Legislature(1999 - 2000)

03/03/1999 03:20 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
    HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                                 
                   March 3, 1999                                                                                                
                     3:20 p.m.                                                                                                  
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Representative Norman Rokeberg, Chairman                                                                                        
Representative Andrew Halcro, Vice Chairman                                                                                     
Representative Jerry Sanders                                                                                                    
Representative Lisa Murkowski                                                                                                   
Representative John Harris                                                                                                      
Representative Sharon Cissna                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Representative Tom Brice                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
* HOUSE BILL NO. 87                                                                                                             
"An Act relating to money credited to the account of the state in                                                               
the unemployment trust fund by the Secretary of the Treasury of the                                                             
United States; and providing for an effective date."                                                                            
                                                                                                                                
     - MOVED HB 87 OUT OF COMMITTEE                                                                                             
                                                                                                                                
HOUSE BILL NO. 82                                                                                                               
"An Act relating to immunity for certain claims arising out of or                                                               
in connection with the year 2000 date change; and providing for an                                                              
effective date."                                                                                                                
                                                                                                                                
     - MOVED CSHB 82(L&C) OUT OF COMMITTEE                                                                                      
                                                                                                                                
HOUSE BILL NO. 79                                                                                                               
"An Act relating to letters of credit under the Uniform Commercial                                                              
Code; and providing for an effective date."                                                                                     
                                                                                                                                
     - MOVED HB 79 OUT OF COMMITTEE                                                                                             
                                                                                                                                
(* First public hearing)                                                                                                        
                                                                                                                                
PREVIOUS ACTION                                                                                                                 
                                                                                                                                
BILL: HB 87                                                                                                                     
SHORT TITLE: UNEMPLOYMENT TRUST FUND                                                                                            
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
Jrn-Date    Jrn-Page           Action                                                                                           
 2/10/99       189     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 2/10/99       190     (H)  L&C, FINANCE                                                                                        
 2/10/99       190     (H)  ZERO FISCAL NOTE (LABOR)                                                                            
 2/10/99       190     (H)  GOVERNOR'S TRANSMITTAL LETTER                                                                       
 3/03/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
                                                                                                                                
BILL: HB 82                                                                                                                     
SHORT TITLE: IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS                                                                          
SPONSOR(S): REPRESENTATIVES(S) ROKEBERG, Dyson                                                                                  
                                                                                                                                
Jrn-Date    Jrn-Page           Action                                                                                           
 2/05/99       144     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 2/05/99       144     (H)  L&C, JUDICIARY                                                                                      
 2/12/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
 2/12/99               (H)  HEARD AND HELD                                                                                      
 2/12/99               (H)  MINUTE(L&C)                                                                                         
 2/16/99       228     (H)  COSPONSOR(S): DYSON                                                                                 
 2/26/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
 2/26/99               (H)  HEARD AND HELD                                                                                      
 3/03/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
                                                                                                                                
BILL: HB 79                                                                                                                     
SHORT TITLE: UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT                                                                          
SPONSOR(S): LABOR & COMMERCE BY REQUEST                                                                                         
                                                                                                                                
Jrn-Date    Jrn-Page           Action                                                                                           
 2/03/99       132     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 2/03/99       133     (H)  LABOR AND COMMERCE, JUDICIARY                                                                       
 2/26/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
 2/26/99               (H)  HEARD AND HELD                                                                                      
 3/03/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
DWIGHT PERKINS, Deputy Commissioner                                                                                             
Department of Labor                                                                                                             
P.O. Box 21149                                                                                                                  
Juneau, Alaska 99802-1149                                                                                                       
Telephone:  (907) 465-2700                                                                                                      
POSITION STATEMENT:  Explained HB 87.                                                                                           
                                                                                                                                
CHARLES BLANKENSHIP, Program Manager                                                                                            
Unemployment Insurance                                                                                                          
Division of Employment Security                                                                                                 
Department of Labor                                                                                                             
P.O. Box 25509                                                                                                                  
Juneau, Alaska 99802-5509                                                                                                       
Telephone:  (907) 465-5930                                                                                                      
POSITION STATEMENT:  Answered questions on HB 87.                                                                               
                                                                                                                                
DANIEL KANOUSE, Budget Officer                                                                                                  
Division of Employment Security                                                                                                 
Department of Labor                                                                                                             
P.O. Box 25509                                                                                                                  
Juneau, Alaska 99802-5509                                                                                                       
Telephone:  (907) 465-2711                                                                                                      
POSITION STATEMENT:  Answered questions on HB 87.                                                                               
                                                                                                                                
JANET SEITZ, Legislative Assistant                                                                                              
   to Representative Norman Rokeberg                                                                                            
Alaska State Legislature                                                                                                        
Capitol Building, Room 24                                                                                                       
Juneau, Alaska 99801                                                                                                            
Telephone:  (907) 465-4968                                                                                                      
POSITION STATEMENT:  Explained changes in proposed Version I                                                                    
committee substitute for HB 82 on behalf of sponsor.                                                                            
                                                                                                                                
JERRY WEAVER, Senior Vice President                                                                                             
   and Manager of Commercial Lending                                                                                            
National Bank of Alaska;                                                                                                        
Secretary-Treasurer, Alaska Bankers Association                                                                                 
P.O. Box 10600                                                                                                                  
Anchorage, Alaska 99510-0600                                                                                                    
Telephone:  (907) 265-2920                                                                                                      
POSITION STATEMENT:  Testified in strong support of HB 79.                                                                      
                                                                                                                                
ART PETERSON, Alaska Uniform Law Commissioner                                                                                   
National Conference of Commissioners on Uniform State Laws                                                                      
350 North Franklin Street                                                                                                       
Juneau, Alaska 99801                                                                                                            
Telephone:  (907) 536-4000                                                                                                      
POSITION STATEMENT:  Testified in support of HB 79.                                                                             
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 99-19, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce                                                                    
Standing Committee meeting to order at 3:20 p.m.  Members present                                                               
at the call to order were Representatives Rokeberg, Halcro,                                                                     
Sanders, Murkowski, Harris and Cissna.                                                                                          
                                                                                                                                
                                                                                                                                
HB 87 - UNEMPLOYMENT TRUST FUND                                                                                                 
                                                                                                                                
Number 0079                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG announced the first order of business would be HB
87, "An Act relating to money credited to the account of the state                                                              
in the unemployment trust fund by the Secretary of the Treasury of                                                              
the United States; and providing for an effective date."                                                                        
                                                                                                                                
