Legislature(2003 - 2004)
05/03/2004 04:30 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
May 3, 2004
4:30 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
MEMBERS ABSENT
Representative David Guttenberg
COMMITTEE CALENDAR
CONFIRMATION HEARING(S)
Alcoholic Beverage Control Board
Duane S. Udland - Anchorage
- CONFIRMATION(S) ADVANCED
State Assessment Review Board
Allen S. Black - Palmer
Patrick S. Carlson - Kodiak
- CONFIRMATION(S) ADVANCED
Board of Marine Pilots
Robert J. Arts - Anchorage
- CONFIRMATION(S) ADVANCED
Alaska Workers' Compensation Board
Valarie L. Allmon - Anchorage
Chris N. Johansen - Fairbanks
David Kester - Anchorage
James (Jay) N. Rhodes - Ketchikan
Patricia A. Vollendorf - Anchorage
- CONFIRMATION(S) ADVANCED
State Board of Registration for Architects, Engineers, and Land
Surveyors
Craig Fredeen - Eagle River
- CONFIRMATION(S) ADVANCED
Board of Barbers and Hairdressers
Debra Long - Fairbanks
Joylene Marrs - Anchorage
Angela J. Rosas - Houston
Larry Allen Ungerecht - Anchorage
- CONFIRMATION(S) ADVANCED
CS FOR SENATE BILL NO. 357(FIN)
"An Act relating to the regulation of insurance, insurance
licenses, qualifications of insurance producers, surplus lines,
fraud investigations, electronic transactions, and compliance
with federal law and national standards; and providing for an
effective date."
- MOVED HCS CSSB 357(L&C) OUT OF COMMITTEE
SENATE BILL NO. 389
"An Act relating to the conversion of certain corporations to
limited liability companies; and providing for an effective
date."
- MOVED SB 389 OUT OF COMMITTEE
CS FOR SENATE BILL NO. 365(FIN)
"An Act relating to the regulation of speech-language
pathologist assistants; and providing for an effective date."
- MOVED CSSB 365(FIN) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 357
SHORT TITLE: INSURANCE
SPONSOR(S): LABOR & COMMERCE
03/01/04 (S) READ THE FIRST TIME - REFERRALS
03/01/04 (S) L&C, FIN
03/09/04 (S) L&C AT 1:30 PM BELTZ 211
03/09/04 (S) Heard & Held
03/09/04 (S) MINUTE(L&C)
03/23/04 (S) L&C AT 1:30 PM BELTZ 211
03/23/04 (S) Moved CSSB 357(L&C) Out of Committee
03/23/04 (S) MINUTE(L&C)
03/24/04 (S) L&C RPT CS 2DP 3NR SAME TITLE
03/24/04 (S) NR: BUNDE, FRENCH, STEVENS G;
03/24/04 (S) DP: SEEKINS, DAVIS
03/31/04 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/31/04 (S) Heard & Held
03/31/04 (S) MINUTE(FIN)
04/01/04 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/01/04 (S) Heard & Held
04/01/04 (S) MINUTE(FIN)
04/02/04 (S) FIN RPT CS 3DP 3NR SAME TITLE
04/02/04 (S) DP: WILKEN, GREEN, STEVENS B;
04/02/04 (S) NR: DYSON, OLSON, BUNDE
04/02/04 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/02/04 (S) Moved CSSB 357(FIN) Out of Committee
04/02/04 (S) MINUTE(FIN)
04/16/04 (S) TRANSMITTED TO (H)
04/16/04 (S) VERSION: CSSB 357(FIN)
04/19/04 (H) READ THE FIRST TIME - REFERRALS
04/19/04 (H) L&C
04/21/04 (H) FIN REFERRAL ADDED AFTER L&C
04/30/04 (H) L&C AT 3:15 PM CAPITOL 17
04/30/04 (H) -- Meeting Canceled --
05/01/04 (H) L&C AT 3:00 PM CAPITOL 17
05/01/04 (H) -- Meeting Canceled --
05/03/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519
05/03/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: SB 389
SHORT TITLE: CORP. CONVERSION TO LIMITED LIABILITY CO.
