Legislature(1995 - 1996)
04/03/1996 03:28 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE April 3, 1996 3:28 p.m. MEMBERS PRESENT Representative Pete Kott, Chairman Representative Norman Rokeberg, Vice Chairman Representative Jerry Sanders Representative Brian Porter Representative Kim Elton Representative Gene Kubina MEMBERS ABSENT Representative Beverly Masek COMMITTEE CALENDAR CS FOR SENATE BILL NO. 197(L&C) "An Act relating to insurance covering an insured who is a victim of domestic violence and requiring certain disclosures by an insurer." - MOVED HCSCSSB 197(L&C) OUT OF COMMITTEE HOUSE BILL NO. 436 "An Act relating to purchase and sale of mobile homes by mobile home dealers or agents; to mobile home titles; and providing for an effective date." - MOVED CSHB 437(TRA) OUT OF COMMITTEE HOUSE BILL NO. 524 "An Act relating to insurance pooling." - HEARD AND HELD HOUSE BILL NO. 544 "An Act relating to the use of the terms `health' and `disability' in the context of insurance coverage." - MOVED HB 544 OUT OF COMMITTEE SENATE BILL NO. 300 "An Act relating to the Uniform Commercial Code, primarily to investment securities; amending Rule 8(d), Alaska Rules of Civil Procedure; and providing for an effective date." - MOVED SB 300 OUT OF COMMITTEE SENATE BILL NO. 261 "An Act relating to the release of employment security records; relating to an injunction or an employer's security for delinquent unemployment insurance contributions; extending time periods for redeterminations and appeals for unemployment insurance; relating to the overpayment or the redetermination of unemployment insurance benefits; relating to availability for work, seeking work, and the calculation of wages for unemployment insurance purposes; relating to voluntary federal tax withholding from unemployment insurance benefits; relating to the binding effect of unemployment compensation decisions; relating to the definition of `waiting week' for employment security purposes; and providing for an effective date." - MOVED SB 261 OUT OF COMMITTEE HOUSE BILL NO. 345 "An Act relating to the procurement of investment and brokerage services by the Alaska State Pension Investment Board." - HEARD AND HELD CS FOR SENATE BILL NO. 305(L&C) "An Act relating to the regulation of accountants; and amending the effective date for sec. 6, ch. 62, SLA 1991." - PASSED CSSB 305(L&C) OUT OF COMMITTEE PREVIOUS ACTION BILL: SB 197 SHORT TITLE: INS:DOMESTIC VIOL. VICTIMS & DISCLOSURES SPONSOR(S): SENATOR(S) DONLEY, Ellis, Salo, Duncan, Pearce, Zharoff, Lincoln; REPRESENTATIVE(S) Davies, Robinson, Rokeberg JRN-DATE JRN-PG ACTION 01/05/96 2058 (S) PREFILE RELEASED - 1/5/96 01/08/96 2058 (S) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2058 (S) LABOR & COMMERCE 01/16/96 2144 (S) COSPONSOR(S): DUNCAN 02/15/96 (S) L&C AT 1:30 PM BELTZ ROOM 211 02/15/96 (S) MINUTE(L&C) 02/20/96 (S) MINUTE(L&C) 02/23/96 2512 (S) L&C RPT CS 5DP NEW TITLE 02/23/96 2513 (S) ZERO FISCAL NOTE TO SB & CS (DCED) 02/26/96 (S) RLS AT 12:45 PM FAHRENKAMP RM 203 02/26/96 (S) MINUTE(RLS) 02/28/96 2568 (S) RULES TO CALENDAR & 1NR 2/28/96 02/28/96 2571 (S) READ THE SECOND TIME 02/28/96 2572 (S) L&C CS ADOPTED UNAN CONSENT 02/28/96 2572 (S) COSPONSOR(S): PEARCE, ZHAROFF, LINCOLN 02/28/96 2572 (S) ADVANCED TO THIRD READING UNAN CONSENT 02/28/96 2572 (S) READ THE THIRD TIME CSSB 197(L&C) 02/28/96 2572 (S) PASSED Y18 N- E2 02/28/96 2579 (S) TRANSMITTED TO (H) 02/29/96 2955 (H) READ THE FIRST TIME - REFERRAL(S) 02/29/96 2956 (H) LABOR & COMMERCE, FINANCE 03/18/96 (H) L&C AT 3:00 PM CAPITOL 17 03/18/96 (H) MINUTE(L&C) 03/18/96 3186 (H) CROSS SPONSOR(S): DAVIES 03/20/96 (H) L&C AT 3:00 PM CAPITOL 17 03/20/96 (H) MINUTE(L&C) 03/22/96 (H) L&C AT 3:00 PM CAPITOL 17 03/22/96 (H) MINUTE(L&C) 03/27/96 (H) MINUTE(L&C) 04/01/96 3552 (H) CROSS SPONSOR(S): ROBINSON 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: HB 436 SHORT TITLE: MOBILE HOME DEALERS & TITLES SPONSOR(S): REPRESENTATIVE(S) MARTIN JRN-DATE JRN-PG ACTION 01/19/96 2489 (H) READ THE FIRST TIME - REFERRAL(S) 01/19/96 2489 (H) TRANSPORTATION, L&C, FINANCE 03/20/96 (H) TRA AT 1:00 PM CAPITOL 17 03/20/96 (H) MINUTE(TRA) 03/27/96 (H) TRA AT 1:00 PM CAPITOL 17 03/27/96 (H) MINUTE(TRA) 04/01/96 (H) L&C AT 3:00 PM CAPITOL 17 04/01/96 (H) MINUTE(L&C) 04/02/96 3557 (H) TRA RPT CS(TRA) NT 1DP 5NR 04/02/96 3558 (H) DP: G.DAVIS 04/02/96 3558 (H) NR: MASEK, LONG, BRICE, SANDERS 04/02/96 3558 (H) NR: WILLIAMS 04/02/96 3558 (H) FISCAL NOTE (DCED) 04/02/96 3558 (H) ZERO FISCAL NOTE (DPS) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: HB 524 SHORT TITLE: INSURANCE POOLING BY EMPLOYER ASS'N. SPONSOR(S): LABOR & COMMERCE BY REQUEST JRN-DATE JRN-PG ACTION 02/21/96 2834 (H) READ THE FIRST TIME - REFERRAL(S) 02/21/96 2834 (H) LABOR & COMMERCE, FINANCE 03/13/96 (H) L&C AT 3:00 PM CAPITOL 17 03/13/96 (H) MINUTE(L&C) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: HB 544 SHORT TITLE: HEALTH INSURANCE NOMENCLATURE SPONSOR(S): LABOR & COMMERCE JRN-DATE JRN-PG ACTION 03/19/96 3197 (H) READ THE FIRST TIME - REFERRAL(S) 03/19/96 3197 (H) LABOR & COMMERCE, FINANCE 04/01/96 (H) L&C AT 3:00 PM CAPITOL 17 04/01/96 (H) MINUTE(L&C) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: SB 300 SHORT TITLE: UNIFORM COMMERCIAL CODE:ART 8(SECURITIES) SPONSOR(S): LABOR & COMMERCE JRN-DATE JRN-PG ACTION 02/19/96 2470 (S) READ THE FIRST TIME - REFERRAL(S) 02/19/96 2470 (S) LABOR & COMMERCE 02/27/96 (S) L&C AT 1:30 PM FAHRENKAMP RM 203 02/27/96 (S) MINUTE(L&C) 02/29/96 (S) MINUTE(L&C) 03/08/96 2656 (S) L&C RPT 3DP 1NR 03/08/96 2656 (S) ZERO FISCAL NOTE (DCED) 03/13/96 (S) RLS AT 11:00 AM FAHRENKAMP RM 203 03/13/96 (S) MINUTE(RLS) 03/25/96 2865 (S) RULES TO CAL & 1 OTHER 3/25/96 03/25/96 2867 (S) READ THE SECOND TIME 03/25/96 2867 (S) ADVANCED TO THIRD READING UNAN CONSENT 03/25/96 2867 (S) READ THE THIRD TIME SB 300 03/25/96 2867 (S) PASSED Y19 N- A1 03/25/96 2868 (S) EFFECTIVE DATE(S) SAME AS PASSAGE 03/25/96 2868 (S) COURT RULE(S) SAME AS PASSAGE 03/25/96 2886 (S) TRANSMITTED TO (H) 03/26/96 3361 (H) READ THE FIRST TIME - REFERRAL(S) 03/26/96 3361 (H) LABOR AND COMMERCE 04/01/96 (H) L&C AT 3:00 PM CAPITOL 17 04/01/96 (H) MINUTE(L&C) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: SB 261 SHORT TITLE: UNEMPLOYMENT COMPENSATION SPONSOR(S): LABOR & COMMERCE BY REQUEST JRN-DATE JRN-PG ACTION 02/02/96 2285 (S) READ THE FIRST TIME - REFERRAL(S) 02/02/96 2286 (S) L&C, JUD 02/13/96 (S) L&C AT 1:30 PM FAHRENKAMP RM 203 02/13/96 (S) MINUTE(L&C) 02/22/96 (S) L&C AT 1:30 PM FAHRENKAMP RM 203 02/22/96 (S) MINUTE(L&C) 03/07/96 (S) MINUTE(L&C) 03/08/96 2655 (S) L&C RPT 3DP 03/08/96 2655 (S) ZERO FISCAL NOTE (LABOR) 03/22/96 (S) JUD AT 9:00 AM BELTZ ROOM 211 03/22/96 (S) MINUTE(JUD) 03/25/96 (S) RLS AT 7:00 PM FAHRENKAMP RM 203 03/25/96 (S) MINUTE(RLS) 03/25/96 2862 (S) JUD RPT 3DP 03/25/96 2863 (S) PREVIOUS ZERO FN (LABOR) 03/26/96 2903 (S) RULES TO CALENDAR 3 1NR 3/26/96 03/26/96 2904 (S) READ THE SECOND TIME 03/26/96 2904 (S) ADVANCED TO THIRD READING UNAN CONSENT 03/26/96 2904 (S) READ THE THIRD TIME SB 261 03/26/96 2905 (S) PASSED Y20 N- 03/26/96 2905 (S) EFFECTIVE DATE(S) SAME AS PASSAGE 03/26/96 2913 (S) TRANSMITTED TO (H) 03/27/96 3387 (H) READ THE FIRST TIME - REFERRAL(S) 03/27/96 3388 (H) LABOR & COMMERCE 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: HB 345 SHORT TITLE: PENSION INVESTMENT BOARD PROCUREMENTS SPONSOR(S): REPRESENTATIVE(S) FOSTER, Ivan JRN-DATE JRN-PG ACTION 05/10/95 2088 (H) READ THE FIRST TIME - REFERRAL(S) 05/10/95 2088 (H) STATE AFFAIRS, L&C, FINANCE 03/21/96 (H) STA AT 8:00 AM CAPITOL 102 03/21/96 (H) MINUTE(STA) 03/21/96 3259 (H) COSPONSOR(S): IVAN 03/26/96 (H) STA AT 8:00 AM CAPITOL 102 03/26/96 (H) MINUTE(STA) 03/27/96 3390 (H) STA RPT CS(STA) 2DNP 4NR 03/27/96 3391 (H) DNP: ROBINSON, WILLIS 03/27/96 3391 (H) NR: JAMES, PORTER, GREEN, OGAN 03/27/96 3391 (H) FISCAL NOTE (REV) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: SB 305 SHORT TITLE: REGULATION OF ACCOUNTANTS SPONSOR(S): LABOR & COMMERCE JRN-DATE JRN-PG ACTION 03/08/96 2659 (S) READ THE FIRST TIME - REFERRAL(S) 03/08/96 2659 (S) LABOR AND COMMERCE 03/19/96 (S) L&C AT 1:30 PM FAHRENKAMP RM 203 03/25/96 (S) RLS AT 7:00 PM FAHRENKAMP RM 203 03/25/96 (S) MINUTE(RLS) 03/25/96 2863 (S) L&C RPT CS 4DP SAME TITLE 03/26/96 2901 (S) ZERO FISCAL NOTE (DCED) 03/26/96 2903 (S) RULES TO CALENDAR 3/26/96 03/26/96 2905 (S) READ THE SECOND TIME 03/26/96 2905 (S) L&C CS ADOPTED UNAN CONSENT 03/26/96 2905 (S) ADVANCED TO THIRD READING UNAN CONSENT 03/26/96 2905 (S) READ THE THIRD TIME CSSB 305(L&C) 03/26/96 2906 (S) PASSED Y20 N- 03/26/96 2906 (S) EFFECTIVE DATE(S) SAME AS PASSAGE 03/26/96 2913 (S) TRANSMITTED TO (H) 03/27/96 3388 (H) READ THE FIRST TIME - REFERRAL(S) 03/27/96 3388 (H) LABOR & COMMERCE 04/01/96 (H) L&C AT 3:00 PM CAPITOL 17 04/01/96 (H) MINUTE(L&C) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 WITNESS REGISTER SENATOR DAVE DONLEY Alaska State Legislature Capitol Building, Room 11 Juneau, Alaska 99801 Telephone: (907) 465-3892 POSITION STATEMENT: Sponsor of SB 197. TOM ANDERSON, Legislative Assistant to Representative Terry Martin Alaska State Legislature Capitol Building, Room 502 Juneau, Alaska 99801 Telephone: (907) 465-3783 POSITION STATEMENT: Gave sponsor statement for HB 436. LEONARD GROSS, President Alaska Manufactured Home Owners Association 9599 Brayton Drive, Number 68 Anchorage, Alaska 99507 Telephone: (907) 349-9599 POSITION STATEMENT: Testified on HB 436. BEN MARSH, Executive Secretary Alaska Manufactured Housing Association 2550 Denali Street, Suite 1310 Anchorage, Alaska 99503 Telephone: (907) 278-3615 POSITION STATEMENT: Testified on HB 436. DAVE CAREY, Vice President Carey Homes; Past President Alaska Manufactured Housing Association 3317 Mountain View Drive Anchorage, Alaska 99501 Telephone: (907) 337-9464 POSITION STATEMENT: Testified on HB 436. TERRY DUSZYNSKI, President Alaska State Homebuilders' Association 1464 Birchwood Drive Fairbanks, Alaska POSITION STATEMENT: Testified on HB 424. KEN MITCHELL, Executive Vice President North Carolina Homebuilders' Association Address and telephone number not provided POSITION STATEMENT: Testified on HB 424. JOHN GEORGE National Association of Independent Insurers 3328 Fritz Cove Road Juneau, Alaska 99801 Telephone: (907) 789-0172 POSITION STATEMENT: Testified on HB 424. MARIANNE BURKE, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 Telephone: (907) 465-2515 POSITION STATEMENT: Testified on HB 424 and HB 544. PAUL GROSSI, Director Division of Workers' Compensation Department of Labor P.O. Box 25512 Juneau, Alaska 99802-5512 Telephone: (907) 465-2790 POSITION STATEMENT: Testified on HB 424. SHERMAN ERNOUF, Legislative Assistant to the Senate Labor and Commerce Committee Alaska State Legislature Capitol Building, Room 101 Juneau, Alaska 99801 Telephone: (907) 465-3822 POSITION STATEMENT: Gave sponsor statement for SB 300, SB 261 and CSSB 305(L&C). ART PETERSON, Uniform Law Commissioner National Conference of Commissioners on Uniform State Laws 350 North Franklin Street Juneau, Alaska 99801 Telephone: (907) 586-400 POSITION STATEMENT: Testified in support of SB 300. L. S. (JERRY) KURTZ, JR., Member Code Revision Commission 1050 Beech Lane Anchorage, Alaska 99501 Telephone: (907) 258-6051 POSITION STATEMENT: Testified in support of SB 300. WILLIS 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 in support of SB 300. DWIGHT PERKINS, Special Assistant Office of the Commissioner Department of Labor P.O. Box 21149 Juneau, Alaska 99802-1149 Telephone: (907) 465-2700 POSITION STATEMENT: Testified in support of SB 261. RON TORGERSON, Chief Hearing Officer Division of Employment Security Department of Labor P.O. Box 25509 Juneau, Alaska 99801-5509 Telephone: (907) 465-2775 POSITION STATEMENT: Answered questions on SB 261. CHRIS CHRISTENSEN, Staff Counsel Office of the Administrative Director Alaska Court System 303 "K" Street Anchorage, Alaska 99501-2084 Telephone: (907) 264-8228 POSITION STATEMENT: Testified on SB 261. JOHN WALSH, Legislative Assistant to Representative Richard Foster Alaska State Legislature Capitol Building, Room 410 Juneau, Alaska 99801 Telephone: (907) 465-3789 POSITION STATEMENT: Gave sponsor statement on HB 345. MICHAEL KIRK P.O. Box 20844 Juneau, Alaska 99802 POSITION STATEMENT: Testified against HB 345. TIM VOLWILER 8030 North Douglas Highway Juneau, Alaska 99801 Telephone: Not provided POSITION STATEMENT: Testified against HB 345. MILT BARKER 206 Seventh Street Juneau, Alaska 99801 Telephone: (907) 586-4301 POSITION STATEMENT: Testified against HB 345. WILLIE ANDERSON NEA-Alaska 114 Second Street Juneau, Alaska 99801 Telephone: (907) 586-3090 POSITION STATEMENT: Testified against HB 345. BOB STORER, Chief Investment Officer Treasury Division Department of Revenue P.O. Box 110405 Juneau, Alaska 99811-0405 Telephone: (907) 465-4399 POSITION STATEMENT: Testified on HB 345 TOM BARTLETT, President Alaska Society of Certified Public Accountants 1095 Bruhn Road Fairbanks, Alaska 99709 Telephone: (907) 457-2495 POSITION STATEMENT: Testified in support