Number 0096                                                                                                                     
                                                                                                                                
DWIGHT PERKINS, Deputy Commissioner, Department of Labor (DOL),                                                                 
came forward to explain that HB 87 provides the state authority to                                                              
receive federal funds for the administration of the unemployment                                                                
insurance program, as required in the Balanced Budget Act of 1997                                                               
[federal].  That Act provided for disbursement from the federal                                                                 
unemployment trust fund to the state unemployment trust fund; these                                                             
disbursements are known as "Reed Act distributions."  States must                                                               
enact legislation restricting the use of those funds to the                                                                     
administration of the unemployment insurance program, rather than                                                               
using them for unemployment benefits or services.  This bill is                                                                 
housekeeping language necessary to allow the state to accept the                                                                
funds from the federal government, and to ensure that the                                                                       
employment insurance program continues to operate.                                                                              
                                                                                                                                
MR. PERKINS explained that these are excess funds from the Federal                                                              
Unemployment Tax Act (FUTA), known as the FUTA tax.  The federal                                                                
government has several billions of dollars in excess; when                                                                      
overfunded, they are to refund to the states their portions.  What                                                              
members see before them is the state's share of those FUTA taxes to                                                             
run the unemployment insurance program, administratively only, for                                                              
the next three years; language in the bill says this will go away                                                               
in 2002.  Mr. Perkins reminded members that HB 87 is enabling                                                                   
language that helps the state.  He noted that with him to answer                                                                
technical questions, both from the DOL's Division of Employment                                                                 
Security, were Charles Blankenship, the program coordinator, and                                                                
Daniel Kanouse, the "budget person."                                                                                            
                                                                                                                                
Number 0289                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG referred to the revised fiscal note, dated                                                                    
3/1/99.  He asked whether the change in revenue of $700,000 is per                                                              
annum.                                                                                                                          
                                                                                                                                
MR. PERKINS affirmed that.                                                                                                      
                                                                                                                                
CHAIRMAN ROKEBERG noted that the $700,000 from the federal                                                                      
government is for the administration only of the funds, and it                                                                  
cannot be paid out in benefits.  He asked whether that language is                                                              
within the "BBA" [Balanced Budget Act].                                                                                         
                                                                                                                                
MR. PERKINS affirmed that, as well.  He reminded members that the                                                               
Division of Employment Security is wholly funded by federal                                                                     
dollars; there are no general fund receipts.                                                                                    
                                                                                                                                
Number 0366                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG expressed his understanding that state employees,                                                             
uniquely, pay into the unemployment compensation monies.                                                                        
                                                                                                                                
MR. PERKINS said the federal dollars pay for programs, with the                                                                 
exception of the State Training Employment Program (STEP).  Alaskan                                                             
employees pay towards their unemployment benefits, with about an                                                                
80/20 split.  Alaska is one of five or six states nationwide where                                                              
employees contribute to weekly unemployment benefit amounts.                                                                    
                                                                                                                                
Number 0448                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI referred to the fiscal note attachment,                                                                
which indicates funds will be utilized to enhance data processing                                                               
upgrades and to redesign the automated Unemployment Insurance tax                                                               
system; she said she assumes that will be coming in 2000 to 2001.                                                               
She asked whether, with the Y2K [year 2000] funds allocated                                                                     
recently for upgrades to state systems, anything was specifically                                                               
allocated towards unemployment insurance taxes.                                                                                 
                                                                                                                                
MR. PERKINS indicated that although the DOL had put in such a                                                                   
request, the current Y2K-related legislation from the                                                                           
Administration has no dollars for the DOL.                                                                                      
                                                                                                                                
CHAIRMAN ROKEBERG indicated the House and Senate have passed bills                                                              
regarding use of general funds and program receipts money for that.                                                             
He asked whether the DOL is authorized to use those for Y2K                                                                     
problems.                                                                                                                       
                                                                                                                                
Number 0540                                                                                                                     
                                                                                                                                
MR. PERKINS affirmed that, pointing out that he and Representative                                                              
Murkowski had been referring to new funds.  He stated, "And the                                                                 
answer is no, we don't have any new dollars for Y2K issues.  The                                                                
employment security division does have funds, but those are federal                                                             
dollars, and we are doing it internally, if you will, with the                                                                  
funds that we have."  He emphasized that the DOL is not requesting                                                              
new state general fund dollars for the Y2K issue.                                                                               
                                                                                                                                
CHAIRMAN ROKEBERG asked if there are any general fund dollars that                                                              
the monies in HB 87 can replace, for a savings to the state.                                                                    
                                                                                                                                
MR. PERKINS said no.  These are additional monies, to enhance the                                                               
administrative side of the unemployment insurance program by                                                                    
purchasing state-of-the-art hardware and software, running the                                                                  
day-to-day program, and helping unemployed workers by getting                                                                   
checks out in a timely manner, for example.  At a recent overview,                                                              
Rebecca Gamez, director of the Division of Employment Security, had                                                             
explained about direct deposits of checks and other improvements.                                                               
                                                                                                                                
CHAIRMAN ROKEBERG noted that from other testimony before the                                                                    
committee, the money would be used to enhance a system that                                                                     
apparently is not broken.                                                                                                       
                                                                                                                                
Number 0735                                                                                                                     
                                                                                                                                
MR. PERKINS said unfortunately these funds cannot help reduce the                                                               
state's general fund dollars in other areas.  These funds are from                                                              
the FUTA tax, collected by the federal government from the state.                                                               
This Reed Act was started in 1954, and there have been three                                                                    
distributions since:  1956, 1957 and 1958.  When the federal                                                                    
government gets overfunded in this area, they like to reimburse                                                                 
money to the states for shoring up the state programs.                                                                          
                                                                                                                                
Number 0812                                                                                                                     
                                                                                                                                
CHARLES BLANKENSHIP, Program Manager, Unemployment Insurance,                                                                   
Division of Employment Security, Department of Labor, came forward.                                                             
He stated, "The money that we expect to receive from this Reed Act                                                              
distribution does have some intended purposes.  We currently have                                                               
a capital improvement project with a price tag of about $2.6                                                                    
million for redoing our tax collection ... automated system.  Some                                                              
of that money has been diverted - operating expenses toward Y2K                                                                 
efforts - and we intend to replace that money, then, with the Reed                                                              
Act distribution that's coming in the next three years."  He added,                                                             
"Money that we had set aside from the operating budget and other                                                                
sources to do the project have been diverted to Y2K."                                                                           
                                                                                                                                
CHAIRMAN ROKEBERG requested that before this goes to the House                                                                  
Finance Standing Committee, the DOL provide the intended uses of                                                                
those funds, as well as the federal language that restricts the use                                                             
to administrative purposes.                                                                                                     
                                                                                                                                
MR. PERKINS agreed to that.                                                                                                     
                                                                                                                                
Number 0911                                                                                                                     
                                                                                                                                
REPRESENTATIVE SANDERS asked if the money invested in hardware                                                                  
wouldn't relieve the DOL's needs for Y2K money.                                                                                 
                                                                                                                                
MR. BLANKENSHIP replied, "Yes, to some degree.  The tax project is                                                              
largely a software project.  We have invested money in hardware for                                                             
testing for Y2K compliance and replacing the equipment that wasn't                                                              
compliant."                                                                                                                     
                                                                                                                                
