Legislature(2003 - 2004)

04/09/2003 03:29 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 9, 2003                                                                                          
                           3:29 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Tom Anderson, Chair                                                                                              
Representative Bob Lynn, Vice Chair                                                                                             
Representative Nancy Dahlstrom                                                                                                  
Representative Carl Gatto                                                                                                       
Representative Norman Rokeberg                                                                                                  
Representative Harry Crawford                                                                                                   
Representative David Guttenberg                                                                                                 
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 234                                                                                                              
"An Act relating to brewpubs, and continuing the existence of                                                                   
the Alcoholic Beverage Control Board; and providing for an                                                                      
effective date."                                                                                                                
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 224                                                                                                              
"An Act relating to a tobacco product manufacturer's compliance                                                                 
with certain statutory requirements regarding cigarette sales;                                                                  
and providing for an effective date."                                                                                           
     - MOVED HB 224 OUT OF COMMITTEE                                                                                            
HOUSE BILL NO. 195                                                                                                              
"An Act relating to coverage offered under an individual policy                                                                 
of health care insurance; and providing for an effective date."                                                                 
     - SCHEDULED BUT NOT HEARD                                                                                                  
PREVIOUS ACTION                                                                                                               
BILL: HB 234                                                                                                                  
SHORT TITLE:BREWPUBS; ABC BOARD                                                                                                 
SPONSOR(S): REPRESENTATIVE(S)MCGUIRE                                                                                            
Jrn-Date   Jrn-Page                     Action                                                                                  
04/02/03     0739       (H)        READ THE FIRST TIME -                                                                        
04/02/03     0739       (H)        L&C, FIN                                                                                     
04/09/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
BILL: HB 224                                                                                                                  
SHORT TITLE:CIGARETTE SALES REQUIREMENTS                                                                                        
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR                                                                                      
Jrn-Date   Jrn-Page                     Action                                                                                  
03/28/03     0673       (H)        READ THE FIRST TIME -                                                                        
03/28/03     0673       (H)        L&C, FIN                                                                                     
03/28/03     0673       (H)        FN1: ZERO(LAW)                                                                               
03/28/03     0673       (H)        FN2: ZERO(REV)                                                                               
03/28/03     0673       (H)        GOVERNOR'S TRANSMITTAL LETTER                                                                
04/09/03                (H)        L&C AT 3:15 PM CAPITOL 17                                                                    
WITNESS REGISTER                                                                                                              
REPRESENTATIVE LESIL McGUIRE                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  As sponsor of HB 234, presented the                                                                        
proposed committee substitute.                                                                                                  
GLEN BRADY, President                                                                                                           
Silver Gulch Brewing; President                                                                                                 
Alaska CHARR (Cabaret Hotel Restaurant & Retailers Association)                                                                 
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified against the changes for brewpubs                                                                 
in Sections 2 and 3 of HB 234.                                                                                                  
MATT JONES                                                                                                                      
Moose's Tooth                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in favor of HB 234.                                                                              
GARY KLOPFER, Owner                                                                                                             
Snow Goose Restaurant                                                                                                           
Sleeping Lady Brewing Company                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in favor of aspects of HB 234,                                                                   
advocating removing all production caps for breweries.                                                                          
BOB KLEIN, Chairman                                                                                                             
Alcoholic Beverage Control Board                                                                                                
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Commented   on  the  history  of  alcohol                                                               
industry legislation during the hearing on HB 234.                                                                              
JUANITA HENSLEY, Special Assistant                                                                                              
Office of the Commissioner                                                                                                      
Department of Public Safety                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Explained the  amendments to  HB 234  that                                                               
would move  the ABC board from  the Department of Revenue  to the                                                               
Department of Public Safety.                                                                                                    
PAT DAVIDSON, Legislative Auditor                                                                                               
Division of Legislative Audit                                                                                                   
Legislative Budget and Audit Committee                                                                                          
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During the  hearing on HB 234, explained the                                                               
recommendations from the most recent  legislative sunset audit on                                                               
the ABC board.                                                                                                                  
DOUG GRIFFIN, Director                                                                                                          
Alcoholic Beverage Control Board                                                                                                
Department of Revenue,                                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  During the  hearing on HB 234, explained the                                                               
investigation of gambling on licensed premises.                                                                                 
MIKE BARNHILL, Assistant Attorney General                                                                                       
Commercial Section                                                                                                              
Civil Division (Juneau)                                                                                                         
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Presented  HB  224  on   behalf  of  the                                                               
JOHANNA BALES, Revenue Auditor                                                                                                  
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Testified  in  favor  of  HB 224  for  the                                                               
Department  of Revenue;  explained that  she enforces  aspects of                                                               
the Tobacco Master Settlement Agreement.                                                                                        
ACTION NARRATIVE                                                                                                              
TAPE 03-31, SIDE A                                                                                                            
Number 0001                                                                                                                     
CHAIR TOM ANDERSON  called the House Labor  and Commerce Standing                                                             
Committee  meeting  to  order  at   3:29  p.m.    Representatives                                                               
Anderson,  Dahlstrom, Gatto,  Rokeberg, Crawford,  and Guttenberg                                                               
were present at  the call to order.   Representative Lynn arrived                                                               
as the meeting was in progress.                                                                                                 
HB 234-BREWPUBS; ABC BOARD                                                                                                    
Number 0058                                                                                                                     
CHAIR ANDERSON announced  that the first order  of business would                                                               
be  HOUSE  BILL  NO.  234,  "An Act  relating  to  brewpubs,  and                                                               
continuing  the  existence  of  the  Alcoholic  Beverage  Control                                                               
Board; and providing for an effective date."                                                                                    
Number 0083                                                                                                                     
REPRESENTATIVE ROKEBERG moved to  adopt committee substitute (CS)                                                               
for HB  234, Version  23-LS0862\I, Ford,  4/4/03, as  the working                                                               
document.   There being  no objection, Version  I was  before the                                                               
Number 0103                                                                                                                     
REPRESENTATIVE   LESIL   McGUIRE,   Alaska   State   Legislature,                                                               
explained  that HB  234  is a  reauthorization  of the  Alcoholic                                                               
Beverage  Control  (ABC)  Board, which  regulates  the  alcoholic                                                               
beverage dispensary industry.  House  Bill 234 extends the sunset                                                               
on the board,  recognizing that it has served  its function well.                                                               
The  Joint  Committee  on Legislative  Budget  and  Audit  (LB&A)                                                               
conducted  a  recent  audit  of  the ABC  board,  and  one  audit                                                               
