Legislature(1995 - 1996)

01/31/1996 03:10 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                          
                        January 31, 1996                                       
                           3:10 p.m.                                           
 MEMBERS PRESENT                                                               
 Representative Pete Kott, Chairman                                            
 Representative Norman Rokeberg, Vice Chairman                                 
 Representative Beverly Masek                                                  
 Representative Jerry Sanders                                                  
 Representative Brian Porter                                                   
 Representative Kim Elton                                                      
 Representative Gene Kubina                                                    
 MEMBERS ABSENT                                                                
 All members present                                                           
 COMMITTEE CALENDAR                                                            
 HOUSE CONCURRENT RESOLUTION NO. 24                                            
 Relating to student loan default rates at vocational education                
      - PASSED CSHCR 24(L&C) OUT OF COMMITTEE                                  
 HOUSE BILL NO. 319                                                            
 "An Act relating to the regulation of small loan and retail                   
 installment transactions."                                                    
      - PASSED CSHB 319(L&C) OUT OF COMMITTEE                                  
 SENATE BILL NO. 160 am                                                        
 "An Act excluding certain employment by students from the                     
 definition of 'employment' in the state employment security laws."            
      - PASSED SB 160 AM OUT OF COMMITTEE                                      
 HOUSE BILL NO. 414                                                            
 "An Act requiring conciliation panel review in a civil action                 
 against an architect, engineer, or land surveyor; and providing for           
 an effective date."                                                           
      - SCHEDULED BUT NOT HEARD                                                
 HOUSE BILL NO. 187                                                            
 "An Act relating to deregulation of public utilities furnishing               
 collection and disposal service of waste material."                           
      - BILL HEARING CANCELLED                                                 
 SENATE BILL NO. 131                                                           
 "An Act relating to investments by fiduciaries."                              
      - POSTPONED UNTIL FEBRUARY 7, 1996                                       
 PREVIOUS ACTION                                                               
 BILL:  HCR 24                                                               
 SPONSOR(S): LABOR & COMMERCE                                                  
 JRN-DATE     JRN-PG                  ACTION                                   
 01/26/96      2540    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 01/26/96      2540    (H)   LABOR & COMMERCE                                  
 01/31/96              (H)   L&C AT 03:00 PM CAPITOL 17                        
 BILL:  HB 319                                                               
 SPONSOR(S): LABOR & COMMERCE BY REQUEST                                       
 JRN-DATE     JRN-PG                  ACTION                                   
 04/22/95      1451    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/22/95      1452    (H)   LABOR & COMMERCE, FINANCE                         
 01/24/96              (H)   L&C AT 03:00 PM CAPITOL 17                        
 01/24/96              (H)   MINUTE(L&C)                                       
 01/31/96              (H)   L&C AT 03:00 PM CAPITOL 17                        
 BILL:  SB 160 AM                                                            
 SPONSOR(S): SENATOR(S) TORGERSON, Halford                                     
 JRN-DATE     JRN-PG                  ACTION                                   
 04/20/95      1106    (S)   READ THE FIRST TIME - REFERRAL(S)                 
 04/20/95      1106    (S)   LABOR & COMMERCE                                  
 05/02/95      1416    (S)   L&C RPT  3DP 2NR                                  
 05/02/95      1416    (S)   ZERO FISCAL NOTE (LABOR)                          
 05/02/95              (S)   L&C AT 01:30 PM FAHRENKAMP RM 203                 
 05/02/95              (S)   MINUTE(L&C)                                       
 05/02/95              (S)   RLS AT 11:55 PM FAHRENKAMP ROOM 203               
 05/02/95              (S)   MINUTE(RLS)                                       
 05/05/95      1526    (S)   RULES RPT  3CAL 2DNC      5/5/95                  
 05/05/95      1528    (S)   READ THE SECOND TIME                              
 05/05/95      1528    (S)   AM NO  1     ADOPTED UNAN CONSENT                 
 05/05/95      1528    (S)   ADVANCE TO THIRD READING FLD Y12 N7 E1            
 05/05/95      1528    (S)   THIRD READING 5/7 CALENDAR                        
 05/07/95      1596    (S)   READ THE THIRD TIME  SB 160 AM                    
 05/07/95      1596    (S)   PASSED Y14 N5 E1                                  
 05/07/95      1596    (S)   DUNCAN  NOTICE OF RECONSIDERATION                 
 05/08/95      1665    (S)   RECONSIDERATION NOT TAKEN UP                      
 05/08/95      1666    (S)   TRANSMITTED TO (H)                                
 05/09/95      2037    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 05/09/95      2037    (H)   LABOR & COMMERCE                                  
 01/29/96              (H)   L&C AT 03:00 PM CAPITOL 17                        
 01/29/96              (H)   MINUTE(L&C)                                       
 01/31/96              (H)   L&C AT 03:00 PM CAPITOL 17                        
 WITNESS REGISTER                                                              
 GEORGE DOZIER, Committee Aide                                                 
 House Labor and Commerce Committee                                            
 Alaska State Legislature                                                      
 Capitol Building, Room 432                                                    
 Juneau, Alaska 99801                                                          
 Telephone:  (907) 465- 3306                                                   
 POSITION STATEMENT:  Gave sponsor statement for HCR 24 and HB 319.            
 DIANE BARRANS, Executive Director                                             
 Alaska Postsecondary Education Commission;                                    
 and Executive Officer, Alaska Student                                         
 Loan Corporation                                                              
 Department of Education                                                       
 3030 Vintage Boulevard                                                        
 Juneau, Alaska 99801-7109                                                     
 Telephone:  (907) 465-6740                                                    
 POSITION STATEMENT:  Answered questions relating to HCR 24.                   
 JENNIFER DEITZ, Owner                                                         
 Career Academy; President, State                                              
 Association of Private Career Schools                                         
 1415 East Tudor Road                                                          
 Anchorage, Alaska 99501                                                       
 Telephone:  (907) 563-7575                                                    
 POSITION STATEMENT:  Testified on HCR 24.                                     
 MILTON BIRD, President                                                        
 Charter College; Member, Alaska                                               
 Postsecondary Education Commission                                            
 221 East Northern Lights Boulevard                                            
 Anchorage, Alaska 99503                                                       
 Telephone:  (907) 272-8585                                                    
 POSITION STATEMENT:  Commented on the Alaska Postsecondary                    
                      Education Commission.                                    
 SARA EDDINGS, Owner                                                           
 New Concepts Beauty School                                                    
 3677 College Road, Number 4                                                   
 Fairbanks, Alaska 99709                                                       
 Telephone:  (907) 452-4684                                                    
 POSITION STATEMENT:  Commented on the Alaska Postsecondary                    
                      Education Commission.                                    
 ANN ADASIAK ANDREW                                                            
 SST Travel Schools of Alaska                                                  
 221 East Northern Lights Boulevard                                            
 Anchorage, Alaska 99503                                                       
 Telephone:  (907) 272-8585                                                    
 POSITION STATEMENT:  Commented on the Alaska Postsecondary                    
                      Education Commission.                                    
 MITCH GRAVO, Lobbyist                                                         
 170 Botanical Circle                                                          
 Anchorage, Alaska 99515                                                       
 Telephone:  (907) 244-2406                                                    
 POSITION STATEMENT:  Testified in support of HCR 24.                          
 JOHN HIGGINS, General Manager                                                 
 Northland Credit Corporation                                                  
 3031 Brookview Street                                                         
 Anchorage, Alaska 99504                                                       
 Telephone:  (907) 562-0266                                                    
 POSITION STATEMENT:  Testified in support of CSHB 319(L&C).                   
 WILLIS F. KIRKPATRICK, Director                                               
 Division of Banking, Securities                                               
   and Corporations                                                            
 Department of Commerce and Economic Development                               
 P.O. Box 110807                                                               
 Juneau, Alaska 99811-0907                                                     
 Telephone:  (907) 465-2521                                                    
 POSITION STATEMENT:  Testified on CSHB 319(L&C).                              
 JERRY REINWAND, Lobbyist                                                      
 Sears, JC Penney, Safeway                                                     
   and Fred Meyer                                                              
 2 Marine Way, Number 219                                                      
 Juneau, Alaska 99801                                                          
 Telephone:  (907) 586-8966                                                    
 POSITION STATEMENT:  Testified in support of CSHB 319(L&C).                   
 MARY JACKSON, Legislative Staff                                               
   to Senator John Torgerson                                                   
 Alaska State Legislature                                                      
 Capitol Building, Room 427                                                    
 Juneau, Alaska 99801                                                          
 POSITION STATEMENT:  Gave sponsor statement for SB 160 AM.                    
 DWIGHT PERKINS, Special Assistant                                             
 Department of Labor                                                           
 P.O. Box 21149                                                                
 Juneau, Alaska                                                                
 POSITION STATEMENT:  Testified in opposition to SB 160 AM.                    