REPRESENTATIVE SANDERS asked what that savings might be.                                                                        
                                                                                                                                
MR. BLANKENSHIP said he couldn't provide a figure.                                                                              
                                                                                                                                
Number 0959                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO commented that when any commissioner talks                                                                
about increasing the administration side, it makes him nervous.  He                                                             
then asked, "What is your department's burden on the general fund?"                                                             
                                                                                                                                
MR. PERKINS said he believes it is just short of $8 million.  He                                                                
stated the Division of Employment Security's budget is about $43                                                                
million.  He stated, "I think the legislature took the remaining                                                                
balance of $1,500 last year when they did their budget reductions."                                                             
                                                                                                                                
Number 1009                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO asked about the $2.6 million capital                                                                      
improvement project against which they had borrowed for Y2K issues.                                                             
                                                                                                                                
MR. BLANKENSHIP explained that initially that was a Y2K project.                                                                
He stated, "When we saw that we wouldn't be able to get the system                                                              
redone by the requisite deadline, we remediated the old system; and                                                             
part of what we thought would go into the project that was to start                                                             
on revising the tax system has now been used, instead, for Y2K                                                                  
preparedness.  The capital improvement project had basically been                                                               
planned to come out of the operating grant for the three-year                                                                   
period.  This will assist us in making up some of the money that's                                                              
been diverted."                                                                                                                 
                                                                                                                                
REPRESENTATIVE HALCRO asked how much of the $2.6 million has been                                                               
used to date.                                                                                                                   
                                                                                                                                
DANIEL KANOUSE, Budget Officer, Division of Employment Security,                                                                
Department of Labor, said approximately $.5 million dollars.                                                                    
                                                                                                                                
MR. BLANKENSHIP clarified that it had been spent on the Y2K issue.                                                              
                                                                                                                                
Number 1093                                                                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS requested confirmation that if the                                                                        
legislature doesn't pass HB 87, the DOL won't receive the money.                                                                
                                                                                                                                
MR. PERKINS confirmed that.                                                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS referred to the fiscal note attachment, which                                                             
says the national distribution is anticipated to be $100 million                                                                
annually for three years.  He asked whether Alaska's share of                                                                   
$600,000 to $700,000 is per year, for the next three years.                                                                     
                                                                                                                                
MR. BLANKENSHIP said that is correct.                                                                                           
                                                                                                                                
REPRESENTATIVE HARRIS asked whether that is to offset the $2.6                                                                  
million.  He then asked whether that is in the Y2K legislation and                                                              
what HB 52 relates to.                                                                                                          
                                                                                                                                
Number 1142                                                                                                                     
                                                                                                                                
MR. PERKINS indicated HB 52 is the Governor's capital budget, under                                                             
which the DOL has requested equipment.  He re-emphasized that if HB
87 is not adopted, the state will not receive that $600,000 to                                                                  
$700,000 per year.                                                                                                              
                                                                                                                                
REPRESENTATIVE HARRIS asked whether the $600,000 to $700,000 per                                                                
year will be used to offset the request of $2.6 million in the                                                                  
budget.                                                                                                                         
                                                                                                                                
Number 1216                                                                                                                     
                                                                                                                                
MR. KANOUSE explained, "This is a collection of revenues to be                                                                  
applied against the expenditure authorization we're requesting in                                                               
the capital budget.  We were intending to use part of our normal                                                                
unemployment insurance federal grant, ... part of it to go to the                                                               
ongoing operating costs, and part of it to the capital budget,                                                                  
because we had to divert some of those dollars back to the                                                                      
operating budget to cover our Y2K expenditures.  We're taking these                                                             
revenues and applying them against our capital budget request."                                                                 
                                                                                                                                
CHAIRMAN ROKEBERG asked, "Which are embodied in HB 52 and SB 32?"                                                               
                                                                                                                                
MR. KANOUSE affirmed that, indicating they have to stay in there to                                                             
give the DOL authorization to spend those revenues.                                                                             
                                                                                                                                
CHAIRMAN ROKEBERG suggested HB 87 is not a spending or                                                                          
appropriation bill, but merely an authorization bill.                                                                           
                                                                                                                                
MR. KANOUSE agreed.                                                                                                             
                                                                                                                                
CHAIRMAN ROKEBERG suggested they actually need two bills from the                                                               
legislature, then, to deal with this money.                                                                                     
                                                                                                                                
MR. KANOUSE said that is his understanding.                                                                                     
                                                                                                                                
Number 1302                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO asked whether the DOL knew that the $600 or                                                               
$700 [thousand] was coming down the road before they came up with                                                               
the $2.6 million.                                                                                                               
                                                                                                                                
MR. KANOUSE replied, "Our request for capital funds happened before                                                             
... it was clear to us exactly what we could anticipate from the                                                                
Reed Act distribution.  They were fairly close together; it                                                                     
happened in the fall, early winter."                                                                                            
                                                                                                                                
Number 1340                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked whether she had heard correctly that                                                             
a portion of these monies, in addition to upgrading systems, could                                                              
be towards job training.                                                                                                        
                                                                                                                                
MR. PERKINS said no.                                                                                                            
                                                                                                                                
CHAIRMAN ROKEBERG noted that the DOL would provide the federal                                                                  
statute delineating the use of the monies.                                                                                      
                                                                                                                                
Number 1361                                                                                                                     
                                                                                                                                
REPRESENTATIVE SANDERS asked for confirmation that the state will                                                               
save no money from the $600,000 to $700,000 per year.                                                                           
                                                                                                                                
MR. PERKINS affirmed that.                                                                                                      
                                                                                                                                
REPRESENTATIVE SANDERS asked whether, without the money, the DOL                                                                
would simply not do these things.                                                                                               
                                                                                                                                
MR. PERKINS deferred to Mr. Blankenship.                                                                                        
                                                                                                                                
Number 1402                                                                                                                     
                                                                                                                                
MR. BLANKENSHIP answered, "Your question's a good one. ... We had                                                               
planned the capital project, $2.6 million, before we anticipated                                                                
this revenue.  We had also anticipated starting that capital                                                                    
project a little earlier.  In the interim, we have had to use some                                                              
of the operating money that would have gone to a capital project                                                                
for Y2K expenses, and we anticipate more through the balance of                                                                 
this year.  This apparent windfall will help us offset some of                                                                  
that, as well as add additional enhancements to the program.  The                                                               
money coming in is not replacing any state general fund money that                                                              
the department has used for the program.  The basis for this                                                                    
distribution, at the national level, is the USDOL's [United States                                                              
Department of Labor] attempt to make up for frozen administrative                                                               
funding that has been a shortfall over the last several years.  And                                                             
that's part of the driver behind this distribution.  So,                                                                        
unemployment programs across the nation have been cutting back,                                                                 
trying to do more with less, and USDOL is making up for some of                                                                 
that now with this distribution."                                                                                               
                                                                                                                                