of CSSB 305(L&C). CHARLES "CHUCK" GRIFFIN, Certified Public Accountant Box 670 Palmer, Alaska 99645 Telephone: (907) 745-3239 POSITION STATEMENT: Testified in Support of CSSB 305(L&C). ACTION NARRATIVE TAPE 96-32, SIDE A Number 001 The House Labor and Commerce Standing Committee was called to order by Chairman Pete Kott at 3:28 p.m. Members present at the call to order were Representative Sanders, Kubina, Elton, Rokeberg and Kott. Representative Kubina arrived at 3:40 p.m. and Representative Porter arrived at 3:45 p.m. SB 197 - INS:DOMESTIC VIOL. VICTIMS & DISCLOSURES Number 128 CHAIRMAN PETE KOTT announced the first order of business would be CSSB 197(L&C), "An Act relating to insurance covering an insured who is a victim of domestic violence and requiring certain disclosures by an insurer." He said the bill had been heard at least on three occasions. There is currently a committee substitute that is before the committee. Chairman Kott explained there was a proposed amendment before the committee. REPRESENTATIVE NORMAN ROKEBERG made a motion to rescind the amendment he had offered. CHAIRMAN KOTT explained the amendment wasn't adopted and that Representative Rokeberg should move to withdraw the amendment as it wasn't adopted. REPRESENTATIVE ROKEBERG moved to withdraw the amendment. Hearing no objection, it was so ordered. Number 205 REPRESENTATIVE ROKEBERG moved to adopt the new committee substitute, Version R, dated 4/3/96, Ford. CHAIRMAN KOTT asked if there was an objection to the adoption of the new committee substitute. Hearing none, HCSCSSB 197(L&C) was before the committee. Number 250 REPRESENTATIVE ROKEBERG said, "In section - excuse me - subsections (1) and (2) this was a area that we discussed in committee. I think there was general concurrence, including with the sponsor and industry that this would be acceptable because it required notice to an applicant for insurance if they were turned down - the reason they were being turned down, only upon written request. The purpose of that particular revision was to provide -- to ease the burden on industry and to make sure that any consumer that was refused any insurance, and for the record, this include all insurance, not just those related to domestic violence Mr. Chairman, would be duly notified of the reason for the refusal to write a policy of insurance. Then in addition, this Version R deletes the provisions on confidentiality that were in the last version of the bill, as provided by the sponsor of the bill, related to records and so forth. We've heard testimony that this would be a burden on industry and that the -- it really wasn't necessary because of existing procedures. I would draw the committee's attention to a letter from the law firm of Lessmeier and Winters. It was distributed today and dated April 3. It outlines some burdens that would be placed on industry if that clause were to be left in. And a -- I'm sure the committee has had an opportunity to read this. And I've talked to the sponsor of the bill and he's agreed to accept that particular revision. Basically, that is the gist of the changes. Mr. Chairman, we should keep in mind the original concept of the bill, which was to ensure that victims of domestic violence would not be refused insurance or denied coverage or have any premium adjustments and so forth. That language has been retained in the bill which is really the heart of the legislation." Number 436 CHAIRMAN KOTT informed the committee there is a proposed amendment to the new committee substitute which will be labeled Amendment 1. Chairman Kott moved the amendment be adopted. REPRESENTATIVE KIM ELTON objected for the purpose of discussion. CHAIRMAN KOTT explained Amendment 1 makes it clear that you can adjust rates for a condition but not a cause. Number 498 SENATOR DAVE DONLEY, sponsor of SB 197, said, "I'm concerned about section (c) of this proposed amendment. It says the above section, which is basically the guts of the bill I would think - since I didn't draft this I'm not exactly sure, but the nondiscrimination provision would only apply to an insured or an applicant for insurance. That would allow discrimination against third party beneficiaries of policies and I just don't that language is necessary. Section (b), I don't think it's necessary but it doesn't seem to be contrary to what the bill already says." REPRESENTATIVE ROKEBERG said he thinks the provision was to allow insurance companies to do their rating underwriting without regard to the cause. They could do rating based on something like a preexisting condition or another condition, notwithstanding the fact that there was domestic violence. SENATOR DONLEY said he doesn't think section (b) conflicts with the bill as it is currently written. He said he doesn't think it is necessary, but noted he doesn't think it is in conflict with what the bill says. Senator Donley explained section (c) concerns him because it narrows the scope of the bill to insure an applicant for insurance and it would cut out any third party beneficiary or anybody else that may be a beneficiary of an insurance policy. He said he doesn't think those people should be discriminated against either. Senator Donley said, "I think (c) is not wise, I think (b) doesn't conflict with the existing bill." If that makes the insurance industry happy, he doesn't think it is necessary. It doesn't do violence to the bill. Number 651 REPRESENTATIVE ROKEBERG said he didn't understand the point about the third party beneficiary. He asked how it relates to the first section. SENATOR DONLEY said, "I think in the world of insurance, that could be read to mean that just if your name is on the insurance policy, do you have the protection against discrimination? If you're a third party beneficiary of the benefits of a policy, rather than being insured you would still be -- you could still legally discriminate and I don't think that is what the committee really wants. I mean I don't think that's good public policy. That's the only reason I can see for having that language in there is to allow discrimination against other beneficiaries of the insurance and I don't think that's appropriate based only the fact that if they're a victim of domestic violence. Number 743 CHAIRMAN KOTT asked if it would be satisfactory to delete subsection (c). He then made a motion to amend the amendment to delete subsection (c) and number the sections accordingly. CHAIRMAN KOTT asked if there was an objection to amend the amendment. Hearing none, the amendment was before the committee. Chairman Kott asked if there was an objection to the amendment. Number 775 REPRESENTATIVE ROKEBERG objected. He said he wanted know if the sponsor had a problem with the amendment. SENATOR DONLEY said he doesn't think it harms the purpose of the bill. He said he thinks it is consistent with what has been said all along. Unless the specific reason was that they were a victim of domestic violence rather than some other appropriate underwriting criteria. He stated he doesn't think it is necessary, but it doesn't harm the ultimate purpose of the bill. CHAIRMAN KOTT asked if there was an objection to the amendment. Hearing none, the amendment was adopted. CHAIRMAN KOTT said the bill is an Act relating to insurance covering an insured. He said through the committee process, we have covered procedures within the bill dealing with an applicant which is not an insured. Chairman Kott said in his opinion, the title of the bill needs to be changed to reflect the contents. SENATOR DONLEY said in working with the drafters in developing the committee substitute currently before the committee, the drafters are usually pretty good in pointing something like that out. He said since the version that came over from the Senate also use the word "applicants" at some point, he thinks it is O.K. because the insured is also frequently an applicant. Number 915 REPRESENTATIVE ROKEBERG said, "The whole provision about the reason an applicant got turned down -- we're talking about applicants here, it may not even be covered as an insured so..." CHAIRMAN KOTT said that is something that could be checked on with the drafters. If there is a problem, it can be adjusted. Number 956 REPRESENTATIVE ROKEBERG made a motion to move HCSCSSB 197, as amended, Version R, with the accompanying fiscal notes and individual recommendations. CHAIRMAN KOTT asked if there was an objection. Hearing none, HCSCSSB 197(L&C), as amended, was moved out of the House Labor and Commerce Committee HB 436 - MOBILE HOME DEALERS & TITLES Number 1000 CHAIRMAN KOTT announced the next order of business would be CSHB 436(TRA), "An Act relating to purchase and sale of mobile homes by mobile home dealers; to mobile home titles; and providing for an effective date," sponsored by Representative Martin TOM ANDERSON, Legislative Assistant to Representative Terry Martin Alaska State Legislature, came before the committee to address HB 436. He informed the committee the bill was introduced in response to the Alaska Manufactured Housing Association to place into statute licensing and regulation procedures for mobile home dealers. MR. ANDERSON said, "Currently, statutory provisions regulate, and license and bond have a surety provision and offer Alaska Real Estate Commissioner, for realtors, but mobile home dealers have no regulation and are unbonded and unlicensed. So this would place them under a new heading under Occupational Licensing. In addition, the state does not require, it allows but does not require the Division of Motor Vehicles (DMV) to title a mobile home. And this bill would also require and authorize DMV to title mobile homes." MR. ANDERSON said this is in the best interest of the consumer. He indicated there is a zero fiscal note. Mr. Anderson said there are people connected via teleconference to speak on the measure. Number 1116 REPRESENTATIVE ROKEBERG asked if there is a prohibition in the legislation on the fact that a real estate broker couldn't also sell a mobile home. MR. ANDERSON said he didn't believe so. REPRESENTATIVE ROKEBERG asked if this would be a new licensure set up to provide for that. MR. ANDERSON indicated it was. Number 1154 REPRESENTATIVE ELTON said it is another rampant example of Republicans wanting to add more regulations to statutes. Number 1171 CHAIRMAN KOTT referred to page 2, line 8, "(6) a statement that the applicant is a bona fide dealer or agent in mobile home sales with a business at the location given;". He asked if there will be a requirement to update with the department as the representatives in sales change. MR. ANDERSON said, "To be honest, Mr. Chairman, this was drafted from Legal Services and we had them `wing it' and put in what they thought would be good information." Mr. Anderson said in speaking with the director of Occupational Licensing who has stated that Section (b), line 1, page 2, to line 10, probably doesn't have to be in the bill. Mr. Anderson said the committee is welcome to amend the bill in regard to informational purposes as much of this is already on record. He said they would have to notify the department. CHAIRMAN KOTT informed Mr. Anderson that subsection (b) is lines 1 through 16. He said subsection (b)(4) calls for the name and address of sales representatives. Chairman Kott pointed out that are some dealerships where there are a lot of people in sales. He said you can go to Cal Worthington's one week and there are 50 sales representatives and you go down there two weeks later there is almost a 50 percent turnover. He said he was wondering if the intent to update that or if it is not too onerous. MR. ANDERSON said he meant in terms of the occupational licensing application, much of this information is already on the application packet. He said we don't believe that it is necessary to maintain this information. He referred to Chairman Kott's question and said he doesn't think there is a need to continually update that. He said he meant that if the committee members were looking at subsection (b), further subsections (1), (2), (3) and (4), they do not necessarily have to be in the bill. It was included for a reaffirmation of who and what the business was and where the address was. He said he doesn't know how to change that other than to delete it. Number 1347 CHAIRMAN KOTT said on page 4, language was added on line 8, "shall issue a certificate of title to the owner of a mobile home upon application," and then the new language is "display of evidence of ownership." He asked if there was any testimony in the previous committee from the department as to what kinds of evidence would be required. MR. ANDERSON indicated there wasn't testimony in the previous committee. He said he believes they simply meant a certification or a title, an actual piece of paper. He indicated he doesn't know the answer. CHAIRMAN KOTT said as in the case of registering or titling motor vehicles, would the certificate of title also show lienholders. MR. ANDERSON indicated that is the intent. Number 1405 REPRESENTATIVE ELTON referred