Legislature(1999 - 2000)
05/05/1999 03:19 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
May 5, 1999
3:19 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Jerry Sanders
Representative Lisa Murkowski
Representative John Harris
Representative Tom Brice
Representative Sharon Cissna
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
* HOUSE BILL NO. 117
"An Act relating to grant procedures of the Alaska Science and
Technology Foundation."
- MOVED CSHB 117(L&C)
CS FOR SENATE BILL NO. 51(L&C)
"An Act relating to barbers, hairdressers, manicurists, and
cosmetologists; providing that the only qualification necessary for
licensure as a manicurist, other than payment of fees, is
completion of a class that is 12 hours in duration, addresses
relevant health, safety, and hygiene concerns, and is offered
through a school approved by the Board of Barbers and Hairdressers;
and providing for an effective date."
- MOVED HCS CSSB 51(L&C)
HOUSE BILL NO. 183
"An Act relating to the powers and duties of the chair of the
Alaska Public Utilities Commission; relating to membership on the
Alaska Public Utilities Commission; and relating to the annual
report of the Alaska Public Utilities Commission."
- SCHEDULED BUT NOT HEARD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 117
SHORT TITLE: ALASKA SCIENCE & TECHNOLOGY FOUNDATION
SPONSOR(S): REPRESENTATIVES(S) BUNDE
Jrn-Date Jrn-Page Action
2/26/99 324 (H) READ THE FIRST TIME - REFERRAL(S)
2/26/99 324 (H) L&C, FINANCE
5/05/99 (H) L&C AT 3:15 PM CAPITOL 17
BILL: SB 51
SHORT TITLE: LICENSING OF COSMETOLOGISTS
SPONSOR(S): COMMUNITY & REGIONAL AFFAIRS
Jrn-Date Jrn-Page Action
2/01/99 126 (S) READ THE FIRST TIME - REFERRAL(S)
2/01/99 126 (S) L&C, FIN
2/16/99 (S) L&C AT 1:30 PM FAHRENKAMP RM 203
2/16/99 (S) MOVED CS (L&C) OUT OF COMMITTEE
2/16/99 (S) MINUTE(L&C)
2/18/99 285 (S) L&C RPT CS 1DP 3NR NEW TITLE
2/18/99 285 (S) NR: MACKIE, DONLEY, HOFFMAN;
2/18/99 285 (S) DP: TIM KELLY
2/18/99 286 (S) FISCAL NOTES TO SB AND CS (DEC, DCED)
3/16/99 (S) FIN AT 9:00 AM SENATE FINANCE 532
3/16/99 (S) SCHEDULED BUT NOT HEARD
3/17/99 (S) FIN AT 9:00 AM SENATE FINANCE 532
3/17/99 (S) HEARD AND HELD
3/17/99 (S) MINUTE(FIN)
3/17/99 (S) MINUTE(FIN)
3/26/99 (S) FIN AT 9:00 AM SENATE FINANCE 532
3/26/99 (S) MOVED CS (L&C) OUT OF COMMITTEE
3/26/99 (S) MINUTE(FIN)
3/26/99 699 (S) FIN RPT 6DP 1NR 1AM (L&C) CS
3/26/99 699 (S) DP: TORGERSON, PARNELL, PHILLIPS,
3/26/99 699 (S) ADAMS, WILKEN, LEMAN; NR: DONLEY;
3/26/99 699 (S) AM: GREEN
3/26/99 699 (S) FISCAL NOTE TO CS (DEC)
3/29/99 (S) RLS AT 12:00 PM FAHRENKAMP 203
3/29/99 (S) MINUTE(RLS)
3/31/99 750 (S) RULES TO CALENDAR AND 1 OR 3/31/99
3/31/99 753 (S) READ THE SECOND TIME
3/31/99 753 (S) L&C CS ADOPTED UNAN CONSENT
3/31/99 753 (S) ADVANCED TO THIRD READING UNAN
3/31/99 753 (S) CONSENT
3/31/99 754 (S) READ THE THIRD TIME CSSB 51(L&C)
3/31/99 754 (S) PASSED Y17 N1 E2
3/31/99 754 (S) EFFECTIVE DATE(S) SAME AS PASSAGE
3/31/99 756 (S) TRANSMITTED TO (H)
4/07/99 666 (H) READ THE FIRST TIME - REFERRAL(S)
4/07/99 666 (H) L&C, FIN
4/14/99 (H) L&C AT 3:15 PM CAPITOL 17
4/14/99 (H) HEARD AND HELD SUBCMTE APPOINTED
4/14/99 (H) MINUTE(L&C)
4/26/99 (H) L&C AT 3:15 PM CAPITOL 17
4/26/99 (H) HEARD AND HELD
4/26/99 (H) MINUTE(L&C)
5/05/99 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REPRESENTATIVE CON BUNDE
Alaska State Legislature
Capitol Building, Room 501
Juneau, Alaska 99801
Telephone: (907) 465-4843
POSITION STATEMENT: Testified as sponsor of HB 117.
PATTI SWENSON, Legislative Assistant
to Representative Con Bunde
Capitol Building, Room 501
Juneau, Alaska 99801
Telephone: (907) 465-6824
POSITION STATEMENT: Testified on HB 117 as sponsor's
representative.
JAMIE KENWORTHY
Alaska Science & Technolgy Foundation(ASTF)
4500 Diplomacy
Anchorage, Alaska 99508
Telephone: (907) 272-4333
POSITION STATEMENT: Discussed ASTF grant procedures and the audit
performed by LB&A.
JACK HARRISON, Alaska Frontier Archery
Grantee of ASTF
3450 Palmdale Drive
Wasilla, Alask a99654
Telephone: (907) 376-4969
POSITION STATEMENT: Opposed HB 117.
RICHARD SEWELL, President and Founder
Iceberg Seafood Company
PO Box 10037
Anchorage, Alaska 99510
Telephone: (907) 562-7837
POSITION STATEMENT: Testified that if the focus is on economic
development, job creation, and new capital entering the state, HB
117 is not the appropriate path.
EDEN LARSON, Southcentral Coordinator
Alaska InvestNet
3380 C Street, Suite 100
Anchorage, Alaska 99503
Telephone: (907) 565-5633
POSITION STATEMENT: Agreed with Mr. Kenworthy's comments and
expressed additional concerns.
MEAD TREADWELL, Treadwell Development;
Board member, ASTF
528 North Avenue
Anchorage, Alaska 99501
Telephone: (907) 343-2400
POSITION STATEMENT: Predicted obligation of ownership problems.
