Legislature(2003 - 2004)

04/02/2003 03:18 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         April 2, 2003                                                                                          
                           3:18 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Tom Anderson, Chair                                                                                              
Representative Nancy Dahlstrom                                                                                                  
Representative Carl Gatto                                                                                                       
Representative Norman Rokeberg                                                                                                  
Representative Harry Crawford                                                                                                   
Representative David Guttenberg                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bob Lynn, Vice Chair                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CS FOR SENATE BILL NO. 43(FIN)                                                                                                  
"An  Act extending  the  termination date  of  the State  Medical                                                               
Board."                                                                                                                         
                                                                                                                                
     - MOVED CSSB 43(FIN) OUT OF COMMITTEE                                                                                      
                                                                                                                                
HOUSE BILL NO. 203                                                                                                              
"An  Act  relating  to  the   definitions  of  'net  income'  and                                                               
'unrestricted  net  income'  for   purposes  of  calculating  the                                                               
dividends  to be  paid  to  the state  by  the Alaska  Industrial                                                               
Development and Export Authority;  and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
     - MOVED HB 203 OUT OF COMMITTEE                                                                                            
                                                                                                                                
HOUSE BILL NO. 13                                                                                                               
"An Act declaring legislative intent  to reject the continuity of                                                               
enterprise  exception  to  the doctrine  of  successor  liability                                                               
adopted in Savage  Arms, Inc. v. Western Auto Supply,  18 P.3d 49                                                               
(Alaska  2001), as  it relates  to products  liability; providing                                                               
that  a  successor  corporation or  other  business  entity  that                                                               
acquires assets  of a predecessor  corporation or  other business                                                               
entity is  subject to liability  for harm to persons  or property                                                               
caused  by  a defective  product  sold  or otherwise  distributed                                                               
commercially  by  the  predecessor  only if  the  acquisition  is                                                               
accompanied  by an  agreement  for the  successor  to assume  the                                                               
liability,  results  from  a   fraudulent  conveyance  to  escape                                                               
liability  for  the  debts or  liabilities  of  the  predecessor,                                                               
constitutes a  consolidation or merger  with the  predecessor, or                                                               
results  in  the  successor's  becoming  a  continuation  of  the                                                               
predecessor; defining  'business entity' that acquires  assets to                                                               
include  a sole  proprietorship;  and applying  this  Act to  the                                                               
sale,  lease,  exchange, or  other  disposition  of assets  by  a                                                               
corporation,  a  limited  liability  company,  a  partnership,  a                                                               
limited  liability partnership,  a  limited  partnership, a  sole                                                               
proprietorship, or other business entity  that occurs on or after                                                               
the effective date of this Act."                                                                                                
                                                                                                                                
     - MOVED HB 13 OUT OF COMMITTEE                                                                                             
                                                                                                                                
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 184                                                                                       
"An Act relating to individual  deferred annuities; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - MOVED CSSSHB 184(L&C) OUT OF COMMITTEE                                                                                   
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: SB 43                                                                                                                   
SHORT TITLE:EXTEND STATE MEDICAL BOARD                                                                                          
SPONSOR(S): SENATOR(S) OLSON                                                                                                    
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
01/29/03     0074       (S)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
01/29/03     0074       (S)        L&C, FIN                                                                                     
02/27/03                (S)        L&C AT 1:30 PM BELTZ 211                                                                     
02/27/03                (S)        Moved Out of Committee                                                                       
02/27/03                (S)        MINUTE(L&C)                                                                                  
02/28/03     0293       (S)        L&C RPT 5DP                                                                                  
02/28/03     0293       (S)        DP: BUNDE, SEEKINS, DAVIS,                                                                   
                                   FRENCH,                                                                                      
02/28/03     0293       (S)        STEVENS G                                                                                    
02/28/03     0294       (S)        FN1: (CED)                                                                                   
03/06/03                (S)        FIN AT 9:00 AM SENATE FINANCE                                                                
                                   532                                                                                          
03/06/03                (S)        Moved CSSB 43(FIN) Out of                                                                    
                                   Committee                                                                                    
03/06/03                (S)        MINUTE(FIN)                                                                                  
03/07/03     0430       (S)        FIN RPT CS 6DP SAME TITLE                                                                    
03/07/03     0430       (S)        DP: GREEN, WILKEN, TAYLOR,                                                                   
                                   OLSON,                                                                                       
03/07/03     0430       (S)        STEVENS B, BUNDE                                                                             
03/07/03     0430       (S)        FN1: (CED)                                                                                   
03/20/03     0571       (S)        RULES TO CALENDAR 3/24/2003                                                                  
03/24/03     0571       (S)        READ THE SECOND TIME                                                                         
03/24/03     0571       (S)        FIN CS ADOPTED UNAN CONSENT                                                                  
03/24/03     0571       (S)        ADVANCED TO THIRD READING                                                                    
                                   UNAN CONSENT                                                                                 
03/24/03     0571       (S)        READ THE THIRD TIME CSSB                                                                     
                                   43(FIN)                                                                                      
03/24/03     0571       (S)        PASSED Y19 N- E1                                                                             
03/24/03     0575       (S)        TRANSMITTED TO (H)                                                                           
03/24/03     0575       (S)        VERSION: CSSB 43(FIN)                                                                        
03/26/03     0630       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
03/26/03     0630       (H)        L&C                                                                                          
03/26/03     0630       (H)        REFERRED TO LABOR & COMMERCE                                                                 
04/02/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
                                                                                                                                
BILL: HB 203                                                                                                                  
SHORT TITLE:AIDEA DIVIDENDS TO STATE                                                                                            
SPONSOR(S): FINANCE                                                                                                             
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
03/19/03     0586       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
03/19/03     0586       (H)        L&C, FIN                                                                                     
03/19/03     0586       (H)        REFERRED TO LABOR & COMMERCE                                                                 
04/02/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
                                                                                                                                
BILL: HB 13                                                                                                                   
SHORT TITLE:SUCCESSOR LIABILITY FOR PRODUCT LIABILITY                                                                           
SPONSOR(S): REPRESENTATIVE(S)ROKEBERG                                                                                           
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
01/21/03     0034       (H)        PREFILE RELEASED (1/10/03)                                                                   
01/21/03     0034       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
01/21/03     0034       (H)        L&C, JUD                                                                                     
01/21/03     0034       (H)        REFERRED TO LABOR & COMMERCE                                                                 
03/28/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
03/28/03                (H)        Scheduled But Not Heard                                                                      
04/02/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
                                                                                                                                