MR. BLANKENSHIP explained that two tax streams go into unemployment                                                             
insurance.  The federal FUTA tax collected by the IRS [Internal                                                                 
Revenue Service] is largely offset by the employers' participation                                                              
in Alaska's state employment security tax; the FUTA tax goes only                                                               
for administration of the program.  All of the salary dollars and                                                               
overhead dollars come back from that FUTA tax, through the federal                                                              
government.  The money that the state collects from the employers                                                               
and employees also goes into a nationally-maintained trust fund, in                                                             
Alaska's name, and that is dedicated strictly for benefits, with                                                                
the exception of the small portion that can be diverted for the                                                                 
STEP program.                                                                                                                   
                                                                                                                                
Number 1509                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked whether the DOL would have asked for                                                                    
general funds for a capital appropriation.                                                                                      
                                                                                                                                
MR. BLANKENSHIP replied, "We never thought there would be any."                                                                 
                                                                                                                                
CHAIRMAN ROKEBERG asked whether they would have taken it right out                                                              
of the other tax revenue dollars.                                                                                               
                                                                                                                                
MR. BLANKENSHIP affirmed that.                                                                                                  
                                                                                                                                
CHAIRMAN ROKEBERG requested confirmation that in those tax income                                                               
streams, there would not have been general fund appropriations,                                                                 
either through general funds or the capital budget.                                                                             
                                                                                                                                
MR. BLANKENSHIP replied, "As the deputy commissioner indicated, the                                                             
last general fund money that our division had was about $1,500 last                                                             
year for some equipment maintenance."                                                                                           
                                                                                                                                
Number 1545                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO asked whether the $600,000 to $700,000 was                                                                
originally contributed by taxpayers.                                                                                            
                                                                                                                                
MR. BLANKENSHIP said it was contributed by the employers.                                                                       
                                                                                                                                
REPRESENTATIVE HALCRO asked whether instead of going to pay for new                                                             
programs or expansion, it shouldn't instead fill the DOL's need.                                                                
                                                                                                                                
MR. BLANKENSHIP asked whether Representative Halcro was suggesting                                                              
it would be more logical to offset or lower employer taxes, since                                                               
that is where the money came from originally.                                                                                   
                                                                                                                                
REPRESENTATIVE HALCRO replied, "Yes, either that or use that                                                                    
$600,000-$700,000 to offset the costs your department burdens the                                                               
general fund with."                                                                                                             
                                                                                                                                
MR. BLANKENSHIP said there are no costs.                                                                                        
                                                                                                                                
Number 1600                                                                                                                     
                                                                                                                                
MR. PERKINS concurred, emphasizing that there are absolutely no                                                                 
state general fund dollars in the Division of Employment Security,                                                              
and there is no burden to the state from the division.                                                                          
                                                                                                                                
REPRESENTATIVE HALCRO asked whether they shouldn't, then, look at                                                               
putting this $600,000 to $700,000 back into the pockets of the                                                                  
people who originally paid it.                                                                                                  
                                                                                                                                
CHAIRMAN ROKEBERG said that is a good idea, but this is mandated by                                                             
the federal law.                                                                                                                
                                                                                                                                
Number 1622                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI stated her understanding that the last                                                                 
time there was a windfall like this was in the late 1950s.                                                                      
                                                                                                                                
MR. BLANKENSHIP said that is correct.                                                                                           
                                                                                                                                
REPRESENTATIVE MURKOWSKI suggested that the DOL couldn't really                                                                 
have anticipated that this would come along, and that it couldn't                                                               
have allocated accordingly.                                                                                                     
                                                                                                                                
MR. BLANKENSHIP told members there are various statutory ceilings                                                               
to the accounts in the federal unemployment trust fund.  As those                                                               
ceilings are reached, the overflow eventually will trickle back to                                                              
the states.  Since the late 1950s, those ceilings have been raised                                                              
by Congress four times, essentially prohibiting such distributions.                                                             
                                                                                                                                
Number 1654                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked if there was further testimony, then closed                                                             
the public hearing.  He confirmed there was no further discussion.                                                              
                                                                                                                                
Number 1688                                                                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS made a motion to move HB 87 out of committee                                                              
with individual recommendations and the attached revised fiscal                                                                 
note dated 3/1/99.  There being no objection, HB 87 moved out of                                                                
the House Labor and Commerce Standing Committee.                                                                                
                                                                                                                                
Number 1747                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG called a brief at-ease at 3:51 p.m.; the                                                                      
committee came back to order within less than a minute.                                                                         
                                                                                                                                
                                                                                                                                
HB 82 - IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS                                                                               
                                                                                                                                
Number 1752                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG announced the next order of business would be HB
82, "An Act relating to immunity for certain claims arising out of                                                              
or in connection with the year 2000 date change; and providing for                                                              
an effective date."  He pointed out that the new proposed committee                                                             
substitute (CS), Version I [1-LS0398\I, Ford, 3/2/99], reflects the                                                             
conceptual amendments adopted by the committee the previous week.                                                               
He indicated the committee packets additionally contained an                                                                    
executive summary of the Senate Year 2000 Problem report,                                                                       
"Investigating the Impact of the Year 2000 Problem," issued by the                                                              
United States Senate Special Committee on the Year 2000                                                                         
Technological Problem; chairman, Senator Bob Bennet; vice-chairman,                                                             
Senator Chris Dodd.  The chairman noted the material provided to                                                                
the committee contained a web page address for anyone interested in                                                             
reviewing the entire report [homepage address for the United States                                                             
Senate special committee, with links to the report:                                                                             
http://www.senate.gov/~y2k/home.html].  The chairman indicated the                                                              
report was issued on February 24, 1999, and became available March                                                              
2 on the Internet.  Chairman Rokeberg commented the committee had                                                               
also received additional information from Scott Thorson who                                                                     
testified on HB 82 on February 26, 1999.  He invited Ms. Seitz                                                                  
forward to briefly explain the changes in the proposed Version I                                                                
CS.                                                                                                                             
                                                                                                                                
Number 1802                                                                                                                     
                                                                                                                                
JANET SEITZ, Legislative Assistant to Representative Norman                                                                     
Rokeberg, Alaska State Legislature, came forward.  She told members                                                             
that Version I incorporates the three conceptual amendments adopted                                                             
by the committee on February 26.  Amendment 1 added language                                                                    
similar to that contained in S.96, the federal legislation; these                                                               
changes appear page 1, lines 12 and 13, and page 2, lines 14                                                                    
through 18.  Amendment 2 added "curing" language to give the                                                                    
business an opportunity to cure its problems before any legal                                                                   
action was instituted; this language appears on page 3, lines 7                                                                 
through 14.  Amendment 3 added some language covering people who                                                                
developed software, firmware, et cetera, and [those] who only sell,                                                             
rent or lease those items; that language is on page 2, line 20,                                                                 
with the addition of the word "develops", and on line 25, with the                                                              
addition of the word "sells".                                                                                                   
                                                                                                                                