recommendation  is incorporated  in  Section 1.    She said  this                                                               
section amends  AS 04.06.110 [Peace  officer powers]  by removing                                                               
language  which previously  authorized the  board to  investigate                                                               
prostitution, gambling, and other related  offenses.  She said it                                                               
was the position of LB&A that  this activity was beyond the scope                                                               
of the ABC board.                                                                                                               
Number 0232                                                                                                                     
REPRESENTATIVE  McGUIRE noted  that  Section 2  of  HB 234  would                                                               
change  the  amount that  brewpubs  are  allowed to  manufacture.                                                               
Another provision  in Section  3 allows  a brewpub,  for example,                                                               
the Moose's  Tooth [in Anchorage],  to sell  beer in the  form of                                                               
growlers in quantities of five  gallons or less to an individual.                                                               
The current  law gives an  unfair advantage of one  business over                                                               
another  because  it states  that  beer  must  be brewed  on  the                                                               
premises in order  to allow the sale of growlers  with food.  She                                                               
said that  must have been  an oversight.   She said the  point of                                                               
Sections  2 and  3 is  the  recognition of  a free  market.   The                                                               
sunset provision of  the bill will extend the  board's life until                                                               
June 30, 2006.  The legislature  has a precedent of extending the                                                               
ABC board in three-year increments,  requiring another LB&A audit                                                               
and legislative action.                                                                                                         
Number 0460                                                                                                                     
REPRESENTATIVE ROKEBERG said its  important for committee members                                                               
to understand that  Section 3 was brought about by  an anomaly in                                                               
the law that really applies to  only one business in Alaska.  The                                                               
Nineteenth legislature  passed a law  [creating a type  of liquor                                                               
license]  that was  repealed in  succeeding years.   The  brewpub                                                               
license  requires  that the  brewing  apparatus  be on  the  same                                                               
premise  as  the  beverage  dispensary  license.    In  this  one                                                               
instance, the  brewery was separate  from the  licensed premises,                                                               
and that has caused  a lot of problems.  When  there was a change                                                               
in  the growler  amount last  year,  it was  probably a  drafting                                                               
error.  This is  why Sections 2 and 3 in the  CS look so similar,                                                               
but there is a slight difference.                                                                                               
Number 0597                                                                                                                     
REPRESENTATIVE  GUTTENBERG  noted  that  Sections  1  and  4  are                                                               
addressed in the  LB&A audit but questioned why Sections  2 and 3                                                               
on brewpubs are not covered in a separate bill.                                                                                 
REPRESENTATIVE McGUIRE  said all  the policy  changes to  the ABC                                                               
Board are relevant and fit within the title of the bill.                                                                        
Number 0664                                                                                                                     
REPRESENTATIVE GATTO questioned  if Sections 2 and  3 affect only                                                               
one business.   He suggested that when the [law]  was written, it                                                               
didn't address  a specific operator,  it was written as  an idea,                                                               
and that the operator and the law finally collided.                                                                             
REPRESENTATIVE ROKEBERG  clarified that Sections  2 and 3  of the                                                               
bill are almost identical in affect,  on page 2, starting on line                                                               
24,  subsection (d),  that language  is  unlike the  rest of  the                                                               
statute  because  of the  circumstances.    When the  legislature                                                               
revised  the  type  of  license,   it  grandfathered  in  several                                                               
businesses  under those  licenses, so  when the  law was  [later]                                                               
rewritten,   the  legislature   had   to   create  that   special                                                               
subsection.  He acknowledged that he wrote the language.                                                                        
REPRESENTATIVE  GATTO repeated  his question,  saying he  did not                                                               
understand the history of the language.                                                                                         
Number 790                                                                                                                      
REPRESENTATIVE ROKEBERG explained that  the legislature created a                                                               
brewpub  license  in  statute,  then  later  created  the  tavern                                                               
license.  Six  licensees received these tavern  licenses.  Later,                                                               
the   legislature   prohibited   these   tavern   licenses,   but                                                               
grandfathered  in these  businesses,  so the  legislature had  to                                                               
write  the  law around  these  grandfathered  businesses.   After                                                               
that,  the  legislature  required   these  businesses  to  get  a                                                               
beverage dispensary  license to wipe  this whole thing out.   But                                                               
there  still remains  an anomalous  situation under  the statute.                                                               
He said he  has an idea of  how to fix the confusion  and do away                                                               
with all  these legal distinctions.   He wants to  bring fairness                                                               
and clarity to the issue.                                                                                                       
REPRESENTATIVE  McGUIRE   responded  to   Representative  Gatto's                                                               
question.   She said the  language in Section 3  was specifically                                                               
drafted  on the  advice of  a  particular lobbyist  to include  a                                                               
specific business.   She said she looks at the  issue as a policy                                                               
maker.  If the law is going to  be fair, it ought not be based on                                                               
one small  technicality of  one business.   The language  [in the                                                               
law] was drafted to exclude that business from the marketplace.                                                                 
Number 0988                                                                                                                     
REPRESENTATIVE  ROKEBERG  clarified  that the  existing  law  was                                                               
drafted  to  [mitigate]  the  problems  of  the  business.    The                                                               
legislature was  changing its policy,  and it had  to grandfather                                                               
those businesses in  so they could continue to operate.   He said                                                               
her decision to remove sections from the law is a policy call.                                                                  
REPRESENTATIVE GUTTENBERG said the law  may have been directed at                                                               
one  business,   but  when  the  playing   field  changes,  other                                                               
businesses  come into  play, and  the competitive  nature of  the                                                               
market changes.                                                                                                                 
REPRESENTATIVE McGUIRE  said she favors businesses  competing for                                                               
ideas and products.  She does  not want to craft legislation that                                                               
excludes  or  provides  unfair advantage  to  one  business  over                                                               
Number 1077                                                                                                                     
REPRESENTATIVE  CRAWFORD  noted  that the  Department  of  Public                                                               
Safety delivered  amendments before  the meeting, and  he brought                                                               
the amendments to the attention of the sponsor.                                                                                 
REPRESENTATIVE McGUIRE  said she  will consider  the department's                                                               
amendments and will respond at  the committee's next meeting when                                                               
the bill is heard again.                                                                                                        
Number 1184                                                                                                                     
GLEN BRADY,  President, Silver  Gulch Brewing;  President, Alaska                                                               
CHARR  (Cabaret   Hotel  Restaurant  &   Retailers  Association),                                                               
testified against Sections  2 and 3 of HB 234.   He described the                                                               
brewpub issue  as a nuisance issue;  it comes up every  year.  He                                                               
said he agreed  with the sponsor's statements about  the value of                                                               
the  Alcoholic Beverage  Control  Board and  the significance  of                                                               
Sections 1  and 4 in HB  234.  He reviewed  the three-tier system                                                               
in   Alaska  law   which  heavily   regulates  the   manufacture,                                                               
distribution, and  retail sale of  alcoholic beverages.   He said                                                               
businesses in  the industry support  the board as  an appropriate                                                               
mechanism  to collect  taxes  and enforce  regulations.   But  by                                                               
integrating two  tiers of  the system -  production and  retail -                                                               
the legislature  is creating the  potential for the  "tied house"                                                               
system in  Britain, he  warned.  He  said he  favors competition,                                                               
however,   AS    04.11.450   [Prohibited    financial   interest]                                                               
