Legislature(1999 - 2000)

04/19/1999 03:23 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
    HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                                 
                   April 19, 1999                                                                                               
                     3:23 p.m.                                                                                                  
MEMBERS PRESENT                                                                                                                 
Representative Norman Rokeberg, Chairman                                                                                        
Representative Jerry Sanders                                                                                                    
Representative Lisa Murkowski                                                                                                   
Representative John Harris                                                                                                      
Representative Tom Brice                                                                                                        
Representative Sharon Cissna                                                                                                    
MEMBERS ABSENT                                                                                                                  
Representative Andrew Halcro, Vice Chairman                                                                                     
COMMITTEE CALENDAR                                                                                                              
HOUSE BILL NO. 110                                                                                                              
"An Act relating to the sale, offer to sell, and labeling of fluid                                                              
milk, meat, and meat products."                                                                                                 
     - HEARD AND HELD                                                                                                           
* HOUSE BILL NO. 190                                                                                                            
"An Act relating to viatical settlement contracts."                                                                             
     - HEARD AND HELD                                                                                                           
(* First public hearing)                                                                                                        
PREVIOUS ACTION                                                                                                                 
BILL: HB 110                                                                                                                    
SHORT TITLE: SALE/LABELING OF MEAT/MILK PRODUCTS                                                                                
SPONSOR(S): REPRESENTATIVES(S) HARRIS, Dyson                                                                                    
Jrn-Date    Jrn-Page           Action                                                                                           
 2/24/99       300     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 2/24/99       300     (H)  L&C, JUD                                                                                            
 3/10/99       418     (H)  COSPONSOR(S): DYSON                                                                                 
 3/15/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
 3/15/99               (H)  HEARD AND HELD                                                                                      
 3/15/99               (H)  MINUTE(L&C)                                                                                         
 4/19/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
BILL: HB 190                                                                                                                    
SHORT TITLE: VIATICAL SETTLEMENTS                                                                                               
SPONSOR(S): LABOR & COMMERCE                                                                                                    
Jrn-Date    Jrn-Page           Action                                                                                           
 4/13/99       794     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 4/13/99       794     (H)  L&C, JUD                                                                                            
 4/19/99               (H)  L&C AT  3:15 PM CAPITOL 17                                                                          
WITNESS REGISTER                                                                                                                
PETE FELLMAN, Researcher                                                                                                        
  for Representative John Harris                                                                                                
Alaska State Legislature                                                                                                        
Capitol Building, Room 110                                                                                                      
Juneau, Alaska 99801                                                                                                            
Telephone:  (907) 465-4859                                                                                                      
POSITION STATEMENT:  Explained changes in the proposed Version H                                                                
committee substitute for HB 110.                                                                                                
JANICE ADAIR, Director                                                                                                          
Division of Environmental Health                                                                                                
Department of Environmental Conservation                                                                                        
555 Cordova Street                                                                                                              
Anchorage, Alaska 99501                                                                                                         
Telephone:  (907) 269-7644                                                                                                      
POSITION STATEMENT:  Testified on HB 110.                                                                                       
BERT GORE, DVM, State Veterinarian                                                                                              
Animal Industries                                                                                                               
Division of Environmental Health                                                                                                
Department of Environmental Conservation                                                                                        
500 South Alaska Street, Suite A                                                                                                
Palmer, Alaska 99645-6399                                                                                                       
Telephone:  (907) 745-3236                                                                                                      
POSITION STATEMENT:  Answered questions on HB 110.                                                                              
DON LINTELMAN                                                                                                                   
Northern Lights Dairy                                                                                                           
HC 60 Box 3300                                                                                                                  
Delta Junction, Alaska 99737                                                                                                    
Telephone:  (907) 895-4824                                                                                                      
POSITION STATEMENT:  Testified in support of HB 110.                                                                            
ART GRISWOLD                                                                                                                    
Sleepy Hollow Farm                                                                                                              
HC60 Box 4493                                                                                                                   
Delta Junction, Alaska 99737                                                                                                    
Telephone:  (907) 895-6248                                                                                                      
POSITION STATEMENT:  Testified in support of HB 110, provided                                                                   
MARLA McPHERSON                                                                                                                 
Cook Inlet Keeper                                                                                                               
P.O. Box 3269                                                                                                                   
Homer, Alaska 99603                                                                                                             
Telephone:  (907) 235-4068                                                                                                      
POSITION STATEMENT:  Testified in support of HB 110.                                                                            
TERRY ELDER, Director                                                                                                           
Division of Banking, Securities, & Corporations                                                                                 
Department of Commerce & Economic Development                                                                                   
PO Box 110807                                                                                                                   
Juneau, Alaska 99811-0907                                                                                                       
Telephone:  (907) 465-2521                                                                                                      
POSITION STATEMENT:  Presented CSHB 190.                                                                                        
DANA CASHEN                                                                                                                     
Accelerated Benefits Corporation;                                                                                               
Co-Chair, Legislative Committee,                                                                                                
National Viatical Association                                                                                                   
1501 Broadway, Suite 312                                                                                                        
New York, New York 10036                                                                                                        
Telephone: (800) 894-3985                                                                                                       
POSITION STATEMENT:  Discussed Florida's viatical legislation.                                                                  
DOUG HEAD, President                                                                                                            
Viatical Association of America                                                                                                 
1200 19th Street Northwest, Suite 300                                                                                           
Washington, D.C. 20036                                                                                                          
Telephone:  (907) (407) 898-4203                                                                                                
POSITION STATEMENT:  Discussed concerns with HB 190.                                                                            
JACK GWALTNEY, General Agent                                                                                                    
Future First Financial Group                                                                                                    
Gwaltney & Gwaltney, Incorporated                                                                                               
701 Sesame Street, Suite 200                                                                                                    
Anchorage, Alaska 99503-6641                                                                                                    
Telephone:  (907) 561-7468                                                                                                      
POSITION STATEMENT:  Offered to work with the committee on this                                                                 
ACTION NARRATIVE                                                                                                                
TAPE 99-41, SIDE A                                                                                                              
Number 0001                                                                                                                     
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce                                                                    
Standing Committee meeting to order at 3:23 p.m.  Members present                                                               
at the call to order were Representatives Rokeberg, Sanders,                                                                    
Harris, Brice and Cissna.  Representative Murkowski arrived at 3:26                                                             
p.m.  Representative Halcro was not present.                                                                                    
HB 110 - SALE/LABELING OF MEAT/MILK PRODUCTS                                                                                    
Number 0099                                                                                                                     
CHAIRMAN ROKEBERG announced the committee's first order of business                                                             
would be HB 110, "An Act relating to the sale, offer to sell, and                                                               
labeling of fluid milk, meat, and meat products."  The bill had                                                                 
been heard previously by the committee.  [Acronyms for the hormones                                                             
are those used by the Food and Drug Administration (FDA).]                                                                      
REPRESENTATIVE HARRIS noted, as sponsor of HB 110, that there was                                                               
a proposed committee substitute (CS), Version H.                                                                                
Number 0142                                                                                                                     
REPRESENTATIVE SANDERS made a motion to adopt Version H                                                                         
[1-LS0408\H, Bannister, 3/26/99] as the work draft.  There being no                                                             
objection, Version H was before the committee.                                                                                  
Number 0168                                                                                                                     
REPRESENTATIVE HARRIS informed members that much in the original                                                                
bill was removed, including shelf life and other items that were                                                                
fairly controversial for certain people.  This bill provides dairy                                                              
farmers the ability to label their milk, cream or other byproducts                                                              
as being free from various hormones, and it provides for a penalty                                                              
for falsely labeling products in that regard.  He asked Mr. Fellman                                                             
