put forth," he said. This
legislation is about the tourism industry paying it's own
marketing costs. He noted that this year, his company will
bring 13 airplane loads of Japanese tourists to Alaska and each
of those visitors will pay this new assessment. He submitted
that this assessment is a step in the right direction.
Number 1322
KAREN ROGINA, President/CEO, Alaska Hospitality Alliance (AHA),
informed the committee that AHA includes the Alaska Hotel &
Lodging Association and the Alaska Restaurant & Beverage
Association. Ms. Rogina related support for the concept for a
broad-based hospitality and visitor industry self-assessment to
be used exclusively for tourism marketing. The aforementioned
is accomplished by HB 426 at the 1 percent level. She noted
that originally AHA opposed HB 426 at the 2 percent level. This
1 percent assessment and other anticipated contributions from
the industry, as mentioned by Mr. Peck, is viewed as the broad-
based solution that has been sought. Over the last several
years, the rate of growth of the visitor industry has declined
commiserate with the amount of tourism marketing funding from
the state. It has long been recognized that in order to compete
in the national and international market place, a significant
increase in advertising must occur. She acknowledged that any
plan will have varying degrees of benefits for various
businesses, the goal was to establish the most broad-based
solution possible. As stated earlier, that seems to have been
accomplished at the 1 percent level along with the other named
funding sources from the industry groups.
Number 1219
REPRESENTATIVE GUTTENBERG requested that Ms. Rogina explain the
difference between the 1 percent and the 2 percent assessment
and how divisive that is.
MS. ROGINA explained that the 1 percent compromise occurred
partly due to the fact that statewide hotels currently
contribute over $46 million in bed tax, sales tax, and real
property tax. In light of the aforementioned $46 million
contribution, the 2 percent was viewed as too much of a
contribution and thus led to a more broad-based solution. The
legislation and the compromise, which includes the other
contributions, made the 1 percent a fair broad-based solution.
Number 1147
CHAIR ANDERSON announced that the public hearing on HB 426 would
be held open and would be brought back before the committee next
week. In response to Representative Guttenberg, Chair Anderson
agreed to have staff request from Legislative Legal and Research
Services information regarding taxes and distribution of the
pending cases.
[HB 426 was held over.]
HB 540-WORKERS' COMPENSATION INSURANCE RATES
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 540, "An Act relating to workers' compensation
insurance rates; and providing for an effective date."
Number 1057
CRAIG NOOTTVEDT, Alaska National Insurance Company, explained
that HB 540 establishes a mini-hearing and other procedures for
the filing, reviewing, and approval of workers' compensation
loss cost. Loss costs are the projected costs of workers'
compensation claim benefits in Alaska and constitute the largest
component of workers' compensation rates. Loss costs apply to
all insurers and the Alaska assigned risk pool. Mr. Noottvedt
provided the following analogy, "Workers' compensation loss
costs are the raw material costs of the workers' compensation
system." He noted that Alaska law requires that workers'
compensation loss costs be neither excessive nor inadequate.
The current system for filing, reviewing, and approving loss
costs involves the following two parties: National Council on
Compensation Insurance (NCCI), a national filing organization
based in Florida, and the Alaska Division of Insurance.
MR. NOOTTVEDT explained that NCCI compiles data into its
computers, reviews the data with actuaries based in Florida and
Southern California, and then makes its filing with the director
[of the Alaska Division of Insurance] who approves or
disapproves the filing. He specified that the current process
doesn't provide for any active involvement of insurers or other
interested parties actually doing business in Alaska. The
aforementioned, he noted, was not always the system. Until the
early 1990s other key parties with local Alaska knowledge,
including insurers, employers, and brokers were active
participants in the review and approval process through the
Classification and Rating (C&R) Committee. However, the
aforementioned system was abandoned due to heightened anti-trust
concerns. This legislation is designed to bring insurers and
other key parties with strong local Alaskan knowledge back into
the process.