Number 1863                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO made a motion to adopt the proposed committee                                                             
substitute, 1-LS0398\I, Ford, 3/2/99, as a work draft.  There being                                                             
no objection, Version I was before the committee.                                                                               
                                                                                                                                
Number 1881                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG confirmed no one wished to testify on HB 82.  He                                                              
thanked members for their work on the bill at the previous hearing.                                                             
The chairman commented on two areas that had been discussed at that                                                             
hearing.  He indicated Representative Murkowski had expressed some                                                              
concerns, and that he was also concerned, about "those provisions                                                               
of a plan of due diligence," page 1, line 14, through page 2, line                                                              
13.  This language specifies specific steps, making good faith                                                                  
efforts, and demonstrating to the courts what due diligence is.                                                                 
The chairman expressed concern about these provisions; however, he                                                              
indicated he would like to leave the current language for the House                                                             
Judiciary Standing Committee, where the provisions as specific                                                                  
steps would probably be removed or possibly modified depending on                                                               
legal input.  Chairman Rokeberg commented he did not think this                                                                 
would hurt the intention of the legislation.  He noted he would                                                                 
like to have further discussion of these issues by the public for                                                               
education purposes.                                                                                                             
                                                                                                                                
CHAIRMAN ROKEBERG referred to page 2, line 27, subsection (b)(2)                                                                
["(b) The defense in (a) of this section may not be asserted ...                                                                
(2) in an action based on a contract."].  The chairman indicated he                                                             
believes this section should probably be removed but wishes to                                                                  
allow the House Judiciary Committee to debate the issue regarding                                                               
the legal aspect of the legislation.  He based his reason for                                                                   
removal on allowing the defense contained in the bill to come into                                                              
action, noting most causes of action brought under this "theory"                                                                
will be "actions in contract."  The chairman expressed his belief                                                               
in the privy of contract and allowing the agreed performance to                                                                 
take place, but said, conversely, if the action is not allowed the                                                              
defense the bill's purpose is defeated.  Chairman Rokeberg stated                                                               
he would like to move the current version of the legislation out of                                                             
committee, asking for recommendations and discussion from the                                                                   
committee.                                                                                                                      
                                                                                                                                
Number 2020                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO thanked the chairman for his work on the                                                                  
legislation.  He commented on large articles in both the February                                                               
27 and 28 Seattle Times on year 2000 (Y2K) problems.                                                                            
Representative Halcro noted this is one issue garnering bipartisan                                                              
support:  Dianne Feinstein [Senator, California, Democrat] is                                                                   
working with Orrin Hatch [Senator, Utah, Republican] in addressing                                                              
this.  According to Representative Halcro, both have indicated that                                                             
if some form of immunity is not granted to businesses "there's just                                                             
gonna be a flood of litigation that this country has never seen                                                                 
before."  Representative Halcro stated he thinks the chairman is                                                                
"ahead of the curve on this," and he agrees the legislation needs                                                               
to get moving.                                                                                                                  
                                                                                                                                
REPRESENTATIVE HARRIS said he echoed Representative Halcro's                                                                    
comments.  He added that the federal legislation, S.96, is being                                                                
taken up by the United States Senate, possibly this day on the                                                                  
floor.                                                                                                                          
                                                                                                                                
Number 2076                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI commended the chairman for getting this                                                                
moving; however, she noted the somewhat "loose language" in the                                                                 
cure provision, page 3, line 12, gives her some concern although                                                                
she notes she thinks the provision is absolutely critical                                                                       
[subsection (d)(2)(B), "(B) gives the business the opportunity to                                                               
fix the problem, including reasonable access to electronic                                                                      
computing devices or software affected by the failure described                                                                 
under (A) of this paragraph;"].  She felt that language should be                                                               
"tightened up," indicating a business could say it would fix the                                                                
problem, but never do so.  Representative Murkowski further                                                                     
expressed some concern with the itemization in Section 1, the                                                                   
drafter's either/or language:  business either does the following                                                               
six steps or it follows the generally accepted standards of care.                                                               
Commenting she was somewhat thinking out loud, she questioned                                                                   
whether the specific steps would be construed to be a business's                                                                
standard of care, indicating the possibility that something                                                                     
critical might be overlooked because it was not included in those                                                               
six steps, and that the standard of care might be vary by industry.                                                             
In response to the chairman's comment, she agreed the disjunctive                                                               
disconnecting subsections (1) and (2) solves a lot of the concerns.                                                             
She reiterated her own concern, however, that the standard of care                                                              
within the industry not automatically revert back to the specific                                                               
steps.  Representative Murkowski indicated she is much more                                                                     
comfortable with the flexibility of the "or" language.                                                                          
                                                                                                                                
CHAIRMAN ROKEBERG said he tended to agree regarding the tightness                                                               
of the language.  He inferred that Representative Murkowski, as a                                                               
member of the House Judiciary Committee along with the chairman,                                                                
could provide some possible wording.                                                                                            
                                                                                                                                
Number 2237                                                                                                                     
                                                                                                                                
REPRESENTATIVE CISSNA indicated she had missed the majority of the                                                              
previous hearing, but had listened to a taped copy.  She confirmed                                                              
she was correct in her hearing that the chairman would like to see                                                              
the contract language deleted.  She further confirmed the chairman                                                              
did not wish to amend the bill in this committee.                                                                               
                                                                                                                                
CHAIRMAN ROKEBERG said he thought the issue needed further                                                                      
discussion and the House Judiciary Committee is the proper place                                                                
for that discussion.  This issue is one of whether or not the                                                                   
defense raised in the bill is defeated, he said, "By having the ...                                                             
exception of the contract, action (indisc.) contract left in."                                                                  
Noting he is unsure of that dynamic, he believes it is best served                                                              
by removal, and, as the bill sponsor, he will make sure it is fixed                                                             
properly before it reaches the House floor.                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI questioned whether the legislation had                                                                 
other committees of referral besides Judiciary.                                                                                 
                                                                                                                                
CHAIRMAN ROKEBERG answered in the negative, noting there was a zero                                                             
fiscal note.                                                                                                                    
                                                                                                                                
Number 2354                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO made a motion to move the proposed CS for HB
82, Version I, out of committee with the attached two zero fiscal                                                               
notes and individual recommendations.  There being no objections,                                                               
CSHB 82(L&C) moved out of the House Labor and Commerce Standing                                                                 
Committee.                                                                                                                      
                                                                                                                                
Number 2373                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG called a brief at-ease at 4:06 p.m.  The time the                                                             
committee came back to order was not noted.                                                                                     
                                                                                                                                
TAPE 99-19, SIDE B                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
                                                                                                                                