to give a more in-depth explanation.                                                                                            
Number 0298                                                                                                                     
PETE FELLMAN, Researcher for Representative John Harris, Alaska                                                                 
State Legislature came forward.  He indicated that in preparing                                                                 
Version H, they looked at the 26 states with statutes dealing with                                                              
rbST [recombinant bovine somatotropin] and rBGH [recombinant bovine                                                             
growth hormone].  Noting that there are discussions of those                                                                    
synthetic hormones in the packets, Mr. Fellman explained that BGH                                                               
is a naturally occurring hormone.  The "r" in rBGH or rbST                                                                      
indicates manufacture in a laboratory to inject into cattle.                                                                    
MR. FELLMAN explained that Minnesota's and Wisconsin's laws                                                                     
accomplished what the sponsor was trying to do in the original                                                                  
bill.  Therefore, HB 110 is patterned after Wisconsin's law for the                                                             
affidavit, which can be filled out to cover any concerns of the                                                                 
milk processor, and after Minnesota's law for labeling that meets                                                               
the interim federal guideline.  Mr. Fellman indicated that although                                                             
no federal law discusses labeling for bST or rbST, there is a                                                                   
federal guideline, used by those 26 states to set forth regulations                                                             
for labeling a product as being free from rBGH or rbST, and used by                                                             
the sponsor for the clarifying changes to the bill.                                                                             
Number 0538                                                                                                                     
REPRESENTATIVE MURKOWSKI referred to page 4, which sets out the                                                                 
affidavit itself.  She noted that subparagraph (A) of the affidavit                                                             
says "that no animals on the above farm are currently being                                                                     
treated" and that no animals have received the treatments within                                                                
the past 30 days.  She asked why it doesn't specify cows, and                                                                   
whether other animals possibly would be treated with the hormone.                                                               
MR. FELLMAN replied that the BGH is bovine growth hormone, and                                                                  
"bovine" are just cattle.                                                                                                       
REPRESENTATIVE MURKOWSKI asked for confirmation that the hormone                                                                
couldn't be used in a goat to produce more milk, for example.                                                                   
MR. FELLMAN confirmed that, saying it is species-specific and                                                                   
therefore needs no further definition.                                                                                          
Number 0625                                                                                                                     
REPRESENTATIVE BRICE referred to the federal interim guidelines for                                                             
labeling.  He pointed out that "interim" suggests there are other                                                               
guidelines or regulations that have not yet been adopted.                                                                       
MR. FELLMAN said he had checked with the federal government, and                                                                
that is not so in this case.  They had set up the guidelines in                                                                 
1992, to his belief, and have just decided to let them stand as                                                                 
they are.                                                                                                                       
Number 0670                                                                                                                     
REPRESENTATIVE SANDERS asked about enforcement.                                                                                 
MR. FELLMAN replied that the reason for the affidavit is so people                                                              
can be held accountable, to ensure honesty in labeling.                                                                         
REPRESENTATIVE SANDERS referred to the zero fiscal notes from the                                                               
Department of Natural Resources' Division of Agriculture, and from                                                              
the Department of Environmental Conservation (DEC). He asked                                                                    
whether there is no charge for the enforcement.                                                                                 
MR. FELLMAN noted that it is a misdemeanor.  He suggested perhaps                                                               
enforcement for other labeling laws such as the "organic labeling                                                               
law" and the "Alaska-grown label" might also apply.                                                                             
Number 0763                                                                                                                     
REPRESENTATIVE HARRIS said the Division of Agriculture doesn't                                                                  
anticipate any fiscal impact, but the Department of Law, if they                                                                
have to, would receive some fiscal impact in enforcing this through                                                             
its normal enforcement of misdemeanor violations.                                                                               
REPRESENTATIVE SANDERS indicated the bill may have to go to the                                                                 
House Finance Standing Committee if there is a fiscal note.                                                                     
Number 0825                                                                                                                     
REPRESENTATIVE HARRIS asked Mr. Fellman to explain what objections                                                              
might come from large dairies outside of Alaska, where the majority                                                             
of Alaska's milk comes from.                                                                                                    
MR. FELLMAN answered, "We haven't had any objections to the CS.                                                                 
Originally, the objections we were getting from out of state were                                                               
because of the 18-day labeling period and the high-temperature                                                                  
pasteurization issue, which we removed.  We haven't had any calls                                                               
that have objected to the labeling, as laid out by the interim                                                                  
guidelines.  The impact on the state will be such that we can                                                                   
create niche markets, because we can go in with our milk and say,                                                               
... 'We don't have hormones,' and that will increase the return to                                                              
the state, through the lending programs and things that we already                                                              
have invested in, in Alaskan agriculture."  Mr. Fellman said this                                                               
really is a consumer bill.  It gives the consumer a choice, and it                                                              
also creates a niche market for the small farmer.  He believed that                                                             
Alaska is the last stronghold of the family farm and needs the                                                                  
state's backing in order to have these niche markets.                                                                           
Number 0825                                                                                                                     
REPRESENTATIVE HARRIS asked if that will affect Matanuska Maid.                                                                 
MR. FELLMAN said yes, it probably will.  As known from the audit                                                                
and information that the legislature has obtained from Matanuska                                                                
Maid, the dairy imports about 60 percent of its milk.  If it so                                                                 
choses, however, it could separate the milk from any dairyman who                                                               
decided to sign the affidavit, and label that particular milk as                                                                
being rbGH-free.                                                                                                                
Number 0975                                                                                                                     
REPRESENTATIVE MURKOWSKI asked if any affidavit process is required                                                             
to label meat or meat products as hormone-free.                                                                                 
MR. FELLMAN answered, "We do not have an affidavit process.  We got                                                             
very little response from the industry on that.  It wasn't an issue                                                             
that was taken up by the federal government, either."  He noted                                                                 
that the federal government is going to adopt some regulations on                                                               
organic meat, however.                                                                                                          
Number 1025                                                                                                                     
REPRESENTATIVE MURKOWSKI asked why they are making such a fuss over                                                             
milk as a great niche product because it is hormone-free,  yet                                                                  
there is no similar standard for meat.                                                                                          
MR. FELLMAN answered that it is a consumer issue.  The federal                                                                  
government felt there was a need for the interim guideline because                                                              
of consumer interest in whether there are synthetic hormones in                                                                 
their milk.  In contrast, he is not aware of any guidelines                                                                     
revolving around meat.  He added, "I know that there is an organic                                                              
meat market there, and that they're working on regulations on a                                                                 
federal standpoint, which we anticipate will be coming down pretty                                                              
Number 1122                                                                                                                     
REPRESENTATIVE MURKOWSKI expressed concern that anybody who                                                                     
artificially injects a hormone, whether for milk or a meat product,                                                             
will be guilty of a Class A misdemeanor if he or she doesn't comply                                                             
with these regulations.  However, the same accountability process                                                               
isn't set up for meat as for milk, and the reasons for the                                                                      
inconsistencies aren't entirely clear.  She said perhaps she is                                                                 
missing something, or perhaps the meat needs to be addressed in a                                                               
separate bill.                                                                                                                  
MR. FELLMAN responded that he understands the concern.  He himself                                                              
is not a beef-producer, and they had received no input on it.  It                                                               
may be appropriate to pull meat out of the bill, he added.                                                                      
REPRESENTATIVE MURKOWSKI suggested the alternative of having meat                                                               
subject to the same form of written affidavit as required for milk.                                                             
MR. FELLMAN said that is a good point.                                                                                          
Number 1210                                                                                                                     
REPRESENTATIVE BRICE asked why it is a Class A misdemeanor, rather                                                              
than a fine or violation.                                                                                                       
MR. FELLMAN indicated that was a suggestion from legislative                                                                    
counsel.  He hadn't investigated Minnesota's laws to see what they                                                              
do, although he could find out, he added.                                                                                       
REPRESENTATIVE BRICE stated his understanding that a Class A                                                                    
misdemeanor can be pretty stiff.                                                                                                
CHAIRMAN ROKEBERG suggested it puts this on the same plane as the                                                               
enforcement for occupational licensing.                                                                                         
Number 1265                                                                                                                     
REPRESENTATIVE HARRIS asked how many other states have laws similar                                                             
to, or identical to, this.                                                                                                      
MR. FELLMAN replied that 26 other states have laws similar to this.                                                             
REPRESENTATIVE HARRIS asked whether research shows the penalties to                                                             
be misdemeanors.                                                                                                                
MR. FELLMAN said he hadn't checked.                                                                                             