Number 0922
MR. NOOTTVEDT turned to the question of what's wrong with the
current system. The system hasn't been working for some time
and workers' compensation loss cost has been seriously
inadequate and has contributed to a growing crisis in the Alaska
workers' compensation system, he explained. He specified that
inadequate loss cost results in the following three problems.
One, insurers lose money. In fact, the director of the Division
of Insurance has recently been showing legislators that workers'
compensation insurers have been losing a lot of money in Alaska
for a number of years. He noted that although inadequate loss
costs aren't the sole reason for recent carrier insolvencies and
the Alaska Insurance Guaranty Association (AIGA) mess, they have
been a contributor.
MR. NOOTTVEDT turned to a homebuilder analogy. He explained
that the homebuilder first determines the raw material cost, the
labor costs, and profit. After the aforementioned the
homebuilder sells the home and makes the profit. However, what
if the material supplier comes to the homebuilder the next year
saying that the raw material costs increased by 3 percent and
thus tells the homebuilder that he or she has to pay that 3
percent increase, and the same scenario is played out year after
year. The aforementioned is how inadequate loss cost can work.
In the year the loss cost is charged, one is told those costs
are adequate. However, if they're determined to be inadequate,
the charges can continue. From the workers' compensation public
filings of 2001-2004 a chart was developed demonstrating the
loss costs for medical indemnity components of loss cost. The
aforementioned, entitled "Comparison of the Ultimate Average
Indemnity per Time Loss Claim Between 2001, 2002, and 2004 NCCI
Filings," was shared with the Division of Insurance. Each of
the lines on the chart simply took the filings made by NCCI and
the data points for the indemnity cost and the medical cost.
"What happens to the insurers then is they go back and say,
'Oops' each year that those items cost more. Even though you
already charged all the premium you can get for those prior
years, we got it wrong; you've got greater losses that you're
having to pay for and you cannot get additional premium," he
explained. The aforementioned is a serious financial problem
for insurance companies and it has played a role in why AIGA is
struggling with workers' compensation insolvencies today.
Number 0690
MR. NOOTTVEDT turned to the second problem caused by loss cost
inadequacy, which is that when carriers lose money they slow
down and even stop writing workers' compensation business in
Alaska. The aforementioned results in employers having no
choice but to move into the more costly Alaska Workers'
Compensation Assigned Risk Pool, which has exploded in growth by
over five fold to nearly $50 million in the last few years. The
[Alaska Workers' Compensation Assigned Risk Pool] is approaching
25 percent of Alaska's total workers' compensation market, which
is one of the largest and worst market share percentages in the
nation for an assigned risk pool. Moreover, because the [Alaska
Workers' Compensation Assigned Risk Pool] must use the same
inadequate loss cost for its rates, it has been losing
tremendous amounts of money over recent years. Those losses are
passed on to insurers, which worsens the negative spiral.
MR. NOOTTVEDT turned to the third problem caused by inadequate
loss cost, which is that employers are eventually hit with a
large shock rate increase in one year. Employers can't easily
pass through shock rate increases into their costs of goods and
services. [Passing through shock rate increases] could probably
be achieved if there were modest increases over a number of
years.
MR. NOOTTVEDT explained that HB 540 works to remedy the problem
by improving the public information exchange among all the
workers' compensation stakeholders. Furthermore, the
legislation makes NCCI more accessible and more accountable
through a mini-hearing process that is attended by Alaskan
insurers, employers, and others who better understand what is
occurring in Alaska. This legislation works because it requires
the division to detail all of its findings and conclusions in a
written order when a filing is approved or disapproved. Mr.
Noottvedt acknowledged that determining loss cost isn't easy to
do because the division and NCCI are predicting tomorrow's costs
using yesterday's data. In fact, the 2005 filing will be based
on 2000-2002 policy year data. This legislation will help them
do a better job. He noted that to use 2002 data to [make
predictions for 2005] means that NCCI must make a number of
assumptions and select key trends. However, NCCI is only
comfortable making assumptions and selecting trends based on
what it considers to be visible from the data, data that is old.