 ACTION NARRATIVE                                                              
 TAPE 96-4, SIDE A                                                             
 Number 001                                                                    
 The House Labor and Commerce Standing Committee was called to order           
 by Chairman Pete Kott at 3:10 p.m.  Members present at the call to            
 order were Representatives Kott, Rokeberg, Masek, Sanders, Elton              
 and Kubina.                                                                   
 Number 091                                                                    
 CHAIRMAN PETE KOTT announced the first order of business would be             
 HCR 24, Relating to student loan default rates at vocational                  
 education schools.  He noted at a meeting the previous week the               
 committee members were given a proposed draft of the resolution               
 based on the work session the previous week.  Changes were                    
 incorporated into the resolution as a result of discussions.                  
 GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee             
 Alaska State Legislature, said HCR 24 is a resolution which                   
 contains nothing that was not discussed at the previous meeting.              
 It urges the Governor to request that the Alaska Postsecondary                
 Education Commission (APEC) to immediately cease implementation of            
 the 150 percent regulation.  It also urges the Governor to take               
 whatever steps are necessary to rescind this particular regulation,           
 20 AAC 15.925.  The resolution also urges the Governor to request             
 that the APEC work and consult with those individuals who are                 
 involved with the issue.                                                      
 Number 223                                                                    
 REPRESENTATIVE BEVERLY MASEK referred to the suggested amendments             
 from the previous meeting on the measure and asked if they were               
 added into the resolution.                                                    
 CHAIRMAN KOTT indicated they were.  He asked Mr. Dozier to review             
 the amendments.                                                               
 MR. DOZIER informed the committee he didn't have his notes from the           
 last meeting, but from what he could remember, the major                      
 substantive change was to add verbiage to the second resolved                 
 section which is the last paragraph of the resolution.  The words             
 added were, "and to craft a more equitable loan default                       
 regulation."  Mr. Dozier noted stylistic changes were made.  The              
 draft resolution that was circulated referred to the commissioner             
 of Postsecondary Education.  He said there isn't a commissioner.              
 It is a commission.                                                           
 CHAIRMAN KOTT referred to the second "Resolved" section and said              
 the way it was drafted and submitted by the subcommittee, it had a            
 "Further Resolved" section that said, "The Governor is respectfully           
 requested to request".  It was changed to "urged".                            
 Number 335                                                                    
 REPRESENTATIVE MASEK referred to page 1, line 17, and said she                
 believes a representative had brought up the issue about changing             
 the wording, "has no authority to conduct credit checks on                    
 potential borrower;".  She asked if this wasn't discussed at the              
 previous meeting.                                                             
 CHAIRMAN KOTT said he believes that wording wasn't changed.                   
 Number 401                                                                    
 REPRESENTATIVE KIM ELTON said he believes the only question that              
 come up was that the committee wanted to make sure that this wasn't           
 encouraging the commission to establish a credit check.  He said              
 the only concern he has about the resolution is that he is assuming           
 that this is just one element of the final solution to this                   
 problem.  He said he would like a brief understanding of what is              
 going to happen to SB 123.  Representative Elton said he is                   
 somewhat concerned that the committee doesn't just say that we've             
 dealt with the issue.  This is done.  That has done nothing to                
 raising the loan limits or anything else.                                     
 CHAIRMAN KOTT said he can't speak directly to that, but he said he            
 would like to submit that what will happen with SB 123 once HCR 24            
 is passed, is there is no reason to believe the Governor will take            
 any action.  If in fact the Governor goes along with the                      
 resolution, he would suspect that SB 123 will then be a vehicle               
 that could be used for change.  Chairman Kott said if you recall              
 from the previous session, a Free Conference Committee was                    
 appointed by the House for SB 123.  There were no appointees made             
 by the Senate President.  He said he understands they are currently           
 in that process or have already appointed members to that                     
 conference committee with free powers.  His understanding of the              
 rules, at that point, is that we have free liberty to do anything             
 to that bill, including maybe incorporating some of the problem               
 areas.  If the details could be worked out in the conference                  
 committee, a large part of the problem could be solved.                       
 Number 555                                                                    
 REPRESENTATIVE NORMAN ROKEBERG referred to the fiscal note and said           
 he finds it disturbing.  It claims there is a $445 thousand                   
 potential loss because of the resolution.  He again stated he finds           
 that somewhat disturbing because he was under the impression that             
 even the APEC was willing to suspend it if there were negotiations.           
 REPRESENTATIVE KOTT said the passage of this resolution does not              
 incur any fiscal obligation.  We don't know what the Governor will            
 or will not do, but there would be no fiscal obligation whatsoever.           
 He said he is also curious there isn't a step too many as far as              
 the fiscal impact.                                                            
 Number 665                                                                    
 DIANE BARRANS, Executive Director, Alaska Postsecondary Education             
 Commission, Department of Education; and Executive Officer, Alaska            
 Student Loan Corporation, came before the committee.  She said she            
 has some comments on HCR 24 that she would submit in writing.  Ms.            
 Barrans said she also has written comments from Eric Forrer, the              
 current chair of the commission.  Ms. Barrans stated there are                
 issues of accuracy with the statements in the resolution.  The                
 members of the committee, having entertained testimony, will                  
 probably be considered the resident experts in the House on the               
 resolution.  She said she would offer the corrective data if the              
 committee would like to incorporate it into the resolution.                   
 Specifically, she said she would like to reference page 1, lines 5            
 through 8.  It indicates some percentages reflecting default                  
 activity at particular sectors of postsecondary education in                  
 Alaska.  They are not reflective of what the commission has found             
 in studying the period of 1986 through the end of last year, which            
 showed that about 30 percent of the dollars in default were made to           
 attend for profit schools in Alaska, whereas approximately 34                 
 percent was from the loans made to the University of Alaska.  She             
 said there are several points that will be included in her                    
 testimony that the committee may want to consider.  Ms. Barrans               
 said she would like to add, to the record, that if there is any               
 criticism of the regulation that has been promulgated, the members            
 of the commission serve in very good faith.  They have listened to            
 public testimony and deliberated on the regulation at length.  They           
 did approve the implementation plan.  If there is any criticism to            
 be issued on this point, she believes it would be more                        
 appropriately directed to staff.  She said she would not want to              
 see public servants, serving without compensation, criticized on              
 that point.                                                                   
 CHAIRMAN KOTT said he thinks the accuracy of the resolution should            
 be there.  He indicated he doesn't want to suggest inaccurate                 
 information.  Chairman Kott asked Ms. Barrans to comment on the               
 numbers on page 1, lines 5 through 8.                                         
 MS. BARRANS stated that has been addressed specifically in her                
 written comments.  The period that the commission looked at, which            
 was fiscal year (FY) 87 through FY95, approximately $60 million was           
 loaned to for profit schools.  Almost $20 million of that is in               
 default.  Of the $130 million that was loaned to Alaska public                
 postsecondary schools, approximately $21.7 million of that is in              
 default.  She noted she has the associated percentages.  It doesn't           
 jive quite with what is in the resolution.  She indicated that the            
 numbers were drawn from a document which compared some of the                 
 commission's loan data base files to the data base at the                     
 Department of Labor (DOL).  The numbers have been taken somewhat              
 out of context and don't accurately portray the percentages that              
 the resolution reflects.                                                      
 CHAIRMAN KOTT asked Ms. Barrans if she had the percentages                    
 available.  MS. BARRANS said she could get the percentages to the             
 Number 974                                                                    
 REPRESENTATIVE JERRY SANDERS asked Ms. Barrans if there is a                  
 possibility of tightening the time frame up as he understands there           
 were a lot of abuses earlier in which some of them might have been            
 cleared up.  He asked if there was a chance of getting something              
 for the last three years and if that would give a better picture.             
 MS. BARRANS said it would give a better picture of the last three             
 years.  She said they attempted to create a situation where they              
 could compare apples to apples.  Since the Alaska Student Loan                
 Program default rate is cumulative for the entire period of the               
 loan, they tried, to some extent, duplicate that.  What they found            
 in looking at the data was loans made prior to 1986, had gone                 
 through two separate computer conversions and had been flattened              
 over that process.  In order to associate those borrowers with the            
 schools they attended it would require someone sitting down and               
 looking them up individually.  What they did was they took it                 
 beginning the year that the statute went into place, 1987 and 1987            
 forward.  Ms. Barrans explained the commission approved an                    
 implementation plan that could be reconsidered.  That is probably             
 getting to the meat of the issue, which is not the regulation which           
 is simply setting out what is in the numerator and the denominator            
 of the default rate calculation, but rather the time frame that the           
 calculation will be applied to.  She said the commission would                
 revisit that.  The short answer is, "Yes."                                    