SPONSOR(S): LABOR & COMMERCE
04/15/04 (S) READ THE FIRST TIME - REFERRALS
04/15/04 (S) L&C
04/20/04 (S) L&C AT 2:00 PM BELTZ 211
04/20/04 (S) Moved SB 389 Out of Committee
04/20/04 (S) MINUTE(L&C)
04/21/04 (S) L&C RPT 3DP 2NR
04/21/04 (S) NR: BUNDE, FRENCH;
04/21/04 (S) DP: DAVIS, SEEKINS, STEVENS G
04/27/04 (S) TRANSMITTED TO (H)
04/27/04 (S) VERSION: SB 389
05/01/04 (H) READ THE FIRST TIME - REFERRALS
05/01/04 (H) L&C, FIN
05/03/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: SB 365
SHORT TITLE: SPEECH-LANGUAGE PATHOLOGIST ASSISTANTS
SPONSOR(S): LABOR & COMMERCE
03/17/04 (S) READ THE FIRST TIME - REFERRALS
03/17/04 (S) L&C, FIN
04/01/04 (S) L&C AT 1:30 PM BELTZ 211
04/01/04 (S) Moved SB 365 Out of Committee
04/01/04 (S) MINUTE(L&C)
04/02/04 (S) L&C RPT 3DP 1NR
04/02/04 (S) DP: BUNDE, SEEKINS, DAVIS; NR: FRENCH
04/16/04 (S) FIN RPT CS 3DP 1NR SAME TITLE
04/16/04 (S) DP: BUNDE, HOFFMAN, STEVENS B;
04/16/04 (S) NR: OLSON
04/16/04 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/16/04 (S) Moved CSSB 365(FIN) Out of Committee
04/16/04 (S) MINUTE(FIN)
04/26/04 (S) TRANSMITTED TO (H)
04/26/04 (S) VERSION: CSSB 365(FIN)
05/01/04 (H) READ THE FIRST TIME - REFERRALS
05/01/04 (H) L&C, FIN
05/03/04 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
MICHAEL LESSMEIER, Lobbyist
for State Farm Insurance
Juneau, Alaska
POSITION STATEMENT: Offered support for SB 357, but stated his
disappointment that the bill does not address the problem of
availability of insurance.
SENATOR CON BUNDE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As chair of the Senate Labor and Commerce
Committee, sponsor of SB 357, introduced the bill.
LINDA HALL, Director
Division of Insurance
Department of Community & Economic Development
Juneau, Alaska
POSITION STATEMENT: Explained the major points of SB 357 and
answered questions.
JANE ALBERTS, Staff
to Senator Con Bunde
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced SB 389 and SB 365 as committee
aide to the Senate Labor and Commerce Standing Committee,
sponsor of the bills, and answered questions.
MARK HICKEY, Lobbyist
Aleut Enterprise Corporation
Juneau, Alaska
POSITION STATEMENT: Explained SB 389 and answered questions.
CHUCK HARLAMERT
Juneau Section Chief
Tax Division of Administrative Services
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of SB 389.
LAURA YOUNG-CAMPBELL, Speech-Language Pathologist
Matanuska-Susitna School District;
Member,
Alaska Speech-Language Hearing Association
Wasilla, Alaska
POSITION STATEMENT: Testified during the discussion of SB 365
and answered questions.
ACTION NARRATIVE
TAPE 04-50, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 4:30 p.m. Representatives
Anderson, Dahlstrom, Lynn, and Rokeberg were present at the call
to order. Representatives Gatto and Crawford arrived as the
meeting was in progress.
^CONFIRMATION HEARING(S)
Number 0056
CHAIR ANDERSON announced that the first order of business would
be the confirmation hearings for 14 of the governor's
appointments to various boards as listed above in the committee
calendar. He noted that each committee member was provided with
the names and resumes for each of the 14 appointments and that
the committee made no requests of the appointees to answer
questions before the committee. He said he took the lack of
requests as there being no objections to the group.
CHAIR ANDERSON requested that each member sign the confirmation
committee report and noted that each member's signature does not
reflect the member's vote during the joint floor session.
[The confirmation of the 14 appointments was advanced from the
House Labor and Commerce Standing Committee.]
CHAIR ANDERSON noted that the governor removed the name of James
Spaulding from the Alaska Labor Relations Agency appointment.
SB 357-INSURANCE
Number 0170
CHAIR ANDERSON announced that the next order of business would
be CS FOR SENATE BILL NO. 357(FIN), "An Act relating to the
regulation of insurance, insurance licenses, qualifications of
insurance producers, surplus lines, fraud investigations,
electronic transactions, and compliance with federal law and
national standards; and providing for an effective date."