Number 1289                                                                                                                     
CHAIRMAN ROKEBERG noted that testimony by Catherine Reardon of the                                                              
Division of Occupational Licensing had been that she couldn't                                                                   
recall, in her career, ever having been in an occupational                                                                      
licensing enforcement procedure where there were criminal charges                                                               
brought forward.                                                                                                                
Number 1321                                                                                                                     
REPRESENTATIVE MURKOWSKI asked whether the states with similar laws                                                             
combine the meat and the milk.                                                                                                  
MR. FELLMAN said no.                                                                                                            
Number 1329                                                                                                                     
CHAIRMAN ROKEBERG asked what the "milk versus meat state count" is.                                                             
MR. FELLMAN said he doesn't know, and that he hadn't done much                                                                  
research about meat.  One producer in Delta Junction, who also                                                                  
raises elk, was interested in the [meat] label.  But as far as any                                                              
real response otherwise, Mr. Fellman said he hadn't had any.                                                                    
CHAIRMAN ROKEBERG asked whether Mr. Fellman had communicated with                                                               
the state-owned "McKinley Meat Packing Plant" in Palmer.                                                                        
MR. FELLMAN said he had talked to the director of the Division of                                                               
Agriculture, but had no response or anything to point him in that                                                               
direction.  "Everything really focused on milk," he added.                                                                      
Number 1377                                                                                                                     
REPRESENTATIVE CISSNA expressed her understanding that no group is                                                              
pushing for labeling of meat products.                                                                                          
MR. FELLMAN replied that a man in Kodiak who has beef cattle had                                                                
called, as had a man in Delta Junction; both thought it was a good                                                              
issue.  However, Mr. Fellman could find no model legislation or                                                                 
guidelines by other states where meat was targeted as being                                                                     
hormone-free.  He suggested this may be new ground.                                                                             
Number 1413                                                                                                                     
REPRESENTATIVE CISSNA asked why meat is included in the bill, then.                                                             
MR. FELLMAN indicated the response was that it is reasonable that,                                                              
if there is a concern about hormones in milk, perhaps a niche                                                                   
market can be created for hormone-free meat.                                                                                    
Number 1457                                                                                                                     
JANICE ADAIR, Director, Division of Environmental Health,                                                                       
Department of Environmental Conservation, came forward.  She                                                                    
informed members that it is her agency that would enforce this                                                                  
labeling law.  She expressed appreciation for the changes that were                                                             
made.  The only thing she would want to check out with the FDA is                                                               
on page 3, she said, starting at the end of line 2, where it states                                                             
that milk products offered for wholesale or retail sale in the                                                                  
state may not be required to contain any further label information.                                                             
MS. ADAIR pointed out that the federal guideline actually gives                                                                 
other information that the FDA believes should be on the label,                                                                 
although she isn't sure how tightly they hold to that.  The                                                                     
inference is that the label shouldn't be misleading, she told                                                                   
members, and that it should be in proper context to avoid any                                                                   
misleading implication.  Proper context could be achieved in a                                                                  
number of ways.  For example, the statement, "From cows not treated                                                             
with rbST," could be accompanied by the statement, "No significant                                                              
difference has been shown between milk derived from rbST-treated                                                                
and non-rbST-treated cows."  Ms. Adair noted, "If FDA requires a                                                                
qualifying statement like that, and we're not allowed to put that                                                               
on there, then we could preclude our two dairies from selling their                                                             
milk to the federal government and to schools who use federal funds                                                             
to buy milk, and I don't think we'd want to do that.  So, I would                                                               
just want to run this by FDA, to make sure that the label - ...                                                                 
because all you'll get on the label is what's in this bill - is                                                                 
going to be satisfactory to them."                                                                                              
MS. ADAIR said she has the same concerns mentioned by                                                                           
Representative Murkowski regarding the meat.  She explained, "Since                                                             
we can't test the meat to determine whether or not it's been                                                                    
treated, and we don't have the benefit of the affidavit, I don't                                                                
know how we would ever enforce or allow someone to -- you know, you                                                             
want them to be in best stead to protect themselves from a claim                                                                
that they have treated their meat, if they haven't.  So, we would                                                               
recommend either something similar to the milk or that the meat be                                                              
deleted from the bill.  I suspect that meat that hasn't been                                                                    
treated gets sold as "organic" instead of "hormone-free" or "not                                                                
from rbST-treated cows" and would be handled under the organic                                                                  
rules that USDA [United States Department of Agriculture] has been                                                              
working on for quite some time."                                                                                                
Number 1598                                                                                                                     
REPRESENTATIVE MURKOWSKI inquired as to what the difference is to                                                               
the consumer in the labels "organic" and "non-synthetic-hormone."                                                               
MS. ADAIR replied that the USDA has been working on organic                                                                     
regulations for quite some time, grappling with that exact issue of                                                             
at what point something becomes non-organic.  She pointed out that                                                              
synthetic hormones typically are considered outside the realm of                                                                
organic, and she would be surprised if they were included.                                                                      
However, irradiation will be considered organic, as of their last                                                               
proposal, which has caused a lot of angst; that is one reason why                                                               
the USDA hasn't yet finalized those rules.                                                                                      
REPRESENTATIVE SANDERS asked whether there is no charge for                                                                     
MS. ADAIR explained, "We did put a zero fiscal note on the prior                                                                
bill, because we couldn't figure out how to do any enforcement.                                                                 
And in the testimony on the bill last time, Representative Rokeberg                                                             
did point out that we probably should have indicated that, when in                                                              
fact we didn't.  I don't know how many farmers might be interested                                                              
in this, how many records we might find ourselves reviewing.  And                                                               
I probably will talk with our state vet when he gets back in the                                                                
office tomorrow, to see if he's got some clue.  I wouldn't imagine                                                              
it would be a huge amount, but certainly there'd be something                                                                   
associated ... with doing some kind of record review, to ensure                                                                 
that the labeling was accurate."                                                                                                
Number 1688                                                                                                                     
REPRESENTATIVE HARRIS asked how the other 26 states enforce it.                                                                 
MS. ADAIR said she isn't certain, although she is sure that they do                                                             
it through some type of inspection and review of records.                                                                       
REPRESENTATIVE HARRIS suggested the need to find out how the other                                                              
states do that.                                                                                                                 
CHAIRMAN ROKEBERG proposed that it should be done after the bill is                                                             
Number 1711                                                                                                                     
REPRESENTATIVE BRICE returned attention to labeling and asked                                                                   
whether Ms. Adair recommends deleting the last sentence of the                                                                  
first paragraph on page 3, lines 2 through 4.                                                                                   
MS. ADAIR clarified that she simply wants to check with the FDA.                                                                
She has no problem with it unless the FDA has a problem with it, in                                                             
which case she believes the consequences are too severe.                                                                        
Number 1747                                                                                                                     
REPRESENTATIVE HARRIS asked if the DEC prefers to see Sec.                                                                      
17.20.015, in Section 2, deleted from the bill, as well as                                                                      
subparagraphs (2)(B) and (C) under Sec. 17.20.305, in Section 3,                                                                
regarding penalties relating to meat.                                                                                           
MS. ADAIR indicated either they need some way to verify that the                                                                
meat has not been subjected to the synthetic hormone or they would                                                              
want it deleted.  All they are looking for is verification, but                                                                 
there is no way for the DEC to verify that it is true now.                                                                      
REPRESENTATIVE HARRIS asked whether, if that happened, this bill                                                                
would be much easier for the DEC to defend.                                                                                     
MS. ADAIR affirmed that.                                                                                                        
Number 1796                                                                                                                     
CHAIRMAN ROKEBERG asked how the state presently grades or inspects                                                              
MS. ADAIR explained that grading of meat is a voluntary program                                                                 
done by the Division of Agriculture, whereas safety inspections of                                                              
meat are done by the DEC, through the Division of Environmental                                                                 
Health.  "We do operate under the USDA rules for meat slaughter and                                                             
inspection," she added.  "We have to do ... pre-slaughter                                                                       
inspections, post-slaughter inspections of the carcass, to make                                                                 
sure that there's no diseases on the carcass.  An inspector is                                                                  
required to be on-site at all times during the processing of the                                                                
carcass to the meat product.  We've essentially just adopted the                                                                
federal rules by reference and follow those.  We do send inspectors                                                             
to Texas A&M to get meat training, and we have three meat                                                                       
inspectors in the state."                                                                                                       