specifically  excludes  him,  a  brewery  owner,  from  having  a                                                               
financial interest in  a retail establishment.  The  law does not                                                               
permit him  to do what  these two [brewpub] licensees  are trying                                                               
to do.   He  said it's incorrect  to say that  HB 234  levels the                                                               
playing field.  He  said he chose to be a  brewery; he could have                                                               
chosen  to  be  a  brewpub;   they  are  fundamentally  different                                                               
business  operations.   He described  Moose's  Tooth and  Glacier                                                               
Brewhouse  as great  businesses, that  between the  two of  them,                                                               
have 500 employees.   He explained that he produces  as much beer                                                               
as both of  them and has three employees.   That should underline                                                               
the fundamental  difference of  the two  types of  businesses, he                                                               
said.    He said  there's  enough  room  in the  marketplace  for                                                               
breweries and  brewpubs alike.   But HB  234 allows a  brewpub to                                                               
act like a  brewery, which is inappropriate  for several reasons,                                                               
he said.   He  added that it's  unfair competition;  it shortcuts                                                               
two tiers  of the three-tier  system; it will make  regulation of                                                               
beverage alcohol  more difficult;  and it benefits  two operators                                                               
to the  exclusion of all  others.  Even other  Anchorage brewpubs                                                               
are not  in favor of  this bill, he said.   He asserted  that the                                                               
entire industry  - package store  owners, bar  owners, restaurant                                                               
owners, breweries,  and other brewpubs -  are not in favor  of HB                                                               
234.  It  is special interest legislation at its  worst, he said.                                                               
He said his letter to the  committee lays out a complicated issue                                                               
that has a long history and  many facets.  The situation has many                                                               
significant  ramifications  that  aren't obvious  in  the  simple                                                               
deletion of a section [of the law].                                                                                             
Number 1437                                                                                                                     
REPRESENTATIVE ROKEBERG said this is  the old ABC board Christmas                                                               
tree battleground.   He referred to  AS 04.11.450.  He  said he'd                                                               
like to  fix this law,  once and for  all.   He said it  might be                                                               
easier to  fix the law  and allow Mr. Brady  as a brewer  to also                                                               
own a restaurant.                                                                                                               
MR. BRADY  replied that  he and  other brewery  owners formulated                                                               
their business plans,  found capital and took risk,  and chose to                                                               
develop a different  type of business.  He said  he does not want                                                               
to  be in  the  bar  and restaurant  business;  it's an  entirely                                                               
different  business.   That provision  is the  framework for  the                                                               
three-tier system.                                                                                                              
REPRESENTATIVE ROKEBERG  said that during the  "tavern wars," the                                                               
clause was  added that  restricted a  brewery's ability  to enter                                                               
into any  other business.   The law established a  different type                                                               
of license  which has since  been taken off  the books.   Now the                                                               
issue  is brewpubs  and how  can they  do wholesale  business, he                                                               
said.   The  more  produce  they sell  wholesale,  the more  they                                                               
compete with the  breweries.  He summarized  Mr. Brady's position                                                               
that because  of the  three-tiered system,  he should  be treated                                                               
differently  because  he's  a   wholesale  manufacturer  and  the                                                               
brewpubs are retailers.                                                                                                         
Number 1587                                                                                                                     
MR.  BRADY  clarified  that  his   issue  is  not  the  brewpub's                                                               
production cap.  When legislation  raised the production cap from                                                               
75,000 to  150,000 gallons,  the stated purpose  was to  meet the                                                               
demand of  the on-premise pub.   He said  he believes that  was a                                                               
misrepresentation of the brewpubs' intentions.   His issue is not                                                               
how much  beer brewpubs sell in  their pubs; he said  they should                                                               
be  allowed to  sell as  much beer  as they  can within  existing                                                               
regulations in  their retail facilities.   The crux of  the issue                                                               
has  always  been,  why  are  the  brewpubs  competing  with  the                                                               
breweries [in the wholesale market].   To allow breweries to open                                                               
restaurants is not a true compromise.                                                                                           
Number 1645                                                                                                                     
REPRESENTATIVE  ROKEBERG said  he  is  considering removing  that                                                               
distinction  [between brewpubs  and  breweries] thereby  allowing                                                               
breweries  to   have  retail  premises.     He  also   noted  the                                                               
possibility of  doing away  with all caps  and limitations.   For                                                               
three of the last four years,  the brewpubs have come back to the                                                               
legislature, and he said he's tired of it.                                                                                      
Number 1691                                                                                                                     
REPRESENTATIVE  McGUIRE  said  that  it's  important  that  these                                                               
businesses keep coming  back.  If a citizen believes  a policy is                                                               
wrong, the  person will  continue to return  to lawmakers  to get                                                               
the situation  changed.  She  clarified that this is  not special                                                               
interest legislation; it falls within  her right as a lawmaker to                                                               
look at existing  state policies.  She said she  is interested in                                                               
Representative  Rokeberg's  idea  of  a  compromise  which  would                                                               
eliminate the distinction [between  brewpubs and breweries].  The                                                               
policy arguments  behind the law  are not  going to go  away, she                                                               
said.    She objected  to  statements  about the  other  parties'                                                               
motives.  She said she never  heard the two brewpubs promise that                                                               
if last year's law was passed, they would be satisfied.                                                                         
MR.  BRADY  explained  that  he competes  with  breweries  in  an                                                               
extremely competitive marketplace.   Railway Brewing Company, one                                                               
of  the  four  licensees with  a  brewery-restaurant  combination                                                               
license, went  out of  business a  few years  back.   The Moose's                                                               
Tooth  bought that  equipment at  auction.   Last year,  when the                                                               
issue was  raising the production  cap, Moose's Tooth  could have                                                               
started another brewpub attached  to its other dispensary license                                                               
and doubled  its own cap.   However,  he stated, it's  cheaper to                                                               
hire a  lobbyist and  change the  law than it  is to  comply with                                                               
existing law.                                                                                                                   
Number 1867                                                                                                                     
REPRESENTATIVE McGUIRE  stated that government should  not create                                                               
barriers so  that businesses have  to hire lobbyists  to overcome                                                               
the law  so they can  participate in  the marketplace.   She said                                                               
the  ABC  board does  have  an  important role,  and  regulations                                                               
regarding  safety  matters are  important.    The time  for  this                                                               
distinction [between brewpubs and breweries] is here and gone.                                                                  
MR.  BRADY said  it boils  down to  the value  of the  three-tier                                                               
Number 1915                                                                                                                     
REPRESENTATIVE  GATTO  confirmed  with  Mr. Brady  that  when  he                                                               
started his  business, there was  a set  of laws in  place, which                                                               
have since changed and which  have created a disadvantage for him                                                               
and  other  breweries.   He  said  that  HB  234 takes  away  the                                                               
protections that were in place for the breweries.                                                                               
REPRESENTATIVE  McGUIRE responded  that  the legislature  changes                                                               
laws all the  time.  She said that  legislators are policymakers;                                                               
times  change,  and  the  conditions   change  in  all  types  of                                                               
industries and  occupations.  That's  why one  legislature cannot                                                               
bind a future legislature.                                                                                                      
REPRESENTATIVE GUTTENBERG asked what happens  to the market if HB                                                               
234 passes.                                                                                                                     