BILL: HB 184                                                                                                                  
SHORT TITLE:INDIVIDUAL DEFERRED ANNUITIES                                                                                       
SPONSOR(S): REPRESENTATIVE(S)COGHILL                                                                                            
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
03/10/03     0492       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
03/10/03     0492       (H)        L&C                                                                                          
03/28/03     0671       (H)        SPONSOR SUBSTITUTE INTRODUCED                                                                
03/28/03     0671       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
03/28/03     0671       (H)        L&C                                                                                          
03/28/03     0671       (H)        REFERRED TO LABOR & COMMERCE                                                                 
04/02/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SENATOR DONNY OLSON                                                                                                             
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as the sponsor of SB 43.                                                                         
                                                                                                                                
REPRESENTATIVE MIKE HAWKER                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HB 203 on behalf of the sponsor,                                                                 
the House Finance Committee, of which he is a member.                                                                           
                                                                                                                                
MIKE BARRY, Chairman of the Board                                                                                               
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Department of Community & Economic Development                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Spoke in opposition to HB 203, noting the                                                                  
anxiety created in the bond market when AIDEA's statutes are                                                                    
changed.                                                                                                                        
                                                                                                                                
SARA FISHER-GOAD                                                                                                                
Alaska Industrial Development and Export Authority                                                                              
Department of Community & Economic Development                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  During the hearing on HB 203, answered                                                                     
questions on AIDEA's bond rating.                                                                                               
                                                                                                                                
HEATHER NOBREGA, Staff                                                                                                          
to Representative Norman Rokeberg                                                                                               
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on HB 13, explaining the four                                                                    
exceptions to product liability's being transferred to the new                                                                  
owner when a company is sold.                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHN COGHILL                                                                                                     
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   As sponsor of SSHB 184,  explained the need                                                               
for  the bill  and the  two  proposed amendments  that reflect  a                                                               
solution by national insurance commissioners.                                                                                   
                                                                                                                                
JOHN GEORGE, Lobbyist                                                                                                           
for the American Council of Life Insurers                                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Testified on SSHB 184,  explaining how life                                                               
insurance companies cannot pay the  minimum 3 percent interest on                                                               
an  annuity when  it  is  cashed in,  and  how  a national  model                                                               
recently became available.                                                                                                      
                                                                                                                                
KATIE CAMPBELL, Life and Health Actuary                                                                                         
Division of Insurance                                                                                                           
Department of Community and Economic Development                                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions about SSHB 184.                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-27, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR TOM ANDERSON  called the House Labor  and Commerce Standing                                                             
Committee  meeting  to  order  at   3:18  p.m.    Representatives                                                               
Anderson,  Dahlstrom, Crawford,  and Guttenberg  were present  at                                                               
the call  to order.   Representatives Gatto and  Rokeberg arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
SB  43-EXTEND STATE MEDICAL BOARD                                                                                             
                                                                                                                                
[Contains discussion of HB 73]                                                                                                  
                                                                                                                                
CHAIR ANDERSON announced  that the first order  of business would                                                               
be  CS  FOR  SENATE  BILL  NO. 43(FIN),  "An  Act  extending  the                                                               
termination date of the State Medical  Board."  He noted that the                                                               
committee had considered and passed  out earlier this session the                                                               
identical HB 73, extending the State Medical Board.                                                                             
                                                                                                                                
Number 0085                                                                                                                     
                                                                                                                                
SENATOR DONNY OLSON, Alaska State  Legislature, sponsor of SB 42,                                                               
explained that  the State  Medical Board  sunsets in  2003, which                                                               
triggers   the  legislative   review   of   its  operations   and                                                               
activities.   He'd introduced SB  43 to extend the  board because                                                               
of its satisfactory performance in  the recent past, its positive                                                               
legislative audit, and his own  experience [as a former member of                                                               
the State  Medical Board].   He  said he  expects the  board will                                                               
increase its  licensing activities  in the  near future  to serve                                                               
the  medical  community's expansion  and  the  retirement of  its                                                               
senior professionals.                                                                                                           
                                                                                                                                
SENATOR OLSON  noted several  changes in  the medical  board over                                                               
the last several years, including  the addition of a board member                                                               
who is  a physician assistant  (PA).   He urged the  committee to                                                               
pass CSSB 43(FIN) out of committee.                                                                                             
                                                                                                                                
Number 0189                                                                                                                     
                                                                                                                                
SENATOR OLSON, in  reply to a question from  Chair Anderson, said                                                               
the  only change  to  SB 43  [as amended  by  the Senate  Finance                                                               
Committee] was to  reduce the board's extension  from eight years                                                               
to four years.                                                                                                                  
                                                                                                                                
CHAIR ANDERSON  recalled the committee's  discussion on HB  73 on                                                               
whether to  extend the board  beyond the typical  four-year term.                                                               
He stated  that legislators  can request  a legislative  audit at                                                               
any time,  and that an  approaching sunset gives  the legislature                                                               
the opportunity to observe and monitor the board's work.                                                                        
                                                                                                                                
Number 0274                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked if the committee  wants to match                                                               
the [eight-year] termination date of HB 73.                                                                                     
                                                                                                                                
SENATOR OLSON  explained why he prefers  the four-year extension.                                                               
With the  addition of  a physician assistant,  the board  now has                                                               
eight  members.    He  said   he  feels  that  the  new  position                                                               
represents the PA  licensees.  The PAs have  attended every board                                                               
meeting as members of the  audience, closely watching the board's                                                               
work.   With  that  kind of  change in  membership,  he said,  he                                                               
wanted to see how well the board is doing after four years.                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked whether  having an even number of                                                               
members would be a problem [in the case of tie votes].                                                                          
                                                                                                                                
SENATOR OLSON  replied that both  houses of the  legislature have                                                               
an even number  of members.  Tie  votes occur but are  rare.  The                                                               
eighth   seat  on   the  State   Medical   Board  gives   another                                                               
perspective.  He said in  rural Alaska many physicians especially                                                               
appreciate  the   mid-level  professionals,   who  are   such  an                                                               
important part of fighting disease.                                                                                             
                                                                                                                                