CHAIRMAN ROKEBERG asked whether those inspectors are in Palmer.                                                                 
MS. ADAIR answered that two are in Anchorage at Anchorage Cold                                                                  
Storage (ANCO), noting that federal rules require a meat house to                                                               
provide office space because the inspectors are to be on-site at                                                                
all times.  There is a part-time inspector in Fairbanks, as well as                                                             
the state veterinarian in Palmer, who goes out in the field to do                                                               
inspections, as several inspections are required to be done by a                                                                
Number 1880                                                                                                                     
CHAIRMAN ROKEBERG expressed his understanding that the only major                                                               
slaughterhouse is in Palmer.                                                                                                    
MS. ADAIR replied, "Slaughter, but there is meat processing that                                                                
takes place elsewhere.  Sausage is meat processing, and that's ...                                                              
Indian Valley Meats, Alaska Sausage; the meat packer that was                                                                   
mentioned in Kodiak, he does meat processing.  So, there's a                                                                    
variety of things that take place that are meat processing that                                                                 
don't involve slaughter."                                                                                                       
Number 1899                                                                                                                     
CHAIRMAN ROKEBERG inquired whether there are USDA inspectors in                                                                 
MS. ADAIR answered, "We have an 'equal to' program, and so, we                                                                  
stand in for USDA."                                                                                                             
CHAIRMAN ROKEBERG asked if most of the beef grown in Alaska would                                                               
qualify for the USDA's future "organic" designation and, therefore,                                                             
for the label under this bill.                                                                                                  
Number 2004                                                                                                                     
BERT GORE, DVM, State Veterinarian, Animal Industries, Division of                                                              
Environmental Health, Department of Environmental Conservation,                                                                 
answered via teleconference from the Matanuska-Susitna Legislative                                                              
Information Office (Mat-Su LIO).  He explained that there is a                                                                  
federal slaughterhouse on Umnak Island in the Aleutians, plus state                                                             
slaughterhouses at Kodiak, Palmer and Delta Junction, as well as a                                                              
state-operated slaughterhouse at Nunivak.  Meat from Umnak Island                                                               
would certainly be labeled as organic, Dr. Gore stated, which was                                                               
the goal behind that organization, to get Aleutian beef that has no                                                             
synthetic hormones, antibiotics or feed additives.  He added, "Most                                                             
of the animals that are beef animals up here, to my knowledge,                                                                  
we're not using synthetic hormones on."  Dr. Gore pointed out that                                                              
for dairy animals, in contrast, some non-rbST synthetic hormones                                                                
are still used.  He referred to Sec. 17.20.015 of the legislation                                                               
and said, "Most of our dairy cattle that go to slaughter would not                                                              
qualify for that, because of the other synthetic hormones that are                                                              
used in those animals."                                                                                                         
CHAIRMAN ROKEBERG requested that Ms. Adair check with the FDA,                                                                  
indicating the bill would be held until her response was received.                                                              
MS. ADAIR agreed to that.                                                                                                       
Number 2093                                                                                                                     
DON LINTELMAN, Northern Lights Dairy, testified next via                                                                        
teleconference from Delta Junction in support of HB 110.  He told                                                               
members he is in favor of the bill because he runs a                                                                            
milk-processing plant and would like to be able to label his milk                                                               
as "no hormones being used."  He believes that might provide him 5                                                              
percent more of the market.                                                                                                     
CHAIRMAN ROKEBERG asked Mr. Lintelman whether he periodically sells                                                             
some stock for meat use and consumption.                                                                                        
MR. LINTELMAN replied, "Just the bull calves."  He indicated most                                                               
customers for those are individuals from North Pole or youths who                                                               
are taking on beef projects, for example.  Most of the milkers they                                                             
themselves use, selling very few to Palmer.  "But they're not                                                                   
injected with any hormones at all," he added.                                                                                   
Number 2169                                                                                                                     
ART GRISWOLD, Sleepy Hollow Farm, testified next via teleconference                                                             
from Delta Junction in support of HB 110.  Mr. Griswold would like                                                              
to see a similar affidavit regarding beef, he told members.  Noting                                                             
that the additives aren't allowed for kosher beef, he said it is                                                                
difficult to obtain beef that meets those requirements.  He is                                                                  
raising a small herd of cattle for that reason, and would like to                                                               
be able to send those animals to the slaughterhouse and have the                                                                
beef labeled accordingly.  Mr. Griswold indicated the Canadian                                                                  
government doesn't want these hormones used at all.  He requested                                                               
that restrictions on beef be retained.  In addition, he wants to                                                                
see the 18-day dating provision regarding milk put back into the                                                                
bill; he believes that will help Alaskan farmers because much milk                                                              
being shipped into Alaska is older than that.                                                                                   
Number 2240                                                                                                                     
CHAIRMAN ROKEBERG asked whether Mr. Griswold looks at his small                                                                 
beef herd for organic meats as a growing area of business, provided                                                             
that there is proper labeling.                                                                                                  
MR. GRISWOLD answered that he definitely believes it is a growing                                                               
area of business.  Whereas Mr. Lintelman is looking at a 5 percent                                                              
increase in the market for his milk, he himself is looking at an                                                                
opening in the beef market, if there is labeling, that has not been                                                             
CHAIRMAN ROKEBERG asked Mr. Griswold if he is also a dairy farmer.                                                              
MR. GRISWOLD indicated he has dairy goats, but no dairy cows.                                                                   
Number 2286                                                                                                                     
MARLA McPHERSON, Cook Inlet Keeper, testified next via                                                                          
teleconference from Homer in support of HB 110.  Ms. McPherson                                                                  
noted that Cook Inlet Keeper is a nonprofit citizen organization                                                                
composed of over 500 members from Homer, Anchorage, Talkeetna and                                                               
throughout the Cook Inlet watershed who are working to protect the                                                              
environment and human health in Cook Inlet.  She stated that Cook                                                               
Inlet Keeper supports HB 110 because the bill is in the best                                                                    
interest of human health and the economic health of Alaska's meat                                                               
and dairy farmers.  Ms. McPherson explained that the public has an                                                              
increased awareness and concern for human health because in the                                                                 
past four years people have witnessed a sharp increase in human                                                                 
health problems that may be directly linked to increased exposure                                                               
to harmful synthetics such as rBGH.  Cancer has risen 49.3 percent                                                              
in the last four years and, today, 40 percent of Americans will                                                                 
contract cancer sometime during their lifespan.  In fact, cancer is                                                             
the leading cause of death among Americans between 36 to 64 years                                                               
MS. McPHERSON said, although synthetic bovine growth hormone [rBGH]                                                             
hasn't been proven to cause cancer, it's just one more thing that                                                               
people are being exposed to that can contribute to human health                                                                 
concerns.  She indicated that, although the FDA claims that rBGH is                                                             
safe for human consumption, there still isn't conclusive evidence,                                                              
which causes concern.  Studies on the synthetic hormone show that                                                               
the immune system detects and responds to the hormone, and, in                                                                  
fact, cysts have reportedly developed on the thyroids of male rats                                                              
exposed to rBGH, and some of the rats suffered increased                                                                        
infiltration of the prostate gland.  She said these studies are                                                                 
incomplete.  Long-term toxicology studies have not been done to                                                                 
determine the ultimate effects of the hormone on human health.                                                                  
Number 2355                                                                                                                     
MS. McPHERSON believes they can't wait until there's substantial                                                                
proof.  She feels some people who might oppose this bill may claim                                                              
that there's no proof that it causes cancer or human health                                                                     
concerns, therefore, it doesn't matter whether these things are                                                                 
labeled or not, but "we" can't wait until there's proof.  She                                                                   
thinks that the surgeon general set a really good example when he                                                               
said that smoking could cause cancer 30 years before there was                                                                  
conclusive scientific proof that, in fact, chemicals of cigarette                                                               
smoke did cause cancer. She feels a precedent needs to be set by                                                                
putting labels that say that the milk products are hormone-free so                                                              
that people can be provided with the information they need to make                                                              
a choice whether to consume the product or not.                                                                                 
MS. McPHERSON believed the public has a right to know what                                                                      
chemicals and hormones are put into the food they consume,                                                                      
regardless if there's conclusive evidence those chemicals cause                                                                 
cancer or other health defects.  Some studies of rBGH have already                                                              
produced results of concern.  She stated that it should ensure that                                                             
humans have the timely and accurate information on the products                                                                 
they consume to make the choice on whether they want to consume it                                                              
or not.  Ms. Mcpherson thinks many people are concerned about their                                                             
health and the health of their friends and family and children.                                                                 
She feels passing HB 110 will give people the information they need                                                             
to make choices to protect their health.  She agrees with the                                                                   
things that have already been said that HB 110 will create niche                                                                