WALTER GORE
Petro Star Incorporated
206 Arctic Slope Avenue
Anchorage, Alaska 99518
Telephone: (907) 267-6106
POSITION STATEMENT: Testified that making state ownership a
requirement of ASTF grants would create a severe disincentive to
program participation.
J.P. GODFREY, Business Consultant
Godfrey & Associates
7840 Evander
Anchorage, Alaska 99518
Telephone: (907) 344-3065
POSITION STATEMENT: Predicted that if the changes proposed in HB
117 move forward, some of the best clients for ASTF will be lost.
CHARLES NORTHRIP, Executive Director
Juneau Economic Development Council
612 West Willoughby, Suite A
Juneau, Alaska 99801
Telephone: (907) 463-3662
POSITION STATEMENT: Emphasized that ASTF exists to use investment
to build private enterprise that stays in Alaska, creates jobs and
pays taxes which indirectly benefits the state.
DOUG SALIK, Researcher
for Senator Tim Kelly
Alaska State Legislature
Capitol Building, Room 101
Juneau, Alaska 99801
Telephone: (907) 465-4823
POSITION STATEMENT: Testified on Amendment K.1 to SB 51 as aide to
the Senate Community and Regional Affairs Standing Committee.
CATHERINE REARDON, Director
Division of Occupational Licensing
Department of Commerce and Economic Development
P.O. Box 110806
Juneau, Alaska 99811-0806
Telephone: (907) 465-2536
POSITION STATEMENT: Testified on Amendment K.1 to SB 51, suggested
two amendments to the amendment.
JANET SEITZ, Legislative Assistant
to Representative Norman Rokeberg
Alaska State Legislature
Capitol Building, Room 24
Juneau, Alaska 99801
Telephone: (907) 465-4968
POSITION STATEMENT:
ACTION NARRATIVE
TAPE 99-52, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:19 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Sanders, Harris, Brice and Cissna. Representative Murkowski
arrived at 4:45 p.m.
HB 117 - ALASKA SCIENCE & TECHNOLOGY FOUNDATION
Number 0101
CHAIRMAN ROKEBERG announced the committee's first order of business
is HB 117, "An Act relating to grant procedures of the Alaska
Science and Technology Foundation."
Number 0116
REPRESENTATIVE CON BUNDE, Alaska State Legislature, sponsor,
explained that there had been a legislative audit of the Alaska
Science and Technology Foundation (ASTF) a year ago. In his
opinion, that audit reflects concerns he has heard that funds used
through ASTF aren't always accounted for with adequate due
diligence. He suggested that it is time to examine all of Alaska's
funding projects with close scrutiny.
REPRESENTATIVE BUNDE noted that some wonder if the state should be
competing with private venture capital, which is much of what ASTF
does. If it is in that venture capital business, however, he
believes it is important to restate that this is, indeed, the
people's money, to be held to an even higher standard than in
private enterprise - where one is accountable to stockholders or a
board of directors - to ensure that the money is well-spent.
REPRESENTATIVE BUNDE shared his perception that monies are made
available to people who want to "take a flyer in business." He
said this is a wonderful thing, if it works out for Alaska. If it
doesn't work out, however, he believes that those using the funds
should be held to the same standard as for a private institute,
demanding some collateral and collecting on it if there is a
failure to perform. "Even if it's only a nickel on the dollar, we
certainly owe it to the people of the state to collect," he stated.
REPRESENTATIVE BUNDE suggested that people who realize they won't
be accountable, or won't lose the equipment they bought with state
money, aren't as hungry and won't work as hard as others. Although
those using ASTF funds do many things that the bill recommends,
they don't have to, which is the crux of the matter. "We can't
allow them to play Monopoly with the state's money," he added. He
restated that HB 117 reflects the audit, including the need for an
extremely high level of accountability and more diligence by those
taking advantage of these programs. Without something like this,
the program will continue to be under assault by those legislators
who want to see the money put to other use. In passing this bill,
however, he believes the legislature would be following the advice
of its own counsel, the Legislative Budget and Audit Committee
(LB&A).
Number 0519
CHAIRMAN ROKEBERG asked if the audit recommends a certified
financial statement on any of those cases.
REPRESENTATIVE BUNDE said he believes it does.
CHAIRMAN ROKEBERG pointed out that certified financial statements
are prohibitively expensive, and could eat up half of a grant. He
asked if Representative Bunde had looked at other alternatives,
such as using a federal tax return.
REPRESENTATIVE BUNDE indicated the LB&A members had discussed
another option. He then asked whether the state should give money
away, pointing out that a bank wouldn't do that.
CHAIRMAN ROKEBERG asked what LB&A had recommended.
Number 0600
PATTI SWENSON, Legislative Assistant to Representative Con Bunde,
Alaska State Legislature, answered, "Submit an audited financial
statement."
CHAIRMAN ROKEBERG commented that it is almost the same thing.
REPRESENTATIVE HALCRO referred to a memorandum of response, noting
that ASTF said they agreed with LB&A's recommendation, but the
person whom they had advertised to hire to conduct these was caught
in the hiring freeze. He asked whether Representative Bunde had
talked to ASTF about that.
REPRESENTATIVE BUNDE said he hadn't. He then surmised that ASTF
shouldn't object to legislation that endorses what they plan to do
already. He pointed out that he hadn't received the response any
sooner than the committee had.
REPRESENTATIVE HARRIS noted that he hadn't read the entire LB&A
report, then asked whether ASTF has had difficulty in getting
repayments of its loans.
REPRESENTATIVE BUNDE replied that to his understanding, ASTF gets
very little repayment.
REPRESENTATIVE HARRIS asked whether the reason for the bill is to
try to ensure that there is a bigger percentage of repayment.
REPRESENTATIVE BUNDE restated that even if it is only a nickel on
the dollar, Alaskans are owed the assurance that ASTF, a state
venture capital group, is being held to the same standard that
private industry would be held to.
Number 0748
REPRESENTATIVE HARRIS asked whether it will cause the department
overseeing ASTF any increase in personnel, for example, to have
security interests, patents, copyrights or things of that nature.
REPRESENTATIVE BUNDE pointed out that there is a fiscal note.
There was discussion regarding whether the fiscal note, $157,000,
was for one-quarter of a position. He clarified that the fiscal
note covered personnel.
REPRESENTATIVE HALCRO turned to the provision requiring that ASTF
own intellectual property. The response from ASTF points out that
other states with similar programs don't mandate a state owning
security interest in the funding project. Representative Halcro
asked if this would set up a situation with expensive litigation
regarding who owns what.