 Number 1246                                                                   
 REPRESENTATIVE GENE KUBINA asked Ms. Barrans if her goal is to do             
 away with the schools receiving the funds.  MS. BARRANS said                  
 absolutely not.  There are two major issues.  One is the financial            
 strength of the loan program.  When you can point to a particular             
 sector, this is consistent with what has happened nationwide, which           
 has a much higher default rate, that raises the issue of, "Is the             
 consumer getting what they're paying for?"  If they aren't, "Who is           
 sharing in that risk?"  Currently, the student and the loan program           
 share in that risk.                                                           
 REPRESENTATIVE KUBINA referred to the work session where Gillian              
 Hays testified and said he thought it was real clear how punitive             
 that the regulation was at that time and how it doesn't give a one            
 year grace period to bring it down.  It doesn't do anything that is           
 common sense.  He said here we are spending hours during a short              
 period of legislative time.  Representative Kubina said he is real            
 disappointed.  It seems like the commission should have come to the           
 legislature with a way to solve this problem without the committee            
 having to write the resolution.  He asked if it doesn't seem that             
 the resolution, in retrospect, is not a very good way to deal with            
 this problem.                                                                 
 MS. BARRANS said she believes this whole conversation began when              
 Dr. McCormick was the executive director of the commission.  She              
 said she thinks the way he would have chosen to deal with the high            
 risk schools would be to reduce the risk through lower loan                   
 maximums.  He worked to support SB 123 that would have done just              
 that and would have made the current conversation, to some extent,            
 go away.  Ms. Barrans said the concern the commission has is that             
 the money they loan to the borrowers no longer is just the money of           
 the state of Alaska.  It belongs to the private sector, the bond              
 holders.  She said they are truly obligated to repay them, even if            
 means ceasing to make new loans.  Ms. Barrans said the input they             
 have had from their insurer, AMBACK who underwrites all but two of            
 the bond issues of the corporation, has grown increasingly                    
 concerned over the last two or three years because the commission             
 has resisted to make large loans to students where their data shows           
 that they are less likely to succeed and be able to repay their               
 loan.  Within that context, she thinks the commission and Dr.                 
 McCormick felt that some action that had an immediate benefit to              
 loan fund was called for.  That is the position that the commission           
 took when they adopted the regulation.                                        
 REPRESENTATIVE KUBINA pointed out Dr. McCormick was no longer with            
 the commission and asked how long he has been gone.  MS. BARRANS              
 said he left in August.                                                       
 REPRESENTATIVE KUBINA asked if the commission members and staff               
 have talked amongst themselves and thought if this is still the               
 best way to address that issue.  MS. BARRANS said they have had               
 that conversation on the staff level.  The commission heard                   
 testimony, in December, on this and didn't change the                         
 implementation plan at that point.  There was an open invitation by           
 the chairman at that point that is on the record soliciting input             
 from the schools asking them to advise the commission on what might           
 be reasonable cause to exempt certain students from the calculation           
 and what might be issues having to do with the appeal process for             
 a school that wished to appeal a high institutional default rate.             
 She said to date, they have received nothing in writing in response           
 to Commissioner Forrer's request.  She again noted that is on                 
 Number 1313                                                                   
 CHAIRMAN KOTT said he can appreciate the work Dr. McCormick did on            
 SB 123, but it seems like we've somewhat gone in opposite                     
 directions.  We do have an obligation to the bonding authorities.             
 Put aside percentages of students and look at just total dollars.             
 He asked if it isn't a fact that 80 percent, or better, of the                
 total dollars in default are represented by students attending                
 universities and colleges.  He asked if that doesn't come into                
 play.  Because of the liberal mechanism that we have, that                    
 essentially transfers a check to a student through the registrar's            
 office or however they do it, the person has cash in hand.                    
 Representative Kott said he remembers two years his son said, "Dad,           
 I'm gonna get a student loan because I need a new car."  Chairman             
 Kott responded to his son, "No, you're not."                                  
 MS. BARRANS said she believes that number is inflated.  It is not             
 80 percent of the loans in default.  She said in the period between           
 1986 and 1995, of the $40 some million in default, $20 million went           
 to for profit schools and $21.7 went to the public universities.              
 She said she would have to defer an absolute answer to the question           
 and get that information to him.  She said she doesn't believe it             
 is an 80/20 split.                                                            
 CHAIRMAN KOTT said he recalls an earlier discussion he had with               
 someone and it may have been that it went back to FY85 or FY86 and            
 worked forward, but it seems like if our whole intent is to reduce            
 default rates and reduce that pool of money that is in default, SB
 123 basically increases the amount available to those traditional             
 students attending universities and colleges, while at the same               
 time, it reduces the money that is available to the vocational and            
 technical students.                                                           
 MS. BARRANS said it is actually somewhat consistent with how they             
 administer loans for traditional colleges and universities.  A                
 student who signs up for a loan program for single semester does              
 not qualify for a maximum loan amount.  They qualify for a prorata            
 amount.  They can receive only $2,750 rather than $5,500.  That is            
 for a 3 1/2 month period.  So, to some extent, SB 123 approach is             
 quite consistent with what they are already doing with traditional            
 college or university students.                                               
 Number 1460                                                                   
 CHAIRMAN KOTT asked if it is also true that for profit schools can            
 also include private universities.  MS. BARRANS said it absolutely            
 can.  She noted one of the clarifications in her written testimony            
 is that this is not targeted at vocational educational                        
 institutions.  It is targeted at for profit institutions.  She said           
 when the commission releases data next month, there are some                  
 schools that are junior colleges that offer associate degrees                 
 generally, but there are some baccalaureate that are included in              
 the for profit pool.  It is just that overwhelmingly, that sector             
 is vocational education.                                                      
 Number 1506                                                                   
 JENNIFER DEITZ, Owner, Career Academy; and President, State                   
 Association of Private Career Schools, testified via teleconference           
 from Anchorage.  She said she is encouraged because she has been              
 trying to encourage the legislature and the commission to bring               
 proprietary to the table to find resolution.  Ms. Deitz referred to           
 attending a number of meetings since she was in Juneau the previous           
 week and said she sees some progress being made towards finding a             
 resolution and making a good default manager program.  She stated             
 she supports the resolution and is very interested in receiving               
 comments on her response to the technical changes to HCR 24.                  
 Number 1574                                                                   
 MILTON BIRD, President, Charter College; and Member, Alaska                   
 Postsecondary Education Commission, testified via teleconference              
 from Anchorage.  He noted Charter College is a two year degree                
 granting private institution.  Mr. Bird said he would like to                 
 share, with the committee, the sense that he detected when the                
 commission took the action addressed in the resolution.  The                  
 commission was told that they were dealing with a statute that had            
 been adopted eight years earlier.  The commission felt they had no            
 choice but to develop regulations to accommodate the statute.  Mr.            
 Bird said he didn't know how many of the commission members were              
 displeased with what they had to take action on, but he certainly             
 was.  The commission had done some very good work over the years.             
 The commission has also done some work that might be called                   
 negligent with reference to collections.  Mr. Bird said the                   
 commission has provided some excellent framework for regulating               
 institutions and protecting students.  He said the commission's               
 staff, for whatever reason, has not done a good job of collections.           
 Over the past few years, actions are being taken to improve that              
 condition.  The computer programs are being upgraded, good                    
 additional staff has been added.  Mr. Bird said he believes there             
 is a record, during the resent past, of improvement in collections.           
 Part of the problem is attributable to the inadequacy of the                  
 commission in its collection activities.  Mr. Bird said that ends             
 his testimony.                                                                
 CHAIRMAN KOTT said it is his understanding that in recent months,             
 there has been a stepped up effort to go after those students who             
 aren't paying their debt.                                                     
 Number 1700                                                                   
 SARA EDDINGS, Owner, New Concepts Beauty School, testified via                
 teleconference from Fairbanks.  Ms. Eddings said she believes that            
 the commission is certainly trying to do their best at resolving              
 this problem.  She said she believes that many of the private                 
 vocational school sectors are asking to be included in the default            
 management program and not to eliminate them, at this point in                
 time, by eliminating their process or participation in the loan               
 program.  She thanked the committee for listening to her.                     
 MR. BIRD said he would like to make one additional comment.  He               
 said the reality is that the people who don't pay loans don't have            
 the money to pay loans.  Poor people don't repay their loans.  Mr.            
 Bird said we know there are some people who can afford to repay               
 their loans at all levels and don't.  He referred to vocational               
 schools and said they serve those who come from the lower socio               
 economic sector of the society.  Many of them are (indisc.) who had           
 difficulty with education in the past.  Many of them face                     
 hardships.  They come to vocational education as a way to solve               
 their problem.  Many do, many succeed, some don't.  Some, for                 
 whatever reason, drop out before they complete programs.  It is               
 also true that students from that segment of society attend                   
 universities and many of them fail and don't pay their loans.  Mr.            
 Bird referred to those who don't repay loans, no matter if they go            
 to vocational, for profit, non for profit, universities or junior             
 colleges, the people who have difficulty, the people who drop out,            
 the people who come from lower socio economic sectors of the                  
 society do not repay loans.  Mr. Bird said he thinks the committee            
 would find that those who go the universities, who don't repay                
 loans, come from that same sector.  He stated that issue needs to             
 be addressed by the society.  The vocational schools, he believes,            
 do an excellent job.  He said he gives credit to the commission for           
 its regulatory procedures.  They do an excellent job in serving               
 many students.  Many of those institutions have high placement                
 rates for their graduates.  He thanked the committee.                         