Number 2010                                                                                                                     
MR. BRADY  replied that  he is  out in  the market  competing for                                                               
retail space  on shelves  and for  tap handle  space in  bars and                                                               
restaurants.  That is how he  derives his income.  House Bill 234                                                               
allows a  brewpub to go  into the marketplace in  an unrestricted                                                               
manner and  subsidize the sale  of its beer.   He said  he cannot                                                               
afford to give beer away because  that is his [profit] margin; he                                                               
has  no other  income  to  offset those  marketing  expenses.   A                                                               
brewpub is primarily  a retail establishment; it  has income from                                                               
other sources  - food service,  on premise sales.   When brewpubs                                                               
go into the  marketplace, they go in with  a tremendous advantage                                                               
because  they can  offset this  expense and  call it  a marketing                                                               
expense  because  they derive  their  income  from retail  sales.                                                               
Having  tap  handles  out  in  the market  is  a  very  effective                                                               
marketing tool.   He said he shouldn't be competing  with them in                                                               
that  arena.   If HB  234  doesn't pass,  its not  going to  hurt                                                               
brewpubs,  but  it  will  hurt   him  and  other  brewery  owners                                                               
tremendously, he said.                                                                                                          
REPRESENTATIVE ROKEBERG asked  Mr. Brady if the  brewpubs will be                                                               
hurt if they don't get a raise in their caps.                                                                                   
MR. BRADY  said that  they have thrived  under previous  laws; he                                                               
said he thinks they would continue to thrive.                                                                                   
REPRESENTATIVE ROKEBERG  asked him  as a representative  of CHARR                                                               
for the  group's opinion.   He said  that the  restaurant license                                                               
was added [to state law] in  1996, but now the legislature has to                                                               
look at the beverage dispensary license too because of brewpubs.                                                                
MR.  BRADY replied  that brewery  restaurants are  in competition                                                               
with  holders of  beverage dispensary  licenses.   He said  CHARR                                                               
members have seen  the value of their  dispensary licenses eroded                                                               
significantly  by  other  legislation.    It's  tough  times  for                                                               
everybody in the industry, he said.                                                                                             
Number 2190                                                                                                                     
MATT JONES, Moose's  Tooth, Anchorage, explained that  in 1996 he                                                               
received a  restaurant license  and a brewery  license.   At that                                                               
time,  he could  have  purchased any  number  and combination  of                                                               
restaurant licenses and brewery licenses.   He said there were no                                                               
production caps on  brewing beer, and there  were no restrictions                                                               
on  either wholesale  or retail  sales.   After  he received  his                                                               
license, this changed.   His company was frozen where  it was; it                                                               
could  only own  one restaurant  and one  brewery, and  from that                                                               
point  on,  there's a  long  history.    He  said from  the  very                                                               
beginning, his business used the  proper channels and applied for                                                               
and was awarded  the proper licenses that had  no restrictions on                                                               
wholesale or retail.   The law was changed on  him.  Currently he                                                               
owns a brewpub that consists of  a retail side - the restaurant -                                                               
and the brewing  side.  Before legislative changes  last year, he                                                               
had a  75,000-gallon production cap  with no restrictions.   Last                                                               
year,  legislation  changed the  production  cap  from 75,000  to                                                               
150,000 gallons,  basically doubling it, but  froze the wholesale                                                               
level at the 2001 figure, which  for the Moose's Tooth was 15,000                                                               
gallons.  The  legislature doubled his production  cap but locked                                                               
him in  at his 2001 figures,  which was about 10  percent of what                                                               
he could  produce.   His company wants  the legislature  to allow                                                               
the  Moose's  Tooth  to  sell   more  on  the  wholesale  market.                                                               
Generally,  if  a [another]  state  has  a  production cap  on  a                                                               
brewpub, it lets that business  owner decide whether that product                                                               
is sold wholesale or retail.                                                                                                    
Number 2353                                                                                                                     
MR. JONES discussed the issue of  growlers.  In his business, the                                                               
restaurant and the  brewery are separated by some  distance.  The                                                               
original brewpub  language allowed him  to sell beer to  a person                                                               
on the premises, a retail transaction.                                                                                          
TAPE 03-31, SIDE B                                                                                                            
MR.  JONES said  when the  law was  rewritten, it  prohibited his                                                               
company  from  selling  quantities  of beer  out  of  his  retail                                                               
[restaurant], the  Moose's Tooth  in midtown Anchorage;  he could                                                               
only sell  beer from the  brewery at Ship  Creek.  This  puts his                                                               
business  at  a disadvantage  to  other  brewpubs.   The  growler                                                               
clause in HB 234 attempts to address this issue.                                                                                
MR. JONES  addressed the allowable  level of  wholesale activity.                                                               
He said  he is asking  the legislature  to return to  the earlier                                                               
law,  allowing each  brewpub  to  decide what  it  does with  its                                                               
production cap, whether wholesale or retail.                                                                                    
CHAIR ANDERSON handed the gavel to Representative Rokeberg.                                                                     
Number 2317                                                                                                                     
REPRESENTATIVE GUTTENBERG  asked Mr.  Jones about when  the state                                                               
required him  to have  an alcohol beverage  license.   Didn't Mr.                                                               
Jones argue then that he didn't want  to be a bar, that he wanted                                                               
to be a brewery or a different type of business?                                                                                
MR.  JONES replied  that  the  Moose's Tooth  has  a full  liquor                                                               
license;  it can  sell hard  liquor under  a beverage  dispensary                                                               
license.   However,  the restaurant  still only  serves beer  and                                                               
wine.   When it first opened,  he wanted to run  a pizzeria, sell                                                               
beer and wine, and brew his own  beer.  He said the Moose's Tooth                                                               
is  far from  a  [typical] bar.    Food along  with  beer is  the                                                               
primary formula for his business.                                                                                               
NUMBER 2260                                                                                                                     
REPRESENTATIVE ROKEBERG  asked if the  timing of the  opening his                                                               
business was unfortunate.                                                                                                       
MR.  JONES confirmed  that four  or five  companies in  Anchorage                                                               
obtained restaurant  and brewery licenses  at the same  time, but                                                               
his is the only business where  the brewery is located apart from                                                               
the restaurant.   He explained  that occurred in order  to comply                                                               
with Anchorage  municipal code that  states that  only incidental                                                               
distribution can  be done out  of the business; moving  kegs must                                                               
be located in  an industrial area.  So he  located the brewery in                                                               
Ship Creek in order to comply with the municipal code.                                                                          
Number 2206                                                                                                                     
REPRESENTATIVE ROKEBERG  pointed out  that Mr. Jones,  because of                                                               
the separation of his restaurant and  brewery, is a victim of the                                                               
laws that  evolved over  the years.   That's why  the legislature                                                               
drafted legislation  that grandfathered  his situation, to  do as                                                               
little  harm to  his business  as possible.   He  noted that  the                                                               
grandfathering law was drafted after  his situation occurred, not                                                               
in [advance].                                                                                                                   
Number 2167                                                                                                                     
GARY  KLOPFER,  Owner,  Snow   Goose  Restaurant,  Sleeping  Lady                                                               
Brewing  Company,  said  he  is  testifying  because  this  issue                                                               
continues to come up, and the  bills that pass don't clear it up;                                                               
they just make it  worse.  Years ago, he decided  to start with a                                                               
restaurant license and a brewery  license.  Part of that decision                                                               