to page 4, line 8, and said DMV would issue the title. He said they would issue that title, for example, if somebody buys a mobile home outright that would go to the owner, but it could also go to the bank and the bank would be required to pay a fee of $100. MR. ANDERSON said he isn't sure how that procedure works. He said assumes it would be similar to a vehicle. Number 1453 REPRESENTATIVE GENE KUBINA asked what has happened in the state where it has become necessary to regulate another group of people. MR. ANDERSON said in the committee packet, there is a letter from the Alaska Housing Manufacture Association. They would be better to respond with specific situations that have occurred that infringed on their sales. Number 1539 REPRESENTATIVE ELTON referred to page 2, lines 1 through 17 and said the way he reads it the department prescribes and furnishes a form of application and the application then must have this information. He said he believes it would be discretionary on the adoption of regulations which is talked about on the bottom of page 1, whether or not they would have to update that. Representative Elton said he is assuming the license the license application would be the same as for other occupational licensing - once every two years. MR. ANDERSON indicated that is correct. Number 1589 LEONARD GROSS, President, Alaska Manufactured Home Owners Association said he is also a dealer. Mr. Gross referred to HB 436 and said it is a consumer bill. He said it would be a little more costly to him. He said manufactured homes with the former name `mobile homes,' - the least expensive manufactured new homes coming into Anchorage costs about $50,000. This represents probably the largest investment of a home owner who lives in a manufactured home or a mobile home, yet there is no central agency of mandatory registration. Formally they were issued titles, all mobile homes or manufactured homes had to be titled. Now it is arbitrary which is kind of ridiculous to have two sets of registration. What has happened over the last year when the DMV stopped handling titles and wouldn't retitle for a year, from July of 1994 to August of 1995, there were instances of fraud where renters were selling homes with a false bill of sale. Showing their ownership didn't mean a thing. Mr. Gross said there are some manufactured home for $100,000. It is evident that somebody needs protection. As a DMV dealer, where it is mandatory to have a license, they have to be bonded. The present bond is $10,000. He said currently, there isn't no way to have the central regulation to see if the unit is free and clear. Mr. Gross said an increase in the bonding would cost him money, but it would still be for the protection of the consumer. MR. GROSS referred to the titling and said the consumer pays for the title transfer in the (indisc.) application, one way or the other. He said the only thing they can show is a clear title. Most of the banks will not finance a home without a title. He thanked the committee for listening. Number 1706 BEN MARSH, Executive Secretary, Alaska Manufactured Housing Association, testified via teleconference from Anchorage. He explained he operates and manages the association. Mr. Marsh said he hears about anecdotal stories about people who have been handling sales of mobile homes without adequate titling and proof of ownership. He said his association would like to see something to protect the rights of people who buy mobile homes under those conditions - used ones. Obviously, if a mobile home sold with a lean from a bank or a loan from a lender, a problem won't arise because there will be proof of title before a loan is issued. The problem arises when you're conveying used models between individuals and the seller is financing. Number 1772 DAVE CAREY, Vice President Carey Homes; Past President, Alaska Manufactured Housing Association, said he concurs with everything Mr. Gross and Mr. Marsh stated. He referred to Wasilla and said a few years ago, one gentleman sold the same mobile home four or five times because he played on the fact that a bill of sale was the only thing that was necessary. Had there been the requirement of a title to be processed through the DMV, that would have been detained. He said he hopes we can recover from the years that we haven't had titling. He said he concurs with Mr. Gross on the dealerships. Mr. Carey said their homes are built under federal standards, yet there is nobody in Alaska who is actually inspecting those homes to make sure they have the proper seals on them. He said we just want to protect ourselves and our people. CHAIRMAN KOTT noted Representatives Porter and Kubina had joined the meeting. Number 1867 CHAIRMAN KOTT referred to the application requirements that the department will require and asked Mr. Carey if those conditions were satisfactory. MR. CAREY said they use the same forms for mobile homes and have in the past. That form is completely acceptable. CHAIRMAN KOTT asked what the wish of the committee was. Number 1935 REPRESENTATIVE JERRY SANDERS moved and asked unanimous consent that HB 436 be moved out of committee with accompanying fiscal notes and individual recommendations. CHAIRMAN KOTT asked if there was an objection. Hearing none, CSHB 436(TRA) was moved out of the House Labor and Commerce Committee. HB 524 - INSURANCE POOLING BY EMPLOYER ASS'N. Number 1983 CHAIRMAN KOTT announced the committee would hear HB 524, "An Act relating to insurance pooling." TERRY DUSZYNSKI, President , Alaska State Homebuilders' Association, was first to come before the committee to testify in support of HB 524. He pointed out that currently, they are supporting the concept of the bill. After hearing testimony at the last hearing on the bill by the Division of Insurance and the Division of Workers' Compensation, he has met with Marianne Burke and Paul Grossi. He said they spent time going over some of the problems they have had with the current language in HB 524. He said they decided to bring some amendments forward to make it compatible or palatable between both of those people and groups. He said he read a letter into the record: Dear Representative Kott: The Alaska State Homebuilders' Association met with the principal state regulators yesterday to discuss House Bill 524. The meeting produced an agreement between the homebuilders and the regulators that House Bill 524 should be amended to include the following principles: Group self insurance will be for workers' compensation purposes only; groups that self insure must be shown to be solvent; groups that self insure must be able to pay any potential claims; a plan for liquidation must be included in the legislation; the guarantee fund must be included in the legislation; all parties who may participate in the group must be treated equally; and group self insurance plans will be regulated by the state. "If these principles are included in the bill, we believe the regulators will support the bill. Such a bill will protect Alaska workers while allowing groups to manage their own workers compensation destinies and reduce their costs of doing business in the state of Alaska." MR. DUSZYNSKI informed the committee that Mr. Ken Mitchell was in attendance with him. He is the executive officer of the North Carolina Homebuilders' Association. Mr. Duszynski said they are modeling everything they are bringing forward based on what they have had in their success. Number 2114 KEN MITCHELL, Executive Vice President, North Carolina Homebuilders' Association, was next to address the committee. He noted he also serves as the administrator for the North Carolina Homebuilders' Set Insurers Fund. He explained this is a situation they got into twelve years ago. Mr. Mitchell said they were in a posture where insurance rates were going extremely high. Many of their small builders weren't able to buy workers' compensation insurance and many of the traditional markets had left the marketplace. There is a provision in the North Carolina law that groups that are homogeneous can form together and prove their risk as far workers' compensation is concerned. There are requirements. He said they are regulated by the North Carolina Department of Insurance. They started their fund in May, 1984. The first year, they had 400 member firms who participated in the plan. They had about $840,000 of annual premium. During 1995, they have over 8,500 employers generating $65 million of annual premiums. Mr. Mitchell said they have been able to reduce the cost of workers' compensation by two or three different ways. Number one is they make sure they have a good underwriting program so that they bring desired firms into the plan. Secondly, they don't just pay claims, they manage claims. He said he thinks this is where the real cost savings are involved in workers' comp. If you, as an employer, can become very involved in the claims and accidents that you have on your workplace, then you can save dollars through lowering your expense (indisc.), getting your people back to work as quickly as possible. MR. MITCHELL said they are no different than the builders in Alaska in that they want to make sure that their employees that are injured in the workplace receive every benefit that they're entitled to. He said they want to make sure that happens anywhere that does group self-insurance across the country. He said they want to be able to control their destiny and costs so that they can be in a situation where they can reduce the cost of workers' comp. Every house that is built, a large portion of the expense of building that house goes into the area of workers' compensation. If they can reduce those costs, then they can make housing more affordable to the citizens of North Carolina and Alaska. He said he doesn't think it is the builders in Alaska or their intent to circumvent any of the rules or regulations that are involved in workers' compensation in the state of Alaska. They want to have the opportunity to move forward and to do the things that currently 36 other states allow which is to allow individual firms to join a group self-insurance program so that they can have some control as far as their destiny is concerned. MR. MITCHELL informed the committee that currently there are 14 homebuilders associations throughout the country and soon to be 15 that will offer to its employers and members the ability to join a group self-insurance fund. He said he hopes that in the future Alaska will be in that posture. Mr. Mitchell noted he is not a paid consultant and that he isn't in attendance for a profit motive. The only reason he is here is to work with the legislature and the members of the Alaska Homebuilders to hopefully provide them with a vehicle so that they can deliver their workers' comp to their workers in a manner that will be cost effective and, in the long run, that will save them money and it will help to reduce the accidents and the cost of those accidents on the job site. Number 2287 REPRESENTATIVE ELTON referred to Mr. Mitchell stating that they started with 400 and have expanded to 8,500 and asked if there is a minimum of the number of employees necessary to keep the risk from being too concentrated. MR. MITCHELL said he isn't sure that there is a certain number of employers that Alaska should be interested in; it is the dollar premium that is generated. He said that in North Carolina 12 years ago, they had to have $750,000 in annual premiums to start their program. Some states have $500,000, and it varies across the board. He stated he doesn't think it is the number of firms you have, but the premiums that they generate. Number 2320 REPRESENTATIVE BRIAN PORTER asked Mr. Mitchell if his association has joint and several liability. MR. MITCHELL said, "Yes Sir. There are really a number of safeguards we feel very strongly about and we want to make sure there is protection for the worker. The main thing that we want to make sure the end result is is that if anybody is hurt on that job site, that there is money there to pay for those people. First of all, there is premium collected that is exactly the same as the premium that is prescribed they rate bureau. We don't try to get around that. Secondly, the state of North Carolina requires us to put up $600,000 in cash in a guarantee fund made payable to the Department of Insurance in the event that we can't pay our claims. We can either do that in the form of cash or in the form of a a surety bond. Thirdly, we have joint and several liability in the event that the process gets to the point where we can't pay our claims, then we can go back and assess our people. But prior to that, we're also required to buy reinsurance where we will take a certain portion of the risk up front and then we will have reinsurance that will cover that risk for catastrophic type losses. And there are two types of reinsurance that we deal with. One is for the specific claims that we have and the second is called an `aggregate reinsurance' which is kind of like an umbrella coverage in your general