REPRESENTATIVE BUNDE pointed to universities, in general, as a
model because they have different ways to deal with intellectual
rights.
REPRESENTATIVE BRICE understood that the intent is to maintain the
grant nature of ASTF to an extent. He asked if thought had been
given to changing the program from a grant to a very low interest
loan program.
REPRESENTATIVE BUNDE stated that he didn't want to micromanage the
program to that extent. He indicated that it would be an
interesting discussion as to whether grants should be continued or
should loans be offered as a subsidy or should they be competitive.
Those are discussions for the legislature. If ASTF continues, it
should be held to a higher standard.
REPRESENTATIVE SANDERS stated his understanding that grants were
grants. He asked if ASTF grants are repaid then wouldn't they then
be an interest free loan.
MS. SWENSON explained that there is statutory authority to receive
repayment on the grants.
REPRESENTATIVE BUNDE interjected that if the grant creates a
successful business, then there is some repayment.
MS. SWENSON noted that any equipment is disposed of and there is
language speaking to the disposal in the audit. When these grants
are given, there are seven to ten years between the research and
development and the project. People don't respond to the repayment
letters or information requests. Financial data is supposed to be
submitted yearly to ASTF which, according to the audit, is not
occurring. Therefore, HB 117 is making ASTF enforce its current
policy.
REPRESENTATIVE HALCRO quoted ASTF's response as follows:
There are no instances of guarantees not cooperating and
providing information to assess their obligation or
refusal to pay. The standard repayment provision since
the 1995 statute change is five percent of the gross
revenue, one and a half times of the grant. In short,
there is no problem to solve with this change.
Representative Halcro pointed out that Representative Bunde is
saying there is little repayment, but ASTF says there is no
problem.
REPRESENTATIVE BUNDE referred Representative Halcro to LB&A's audit
report.
Number 1134
MS. SWENSON referenced page 22 of the audit which speaks to
repayment and the way in which it is ignored. That portion of the
audit discusses the grant administrator's annual letter requesting
update information. That letter doesn't refer to the grant
agreement clause and often the grant recipients ignore it.
Furthermore, no follow-up action occurs in these cases. Therefore,
there is a problem.
REPRESENTATIVE BUNDE referred to an electrical company which went
bankrupt and left Alaska owing many back wages. The grant
recipient moved out of state and continued to receive ASTF money.
MS. SWENSON commented that she didn't think Representative Bunde
believed ASTF to be a bad program, but there are poor business
practicess needing improvement in statute. With regard to the
fiscal notes, there is no need for more fiscal notes if ASTF
already does these things, as they say. The report was released
September 1998 therefore, ASTF could have come forward to discuss
the need to hire an additional employee. This legislation doesn't
do anything that ASTF really disagrees with, except for the
intellectual property.
Number 1343
JAMIE KENWORTHY, Alaska Science & Technolgy Foundation, began by
saying that ASTF takes accountability seriously. There are
technical reviews on all projects over $20,000 and the board
reviews of projects under $20,000. Clear benchmarks are
established in the proposal of performance. There is also a state
audit requirement for sums spent in excess of $300,000 while ASTF
requires an audit when over $50,000 and ASTF can also audit smaller
projects. During the monitoring of the grant agreements, the
project manager signs certified statements. Also the final 10
percent of every project is held. At the end of a project the
equipment is disposed of. Often, the equipment is returned to the
grantee to continue the business. He noted that ASTF had an
evaluation this year of all the projects, in terms of their impact
on the economy, which he offered to share with the committee.
MR. KENWORTHY acknowledged that the audit did point out that ASTF
should do a better job monitoring grant repayments, although it is
not as sloppy as people may believe. He explained that an annual
survey of every technology grant is performed. It is a matter of
staff time and the ability to fill a position to be able to go back
and do "shoe leather" in order to ensure that ASTF has all those
grant obligations. Mr. Kenworthy informed the committee that he
had brought in an audit firm to set up a tracking system for this.
MR. KENWORTHY clarified the types of projects ASTF does. He said
that he would not describe ASTF as performing venture capital, but
rather seed capital. Venture capital is post sales, usually a
product and prototype already exist, all equity, with a 40 to 50
percent return on the investment. He said that ASTF is involved in
pre-prototype deals that may develop into venture capital later.
Also 20 percent of ASTF's projects are science projects that are
not proprietary and therefore, no money is returned to the state.
He stressed that some of these science projects are very important
for the state's development because no one else will fund the
science. For example, there is a water quality project with a
mining community, the Department of Environmental Conservation
(DEC), the Department of Fish & Game, and the Environmental
Protection Agency (EPA) regarding turbidity. Furthermore, about 25
percent of ASTF's funds go toward qualified university projects.
He informed the committee of the grading program with lumberyards
in Alaska. In this case, it is critical that ASTF offers such a
service as grading dimensional lumber because sawmill owners in the
state won't[can't] pay for it directly, although they are starting
to pay for some of it.
Number 1571
MR. KENWORTHY pointed out that in 1995 there was a statute change.
Until that time, ASTF could only receive repayment based on
royalties which result from doing a patent in a certain form. That
was expanded to gross revenues because sometimes the technology is
sold to a joint venture. He stated that ASTF wanted to attach the
revenue stream from successful projects. The standard term and
condition is 5 percent of gross revenues up to 1.5 times the amount
of the grant. He said that ASTF does not have any statutory
authority to do loans. He emphasized that ASTF is sharing
technical risk with the private sector and therefore, the form of
repayment is appropriate to the stage of development funded by
ASTF. Mr. Kenworthy did not object to the language on the less
than $20,000. He agreed with the LB&A audit that expressed the
need for written reviews of grants less than $20,000 and since
February those reviews have been documented. Mr. Kenworthy said,
"Besides the issue of doing a better job which is a staff time
issue with follow-up, I don't consider that there were major issues
in the audit that would lead to the conclusion that we have sloppy
practices."
VICE CHAIRMAN HALCRO requested that Mr. Kenworthy speak to the
instances in the audit that appear not to have had any follow-up
with regards to payment.