By contrast, Alaska insurers have much more than what is visible
in 2002 and older policy years. By the time of the filing next
fall, Alaska insurers will have already lived through 2003 and
most of 2004. There will have been experience in new claim
trends, such as new medical treatments and new drugs and the
costs for both; new rulings from the Workers' Compensation Board
and the courts and the affects on the workers' compensation
system. Alaska insurers will have seen many of developments
that impact the current loss cost in Alaska. As with the old
C&R Committee, insurers operating in Alaska are in a good
position to provide extremely valuable input to the workers'
compensation loss cost review and analysis process.
Furthermore, Mr. Noottvedt opined that employers and other
interested parties can contribute useful trend information into
the workers' compensation loss cost review process.
Additionally, the mini-hearing process and timely public
disclosure of all workers' compensation loss cost filing
information will raise the general awareness and understanding
of the true cost benefits under Alaska's workers' compensation
system. The aforementioned will create a greater resource for
considering any needed improvements to Alaska's workers'
compensation system by everyone, including the legislature.
REPRESENTATIVE ROKEBERG inquired as to the definition of loss
cost.
Number 0318
BARBARA THURSTON, Independent Consulting Actuary, Alaska
National Insurance Company, explained that loss cost is the
portion of the premium that goes to pay claims. The loss cost
is exclusive of the portion of the premium that pays insurance
company expenses, commission, or profit. She, too, acknowledged
that the claim portion is the hardest part to predict, which is
why the data from many insurance companies is aggregated by
NCCI. In further response to Representative Rokeberg, Ms.
Thurston addressed the graph entitled, "Comparison of the
Ultimate Average Indemnity per Time Loss Claim Between 2001,
2002, and 2004 NCCI Filings." She highlighted that above 1994
there are four different points on the graph and those are
different estimates, ultimate average cost per claim, from NCCI.
The term "ultimate" means once everything is paid, which may be
many years for workers' compensation. She clarified that the
triangle in the bottom is the estimate of the final average loss
cost per claim for 1994, which was made in 2001. She confirmed
that the aforementioned is used to build up the rate filings.
The other objects refer to each year after 2001 when the NCCI
says that the 1994 estimates were wrong and should have been
higher. Ms. Thurston said that it's expected that there will be
errors in these estimates. Theoretically, the errors should
jump around and be a little high one year and a little low
another year. However, this graph illustrates a consistent
underestimation.
MR. NOOTTVEDT remarked that although the graph illustrates that
it's leveling off in 1999-2001, if this trend continues, the
next filings will be corrected up even more. The leveling off
only occurs because that's where the prediction is now.
REPRESENTATIVE ROKEBERG turned to the 2004 filing on the graph,
and asked if the back years estimate the actual cost.
MS. THURSTON replied yes, and clarified that as part of the 2004
filing the old years are reviewed and the average cost in those
old years is estimated. She confirmed that the numbers for the
past years are more accurate because more time has passed.
MR. NOOTTVEDT highlighted that unfortunately the premium has to
be charged based the year [the loss cost estimate] is set.
REPRESENTATIVE ROKEBERG related his understanding that Mr.
Noottvedt's testimony was that next year only the data from the
past three years will be reviewed and there's a big gap.
MS. THURSTON confirmed that there is a delay.
Number 0059
REPRESENTATIVE GUTTENBERG surmised then that these are
guesstimates with regard to what will be paid out in claims over
the years. Some claims can be many years old, he noted.
Therefore, these rates don't seem to be self-correcting and thus
one can't, the next year, make a charge because the estimate has
increased rather "you get recharged on something that happened
last year."
MS. THURSTON clarified that in insurance it's not permitted to
recoup past losses.
TAPE 04-39, SIDE A
MR. NOOTTVEDT reiterated the need to have more current data
[from] people living in Alaska who see the trends in Alaska and
to put that in the review process for NCCI and the director to
consider. He reminded the committee that the aforementioned was
done under the C&R Committee system, which hasn't been available
to the industry and the division for over a decade. In response
to Representative Guttenberg, he confirmed that [putting the C&R
Committee system] back in place is what is being [proposed with
this legislation].