Number 0502                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAHLSTROM moved  to  report CSSB  43(FIN) out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  note.   There  being  no  objection,  CSSB 43  (FIN)  was                                                               
reported from the House Labor and Commerce Standing Committee                                                                   
                                                                                                                                
HB 203-AIDEA DIVIDENDS TO STATE                                                                                               
                                                                                                                                
Number 0560                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  announced that the  next order of  business would                                                               
be HOUSE  BILL NO. 203,  "An Act  relating to the  definitions of                                                               
'net  income'  and  'unrestricted  net income'  for  purposes  of                                                               
calculating the dividends  to be paid to the state  by the Alaska                                                               
Industrial Development  and Export  Authority; and  providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
Number 0605                                                                                                                     
                                                                                                                                
REPRESENTATIVE MIKE  HAWKER, Alaska State  Legislature, presented                                                               
HB  203 on  behalf of  the House  Finance Committee,  sponsor, of                                                               
which he is a member.  He  explained that the bill would give the                                                               
finance  committee  a  tool  to  use  in  this  year's  budgeting                                                               
process.  The Alaska Industrial  Development and Export Authority                                                               
(AIDEA)  has a  statutory requirement  to pay  a dividend  to the                                                               
state each year.                                                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER  explained that last year,  AIDEA's statute                                                               
was revised  to reflect changes  by the accounting  profession in                                                               
preparation  of financial  statements and  reports.   However, he                                                               
said,  one issue  was not  addressed -  the accounting  for asset                                                               
impairments.  Per its policy, AIDEA  must pay the State of Alaska                                                               
a dividend that  is between 25 and 50 percent  of its net income.                                                               
That  dividend may  not exceed  AIDEA's unrestricted  net income.                                                               
He explained  that the legislature  clarified the  definitions of                                                               
"net  income"   and  "unrestricted   net  income,"   setting  the                                                               
parameters  for the  dividend.   At  that  time, the  legislature                                                               
defined income to  exclude those items that were not  part of the                                                               
authority's  actual operating  income, such  as intergovernmental                                                               
transfers,  capital   contributions,  and  grant  income.     For                                                               
example, AIDEA's  dividend to the  state is  an intergovernmental                                                               
transfer; [a past  dividend] should not be  [calculated into] the                                                               
net income for determining the [future] dividend.                                                                               
                                                                                                                                
REPRESENTATIVE  HAWKER said  the  goal of  last year's  statutory                                                               
change was  to make the  accountant's presentation of  net income                                                               
for  the purposes  of calculating  the dividend  the same  as the                                                               
authority's operating  income.  He  said the legislature  did not                                                               
want to  distribute more  of the operating  income than  would be                                                               
appropriate or that  would invade the restricted  portions of the                                                               
funds, either capital or income.                                                                                                
                                                                                                                                
Number 0831                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER explained  that HB  203 further  clarifies                                                               
the definition  of income.   When determining net income,  HB 203                                                               
would exclude  expenses already reported on  financial statements                                                               
that  resulted  from  impairment losses  on  AIDEA's  development                                                               
projects.   He explained  that an  impairment loss  is a  loss in                                                               
value of  an asset that was  purchased in prior years.   Unlike a                                                               
current  expense  that  takes  cash  out  of  the  authority,  an                                                               
impairment loss  is a noncash  entry in the books.   Professional                                                               
accounting policy requires that  impairment losses be recognized.                                                               
He said  that because the  recognition of impairment  losses have                                                               
no  effect on  AIDEA's  cash  balance or  on  its true  operating                                                               
income  for  a given  year,  the  House Finance  Committee  wants                                                               
impairment losses  excluded from the AIDEA's  income for purposes                                                               
of determining the dividend.                                                                                                    
                                                                                                                                
Number 0922                                                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER testified that  the House Finance Committee                                                               
is sponsoring  HB 203  because under  the current  statute, AIDEA                                                               
will not  have any  statutory or defined  income available  for a                                                               
dividend for  FY 04.  In  the past, this dividend  has been about                                                               
$20  million a  year -  a substantial  amount, given  the current                                                               
financial situation.   During the base year on  which the state's                                                               
FY  04  dividend  is  calculated,  AIDEA  recognized  significant                                                               
impairment losses on  the Healy Clean Coal Project  and on Alaska                                                               
Seafood  International.   The accountants  and managers  of AIDEA                                                               
analyzed these projects and decided  they're not worth what AIDEA                                                               
paid  for them,  and the  managers  recognized that  loss in  the                                                               
financial  statements.   Again, he  emphasized, this  process did                                                               
not take cash or liquid assets.                                                                                                 
                                                                                                                                
Number 1030                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER explained  that excluding  impairment loss                                                               
from the  calculation of income  would make  a $9 to  $18 million                                                               
dividend available  for use in  the FY  04 budget.   According to                                                               
the  agency's annual  report dated  June 30,  2002, which  is the                                                               
base year for  calculating the FY 04 dividend,  AIDEA has roughly                                                               
$789 million in unrestricted net assets.   It has $356 million of                                                               
unrestricted cash and investments on  hand, from which a dividend                                                               
to the  state could be  paid, he said.   Had the  legislature not                                                               
adopted the  accounting changes last  year, AIDEA would  have had                                                               
income to pay a dividend in FY 04,  he said.  He asked members to                                                               
pass  HB  203  on  to  the House  Finance  Committee,  which  can                                                               
determine whether  to use this tool  as part of the  FY 04 budget                                                               
process.                                                                                                                        
                                                                                                                                
Number 1110                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER noted  that the  committee will  hear from                                                               
AIDEA that  its board voted  100 percent  against this bill.   He                                                               
recalled that  when the dividend  legislation itself  was passed,                                                               
the  board was  concerned about  whether the  dividend would  rob                                                               
AIDEA  of its  ability to  carry out  its mission.   He  said the                                                               
state has a  modest dividend formula in place, and  it works.  He                                                               
said it's  good policy  for AIDEA  to be able  to write  down bad                                                               
investments  made years  ago,  but it  should  not sacrifice  the                                                               
statutory  dividend  to  the  state.    He  said  AIDEA  has  the                                                               
operating income and cash available to pay the dividend.                                                                        
                                                                                                                                