MR. KENWORTHY did not recall any particular case in which ASTF did
not follow-up. Annual letters were sent out. He noted that ASTF
has one position, a grant manger, who is responsible for monitoring
the benchmark performance of all the projects. Regardless of
ASTF's ability to hire another person or not, Mr. Kenworthy will
shift some resources from working with entrepeneurs to do a better
job reviewing repayment. Since the change, there have been about
$100,000 in grant repayments. Although this may not sound like
very much, he reiterated that it takes seven to ten years to move
from idea to commercialization and a large portion of ASTF deals
with science which doesn't have a proprietary component that can be
taxed. He stressed that there has not been a pattern of people not
giving full information; there has not been a lack of cooperation,
but rather staff follow-up. Mr. Kenworthy noted that ASTF has had
a flat operating budget for five years.
REPRESENTATIVE SANDERS asked if Mr. Kenworthy's reference to lack
of cooperation meant lack of communication or repayment.
MR. KENWORTHY replied, both. For instance, ASTF will call and
request the lastest audit from a business in order to check the
gross proceeds from the technologhy. That is a matter of
cooperation. There have not been people saying they will not
provide the information so that the assessment can't be done. Mr.
Kenworthy provided a copy of the standard grant agreement which
every grantee signs. The agreement basically says that ASTF has
the right to inspection and the right to require an audit.
Therefore, ASTF has the tools if there is no cooperation.
Number 1797
MR. KENWORTHY specified concern with the requirement in HB 117 that
ASTF will have security interest in the technology and that ASTF
will own the technology. That will confuse the public and private
sector as well as decision making. He pointed out that ASTF does
have the power to issue a security interest and that has been done
only twice in the last year. The size of the deal and the risk
involved made it necessary to take a security interest in the
technology. If ASTF is mandated to take ownership of intellectual
property, the initiative is then shifted from the business person
to the state. Such a mandate would place Mr. Kenworthy in the
position of a manger. "I like, as a manger, to hold them
accountable and have strong measures to use if you need to, but
they make the decision. Because if I start making decisions for a
business person, how am I going to hold them responsible for the
results?"
VICE CHAIRMAN HALCRO asked if, due to the pre patent and post
patent work, this would set ASTF up for possible litigation.
MR. KENWORTHY responded yes. He informed the committee that
sometines entrepeneurs come to ASTF after filing a patent and
sometimes they are halfway through the work and need documentation
and ASTF and the entrepeneur are jointly paying patent expenses.
Therefore, the first need is to assess the state of the technology
when the entrepeneur came to ASTF for funding in order to determine
if ASTF owns it or has a subsequent patent position. There would
also be issues with regard to how much expense and protection to
patent for the identified market. Often, an entrepeneur asks ASTF
for advice. However, ASTF does not want to make the final decision
as a manger; ASTF wants to review and work with the entrepeneur's
decisions. Mr. Kenworthy believed the provision in HB 117 concerns
the next stage of investors.
REPRESENTATIVE CISSNA requested more explanation of intellectual
property. If one holds a patent, does that mean that person is
ultimately responsible for the development of the patent.
MR. KENWORTHY clarified that the issue of a patent's ownership and
development are separate issues. If entrepenuer A files a patent,
that could either be assigned to ASTF for ownership or ASTF can
file a security interest. A security interest acts as a lien and
only the owner of the entity with a security interest can license
that patent. With regard to the development of a patent, any
business person can use that to develop or infringe on a patent in
which case the owner of the patent would have the responsibility to
take legal action. Mr. Kenworthy informed the committee that out
of perhaps ten patents, only one ever earns revenue. It is much
easier to get a patent than to receive money from the technology.
Number 2046
JACK HARRISON, Alaska Frontier Archery, Grantee of ASTF, testified
via teleconference from Anchorage. As a grantee, Mr. Harrison has
received substantial monies and currently, possesses three patents
as well as a pending patent. He felt that HB 117 is redundant
because ASTF already has the mechanisms in place necessary to
continue the program. He emphasized that when he signed with ASTF
he received a grant, not a loan, which he matched with personal
money and bank loans. Mr. Harrison stated that he is at the point
where the patents are on the verge of being viable venture capital.
He said that he was attempting to bring money to the state. If Mr.
Harrison can get his patents licensed, then he can pay back ASTF a
portion of the grants under the payment program he signed. Mr.
Harrison opposed HB 117.
RICHARD SEWELL, President and Founder, Iceberg Seafood Company,
testified next via teleconference from Anchorage. He informed the
committee that his company is a grantee of ASTF who provided
$227,000 which he matched with $201,000 with follow-on equity
financing of $250,000. He noted that his was a distribution
technology which will allow the distribution of live crabs to
global markets. His grant agreement requires 1.5 times the return
on the grant which his accountant says is not really a grant or a
loan.
MR. SEWELL emphasized that the ASTF grant is a critical bridge
between concept development and bringing in outside equity
financing. He informed the committee that he had shopped his
business plan and the stock offering before going to ASTF and
people felt it was too risky to enter at that point. Most
indicated the possibility of interest once the technology can be
proven. When the ownership of the technology is clouded to the
possibility of state ownership of the technology right, it is
troubling. He doubted that he would have pursued this if that had
been the deal. Therefore, if the focus is on economic development,
job creation, and new capital entering the state, HB 117 is not the
appropriate path. With regard to ongoing certified financial
statements, Mr. Sewell believed it would be a heavy burden. If a
higher level of monitoring is desired, that would seem to be a
personnel and management issue rather than a regulatory or
statutory issue.
Number 2325
EDEN LARSON, Southcentral Coordinator, Alaska InvestNet, testifying
via teleconference from Anchorage, explained that Alaska InvestNet
is designed to introduce entrepeneurs to private investors. This
role has led to much research into what attracts investors to
entrepeneurs. She noted that she is a former private consultant
and former Executive Director of Alaska Inventors and Entrepeneurs
Association. She also noted that she has had significant
experience with ASTF. Ms. Larson agreed with all of Mr.
Kenworthy's comments. However, she expressed additional concern.
Over the past years, ASTF has worked hard in response to
legislative concerns regarding its funding. She pointed out that
when she worked with the Alaska Inventors and Entrepeneurs
Association she saw inventors in the early stages of an idea
seeking ASTF funding while those going to ASTF now have business
concepts, identified markets, and a different level of management
skills. Should this legislation move forward, Ms. Larson felt the
latter entrepeneur described would not be inclined to work with
ASTF. In other words, this legislation would revert back to
attracting uneducated inventors rather than educated entrepeneurs
who have a better chance of repaying the debt to ASTF. If
entrepeneurs were required to give up their intellectual property
from the beginning in order to receive seed money, those
entrepeneurs that didn't walk away would not be set up to attract
additional private capital.