Number 0175
MICHAEL LESSMEIER, Lobbyist for State Farm Insurance, offered
support for SB 357, but stated his disappointment that the bill
does not address the problem of availability of insurance.
Looking at the cover of the director's 65th annual report, he
spoke about the challenges of the lack of availability of
insurance products in various lines of coverage ranging from
workers' compensation to contractors' general liability to home
owners' coverage. He reported that Alaska is almost last in the
area of the number of insurer groups or nonaffiliated companies
with at least .1 percent of the 2002 direct written premium
market share. "For private passenger auto we've got 19
companies in this state, for homeowners we've got 15," he
related. He said that this problem would manifest itself in the
legislature on a piecemeal basis over and over again until
something is done on a broader scale.
MR. LESSMEIER referred to an April 19 Auto Insurance Report that
focused on Alaska, and he quoted from page 5, "You would think
that a state with no size, little recent profit and
personalized, and virtually no competitors, would be anxious to
keep insurers happy. You would also be wrong. Alaska has a
very strict prior-approval regime which one market player
described as a quagmire." If you looked at the market share of
who has what insurance in Alaska, it would probably scare you
even more, he said. If you looked at home owners' insurance you
would see that State Farm has 32.5 percent of the market and
Allstate has 30 percent and then it drops to 5 percent. If you
look at medical malpractice you can see that only two companies
are writing that kind of insurance in this state, he said. He
maintained that it is not healthy for the insurance market to
have those kinds of numbers.
Number 0458
MR. LESSMEIER proposed that the state get out of the business of
regulating insurance like many other states have. He quoted one
of the leading experts in this area, Dr. Phillip O'Connor(ph)
who said, "Virtually every bit of reputable, academic, and
governmental research conducted over the past 30 years either
concludes that reliance on competitive pricing in insurance
produces an appreciable, tangible, consumer benefits. The
essence of the story is that we have a level of consensus rare
in the social sciences and studies of government policy."
MR. LESSMEIER noted that he has drafted a proposed amendment,
labeled I.4, that was worked on with the [Department of
Community & Economic Development], Division of Insurance, but
was not completely finished. He said he hopes to work more on
it over the summer and make progress in three areas. He
proposed to go from prior approval to "use and file" where
insurers are allowed to compete, and which has been successfully
done in several states, leading to more stable markets and
better prices. He said that one of the keys is much greater
availability. The second proposal is to go to a "use and file"
system for forms, as well. That would open up the market, he
opined. Consumers need protection in market conduct, in claims
and in solvency, but not in price, he explained. The third fix
is a self-critical analysis privilege, which was introduced by
then-Senator Taylor several years ago, he said. He concluded by
saying that he hopes to find a solution to this problem by next
year.
CHAIR ANDERSON thanked Mr. Lessmeier for his testimony and for
deferring his amendment until next session.
Number 0731
REPRESENTATIVE ROKEBERG said that no one had brought this
[issue] to his attention prior to the session and he suggested
that it is really important for Mr. Lessmeier and other members
of the [insurance] industry to work during the interim to
educate legislators about proposed remedial legislation such as
this. He also brought up a concern about the lack of
availability of homeowners' insurance and how it related to the
recent mold issue. He asked Mr. Lessmeier to speak to that
problem.
MR. LESSMEIER said that there was an Allstate filing for mold
exclusion which was not approved, and which resulted in a
moratorium on homeowners' policies. He emphasized that there
are going to be even more problems if the market situation is
not improved in terms of the dominance of two companies.
REPRESENTATIVE ROKEBERG related that the lack of availability of
homeowners' policies is a national problem, which has had an
impact on the Alaskan market and needs to be addressed.
Number 0980
SENATOR CON BUNDE, Alaska State Legislature, as chair of the
Senate Labor and Commerce Committee, sponsor of SB 357,
introduced the bill. He said the bill is by request of the
administration and has some interesting, esoteric questions
about insurance in it.
Number 0989
LINDA HALL, Director, Division of Insurance, Department of
Community & Economic Development, explained the major points of
SB 357. She began by thanking Mr. Lessmeier for waiting to make
his amendment. She said that changes do need to be made in the
marketplace and in the regulatory system, and that she is very
much in favor of looking at something else besides the current
prior approval system. Alaska is one of the very few states
left that does prior approval for rates, she added. She stated
her commitment to working over the interim toward a solution
agreeable to all parties involved. She agreed that there is a
need for more markets.