Number 1191                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO  asked what happened  to the money  that was                                                               
written off for bad investments.  Does it exist anymore?                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER  said he can't  pass judgment on  how AIDEA                                                               
manages  its investments.    He  said this  bill  creates a  fair                                                               
dividend policy.                                                                                                                
                                                                                                                                
REPRESENTATIVE  GATTO  clarified  that  he wasn't  asking  for  a                                                               
judgment on  the investment; he  was asking what happens  when an                                                               
investment is written down.                                                                                                     
                                                                                                                                
Number 1270                                                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER  replied that when managers  determine that                                                               
the  fair value  of  an asset  is no  longer  represented by  the                                                               
amount invested,  then the amount of  the asset is lowered.   But                                                               
to keep the books balance, the  transaction is shown as a loss or                                                               
a reduction in AIDEA's net assets.                                                                                              
                                                                                                                                
REPRESENTATIVE GATTO  asked whether the  purpose of HB 203  is to                                                               
make that definition.                                                                                                           
                                                                                                                                
Number 1322                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER explained  that HB  203 states  that those                                                               
impairment  losses, those  write-downs of  money spent  long ago,                                                               
are not included in the  determination of net income for purposes                                                               
of  the dividend.    He referred  to a  spreadsheet  in the  bill                                                               
packet  entitled  "House  Bill  203, AIDEA  Dividends  to  State,                                                               
Calculations  for  Committee Presentation."    The  net loss  for                                                               
AIDEA  for the  year ended  June  30, 2003,  was $72,506,000,  he                                                               
explained.    Included in  the  $72-million  loss is  $91,346,000                                                               
associated with  valuation adjustments  for the Healy  Clean Coal                                                               
Project and the  Alaska Seafood International.   He said existing                                                               
statute  looks  at the  decrease  in  net  assets and  bases  the                                                               
dividend  on that.   The  result  is a  negative number;  there's                                                               
nothing to distribute.                                                                                                          
                                                                                                                                
REPRESENTATIVE HAWKER  noted that  HB 203  looks at  those write-                                                               
offs of impaired  assets that didn't take any cash  out of AIDEA.                                                               
Adding  that number  back  results  in $18  million.   Under  the                                                               
current statute,  the previous year's dividend  of $17,500,000 is                                                               
added back in for  a net income under HB 203  of $36,340,000.  He                                                               
said  this  figure of  $36  million  represents how  AIDEA  truly                                                               
operated  last year.    Based on  the $36  million  figure, a  25                                                               
percent  dividend  would  equal  $9 million,  and  a  50  percent                                                               
dividend would equal $18 million.                                                                                               
                                                                                                                                
Number 1467                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked whether AIDEA is  still bound by                                                               
bonding  authority,  federal  requirements,  and  other  agencies                                                               
outside state government.                                                                                                       
                                                                                                                                
REPRESENTATIVE HAWKER reiterated that  AIDEA must adhere to sound                                                               
accounting  principles,  including  the reporting  of  accounting                                                               
losses.   But,  he said,  these losses  are not  relevant to  the                                                               
current capacity of AIDEA to pay a dividend to the state.                                                                       
                                                                                                                                
Number 1596                                                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER stated that  he discussed these issues with                                                               
a  bond counsel,  who  said that  consistency  is the  overriding                                                               
issue in  maintaining AIDEA's bond rating.   He said he  was told                                                               
that  a stable  business environment  and consistent  regulations                                                               
are  critical.   Representative   Hawker  agreed that  this is  a                                                               
change  in  law,   but  it  is  a  clean  up   from  last  year's                                                               
legislation.   He  said  the  rating agencies  in  New York  have                                                               
probably   asked  many   questions  about   the  Alaska   Seafood                                                               
International  and  the ongoing  value  of  these assets.    That                                                               
factor (the  discrepancy between  value on  the books  and actual                                                               
worth) was inherent in the  analysis performed by the bonding and                                                               
rating  agencies prior  to AIDEA  writing it  down.   Bond rating                                                               
agencies are  particularly thorough when they  analyze companies,                                                               
he said.                                                                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER said he did  not believe HB 203 would alarm                                                               
AIDEA's bond rating agencies.   He said he anticipates a detailed                                                               
presentation by  the bonding agencies  to the  finance committee.                                                               
AIDEA wrote  off $91 million,  and it won't  pay a dividend  as a                                                               
result of  that write-down.  He  reported that he was  told AIDEA                                                               
may write  off additional money  on Alaska  Seafood International                                                               
next year, and may not pay a dividend in the following year.                                                                    
                                                                                                                                
Number 1722                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD noted  that AIDEA  had funded  Mark Air,                                                               
which went bankrupt.   He asked if AIDEA  treated both companies'                                                               
assets the same.                                                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER said he wasn't able to answer that.                                                                       
                                                                                                                                
Number 1750                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  about the  residual value  of the                                                               
Alaska Seafood International.                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER suggested  the  question  be addressed  to                                                               
AIDEA staff at the meeting.                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  noted that the AIDEA  [Balance Sheet for                                                               
June  30, 2002]  shows the  current  assets of  $121 million  and                                                               
current liabilities  of $14 million  for a ratio of  9 to 1.   He                                                               
asked if this is a healthy ratio.                                                                                               
                                                                                                                                
Number 1813                                                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER clarified that  he is appearing before this                                                               
committee not  as an  accounting official,  but as  a legislator.                                                               
He  said he  is pleased  with  the overall  financial health  and                                                               
condition of AIDEA.   He said it's a strong,  vibrant, vital part                                                               
of investing in business in Alaska.                                                                                             
                                                                                                                                
Number 1835                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  about AIDEA's  unrestricted  net                                                               
assets of $789 million on the HB 203 spreadsheet.                                                                               
                                                                                                                                
REPRESENTATIVE  HAWKER   described  that   figure  as   the  true                                                               
unrestricted  net  assets.    He   said  AIDEA  has  some  assets                                                               
restricted for  debt service; the  aggregate net assets  are $792                                                               
million.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG   asked  if   the  cash   available  was                                                               
$356,589,000.                                                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER referred to  the spreadsheet and noted that                                                               
the $356,589,000  figure consists  of cash and  cash equivalents,                                                               
investment  securities -  current,  and  investment securities  -                                                               
non-current.   He  confirmed  Representative Rokeberg's  estimate                                                               
that $96 million of the $356 million are truly liquid assets.                                                                   
                                                                                                                                