 Number 1845                                                                   
 ANN ADASIAK ANDREW, SST Travel Schools of Alaska, was next to                 
 testify via teleconference from Anchorage.  She referred to the               
 Alaska Postsecondary Education Commission meeting held in December,           
 1995, and said she doesn't feel that organizations like hers, as              
 members of the public, were allowed adequate time for giving                  
 testimony.  As she recalls, the resolution was discussed and passed           
 by the members of the commission before several organizations had             
 the opportunity to give public comment.  Ms. Andrew said she                  
 believes that at other meetings, members of the public weren't                
 allowed to give their input before a decision was made.  She said             
 she is now looking forward to the opportunity to work with the new            
 subcommittee, continue communications and to participate in some              
 sort of solution.  Ms. Andrew said she doesn't feel that the                  
 default rate or whether or not students default is an adequate way            
 of measuring the success of a school and their quality of training.           
 There are people who graduate and have jobs, but for whatever                 
 reason, they don't feel obligated to pay back the loan.  Ms. Andrew           
 said despite programs in relation to loan counseling, entrance and            
 exiting interviews, if a student decides not to pay a loan, it is             
 very difficult to understand why a school should be penalized for             
 a students negligence.  The school has done their part in                     
 adequately training and placing individuals.  She thanked the                 
 committee for listening to her.                                               
 Number 1938                                                                   
 MITCH GRAVO, Lobbyist, came before the committee to testify.  He              
 stated he represents the private career school educators.  Mr.                
 Gravo said on behalf of the association, he has had several                   
 conversations with the new chairman of the corporation and at least           
 one meeting with the new chairman and executive director of the               
 corporation.  He noted he has also had at least one conversation              
 with the Governor.  Mr. Gravo said it is clear to him that there is           
 a new focus by the staff and commission.  This focus is that, "We             
 have a problem, we have a default rate problem.  We're gonna solve            
 that problem.  We're gonna put together a global solution and you,            
 the private school sector, have to part of that solution, but we're           
 also gonna make everyone else part of that solution.  And we're               
 gonna put a, with 123 and with the passage of this resolution, a              
 default management program together.  And we're all gonna work                
 together to solve this program.  We're not just gonna put the                 
 burden on the private school sector to solve itself."  Mr. Gravo              
 said he believes the resolution is necessary and it sends a strong            
 message.  He said he thinks it will be well received by the                   
 Governor as he is very interested in this issue.  Mr. Gravo said he           
 sees some positive progress being made in conversations he had with           
 the commission, the staff and the Administration.                             
 Number 2070                                                                   
 CHAIRMAN KOTT called Ms. Barrans to the table.  He said there was             
 a comment made by Mr. Bird where he said we ought to look at the              
 social economics of the issues.  Chairman Kott said he doesn't                
 believe Mr. Bird was advocating that we don't provide loans for               
 poor people.                                                                  
 CHAIRMAN KOTT asked Ms. Barrans if there is a study that looks at             
 the socio economic condition of students.  He said it would appear            
 to him that those who attend vocational schools would be typically            
 be those that if they did not succeed or find a job in that                   
 vocation, would probably remain in the state of Alaska.  Therefore,           
 because we're doing things with permanent fund dividends, it seems            
 it would seemingly be easier to make collections against those                
 Representative Porter arrived at 3:45 p.m.                                    
 MS. BARRANS said over the past year, they collected about $6                  
 million in permanent fund dividend garnishment.  It is a tool and             
 is one way the defaulted loan balance, short of having people begin           
 to repay their loans, is being eaten away at as far as the older              
 defaulted loans.  Of course, there are new people going into                  
 default on a daily basis.                                                     
 CHAIRMAN KOTT asked how those default rates are affected by those             
 students who end up having their permanent fund or wages garnished.           
 He also asked if those are still reflected in the percentages.                
 MS. BARRANS said as long as they're in default, which means they              
 have a payment that is 120 days or more past due, the defaulted               
 balance continues to be calculated in the program default rate.               
 CHAIRMAN KOTT said if someone is in default in June, and the                  
 permanent fund dividend check is released in October, at which                
 point the state gets their hands on their portion of it, are they             
 still part of that default percentage or since they are now paid in           
 full, they're taken out of that pool.  MS. BARRANS informed the               
 committee that any account that is either paid current, as in no              
 payments currently due, or an account that is paid in full, leaves            
 the default calculation.  It is no longer considered to be in                 
 default if it has been zeroed out or there are no payments                    
 CHAIRMAN KOTT referred to page 1, lines 5 through 8, which talks              
 about percentages and said it seems like those numbers would be               
 ever shifting.  He said he would think that on a daily basis, there           
 are students going into default and students coming out of default.           
 MS. BARRANS said that is correct.  She referred to the snapshot               
 they did in order to implement the calculation in regulation and              
 said it was done December 31, 1995.  Ms. Barrans said they issue a            
 program default rate once a year that is published in the official            
 statement of the corporation.  She said when we look at trends of             
 the default rate over years, that is generally the number they                
 take.  An official statement from three or four years ago showed a            
 program default rate of close to 27 percent.  Today, after the                
 commission has finished reviewing numbers, they expect to see a               
 program default rate that is less than 18 percent.  She said what             
 we're seeing is the effect of the commission aggressively using the           
 tools that the legislature has made available to them and increased           
 collection activities on the part of staff.                                   
 CHAIRMAN KOTT said he would suggest that the latter is probably               
 having a greater effect in increased collection activities.                   
 Number 2190                                                                   
 REPRESENTATIVE ELTON said a lot of the fixes that are being talking           
 about, whether it is revisiting the number of weeks that a school             
 has to teach before they're eligible for the program, whether it's            
 the 150 percent formula or whether it's a profile of risky students           
 that would help the lenders, he doesn't believe anything would be             
 fixed through HCR 24.  That is the fixed through the vehicle of SB
 123, for example.  Another observation is that he is glad to hear,            
 perhaps as a result of what the House Labor and Commerce Committee            
 has done, there now seems to be a dialogue where there wasn't                 
 before.  He said he thinks part of the problem was that somebody              
 had one position and somebody else had another position and they              
 were defining each other as winners and losers.  Representative               
 Elton suggested that the problem may not be the 150 percent                   
 regulation.  He believes part of the problem is the commission                
 didn't ever define how they were going to implement the regulation            
 and how it was going to affect individuals with different cases.              
 He said you could have had a new owner two years ago that had a               
 loan default rate of 10 percent that would be out of the program,             
 whereas you would have an existing school that might have a default           
 rate of 28 percent, fall under the 150 percent rate, and they'd               
 stay in the program.  That just doesn't make sense.  He said he               
 believes part of the problem is how the 150 percent rule is                   
 implemented.  Representative Kott said he would rather have the               
 proprietary schools, the for profit schools, not for profit schools           
 and the universities work with the commission on coming up with               
 something that works for everybody.  He said we need to figure out            
 how it will be done before we start moving on SB 123.                         
 CHAIRMAN KOTT said he believes Representative Elton is correct in             
 his assessment.  He said HCR 24 will provide perhaps a stay of                
 execution for those vocational schools.                                       
 Number 2293                                                                   
 REPRESENTATIVE SANDERS said he doesn't believe that there is any              
 question by any of the committee members that there are problems              
 and there needs to be some regulations to fix these problems.                 
 There has been a lot of progress made.  He said he would like to              
 encourage those kinds of improvements.  Representative Sanders said           
 he believes that the committee has found that the action by the               
 APEC was kind of discriminatory against certain schools and certain           
 students.  He said he didn't feel that was the right thing to do.             
 We're making a lot of progress and this thing is beginning to roll            
 together.  Representative Sanders said he believes HCR 24 should be           
 REPRESENTATIVE SANDERS referred to the numbers on page 1, lines 5             
 through 8, and said the way he understood this was the commission             
 has about $40 million worth of bad loans.                                     
 MS. BARRANS said the time frame they are looking at to apply the              
 regulation for the period of 1986 through the present.  She said              
 she believes the numbers in the resolution were extracted from a              
 "white paper" that the commission produced called, "Long-Term Debt            
 for Short-Term Training."  Those numbers were for a different                 
 single period and didn't reflect the entire life of the program.              
 She said if she had been aware that the committee was looking for             
 these numbers, she could have produced them.  Ms. Barrans informed            
 the committee she believes the numbers used were loans advanced and           
 not dollars in default.  She said she believes the numbers were the           
 principal loan advance and not the amount of loans currently in               
 default.  That would skew the numbers because often people don't              
 default on their entire loan.  They actually repay some portion of            
 it then default.  It is only the amount that is in default that the           
 commission is concerned with.  If a portion of the money has been             
 paid back, they don't consider the entire amount to be in default.            
 REPRESENTATIVE SANDERS said if the numbers are wrong in the                   
 resolution, he would be open to inserting the correct numbers.                
 MS. BARRANS noted there are more dollars in default from students             
 that went to the college and university sectors.  The main point is           
 that if you want to address the default problem with the loan                 
 program, it has to be across the board.  If the statute that the              
 regulation implements allowed them to apply it across the board,              
 they would be doing just that.  She said SB 123 may be a vehicle              
 that resolves the issue of discriminating against one sector of               
 schools, but it is not being applied across all sectors that                  
 participate in the program.                                                   
 Number 2459                                                                   
 REPRESENTATIVE SANDERS moved to delete the second "Whereas" clause.           
 CHAIRMAN KOTT said there is a motion to delete the wording on page            
 1, lines 5 through 8.  He said it would be a conceptual amendment,            
 Amendment 1.  He asked if there was any discussion.                           