Number 0063
REPRESENTATIVE ROKEBERG pointed out that the C&R Committee was
disbanded due to fears of anti-trust actions. He asked if the
aforementioned fears "will out in case law." He inquired as to
why this could be accomplished now.
MR. NOOTTVEDT clarified that it's a different system due to the
inclusion of the public hearing and question and answer
[period]. He pointed out that the C&R Committee was different
in its process, including NCCI bringing a range of rates to the
C&R Committee, which would set the filing for the division.
REPRESENTATIVE ROKEBERG surmised then that the C&R Committee
actually participated in the ratemaking process through
recommendation.
MR. NOOTTVEDT agreed and emphasized that due to anti-trust fears
Alaska has shifted from a ratemaking process to a loss cost
filing practice. Therefore, "we" are no longer dealing with the
actual setting of the final rates, but rather with the
underlying raw material costs.
Number 0235
LINDA HALL, Director, Division of Insurance, Department of
Community & Economic Development, said that she would only
address the process in this legislation, not the complexities of
ratemaking. However, she noted her belief that the ratemaking
process could become more open. Therefore, she said she is
willing to accommodate a method of allowing more input and
review. "So, on the surface I don't have a problem conceptually
with the bill," she stated. However, she mentioned serious
concerns with timelines and other areas in the legislation.
REPRESENTATIVE ROKEBERG suggested that Ms. Hall could make some
recommendations to the committee and the sponsor.
MS. HALL agreed to do so.
CHAIR ANDERSON announced that HB 540 would be held over.
HB 488-CLAIMS AGAINST STATE EMPLOYEES
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 488, "An Act relating to actionable claims
against state employees; relating to the state's defense and
indemnification of its employees and former employees with
respect to claims arising out of conduct that is within the
scope of employment; amending the Public Employment Relations
Act regarding claims against the state or state employees; and
providing for an effective date."
Number 0392
REPRESENTATIVE DAHLSTROM moved to adopt CSHB 488, Version 23-
GH2, 3/30/2004, as the working document. There being no
objection, Version 23-GH2, 3/30/2004, was before the committee.
Number 0429
GAIL VOIGTLANDER, Chief Assistant Attorney General - Statewide
Section Supervisor, Torts and Worker's Compensation Section,
Civil Division (Anchorage), Department of Law, explained that
when the committee last heard this legislation, March 1, 2004,
there were basically two aspects to this legislation. The first
was the certification process that converted claims against
state employees into claims against the state. The second
aspect was to have one standardized statute that addressed the
state's obligation for defense and indemnity of state employees
when individually sued. The legislation before the committee
now removes the second aspect because of objections from the
Public Safety Employees Association (PSEA) with regard to
differences between the [legislation's] language and the
language in PSEA's collective bargaining agreements. Therefore,
the legislation before the committee only addresses the first
aspect, as described earlier. She noted that the first aspect
is in addition to an employee's rights for defense and indemnity
that may be included in the collective bargaining agreements.
CHAIR ANDERSON recalled that a PSEA representative had concerns
with regard to that and wanted to work with Ms. Voigtlander. He
also recalled that Senator Bunde made an amendment. He asked if
this version is comparable to that Senate change.
MS. VOIGTLANDER said the version before the committee is exactly
the same [as the Senate companion, CSSB 338(STA)]. The PSEA
withdrew its objection to [CSSB 338(STA)], which is reflected in
a March 23, 2004, letter from Mr. D'Amico, PSEA, to the chair of
the Senate Judiciary Standing Committee.
CHAIR ANDERSON opined that CSHB 488 works out the state
employees' and the public safety employees' concern, which he
said satisfied him.
Number 0600
REPRESENTATIVE DAHLSTROM moved to report CSHB 488, 23-GH2,
3/30/2004, out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, CSHB
488(L&C) was reported from the House Labor and Commerce Standing
Committee.