HB 79 - UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT                                                                               
                                                                                                                                
Number 0005                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG announced the committee's next order of business                                                              
would be HB 79, "An Act relating to letters of credit under the                                                                 
Uniform Commercial Code; and providing for an effective date."  He                                                              
stated the committee would continue the public hearing.  He invited                                                             
Jerry Weaver forward.                                                                                                           
                                                                                                                                
JERRY WEAVER, Senior Vice President and Manager of Commercial                                                                   
Lending, National Bank of Alaska (NBA); Secretary-Treasurer, Alaska                                                             
Bankers Association, came forward testify in strong support of HB
79 on behalf of both organizations.  He indicated Mr. Art Peterson,                                                             
Alaska Uniform Law Commissioner, is much more knowledgeable                                                                     
regarding the Uniform Commercial Code (UCC).  Mr. Weaver indicated                                                              
the legislation is part of the regular UCC revisions which is an                                                                
ongoing process of the full commercial and consumer code through                                                                
the National Conference of Commissioners on Uniform State Laws                                                                  
(NCCUSL), as Mr. Peterson will testify.  These revisions and this                                                               
legislation affects a rather arcane group of letters of credit, a                                                               
small area of commercial law.  Mr. Weaver noted there is another                                                                
well-known version called the "stand-by letter of credit."  The                                                                 
negotiable letters of credit primarily affect international trade.                                                              
Mr. Weaver indicated these negotiable letters of credit are                                                                     
guarantees, usually by banks to banks or large commercial companies                                                             
with rated credits.  These institutions can substitute their credit                                                             
for a small firm either unknown in the international market or                                                                  
without the credit rating necessary to carry out the transaction.                                                               
These letters of credit are typically issued by banks, usually                                                                  
through their international banking departments; the process is                                                                 
done bank to bank.  In Alaska, a letter of credit is needed in any                                                              
of the export and many of the import (indisc.) to guarantee that                                                                
payment will be forthcoming and to ensure that supplier's details                                                               
are met.  Mr. Weaver said his knowledge concerns the practical                                                                  
side; he does not deal with the close technical parts but he                                                                    
indicated NBA has personnel who do.  Mr. Weaver mentioned several                                                               
other banks had reviewed the legislation in detail and approved it.                                                             
He indicated the bill has been worked on for an extended period of                                                              
time.                                                                                                                           
                                                                                                                                
Number 0118                                                                                                                     
                                                                                                                                
MR. WEAVER gave the example of shipping lumber from Southeast                                                                   
Alaska to a large firm in Tokyo, Japan, that wishes to buy this                                                                 
lumber but ensure it receives exactly what it buys by grade,                                                                    
quantity, et cetera, and ensure that the lumber is on the ship.                                                                 
The firm goes to its bank - in this example the Industrial Bank of                                                              
Japan, Limited - to have the bank issue a letter of credit.  While                                                              
the Japanese firm may or may not be known to the Southeast Alaska                                                               
timber supplier, the Industrial Bank of Japan, issuing a letter to                                                              
NBA, certainly is known because it is rated.  What this credit                                                                  
rating immediately says to the Southeast firm is that if it                                                                     
delivers the lumber, it will be paid.                                                                                           
                                                                                                                                
Number 0163                                                                                                                     
                                                                                                                                
MR. WEAVER noted the letter of credit will primarily deal in                                                                    
documents.  The bankers will never see the timber but they will see                                                             
the documents stating it is there.  The letter of credit and this                                                               
legislation speak about some of the documents that might or might                                                               
not be included:  1) a bill of lading showing the lumber got on the                                                             
ship, the shipping documents, an individual authorization issued by                                                             
the shipping company.  He indicated these were the documents that                                                               
allow one to get the lumber off the ship when it reaches Japan as                                                               
well.  2) Some form of grading and rating of the lumber by an                                                                   
authority independent of the transaction that states it put so many                                                             
thousand board feet of such and such grade and type on that ship.                                                               
3) Some insurance documents in case of loss at sea.  The letter of                                                              
credit issued by the Industrial Bank of Japan would say that if                                                                 
those documents are sent and are in proper order, it will pay on                                                                
those documents.  At this point the ship is underway and the                                                                    
buyer's bank would extend credit to the buyer for some short period                                                             
of time through whatever credit lines, et cetera, that had been set                                                             
up.                                                                                                                             
                                                                                                                                
Number 0220                                                                                                                     
                                                                                                                                
MR. WEAVER referred to some discussion at the previous hearing                                                                  
regarding time delays.  He noted "float" and similar things were                                                                
not issues because money had not been exchanged in this                                                                         
transaction; they are simply speaking of guarantees.  Mr. Weaver                                                                
commented the other side is time for delays.  In a large commercial                                                             
project such as this, there will typically be minor discrepancies                                                               
in the contract.  "'Gee, we don't have as much hemlock as these                                                                 
guys want, is it okay if we send them spruce?'"  The bank needs                                                                 
time to wire the other bank and ask whether a substitution is                                                                   
acceptable.  Another issue could be a dramatic price change in the                                                              
commodity with the seller requesting a possible small change in                                                                 
price.  Those wires go back and forth between the two banks'                                                                    
international banking departments, they agree on firm detail, and                                                               
then the transaction is concluded.  The material is on its way, the                                                             
letter of credit is presented for payment, that bank wires funds to                                                             
the seller's bank who in turn credits its customer.  Mr. Weaver                                                                 
indicated that described the practical workings of these letters of                                                             
credit.                                                                                                                         
                                                                                                                                
CHAIRMAN ROKEBERG stated he thinks Mr. Weaver's description helps                                                               
explain the practical application of the legislation on a                                                                       
fundamental basis.                                                                                                              
                                                                                                                                
Number 0282                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI agreed Mr. Weaver's description was  very                                                              
well-put.  She commented that NBA issued the letter of credit for                                                               
a fee.                                                                                                                          
                                                                                                                                
MR. WEAVER agreed that is correct when NBA is issuing one.  In his                                                              
example, the Industrial Bank of Japan, as the issuer, would receive                                                             
the initial fee.  There would be also be some small fees on the                                                                 
other bank's side assessed for handling.                                                                                        
                                                                                                                                
REPRESENTATIVE MURKOWSKI said she asked because she noticed                                                                     
consideration is not required in the legislation.  She questioned                                                               
why this requirement had been deleted, noting she had always                                                                    
assumed fees were a part of letters of credit.                                                                                  
                                                                                                                                
Number 0317                                                                                                                     
                                                                                                                                
MR. WEAVER answered that cases where fees were not drawn had come                                                               
up somewhere in the revision.  He indicated sometimes the size of                                                               
the parties involved might determine this, commenting that a                                                                    
company like Exxon Corporation could probably negotiate its way out                                                             
of a fee.  This allows that room.  Mr. Weaver indicated HB 79 is                                                                
simply the revision of a 30-year old law that works very, very                                                                  
well.  This somewhat arcane thing affects about 5 percent of the                                                                
banking business and, for the most part, the UCC revisions are just                                                             
refinements.  The UCC commissioners asked the bankers worldwide                                                                 
who deal in these for suggestions.  He confirmed to Representative                                                              
Murkowski, however, that in most cases there is a fee.                                                                          
                                                                                                                                