 TAPE 96-4, SIDE B                                                             
 Number 001                                                                    
 CHAIRMAN KOTT asked if there was an objection to Representative               
 Sanders' amendment.  Hearing none, the amendment was adopted.                 
 Number 021                                                                    
 REPRESENTATIVE BRIAN PORTER informed the committee he had the                 
 opportunity to speak with Ms. Barrans on the issue.  He said, for             
 the record, he really appreciates the attitude Ms. Barrans and the            
 rest of the division has about the resolution.  Representative                
 Porter said his intent, within the resolution, is to just point out           
 that the legislature thinks there should be a timeout in the                  
 implementation of a particular regulation and to see if a few                 
 things could be done for the group of affected institutions.                  
 Namely, provide the institutions with some assistance in setting up           
 how the commission is going to be holding them accountable for                
 these rates.  Give them some assistance in dealing with the ability           
 to have an influence on their rates and some time to deal with                
 that.  He said he is wondering if the committee is spending more              
 time on this, at this point, then they need to.                               
 CHAIRMAN KOTT asked Ms. Barrans to explain the fiscal note.                   
 MS. BARRANS informed the committee the fiscal note shows a loss to            
 the corporation's financial statement in FY97 of $445,000.  This              
 number was arrived at by looking at the initial institutional                 
 default rate calculations that have been made.  They looked at                
 those that would be above the 150 percent threshold and determined            
 what level of borrowing those schools typically experience in a               
 fiscal year.  She said assuming that rescinding the regulation and            
 putting something else in place would take six to nine months,                
 during that period $3.7 million in new loans will be made to those            
 schools that are currently above the 150 percent threshold.  Based            
 on their historical default rate of that collective group, 33                 
 percent of that would go in default.  That is approximately $1.2              
 million.  General accepted accounting principles (GAAP) require               
 that the corporation reserve as actual losses about 12 percent of             
 the entire amount made which is the $3.7 million.  Ms. Barrans said           
 even though a higher number goes into default, they continue to               
 collect on those loans, but ultimately lose about 12 percent over             
 all.  The 12 percent of that amount is the $443,000, reflected in             
 the fiscal note that they would have to report on their financial             
 statement for FY97.                                                           
 MS. BARRANS said as a committee member indicated, this is just a              
 resolution.  All of the assumptions in the fiscal note are that the           
 resolution is received well by the Governor, who then directs the             
 commission to rescind the regulation.  They would then start                  
 another period of dialogue that within six to nine months would               
 replace this with another implementation plan.                                
 Number 195                                                                    
 There being no further testimony, REPRESENTATIVE KUBINA moved that            
 HCR 24, as amended, be passed out of committee with a zero fiscal             
 note.  CHAIRMAN KOTT asked if there was an objection.  Hearing                
 none, CSHCR 24(L&C) was passed out of the House Labor and Commerce            
 HB 319 - SMALL LOANS & RETAIL INSTALLMENT SALES                             
 CHAIRMAN KOTT announced the next order of business would be HB 319,           
 "An Act relating to the regulation of small loan and retail                   
 installment transactions."                                                    
 GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee,            
 Alaska State Legislature, explained HB 319 was introduced by the              
 House Labor and Commerce Committee and addresses two distinct                 
 statutory schemes.  The first one is the Small Loan Act which makes           
 up the bulk of the bill.  The Alaska Retail Installment Sales Act             
 is also addressed in the bill.  Mr. Dozier explained the Small Loan           
 Act pertains to the commercial loans of money, credit, goods or               
 things of action where the amount loaned is $25,000 or less.  The             
 Retail Installment Sales Act pertains to credit transactions                  
 entered into between retail merchants and retail customers.                   
 MR. DOZIER explained HB 319, in its original form, adjusts the                
 application fee of the Small Loan Act from $400 to $1,000.  It                
 adjusts upward the annual license fee from $200 for a single                  
 license to $2,000 for a multiple office license.  It also adjusts             
 upward the amount of liquid assets that are required of licensees,            
 under the Small Loan Act, from $20,000 to $25,000, and requires               
 that where a licensee has multiple offices that that amount be                
 available for each and every office which is listed under the                 
 license.  Mr. Dozier said it also adjusts upward from $5,000 to               
 $25,000 the amount of bond required for a licensee under the Small            
 Loan Act.                                                                     
 MR. DOZIER said the bill also makes it clear that a licensee,                 
 unlike the present law, may have one license which pertains to up             
 to ten different places of business.  It creates a multiple office            
 license.  The Small Loans Act is also modified to the extent that             
 under this bill, licensees don't have to maintain separate books              
 and accounting records where another type of business is operated             
 out of the same office.  Mr. Dozier said as he understands the law,           
 the state would have the ultimate discretion as to whether a                  
 different type of business can be operated or a different business            
 can be operated out of the licensee's office.  When that discretion           
 has been granted in the affirmative, then it is no longer required            
 for the licensee to maintain separate books.  However, there must             
 be some system in place so as to permit the state to monitor the              
 records and make sure that the provisions of the (indisc.) statutes           
 are complied with.                                                            
 MR. DOZIER explained Section 8 of the bill, also pertaining to the            
 Small Loan Act, provides that in making repayments under the                  
 various loans that are granted that individuals can make irregular            
 payments as opposed to monthly regular payments.  That would                  
 pertain to seasonal workers, fishermen or people that don't have              
 regular incomes throughout the years.                                         
 MR. DOZIER said the bill also adjusts and broadens the scope of               
 permissible fees that may be charged under the Small Loans Act.               
 Such fees could include a fee for insurance premiums instead of               
 perfecting security interests.  Also for loans over $10,000, the              
 lender can charge reasonable costs and fees for appraisals.  That             
 would be appraisals of property that is offered in security or for            
 surveys, title insurance reports and credit reports of the                    
 MR. DOZIER said also under the Small Loan Act, the late payment fee           
 is adjusted upward.  Currently, the statutes allow for a late                 
 payment (indisc.) fee of 10 percent or $15, whichever is the lesser           
 amount.  He said HB 319 would adjust that upward to 10 percent or             
 $25, whichever is the lesser amount.  Other fees and costs that are           
 adjusted by the bill are on dishonored checks.  The bill specifies            
 a fee may be charged for that.  The fee would be set by normal                
 commercial charges that would be imposed.  Mr. Dozier said HB 319             
 would also allow reasonable attorney fees and actual expenses and             
 costs that are incurred in collection of delinquent loans or loans            
 in default, but only when outside attorneys are employed to do this           
 collection.  This would not pertain to in house collection                    
 activities by corporate counsel.  Also, this would only pertain to            
 where the balance is over $5,000.                                             
 MR. DOZIER said starting in Section 10 of HB 319, the emphasis is             
 shifted to the Retail Installment Sales Act and that particular               
 section would permit the charging of delinquency collection and               
 dishonored check charges, attorney fees charges, court costs and              
 disbursements where the contract or the agreement between the                 
 parties so permit.                                                            
 MR. DOZIER referred to Section 11 and said the amount of service              
 charge that is permitted under the Retail Installment Sales Act is            
 adjusted upward to 1.5 percent, per month, for the unpaid balance.            
 MR. DOZIER said that is a sketch of the original bill.  There is a            
 draft CS on the table.  Much of the CS is the same as the original            
 bill with some exceptions.  One exception is the draft CS                     
 specifies, under the Small Loans Act, that if a office or a                   
 licensee has more than one office, it's a multiple office license,            
 then only one bond is required.  Another change is under the                  
 original bill, referring to the Small Loan Act, in order to be able           
 to charge for appraisals, surveys, title insurance and reports,               
 charges of that nature, the loan would have to be for in excess of            
 $10,000.  The draft CS modifies that to the extent that these                 
 charges may be imposed when the loan is less than $10,000 if the              
 loan is secured by real property - real estate.                               
 MR. DOZIER explained another change pertains to the interest rate             
 that is permitted under the Retail Installment Sales Act.  He said            
 HB 319, in its current form, allows a service charge in the amount            
 of 1.5 percent per month.  The change made in the proposed CS would           
 eliminate that ceiling and set interest as agreed by the parties.             
 So essentially, the market would determine the interest rate.                 
 MR. DOZIER pointed out that the proposed CS is identical to a                 
 corresponding bill in the Senate, CSSB 157(L&C).  He said there are           
 two small exceptions.  On page 7, line 8 of the proposed CS,                  
 Section 13 reads, "If authority to do so is contained in the                  
 contract or agreement, the".  He explained the Senate version of              
 the bill has a couple of words inserted after "agreement."  Those             
 words are, "and agreed to by the parties."  Mr. Dozier said it                
 appears this language is redundant in that there is no contract or            
 agreement that can exist, as he sees it, without an agreement of              
 the parties.  Consequently, those words were deleted as excessive.            
 The other change is a stylistic change made on page 7, line 18,               
 where the House draft CS reads, "revolving charge agreement, or               
 other retail charge agreement must".  The Senate version reads,               
 MR. DOZIER said that concludes his presentation.  There are experts           
 present at the meeting who will be able to provide the details.               