MS. HALL noted that the Allstate mold issue has been finalized
and that it does point out some of the types of issues "we get
into." She said she is concerned about the homeowners' market
because of the mold problems, but also because of water claims
issues and other unattractive attributes associated with Alaska.
She stated her commitment toward working with industry toward a
major change in the system.
Number 1119
MS. HALL reported that Version I of the bill is the [Senate
Finance committee substitute (CS)] and it has six major areas of
proposed changes, which would ensure that Alaska statutes are
consistent with federal law and with some of the model Acts and
standards of the National Association of Insurance Commissioners
(NAIC). "Some are required for our accreditation process,
others have come about as a result of industry task force
meetings," she said. One of the major changes is electronic
communication and there are three sections in the bill that
provide for various communications to be performed
electronically, she reported. She said communication with the
public, for both insurers and licensees, is being improved.
MS. HALL explained that the second area of the bill deals with
late tax payments. There are four sections that revise
penalties for late payments and that make the tax statutes more
consistent with the Department of Revenue. Currently, there is
a $100-a-day late penalty for late taxes, or 25 percent. "If
you're a day late, you pay 25 percent of your tax premium. That
seemed excessive," she related. It also adds a $10,000 penalty
for willful late taxes that did not exist before, she said.
MS. HALL reported that the major changes in the reinsurance
section of the bill is the most technical piece of the bill.
She explained:
Reinsurance is the insurance insurance companies buy
to take part of the risk away from their capital and
surplus. We have a couple sections here that require
insurance - and one of the changes that was done in
the Senate Labor and Commerce [Committee] was to make
reinsurance contracts available to the Division of
Insurance. We had asked originally to have them
approved by us - that was not very acceptable and we
understood that - so we are asking, however, that we
be able to have a signed copy of the reinsurance
contracts.
Number 1236
MS. HALL reported that the fourth major change [in the bill] is
in the licensing sections and is done to make Alaska consistent
with the NAIC Producer Licensing Model Act. "We have added crop
[insurance] licenses, we have eliminated trainee licenses, we've
tried to remove some barriers for people to become licensed, and
we're requiring that surplus lines brokers be licensed, either
as producers or as managing general agents," she said.
MS. HALL explained that the fifth area of change deals with
surplus lines. "Last summer we convened a task force of
industry representatives and worked through our surplus lines
statutes and regulations to determine what really works in our
marketplace to make it more efficient, to make it reflect actual
practices," she said. One of the changes is an emergency
provision that would allow for the placement of health insurance
in a surplus lines market in cases where it is found to be in
the best interest of the public, she explained. It was a
suggestion from Washington, which suffered a health insurance
crisis a few years ago. She termed it a "cautionary measure"
and said that there are standards that have to be met before it
could occur.
MS. HALL continued to say that there are changes to document
requirements in Section 33, and responsibilities for surplus
lines placements have been added for producing brokers.
Number 1318
MS. HALL pointed out that the sixth area of change is fraudulent
activity. "Section 41 of the bill provides that a person
involved in the prevention and detection of fraudulent insurance
act would not be subject to civil liability when filing a report
or when furnishing information to others involved in the
prevention and detection of fraudulent insurance act," she
explained. It allows the fraud department of insurer A to talk
to the fraud department for insurer B, she said. There are
frequently multiple insurance companies involved in fraud in
insurance. "We would like them to be able to talk to each
other. Currently they can only talk to us," she said. This was
the number one request of the chief investigator, she added.
MS. HALL continued to discuss the changes in the bill. In the
Senate Finance CS, in Section 2, [paragraph 2] an "and" was
changed to an "or" with the intent being that any one of the
criteria in this section could make a contract invalid in
Alaska.
Number 1412
REPRESENTATIVE LYNN disclosed that one of his daughters is the
vice president of the Reinsurance Association of America in
Washington, DC.
CHAIR ANDERSON asked that Representative Lynn still vote on this
bill.
Number 1437
CHAIR ANDERSON moved to adopt Amendment 1, labeled 23-
LS1684\I.5, Bullock, 4/27/04.
REPRESENTATIVE DAHLSTROM objected for discussion purposes.
MS. HALL explained that one of the problems in the market today
is that the assigned risk pool has lost money for at least the
last six years. Five of those years Alaska had the highest loss
of any state in the country, she reported. That loss has
contributed to making Alaska an unattractive market for workers'
compensation insurers. [Amendment 1] is a proactive statement
that would require that the assigned risk pool would be self-
funding during any consecutive three-year period, she said. "We
feel strongly that the assigned risk pool should support itself
and not be subsidized by insurers," she concluded.