was  financial; he  didn't want  to run  a bar  because buying  a                                                               
liquor license  is expensive for  a new business.   Several other                                                               
businesses   followed   suit.     He   attempted   to  open   his                                                               
restaurant/brewery, then the legislature stepped  in, more out of                                                               
fear  than fact,  to  stop  this type  of  license from  existing                                                               
anymore.  All  of these businesses were stopped  in their tracks.                                                               
So every  year, when the  legislature makes changes,  its usually                                                               
against one  party or  another, which  is unfair,  he noted.   He                                                               
said  he  favors  going  back  and making  the  field  level  for                                                               
everybody, so that  everybody can compete; it's unfair  now.  His                                                               
friends who own breweries - if they  want to run a beer garden in                                                               
the  summer and  sell  hamburgers,  they can't  do  it.   They're                                                               
restricted from doing that by  [statute].  That's unfortunate, he                                                               
said.  Then they look at him,  who can sell as many hamburgers as                                                               
he  wants and  can also  wholesale his  beer.   Its not  fair, he                                                               
Number 2190                                                                                                                     
MR. KLOPFER said  that raising the production  cap is ridiculous.                                                               
If  the  parties  that  operate  breweries  are  successful,  why                                                               
wouldn't the state  want them to continue to grow,  he asked.  He                                                               
recommended  removing  the  150,000-gallon cap  completely.    He                                                               
suggested  that breweries  be allowed  to buy  any other  license                                                               
they  desire,  so they  can  compete.   Anytime  the  legislature                                                               
creates artificial  boundaries, somebody's  toes get  stepped on,                                                               
he said.   He said  these businesses are  good for the  state and                                                               
the  cities; they  all  employ people.    The legislature  should                                                               
encourage business, not discourage it, he added.                                                                                
Number 1967                                                                                                                     
REPRESENTATIVE ROKEBERG  said he  is trying  to find  a long-term                                                               
solution.   He confirmed that  Mr. Klopfer  has a brewpub  with a                                                               
beverage dispensary license  and that he's covered  by the gallon                                                               
restrictions  on  his  wholesale  and   retail  sales.    If  the                                                               
legislature chose  to change the economic  interest prohibitions,                                                               
it would  still have to  deal with the gallon  caps to make  it a                                                               
completely level  playing field.   That  would allow  brewpubs to                                                               
produce as much as a brewery.                                                                                                   
MR.  KLOPFER said  he could  live with  that, providing  that the                                                               
breweries could also do the  same thing, buy a restaurant license                                                               
and have a  beer garden, or sell  liquor if they want.   It would                                                               
be unfair if he could do it but the breweries couldn't.                                                                         
REPRESENTATIVE  ROKEBERG  said  changing  the  economic  interest                                                               
provision  in current  law  [AS  04.11.450, Prohibited  financial                                                               
interest] would help  Mr. Jones but it wouldn't  help Mr. Klopfer                                                               
regarding  the issue  of production  caps.   He surmised  that to                                                               
make the  playing field truly  level, the legislature  would have                                                               
to do both:  remove the  productions caps and remove the economic                                                               
restrictions.     He  added  that   would  be  difficult   to  do                                                               
Number 1891                                                                                                                     
REPRESENTATIVE  GUTTENBERG  asked Mr.  Klopfer  if  there is  any                                                               
restriction  preventing  him  from opening  another  brewery  and                                                               
using the same brand name.                                                                                                      
MR. KLOPFER replied yes, because  under current law, once he owns                                                               
a liquor license, it's illegal to buy a brewery license.                                                                        
REPRESENTATIVE ROKEBERG  pointed out that  this is an  example of                                                               
the economic interest barrier he's been talking about.                                                                          
MR. KLOPFER  said that's correct.   The state could  require that                                                               
he buy  another license - and  make more money on  the additional                                                               
Number 1837                                                                                                                     
REPRESENTATIVE  CRAWFORD recalled  that  during  the debate  last                                                               
year on this law, the  legislature was concerned about opening up                                                               
[the field]  to competition from  Miller or Budweiser  that might                                                               
buy large restaurants or beer  gardens, thereby damaging Alaska's                                                               
homegrown  businesses.   Is that  still  part of  the debate,  he                                                               
MR. KLOPFER replied that he's  not sure that national competition                                                               
was  the argument.    The  issue was  more  that the  legislature                                                               
create  a  level  playing  field for  Alaskans  [in  the  brewing                                                               
business].  He  said the real crux of the  issue was when alcohol                                                               
-  the beverage  dispensary license  - entered  the picture.   He                                                               
said  he thinks  its against  federal statutes  for Budweiser  or                                                               
Miller to own liquor licenses.   That used to be the Chinese Wall                                                               
that  separated  the different  licenses,  he  said.   This  bill                                                               
essentially  states that  brewpubs are  also de  facto breweries,                                                               
which means  that brewpubs own  beverage dispensary  licenses and                                                               
breweries too.                                                                                                                  
Number 1753                                                                                                                     
REPRESENTATIVE CRAWFORD  said the 150,000-gallon limit  was small                                                               
enough that  Miller and  Budweiser and  the other  large national                                                               
beers  would be  excluded from  coming in  and competing  against                                                               
Alaska's  small homegrown  breweries and  brewpubs.   If its  not                                                               
part  of the  debate anymore,  perhaps the  legislature needs  to                                                               
open this issue of production limits.   He said he is looking for                                                               
MR.  KLOPFER said  he doesn't  understand why  restaurant/brewery                                                               
combinations  have been  outlawed.   If  businesses  in Homer  or                                                               
Girdwood   have  a   successful   microbrewery  operation,   it's                                                               
ludicrous for the  state to say they can't have  a beer garden or                                                               
sell hamburgers during the tourist season.                                                                                      
Number 1690                                                                                                                     
BOB   KLEIN,   Chairman,   Alcoholic  Beverage   Control   Board,                                                               
Department  of  Revenue,  referred to  Representative  Crawford's                                                               
comment about the past debate  involving national breweries.  The                                                               
restriction on  breweries against owning other  licenses precedes                                                               
the  entire brewpub  debate or  any  legislation, he  said.   The                                                               
restriction was instituted initially to  prevent what is known in                                                               
the  industry as  "tied-houses."   An example  of a  "tied-house"                                                               
would be  Budweiser opening retail establishments  throughout the                                                               
state  and  only  allowing  their   product  to  be  sold  there.                                                               
Excesses have occurred  in the history of the  industry, he said,                                                               
and there  was an attempt  in Title 4, [Alcoholic  Beverages,] of                                                               
state law to prevent that from  happening in Alaska.  He said the                                                               
ABC board  prefers not to  take a  position on the  brewpub issue                                                               
and  will carry  out the  legislature's law  through regulations.                                                               
He acknowledged that  the brewpub issue is a  very confusing one.                                                               
Trying  to resolve  it through  regulation  by the  board is  the                                                               
wrong approach, he said.                                                                                                        
MR.  KLEIN  explained  that  the  ABC board  met  last  week  and                                                               
unfortunately, the  board had an  earlier version of HB  234 that                                                               
did  not  contain  the committee  substitute's  Section  1  [that                                                               
removes  certain police  powers from  the  board].   He said  the                                                               
board  disagreed with  the original  recommendation by  LB&A that                                                               
ABC  staff  should  not investigate  violations  of  gambling  or                                                               
prostitution laws on licensed premises.   Basically, he said, the                                                               
ABC board  is there [visiting  the licensed facilities].   It has                                                               
demonstrated that  it can  and does  a good job,  and if  the ABC                                                               