markets for meat and dairy farmers.  These are the niche markets                                                                
that need to compete with the large corporate farms from outside.                                                               
Ms. Mcpherson urged the support of Alaskan farmers and human health                                                             
in Alaska by passing HB 110.                                                                                                    
Number 2417                                                                                                                     
CHAIRMAN ROKEBERG asked Ms. McPherson to please fax her testimony                                                               
to the committee for the record.  He also asked if she could                                                                    
explain to the committee what Cook Inlet Keeper is and how it is                                                                
MS. McPHERSON stated that Cook Inlet Keeper was started three years                                                             
ago by a settlement against the oil industry for over 4,000                                                                     
violations of the Clean Water Act on the offshore oil platforms in                                                              
the upper Cook Inlet.  She explained that, instead of putting the                                                               
money into the general reserves, the industry, the courts, the EPA                                                              
[Environmental Protection Agency] and citizen organizations agreed                                                              
that the money should go to establishing a non-profit organization                                                              
that would essentially monitor environmental health in the Cook                                                                 
Inlet watershed.  She indicated that, since the court decree has                                                                
been fulfilled, the organization is now funded by citizen and                                                                   
foundation support.                                                                                                             
CHAIRMAN ROKEBERG asked Ms. McPherson if she is either a volunteer                                                              
or a staff member of Cook Inlet Keeper.                                                                                         
MS. McPHERSON replied that she is a staff member.                                                                               
CHAIRMAN ROKEBERG confirmed there were no further witnesses on HB
110.  He asked if Mr. Fellman wished to comment in follow-up.                                                                   
Number 2471                                                                                                                     
MR. FELLMAN began, "I just wanted to take a second and point out                                                                
that the concerns with the language..." [TESTIMONY INTERRUPTED BY                                                               
AUTOMATIC TAPE CHANGE]                                                                                                          
[From tape log notes:  'concerns w/ pg. 2-3' 'Minnesota state law'                                                              
'(language came directly from Minnesota law)']                                                                                  
TAPE 99-41, SIDE B                                                                                                              
Number 0001                                                                                                                     
MR. FELLMAN continued, "...it's been accepted I should say by the                                                               
FDA, that is the exact language - there was a court case ... where                                                              
it was challenged, and that particular language did stand up in                                                                 
that court case."                                                                                                               
CHAIRMAN ROKEBERG asked Mr. Fellman to please work with the                                                                     
department on that issue.  The chairman mentioned he has a concern                                                              
with Section 3 of the bill pertaining to the exclusion of persons                                                               
from penalty for violation unless the person owns ten percent or                                                                
more of the business.                                                                                                           
MR. FELLMAN indicated that some lines had to be drawn between how                                                               
much of the interest the person may have in any given business to                                                               
determine if they were going to be involved in the decision-making.                                                             
He explained that 10 percent was established as the starting point                                                              
with the hopes that it would cover the mean, again at the                                                                       
recommendation of Legal Services [Legal Services, Legislative Legal                                                             
and Research Services, Legislative Affairs Agency].                                                                             
CHAIRMAN ROKEBERG feels that this puts the focus on the small                                                                   
operator and excludes all the competition from being penalized.  He                                                             
suspects all major corporate dairies would not be included.                                                                     
Number 0067                                                                                                                     
MR. FELLMAN indicated he would check with legislative counsel and                                                               
get more detail on that issue.  He stated that in a lot of cases,                                                               
such as with a corporation like Darigold, all the dairymen hold a                                                               
small percentage of that corporation.                                                                                           
CHAIRMAN ROKEBERG wondered if it is similar to stocks.                                                                          
MR. FELLMAN replied yes.                                                                                                        
CHAIRMAN ROKEBERG said that it appears to him that any corporate                                                                
entity gets a stake here unless one goes directly to the chairman                                                               
of the board and "try to apply a misdemeanor offense (indisc.),                                                                 
out-of-state foreign chairman of the board if you will, which may                                                               
be very difficult to enforce."  He asked Mr. Fellman to examine                                                                 
those concerns and provide a report to the committee.  The chairman                                                             
indicated HB 110 would be held for further work.                                                                                
Number 0137                                                                                                                     
CHAIRMAN ROKEBERG called an at-ease at 4:15 p.m.  The committee                                                                 
came back to order at 4:19 p.m.                                                                                                 
HB 190 - VIATICAL SETTLEMENTS                                                                                                   
Number 0139                                                                                                                     
CHAIRMAN ROKEBERG announced the committee's next order of business                                                              
would be HB 190, "An Act relating to viatical settlement                                                                        
REPRESENTATIVE HARRIS made a motion to adopt the proposed Version                                                               
G committee substitute (CS) for HB 190, labeled 1-LS0576\G,                                                                     
Bannister, 4/14/99.  There being no objection, it was so ordered.                                                               
CHAIRMAN ROKEBERG explained that HB 190 was introduced as a                                                                     
committee bill when controversy arose regarding the nature of the                                                               
regulation of viatical settlements as part of the Securities Act of                                                             
1999.  Therefore, those provisions were removed from that Act and                                                               
HB 190 was introduced.  Chairman Rokeberg announced that he                                                                     
intended to take public testimony today and familiarize the                                                                     
committee with this area of the law, but not report the bill from                                                               
committee.  There is controversy regarding the proper regulatory                                                                
home for viatical settlements; should it be located in the Division                                                             
of Insurance or the Division of Banking, Securities,  &                                                                         
Corporations in Alaska.  He noted that he has had numerous                                                                      
discussions with the Department of Commerce and there seems to be                                                               
the belief that the Division of Banking, Securities,  &                                                                         
Corporations should take primacy in this area.  However, many in                                                                
the insurance industry disagree with that placement.  Chairman                                                                  
Rokeberg requested that Mr. Elder come forward to explain the CS.                                                               
Number 0238                                                                                                                     
TERRY ELDER, Director, Division of Banking, Securities, &                                                                       
Corporations, Department of Commerce & Economic Development,                                                                    
directed the committee to the committee packets which contain a six                                                             
page packet entitled, "Viatical Settlements HB 190."  He referred                                                               
to page 2 of that packet regarding definitions.  He explained that                                                              
to "viaticate is the process in which a person sells the death                                                                  
benefit or ownership of a life insurance policy to a third party                                                                
for less than its face value."  The insured person who sells the                                                                
policy is the "viator."  Typically, there are many "viatical                                                                    
settlement providers" who are in the business of buying these death                                                             
benefits and insurance policies from viators and then selling                                                                   
interest in those to third party investors.  The contract entered                                                               
into between the provider and the viator is called a "viatical                                                                  
settlement contract."                                                                                                           
MR. ELDER explained that HB 190 adds viatical settlement contracts                                                              
to the definition of a security in the Alaska Security Act, Title                                                               
45.55.  He said his current position is that most all viatical                                                                  
settlement contracts are investment contracts which are already                                                                 
part of the definition of a security.  There are those who do not                                                               
have knowledge of this position or disagree with this position.                                                                 
Therefore, it would beneficial to clarify in the Alaska Security                                                                
Act that viatical settlement contracts are part of the definition                                                               
of a security.  At the same time, the bill would provide an                                                                     
exemption from registration making it fairly easy for the viatical                                                              
settlement providers to comply with the law.  The exemption would                                                               
only require the filing of a notice and certain disclosures to                                                                  
Number 0479                                                                                                                     
MR. ELDER stated that the primary objective of the bill is to                                                                   
protect Alaskan investors from sales abuses that have occurred                                                                  
across the country.  He noted that the committee packet contained                                                               
an article regarding viatical contracts from the March 1999                                                                     
Kiplinger's Personal Finance Magazine.  This legislation attempts                                                               
to avoid such problems discussed in the article.  He acknowledged                                                               
that no one has yet come forward with problems as discussed in the                                                              
article.  He hoped that the next article in a major press group                                                                 
would not utilize Alaskans as the examples.  Mr. Elder explained                                                                
that avoiding this is accomplished primarily through disclosure,                                                                
proper risk disclosure, to the public.  This legislation would                                                                  
provide the department with a mechanism, if complaints or abuses                                                                
are found, to take quick action.  Most of the problems reported in                                                              
the press revolve around abusive sales practices.  He discussed                                                                 
some of the abuses cited in the aforementioned article.  Mr. Elder                                                              
stressed that he was not opposed to this business on any                                                                        
philosophical ground.  However, if this is to be sold it is a                                                                   