 Number 742                                                                    
 REPRESENTATIVE PORTER moved that the committee adopt CSHB 319(L&C),           
 Version C, dated 1/16/96.  There being no objection, it was so                
 Number 773                                                                    
 JOHN HIGGINS, General Manager, Northland Credit Corporation, came             
 forward to testify on CSHB 319(L&C).  He said the bill really came            
 to be where it is today with the consensus of the industry along              
 with working hard with the Administration.  Mr. Higgins said he not           
 only is speaking for Northland Credit Corporation, but other                  
 industry members that can't be present.                                       
 MR. HIGGINS explained what the bill does in the consumer finance              
 industry, which consists of himself, Norwest Financial, AFCO                  
 Financial, Affordable Loan, Superior Financial.  They are the ones            
 that currently hold a license under the Alaska Small Loan Act.                
 What the bill does for the consumer finance industry is it helps to           
 bring up to date, from the 1950s standards, a lot of antiquated               
 statutes which currently exist that revolve around this.  Mr.                 
 Higgins said the Act was originally written in the 1950s and hasn't           
 been modified much since then.  He said there are things that have            
 to do with joint loan provisions where currently, you really can't            
 give a loan out to a spouse or a husband and wife.  That would be             
 changed to where you can have one open account with each person if            
 they so desire.  The could each have their own loan if they want              
 to.  Currently, they have to be under the same loan.  There is also           
 fee enhancements that would be brought up the 1990 standards.  Mr.            
 Higgins said under the statute, they are looking to do multiple               
 office licenses.  Currently, each office has to be individually               
 licensed.  Another portion previously mentioned, was the part of              
 the bill about payment restructuring.  Currently, a customer can              
 only pay back on a 30 day payment cycle.  They have to have a                 
 payment in the office every month.  He said they want to adjust               
 that so they can accommodate a seasonal worker and have a repayment           
 schedule that might be 90 days or 6 months later.  That is not                
 allowed under the current statutes.                                           
 MR. HIGGINS said what they are looking for is market deregulation             
 to put them on a more competitive playing field with rate                     
 importation which comes in to Alaska from outside the state, which            
 effects their market when they try and finance mainly household               
 good type items at retail dealerships.  That rate importation puts            
 them on an uneven playing field to the point where they really are            
 at a disadvantage to be licensed and located in Alaska.  They can't           
 currently do the same rate structures that business outside the               
 state can.                                                                    
 Number 984                                                                    
 CHAIRMAN KOTT asked Mr. Higgins how that particular section of the            
 bill would play out.                                                          
 MR. HIGGINS said currently, the programs that are the most                    
 attractive for a consumer are the 90 day, same as cash, and the 12            
 month interest free programs that are advertised for household                
 goods, furniture, appliances and electronics.  Mr. Higgins                    
 continued, "I'll use a big screen T.V. as an example.  If you go to           
 buy a big screen T.V., whether it is here in the city of Juneau               
 with Alaska Audio Video or you're up at Anchorage buying one at               
 Pyramid Electronics or Magnum Electrics, that $4,000 T.V. that you            
 go in buy, because you wanted to get it on a special program which            
 was 12 months interest free and 12 months no payments, and that's             
 what brought you into this store.  Currently, I offer those                   
 programs, but currently they do not use our financing and nor are             
 they relatively using the financing of Norwest Financial who also             
 offers those programs in state.  What happens is Mitsubishi Bank,             
 excuse me, Monogram Bank -- no it's Mitsubishi - Mitsubishi big               
 screen T.V., what they do is because they can offer a rate                    
 structure on the other end that is 21 percent or 21.8 percent, and            
 our rate structure is about 13.9 percent right now -- and this                
 would be the rate that the consumer would pay after their special             
 program is over - after their 12 month interest free program period           
 is over, if they don't pay it off in that period, the rate they               
 would pay me is about 13.9 and the rate they would pay outside the            
 state is 21.  Now how that works back to the retailer is the                  
 retailer right now, I would have to charge them basically 10                  
 percent to run that same interest free program, for the cost of               
 that money it's basically interest free for that year period.  The            
 place outside the state, such as Monogram Bank of Georgia, or that            
 they finance the Mitsubishi card, they charge the retailer nothing            
 at that point.  And they charge the retailer nothing because, once            
 again, they make it up on the other end with the consumer at 21               
 percent.  So, basically what happens on a $4,000 purchase, lets               
 say, Monogram Bank of Georgia will cut a check back to the retailer           
 for approximately $4,000.  We'll cut a check to the dealer for                
 about $3,600."                                                                
 MR. HIGGINS gave the committee information which were the rate                
 ceilings for the entire U.S.  He said what they are looking for is            
 a deregulated or competitive market rate playing field to deal with           
 the people that do rate importation from outside the state.  He               
 said they would like to keep the Alaska consumer here if they can.            
 It's good business for Alaska.  It gives him the ability to provide           
 more jobs.  The paperwork is kept in Alaska and doesn't go to                 
 Georgia or Denver.  Also, if a consumer ever does have a complaint            
 or comment on their financing, they can come and discuss it with              
 them directly.  He pointed out that many retailers use cards that             
 are sponsored outside the state because they don't charge what the            
 instate users have to charge - the instate issuers of credit.                 
 CHAIRMAN KOTT asked if it is a fair assessment to say, for                    
 instance, Mr. Higgins' credit corporation would not be pushed                 
 within one of the retail establishments because of the payback at             
 the end.                                                                      
 MR. HIGGINS said he could provide a clear example.  He chose                  
 Pyramid Electronics and Shimicks Audio and Video in Anchorage.  "We           
 used to be a sole financing source for both those places, and                 
 including Magnum Electronics, which has a lot of paper that they              
 finance, and we no longer really do hardly any business with those            
 places anymore.  As we sit here now, now a year ago I did, and what           
 has changed between then and now is the Sony card has come on                 
 board, the Toshiba card has come on board, and the Mitsubishi card            
 has come on board, and they're all cards that are sponsored outside           
 the state.  And why have they come on board and why does the                  
 retailer use them?  Well the retailer uses them because they don't            
 charge what the instate users have to charge, I mean the instate              
 issuers of credit.  Being myself, it deals in this market --                  
 Norwest Financial or AFCO primarily.  And so with that in mind,               
 that user retailer would probably make the same decision at some              
 point too.  It becomes a monetary decision.  You'd like to use                
 someone in state, but they can't cut you the same deal that the guy           
 outside the state can.  And so that's how it rolls down to today              
 that we are are - as you stated - are we even on the counter?  No,            
 we're not on the counter.  Our applications are under the counter             
 at this time.  The retailer doesn't want you to know about us                 
 because if you say, `Oh no, I'd rather go through them, they're               
 offering the same program anyway.'  The retailer doesn't want you             
 to have that in you hands because he is going to have to pay more.            
 He will lose money on that particular T.V. that goes out the door.            
 He will not receive $4,000.  He'll only get $3,500 because we have            
 to discount that paper."                                                      
 Number 1316                                                                   
 REPRESENTATIVE KUBINA clarified how it works.  Mr. Higgins is                 
 allowed to charge 18 percent on the first $1,000, but anything over           
 that, he is only allowed to charge 10 1/4 percent.  MR. HIGGINS               
 answered in the affirmative.  Representative Kubina asked if this             
 is on an installment loan or if it is a credit card.  Mr. Higgins             
 said it looks like a credit card program.  It's not like a Visa               
 Mastercard or anything, but it's merchant specific.                           
 REPRESENTATIVE KUBINA a bank that issues a credit card doesn't have           
 that restriction.  MR. HIGGINS said that is right.  He noted that             
 is a separate set of laws that governs those interest rates.                  
 REPRESENTATIVE KUBINA referred to JC Penney and said their rate               
 could be higher.  He asked if this is the law that they're under.             
 MR. HIGGINS said it is not because at this time they're not a                 
 member of any national bank and they have offices in Alaska.  They            
 have to abide by Alaska statutes under this Act.  Representative              
 Kubina said JC Penney is restricted to anything over $1,000, they             
 charge 10 1/4 also.  Mr. Higgins said exactly.  He referred to                
 information before the committee and said what the committee                  
 member's see on the paper is what they charge on their card at this           
 REPRESENTATIVE KUBINA said he assumes the reason that was there in            
 the first place would be because this is a good deal for our                  
 residents because we're holding the interest rate down.  But in               
 fact, it's not really a good deal because all the people from                 
 outside can charge our residents more anyways and then they can               
 give the businesses more of a deal to get them to use their card at           
 the disadvantage to a local business.  MR. HIGGINS said that is               
 accurate.  He referred to Sears and said they are in Alaska and are           
 operating in the same retail environment as JC Penney.  Sears                 
 doesn't have to abide by these rates because about 90 to 120 days             
 ago, they purchased a national bank and they now issue their card             
 through the national bank.  They can now use the deregulated rate             
 structures.  It depends on where the card is issued.  He noted                
 Nordstrom bought a national bank in Oregon last year and they now             
 issue their card through that bank.                                           
 Number 1551                                                                   
 REPRESENTATIVE ROKEBERG asked if there is a limit or ceiling on               
 bank credit cards like VISA or Mastercharge in the state.  MR.                