liability policy, it takes an overall look at where we are. And then -- then the next area, which would be the (indisc.) of protection is that we also have a guarantee fund in the state of North Carolina where every individual self insurer and every group self insurer contributes money into a guarantee fund. And if we have one of those groups or individual firms that become insolvent, after everything else is exhausted then the guarantee fund will go in and pay the worker's claims that they have and then we will go back and reassess everybody who is individually or group self-insured in the state to recoup those losses and build the guarantee fund back up. Fortunately or unfortunately, I've been on the guarantee fund since the very start. The commissioner of Insurance appointed the first guarantee fund and I was a part of that and have served as the chairman of the guarantee fund for the last two years. I probably told you more than you wanted to know about it. Number 2417 CHAIRMAN KOTT referred to the three areas underpinning the North Carolina program - underwriting, pay and manage claims and questioned what the third one was. MR. MITCHELL responded, "Safety - loss control." CHAIRMAN KOTT asked him to expand on the loss control aspect. MR. MITCHELL explained they have safety engineers that are employed by the third party administrator who oversees their program. Safety engineers are professional people who go out to the job sites and inspect. He noted some of the safety engineers on staff and then they use some on a contract basis. Mr. Mitchell said, "Lets say that you have a construction job and your experience mod continues to rise and you have a frequency of accidents. Then our safety engineers will go to your job site and say, `You must do the following things because these are not right on your job site.' Then we will write a letter to that individual employer saying, `Here is the problems that you have on the job site, you've got 30 days to correct these,' and if they don't correct those then we don't allow them to stay in the fund anymore. We have tried to sell the concept to our people that this is your fund, you can do with it whatever you see fit. If you work together and you prevent accidents on the job site, then you're going to save money. And I have people that builders that will call me and say, `Ken, you need to go over and look at Terry Duszynski's job site, he's got some people over there doing things that he's not supposed to do and he's going to have an accident and when he does, it's going to cost me money.' And that's the kind of concept that we've tried to foster in North Carolina - that this is our member's fund and any monies that they have that we can produce as a savings on the claim side, then we give that money back to our participants." [END OF TAPE....] TAPE 96-32, SIDE B Number 001 MR. MITCHELL continued, "Our safety dividends work in the following manner: If you don't have a 70 percent loss ratio, then you don't participate in the safety dividend because you didn't help create the monies that are there that are leftover. For 1995 -- We have to get this approved by the Department of Insurance to be able to give this money back. For 1995, we have asked for and have been approved to give back $5 million to our people. Those are the kinds of things that we're able to do with the concepts that we have. We want to get involved, and I hope I don't offend anybody that's in the traditional insurance business, if I do I'm sorry but that's the way it is. Most of the time what we've found in North Carolina, it may be different in Alaska, is that they just pay the claims that come in and what we want to do is manage those claims. We want to make sure that we cut out fraud in the workplace. Our statistics tell us that probably 25 percent of the claims that are filed for workers' comp are fraudulent and we passed legislation in North Carolina that makes that a felony and we send those people to jail because it's steeling, and if it's not a real claim where people are actually being hurt then we don't want to pay that and we don't want our employers to have to pay that." Number 058 CHAIRMAN KOTT questioned if a safety engineer's visit isn't necessarily triggered by an event. MR. MITCHELL said it could be for any reason. A safety engineer could be driving by a job site and stop. He pointed out that if there are people who are questionable as far as underwriting is concerned, they will send a safety engineer out before they are actually accepted into the plan. CHAIRMAN KOTT asked how the safety engineers are funded. MR. MITCHELL explained that it comes from the premium that is generated through the group self insurance. Presently, they have what is called a third party administrator who does all their billing, collections, claims and safety engineering. He said all of that will be in-house by July 1. Mr. Mitchell noted they are going to have $2 million plus dollars, annually, in savings by bringing this in-house. CHAIRMAN KOTT thanked Mr. Mitchell for his testimony and introduced Mr. George. Number 221 JOHN GEORGE, National Association of Independent Insurers, was next to address HB 524. He informed the committee his background is in risk management and he has worked on forming (indisc.) insurance companies for corporations. He said he thinks there are some benefits in any group looking at themselves internally to find out why they have losses, how they can improve that, whether they end up in an insurance program, a self-insurance program or a pool. He said he would like to reserve his comments until he can see what the new proposal is. CHAIRMAN KOTT invited Paul Grossi and Marianne Burke to come before the committee. He explained Mr. Duszynski had indicated there had been a meeting between Mr. Grossi, Ms. Burke and members of the industry. Chairman Kott asked them to comment on what direction we're taking. Number 300 MARIANNE BURKE, Director, Division of Insurance, Department of Commerce and Economic Development, was next to come before the committee. She said she thinks we were all tremendously relieved to realize that we're not talking about joint insurance arrangements (JIAs). Once that issue was put aside, they then discussed the considerations that they felt were essential to protect the workers in the state of Alaska. She said, "Outlined under Title 21, the insurance title, some options that are already there in that we already have in statute provisions for reciprocal arrangements. I'd suggested that they look to this -- the statute to see if this met their needs. And we also discussed, under Title 23, the option of self-insurance was there but that in statute there are very strict solvency requirements and very strict requirements as the net worth of the company, et cetera, (indisc.) that is already in statute. Our meeting I think was extremely productive in that we had a opportunity to outline our concerns and what we felt were necessary to protect the individuals in the state of Alaska. As we pointed out to them, our concern is that someone is there to pay the bills for the injured worker. The concept of loss control, of course, is the key to keeping workers' comp costs down. It is not that the premiums just go up, the claims go up, and as the claims go up they cause more to get the insurance. So we applaud their interesting concern in having a active safety program. Loss control and managing of the claims is the secrete and we have told them we would work with them and to make sure that the concerns that we have are addressed. And again, I have suggested that they look to statutes that are already on the books that provide for similar type arranges. The timber exchange is a perfect example. It has worked very well, very successful. It is regulated. I have talked to the -- I have information from North Carolina. From inception, all of their employer associations were regulated and there were solvency requirements required from the very beginning. And effective 1/1/96, basically their (indisc.) they were an insurance company and that they're filing the required statements, they have solvency requirements, reporting and they also have the guarantee fund which has been set up. And again, I think this is a wonderful concept that we would need if, in fact, this sort of arrangement came into being in Alaska. Right now, (indisc.--coughing) certain companies participate in the guarantee fund. So we have the added assurance that the policy holders or the beneficiaries of the policy will have a source to pave the corners through the guarantee (indisc.--coughing) insurance companies. If an association, such as this, had problems - if they also have a guarantee association there is that extra safety. Number 473 PAUL GROSSI, Director, Division of Workers' Compensation, Department of Labor, said he didn't have much to add to Ms. Burke's testimony. He said their main concern is to make sure that workers' compensation liability is covered under anything that they do relating to legislation that is passed. Mr. Grossi pointed out one thing they did discover is that they wanted some sort of workers' compensation coverage. He said he didn't know whether they wanted to address this in Title 21 or Title 23, but it will require a lot of work to change what they have. CHAIRMAN KOTT said he has received a list of suggestions for inclusion into some kind of statutory scheme. He said based on the time left for the legislative session, he isn't sure we will be able to pursue this to finality. He said he will take the ideas that were a result of the meeting and have the drafters try and incorporate those into some type of legislative scheme. Chairman Kott said he will work with the departments as well as the industry in ensuring that all the requirements have been met that need to be met in keeping Alaska's work force safe. He said the bill would be held. HB 544 - HEALTH INSURANCE NOMENCLATURE Number 590 CHAIRMAN KOTT announced the committee would hear HB 544, "An Act relating to the use of the terms `health' and `disability' in the context of insurance coverage," sponsored by the committee by request. He said it makes some changes from a housekeeping perspective where we have used disability and have confused that with health insurance. It seems like we're conforming to make disability an integral part of health insurance. We're basically changing some various parts of the insurance statutes. MARIANNE BURKE, Director, Division of Insurance, Department of Commerce and Economic Development, came forward to testify on HB 544. She said this is a housekeeping bill where they are changing the word "disability," which is an archaic term that went on the books many years ago. Since that time, disability, income protection insurance and other types of disability coverage have come into being and it creates a great deal of confusion. Ms. Burke explained she has been approached by legislators saying, "Why is this bill addressing disability." She was also questioned why the word "disability" was used in the domestic violence bill. It is because it conforms with the Alaska statute's usage of that term. She said "disability" is being changed to "health." This will bring us into agreement with the usage of the term throughout the industry throughout the United States. We would be catching up with the rest of the country. Ms. Burke said it is user friendly. Number 692 REPRESENTATIVE ROKEBERG indicated he applauds the bill. REPRESENTATIVE KUBINA noted it looks like the title is so tight that you can't do anything else but deal with those two words. Number 742 REPRESENTATIVE ROKEBERG made a motion to move HB 544 out of committee with individual recommendations and the attached zero fiscal note. CHAIRMAN KOTT asked if there was an objection. Hearing none HB 544 was moved out of the House Labor and Commerce Committee. SB 300 - UNIFORM COMMERCIAL CODE:ART 8(SECURITIES) Number 866 CHAIRMAN KOTT announced the committee would address SB 300, "An Act relating to the Uniform Commercial Code, primarily to investment securities; amending Rule 8(d), Alaska Rules of Civil Procedure; and providing for an effective date." SHERMAN ERNOUF, Legislative Assistant to the Senate Labor and Commerce Committee, informed the members that the bill is a housekeeping bill. He said the committee introduced SB 300 by request of the Uniform Law Commission. He said, "If I had to boil this down to one main topic, which really is the full substance of the bill, its one main theme is the recognition of current practices in the handling of investment securities by electronic means instead of paper and by the use of a lot clearinghouse corporations and securities intermediaries have popped up. This bill just updates the UCC code to recognize electronic handling of securities. It passed the Senate 20 to 0. Really, there is no opposition stated. Its been endorsed by quite a few people." MR. ERNOUF indicated many states have adopted it and there are currently a quite a few states that are going through this process