Number 1901                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  said the  intent of  the law  allows the                                                               
legislature to receive income from  AIDEA.  He said it's apparent                                                               
from AIDEA's  financial statements  that it can  afford to  pay a                                                               
dividend now.  But, he asked, what if there are further write-                                                                  
downs on some  of these assets; will AIDEA be  unable to pay this                                                               
dividend  in the  future?    He asked  if  the  problem is  self-                                                               
righting  because the  statutory formula  for dividends  is still                                                               
dependent  on  the  net  income,  and HB  203  only  changes  the                                                               
description of net income.                                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER  said  it  is  clearly  the  latter.    He                                                               
theorized that  if AIDEA  wrote off the  entire balance  of those                                                               
two assets,  it would not affect  last year's net income.   AIDEA                                                               
still has  the ongoing  cash flow  from other  productive assets;                                                               
the more successful investments  within AIDEA continue to produce                                                               
income.                                                                                                                         
                                                                                                                                
Number 1954                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  said HB 203  makes an adjustment  in the                                                               
balance sheet, but it doesn't  affect AIDEA's ability to make the                                                               
dividend  payment  or to  be  a  viable  entity.   He  summarized                                                               
Representative Hawker's position that  HB 203 does not jeopardize                                                               
the  ability  of the  corporation  to  operate or  its  financial                                                               
underpinnings.                                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER agreed to both points.                                                                                    
                                                                                                                                
Number 2004                                                                                                                     
                                                                                                                                
MIKE BARRY, Chairman of the  Board, Alaska Industrial Development                                                               
and  Export   Authority,  Department  of  Community   &  Economic                                                               
Development,  said  he  disagreed  with  some  of  Representative                                                               
Hawker's characterizations  about the  board.  He  explained that                                                               
none of  the current members were  on the board in  1996 when the                                                               
legislature  passed the  dividend legislation.   He  said he  has                                                               
been  told  that the  board  went  on  record as  supporting  the                                                               
dividend at that time.                                                                                                          
                                                                                                                                
MR.  BARRY  told  members  that his  board  favors  the  dividend                                                               
policy.   He  said  AIDEA  needs to  represent  to its  financial                                                               
constituents -  the bonding, business, and  banking communities -                                                               
that it will  be viable on the  long-term basis.  As  he wrote in                                                               
his  [April  1, 2003]  letter  [to  the  co-chairs of  the  House                                                               
Finance Committee], a  lot of thought and dialogue  went into the                                                               
dividend legislation.  Until this  year, it has worked very well,                                                               
he said.                                                                                                                        
                                                                                                                                
Number 2060                                                                                                                     
                                                                                                                                
MR.  BARRY   said  he  disagreed  with   Representative  Hawker's                                                               
interpretation  of the  accounting  changes that  were made  last                                                               
year.   These  accounting changes  took  AIDEA from  one type  of                                                               
government  accounting  to  another   type,  but  both  of  these                                                               
required a  write-down of an  asset when that loss  is recognized                                                               
by the authority.   He said there were no  changes made last year                                                               
that would  have affected  the change  proposed in  HB 203.   The                                                               
difference   between   AIDEA   and   a   tax-paying,   for-profit                                                               
corporation  is that  AIDEA  is  owned by  the  State of  Alaska.                                                               
AIDEA  officials   occasionally  raise   funds  in   the  bonding                                                               
community, not as  a full faith and credit bonding  agency of the                                                               
state,  but  as an  agency  that  makes  promises which  must  be                                                               
carried out  based on  AIDEA's assets, not  based on  other state                                                               
funds, other state assets, or the power of taxation.                                                                            
                                                                                                                                
Number 2119                                                                                                                     
                                                                                                                                
MR. BARRY  described the anxiety  of a bond  purchaser interested                                                               
in a  25-year investment who  looks at the state's  fiscal policy                                                               
and says,  "They're running  out of  oil revenues.   They  have a                                                               
serious  need for  funds.   Perhaps the  legislature is  going to                                                               
raid  AIDEA  for  funds."    He  said  that's  why  the  dividend                                                               
legislation  of 1996  is  a  proper and  logical  answer to  that                                                               
anxiety.   The proposed change [in  HB 203] does not  assure this                                                               
constituency  that  this  is  the  final  change,  and  the  bill                                                               
demonstrates that the state needs  money and that AIDEA can't pay                                                               
the dividend.   Thus this changes the rules so  the state can get                                                               
the money.                                                                                                                      
                                                                                                                                
MR. BARRY agreed with Representative  Hawker that HB 203 does not                                                               
damage  AIDEA's health  as a  financial  entity today.   What  it                                                               
does, he  said, is raise the  uncertainty that no one  can answer                                                               
because the  legislature always has  the right and  the authority                                                               
to appropriate  funds from AIDEA.   He implored the  committee to                                                               
not  [raise that  uncertainty] for  a  $9 to  $18 million  dollar                                                               
dividend, when  it could seriously  damage the  long-term program                                                               
of AIDEA.                                                                                                                       
                                                                                                                                
Number 2218                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  whether Mr.  Barry  agreed  that                                                               
HB 203 doesn't jeopardize financial  ability to conduct financial                                                               
operation, but might  raise the level of uncertainty  in the bond                                                               
market.                                                                                                                         
                                                                                                                                
MR. BARRY said yes.                                                                                                             
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked what  AIDEA's current  bond rating                                                               
is.                                                                                                                             
                                                                                                                                
Number 2250                                                                                                                     
                                                                                                                                
SARA  FISHER-GOAD,  Alaska   Industrial  Development  and  Export                                                               
Authority, Department  of Community & Economic  Development, said                                                               
she would  provide the rating information  in writing.  It  is an                                                               
"A" rating, with some differences between the rating agencies.                                                                  
                                                                                                                                
CHAIR ANDERSON  suggested that since  the AIDEA  argument focused                                                               
on the  long-term effects of this  change in the bond  market, it                                                               
would  have  been   useful  for  AIDEA  to   come  prepared  with                                                               
information on AIDEA's current bond rating.                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked Mr.  Barry to provide  an analysis                                                               
of  what the  net  income figures  would be  under  old the  GASB                                                               
[Government Accounting Standards Board] rules.                                                                                  
                                                                                                                                