MEAD TREADWELL, Treadwell Development; Board member, ASTF,
testified next via teleconference from Anchorage. He informed the
committee that during his time on the board he has advocated for
stronger intellectual provisions which he believed ASTF is
following. He stressed that every deal ASTF does is different in
this area.
TAPE 99-52, SIDE B
MR. TREADWELL commented that not only will there be problems as
addressed by Mr. Kenworthy and others, there will likely be
obligation of ownership problems. There are many issues that could
arise on a deal by deal basis. He compared HB 117 to a
straightjacket rather than a protection of the state's interests.
Mr. Treadwell said that in the last few years ASTF has tried to
increase the capacity in Alaska to do the next steps. The Alaska
Investment Project has tried to get "angel" in Alaska to take on
these ventures and bring more venture capital into the state. This
legislation would be an impediment to that goal.
VICE CHAIRMAN HALCRO acknowledged that Mr. Treadwell has a
financial background. He asked if Mr. Treadwell, as a board
member, could speak to comments in the audit refering to the grants
to Alaska Power Systems and Distributed Systems LLC. The audit
concluded that those grants were questionable in nature and
benchmarking was not followed.
Number 0099
MR. TREADWELL commented that he believed there to be no question
that the intellectual property constraints, that may be asked for
by this legislation, were followed. Perhaps, what is necessary to
make that a successful project is flexibility. He said that is
about all he can comment due to the confidentiality requirements of
the grant. With regard to the benchmarks, Mr. Treadwell
acknowledged that some of the benchmarks were changed after the
grant was made. Those changes were done to reflect the situation.
For major grants of that size, the board has decided to spend
additional funds to hire a part-time position to watch such large
grants in the future. With this particular grant, it was a highly
fluid situation. The flexibility utilized was meant to keep the
technology in Alaska. This grant received much scrutiny because it
was a controversial grant.
Number 0174
WALTER GORE, Petro Star Incorporated, testified via teleconference
from Anchorage. He informed the committee that currently, he is
working on an ASTF funded project on behalf of his employer. Petro
Star is the only Alaska-owned refiner. The project being worked on
focuses on developing a means of de-sulphurizing diesel fuel that
is feasible for Alaska. With regard to HB 117, the proposed
amendment would require ASTF to take a security interest and own
intellectual property developed with grant assistance. Mr. Gore
viewed ASTF as helping to develop technology in Alaska, not to own
intellectual property. Therefore, making state ownership a
requirement of ASTF grants would create a severe disincentive to
program participation. If ownership and patents had been part of
ASTF grants, Petro Star probably wouldn't have applied with ASTF.
J.P. GODFREY, Business Consultant, Godfrey & Associates, testifying
via teleconference from Anchorage, informed the committee that he
has worked in business development throughout Alaska for over 30
years. He noted that he was one of the original circuit riders for
ASTF and worked with a number of proposers and grantees. With
regard to the requirement in HB 117 for the security interest and
the discussion of ownership, that would probably deter some of the
best proposers and projects that ASTF wants to do business with.
These are private sector companies, already in business with
managments and markets in place, who are attempting to develop a
new technology in order to expand their business activities in the
market place in Alaska and beyond. From his experience with such
proposers, he felt that he would have walked away if this provision
was in the ASTF statutes. Therefore, Mr. Godfrey predicted that if
these changes move forward, some of the best clients for ASTF will
be lost. These are clients that are in the best position to
succeed.
Number 0377
CHARLES NORTHRIP, Executive Director, Juneau Economic Development
Council, informed the committee that the council operates a
business assistance program as well as a revolving loan fund. The
council also operates Alaska InvestNet which is a statewide capital
matching network. All of the aforementioned work is done with
private entrepeneurs and investors. He addressed Section 1 of HB
117 with the phrase, "If it ain't broke, don't fix it." The larger
problem exists in Section 2 of HB 117. If Section 2 were enacted,
it would have a detrimental effect on private investment in
ASTF-assisted ventures. As mentioned, Alaska InvestNet attempts to
bring private entrepeneurs into contact with and financial support
to Alaska ventures. He pointed out that intellectual property
makes hi-tech ventures attractive to entrepeneurs and investors.
If that incentive is eliminated, those investor dollars will go
elsewhere and the entrepeneurs are also likely to look elsewhere,
even outside of Alaska. Usually, the venture goes where the
investment comes from. Mr. Northrip pointed out that current ASTF
procedures allow it to pursue ownership when in the best interest
of the state, "without compromising that vital entrepeneurial
energy that is necessary to develop these technologies we've been
talking about." In closing, Mr. Northrip emphasized that ASTF
exists to use investment to build private enterprise that stays in
Alaska, creates jobs and pays taxes. Therefore, the state would
benefit in an indirect way.
REPRESENTATIVE CISSNA asked if Mr. Gates [Bill Gates, Microsoft]
was raised in Alaska, what relationship would he have had with
ASTF.
MR. NORTHRIP pointed out that in the early stages of Mr. Gates'
venture if he had been an Alaskan, MicroSoft may have had a campus
in Anchorage instead of Seattle. The problem for Alaska is that it
is not a capital rich state and therefore, many of Alaska's
intellectual ideas are moved to where the money is. He echoed Mr.
Kenworthy's comments regarding ASTF providing the seed capital well
before commercial investors would be prepared to invest which keeps
that venture in the state. He commented that more people are
turned down by ASTF than receive funding.
Number 0682
REPRESENTATIVE CISSNA inquired as to the course if Mr. Gates'
intellectual property was owned by the state.
MR. NORTHRIP said that he didn't believe Mr. Gates would have ever
given over control of the intellectual property portion of his
venture. The intellectual property is what the entrepeneur holds
onto at the highest cost because the ownership interest will make
the money in the long run. He noted that Mr. Gates benefited from
the manufacture of it as well as selling the license to others. If
that had happened here, the sale of the licenses would have come to
Alaskan firms.
VICE CHAIRMAN HALCRO agreed with Mr. Northrip's comments regarding
the original purpose of ASTF which was to, according to statute:
(1) promote and enhance, through basic and applied
research and the development comercialization of
technology,
(A) economic development and technological innovation in
Alaska;
(B) public health;
(C) telecommunications; and
(D) sustained growth and development of Alaskan
scientific and engineering capabilities;
VICE CHAIRMAN HALCRO noted that the statute doesn't refer to
providing a return to the state. He asked if the bill's provision
requiring peer review with grants under $20,000 was of concern for
Mr. Kenworthy.