board doesn't  do it, it  just doesn't get  done, he said.   It's                                                               
not as  if the  ABC board is  enforcing gambling  laws throughout                                                               
the state; it's only on licensed premises.                                                                                      
MR. KLEIN said that the board  is pleased to be extended to 2006,                                                               
per Section 4 of HB 234.                                                                                                        
Number 1560                                                                                                                     
REPRESENTATIVE ROKEBERG  reiterated that  the ABC board  does not                                                               
agree with Section 1 of  HB 234, [which removes the investigation                                                               
of   prostitution  and   gambling  from   the  board'   purview].                                                               
Regarding the  economic interest  prohibitions, AS  04.11.450, he                                                               
asked  Mr. Klein  to  offer  his personal  opinion  on how  these                                                               
prohibitions are part of the three-tiered system.                                                                               
Number 1514                                                                                                                     
MR. KLEIN said  the issue is the public interest  being served by                                                               
not  allowing tied-houses  in the  state, by  not allowing  large                                                               
breweries to cross that line.   He said if the state is concerned                                                               
about the big guys coming  in and exercising undo influence, then                                                               
perhaps   removing  the   restriction  of   cross-ownership  from                                                               
breweries and or  brewpubs that produce less than  a given amount                                                               
might answer all the questions.   He said he sees no objection to                                                               
Silver Gulch Brewing  owning a restaurant; it makes  sense.  When                                                               
the  whole  brewpub issue  came  before  the ABC  board,  members                                                               
questioned  whether it's  important  where a  retail product  was                                                               
manufactured.    He  said  the  elements  of  alcoholic  beverage                                                               
control are:  is it legally  obtained, is it sold in a controlled                                                               
environment, and  is it  sold to the  proper customers,  in other                                                               
words, not to minors  or inebriates.  The rest of  it should be a                                                               
level playing field.                                                                                                            
MR. KLEIN,  at the request of  Representative Rokeberg, explained                                                               
that  a  "tied-house"  dates  back to  England  when  there  were                                                               
excesses by breweries  and attempts to control  the marketing and                                                               
pricing of  products.  He answered  questions from Representative                                                               
Gatto about the  components of the three-tiered system.   He said                                                               
the system begins  with the producer - or  the distiller, brewer,                                                               
or importer.   The second tier  is the wholesaler, and  the third                                                               
tier is the retailer, which  consist of bars, package stores, and                                                               
restaurants.    The ABC  board  deals  with  the industry  as  an                                                               
REPRESENTATIVE  GATTO asked  if  there are  any  problems if  the                                                               
producers, wholesalers, and retailers are the same entity.                                                                      
MR. KLEIN said that would not be a problem for the ABC board.                                                                   
Number 1344                                                                                                                     
REPRESENTATIVE CRAWFORD asked  if Mr. Klein could  comment on the                                                               
amendments proposed by the Department of Public Safety.                                                                         
MR. KLEIN said he had not seen the amendments.                                                                                  
Number 1302                                                                                                                     
JUANITA HENSLEY,  Special Assistant  to the  Commissioner, Office                                                               
of  the Commissioner,  Department of  Public Safety,  referred to                                                               
the  governor's   Executive  Order   No.  110,  now   before  the                                                               
legislature.  This  executive order moves the ABC  board from the                                                               
Department of Revenue to the  Department of Public Safety.  After                                                               
reviewing  the  recommendations  of the  legislative  audit,  the                                                               
department proposed  some changes  through amendments to  HB 234,                                                               
basically  to make  it easier  for the  department to  assist the                                                               
industry and the  board.  The first change would  place the board                                                               
and its employees in the Department  of Public Safety.  She noted                                                               
that  the  ABC board  has  not  seen  these amendments,  and  she                                                               
apologized that the department has not  had the chance to talk to                                                               
the board.                                                                                                                      
Number 1205                                                                                                                     
MS. HENSLEY said another change  would add two additional members                                                               
to  the  board, the  commissioner  of  the Department  of  Public                                                               
Safety  and  the  commissioner  from  either  the  Department  of                                                               
Revenue or  the Department of  Health and Social  Services, since                                                               
they deal with alcohol issues.   The terms of these members would                                                               
last  as long  as  the tenure  of the  commissioner.   The  third                                                               
change is  to have  the director  of the ABC  board serve  at the                                                               
pleasure of the  governor, as is the case with  many other Alaska                                                               
boards and  commissions.   The final  change deals  with removing                                                               
the investigation  of prostitution  and gambling  violations from                                                               
the board's  purview.   She said  that prostitution  and gambling                                                               
issues  involving  alcohol  establishments  certainly  should  be                                                               
reviewed by  the investigators,  but it's  a process  that should                                                               
include vice cops.   The department would work  directly with the                                                               
ABC investigators,  who would work  closely with local  police or                                                               
the Alaska  State Troopers.   She said  the department  asked the                                                               
committee to consider the proposed amendments, all or in part.                                                                  
Number 1051                                                                                                                     
REPRESENTATIVE  GATTO  commented  that  HB  234  is  becoming  an                                                               
omnibus bill.                                                                                                                   
MS.  HENSLEY,  in  response  to   a  question  by  Representative                                                               
Rokeberg, said  the legislature must  act on the  executive order                                                               
by  a  resolution before  May  5.    The  effective date  of  the                                                               
transfer  from the  Department of  Revenue to  the Department  of                                                               
Public Safety is July 1.                                                                                                        
REPRESENTATIVE ROKEBERG  noted that  there was  no recommendation                                                               
in  the  legislative audit  to  place  the commissioners  of  the                                                               
Departments of Public Safety or Revenue on the ABC board.                                                                       
Number 0981                                                                                                                     
MS.  HENSLEY  noted that  other  boards  and commissions  include                                                               
department commissioners.  She stated  that there was a reference                                                               
in  the   audit  to  the   Alaska  Criminal   Justice  Assessment                                                               
Commission recommendation  [in its  May 2000  report] to  add two                                                               
more members  to the board.   Since the board would  be placed in                                                               
the Department  of Public Safety,  it would  be good to  have the                                                               
commissioner serve on the board, she said.                                                                                      
REPRESENTATIVE ROKEBERG  commented that  the ABC board  is quasi-                                                               
judicial in  nature and  not like  a typical board.   He  said he                                                               
doesn't agree with adding commissioners to the board.                                                                           
REPRESENTATIVE  GUTTENBERG  questioned  the   amount  of  time  a                                                               
commissioner has  available to  serve on such  a board  and noted                                                               
that  the  amendment  does not  provide  for  the  commissioner's                                                               
designee to serve in the commissioner's place.                                                                                  
MS.  HENSLEY suggested  changing  the  department's amendment  to                                                               
include "commissioner or commissioner designee."                                                                                
Number 0869                                                                                                                     
REPRESENTATIVE ROKEBERG  confirmed that increasing the  number of                                                               
members on the board increases  the number required for a quorum.                                                               
He asked why  the department objects to  ABC investigators acting                                                               
on illegal activities.                                                                                                          
MS. HENSLEY replied  that they are peace officers  but not fully-                                                               
commissioned officers.                                                                                                          