Number 2295                                                                                                                     
                                                                                                                                
MR. BARRY replied  that the impairment charges would  be the same                                                               
under either set of rules.                                                                                                      
                                                                                                                                
REPRESENTATIVE ROKEBERG asked  if the net income  available for a                                                               
dividend would be similarly impaired.                                                                                           
                                                                                                                                
MR. BARRY agreed that there would  be no change to the impairment                                                               
[of assets] by adopting the GASB changes.                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  clarified that [HB 203]  allows an AIDEA                                                               
dividend payment  to be made  by changing the definitions  of net                                                               
income and restricted net income.                                                                                               
                                                                                                                                
Number 2316                                                                                                                     
                                                                                                                                
MR.  BARRY agreed.    He clarified  that it  is  not the  board's                                                               
contention that the payment of the  dividend of $9 million to $18                                                               
million would  in any  way impair  AIDEA's bond  rating.   But he                                                               
said  it will  raise uncertainty  as  to future  bond sales  that                                                               
AIDEA may  want to  undertake.  Because  AIDEA officials  are not                                                               
contemplating  a bond  sale tomorrow  or  next week,  he said  he                                                               
didn't think there would be any impact in the very near future.                                                                 
                                                                                                                                
MR.  BARRY  confirmed  Representative Rokeberg's  statement  that                                                               
AIDEA has  no plans  to sell new  bonds in the  next six  to nine                                                               
months.   He said  AIDEA was  able to take  advantage of  the low                                                               
interest rate last year.                                                                                                        
                                                                                                                                
TAPE 03-27, SIDE B                                                                                                            
Number 2381                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked about the two impairment losses.                                                                  
                                                                                                                                
MR. BARRY  said the Healy Clean  Coal Project has a  [fair value]                                                               
of  $56   million.    As   of  June  30,  2002,   Alaska  Seafood                                                               
International  has  a  [residual  value]  of  $22,400,000,  which                                                               
consists of the land and one of two buildings.                                                                                  
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked about  the $85-million  bond issue                                                               
on the Healy Clean Coal Project.                                                                                                
                                                                                                                                
Number 2336                                                                                                                     
                                                                                                                                
MR. BARRY  clarified that the  Healy Clean Coal Project  has been                                                               
shut  down  since 1999.    The  write-down occurred  because  the                                                               
original investment  of $120  million in  state funds  and almost                                                               
$180 in  federal funds was  not producing  any income and  had no                                                               
prospect of  doing so in the  near future.  He  acknowledged that                                                               
the recognition of that loss did  not affect the cash earnings of                                                               
the rest of  AIDEA's assets.  In AIDEA's case,  between the state                                                               
and  the federal  government,  nearly $300  million  in cash  was                                                               
invested, and it is gone.                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if there  are any other  assets on                                                               
the books that AIDEA may be writing down in the near term.                                                                      
                                                                                                                                
MR.  BARRY replied  that AIDEA  is currently  demolishing an  ore                                                               
concentrate  building in  Skagway.    He said  it's  not a  major                                                               
asset; it's valued on the books  at $2 million.  The building has                                                               
become a life-safety  factor to the local community.   AIDEA will                                                               
take a write-down on some aspect  of it; some assets will remain.                                                               
He  said the  answer is  yes,  but he  is not  aware of  anything                                                               
significant at this time.                                                                                                       
                                                                                                                                
Number 2243                                                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER  said he  believes AIDEA's  testimony lends                                                               
credibility  to   the  House  Finance  Committee's   interest  in                                                               
establishing  a comprehensive  dividend  formula for  AIDEA.   He                                                               
urged the committee to pass HB 203 on to that committee.                                                                        
                                                                                                                                
Number 2191                                                                                                                     
                                                                                                                                
CHAIR ANDERSON,  noting that no  other people wished  to testify,                                                               
closed public testimony.                                                                                                        
                                                                                                                                
Number 2189                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO moved  to report  HB 203  out of  committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
note.   There being no  objection, HB  203 was reported  from the                                                               
House Labor and Commerce Standing Committee.                                                                                    
                                                                                                                                
HB  13-SUCCESSOR LIABILITY FOR PRODUCT LIABILITY                                                                              
                                                                                                                                
Number 2175                                                                                                                     
                                                                                                                                
CHAIR ANDERSON  announced that the  next order of  business would                                                               
be HOUSE  BILL NO.  13, "An Act  declaring legislative  intent to                                                               
reject the continuity of enterprise  exception to the doctrine of                                                               
successor liability adopted in Savage  Arms, Inc. v. Western Auto                                                               
Supply,  18 P.3d  49 (Alaska  2001),  as it  relates to  products                                                               
liability;  providing  that  a  successor  corporation  or  other                                                               
business   entity  that   acquires   assets   of  a   predecessor                                                               
corporation or other business entity  is subject to liability for                                                               
harm to  persons or property  caused by a defective  product sold                                                               
or otherwise distributed commercially  by the predecessor only if                                                               
the acquisition is accompanied by  an agreement for the successor                                                               
to assume the liability, results  from a fraudulent conveyance to                                                               
escape   liability  for   the  debts   or   liabilities  of   the                                                               
predecessor,  constitutes  a  consolidation or  merger  with  the                                                               
predecessor,   or  results   in   the   successor's  becoming   a                                                               
continuation of the predecessor;  defining 'business entity' that                                                               
acquires assets  to include a  sole proprietorship;  and applying                                                               
this Act  to the sale,  lease, exchange, or other  disposition of                                                               
assets  by   a  corporation,  a  limited   liability  company,  a                                                               
partnership,   a  limited   liability   partnership,  a   limited                                                               
partnership,  a sole  proprietorship,  or  other business  entity                                                               
that occurs on or after the effective date of this Act."                                                                        
                                                                                                                                