security and there should be adequate disclosure to protect                                                                     
investors.  He offered to walk through the CS by section.                                                                       
CHAIRMAN ROKEBERG agreed that would be helpful.                                                                                 
MR. ELDER began with Section 1 of the CS which adds a reference to                                                              
the new exemption, new subsection (g).  That reference provides the                                                             
division the ability to revoke or deny an exemption.  Section 2 is                                                              
the new exemption, subsection (g), which requires the filing of a                                                               
notice and consent to service to the division before any sales are                                                              
made.  Included in Section 2 is also some basic information                                                                     
regarding the company doing the sales.                                                                                          
CHAIRMAN ROKEBERG asked if this referred to each time a contract                                                                
was sold to a member of the public.                                                                                             
MR. ELDER explained that there would be a filing for each program.                                                              
In further response to Chairman Rokeberg, Mr. Elder said that                                                                   
typically, the industry standard is a one year, two year, three                                                                 
year and a ten year program.  If that continues, the provider would                                                             
file a notice for each of those programs.                                                                                       
CHAIRMAN ROKEBERG stated that the language was not clear to that                                                                
point.  He referred to page 2, line 7 of the CS which in part                                                                   
reads, "at least 10 days before any offers or sales are made...."                                                               
He asked if that refers to the exempt registered individual.                                                                    
MR. ELDER clarified that it referred to the issuer, the viatical                                                                
settlement provider.  He noted that the agent is not filing                                                                     
anything, except to register as an agent.                                                                                       
Number 0938                                                                                                                     
MR. ELDER continued with Section 2 which also provides for the                                                                  
registration of agents, paragraph (2).  Paragraph (3) is the                                                                    
disclosure requirement to the investor.  He pointed out that much                                                               
of the language in subsection (g) is from the current exemption at                                                              
(b)(5)(B).  Paragraph (3) is the language which was passed in HB 83                                                             
related to the exemptions of (b)(5)(B).  Paragraph (4) requires                                                                 
that the firm be in business for three years and have no defaults.                                                              
Subsection (h) lists those things which would disqualify an issuer                                                              
from utilizing this exemption, although it may not disqualify the                                                               
issuer from a full registration.  That language is taken from the                                                               
accredited investor exemption in HB 83.  Subsection (i) merely                                                                  
allows copies of advertising materials and such to be requested by                                                              
the department.                                                                                                                 
MR. ELDER moved on to Section 3 of the CS which is a new section to                                                             
AS 45.55.  This section would provide purchasers the right to                                                                   
rescind purchase within three days of receipt of the final                                                                      
disclosure document or paying the agreed upon amount, whichever is                                                              
later.  Subsection (b) of Section 3 simply specifies that notice                                                                
would become effective.  Section 4 changes the definition of                                                                    
"issuer" to include the person creating the fractional or pooled                                                                
interest or the person who effected the transaction with the                                                                    
investor.  He clarified that it would not include a broker, dealer,                                                             
or agent.  Section 5 includes the amendment to the definition to                                                                
"security" which adds "viatical settlement contract" on line 14,                                                                
page 5 of the CS.  Mr. Elder referred to page 6, Section 6 which                                                                
inserts three new definitions necessary in the Securities Act which                                                             
are as follows:  viatical settlement contract; viatical settlement                                                              
provider; and viator.  With regard to the definition of viatical                                                                
settlement contract, he stressed that the language is not referring                                                             
to the regulation of the viatical settlement provider's                                                                         
relationship with the viator.  There is only the regulation of the                                                              
sales of the securities by the viatical settlement provider.  He                                                                
pointed out that the definition of viatical settlement contract                                                                 
excludes four items, subparagraphs (A), (B), (C), and (D).                                                                      
Subparagraph (A) is essentially the sale of the contract by the                                                                 
viator to the viatical settlement provider.  Subparagraph (B)                                                                   
excludes the transfer or sale between the viator and a friend or                                                                
family member.  Subparagraph (C) excludes the use of the life                                                                   
insurance policy when it is being used as collateral for a loan.                                                                
Subparagraph (D) excludes the viator when that person utilizes the                                                              
accelerated benefits under the terms of the life insurance policy.                                                              
MR. ELDER commented that to the extent possible, the division is                                                                
staying out of the insurance business.  Only the security and                                                                   
investor protection side is being addressed.  Mr. Elder noted that                                                              
he had conversations with the Division of Insurance which agrees                                                                
that these are securities and that it is in the Division of                                                                     
Securities, Banking & Corporations' purview and responsibility to                                                               
regulate this part of the business.   With regard to the possible                                                               
suggestion that the NAIC Model Act should be adopted, he pointed                                                                
out that deals with the viatical settlement provider and the                                                                    
viator.  That provides protections for the viator which is a                                                                    
separate issue that is not addressed in this legislation.  If that                                                              
is addressed at some point, he suggested that be kept separate from                                                             
the regulation of securities.                                                                                                   
Number 1296                                                                                                                     
CHAIRMAN ROKEBERG inquired as to the location of the language in                                                                
the bill which addresses the agents making the sales.                                                                           
MR. ELDER directed the chairman to page 2, line 21 of the CS.  In                                                               
further response to Chairman Rokeberg, Mr. Elder clarified that                                                                 
agents register with the division.                                                                                              
CHAIRMAN ROKEBERG inquired as to the procedures of AS 45.55.030(a),                                                             
(c) and 45.55.040.  Are they exempt agents also?                                                                                
MR. ELDER explained, "We already have in our Act the definition of                                                              
agent.  If they're exempt from that definition, then they would not                                                             
CHAIRMAN ROKEBERG posed the situation in which the agent was an                                                                 
insurance person.                                                                                                               
MR. ELDER said the person would have to register with the division.                                                             
He commented that many are already registered with the division.                                                                
The registration is a simple procedure in which each company with                                                               
agents would file a form with the division and pay the fee.  In                                                                 
further response, Mr. Elder said that there is a requirement for                                                                
agents who register under our chapter to take the Series 63 exam                                                                
which covers state law.                                                                                                         
Number 1414                                                                                                                     
REPRESENTATIVE CISSNA referred to Section 3 and asked if it is                                                                  
standard to provide three business days for the right of                                                                        
MR. ELDER commented that there is nothing standard about viatical                                                               
settlements which are so new.  He noted that Maine is on the verge                                                              
of passing a new law from which this language was taken.  He                                                                    
pointed out that the committee should have information related to                                                               
the legislative hearings in Maine.  The director of securities in                                                               
Maine decided to change the three days to 30 days due to the                                                                    
testimony of a sales agent and an investor who experienced                                                                      
REPRESENTATIVE CISSNA seemed to agree with the change to 30 days.                                                               
REPRESENTATIVE MURKOWSKI pointed out that the information in the                                                                
committee packet indicates there is a split with regard to whether                                                              
viatical settlements should be covered under the Division of                                                                    
Insurance or the Securities Act.  She understood Mr. Elder's and                                                                
Chairman Rokeberg's testimony to be that the Division of Insurance                                                              
feels that securities should have primacy over this issue.  She                                                                 
surmised that the division feels this way because this legislation                                                              
regulates the sales of the securities.  If the relationship between                                                             
the viator and the viatical settlement provider was being                                                                       
regulated, it may be appropriate to be under the Division of                                                                    
Insurance.  However, since the discussion here surrounds the sale                                                               
of the investment contract, this is subject to securities.                                                                      
MR. ELDER added, "What we and what the Division of Insurance are                                                                
both saying is that the relationship of the viator and the viatical                                                             
settlement provider and everything that goes past that to the                                                                   
insurance company, that would - that the NAIC Model Act talks                                                                   
about, that would be properly discussed with the Division of                                                                    
Insurance.  ...  Let's say you passed a viatical settlement act                                                                 
that adopted that, they would agree that the sale of the securities                                                             
forward to the investor should be something that would be regulated                                                             
by our division."                                                                                                               
Number 1692                                                                                                                     
DANA CASHEN, Accelerated Benefits Corporation; Co-Chair,                                                                        
Legislative Committee, National Viatical Association (NVA),                                                                     
testified via teleconference from Florida.  She informed the                                                                    
committee that the Accelerated Benefits Corporation is a licensed                                                               
viatical settlement corporation in Orlando, Florida.  Ms. Cashen                                                                