REPRESENTATIVE ROKEBERG asked if the high-risk pool is currently
subsidized by other carriers who participate in workers'
compensation.
MS. HALL replied this is correct. They pay the difference
between the cost of claims and the premiums collected, she
added.
REPRESENTATIVE ROKEBERG asked if the premiums collected are
based on rates established by the [Division of Insurance].
MS. HALL said it is ultimately approved by the Division of
Insurance.
REPRESENTATIVE ROKEBERG asked if the [new] language will give
the [Division of Insurance] the flexibility over time to try to
close the gap.
MS. HALL said yes. In the worker's compensation reform bill
there is a provision that would eliminate the current 25 percent
statutory cap on the differential between voluntary rates and
rates in the assigned-risk pool, she explained. This is a
proactive way of stating the pool needs to be self-funding. The
regulations currently say it should be self-funding, she added.
REPRESENTATIVE ROKEBERG inquired if there will be two different
statutes if the other bills don't pass.
MS. HALL said that there would be a 25 percent cap in that case,
which would make this impossible to do.
REPRESENTATIVE ROKEBERG said that there would be two statutes at
odds with each other.
MS. HALL said she didn't know it they would be at odds with each
other, but it would prevent the full intent of this bill from
being implemented.
REPRESENTATIVE ROKEBERG asked how much more has to be paid for a
person to be in the assigned-risk pool.
Number 1586
MS. HALL responded that currently there is an abnormal number of
small policies. The average premium in the assigned-risk pool
in the under $10,000 premium is $864, she said. The average
claim size in Alaska today is in excess of $19,000, so when
there is an $800 policy average and a $19,000 claim, it takes
roughly 8,000 policies with a premium of less than $10,000.
That $3,000 exemption from the 25 percent surcharge is part of
what has created this gap, she said.
REPRESENTATIVE ROKEBERG noted that the smaller premiums end up
being more subsidized.
Number 1638
REPRESENTATIVE DAHLSTROM removed her objection to Amendment 1.
[Amendment 1 was treated as adopted.]
Number 1646
CHAIR ANDERSON moved to adopt Amendment 2, labeled 23-
LS1684\I.7, Bullock, 5/3/04.
REPRESENTATIVE DAHLSTROM objected for discussion purposes.
MS. HALL explained that Amendment 2 will alleviate a problem due
to insolvencies. Currently, the difference between claims
collected and claims paid out is assessed back to insurance
companies, she said. That is not assessed to policyholders, so
it becomes a direct insurer obligation. "When an insurance
company becomes insolvent, their share of that loss is
reallocated among those left standing, so to speak," she said.
Amendment 2 would require insurance companies who have to brook
lost reserves for the assigned risk pool, to collateralize those
with a deposit, so when that insolvent insurer cannot pay their
portion of the assigned-risk losses, that money would be
available for the guaranteed fund, she related.
REPRESENTATIVE ROKEBERG asked how this would have applied in the
Fremont situation.
MS. HALL said that if [Amendment 2] had been in place the money
would have been available to be drawn into the guaranteed fund.
REPRESENTATIVE ROKEBERG asked how much money that would be.
MS. HALL replied, "We're asking that the full amount of their
loss reserves be collateralized."
REPRESENTATIVE ROKEBERG asked if that would be a disincentive
for new entries into the market.
MS. HALL said, "This has been a vision that industry has
supported and put forward, so I don't see it as a detriment.
And we've had wide support. In the work comp reform bill we
have done an increased deposit already. On the regular
voluntary market this is the comparable piece of that for the
assigned-risk pool, and I've not had any insurer object to
this."
REPRESENTATIVE ROKEBERG asked if other states have this type of
provision.
MS. HALL said no, but NCCI Holdings, Inc. who administers
assigned-risk pools is looking very carefully at this. "They
currently have a provision where if an insurance company Amvest
rating drops below an A-, they start asking for percentages to
be collateralized. That has not been very effective because by
the time their Amvest rating has dropped, they don't have any
money and it's difficult to collect it." She reported that NCCI
is looking at this idea on a national level.
REPRESENTATIVE ROKEBERG asked if NAIC has a position on this.
MS. HALL said she has not seen anything from NAIC.
Number 1780
REPRESENTATIVE CRAWFORD asked how the deposits are still able to
be used.