REPRESENTATIVE HALCRO referred to the initial bill hearing on                                                                   
February 26, 1999, and asked if the seven day time period for                                                                   
denial is adequate for letters of credit.                                                                                       
                                                                                                                                
MR. WEAVER responded he doesn't deal with letters of credit daily,                                                              
but the international bankers and specialists present last week say                                                             
it is adequate.  He noted NBA has numerous customers in Alaska that                                                             
use this as a vehicle and it seems to work well.                                                                                
                                                                                                                                
Number 0440                                                                                                                     
                                                                                                                                
ART PETERSON, Alaska Uniform Law Commissioner, National Conference                                                              
of Commissioners on Uniform State Laws, came forward to testify.                                                                
Mr. Peterson stated he was an attorney in private practice with the                                                             
law firm Dillon and Findley, P.C., in Juneau, and was present in                                                                
his capacity as a uniform law commissioner for the state.  He                                                                   
commented on Mr. Weaver's excellent capsule description of how                                                                  
letters of credit are used.  Noting it has been 40 years since this                                                             
was originally drafted, Mr. Peterson commented a number of issues                                                               
have arisen since then and a number of technologic developments                                                                 
have occurred.  The legislation is mainly aimed at:  1) addressing                                                              
and solving issues that have arisen, and avoiding litigation; 2)                                                                
recognizing the existence of computers.  He exhorted the committee                                                              
to also keep in mind that although letters of credit may be a small                                                             
part of this entire commercial area, it is a $200 billion a year                                                                
industry.  Half of exports from the United States are financed by                                                               
letters of credit.                                                                                                              
                                                                                                                                
Number 0525                                                                                                                     
                                                                                                                                
MR. PETERSON stated the UCC, including Article 5, has been adopted                                                              
in all 50 states, the District of Columbia, Guam, Puerto Rico, et                                                               
cetera.  It serves as something of an international model; in                                                                   
practice it somewhat governs many transactions.  A corresponding                                                                
body of material has developed in the area of letters of credit,                                                                
the Uniform Customs and Practices for Documentary Credits (UCP 500)                                                             
promulgated by the International Chamber of Commerce.  Mr. Peterson                                                             
indicated in response to the chairman's question that the uniform                                                               
law had been revised from the previous year.  Mr. Peterson stated                                                               
approximately 30 states had enacted this, including Illinois and                                                                
California, two of the major financial centers.  He explained New                                                               
York usually lags a year or so behind on UCC enactments and                                                                     
revisions because of an elaborate procedure with the bar.  For the                                                              
chairman, Mr. Peterson said that Washington, Idaho, California,                                                                 
Hawaii, et cetera, have already adopted this.                                                                                   
                                                                                                                                
MR. PETERSON indicated this legislation recognizes the UCP 500 and                                                              
also specifically recognizes international customs and practices                                                                
that have developed over the years outside of that formal material.                                                             
The bill recognizes that various entities involved in letters of                                                                
credit are in positions to negotiate to avoid fees.  He has not                                                                 
heard anything to suggest the lack of consideration would be a                                                                  
problem.  Mr. Peterson offered to make the formal published UCC                                                                 
revision with the official commentary by the NCCUSL available to                                                                
the committee.  Mr. Peterson indicated the revisions anticipate a                                                               
number of problems, solve a number of old issues and generally                                                                  
update the approximately 40-year old law; it is necessary for                                                                   
Alaska to keep up-to-date.                                                                                                      
                                                                                                                                
Number 0760                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked for an citation within the bill which could                                                             
be used as an example of a needed update.                                                                                       
                                                                                                                                
MR. PETERSON referred to the UCP 500.  The use of computers has                                                                 
been recognized in those customs and practices.                                                                                 
                                                                                                                                
CHAIRMAN ROKEBERG asked if those were being adopted by reference or                                                             
if the concepts were basically embodied.                                                                                        
                                                                                                                                
MR. PETERSON replied it was essentially adopting by reference.  The                                                             
material he provided to the committee notes that UCC Article 5                                                                  
recognizes the UCP 500, which is used in most international letters                                                             
of credit, providing operational rules and standards that have                                                                  
international acceptance.  They could not have that international                                                               
acceptance unless they were recognizing modern practices and                                                                    
technology.                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG asked if the UCP 500 was periodically revised via                                                             
additions.                                                                                                                      
                                                                                                                                
MR. PETERSON indicated it might be contained in the commentary from                                                             
the NCCUSL, but said he hadn't reviewed that material in a long                                                                 
time.                                                                                                                           
                                                                                                                                
Number 0863                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG referred to the "Northern Lights case et al,"                                                                 
stating adopting things by reference becomes problematic in Alaska                                                              
statutory construction.  He asked Mr. Peterson for further                                                                      
information regarding that question.                                                                                            
                                                                                                                                
MR. PETERSON said wording to the effect of "is hereby adopted by                                                                
reference" now had to be used.                                                                                                  
                                                                                                                                
CHAIRMAN ROKEBERG noted, "The problem is we have a supreme court                                                                
case (indisc.) the UBC (ph) as it relates to adoption by                                                                        
reference."  Chairman Rokeberg commented he thought one way to get                                                              
around that was adoption by reference of a dated addition because                                                               
that, therefore, is then revised.                                                                                               
                                                                                                                                
Number 0914                                                                                                                     
                                                                                                                                
MR. PETERSON stated that has long been the rule in the regulations.                                                             
Any adoption in the regulations had to be by specific edition with                                                              
the adopting agency named, and, at least in the footnote,                                                                       
information provided on where it can be obtained.  The statutes                                                                 
have been somewhat looser.  When the state had an income tax, it                                                                
adopted the federal income tax by reference.  However, every time                                                               
the federal law was amended it did not have to be updated in the                                                                
Alaska Statutes.                                                                                                                
                                                                                                                                
CHAIRMAN ROKEBERG referred to the "OSG case" [State of Alaska v.                                                                
OSG Bulk Ships, Inc.] the previous year which was about adopting                                                                
parts of the United States tax code.  The chairman noted there is                                                               
a lot of precedent in the statutes to withhold that; it is an issue                                                             
that would probably come up in the House Judiciary Standing                                                                     
Committee.  The chairman referred to the sectional analysis, page                                                               
9, of Section 18, Sec. 45.05.116(c), [Theresa Bannister,                                                                        
Legislative Counsel, 2/17/99].  This portion of the sectional                                                                   
analysis reads:                                                                                                                 
                                                                                                                                