said she was happy to see and in favor of Alaska taking interest in                                                             
protecting its consumers.  She noted that NVA and the Viatical                                                                  
Association of America have been working with the (National                                                                     
Association of Insurance Commissioners) NAIC Viatical Settlement                                                                
Working Group to draft the Model Act and address some of the                                                                    
concerns with the industry.  Ms. Cashen said that with her initial                                                              
reading of the bill, there are some concerns with some of the                                                                   
language.  Therefore, she expressed the need to have more time to                                                               
sit down with the involved parties in Alaska in order to discuss                                                                
some of the alternatives that she has worked on.  Ms. Cashen                                                                    
informed the committee that she is in Tallahassee, Florida today                                                                
watching "our House Bill" move from committee to the floor.  The                                                                
legislation is pretty interesting and addresses the scenario being                                                              
addressed in HB 190, the portion of the transaction which deals                                                                 
with the purchaser and the viatical settlement provider.  Florida                                                               
already has laws regulating the viator and the viatical settlement                                                              
provider.  Florida is the first state to do such.                                                                               
MS. CASHEN noted that the NAIC Working Group has received a couple                                                              
of charges to address for 1999.  One of those charges is to review                                                              
the relationship between the purchaser and the viatical settlement                                                              
provider.  This will be discussed at a meeting next week in Kansas                                                              
City, Kansas.  The discussions will begin with regard to how more                                                               
protections can be provided to the purchaser.  Ms. Cashen commented                                                             
that her consensus from NVA is that it would like to work with                                                                  
Alaska to share information from the NAIC, Florida, and other                                                                   
CHAIRMAN ROKEBERG asked Ms. Cashen to explain what the NAIC is.                                                                 
MS. CASHEN clarified that the NAIC is the National Association of                                                               
Insurance Commissioners.  The association includes commissioners                                                                
from around the country who meet on a quarterly basis.  The                                                                     
association is fairly complex and covers many different insurance                                                               
CHAIRMAN ROKEBERG noted that the committee packet includes the                                                                  
April 15, 1999 "Draft NAIC Model Act With Wraparound."  He asked if                                                             
the Model Act refers to the transaction between the sales agent and                                                             
the purchaser.                                                                                                                  
Number 2066                                                                                                                     
MS. CASHEN explained that the current NAIC Model Act only deals                                                                 
with the relationship between the viator and the viatical                                                                       
settlement provider.  The aforementioned information in the                                                                     
committee packet is the viatical settlement industry's attempt to                                                               
take the current model and insert language within that model which                                                              
addresses the purchaser to provider relationship.  In addition to                                                               
disclaimers and advertising regulations, the main concept in the                                                                
NAIC Model Act With Wraparound is to have agents soliciting                                                                     
purchasers to buy these policies to be licensed as are life                                                                     
insurance agents.  Ms. Cashen felt this is clearly an insurance                                                                 
product and those speaking with potential purchasers should have                                                                
such knowledge.  For example, in Florida where there are viatical                                                               
settlement laws the Department of Insurance is able to regulate the                                                             
entire transaction.                                                                                                             
CHAIRMAN ROKEBERG noted that his staff had a copy of Florida's SB
1242, but recalled that Ms. Cashen referred to a House Bill.                                                                    
MS. CASHEN specified that to be the Senate's companion bill.  She                                                               
informed the committee that the House Bill is HB 2235 which passed                                                              
out of Florida's House Insurance Committee today.  House Bill 2235                                                              
should be headed to the floor at least by early next week.  The                                                                 
Senate Bill has passed out of Florida's Senate Insurance Committee                                                              
and the Senate Judiciary Committee and is headed to the Senate                                                                  
floor.  Therefore, both bills should be headed to both floors next                                                              
week.  In response to Chairman Rokeberg, Ms. Cashen explained that                                                              
the two bills in Florida have some differing language.  She                                                                     
explained that in Florida, each house has to pass the identical                                                                 
version.  Ms. Cashen predicted that there would be discussion                                                                   
regarding the differences and whichever body passed its bill out                                                                
first would be the vehicle.                                                                                                     
REPRESENTATIVE MURKOWSKI pointed out that the legislation before                                                                
the committee would amend the Alaska Securities Act to include a                                                                
viatical settlement contract.  She surmised that is not the case                                                                
with Florida's legislation.  She inquired as to what other states                                                               
have done with their Securities Act and whether viatical settlement                                                             
contracts are included within the definition of a security.                                                                     
MS. CASHEN said that up until this legislative session there were                                                               
not any states that included viatical settlement contracts in their                                                             
Securities Act.  This year about three to five states have                                                                      
introduced legislation similar to that being introduced in Alaska.                                                              
To her knowledge, only two have passed this session.  Ms. Cashen                                                                
stated that the vast majority of states passing viatical settlement                                                             
legislation seemed to follow the lead of the NAIC model.  She                                                                   
commented that the issues being dealt with in Alaska are on the                                                                 
radar screen of the NAIC.                                                                                                       
TAPE 99-42, SIDE A                                                                                                              
Number 0001                                                                                                                     
DOUG HEAD, President, Viatical Association of America (VAA),                                                                    
testified via teleconference from Florida.  Mr. Head noted that the                                                             
committee should receive the wraparound document that is being                                                                  
proposed to the NAIC.  The wraparound document was developed in                                                                 
negotiations with Florida's Department of Insurance which is                                                                    
largely reflected in Florida's Senate bill.  However, there is one                                                              
significant difference between Florida's House and Senate bills.                                                                
Florida's Senate bill addressed the emerging Life Settlement                                                                    
Industry which involves transactions of policies of healthy persons                                                             
such as high net worth executives who wish to dispose of their life                                                             
insurance.  The wraparound document sent to the committee should                                                                
contain some language referencing the Life Settlement Industry.                                                                 
Mr. Head commented that he believed that the viatical settlement                                                                
industry has been extensively reviewed from the viator's side by                                                                
Number 0166                                                                                                                     
MR. HEAD stated that the greatest concern with the legislation                                                                  
before the committee is the adequacy of the definitions.  The                                                                   
discussion from committee members regarding how exactly this would                                                              
function is also of concern for Mr. Head.  He pointed out that VAA                                                              
has a number of members that are large institutional purchasers.                                                                
Mr. Head commented that the previous description of the typical                                                                 
viatical transaction is not necessarily identical from the many                                                                 
models of different methods for raising funds experienced by                                                                    
companies in VAA.  Therefore, he expressed the need to have the                                                                 
opportunity to review the specifics of this law with all VAA                                                                    
members.  He was concerned that the transaction does not always                                                                 
involve a one, two, three, or ten year package of policies.                                                                     
Sometimes the transaction involves single policies, multiple                                                                    
policies, and the registration process which may make it                                                                        
prohibitive to do business in Alaska.  He noted that Maine is a                                                                 
state in which essentially, no one does business due to the passage                                                             
of Maine's Viatical Act about a year ago.  Mr. Head said that he                                                                
would like to work with the committee to ensure that there are                                                                  
appropriate protections under the insurance umbrella for all                                                                    
aspects of that industry.                                                                                                       
CHAIRMAN ROKEBERG asked if there are two different viatical                                                                     
MR. HEAD replied yes, but noted that at this point there is really                                                              
no separation in policy.                                                                                                        
CHAIRMAN ROKEBERG asked if it would be correct to view Mr. Head as                                                              
representing the viatical settlement providers.                                                                                 
Number 0431                                                                                                                     
MR. HEAD informed the committee that he is employed by a viatical                                                               
settlement broker, the Medical Escrow Society, the largest in the                                                               
nation.  He clarified that he works directly with viators.  Under                                                               
the NAIC model, a viator is a person who owns a policy on the life                                                              
of a person that may not necessarily be terminally ill.  In further                                                             
response to Chairman Rokeberg, Mr. Head clarified that the owner of                                                             
the policy may or may not be the person with the disease under the                                                              
viator definition in the NAIC model.  The terminally ill person is                                                              
identified as the insured.  Mr. Head noted that the NAIC Model Act                                                              
contains many definitions which he urged the committee to review                                                                
because the NAIC definitions may be improvements on those in HB
190.  Mr. Head explained that to him a provider is a company, no                                                                
matter how they are funded, that is engaged in purchasing viatical                                                              
CHAIRMAN ROKEBERG noted that there has been testimony that very few                                                             
states have regulations.  Ms. Cashen testified that three to five                                                               