 HIGGINS said there is a limit and it depends on if you're a                   
 national or a state chartered bank.  The set of statutes you would            
 be under depends on how you issue your card.  He noted he isn't               
 familiar as to what the cut offs are on those.                                
 MR. HIGGINS said he would like to say something else about rate               
 caps.  He referred to the list he gave the committee and said                 
 Wisconsin is currently passing themselves into the top of the                 
 section which would be a deregulated or a competitive market rate.            
 Even though they're at 18 percent on all money lent, they've found            
 out that is not even effective in their state because, once again,            
 they still have rate importation which steels so much of their                
 MR. HIGGINS said he has some studies if the committee would like a            
 copy of them, that had to do with the deregulation of retail                  
 revolving credit and what it does.  The University of Wisconsin,              
 for Wisconsin state, did the most recent studies last year.  When             
 you do deregulate, you cause more competition.  The rates do come             
 Number 1848                                                                   
 CHAIRMAN KOTT said as a business in a lending capacity, such as Mr.           
 Higgin's, it would certainly be beneficial from Mr. Higgins                   
 perspective.  MR. HIGGINS said the bottom line is, "Do you want               
 people churning paper in Georgia for Alaskan consumers or do you              
 want them churning the paper here if they're going to be borrowing            
 money?"  Mr. Higgins said his vote is to have them here.  There               
 would be some job growth.                                                     
 CHAIRMAN KOTT noted the committee members had letter in support of            
 the bill from AFCO Financial and JC Penney.                                   
 Number 1999                                                                   
 WILLIS F. KIRKPATRICK, Director, Division of Banking, Securities              
 and Corporations, Department of Commerce and Economic Development,            
 said he will limit his comments to the provisions addressing the              
 Small Loan Act.  He said he wants to go on record of really                   
 appreciating the assistance, the help and the understanding that              
 the industry did in working on this piece of legislation.  Mr.                
 Kirkpatrick said his staff has been in contact with the industry              
 and the debates have been minimal.  Most of the amendments are                
 beneficial to the consumer, it brings the act up to date and                  
 provides for a little more sense in operation.  The provision, for            
 example, allows them to commingle accounts on computers which makes           
 sense.  Why keep hand posted or separate records just for the small           
 loan portion of the business if they can segregate those out by               
 sorting their computer data and provide it to the department's                
 examiners.  Mr. Kirkpatrick said he feels it is a very good piece             
 of legislation and he doesn't find any fault with it.                         
 MR. KIRKPATRICK referred to the Retail Installment Sales Act and              
 said he doesn't have any comments, but is available for questions.            
 CHAIRMAN KOTT referred to the increase in fees for applications for           
 a licensor and asked if that is agreeable to him as far as the                
 amount that is needed to cover associated costs.  MR. KIRKPATRICK             
 said most of their applications for financial institutions, such as           
 bank branches or different types of service facilities that they              
 apply for, falls right in line with that.  In this type of a                  
 provision, this gives $1,000 for the department and partial payment           
 for the application.  If it's a complicated application, under AS             
 06.01, if there are additional costs the state can recover those              
 additional costs.  He said they have found that this is in line               
 with other types of investigations of similar types.                          
 CHAIRMAN KOTT said he assumes that is the reason for the zero                 
 fiscal note.  MR. KIRKPATRICK said that is correct.                           
 CHAIRMAN KOTT asked how many applications the division processes.             
 MR. KIRKPATRICK informed the committee that in the early 1970s,               
 there were two major companies in Alaska, Beneficial and Household.           
 Both of them had offices throughout the state.  In the mid 1980s,             
 it dropped down to maybe three Household offices.  That has now               
 begun to increase.  He said it provides a credit service for                  
 constituents who cannot otherwise obtain credit from traditional              
 financial institutions.  Mr. Kirkpatrick said we have actually                
 encouraged them to come to the outlying areas of the state.  Over             
 the last two years, the department has been very active in those              
 applications but they do not have an application currently on file.           
 CHAIRMAN KOTT referred to the requirement to have $25,000 in liquid           
 assets and asked if that is comparable with other states.  MR.                
 KIRKPATRICK said it is probably the lowest in the nation.  He                 
 explained what they look at in addressing that is if they don't               
 have $25,000 to lend out the first most expensive loan, they should           
 probably look at some other endeavor.  That has never been a                  
 question.  Those who do apply usually have substantial money or               
 cash available to lend out.                                                   
 Number 2380                                                                   
 REPRESENTATIVE ROKEBERG asked Mr. Kirkpatrick to clarify the                  
 question on the bank card ceiling.  MR. KIRKPATRICK explained there           
 is a credit card statute that is more or less defined as a bank               
 card in AS 06.05, the Alaska Banking Code.  He said he believes it            
 is 17 percent.  Representative Rokeberg asked if other outside                
 banks are allowed to do business in the state and charge higher               
 rates.  Mr. Kirkpatrick said that is correct.  Representative                 
 Rokeberg referred to the retail installment section and asked if              
 that includes the lack of a ceiling cap in Section 11.  Mr.                   
 Kirkpatrick said that is correct.  [End of tape...]                           
 TAPE 95-5, SIDE A                                                             
 Number 001                                                                    
 MR. KIRKPATRICK said as an employee of the Executive Branch has no            
 opinion as the consumer impact on this.                                       
 REPRESENTATIVE KUBINA said, "Could you sit there as a private                 
 citizen and, because of your expertise, just give us a little bit             
 of a feeling that you have privately, and we realize this has                 
 nothing to do with being an official."                                        
 MR. KIRKPATRICK said what he is about to tell the committee is what           
 he has advised them that has been his position or comments in the             
 past as a private citizen.  He explained in the early 1980s, we               
 used to have a federal regulation called "Regulation Q."                      
 Regulation Q said financial institutions and insurer depository               
 financial institutions could not charge more than 5 1/4 percentage            
 interest on savings.  Savings and loan got a 1/4 percent of a                 
 preferential and they could charge 5 1/2 percent.  What happened is           
 that in the 1980s, that part of the balance sheet was deregulated.            
 He said he has always felt that if you're going to deregulate one             
 side of the balance sheet, why not deregulate the other side of the           
 balance sheet.  In other words, why say that you can go out and be            
 competitive in one side in relations to interest paid, but are                
 under usury limitations on the other side of the balance sheet on             
 (indisc.) you can charge for loans.  Things have changed a great              
 deal.  Since Regulation Q went away, we saw that South Dakota and             
 Delaware made their states interest rate exporters.  They gave                
 great benefits to financial institutions to set up financial                  
 institution credit card exporting businesses in those states just             
 to do what the committee is talking about.  They've done that with            
 great success.  Mr. Kirkpatrick said he thinks there was a recent             
 court challenge against a bank in South Dakota, but he believes it            
 failed on the basis of you can't impede commerce across state                 
 lines.  He said one of the things were seeing is that he has a                
 close friend who wanted to buy a $4,000 computer.  He bought a                
 $4,000 computer on his Visa Seattle First credit card, he received            
 his Alaska Airlines points.  He then received some mail saying he             
 could have a loan for six months at 5 percent, so he applied for              
 that, paid off his Seattle First loan.  Then before the six months            
 was up, City Corp said he could have one for 6 1/2 percent until              
 March.  Mr. Kirkpatrick said those are leaders.  If you take a look           
 at the rate after that period of time, the first one was 18 percent           
 and the one his good friend currently has will soon be 21 percent,            
 but by then he'll have his computer paid off.                                 
 MR. KIRKPATRICK said people are wise as to what the interest rates            
 are and they can take advantage of them.  It is competitive now.              
 One of the things we seem to do is under the pseudo effect of                 
 protecting the public, the public is not being protected if we're             
 to do that because they're buying their products that are available           
 to them at "easy payments," or "no payment until..."  The local               
 people who are trying to finance the Alaska people are                        
 discriminated against.  It is a market place.  Mr. Kirkpatrick said           
 he has known John Bly in the state of Washington, Cecil in Oregon,            
 Gaven Gee in Idaho, who are all his counterparts.  He said all                
 three of those states have no interest rate limitation.  Mr.                  
 Kirkpatrick said he has urged them to introduce legislation to                
 repeal that and they thought he was crazy.  Everything else is in             
 the market, why shouldn't that be.  Mr. Kirkpatrick said we do                
 understand that there are consumer groups that feel they need to be           
 protected and heard.                                                          
 CHAIRMAN KOTT thanked Mr. Kirkpatrick for his testimony.                      
 Number 477                                                                    
 JERRY REINWAND, Lobbyist, Sears, JC Penney, Safeway and Fred Meyer,           
 said he supports the bill.  He noted there should be some                     
 information in the committee members packet that JC Penney has                
 provided.  He said the legislation is overdue and is something his            
 companies support.  Mr. Reinwand urged the committee to move the              
 REPRESENTATIVE KUBINA asked if any of the consumer groups were                
 negative toward the bill.  CHAIRMAN KOTT said he hasn't seen                  
 anything negative towards the bill.                                           
 Number 557                                                                    
 REPRESENTATIVE PORTER made a motion to move CSHB 319(L&C) out of              
 committee with individual recommendations and a zero fiscal note.             