MS. HALL replied, "They can't physically use the money. They
can count for that for part of their capital surplus
requirements. The money is there to be considered as assets in
their financial statements. ... We're asking them to take part
of their capital and put it in an account set aside, [so] that
if they become insolvent, in this case, State of Alaska,
Division of Insurance, would have first right to that money as
opposed to their estate in an insolvency."
REPRESENTATIVE CRAWFORD said, "As long as they're in business,
they never get to use that again."
MS. HALL replied that they don't get to physically have use of
that money. She pointed out that they have to keep a certain
level of surplus to be able to "write business" and this would
be included in that surplus count in a financial accounting as
an asset.
REPRESENTATIVE CRAWFORD said, "So, all we're really doing is
upping the amount of reserves that they have."
MS. HALL said correct.
Number 1871
REPRESENTATIVE ROKEBERG asked for clarification on the assigned-
risk pool reserves.
MS. HALL replied, "Every quarter NCCI, as the pool and plan
administrator, sends insurance companies a billing - some of
it's cash, and sometimes - always - there is a change in
reserves, it can either be up or down, and if the reserves went
up, they would need to increase their deposit. So it's based on
just the reserves they're required to book through the plan
administrator, and their obligation to the assigned-risk pool."
REPRESENTATIVE ROKEBERG asked what that is based on.
MS. HALL replied, "Market share. If you have 50 percent market
share, you'd have 50 percent of the loss reserve obligations for
the pool," she added.
REPRESENTATIVE ROKEBERG asked if previously the current amount
of the deposit was held in [the insurer's] own balance sheet and
asset base rather than in an in-state bank.
MS. HALL said, "This would be able to be used where we can't
attach - Fremont assets, for example ... there's still money
there - but we can't get that. It's spread out among all of the
creditors, currently policyholders and claimants, but this would
be a special set-aside for the insolvent insurer's obligations
to the assigned-risk pool."
REPRESENTATIVE DAHLSTROM removed her objection to Amendment 2.
[Amendment 2 was treated as adopted.]
Number 1942
REPRESENTATIVE ROKEBERG moved to report CSSB 357(FIN), as
amended, out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, HCS
CSSB 357(L&C) was reported from House Labor and Commerce
Standing Committee.
SB 389-CORP. CONVERSION TO LIMITED LIABILITY CO.
CHAIR ANDERSON announced that the next order of business would
be SENATE BILL NO. 389, "An Act relating to the conversion of
certain corporations to limited liability companies; and
providing for an effective date."
Number 1978
JANE ALBERTS, Staff to Senator Con Bunde, Alaska State
Legislature, presented SB 389 as committee aide to the Senate
Labor and Commerce Committee, sponsor of the bill. She
explained that the bill was introduced at the request of several
Alaska Native Corporations (ANCs).
Number 2005
MARK HICKEY, Lobbyist, Aleut Enterprise Corporation, explained
that the bill is a housekeeping measure and that a number of the
ANCs support it. He said it makes one change. Current law
allows a number of business entities to convert from their
status as a business entity to that of a limited liability
company. Current law does not include corporations in that
list, and the bill would allow a corporation that is a
subsidiary to be converted, which ensures no tax loss to the
state, he related. He stated that there is a zero fiscal note
from the Department of Revenue. The change could be done
without this bill, but it would be much more cumbersome, he
said. He pointed out that there are letters of support in the
members' packets.
REPRESENTATIVE ROKEBERG asked if Title 10 is applicable to all
corporations or just to ANCs.
MR. HICKEY said, "All corporations." He noted that it is
especially applicable to regional corporations, but the change
is applicable to any corporation in the state that is a
subsidiary.
REPRESENTATIVE ROKEBERG asked if there is a witness from the
Department of Revenue.
Number 2145
CHUCK HARLAMERT, Juneau Section Chief, Tax Division of
Administrative Services, Department of Revenue, introduced
himself.
REPRESENTATIVE ROKEBERG asked if a C-type corporation is
currently able to make a conversion to a limited liability
company (LLC).
MR. HARLAMERT replied that a business could certainly reorganize
and become an LLC, but state law does not allow it to change its
status from a corporation to an LLC.
REPRESENTATIVE ROKEBERG asked if that is what the bill does.
MR. HARLAMERT replied that from his understanding, it does.
REPRESENTATIVE ROKEBERG asked how it happens.
MR. HARLAMERT said he assumes that the company hires an attorney
to file [the new status] with the Department of Commerce.