states may have some type of security regulations.                                                                              
MR. HEAD said that there are a number of states and securities                                                                  
commissioners that have made rulings or are in negotiations.                                                                    
Depending upon the fund-raising model utilized by the provider,                                                                 
there are a range of possibilities.  The funding models, the                                                                    
relationship with particular purchasers, the definitions of                                                                     
securities, commissioners and the legislatures vary from state to                                                               
state.  He believed that North Dakota, South Dakota, and Iowa are                                                               
the only states that have engaged in legislation moving in this                                                                 
direction.  North Dakota has effectively outlawed viatical                                                                      
settlements no matter who is the provider.  South Dakota has no                                                                 
industry, that he was aware of.  Iowa has a small industry.  Larger                                                             
states such as Texas, New York, California, and Florida have had                                                                
successful experiences regulating the relationship between the                                                                  
provider and the (indisc.).  "Florida is the first with a living,                                                               
dynamic viatical settlement industry to begin to figure out how to                                                              
structure the purchaser side regulation under the insurance                                                                     
CHAIRMAN ROKEBERG inquired as to how many states have a regulatory                                                              
scheme that is enforced by their Insurance Commission or their                                                                  
Division of Insurance.                                                                                                          
MR. HEAD said that he believed that every state which has a                                                                     
viatical settlement law, with the mentioned exceptions, places                                                                  
viatical settlements under the Division of Insurance.  The last                                                                 
time he looked, he counted 27 such states.                                                                                      
Number 0796                                                                                                                     
CHAIRMAN ROKEBERG informed Mr. Head that Alaska is problematic in                                                               
that it does not have any law or regulations specifically drafted                                                               
for the viatical settlement industry.  Therefore, Mr. Elder and the                                                             
Division of Securities, Banking & Corporations generated some cease                                                             
and desist orders when advertisements guaranteed returns on                                                                     
investments of these contracts.                                                                                                 
MR. HEAD commented that may have been an appropriate step.  He said                                                             
that the VAA model suggests and agrees with NAIC that there should                                                              
be extensive disclosure to purchasers.  However, Mr. Head believed                                                              
that regulating this under the securities umbrella seems to divide                                                              
the process.  Mr. Head indicated that it would be best to track the                                                             
entire transaction due to the belief that the product from its                                                                  
beginning is an insurance product, a life insurance policy.                                                                     
Therefore, full regulation of the entire transaction should fall                                                                
under life insurance regulators.                                                                                                
CHAIRMAN ROKEBERG noted that the Alaska Division of Insurance does                                                              
not agree with Mr. Head.  He inquired as to the types of problems                                                               
that occurred prior to any regulatory reform because there seems to                                                             
be a plethora of abuse and misunderstanding surrounding the                                                                     
viatical industry.                                                                                                              
MR. HEAD stressed that the biggest problem, as with any new                                                                     
product, is that there are fraudulent actors.  The most disastrous                                                              
of those fraudulent scenarios occurred in the West and Northwest                                                                
and may have entered Alaska.  With regard to Kiplinger's article,                                                               
Mr. Head believed it was not entirely accurate and that there was                                                               
some poor and sensational reporting.  Mr. Head acknowledged that                                                                
there is fogginess surrounding this industry, but he hoped that                                                                 
this option will continue to be provided for those who have life                                                                
insurance and wish to sell it.  This is a property issue which                                                                  
everyone should keep under review.  He stated, "We need to be                                                                   
concerned about whether there is a market for their policies and                                                                
whether we properly regulate it.  And we think we're moving, with                                                               
the NAIC, in the right direction and that Alaska should - and we                                                                
are more than anxious to work with you to develop appropriate                                                                   
regulation and we do believe very strongly that it belongs in the                                                               
insurance department."                                                                                                          
CHAIRMAN ROKEBERG identified one of the current dilemmas as whether                                                             
the Alaska Division of Banking, Securities, & Corporations should                                                               
regulate until a statutory scheme is in place for this.  Chairman                                                               
Rokeberg did not believe it to be in the public's interest to cease                                                             
marketing of these, if they can be done in a manner which does not                                                              
harm the public.  He did not believe it appropriate to shut down                                                                
the viatical settlement industry, while Alaska "gets its act                                                                    
together legislatively."                                                                                                        
MR. HEAD agreed with that view.  He cited one of the difficulties                                                               
as the collateral issues associated with direct securities                                                                      
regulation which confuse the potential for people to make                                                                       
appropriate investments in this product.  There are also problems                                                               
created for the viator who wishes to sell his/her life insurance                                                                
policy.  For example, a terminally ill individual with two $20,000                                                              
policies who wanted to sell those policies to a brother-in-law                                                                  
would be required to file due to the single sale exemption.                                                                     
Number 1153                                                                                                                     
MR. HEAD commented that there are many technical issues with                                                                    
HB 190.  The definitions need extensive review.  He noted that he                                                               
would like to work quickly and with the Department of Insurance to                                                              
establish a complete regulatory scheme to protect the terminally                                                                
ill viator as well as investors.  With the emergence of life                                                                    
settlements, there is yet another emerging problem.  Therefore, all                                                             
of this regulatory phenomena should be placed in a central                                                                      
location.  Mr. Head believed it would be difficult for the Division                                                             
of Banking, Securities, & Corporations to regulate the other side                                                               
of the industry, as the director commented earlier.                                                                             
CHAIRMAN ROKEBERG said that he had heard mention that many in the                                                               
securities industry do not really have the understanding or                                                                     
patience to sell this product.  Therefore, those with a life                                                                    
insurance background are better marketing sales agents for this                                                                 
type of product.  Is that an appropriate assessment?                                                                            
MR. HEAD agreed that Chairman Rokeberg's assessment was                                                                         
appropriate.  In further response to Chairman Rokeberg, Mr. Head                                                                
explained that there are many variables in life insurance which are                                                             
best known by life insurance agents.  He did not know of any                                                                    
security that required premium payments which is unique to life                                                                 
insurance.  Furthermore, there are issues regarding maintaining                                                                 
premiums on portions of the policies.  Today it is possible to sell                                                             
portions of a life insurance policy and that creates significant                                                                
premium issues which are best handled by a life insurance agent.                                                                
CHAIRMAN ROKEBERG asked whether that was due to the pre-paid                                                                    
dividends and the adjustments for annual premiums with an aged                                                                  
Number 1301                                                                                                                     
MR. HEAD replied yes.  For example, an individual with a life                                                                   
expectancy of two years who purchased a policy at 60 years of age                                                               
has a much higher premium than an individual at the same age who                                                                
purchased the same policy at 30 years of age.  Therefore, these                                                                 
packages are part of what a good insurance person can explain to a                                                              
purchaser.  For securities sales people, the language associated                                                                
with such a situation is not typically familiar language.  In                                                                   
summary, Mr. Head stated that good disclosure to the investor is                                                                
the objective.  Good disclosure would best come from a sales person                                                             
who has knowledge of the product he/she is selling.  He agreed to                                                               
be available to talk with staff and offered to provide the                                                                      
committee with additional written testimony to illustrate some of                                                               
these problems.                                                                                                                 
CHAIRMAN ROKEBERG announced that he would be talking with those in                                                              
the industry in Alaska as well as the various departments.  He also                                                             
announced that he did not intend to report HB 190 out of committee                                                              
today and will only do so when the legislation is ready.                                                                        
Number 1417                                                                                                                     
JACK GWALTNEY, General Agent, Future First Financial Group,                                                                     
Gwaltney & Gwaltney, Incorporated, testified via teleconference                                                                 
from Anchorage.  With regard to the testimony from those in                                                                     
Florida, they are accurate in what it would take to do this right.                                                              
Mr. Gwaltney agreed that there needs to be some legislation to                                                                  
accommodate all parties concerned.  He noted that the testimony has                                                             
made it apparent that there are many parties involved in one of                                                                 
these transactions.  This is a complicated issue.  Mr. Gwaltney                                                                 
offered to work with the committee on this issue.                                                                               
CHAIRMAN ROKEBERG announced that HB 190 would be held.                                                                          
Number 1530                                                                                                                     
There being no further business before the committee, the House                                                                 
Labor & Commerce Standing Committee meeting was adjourned at 5:27                                                               

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