Number 2164                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG,  sponsor  of   HB  13,  explained  that                                                               
legislation  similar to  this bill  passed  the legislature  last                                                               
year but was vetoed by  the governor; the only controversial part                                                               
of that bill  was the retroactive application  of legal language,                                                               
but HB  13 does not contain  that language.  The  bill sets forth                                                               
the standard business succession liability  for the purchase of a                                                               
business and  clarifies under what  circumstances the  new entity                                                               
remains responsible for the liabilities  of the former owner.  He                                                               
explained that the bill was  referred to the committee because of                                                               
its economic impact on commerce.   It overturns an Alaska Supreme                                                               
Court case that was inconsistent  with [laws in] 48 other states.                                                               
He  said  making Alaska's  business  laws  consistent with  other                                                               
states' laws helps build a stable business environment.                                                                         
                                                                                                                                
Number 2083                                                                                                                     
                                                                                                                                
HEATHER NOBREGA, Staff to  Representative Norman Rokeberg, Alaska                                                               
State  Legislature, explained  that under  HB 13,  when a  person                                                               
purchases a company,  the person is not liable  for the company's                                                               
previous  mistakes  and  harm unless  the  person  assumes  those                                                               
liabilities.  The  new owner can be held liable  for the previous                                                               
company's  liabilities under  four exceptions:   (1)  if the  new                                                               
owner  assumes  the liabilities;  (2)  if  [the purchase]  was  a                                                               
fraudulent attempt to avoid the  liabilities; (3) if the purchase                                                               
was a  consolidation or  merger and the  new company  wouldn't be                                                               
harmed by assuming  those liabilities; or (4) the  new company is                                                               
in fact a continuation of the same company.                                                                                     
                                                                                                                                
MS. NOBREGA noted that HB  13 relates to product liability, which                                                               
hadn't been  [litigated] in Alaska  before 2001, when  the Alaska                                                               
Supreme Court  made a decision  on the  law.  She  explained that                                                               
the  supreme   court  recognized  two  exceptions:     the  "mere                                                               
continuation"   of   the   business  and   the   "continuity   of                                                               
enterprise," a newer  doctrine that has been rejected  by most of                                                               
the  jurisdictions that  have looked  at  the issue.   This  bill                                                               
rejects  that doctrine  ["continuity of  enterprise"] and  adopts                                                               
the four general standards that  are recognized by most courts in                                                               
the nation.                                                                                                                     
                                                                                                                                
Number 2007                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   mentioned  that  the   "continuity  of                                                               
enterprise" theory  has been rejected in  the Restatement (Third)                                                             
of Torts.  He said HB  13 adopts the [more] widely accepted rule.                                                             
He noted that  the Alaska Supreme Court  adopted this "continuity                                                               
of enterprise"  provision that has been  specifically rejected by                                                               
most other  states.  Representative  Rokeberg reported  that this                                                               
court case,  [Savage Arms, Inc.  v. Western Auto Supply  Co.] has                                                             
been settled,  and said  retroactivity [is  no longer  an issue].                                                               
This bill is  [prospective] so that Alaska's law is  clear on the                                                               
subject of  product liability  when a company  is purchased.   He                                                               
explained  that  sometimes  people  who  wish  to  file  lawsuits                                                               
against corporations over product  liability go "shopping" [for a                                                               
jurisdiction  that has  unusual] law.   If  Alaska had  an unique                                                               
[interpretation  of this  provision],  people  might use  Alaskan                                                               
courts to file  these kinds of suits.  He  opined that businesses                                                               
laws should be uniformly applied throughout the United States.                                                                  
                                                                                                                                
CHAIR ANDERSON reminded  the committee that the  next referral is                                                               
the  House Judiciary  Standing  Committee,  where detailed  legal                                                               
questions can be examined.                                                                                                      
                                                                                                                                
Number 1900                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAHLSTROM moved  to report HB 13  out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
note.   There being  no objection,  HB 13  was reported  from the                                                               
House Labor and Commerce Standing Committee.                                                                                    
                                                                                                                                
HB 184-INDIVIDUAL DEFERRED ANNUITIES                                                                                          
                                                                                                                                
CHAIR ANDERSON announced  that the final order  of business would                                                               
be SPONSOR  SUBSTITUTE FOR HOUSE  BILL NO. 184, "An  Act relating                                                               
to individual deferred annuities;  and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
Number 1860                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOHN COGHILL,  Alaska State Legislature, explained                                                               
that he  sponsored HB 184 by  request.  His original  bill simply                                                               
decreased  the guaranteed  interest rates  on deferred  annuities                                                               
from 3 percent to 1.5 percent.   While he was drafting this bill,                                                               
however,  the  National  Association of  Insurance  Commissioners                                                               
(NAIC)  drafted  model language  to  solve  the problem  with  an                                                               
indexing  tool.    He  said   interest  rates  are  so  low  that                                                               
[companies   selling]  annuities   are   [having  trouble]   with                                                               
solvency.    This NAIC  model  language  contains an  index  that                                                               
allows  the companies  to be  solvent  in times  of low  interest                                                               
rates,  but it  also guarantees  the consumer  a minimum  rate of                                                               
interest.                                                                                                                       
                                                                                                                                
REPRESENTATIVE   COGHILL   described  two   proposed   amendments                                                               
[suggested by the  Division of Insurance] to SSHB 184.   He noted                                                               
that  Amendment  H.1  [labeled 23-LS0753\H.1,  Ford,  4/1/03]  is                                                               
consistent with the new model language.  Amendment H.1 read:                                                                    
                                                                                                                                
     Page 2, line 13:                                                                                                           
          Delete "an additional period"                                                                                         
          Insert "additional periods"                                                                                           
                                                                                                                                
REPRESENTATIVE  COGHILL noted  that  Amendment  H.2 [labeled  23-                                                               
LS0753\H.2,  Ford, 4/1/03]  is  a new  section  that changes  the                                                               
effective  date and  actually gives  time  for an  implementation                                                               
period.  Amendment H.2 read:                                                                                                    
                                                                                                                                