to get this on the books as fast as possible. Number 965 REPRESENTATIVE PORTER asked if this is basically what was done to the banking code as far as wire transfers. ART PETERSON, Uniform Law Commissioner, National Conference of Commissioners on Uniform State Laws, explained the bill is related in that it uses modern technology, but it deals with a whole different set of issues and circumstances. It is to address the modern world. The current code was written several decades ago. Number 1006 L. S. (JERRY) KURTZ, JR., Member, Code Revision Commission, said the bill is an attempt to get the law to catch up with the computers. He said he would point out that this is a 1994 proposal by the Uniform Law Commission. As of last September 30, 13 states had already adopted it, including several important commercial states, namely Illinois and Texas. He noted Washington and Oregon have recently adopted this and other states are currently in the same process. Number 1608 WILLIS KIRKPATRICK, Director, Division of Banking Securities and Corporations, Department of Commerce and Economic Development, was next to address SB 300. He informed the committee that SB 300 is really not that much different if it is compared with AS 45.08. There are some significant changes in it and those changes are basically in the area of control and the action of intermediaries. The action of the intermediaries takes place in the electronic transfer of funds and in the electronic transfer of shares of ownership. Those go to a clearinghouse or to an intermediary or a third party who handles those types of transactions. Mr. Kirkpatrick explained in the mid 1970s, this was handled by the exchanges through a depository trust corporation that held in the depository certificates and everybody would do a bookkeeping entry as a debit of credit against those certificates. Today, with the electronic age, electronic transfers and the activity that is occurring, we are getting more and more into a "certificateless" world. The law needs to be updated to protect those who have certificates with the intermediaries and those who have liens and actions against those certificates. He said it protects all parties in relationship to those types of transactions. Mr. Kirkpatrick said the bill is a good bill and he urged passage. Number 1175 REPRESENTATIVE ROKEBERG referred to page 31, line 28, and said it speaks to lost stock certificates. The words "bona fide purchaser" were changed to "protected." He said he isn't sure he understands that. MR. KIRKPATRICK said he believes that protected is covered under the definition of a protected certificate holder. He said it may be explained in Section 113. REPRESENTATIVE ROKEBERG said the reason he asked this question is because about 25 years ago he bought his father one stock in Exxon and a few other shares in other companies. He said he is looking for one of the certificates because he wants to sell the stock. MR. KIRKPATRICK said he may be able to get a replacement for the certificate through the transfer or registered bank. He said he doesn't believe that is the protected definition in this instance. Number 1282 REPRESENTATIVE ROKEBERG referred to the state of New York not adopting this. He said the security exchanges are in the state of New York. MR. PETERSON said he has called the Chicago office of the Uniform Laws Conference and the reason it hasn't been enacted in New York was that the New York Bar was studying it in great detail. He said there was some segment of the bar that was causing some delay. They have since come out with a report, which was favorable. It was supposed to go to the New York legislature in March. It may be currently pending in the New York. The plan was that it would be introduced this spring and it is expected to pass in New York very shortly. MR. PETERSON explained that in the 1960s, there was a major paperwork crises hitting the New York Stock Exchange and all the security exchanges. Two things stemmed in response to that. One was the developing concept of the uncertificated security. So if General Motors wanted to issue Representative Elton a share of stock, they don't send him a piece of paper saying, "Dear Kim, here is your piece of paper." They would deal through a depository, an intermediary that in fact is between the issuer, General Motors, the stock broker and the ultimate purchaser, Kim Elton. Mr. Peterson explained that because of that development to the point where this clearing corporation system so dominates the scene now, something like 80 percent of all shares are held through that clearing corporation in New York which is called a depository trust corporation, there are very few instances of pieces of paper flying around through the mail back and forth, but there are still some. So this bill retains some of the provisions of the old UCC to take care of that situation, but it also adds a new group of sections recognizing what is called the "Indirect Securities Holding System." Representative Elton would have his account with his broker, Merrill Lynch. Merrill Lynch, in turn, would have its account with a depository clearing corporation in New York, and that corporation would then be in touch with General Motors. He said there are several intermediaries between the ultimate purchaser, the ultimate holder who has the right to receive the benefits of that share of stock, and the issuer of that stock, the corporation that is doing the manufacturing, etc. Mr. Peterson said because the law has failed to keep up with that, we need to have this modernized version of the Uniform Commercial Code enacted. MR. PETERSON explained the second thing that developed was the use of computers. This electronic technology that has mushroomed over the last two decades. It is such a different scene now from the way it was in the 1960s, and the law has not kept up with that. This bill is supposed to try to do so. He said in a few years there will be another bill that does whatever the advances are then. Mr. Peterson said SB 300 is overwhelmingly supported by all of the folks in the securities industry. He said he isn't sure whether the committee members' files includes a series of letters from people of the New York Stock Exchange, the American Stock Exchange and the Depository Trust Company. The American Bar Association supports the changes. He noted it was developed by the National Conference of Commissioners in Uniform State Laws. Mr. Peterson explained the National Conference of Commissioners put out a section by section commentary if the committee wished to have a copy. He urged the committee to pass the bill. Number 1618 CHAIRMAN KOTT asked Mr. Peterson to make the section by section analysis available. Number 1655 REPRESENTATIVE PORTER made a motion to move SB 300 out of committee with individual recommendations and a zero fiscal note. CHAIRMAN KOTT asked if there was an objection, Hearing none, SB 300 was moved out of the House Labor and Commerce Committee. SB 261 - UNEMPLOYMENT COMPENSATION Number 1742 CHAIRMAN KOTT announced the next order of business would be SB 261 "An Act relating to the release of employment security records; relating to an injunction or an employer's security for delinquent unemployment insurance contributions; extending time periods for redeterminations and appeals for unemployment insurance; relating to the overpayment or the redetermination of unemployment insurance benefits; relating to availability for work, seeking work, and the calculation of wages for unemployment insurance purposes; relating to voluntary federal tax withholding from unemployment insurance benefits; relating to the binding effect of unemployment compensation decisions; relating to the definition of `waiting week' for employment security purposes; and providing for an effective date," sponsored by the Senate Labor and Commerce Committee. SHERMAN ERNOUF, Legislative Assistant to the Senate Labor and Commerce Committee, Alaska State Legislature, explained the SB 261 was introduced by request of the Department of Labor. He explained it is a cleanup bill of the unemployment Security Code. Mr. Ernouf then referred the committee to Dwight Perkins. Number 1784 DWIGHT PERKINS, Special Assistant, Office of the Commissioner, Department of Labor, read his statement into the record: "The bill before the committee makes several changes to the Employment Security Act in six major areas: Federal income tax withholding; confidentiality of records; contributions and collection; benefit overpayments; finality of determinations; and appeals. In addition, the bill contains a few minor and technical amendments. "Regarding income tax withholding, one important change brings the Employment Security Act into conformity with a new federal provision that requires states to allow claimants to have income withheld from their benefits to cover their federal income tax liability. "In the confidentiality of records section, proposed changes to AS 23.20.110 would allow the department to provide additional specific unemployment insurance information to other entities under strict disclosure guidelines. This information exchange will support and enhance the department's own programs, as well as assisting other state programs. The information would be used only to protect the unemployment compensation fund; enhance employment, training, and labor market information programs; and assist state eligibility verification and collection functions. These changes do not rescind the public disclosure prohibitions already in As 23.20.110. They are intended only to increase efficiency of state government while retaining current privacy safeguards. "In the contributions and collection section, Mr. Chairman, two provisions would provide important tools for collecting delinquent contributions. First, the department would be authorized to require a deposit or bond from an employer who is at least two quarters delinquent in making contributions to the unemployment compensation fund. The bill also allows the department to enjoin a delinquent employer, who refuses to post a bond or pay contributions, from operating as an employer. The department would use these provisions only in situations where existing remedies in the Employment Security Act are not effective, as for example, where an employer operates without significant assets subject to lien or seizure. These uncollectible accounts are currently being subsidized by the rest of Alaska's employers who pay contributions on a timely manner. An additional change allows the department to notify employing units of their contractor's or subcontractor's liability for contributions to the unemployment compensation fund. This information will help employers to meet their obligation to require contribution bonds of their subcontractors before making contract payments. "In the benefit overpayments section, the standard for waiving unemployment insurance overpayments would be changed from `great hardship' to `equity and good conscience.' The new standard would allow the department to consider other factors, such as the degree of good faith in claiming benefits and the claimant's detrimental reliance on these benefits. The bill would also permit the department to write off uncollectible overpayments after two years. Practice has shown that most recoverable overpayments are collected within two years. "In the finality of determinations, the department would be given clear authority to correct any determination during the benefit year of an unemployment claim. This change will increase the accuracy of claim adjudication. "In our appeals section, a proposed amendment would provide a uniform 30 day time period for filing appeals from any determination made by the department. The current 15 day period probably impacts rural parties unfairly and may not allow enough time to review and consider an appeal. A longer period would still allow for prompt disposition of claims and assessments. "The bill would also clarify the legal effect of appealed decisions. It would make it clear that findings of fact and conclusions of law in unemployment hearings are not binding in another proceeding. The purpose of this amendment is to prevent parties from excessively litigating issues based on the effect the department's rulings may have on later civil litigation. This change will help keep unemployment hearings speedy, informal and inexpensive. "Both the 30 day appeal period and the provision restricting the scope of department decisions address concerns of a recent legislative audit of the unemployment insurance appeals process. "Finally, Mr. Chairman and committee members, the minor and technical changes that I spoke about earlier are additional amendments would allow an insured worker to continue receiving unemployment benefits while attending the funeral of an immediate family member; require a worker to file a compensable claim for the week immediately before jury duty or attendance at a funeral in order to receive an eligibility exemption for those reasons; exempt extended