Number 2208
MR. HICKEY referred to page 1, lines 9-13, [of SB 389] and
pointed out that that is existing law, which is the list in
Title 10 that allows for a conversion to a LLC. Adding in the
change on the top of page 2 would allow corporations that are a
subsidiary to have the authority to convert to a LLC, he
explained. The Department of Law and The Department of Economic
and Community Development helped to draft this change, he said.
REPRESENTATIVE ROKEBERG asked if it is [subsection] (j) or
[subsection] (l).
MR. HICKEY said [subsection] (j).
REPRESENTATIVE ROKEBERG said it is only for subsidiaries and is
not a "free pass" for C-corporations to make a direct
conversion.
CHAIR ANDERSON said that in the [Tax Division] fiscal note it
says:
Pursuant to federal income tax law, a limited
liability company ("LLC") is an entity that is not
automatically classified as a corporation. The
default classification of a multimember business
entity organized as an LLC is a partnership and the
default classification of a single member business
entity organized as an LLC is a disregarded entity
where the owner is the taxpayer. The LLC may instead,
however, elect to be taxed as a corporation in lieu of
a default classification.
REPRESENTATIVE ROKEBERG stated that public policy is to not
allow for a very quick conversion from a C-corporation to an LLC
for tax reasons.
CHAIR ANDERSON said that is why he read the fiscal note into the
record. He continued to read, "An LLC taxable as a corporation
for federal income tax purposes is subject to the Alaska
Corporation Net Income Tax in the same manner as any other
corporation." He asked how the fear of changing status for tax
reasons might be quelled.
Number 2302
MR. HICKEY said the question also came up on the other side.
"The tax consequence at the state level is zero. We pay - in
our case we're consolidated with the parent - we pay at the
parent ... level which has the obligation for corporate income
tax based on earnings," he said. The desire to become an LLC is
not a tax issue, but is because it is cheaper to operate and a
full board will not be required. "It's also a governance issue
- the SBA (Small Business Association) rules required a fair
amount of arm's length arrangement with the subsidiary board so
we could not, in the past, have members from our parent board
sit on the board of subsidiaries," he explained. "This will
give us tighter control," he said.
TAPE 04-50, SIDE B
Number 2327
MR. HICKEY continued to say that the bill was designed so that
there is no state tax consequence, which would not have been the
case if the bill had been broadened to just "corporations".
REPRESENTATIVE ROKEBERG said he assumes one reason Mr. Hickey
would like to make this change is if he has joint venture
operations then it would be easier to form under an LLC. He
asked if that is correct.
MR. HICKEY replied, "Well, we want to protect the ability to do
joint venture and that's why it's by one or more parent corps.
But the tax consequence with that case will, based on your level
of ownership, will accrue with each corporation, so we have 80
percent ownership, we'll have 80 percent."
REPRESENTATIVE ROKEBERG said the point he was getting to is,
"You're actually not going to really be doing that as a tax
avoidance method for Alaska corporate taxes because ultimately
you'd have to return your net profits back to the parent
corporation at which time there'd be a tax ...." He asked if
that is correct.
Number 2288
MR. HARLAMERT replied that the LLC is a non-entity for tax
purposes. It's either going to be treated as a partnership or
the income goes to the owners as it's earned and it's taxed as
it's earned.
REPRESENTATIVE ROKEBERG asked if a class C-corporation could be
an owner of an LLC.
MR. HARLAMERT replied absolutely. They could still elect tax
treatment of that LLC as a partnership where they pay the tax on
the income as it's earned, or to treat it as a corporation.
Generally, it would be consolidated, and the same result, he
added.
Number 2250
REPRESENTATIVE LYNN moved to report SB 389, Version 23-LS1923\D,
out of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, SB 389 was
reported from the House Labor and Commerce Standing Committee.
SB 365-SPEECH-LANGUAGE PATHOLOGIST ASSISTANTS
CHAIR ANDERSON announced that the final order of business would
be the CS FOR SENATE BILL NO. 365(FIN), "An Act relating to the
regulation of speech-language pathologist assistants; and
providing for an effective date."
Number 2229
JANE ALBERTS, Staff to Senator Con Bunde, Alaska State
Legislature, presented SB 365 as committee aide to the Senate
Labor and Commerce Standing Committee, sponsor of the bill.