MR. KENWORTHY replied no because ASTF is currently doing that.
Number 0804
VICE CHAIRMAN HALCRO surmised that the provisions regarding
intellectual property are of concern. He asked if Mr. Kenworthy
could speak to the fiscal note regarding the cost to enforce this
provision.
MR. KENWORTHY noted that ASTF attorney Terry Turner, who is under
contract with the Department of Law, has particular expertise in
intellectual property and patent law. Mr. Turner estimates that it
will roughly cost $2,500 per project to register a security
interest and file patents. There is the issue of how often is that
cost effective not to mention that the filing fees have to be
spread over three years. Therefore, that would result in $2,500
times the 63 projects that are now in the process. Additionally,
some ASTF time will be spent managing that intellectual property
because the state would be making patent decisions. The fiscal
note presents the lowest cost scenario. Mr. Kenworthy stated that
the alternative could be to have a nearly full-time position that
is not an attorney. The legal work could be overseen by Mr. Turner
who estimated the cost for legal work to be $500 and $500 out of
pocket filing expenses. The cost would be significant.
VICE CHAIRMAN HALCRO commented that the sponsor seems to be
interested in the return on the investment and the monitoring of
grants. If that is the concern, how will the cost of intellectual
property be repaid? Where is the return in a project that does not
do well?
MR. KENWORTHY stated that the statute, under HB 117, would require
investment in intellectual property whether ASTF felt it economic
or not. Currently, ASTF has the authority to do a security
interest which creates $10,000 to $12,000 in legal expenses from
ASTF and more than that from the entrepeneur. He noted that ASTF
has only utilized a security interest twice. Rarely, does the cost
justify doing so. Under HB 117, he believed the wrong person to be
making the decision.
REPRESENTATIVE HARRIS requested examples of projects that were
started with ASTF grants that have developed.
MR. KENWORTHY commented that ASTF has probably spent more money in
seafood than in any other arena. For instance, the Arctic Alaska
North Pacific Processors salmon in the pouch process modified tuna
processing equipment in order to sell ready to eat salmon in a meal
pouch. Also a new surimi process was developed in conjuction with
the Kodiak Chamber of Commerce. The surimi process was only a
$45,000 or $60,000 ASTF investment that led to an over $1 million
investment to turn out surimi at a lower cost and higher quality.
Mr. Kenworthy turned to wood products and pointed out that there is
a mill in Tyonek which makes bridge materials that are sold in the
Mat-Su Valley. There will be a second mill in Nenana based on a
perservative process that a professor at the university discovered.
In the arena of hi-tech, Tim Newton of Integrated Power
Technologies, Incorporated has a surge protector for large
utilities which has been licensed and for which ASTF is receiving
a royalty. Mr. Kenworthy noted that the Anchorage Daily News did
a survey of hi-tech firms in Anchorage of which half were original
ideas that ASTF backed. Furthermore, the ASTF program is creating
about 130 jobs a year in the base. Although that may not sound
like many jobs, these are direct jobs in early stage firms which
start small and tend to grow. He touched on the timber industry
for which ASTF received funding to do a wood grading program in
which a grader talks to sawmill owners about dimensional lumber.
This illustrates how an entire segment of industry can be helped to
attack technical issues that individually they can't address.
REPRESENTATIVE HARRIS asked if ASTF receives any payment.
MR. KENWORTHY clarified that with knowledge projects such as the
grading service of the Anchorage Seismology projects, there is no
proprietary technology to protect. Therefore, there is no
repayment. When there is proprietary technology, a particular
invention with patent protection or trade secrets, those are
technology grants which are eligible for grant repayment. Mr.
Kenworthy agreed with Mr. Northrip's comments regarding the primary
purpose of ASTF, to grow the economic base of the state not to
return on investments to ASTF. Currently, ASTF is involved in a
paralytic shell fish poisoning test kit. That is a public health
issue rather than trying to earn a return as a product. By
statute, all repayments go to the principal and the legislature
annually appropriates earnings from the principal for ASTF and
non-ASTF purposes.
Number 1203
REPRESENTATIVE HARRIS inquired as to the procedural problems that
ASTF had with Alaska Power Systems.
MR. KENWORTHY said that ASTF did a number of things with that grant
due to the controversy surrounding it. For instance, ASTF hired a
third party consultant to provide a report due to the claim that it
wasn't new technology. Also Alaska Power System was requested to
make public their technology plans. "The board believed that
digital technology has such a potential to take costs out of rural
power, ... there's villages out there getting eight to ten
killowatts a gallon which is just very low efficiency. If we could
have digital controls where you could ... sit in an Anchorage
office and be able to monitor from sensors, ..., when the machine
is going to blow up because of oil or calibrate the which ones will
go on to get the peak loading and get most efficiency that would
save a lot of money." The controversy arises from the issue of
competition in rural utilities and whether rural utilities want
technology. That technology has since been licensed and the
company has left the state. Mr. Kenworthy predicted that the
technology will show up in Alaska some day, but "the issue that
that technology will show up in Alaska may be later rather than
sooner and deployed other places is partly an issue of how we
regulate utilities and how much competition is allowed." He
emphasized that in order to separate the issue of the technology
and the company that was providing utility services, ASTF required
a completely separate company to be established. The utility
company has left, but the technology has been licensed and will be
imbedded in other project products.
REPRESENTATIVE BRICE inquired as to what would happen with grants
that are currently administered by ASTF if HB 117, which does not
have an effective date, passes.
MS. SWENSON explained that under HB 117, ASTF would have to review
grants for which it has not received repayment or adequate
reporting. The records would have to be brought up to standard.
REPRESENTATIVE BRICE asked what that would mean in terms of the
workload for ASTF to bring every outstanding ASTF grant in
compliance with HB 117.
Number 1449
MR. KENWORTHY stated that currently, there are 63 technology
projects. From the bill's language, he could not tell if he would
be required to implement this retroactively and implement a
security interest in existing grants. Mr. Kenworthy noted that he
did not have a legal opinion on that matter, but if ASTF were to do
this retroactively the fiscal note estimates the cost.
MS. SWENSON commented that she did not believe that Representative
Bunde envisioned ASTF actually taking hold of intellectual property
and other property that are in existing grants. She did not
imagine that the sponsor meant for ASTF to act retroactively on the
63 projects. If the desire is to set a date specific for this to
occur, she indicated that would be acceptable. However, the other
recommendations included from the LB&A audit should be followed and
placed in statute.