HB 502-DISPENSING OPTICIANS: BOARD & REGULATION
CHAIR ANDERSON announced that the final order of business would
be HOUSE BILL NO. 502, "An Act relating to dispensing opticians
and dispensing optician apprentices."
Number 0653
KRISTY BRAND, President, Opticians Association of Alaska,
testified that she was licensed in both glasses and contact
lenses. She stated:
A few years ago the legislature passed a bill that
changed a system that had worked for 30 years, and
that system was the training of apprentices in the
field of opticianry. From 1973 until 2002 we were
required to study for 6,000 hours to become an
optician. In 2001 that standard was lowered to 1,800
hours. At 1,800 we would be one, if not the lowest
state, in the union in terms of training.
The bill before you rectifies this problem. It
increases the requirements for training; it adopts the
United States Department of Labor's apprenticeship
program as the formal educational component for
training apprentices in Alaska. This program sets out
specific guidelines for training; it sets out a
progressively increasing wage scale based on the hours
completed and based on the percentage of the
journeyman level, which was calculated by the federal
Department of Labor.
Upon completion of the training program, the U.S.
Department of Labor would issue a certificate of
completion to be presented to the state of Alaska for
licensing. Once licensed, the credentials can then be
taken to the University of Alaska, where they will
allow credit for each portion of the license, that can
be used towards an Associate's Degree in applied
optics.
This program is also beneficial to employers, as
there's a financial incentive for hiring unemployed
people and training them in our field, and there are
also federal grants that employers can apply for to
help offset the costs for apprenticeship wages. The
U.S. Department of Labor also has a school-to-work
linkage program where high school seniors can train
part-time in opticianry to bridge the gap between high
school and work.
Our association has a motto and that motto is that "we
are Alaska's opticians, united in vision" and that
vision is a system where we can all continue to
provide the quality of services to Alaska's consumers,
and that we set an example for all the other states,
whether they are licensed or not. Alaskan consumers
deserve the best. ...
REPRESENTATIVE CRAWFORD recalled previous testimony stating that
very few of the apprentices in Alaska become licensed opticians.
He wondered how to get more people to graduate from the
apprenticeship program.
MS. BRAND said the problem could be seen as anyone working in an
optician's office, including clerks and sales people, were
required to sign up for the apprenticeship program whether or
not this was their career goal. Senate Bill 270 corrected this
problem by creating the classification of optician's assistants.
She felt that after the statutes reflect these changes the
people signed up as apprentices in the U.S. Department of
Labor's apprenticeship program will be the career opticians.
She commented that the system has been broken for a long time
and her association is helping to mend it.
REPRESENTATIVE GUTTENBERG complimented Ms. Brand for her clear
testimony.
Number 0929
JAMES D. ROTHMEYER, Chairman, State Board of Dispensing
Opticians, testified in support of HB 502. He listed several
benefits for the public, including increasing the time
requirements for apprenticeship training back up to the national
average for this profession. HB 502 brings Alaska opticianry
statute into agreement with existing statutes, and clears up
conflicting definitions of a contact lenses prescription. He
stated that this bill allows for a mechanism to license
experienced opticians coming from other states if they can
present their license or proof of advanced certification.
MR. ROTHMEYER stated that this bill mandates that the federal
Department of Labor assume the administration of the optician
apprenticeship program, thereby reducing the state's costs. He
noted that the Board of Dispensing Opticians was created in
1973, but they have been unable to test for technical competency
since SB 270 passed in 2002. House Bill 502 would create
trained, licensed, competent, professionals who would take
responsibility for dispensing eyeglasses and contact lenses. ...
Number 1048
CHAIR ANDERSON noted there were salient arguments from out of
state but that he was going to defer to Alaskan associations,
the Alaska Board of Dispensing Opticians and the Opticians
Association of Alaska.
Number 1072
REPRESENTATIVE ROKEBERG moved to report HB 502 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 502 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
5:20 p.m.
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