This bill establishes registration of speech-language
pathologist assistants through the department of occupational
licensing, she explained. Currently, speech pathology
assistants (SLPAs) in Alaska are not licensed or regulated like
similar professions of physical and occupational therapy
assistants. The bill outlines qualifications and training
required to be an SLPA, their scope of practice, supervision,
and continuing education requirements, she reported. She
continued:
The bill will mandate that SLPAs be regulated and
supervised, which insures that the consumer is
receiving appropriate language services. This will
increase the frequency of services to clients while
maintaining service quality. The use of the SLPAs
will be crucial in rural and remote regions in Alaska,
and may be some of the only ways that folks needing
those services in these areas will be able to get
their services, and that's through the use of these
assistants.
There's currently a shortage of qualified SLPAs in
Alaska. I believe there's about 230 currently in the
state. This bill will give credentials and supervised
authority to SLPAs to administer specific services to
clients once they are reviewed by the speech-language
pathologist. It must be made clear, however, that the
use of an SLPA is not meant to replace the work of a
speech-language pathologist, but to extend their
services. Currently SLPAs are licensed through the
Department of Economic Development.
There were a couple changes made in Senate Finance to
this bill that were technical language changes that
clarified that the SLPAs could not conduct feeding and
swallowing screenings. Apparently, in this industry,
that's very technical screening that can only be done
by a licensed speech pathologist. There were four
technical changes made in Senate Finance to this bill.
MS. ALBERTS noted that the fiscal note is fee-based with a
biennial registration fee of approximately $133.
Number 2093
LAURA YOUNG-CAMPBELL, Speech-Language Pathologist, Matanuska-
Susitna School District; Member, Alaska Speech-Language Hearing
Association, testified that her workload has increased
significantly due to paperwork and other duties created by
Individuals with Disabilities Education Act (IDEA) and No Child
Left Behind, and that has caused her to have less time to work
with students. An assistant would be able to help take on
duties such as scheduling meetings with parents, provide
prescribed therapy, and follow a treatment plan for students
with disabilities, she explained. An assistant would allow the
students to complete their Individual Education Plan (IEP) goals
faster and allow them to return to the classroom and experience
academic success. An assistant would also be a cost saving to
the school district and to the state when the time frame for the
treatment plan is cut down, she opined. An assistant would also
enable smaller teaching groups, which, according to the National
American Speech-Language-Hearing Association, allows for faster
progress by children. The SLPA would be supervised by a speech-
language pathologist and would have a specific scope of practice
to follow, she concluded.
Number 2023
REPRESENTATIVE GATTO thanked Ms. Campbell for the work she does.
He pointed out that his minor was in speech pathology and he
said he understands the amount of paperwork that is involved in
her job.
REPRESENTATIVE ROKEBERG asked if there is an existing board
which would supervise the SLPAs.
MS. YOUNG-CAMPBELL replied that it would be through the
[Division] of Occupational Licensing, [Department of Community
and Economic Development].
REPRESENTATIVE ROKEBERG asked if there is a board for speech-
language pathologists.
MS. YOUNG-CAMPBELL replied no.
Number 1984
REPRESENTATIVE ROKEBERG asked if speech-language pathologists
are currently licensed under occupational licensing.
MS. YOUNG-CAMPBELL said that some are [licensed] through the
[Division] of Occupational Licensing and some are [licensed]
through the Department of Education.
CHAIR ANDERSON asked if this bill would bring all licensing
under one statute.
MS. YOUNG-CAMPBELL replied that it is only for assistants. Both
the Department of Education and the Division of Occupational
Licensing would follow the bill's guidelines when hiring
[SLPAs], she explained.
REPRESENTATIVE ROKEBERG asked if this bill is needed to set up a
competency level for SLPAs.
MS. YOUNG-CAMPBELL said yes.
REPRESENTATIVE ROKEBERG asked if there is a minimum level of
education required.
MS. YOUNG-CAMPBELL replied that Prince William Sound Community
College has a two-year SLPA program and 100 hours of supervised
clinical practice, which fall under the guidelines of the No
Child Left Behind Act.
REPRESENTATIVE ROKEBERG asked if a person would have to go to
Valdez to get this degree.
MS. YOUNG-CAMPBELL said that it is a distance-delivery program
and it is currently the only program in Alaska.
Number 1863
CHAIR ANDERSON closed public testimony.
Number 1855
REPRESENTATIVE DAHLSTROM moved to report CSSB 365(FIN), Version
23-LS0540\S, out of committee with individual recommendations
and the accompanying fiscal notes. There being no objection,
CSSB 365(FIN) 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
5:30 p.m.
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