benefit claimants from the work search required while attending an approved training course; correct the definition of the `waiting week' in the Employment Security Act; and finally, clarify the treatment of `cafeteria plan' payments under the wage definition in the Act." MR. PERKINS said that concludes his testimony. Number 2222 REPRESENTATIVE ROKEBERG referred to page 8, line 14, Section 14, where the bill lowers from six years to two years the period in which the commissioner shall seek to make recovery for overpaid benefits and said his first impression is it seems like we're not being diligent enough to collect these overpayments. MR. PERKINS said he would defer that question to Mr. Torgerson. He said regarding the recoverable payments, he believes the department is at 90 percent of payments that are overpaid. Number 2332 RON TORGERSON, Chief Hearing Officer, Division of Employment Security, Department of Labor, explained he worked on the drafting of the bill. He said most of their overpayments are recovered. He said their non-front recovery rate is better than 90 percent. Most of them are recovered or offset from benefits within about two years. Mr. Torgerson explained this won't cause the department to walk away from the overpayments at all. It is not prescriptive and doesn't require the department to write off the overpayment, it just allows it. He explained there have been instances where they've written off an overpayment and then determined somebody has returned to Alaska and have reinstituted it and collected it. This wouldn't significantly impact collection. REPRESENTATIVE ROKEBERG asked why we are doing this. MR. TORGERSON said he believes the department's point is just to not carry uncollectible overpayments on the books. It does drag down the recovery rate (indisc.). If they're uncollectible, it seems expedient to write them off. He noted some stats don't ever write them off, some states write them off after six months, two years is sort of medium period to keep the overpayment on the books [END OF TAPE....] TAPE 96-33, SIDE A Number 001 MR. TORGERSON continued, "It isn't a vital position, I don't believe, it is simply that there is no reason for showing overpayments on the books that are uncollectible." REPRESENTATIVE ROKEBERG noted his concern that they aren't being carried on the record. It says in the provision that a record could also be thrown out. He pointed out that a six year holding period for records is similar to the Internal Revenue Service's standards for record keeping. Representative Rokeberg referred to throwing the record out and questioned how would you collect on a claim. Number 081 MR. PERKINS said he believes that even after six years, if a person returns to the state they would be able to collect those funds. He stated it is not a complete deletion of the case file. It is a measure of time in a window period that they can look back and see what is outstanding or what is not outstanding after two years. Mr. Perkins stated that in no way do they intend to delete the file. If the person comes back to the state, the department plans on diligently collecting those funds. He again pointed out that they have had a 90 percent recovery rate. CHAIRMAN KOTT asked if the 90 percent recovery rate fell within the two year time period or over six years. MR. TORGERSON explained most of the overpayments are collected fairly quickly and usually by offsetting against benefits that the person may be eligible for down the line. He said he can't confirm, without more research, exactly how many overpayments are recovered within two years. He noted they are working on a new system which is called a "Bart System" which is being instituted under a federal grant. It would allow the department to monitor and discover overpayments much more quickly. It should increase the department's collection rate even more. REPRESENTATIVE ROKEBERG asked what a typical circumstance is that creates an overpayment. MR. TORGERSON said a majority of the overpayments are because of misreported wages on claims. Wages and other income are deductible from benefits and, in most instances, it is not fraudulent misreporting, it is just incorrect answers on claim forms. He informed the committee the average overpayment is about $216 which is slightly over the maximum benefit amount for one week. The vast majority of the overpayments are recollected very quickly by offset from any future benefits. REPRESENTATIVE ROKEBERG pointed out that in Alaska there is seasonal work. He asked if the department carries the outstanding balances to the following calendar year. MR. TORGERSON said they do. The current system the department is operating under, basically cross matches, every quarter, the claims filed against the wage reports of every employer in the state. If the program sees that an individual files a benefit claim in a quarter in which the employer has reported wages for him, the probability of a waited match is assigned to that and the case is investigated. He noted the new system will do this more efficiently. Number 371 REPRESENTATIVE SANDERS said the file isn't being thrown away, it is just being put into a file drawer somewhere. If something comes up, they can go and get it back out of the drawer. MR. TORGERSON said it gets cases out of the system that has a much lower probability of collecting so that they can focus on the cases that are collectable. Number 412 REPRESENTATIVE PORTER asked what would trigger the ability to go back to a case. MR. TORGERSON said he wasn't sure exactly how long the computer system keeps claims archived, but it is a good many years. He said the department has had cases where the head of the benefit payment control unit has reinstituted the overpayment and collected it after it becomes obvious that, through a tip or any other information, that the overpayment is collectable. Number 458 MR. PERKINS said once there is a qualifying event by a claimant, then that would raise a red flag, or possibly through employment security taxes that the employer pays on an individual. REPRESENTATIVE PORTER said if the file is purged, how would the red flag get raised. MR. TORGERSON said he can't say for sure. He said he wants to emphasize that this particular section doesn't require the department to write off anything. The department isn't required to write off after six years. Number 516 CHAIRMAN KOTT said in the provision, it indicates that the commissioner may declare the sums uncollectible and cancel both the resulting shortage and related records. It doesn't mean that the commissioner will. Chairman Kott said he would suspect that in some circumstances he won't. MR. TORGERSON said that is correct. He said the commissioner would like the discretion to be able to write off what appears to be uncollectible overpayments quickly. The commissioner isn't necessarily going to write those overpayments off. REPRESENTATIVE ROKEBERG asked if this wouldn't have the net affect of making the commissioner's record of collection look better. MR. TORGERSON indicated it would. He pointed out Oklahoma has one of the worst overpayment recovery records simply because they write off nothing. They're still collecting on overpayments made after World War II. He said the department is subject to a variety of federal oversight and one of the components is overpayment recovery rate. Mr. Torgerson said the commissioner is not extremely interested in having the records burdened with uncollectible accountants. He stated Alaska has been first in the nation in overpayment recovery. In past years we were fourth or sixth. Number 769 CHRIS CHRISTENSEN, Staff Counsel, Office of the Administrative Director, Alaska Court System, was next to come before the committee. He explained when a bill is labeled "housekeeping and cleanup" sometimes it is easy for it to fall through the cracks. He said there is one very substantial change to current law in Section 3 which was added at the Court System's request by the Department of Labor prior to introduction. Mr. Christensen said both the state and federal constitutions provide that if a person is charged with a crime and can't afford a lawyer, the state has to provide one for free. The Court System has the prime responsibility for determining indigency and does the best job they can, but they are funded by the legislature with only four people statewide, two in Anchorage and two in Fairbanks. Section 3 provides the Court System with a very important new tool to determine indigency. It says the court system will have access to the Department of Labor's employment security tax records for purposes of determining indigency. Mr. Christensen said this will make it much easier for the Court System to determine if a person is truly eligible. He said they also requested that an additional section be put into Section 3 which would give the Department of Law's Finance Collection Unit access to the same data. He noted the Finance Collection Unit is funded by program receipts. It has responsibility for collecting criminal fines that are unpaid as well as collecting the monies which the Court System orders indigent defendants to pay for their public defender services once they acquire money in the future. Mr. Christensen explained that currently, the Finance Collection Unit primarily goes after permanent fund dividends because there is no easy and inexpensive way to do anything else. Once they have got access to these records, they'll be able to garnish paychecks because they'll know when somebody has gone back to work and is making money. Number 800 There being no further witnesses, REPRESENTATIVE ROKEBERG made a motion to move SB 261 out of committee with individual recommendations and a zero fiscal note. CHAIRMAN KOTT asked if there was an objection. Hearing none, SB 261 was moved out of the House Labor and Commerce Committee. HB 345 - PENSION INVESTMENT BOARD PROCUREMENTS Number 960 CHAIRMAN KOTT announced the committee would hear HB 345, "An Act relating to the procurement of investment and brokerage services by the Alaska State Pension Investment Board," sponsored by Representative Foster. JOHN WALSH, Legislative Assistant to Representative Richard Foster, said HB 345 would require that the Alaska Pension Investment Trust Board increase the utilization of brokerage and investment services provided by persons located in the state to at least 7 percent. Additionally, there is a provision to provide an option to take a look in Alaska. If these services are not available or the quality of service is not available, the board wouldn't be required to make that local procurement. In support of the bill, he would reiterate on behalf of the sponsor, that the findings section of the bill where the case is made for a healthy competitive private sector is of paramount importance to Representative Foster. He said he is aware of the impending fiscal gap that is motivating much of the fiscal restrictions in the House and Senate operating budget. The opportunities before us are not limited to general fund only. We think that use of the assets that the state has access to including, the pension investment fund, could be used to circulate somewhat through the state and thereby, enhance the economy in support of the local firms that operate here. Mr. Walsh said they, in no way, have any intentions to jeopardize the investments or the integrity of the fund. That is not the objective of the sponsor. He said there are attractive investments in the state and quality firms that can handle some of the brokerage transactions and investment counseling. He said it is incentive to take a look in Alaska before going out of state. Currently, the board uses 100 percent out-of-state investment counseling. CHAIRMAN KOTT noted there is a new committee substitute which couldn't be adopted because of a lack of a quorum. He asked Mr. Walsh to review the changes. Number 1119 MR. WALSH said, "In the State Affairs hearings, there was some confusion as to whether we were talking about actual investments or investment services and we thought about that and took a look at the statute for the permanent fund investment. This committee substitute would incorporate Section 11, page 3, lines 7 through 13, -- would incorporate the same language that's currently in statute for the permanent fund. And that would be to take a look at investments for which the board is responsible in-house, to the extent that state investments are available and if the in-state investments have a risk level and expect to yield comparable to the alternative investment that the board would be looking otherwise -- and are certainly consistent with the investment policies established by the board. So the point here is an expansion to the original intent. It goes from beyond the investment counseling and brokerage services to actually requiring the board to take a look at investments in the state that meet or exceed those which the board would be looking for outside of the state. And we think if it's suitable for the permanent