VICE CHAIRMAN HALCRO referred to the sponsor's opening statement
which spoke to the notion that the accountability on certain grants
was questionable. He inquired as to where in the findings and
summary it suggests that the legislature mandate that ASTF should
take a security interest in patents or copyrights.
MS. SWENSON said that she didn't believe there was a direct
recommendation. She indicated that Representative Bunde wanted
that because he knew of a project in Mat-Su where a large amount of
equipment was purchased with grant money, the project went under,
but that person still holds the equipment. Therefore, he wanted a
security interest or ownership taken.
VICE CHAIRMAN HALCRO indicated that ASTF shouldn't be required to
take a security interest in everything, only those projects that
fail should the state maintain the right to seize the equipment.
He understood the audit to say,"that the disposal of
equipment--sort of the practice of allowing grantees to keep the
equipment was reasonable."
MS. SWENSON responded that Representative Bunde would probably
agree with that. She was certain that Representative Bunde did not
want anyone to keep equipment purchased with ASTF grants once the
business goes under; the equipment should technically become state
property that the state should dispose of. Furthermore, she didn't
believe that Representative Bunde envisioned the entire process
requiring taking ownership or a security interest in intellectual
property. He was addressing machinery and materials. Ms. Swenson
commented that she didn't know his thoughts about intellectual
property. However, he would probably agree with returning whatever
was received.
REPRESENTATIVE CISSNA asked if the project to which Ms. Swenson had
referred was an ASTF project.
MS. SWENSON replied yes.
MR. KENWORTHY surmised she was referring to Mr. Harrison's wood
project. Mr. Harrison has put over $200,000 into the project to
make it a success. Mr. Harrison has a partner who has relocated to
Kenai and is shipping wood out of Kake to complete the process.
The project has not been abandoned. Mr. Kenworthy explained that
Mr. Harrison had not decided to do a licensing deal with an
individual who then asked ASTF for the intellectual property. That
is an example of how this can get off track.
The gavel was returned to Chairman Rokeberg who called an at-ease
at 4:45 p.m. The committee was called back to order at 4:49 p.m.
CHAIRMAN ROKEBERG announced that the committee would not address HB
183 today. He returned to discussion regarding HB 117. Chairman
Rokeberg asked Mr. Kenworthy if he would prefer on page 2, line 7
of HB 117 "shall" to be changed to "may."
MR. KENWORTHY responded that he saw no need to change the existing
statute.
CHAIRMAN ROKEBERG stated that he would entertain a motion for
conceptual Amendment 1.
Number 1955
REPRESENTATIVE HALCRO moved that the committee adopt Amendment 1:
Page 2, line 7
Delete "shall"
Insert "may"
There being no objection, conceptual Amendment 1 was adopted.
CHAIRMAN ROKEBERG referred to page 2, lines 11-12 which requires
grantees to submit certified financial statements. The auditor
believed that could be "toned down." He noted that he brought the
high cost of certification to Representative Bunde's attention. Is
it legal for ASTF to ask its grantees to provide their federal tax
returns?
MR. KENWORTHY answered yes. Under provision 29 of ASTF's standard
grant agreement, ASTF has the right to site and records inspection.
No additional authority is necessary for ASTF to have audit and
inspection rights because the grantee agrees to that when the grant
is accepted.
CHAIRMAN ROKEBERG asked if requiring grantees to submit annual tax
returns and/or financial statements would raise the standard and
provide more information.
MR. KENWORTHY noted that as a matter of course annual tax returns
are not requested, but ASTF has inspection rights. Therefore,
statements of revenue are provided. Mr. Kenworthy said that the
language would not change ASTF's practice because only if there are
questions does ASTF perform more diligence looking for records.
There have not been situations in which people hide revenue.
MS. SWENSON commented that sometimes more diligence leads to more
questions.
MR. KENWORTHY, in response to Chairman Rokeberg, stated that this
provision will not require paperwork. He reiterated that the
provision will not change the current practice. When ASTF looks
for audited financial statements, sales or rather the gross revenue
which comes out of the product sales is reviewed. The auditing of
sales is easier to audit than profit.
CHAIRMAN ROKEBERG pointed out that this provision requires annual
certified financial statements.
MR. KENWORTHY expressed concern with the certification requirement
because of the high cost of certification. For example, a $20,000
project would result in a price tag of about $3,500 for an audit.
He informed the committee that the board includes the President of
the National Bank of Alaska. The board discussed ASTF's fiduciary
responsibility; "what expense should we be jointly under with our
grantees in these struggling businesses?" It was decided to audit
everything over $50,000 which is a higher standard than state law.
Sometimes ASTF audits below $50,000 based upon whether there is the
feeling something is missing. Therefore, ASTF requires self
certification. CPA certification is required if ASTF feels it is
necessary. Mr. Kenworthy did not believe that the committee would
want to establish a rule that applied to all cases because that
would result in money being wasted.
Number 2243
CHAIRMAN ROKEBERG inquired as to what Mr. Kenworthy would view as
acceptable with regard to the reporting of financial conditions.
MR. KENWORTHY indicated that for those grantees with a repayment
obligation, requirements of annual financial statements and other
records may be appropriate. He reiterated that ASTF has fairly
broad power to review financial records which is evidenced in
Section 29 of the ASTF standard grant agreement.
CHAIRMAN ROKEBERG asked if it would be appropriate then to on page
2, line 11, delete "certified" and require that ASTF receive an
annual report.
MR. KENWORTHY explained that currently, ASTF requires grantees to
maintain records for five years in order for ASTF to monitor
repayment obligation. That authority is included under the grant
agreement. He said that changing "shall" to "may" and deleting
"certified" on page 2 would allow cost-effective decisions to be
made. However, it is the committee's decision as to whether the
change is necessary.
REPRESENTATIVE HALCRO moved that the committee adopt the following
conceptual amendment labelled Amendment 2:
Page 2, line 11
Delete "certified"
There being no objection, Amendment 2 was adopted.
TAPE 99-53, SIDE A
REPRESENTATIVE HALCRO asked if ASTF requests the attorney general's
help when there is no response from the grantee.
MR. KENWORTHY said that there has not been such a case. Regardless
of whether the statute is changed, Mr. Kenworthy felt that he would
approach the attorney general if he felt someone was "stiffing the
state." Such action has been discussed in one situation. Mr.
Kenworthy believed that he already has that authority.
REPRESENTATIVE MURKOWSKI commented that it already appears that
ASTF has the authority to approach the attorney general for
assistance in a collection effort. Therefore, is it necessary to
include the last sentence in Section 2 of the bill?