REPRESENTATIVE  GUTTENBERG asked  if  cases  have been  dismissed                                                               
because of improper procedures by the investigators.                                                                            
MS. HENSLEY  said she did  not know.  She  said this move  of the                                                               
ABC board  from the  Department of Revenue  to the  Department of                                                               
Public  Safety would  align  enforcement  functions within  state                                                               
government.   The Department of  Public Safety enforces  the same                                                               
alcohol laws.                                                                                                                   
Number 0677                                                                                                                     
PAT  DAVIDSON,  Legislative   Auditor,  Division  of  Legislative                                                               
Audit,  Legislative  Budget  and Audit  Committee,  Alaska  State                                                               
Legislature, stated  that the  audit that  was conducted  [on the                                                               
ABC  board]  recommended  a  three-year  extension;  a  four-year                                                               
extension is  the rule  of thumb  [for most  boards].   The audit                                                               
identified  numerous   areas  of  needed  improvements,   and  so                                                               
recommended a  three-year extension so  that there can  be timely                                                               
follow-up.   Some  of the  issues are  operational in  nature and                                                               
some,  addressed  in the  committee  substitute  to HB  234,  are                                                               
statutory in nature.  When  the legislature directed the board to                                                               
investigate   gambling   and   prostitution,   it   substantially                                                               
increased the mission  of the ABC board, but the  funding did not                                                               
increase.   She said  the focus  of the  board shifted  away from                                                               
regulatory actions  to enforcement  actions.   The board  was not                                                               
issuing timely  notices of violations.   The  auditors determined                                                               
that the original mission of the  ABC board was being hampered by                                                               
this   expansion.     The  audit   recommended  the   legislature                                                               
reevaluate whether it  wanted the board to do this  kind of work.                                                               
The executive order  that moves the board into  the Department of                                                               
Public Safety aligns  it more closely with law  enforcement.  The                                                               
investigator could alert law  enforcement officials to suspicious                                                               
activities and  then return  to other  work, for  example, making                                                               
sure  that licensees  are not  selling  alcohol to  minors.   The                                                               
audit    concluded   that    the   gambling    and   prostitution                                                               
investigations  were diluting  the focus  of the  ABC board,  she                                                               
Number 0635                                                                                                                     
MS.   DAVIDSON  discussed   the  audit's   second  recommendation                                                               
regarding the  increase in  the number of  members on  the board.                                                               
During  the sunset  period,  the  audit noted  that  there was  a                                                               
problem keeping members  on the board and  getting them appointed                                                               
through  the  governor's  office.    This  five-member  board  is                                                               
particularly  structured  between  industry and  public  members.                                                               
When the new appointments or  reappointments are not timely, that                                                               
balance is  affected and the board  can't get its work  done in a                                                               
timely manner, she said.   The Alaska Criminal Justice Assessment                                                               
Commission  made   21  alcohol  recommendations,  and   two  were                                                               
addressed  to  the  ABC  board.    The  recommendations  proposed                                                               
increasing members  of the board,  one from the public  health or                                                               
medical  community, and  the second  from law  enforcement.   The                                                               
commission  stated that  having  those two  additional points  of                                                               
view on  the board  would better  protect the  public's interest.                                                               
So that would increase the board  to seven members:  two industry                                                               
members, three public members, and  two additional public members                                                               
with a particular focus.                                                                                                        
Number 0407                                                                                                                     
DOUG  GRIFFIN,   Director,  Alcoholic  Beverage   Control  Board,                                                               
Department of Revenue,  said the board has not  been consulted or                                                               
briefed on the  amendments from the Department  of Public Safety.                                                               
He said he was not prepared to comment on them.                                                                                 
REPRESENTATIVE ROKEBERG explained that  Chair Anderson intends to                                                               
hold HB 234 over for additional consideration.                                                                                  
Number 0375                                                                                                                     
MR. GRIFFIN  explained that  the legislature  gave the  ABC board                                                               
the task  of investigating  gambling and  prostitution activities                                                               
[on licensed  premises] four  years ago.   He  said that  the ABC                                                               
board has done  this work historically.  Almost  all the gambling                                                               
cases  on licensed  premises over  the  last 25  years have  been                                                               
investigated by ABC staff.  He  said the cases brought forward by                                                               
ABC investigators  are not  all prosecuted,  not because  of poor                                                               
investigation  work, but  because  the  district attorney's  (DA)                                                               
office makes choices  every day about resources  and whether they                                                               
want  to pursue  a  gambling  case.   Gambling  is  a low  level,                                                               
victimless  crime.     Sometimes   the  DAs  refuse   a  criminal                                                               
prosecution  because  they  know  that the  ABC  board  can  take                                                               
administrative  action to  suspend or  fine a  licensee for  this                                                               
activity.  Even for administrative  violations, the penalties can                                                               
be severe.   He said the  Department of Law has  noted that these                                                               
investigations fall outside the  ABC board's statute, even though                                                               
it is  an activity done on  licensed premises.  So  the ABC board                                                               
needs a  statutory change to allow  it to do things  like legally                                                               
serve a search  warrant.  The gambling cases are  not complex; if                                                               
they  are  complex, ABC  staff  bring  in other  law  enforcement                                                               
personnel.   Most  of  the  cases don't  interest  the local  law                                                               
enforcement or State Troopers; they have higher priorities.                                                                     
Number 0186                                                                                                                     
MR. GRIFFIN stated  that a licensee who allows  gambling gains an                                                               
unfair advantage over  someone who follows the law.   Gambling is                                                               
clearly an issue of competition  between licensed premises at the                                                               
retail tier.   The authority  to do investigations has  not added                                                               
to  the  ABC's  burden,  he  said; it  actually  makes  legal  an                                                               
activity which the  ABC board has historically done.   If the ABC                                                               
board doesn't do it,  its not going to get done,  he stated.  The                                                               
ABC board really  does object to this audit  recommendation.  The                                                               
ABC board  is very likely  to come across gambling  activities in                                                               
the course of doing other work.   Staff know the bartenders, have                                                               
the  contacts, get  the  tips.   It  was  asked  whether we  have                                                               
dropped the  ball or  lost a  case because  we're inept  at doing                                                               
this.   We haven't, you won't  be able to  find it.  It's  a very                                                               
good question.  The audit  attempts to keep the ABC investigators                                                               
focused entirely on administrative matters.                                                                                     
TAPE 03-32, SIDE A                                                                                                            
Number 0010                                                                                                                     
MR.   GRIFFIN  continued   that  there's   a  lot   of  low-level                                                               
misdemeanor activity  that is  appropriate for  the ABC  board to                                                               
address.  "We  are addressing it, we  have historically addressed                                                               
it, and I think we should be  able to continue to address it," he                                                               
said.    He  added  that  the ABC  board  supports  the  [sunset]                                                               
extension in HB 234.  He said  the board is functioning as it was                                                               
designed to  function and  is doing  a very good  job.   He noted                                                               
that the legislative auditor sent  questionnaires to various user                                                               
groups.   He invited  members to review  the responses  that came                                                               
back from  the board's  clients -  from police  departments, from                                                               
licensees, and from community councils.   He said those responses                                                               