fund, it certainly is worthy of consideration in this legislation. And, again, the intent is to not in any diminish or disrupt the critical analysis or integrity that the board places on their current investments. REPRESENTATIVE ROKEBERG questioned what the number is in terms of the gross amount of pensions related to this area in terms of the Pension Investment Board. He referred to it being multiplied by 7 percent and questioned the meaning. MR. WALSH said, "I think I see members of the Department of Revenue here - staff to the Department of Revenue. If I understand, I think the actual transaction fees or investment fees by the Pension Investment Board are in the neighborhood of $7.4 million for the PERS (public employees retirement system). Well here, I have a schedule investment management fees, year ended June 30, 95, that's $7.4. I don't expect that those -- I guess -- I'm not sure how often the contract is turned, but that appears to be - just for the PERS - the amount of management fees for the fiscal year 94." REPRESENTATIVE ROKEBERG asked if the 7 percent would be based on the gross of the corpus of those funds. MR. WALSH explained the corpus of the funds is approximately $7 billion combined. Number 1338 MICHAEL KIRK came before the committee to testify against HB 345. He said he is addressing the committee not merely as a pension retiree, but as a fellow pension retiree as the committee members will be. Mr. Kirk said, "The reason I'm here to testify against HB 345 is because I consider the need that you will be given as an arm twister and maybe a little bit of a red herring, I've submitted incidently testimony to you which is in your file. It is unbelievable that presumably competent entrepreneurs, presumably competent investment brokers, presumably competent investment counselors would have to attempt to twist your arm to say that they should have special privileges for being in this state at this moment, they could have moved in any time as far as I'm concerned, and trying to persuade you or stampede you into believing, first of all, that the American free market economy has singled them out and is unfair to them, that the U.S. pension funds, contrary to court decisions, are the employer's property when the courts have ruled constantly otherwise. They are the earned property of the retiree. Number three, to have you believe that the epidemic in U.S. pension trust looting, as reported in the New York Times repeatedly and as reported in Business We repeatedly never happened." Mr. Kirk continued to give testimony against HB 345 and noted he submitted testimony which was included in the committee member's committee file. Number 1667 TIM VOLWILER was next to come before the committee to testify on HB 345. He informed the committee he has 16 years in the teacher's retirement system, he hopes to retire in the next century and he hopes there is money there for it. Mr. Volwiler said he believes the pension investment board is a trust fund for the teachers and the public employees. He said he thinks the pension investment board is working well in its present format and he doesn't see any reason to change the freedom of the board as it is. Mr. Volwiler said he was distressed to see the work draft, Section 11, page 3, lines 7 through 13. He noted he has sent letters to the committee members against the original bill. MR. VOLWILER said, "Number one, there doesn't seem to be any percentages in the bill; and number two, to me this kind of puts a burden of proof for consideration on to things which are not provable. I mean you're looking at risk level and expected yield and that is guess work. I mean you can have good analysis, but you can have a difference of opinion and I don't believe that you should tell the pension investment board that they are required to look at someone in-state or look at, you know, a municipal bond in- state that's AA rated is equivalent to a municipal bond AA rated anywhere else. So there is different analysis and I don't think you should put a burden of proof on the pension investment board to justify why they're not using local people. I think there are people in the state that have good ideas, but I don't think we should make any recommendations towards the board as to who they should hire. MR. VOLWILER said, "The second comment I would have is there is a difference between making your first investment in this state and then making other investments. If you have a wide diversification in your portfolio, all those risks balance out. If you concentrate a lot of investments in the state, such as Alaska with relatively few people, that concentrates your risk more. So each additional investment unbalances your portfolio. My main point, though, is I believe that `why fix what's not broken to start out with?' I think the pension investment board is working well. I think if they so choose to invest in-state, that's fine but the benefits should be the retirees and, as I consider myself, an expected retiree. When there is not a conflict here, I don't believe, I mean the recipients want their money to be there, when it comes they can spend it and that's how we can get economic development in this state. I don't think we should mandate a certain percentage or a certain broker that they have to go through. I think that the retirees have earned their money and when they get it in the terms of their retirement pay, they'll spend it in-state and that's the way we see the economic benefit in the state. If they choose to do so, I don't oppose that, but I don't think the legislature should be tying their hands and saying, `You must invest in-state.'" Number 1858 MILT BARKER came before the committee to testify on HB 345. He informed the committee he is a PERS beneficiary, served the state for eight years as deputy commissioner of Treasury. He said his concern is both for the state and the beneficiaries and that mean upholding the high standards we currently have in legislation the legislature has passed. Mr. Barker said the defining principle of the trust fund, as quoted in standard legal text, is the most fundamental duty owed by the trustee to the beneficiaries of the trust, which is the duty of loyalty and that duty is defined as, "A trustee owes a duty to the beneficiaries to administer the affairs of the trust in the interest of the beneficiaries alone and to exclude from consideration the welfare of third persons." Mr. Barker said HB 345 would be a retreat from these standards and would be a costly one. The cost would come from higher trading costs, poor investment performance, greater administrative costs and potentially litigation. The board is currently obligated to obtain the best performance and the lowest transaction costs that it can. Even if Alaskan firms provided equal service, mandating their use can increase costs by increasing the number of firms that the board deals with. Mr. Barker said this could be increases in administrative costs and managerial distractions from it pursuing investment performance. It also can increase costs because typical investment management contracts have graduated fee scales - the more money under management, the lower the rate. You divide the money between more firms and you'll raise your total fees. MR. BARKER said when the permanent fund's adviser, Michael O'Leary of Callen, Associates, was asked how many domestic fixed income managers should be heard, he stated, "Any more than two and fees would affect the return, if the board hired three to make room for an Alaska based emerging manager." The trust fund standards that we have are really global standards of excellence and this has paid off. These funds are among the best funded pension funds in the country. Their performance is better than the permanent fund even though the permanent fund, as an endowment, has a longer investment horizon. MR. BARKER explained the cost of HB 345 would be born, not only by employees, but by employers. Contribution rates can only go up. He said for public employer higher costs, it means higher taxes or fewer services. He questioned whether this is the time to be subsidizing in-state business when the state faces a half a billion deficit and is cutting education and other essential services. MR. BARKER said by ignoring standards of fiduciary conduct, HB 345 could expose the state to risks of litigation. Plaintiffs might be beneficiaries to PERS, TRS, SBS, deferred comp, etc. He said you could also find that municipal or other employees besides the state would possibly take the state to court. Mr. Barker said he thinks the ordeal of the mental health trust law suit ought to give us pause. In short, HB 345 can only exacerbate the state's budget crises and cheapen the promises public employers have made to their retirees. Mr. Barker pointed out there is no bar to in-state businesses performing services to the state's trust funds, but it should not be handed to them on a plate or given as a political favor. He said like the commercial says, "Let them get the business the old fashion way, earn it." MR. BARKER said he would like to make a comment regarding the additional language in the proposed committee substitute. He said the goal, he believes, is to increase in-state investment and a lot of that would be targeted through commercial mortgages, both multi- family and business. The state already has major effort in that regard, both AIDEA and now AHFC. He said just recently AHFC announced a new financing program for market rent multi-family housing and that should address a lot of the concern that is behind some of this legislation. Number 2112 WILLIE ANDERSON, NEA-Alaska, was next to address the committee. He stated NEA-Alaska opposes HB 345, primarily for the reasons stated previously by earlier speakers. He said their concern is that the bill mandates that there is a percentage of the pension fund that is required to be invested in-state. The pension board was elected about four years ago, has been operating as an independent pension investment board and has done a good job. The returns have continued to increase since the board has been in place; the fund is healthy; the unfunded liability has decreased over time; and with the potential of this requirement, the unfunded liability could very well increase and could cost the state additional funds instead of increasing the revenue to the state. He said it could impinge upon the state's liability to bail out yet another investment system. Mr. Anderson referred to when the SBS situation went sour in the late 1980s - early 1990s, there was a requirement for the state to bail that fund out. They later sued and recovered some of that money. The same potential exists for this situation. He urged that the bill not move out of committee. MR. ANDERSON referred to the new language in Section 11 and said it causes additional concern to NEA-Alaska because it doesn't appear to have a limit as to how much can be and should be invested. He said there is a risk level and an expected yield. Currently, the yield for the pension investment for Alaska is above average and is well respected in the arena of state employee pension funds throughout the nation. If this bill is passed, we cannot tell what that performance will be. He urged the bill be held in committee. Number 2211 REPRESENTATIVE SANDERS asked if the Alaska teacher's retirement fund buy or carry mortgages in Alaska. MR. ANDERSON said he doesn't think that is part of their portfolio at this time. He said someone from the Department of Revenue could better answer that question. Mr. Anderson noted there is nothing to preclude them from doing so. If it is a worthy investment, they can pursue it. Number 2242 BOB STORER, Chief Investment Officer, Treasury Division, Department of Revenue, was next to come before the committee. He pointed out that the Department of Revenue provides staff to the Alaska State Pension Investment Board. He said the intent and the benefits of the legislation are fairly obvious, but he would like to speak to a number of things for the committee's consideration as they evaluate the merits of the legislation. Mr. Storer said AS 14.25.180 does name the Alaska State Pension Investment Board as the fiduciary of the trust funds. In that context, they must consider the funds investments and the liabilities. They must determine the appropriate investment objectives and act only in regard to the best interests of the system's plan and beneficiaries. MR. STORER explained that one of the things this legislation does is, by statute, it creates policy and in the modern investment world, it is changing and is very dynamic. These issues need to be addressed on an ongoing basis throughout the world. Some of the unintended consequences of the legislation is it could have the effect of actually dictating the asset allocation of the retirement system. If you have a limited universe in Alaska to choose from, you select managers in Alaska that provide a certain investment vehicle. Then by default, you have other asset allocation questions