 Hearing no objection, CSHB 319(L&C) was moved out of the House                
 Labor and Commerce Committee.                                                 
 SB 160 - EXCLUSIONS FROM UNEMPLOYMENT COVERAGE                              
 CHAIRMAN KOTT announced the next order of business was SB 160 am,             
 "An Act excluding certain employment by students from the                     
 definition of 'employment' in the state employment security laws."            
 MARY JACKSON, Legislative Staff to Senator John Torgerson, sponsor            
 of SB 160 am, informed the committee members they have a zero                 
 fiscal note in their committee packet.  She also noted that                   
 included in the packet is the sponsor statement, sectional                    
 analysis, etc.  The history of the bill is straight forward.  A               
 constituent in Senator Torgerson's district called him after having           
 written a letter to the Department of Labor regarding unemployment            
 insurance for their college age daughters.  The constituent's                 
 concerns were that their college age children were in school nine             
 months out of every year, they work seasonally in their "mom and              
 pop" business.  They are required to pay unemployment taxes but               
 they are not eligible to receive unemployment.  From their point of           
 view, it is an unfair tax and Senator Torgerson agreed.  The                  
 constituent then wrote a follow-up to the department and received             
 a response from the commissioner, the gist of which was, "Yes, a              
 full-time employee pays a potential of $119 and some odd cents per            
 year."  If they are a part-time student, they pay even less.  She             
 said he recognized that if you pay anything towards what you don't            
 get a benefit from, it's not fair, but he said there is a benefit.            
 Ms. Jackson said there is not.  The regulations are very specific.            
 It is in the Alaska Employment Security Act which says, "However,             
 and uninsured worker who has been pursuing an academic education              
 for at least one school term and who was working at least 30 hours            
 a week during a significant portion of the time that the worker was           
 pursuing an academic education, would not be disqualified for the             
 unemployment insurance if the worker's academic schedule does not             
 preclude or prevent full-time work in the worker's occupation and             
 if the worker of student became unemployed because the worker was             
 laid off."   Ms. Jackson said the constituent asked how many full-            
 time students do you know that could possibly fit under that                  
 scenario.  Senator Torgerson's response was none.  The constituent            
 then noted that the real issue, in their opinion, was whether or              
 not the student is supporting themselves.  If they're full-time               
 employees, they obviously are supporting themselves.  If they have            
 full-time student status and only part-time with a seasonal                   
 adjustment, they're not supporting themselves.  Mom and dad are.              
 MS. JACKSON pointed out that the statute exempts service that is              
 performed by an individual in the employ of the individual's son,             
 daughter, spouse and service performed by the child under the age             
 of 18 and in the employ of the child's mother and father.  What SB
 160 does is it expands that to service performed in the employ of             
 the parent or legal guardian for 21 or under who are also full-time           
 students.  Ms. Jackson said she doesn't know what the department's            
 position is on the amended bill.                                              
 Number 849                                                                    
 DWIGHT PERKINS, Special Assistant, Department of Labor, came before           
 the committee.  He informed the committee that in the amended                 
 version of SB 160, page 1, line 7, is different in that it starts             
 off by saying, "parent or legal guardian if the individual was                
 under the age of 21 years and full-time student during the eight of           
 the last 12 months and intends to resume full-time student status             
 within the next four months;".  In the original version of SB 160             
 it says, "if the individual was a full-time student during eight of           
 the last 12 months and intends to resume full-time student status             
 within the next four months;".                                                
 CHAIRMAN KOTT asked if there was a title change.  MR. PERKINS                 
 indicated there wasn't.                                                       
 CHAIRMAN KOTT asked Ms. Jackson if a title change was considered.             
 MS. JACKSON indicated there wasn't any discussion regarding a title           
 change, and in fact it still conforms because the statute was for             
 full-time students, but now they're under the age of 21.                      
 MR. PERKINS stated the Department of Labor opposes SB 160 am, for             
 the following reasons:                                                        
 "The Employment Security Act already goes far enough in excluding             
 employment of children by their parents and excluding employment of           
 students by educational institutions.  Coverage of student workers            
 should not be further eroded.                                                 
 "The terms of the exclusion are vague, and there is no feasible way           
 to base tax liability on a worker's `intention' to remain in                  
 "The bill has a disparate impact on one subset of workers on the              
 basis of family relationship, exempting these workers from                    
 contributing to unemployment insurance, but also denying these                
 workers from collecting benefits should they quit school or become            
 eligible for receiving benefits while in school.                              
 "The existing tax burden on affected students is minimal.  As Mary            
 stated, a full-time employee working the entire calendar year, you            
 and I, pays a maximum of $119.50 in unemployment insurance                    
 contributions.  A student employed only between school terms would            
 pay substantially less.                                                       
 "The unemployment insurance system is just that, it's an insurance            
 system.  Coverage and payment of contributions is no more based on            
 the likelihood of collecting benefits than payment of automobile              
 insurance premiums under the state mandatory insurance law is based           
 on the expectation of getting in an accident in any given year.  A            
 chipping away at the inclusiveness of the system by exempting                 
 employers or employees who don't want to pay into the system will             
 ultimately damage the viability of the program and the health of              
 the UI Trust Fund."                                                           
 MR. PERKINS asked what will be the next category to be exempted.              
 He thanked the committee for listening to him.                                
 Number 1168                                                                   
 CHAIRMAN KOTT asked how many people would fall within this                    
 category.  MR. PERKINS explained he didn't have that information.             
 He said he didn't want the committee to think he is speaking for a            
 silent majority of people out there.  He said he could get the                
 numbers for the committee.                                                    
 REPRESENTATIVE PORTER asked if it would be a reasonable statement             
 to say very few people that fit into this category really would               
 have the benefit of coverage.  MR. PERKINS said he would hesitate             
 to give a number only because he doesn't know.  The department's              
 concern would be that to keep exempting groups of people because              
 they simply don't want to pay is maybe a wrong direction to go.  Is           
 there another group out there?  He said he doesn't know.  Mr.                 
 Perkins said he is sure there is a lot of constituencies out there            
 that would not want to pay the mandatory insurance either, but they           
 do.  That doesn't mean they're going to run out and get in an                 
 accident so they can claim on that either.                                    
 Number 1358                                                                   
 MS. JACKSON pointed out that the fiscal note from the Department of           
 Labor is zero.                                                                
 CHAIRMAN KOTT pointed out that the bill was introduced last year              
 and questioned if the problem still exists.  MS. JACKSON indicated            
 it does.                                                                      
 Number 1445                                                                   
 REPRESENTATIVE PORTER made a motion to move SB 160 am, out of the             
 House Labor and Commerce Committee with individual recommendations            
 and a zero fiscal note.                                                       
 REPRESENTATIVE SANDERS objected.  He said he doesn't feel                     
 comfortable moving the bill.  It is a very small number of people             
 and a minimal amount of money.  He said he would love to support              
 his senator, but he doesn't think it is right to move the bill.               
 REPRESENTATIVE ROKEBERG said he would probably vote to move the               
 bill.  He noted he isn't too worried about any other "tom cats                
 coming out of the bag."                                                       
 REPRESENTATIVE PORTER said he doesn't look at the bill as being a             
 bill that would result in a tweaking of the unemployment insurance            
 fund because there is a zero fiscal note.  He said he thinks it               
 fits within the stated public policy of the statute which says                
 there are exemptions for these kinds of things.  Representative               
 Porter said he doesn't think, considering the zero fiscal note, the           
 bill is a raid on the unemployment account.                                   
 REPRESENTATIVE ROKEBERG referred to the $119.50 collected over the            
 entire year and said the act of having to fill out the forms could,           
 in certain areas of time evaluation, be more costly than the actual           
 payment for a small business person.                                          
 CHAIRMAN KOTT said he believes the purpose of unemployment                    
 insurance is to provide that bridge of a person leaving a job and             
 seeking another.  It probably does not apply or is not applicable             
 to college students.                                                          
 REPRESENTATIVE ROKEBERG said these people are paying in but can't             
 collect.  He asked if that is right.                                          
 REPRESENTATIVE SANDERS said if that situation should change, they             
 could collect.  We all know it changes often, they go to school one           
 year and don't go the next.  He said you pay in, but you're                   
 collecting off of a total pool for the state.                                 
 Number 1712                                                                   
 REPRESENTATIVE SANDERS said he might change his mind, but if he               
 ever sees another bill similar to SB 160, he is not voting for it.            
 Representative Sander withdrew his objection.                                 
 CHAIRMAN KOTT said he generally isn't supportive of a measure that            
 is directed toward a specific small group.  He said this could be             
 a lot larger group than he is envisioning.  This takes care of a              
 single person.  It is correcting an inequity dealing with one                 
 family and one son or daughter.                                               
 Number 1755                                                                   
 CHAIRMAN KOTT said since Representative Sanders withdrew his                  
 objection, there is a motion to move the bill out of committee.               
 Hearing no further objection, SB 160 am was moved out of the House            
 Labor and Commerce Committee.                                                 
 Number 1776                                                                   
 CHAIRMAN KOTT adjourned the House Labor and Commerce meeting at               
 5:20 p.m.                                                                     

Document Name Date/Time Subjects