clearly demonstrate  that the board is  doing a good job  for the                                                               
Number 0149                                                                                                                     
REPRESENTATIVE ROKEBERG asked if  he preferred a four-year sunset                                                               
extension to a three-year extension.                                                                                            
Number 0162                                                                                                                     
MR. GRIFFIN said  yes.  He said he agreed  with the auditors that                                                               
some  operational  things  needed  improvement  -  upgrading  the                                                               
database and tightening office procedures.   He said the board is                                                               
working on those and will have  them addressed in short order.  A                                                               
lack of  funding and  staff turnover  are partly  responsible, he                                                               
said.  Moving  the board to the Department of  Public Safety will                                                               
involve  some  very   major  changes.    The  ABC   board  is  an                                                               
independent  board  and  quasi-judicial.   He  expressed  concern                                                               
about  diluting  the board's  power  and  undermining its  unique                                                               
nature and reasons why it was created.                                                                                          
REPRESENTATIVE  ROKEBERG asked  if  he had  any  comments on  the                                                               
gallonage issue.                                                                                                                
Number 0307                                                                                                                     
MR. GRIFFIN said  he started work as the director  about the time                                                               
this issue  started.  There's no  question that it has  been very                                                               
frustrating for legislators and  for breweries.  It's frustrating                                                               
that the  players haven't  been able  to come  up with  quite the                                                               
right solution.   Everyone  has his or  her own  definition about                                                               
what a level playing  field is, he said.  He  added that he hopes                                                               
the legislature can find an  equitable solution and put the issue                                                               
to rest, once and for all.                                                                                                      
Number 0397                                                                                                                     
REPRESENTATIVE ROKEBERG announced  that HB 234 will  be held over                                                               
for future consideration.                                                                                                       
HB 224-CIGARETTE SALES REQUIREMENTS                                                                                           
Number 0450                                                                                                                     
REPRESENTATIVE ROKEBERG,  acting chair, announced that  the final                                                               
order of business  would be HOUSE BILL NO. 224,  "An Act relating                                                               
to  a  tobacco  product manufacturer's  compliance  with  certain                                                               
statutory requirements  regarding cigarette sales;  and providing                                                               
for an effective date."                                                                                                         
MIKE  BARNHILL, Assistant  Attorney General,  Commercial Section,                                                               
Civil Division  (Juneau), Department of Law,  testified on behalf                                                               
of the administration, presenting HB  224.  He explained that the                                                               
bill  helps the  state  protect its  revenues  derived under  the                                                               
Master Settlement  Agreement (MSA).   Alaska and 45  other states                                                               
entered into the MSA with the tobacco manufacturers in 1998.                                                                    
MR.  BARNHILL  explained  that under  the  settlement  agreement,                                                               
Alaska's  revenues  are reduced  in  certain  circumstances.   To                                                               
avoid those reductions, Alaska  enacted an NPM (non-participating                                                               
manufacturers) statute, AS 45.53,  in 1999, and actively enforces                                                               
the  statute.    Unfortunately,  he  stated,  it's  difficult  to                                                               
enforce  the statute  because the  tobacco  manufacturer that  is                                                               
failing to comply  may be a small manufacturer located  in a far-                                                               
flung jurisdiction,  such as  India or  the Philippines.   Alaska                                                               
has, on  occasion, filed suit  against a tobacco  manufacturer in                                                               
India,  hiring  a  process  server   to  serve  the  summons  and                                                               
complaint  in  India,  and  has  ultimately  obtained  a  default                                                               
judgment.    But  that's  the difficult  way  of  [enforcing  the                                                               
statute], he said.                                                                                                              
Number 0575                                                                                                                     
MR. BARNHILL  stated that  in 2001,  Alaska enacted  AS 45.53.145                                                               
[Notification  of  noncompliance;  confiscation  of  noncomplying                                                               
cigarettes], and  other states followed  suit.  Last  summer, the                                                               
National Association of Attorneys General  set up a working group                                                               
to design  uniform legislation that  all states could  enact, and                                                               
House Bill 224 is the product of that [model legislation].                                                                      
MR. BARNHILL stated  that HB 224 creates a  directory of [tobacco                                                               
manufacturing] companies  that have  complied, either  by signing                                                               
onto  the  Master  Settlement  Agreement  or  by  depositing  the                                                               
required  amounts of  escrow  under  AS 45.53.    If the  tobacco                                                               
manufacturers  certify that  they  have  [deposited the  required                                                               
escrow],  they  get  on  the  list;  companies  need  to  certify                                                               
annually.   Their cigarettes can then  be sold in Alaska.   House                                                               
Bill  224 also  provides  for penalties  for  noncompliance.   It                                                               
provides a  process by which  the Department  of Law can  serve a                                                               
summons  and complaint  against a  tobacco manufacturer  that has                                                               
failed to comply,  not by hiring a process server  and serving in                                                               
India,  as Alaska  has  done  in the  past,  but  by serving  the                                                               
complaint on the commissioner of  the Department of Community and                                                               
Economic Development.                                                                                                           
Number 0685                                                                                                                     
REPRESENTATIVE  DAHLSTROM asked  how much  is the  escrow from  a                                                               
[nonparticipating manufacturer] tobacco company.                                                                                
MR. BARNHILL  replied that  it changes every  year, but  in 2001,                                                               
the escrow was approximately 1.5 cents per cigarette.                                                                           
Number 0703                                                                                                                     
REPRESENTATIVE ROKEBERG asked  what he knew about  the ability of                                                               
Altria Group [the parent company  of Philip Morris] to pay [money                                                               
owed under the  Master Settlement Agreement].  He  also asked the                                                               
ramifications to Alaska's budget if Philip Morris does not pay.                                                                 
MR. BARNHILL said he hasn't  seen the confidential financial data                                                               
about  Altria  Group's  ability  to  pay.    He  said  Alaska  is                                                               
expecting  a  [tobacco settlement]  payment  next  week of  $17.6                                                               
million, of  which Philip Morris  would pay 50 percent.   Because                                                               
the State  of Alaska  securitized 80  percent of  these revenues,                                                               
the ultimate impact  to the general fund would be  a loss of $1.7                                                               
million if Altria Group does not pay.                                                                                           
Number 0797                                                                                                                     
JOHANNA BALES, Revenue Auditor,  Department of Revenue, explained                                                               
that  she currently  runs  the  tobacco tax  program.   She  also                                                               
enforces certain  provisions of the Master  Settlement Agreement.                                                               
She  said  HB  224  will definitely  be  helpful  in  enforcement                                                               
responsibilities, especially with  foreign manufacturers that are                                                               
very  difficult to  track down.   This  legislation is  extremely                                                               
important, and she stated that the department supports it.                                                                      
Number 0884                                                                                                                     
REPRESENTATIVE ROKEBERG,  noting no additional  witnesses, closed                                                               
the public hearing on HB 224.                                                                                                   
Number 0888                                                                                                                     
REPRESENTATIVE DAHLSTROM moved to report  HB 224 out of committee                                                               
with  individual recommendations  and the  two accompanying  zero                                                               
fiscal  notes.   There being  no objection,  HB 224  was reported                                                               
from the House Labor and Commerce Standing Committee.                                                                           
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
5:17 p.m.                                                                                                                       

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