to deal with externally. Mr. Storer referred to testimony relating to fees and those statements are reasonably accurate. He said they are always very aggressively trying to cut management fees as much as possible. Over the last couple of years, they have successfully cut about $2 million in management fees. He said he believes PERS and TRS in the aggregate, are about $13 million. The fees are published annually in the Retirement and Benefit Annual Report. MR. STORER said, "There is one thing, if I was an Alaskan manager and I knew you had to come to me for investment services, basically you've taken all my leverage - my negotiation leverage away from me. Why would I acquiesce to lower fees, and again, we do this on an ongoing basis if I know you must come to me. So I think there are some implications there, not only in the number of managers, but the ability to negotiate lower fees on an ongoing basis." MR. STORER said, "In terms of brokerage, I'd like to come back to that. I did so well at describing at the last committee, I decided to draw pictures this time and so hopefully, it will be helpful for the committee members. The new piece, in terms of investing in Alaska -- this is sort of classic language, if you will, for economically targeted investments. `Is that done out there elsewhere?' -- And the answer is `Yes.' A study done in 1995, by a firm named Grenich (ph) Associates indicated that public funds in excess of $1 billion, about 17 percent of those public funds do economically target investments. So if you want to look at it -- glass half full or half empty, 83 don't - 17 do, or however you want to perceive that. I would revisit the question of risk and yield and what I've known is that the farther away you get from markets where (indisc.) reported trading, the greater the difference on the perception between what is appropriate risk and yield and it depends on whether you're the buyer or the seller. And there can be distinct differences on that opinion as you move forward." MR. STORER said a distinction that one should consider versus the permanent fund and the retirement system is that the retirement system has a distinct liability stream - the beneficiaries. The permanent fund doesn't have a liability stream and they do not have to deal with that issue when they're evaluating investments. MR. STORER said, "If I may, in talking about activity for a minute I'd like to hand out these diagrams. And the answer on public employees, in terms of in terms of asset management fees and investment advisory counsel is $7.5 million and for TRS it's $4.3 million is what's paid for asset management - a substantial sum. Trades are really divided into two groups. The brokerage firms, when they deal with it, you have institutional level trading and that's what the retirement system, the permanent fund, any public fund - private entities use. And then you have retail which we at this table probably use." MR. STORER continued to explain the diagram he had given the committee members. He said the manager makes the trade decision and they make the decision to buy or sell the securities. Mr. Storer said they are not just trading just on behalf of the Alaska State Pension Investment Board. They have many other funds that they deal with. [END OF TAPE....] TAPE 96-33, SIDE B Number 001 MR. STORER continued, "...They're trained to be execution. There is quality execution. They're used to what we call `large blocks - large trading.' And that's how you obtain the best execution. And it goes through the institutional sales office and then on to the institution trade desk, and we've heard about electronic trading a bit earlier. It's done very quickly and that's important because you want to get maximum execution. I should also note that by contract, managers accept fiduciary responsibility and they have held to a standard of best execution possible. Now what happens, in terms of if we were trade through offices in Alaska, these would go through a retail entity. What happens is the manager must complete all trades (indisc.--coughing) and there is some level of our market impact when that execution occurs. So if you can see, if we were to be held back by the diagram, we would go after all the other trades would be completed and then you would have to execute the trades through the Alaskan desks, and typically but this is not an absolute statement, major brokerage firms have an intermediary between the retail and the institutional desk to get the trading. So you must wait and complete the order before we can do our trade. There are other delays, there is clearly market impact. Under additional costs, what will be the market impact? You cannot determine it until after the fact. So you could only determine the (indisc.) costs by hiring an independent consulting firm to evaluate the trading costs after the fact. And, of course, hiring has some cost implications also. With that in mind, if I may, I'd like to be available to answer any questions the members of this committee might ask. Number 079 REPRESENTATIVE ROKEBERG referred to when the department goes out for management services contracts and asked if they go through the procurement code. He also asked how contacts are worded. MR. STORER said, "This process is unique. It's actually recognized that it is exempt from the procurement process. Nevertheless, you do have a process. You're obligated as a fiduciary. The board will evaluate an array of asset classes, make the decision. And we do have a consulting firm that assists the board in: (A) Those decisions; and then (B) When we're looking for a specific type of manager. The consulting firm essentially runs the RFP process in concert with the board and members of an investment council also assists the board. And I would suggest that to some degree it is far more rigorous than the RFP process. These firms are constantly appraising the investment community at large. I think the one we use evaluates something like 1,200 management firms that provide due diligence and they look at a lot of issues as you suggest - the depth of an organization, the abilities. Yes, fees are some distinction but they're not an absolute distinction. It is a rather vigorous process and then the final component is bring some element -- some group of finalists before the board for the final selection process." MR. STORER continued, "In answer to your question about Alaskan money management firms, I think one of the things that is very important is communication. I think that the investment board must understand what investment options are available in Alaska. And I think that the management firms must convey how they manage their assets so that the board would be well educated when those investments are appropriate. In fact, the board has invited, on two occasions, money management firms in Alaska to make educational presentations before the board. One was a fixed income manager and another was one that proposed managing mortgages. From the investment board side, this is important because the more we know it'll assist us in evaluating these firms. And then as we evolve our way through the asset allocation decisions, that could be embedded in the process. So I do think it is important that the communication be in place and that there be ongoing education in terms where managers are in Alaska. Number 211 REPRESENTATIVE PORTER asked Mr. Storer if he has had any experience with in-state providers. MR. STORER informed the committee that to date, the board has not hired an investment manager to provide services in Alaska. REPRESENTATIVE ROKEBERG asked if anybody in the state has made a proposal to the board. MR. STORER said they have always asked the consulting firm to take a very long look at the management firms in Alaska. He said that has always been his instructions as the chief investment officer to the consulting firm. REPRESENTATIVE ROKEBERG referred to when the permanent fund was started there was a percentage of quota provision for investments within financial institutions, specifically banks within the state. MR. STORER said he helped develop that policy as he worked nine years for the permanent fund. There was the Alaska Certificate Deposit Program. He said they made up to $300 million available to the institutions in Alaska. These were fully collateralized certificates of deposit. Mr. Storer said, "We worked with the banks, not always to their satisfaction because they like to pay a little bit less and we'd like to get a little bit more. But we developed a program that did make funds available in what we felt was a market rate - a favorable market rate to both entities. The most that I can remember that the banks availed themselves of was about $200 of the $300 million and, while I have not been over in the last four years, I think the average balance has been about $80 or $100 million the last four years. What that suggests is that banks don't need capital because that was designed as a source of capital for them. CHAIRMAN KOTT thanked Mr. Storer for his testimony and said it is not his intent to move HB 345. He asked the committee to review the proposed committee substitute as it would be brought up at the next meeting on the measure. SB 305 - REGULATION OF ACCOUNTANTS Number 379 CHAIRMAN KOTT announced the last order of business would be CS FOR SB 305(L&C), "An Act relating to the regulation of accountants; and amending the effective date for sec. 6, ch. 62, SLA 1991," sponsored by the Senate Labor and Commerce Committee SHERMAN ERNOUF, Legislative Assistant to Senator Tim Kelly, explained SB 305 was introduced at the request of several people. It is the product of work between the Alaska State Board of Public Accountancy, represented by Charles Griffin, the Alaska Society of Certified Public Accountants and faculty from University of Alaska - Anchorage (UAA) and University of Alaska - Fairbanks (UAF). Mr. Ernouf explained the bill changes the educational requirement for licensure as a certified public accountant (CPA). In 1991, the accountancy statutes were amended to require completion of 150 semester credit hours for licensure as a CPA. Those changes had an effective date of September 1, 1997. The proposed changes in the bill would extend the effective date of that act to January 1, 2001. This change would alleviate a number of concerns. It conforms Alaska's statute with the AICPA change that is going to occur at that time and would allow UAA and UAF to gear up their programs for the 150 hour requirement. Currently, there has been friction with students and faculty over that change. MR. ERNOUF informed the committee that in 1992, Alaska started recognizing limited liability companies. Currently, without an amendment to the statute, public accounting practice units can't organize as limited liability companies. This bill would amend the statute so that they could organize as limited liability companies. MR. ERNOUF explained the third change the bill makes to the code is it allows for reciprocity for CPAs moving to Alaska. Reciprocity would be granted for an established CPA who has worked in public accounting for five out of the last ten years. The CPA would be granted a reciprocal certificate. MR. ERNOUF noted the bill was worked on in the Senate Labor and Commerce Committee and a couple of small changes were made. He said all parties involved have worked together with each other and it is pretty much a consensus piece of legislation. Number 499 TOM BARTLETT, President, Alaska Society of Certified Public Accountants, was next to address the committee via teleconference from Fairbanks. He said he would reiterate that his organization worked closely with the Alaska State Board of Accountancy and that they support CSSB 305(L&C). He urged passage of the legislation. Number 527 CHARLES "CHUCK" GRIFFIN, Certified Public Accountant, was next to testify via teleconference from Mat-Su. He informed the committee he served on the Board of Accountancy for six years and has chaired it for the last five years. He said Mr. Ernouf has given the proper background on the bill. Mr. Griffin informed the committee that the board unanimously supported and endorsed the bill to meet the transition and grandfather requirements of the current university graduates and to comply with the counsel of their AAG who indicates that they may not issue firm permits without the statutory authority to recognize the LLC form of business and to have a permissive provision to issue on the basis of reciprocity licenses to CPAs from other states who moved to Alaska to practice, primarily with the larger national firms. He thanked the committee and urged support. Number 590 REPRESENTATIVE ROKEBERG made a motion to move CSSB 305(L&C) out of committee with individual recommendations and the accompanying zero fiscal note. CHAIRMAN KOTT asked if there was an objection. Hearing none, CSSB 305(L&C) was moved out of the House Labor and Commerce Committee. ADJOURNMENT CHAIRMAN KOTT adjourned the House Labor and Commerce Committee meeting at 6:06 p.m.