     Page 2, following line 29:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "*  Sec. 2.   The  uncodified  law of  the State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          TRANSITION    PERIOD   FOR    ANNUITY   CONTRACTS;                                                                    
     APPLICABILITY OF  ACT.  During  the period  that begins                                                                    
     on the effective  date of this Act and ends  on the day                                                                    
     before the date  that is two years  after the effective                                                                    
     date  of  this Act,  this  Act  applies to  an  annuity                                                                    
     contract  when the  contract form  for that  annuity is                                                                    
     approved by the director  of the division of insurance.                                                                    
     For an annuity contract  not otherwise affected by this                                                                    
     section,   this  Act   applies  to   annuity  contracts                                                                    
     beginning  on the  date  that is  two  years after  the                                                                    
     effective date of this Act."                                                                                               
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
REPRESENTATIVE COGHILL noted that he  is bringing SSHB 184 to the                                                               
committee today  for information,  not necessarily  for movement.                                                               
He  said he  is still  digesting  the changes  in the  bill.   He                                                               
pointed  out that  Amendment H.2  has  an implementation  period.                                                               
Companies will  have two  years to  rewrite their  contracts, and                                                               
the Division  of Insurance [Department of  Community and Economic                                                               
Development]  won't receive  [a  large volume  of] newly  revised                                                               
contracts all at once.                                                                                                          
                                                                                                                                
Number 1686                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAHLSTROM  moved to  adopt  SSHB  184 as  a  work                                                               
draft.  There being no objection, it was so ordered.                                                                            
                                                                                                                                
REPRESENTATIVE COGHILL  noted that these amendments  were brought                                                               
to  his  attention  yesterday.   He  brought  attention  to  NAIC                                                               
correspondence  from  NAIC in  the  information  packet and  said                                                               
staff  from the  Division  of Insurance  were  present to  answer                                                               
questions about the NAIC model.                                                                                                 
                                                                                                                                
Number 1596                                                                                                                     
                                                                                                                                
JOHN GEORGE, Lobbyist  for the American Council  of Life Insurers                                                               
(ACLI),  explained that  ACLI is  an insurance  trade association                                                               
that writes life insurance and  annuity products.  In response to                                                               
a question  by Representative Rokeberg,  he said his  clients who                                                               
sell  annuities have  a real  problem.   If a  client decides  to                                                               
terminate the agreement and get  the money back, the law requires                                                               
a minimum 3 percent return on the  money.  That was set years ago                                                               
when interest  rates were 14 and  20 percent, and no  one foresaw                                                               
an interest rate as low as  3 percent; that figure was considered                                                               
rock  bottom  for  consumer  protection.    However,  times  have                                                               
changed:     interest  rates  have  dropped   substantially,  and                                                               
insurance companies  are not  getting a 3  percent return  on the                                                               
money.  He likened it to asking  a bank to guarantee 5 percent on                                                               
a savings account.  Banks can't  do that and stay in business, he                                                               
told members; banks would have to terminate savings accounts.                                                                   
                                                                                                                                
Number 1552                                                                                                                     
                                                                                                                                
MR. GEORGE said  the life insurance industry  is deciding whether                                                               
to continue  offering these  products.   Companies aren't  on the                                                               
verge  of insolvency,  but this  bill recognizes  that for  these                                                               
companies  to survive  over the  long term,  the [interest  rate]                                                               
needs to  be adjusted.   The  "simple fix"  [in original  HB 184,                                                               
before NAIC  completed its work]  was to lower the  interest rate                                                               
[to 1.5  percent].   He said  NAIC had  been working  for several                                                               
years to come  up with this model.  Therefore,  he encouraged the                                                               
committee  to use  the national  standard.   He explained  that a                                                               
number  of other  states adopted  the 1.5  percent interest  rate                                                               
with a sunset  clause of one or two years,  anticipating that the                                                               
matter would have  to be revisited when NAIC  produced its model.                                                               
He predicted that  Alaska will be on the cutting  edge because of                                                               
the timing  of this  legislation and the  completion of  the NAIC                                                               
model.                                                                                                                          
                                                                                                                                
Number 1430                                                                                                                     
                                                                                                                                
KATIE CAMPBELL,  Life and Health Actuary,  Division of Insurance,                                                               
Department  of Community  &  Economic  Development, responded  to                                                               
questions from  Representative Rokeberg.   She  said the  goal of                                                               
Amendment H.2  is to allow  a two-year transition; she  could not                                                               
clarify whether the  amendment accomplished that.   She also said                                                               
that  as she  reads it,  the amended  language would  be inserted                                                               
following  line 29;  then Section  2, with  an effective  date of                                                               
July 1, 2003, would be renumbered as Section 3.                                                                                 
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  about  the interest  rate set  on                                                               
page 2,  line 8,  "(A) the  five-year constant  maturity treasury                                                               
rate reported by the federal reserve".                                                                                          
                                                                                                                                
MS. CAMPBELL  replied that  this index is  a good  choice because                                                               
the federal government  will be issuing treasury  [bonds] and the                                                               
index is representative of the current market.                                                                                  
                                                                                                                                
REPRESENTATIVE  ROKEBERG  described  [the  index]  as  a  "market                                                               
basket" of different maturities.                                                                                                
                                                                                                                                
Number 1180                                                                                                                     
                                                                                                                                
MR. GEORGE  added that  the index is  similar to  the investments                                                               
that insurance companies actually make.                                                                                         
                                                                                                                                
REPRESENTATIVE ROKEBERG asked Ms.  Campbell if she understood the                                                               
language in the NAIC-inspired amendment.                                                                                        
                                                                                                                                
CHAIR ANDERSON noted that Ms. Campbell had nodded in agreement.                                                                 
                                                                                                                                
Number 1122                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  moved  to  adopt  Amendment  H.1  [text                                                               
provided  previously].   There  being  no  objection, it  was  so                                                               
ordered.                                                                                                                        
                                                                                                                                
Number 1091                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  moved  to  adopt  Amendment  H.2  [text                                                               
provided  previously].   There  being  no  objection, it  was  so                                                               
ordered.                                                                                                                        
                                                                                                                                
REPRESENTATIVE   ROKEBERG  reported   a   possible  conflict   of                                                               
interest:  his stepson is  the national sales manager for Liberty                                                               
Financial Corporation, which sells annuities.                                                                                   
                                                                                                                                
CHAIR ANDERSON indicated he'd  still like Representative Rokeberg                                                               
to vote.                                                                                                                        
                                                                                                                                
Number 1050                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG moved  to report  SSHB 184,  as amended,                                                               
out  of   committee  with  individual  recommendations   and  the                                                               
accompanying  zero  fiscal  notes.   There  being  no  objection,                                                               
CSSSHB 184(L&C)  was reported from  the House Labor  and Commerce                                                               
Standing Committee.                                                                                                             
                                                                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
4:37 p.m.                                                                                                                       

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