     "AS 45.05.116(c).  States that, except as provided                                                                         
     otherwise in this subsection, the liability of certain                                                                     
     listed persons is governed by rules of custom or practice                                                                  
     that the parties expressly select for the letter of                                                                        
     credit or confirmation, or undertaking.  Gives as an                                                                       
     example the Uniform Customs and Practices for Documentary                                                                  
     Credits.  States that if both this chapter and the rules                                                                   
     of custom or practice apply to the liability, the rules                                                                    
     govern, unless they conflict with a provision of this                                                                      
     chapter that cannot be changed (see AS 45.05.103(c))."                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG commented it appears there would be an agreement                                                              
within the credit documents to be bound by those, unless overcome                                                               
by superior statutory right.                                                                                                    
                                                                                                                                
MR. PETERSON agreed, noting the default position is stated and the                                                              
parties can overcome that by their agreement.                                                                                   
                                                                                                                                
Number 1055                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI referred to the mention of standard                                                                    
practice in Section 10, page 7, indicating she did not see how                                                                  
standard practice was incorporated into the text of the statute                                                                 
because subsection (e) says that it will be determined by court.                                                                
She questioned how one knows what the standard of practice is,                                                                  
wondering whether it was possibly the UCP 500 - a separate document                                                             
known within the industry.                                                                                                      
                                                                                                                                
MR. PETERSON said, "I've never seen it myself, but it is a                                                                      
substantial body of material."                                                                                                  
                                                                                                                                
REPRESENTATIVE MURKOWSKI commented, "But it is something that                                                                   
someone can refer to -- look at it and say, 'Ah, that's what it                                                                 
is.'"  She confirmed Mr. Peterson agreed.  Representative Murkowski                                                             
asked if this legislation is the same language received from the                                                                
"National Commission on Uniform Code" or if it was adapted for                                                                  
Alaska.                                                                                                                         
                                                                                                                                
Number 1140                                                                                                                     
                                                                                                                                
MR. PETERSON said it adheres very closely to the official version,                                                              
with minor stylistic changes made by the Legislative Affairs                                                                    
Agency, and there should not be any substantive change.                                                                         
                                                                                                                                
REPRESENTATIVE MURKOWSKI noted she had some technical questions                                                                 
-like could one waive being an adviser? - she felt comfortable not                                                              
addressing if Mr. Peterson could assure her that Alaska's law would                                                             
be consistent with the recommendations of the national                                                                          
commissioners and what had been accepted in 38 other states.                                                                    
                                                                                                                                
MR. PETERSON assured her this was correct.  He did not know what                                                                
changes other states might have made, but he is not aware of any                                                                
particular issue causing some states to opt in one direction and                                                                
other states to opt differently.  In some uniform acts produced by                                                              
the national conference a provision a state could accept or reject                                                              
is placed in brackets.  Mr. Peterson did not offhand recall any                                                                 
such options, especially any of major importance, in this.                                                                      
                                                                                                                                
Number 1288                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG suggested Representative Murkowski contact Mr.                                                                
Peterson for the answers she desired before the legislation is                                                                  
heard in the House Judiciary Committee.                                                                                         
                                                                                                                                
REPRESENTATIVE HALCRO asked for clarification on page 2, lines 20                                                               
through 22, "... the applicant may recover damages resulting from                                                               
the breach, including incidental but not consequential damages,                                                                 
less any amount saved as a result of the breach."                                                                               
                                                                                                                                
Number 1357                                                                                                                     
                                                                                                                                
MR. PETERSON replied they were speaking of a dollar amount                                                                      
transaction.  In the example of lumber sold to a Japanese buyer who                                                             
had the bank issue the letter of credit, if that applicant had                                                                  
planned to sell the lumber to another party but lost the benefit of                                                             
that contract, that would be consequential damages and are avoided                                                              
by this provision.  Incidental damages might be the applicant's                                                                 
expenses involved in shipping the product over there; those would                                                               
be incidental to the basic transaction and it could collect that                                                                
somehow if the deal went wrong.  Thirdly, he addressed the                                                                      
language, "less any amount saved as a result of the breach".  If,                                                               
for example, the price has gone wrong and therefore the applicant                                                               
has saved money by the failure of this contract, or hasn't lost the                                                             
full dollar value of the original contract, that would be                                                                       
subtracted from any damages the applicant could recover.                                                                        
                                                                                                                                
CHAIRMAN ROKEBERG noted this could be currency fluctuations and he                                                              
would also suspect it to be a duty of mitigation.  He asked if                                                                  
there isn't normally a duty to mitigate.                                                                                        
                                                                                                                                
MR. PETERSON said that assuming there is the possibility to                                                                     
mitigate or one makes reasonable efforts.                                                                                       
                                                                                                                                
CHAIRMAN ROKEBERG said, "Right, and (indisc.) brokering or the cost                                                             
of securing a new buyer (indisc.) product.                                                                                      
                                                                                                                                
MR. PETERSON answered probably.                                                                                                 
                                                                                                                                
Number 1490                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI noted she thought there was no duty to                                                                 
mitigate, but if you did then you could...                                                                                      
                                                                                                                                
MR. PETERSON note he did not remember the no duty to mitigate                                                                   
provision, questioning if it is in the same section, Sec.                                                                       
45.05.111.                                                                                                                      
                                                                                                                                
CHAIRMAN ROKEBERG commented he thought there would be a duty to                                                                 
mitigate.                                                                                                                       
                                                                                                                                
Number 1530                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI noted Section 13, lines 12 through 16,                                                                 
which read:                                                                                                                     
                                                                                                                                
     Sec. 45.05.111. Remedies. (a) ... The claimant is not                                                                      
     obligated to take action to avoid damages that might be                                                                    
     due from the issuer under this subsection.  If, although                                                                   
     not obligated to do so, the claimant avoids damages, the                                                                   
     claimant's recovery from the issuer is reduced by the                                                                      
     amount of damages avoided.  The issuer has the burden of                                                                   
     proving the amount of damages avoided. ...                                                                                 
                                                                                                                                
MR. PETERSON stated he believed there is discussion of that                                                                     
provision in the official commentary he has provided.                                                                           
                                                                                                                                
Number 1598                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG indicated the legislation had had a thorough                                                                  
hearing the previous session.  Chairman Rokeberg confirmed there                                                                
were no further questions for Mr. Peterson.  He asked Mr. Peterson                                                              
to give the chairman's regards to Mr. Kurtz, and thanked them both                                                              
for their work on behalf of the state as uniform law commissioners.                                                             
Confirming no one else wished to testify, he stated the public                                                                  
hearing on HB 79 is closed.                                                                                                     
                                                                                                                                
Number 1715                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO made a motion to move HB 79 out of committee                                                              
with the attached zero fiscal note and individual recommendations.                                                              
There being no objection, HB 79 moved out of the House Labor and                                                                
Commerce Standing Committee.                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
Number 1742                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing                                                               
Committee meeting at 4:48 p.m.                                                                                                  

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