MR. KENWORTHY answered that he did not think so and added that he
did not believe Section 2 in its entirety, with the word "may", is
necessary. Mr. Kenworthy pointed out that page 2, line 12 reads,
"until repayment has occurred." Currently, ASTF requires records
to be kept for five years; this is a requirement in perpetuity. He
read the language to mean that the requirement would be in
perpetuity. If full repayment has not occurred, then audits would
be required. Mr. Kenworthy agreed that continuing audits for those
who owe ASTF money is necessary, but he highlighted that the audits
should occur only if it is a viable enterprise. He was not sure
that he had discretion.
CHAIRMAN ROKEBERG said that he believed it was implicit that if it
is a defunct business, a report would not be required. Chairman
Rokeberg indicated that this could be amended if the committee saw
fit. He announced that his objective was to accommodate Mr.
Kenworthy and move HB 117 out of committee.
MR. KENWORTHY agreed with Representative Cissna that the language
"until repayment has occurred" is the problem. He pointed out that
the repayment is 1.5 percent times the amount of the grant in
perpetuity. "The question is if you're going to require audits and
then LB&A is going come audit me to see whether I have an audit
that says there were no assets there that I can tax at that five
percent. What's the cost-effectiveness of doing that?"
Number 0355
CHAIRMAN ROKEBERG offered a conceptual amendment labelled Amendment
3:
Page 2, line 12, after "until"
Insert "the obligation is satisfied or ceases
to exist."
REPRESENTATIVE HALCRO commented that ASTF has been in existence for
11 years and the statute has never been addressed with regard to
bankruptcy. Has there been a case where bankruptcy occurred and if
so, what did ASTF do?
MR. KENWORTHY said that he didn't recall any bankruptcy while ASTF
was funding a project. Alaska Power Systems may be considered in
bankruptcy, but that is the utility company not the technology
company that ASTF required to be split from the utility service.
He acknowledged that companies do cease to be operating entities
and go through bankruptcy afterwards. In reference to Amendment 3,
Mr. Kenworthy asked if the language "ceases to exist" refers to the
obligation or the business.
CHAIRMAN ROKEBERG replied both. He asked if there was objection to
Amendment 3. There being no objection, Amendment 3 was adopted.
REPRESENTATIVE BRICE expressed the need to clarify that the
provisions in HB 117 would not take effect on current grants, but
will effect those grants awarded after the effective date.
Representative Brice so moved
REPRESENTATIVE HALCRO asked if that would only apply to the
reporting obligations.
REPRESENTATIVE BRICE specified that it refers to the provisions of
this Act.
REPRESENTATIVE HALCRO understood the impetus for HB 117 to be the
LB&A audit which recommended that ASTF enforce post grant reporting
requirements, et cetera. Therefore, it would apply to existing
grants.
REPRESENTATIVE BRICE pointed out that there are currently 63 grants
which would have to be reviewed to make changes and provisions.
MR. KENWORTHY said that if "may" is utilized he would review those
grants in which situations it would make sense to do so. He
believed that has already been done with the cases in which ASTF
took the legal expenses to file security interests (indisc.). If
the committe wanted to insert a date that would be specific.
REPRESENTATIVE BRICE clarified that he believed that the dicussion
was regarding provisions under subsection (l) which deal with the
ownership of equipment. There may be some grants that clearly
stipulate to the contrary of subsection (l).
MS. SWENSON pointed out that with the change in language to "may"
there does not need to be an insertion of an effective anything.
REPRESENTATIVE CISSNA agreed with Ms. Swenson that the language
change leaves the retrospective aspect to the discretion of ASTF.
REPRESENTATIVE MURKOWSKI clarified that the "may" language only
refers to taking a security interest. There is "shall" language
which refers to the repayment obligations, financial statements, et
cetera. Therefore, it would depend upon how retroactive it is
intended.
REPRESENTATIVE HALCRO informed the committee that his aide,
Jonathon Lack, had informed him that grants are contracts and
cannot be retroactively changed. Therefore, the terms and
conditions of the current 63 grants could not arbitrarely be
changed.
REPRESENTATIVE BRICE commented that conflicting statutes are being
established because subsections (i) and (l) are not submissive to
subsection (g). Furthermore, there could be conflicts between the
contracts and the statutes.
Number 0989
MR. KENWORTHY explained that ASTF's existing practice is to require
a detailed budget which lists each piece of equipment. When the
final audit occurs, ASTF sees what was purchased and ASTF owns that
equipment until the final report. At the final report, the board
receives a full report of what the project did. The board then
makes an action to dispose of the equipment. Mr. Kenworthy
identified one issue as the need for the equipment in order for the
business to continue. Complications occur when ASTF holds the
equipment after the final report when other investors are being
sought. Furthermore, a piece of equipment could have been paid for
by the entrepeneur, ASTF, and an investor which makes it more
difficult to dissemble. Mr. Kenworthy pointed out that LB&A didn't
identify any problems with what equipment ASTF owns and the process
by which equipment is disposed.
REPRESENTATIVE BRICE inquired as to why then is the committee
addressing that part.
REPRESENTATIVE MURKOWSKI asked if ASTF takes a UCC filing on the
equipment.
MR. KENWORTHY answered that in some cases a UCC filing is taken,
but that is an issue of cost effectiveness.
CHAIRMAN ROKEBERG asked if in Section 4, the sponsor of HB 117 was
expressing the need for ASTF to go after something more
aggressively. Chairman Rokeberg surmised that Section 4 is trying
to tell ASTF to go after grantees that have not made repayments and
ASTF has not gone after the equipment.
REPRESENTATIVE HALCRO interjected that the example given wasn't
even relative because it is still an ongoing concern.
MS. SWENSON stated that the aforementioned situation with Mr.
Harrison has changed since their first knowledge of it.
CHAIRMAN ROKEBERG asked if all of ASTF's grantees are still in
existence.
MR. KENWORTHY said that some grantees are inactive. He commented
that ASTF is taking more risk than the commercial private sector,
but less risk than the university with commercialization. He
reiterated that ASTF is more involved in seed capital than venture
capital. He reiterated that ASTF is involved in the early stage
capital and taking the appropriate amount of risk for that stage.
CHAIRMAN ROKEBERG asked if ASTF is a venture capitalist by taking
mandatory security interest.
MR. KENWORTHY expressed the need to review this more closely.
However, this could be an administrative problem at the end of the
final report when if an equipment decision is not made, there would
be an ongoing relationship that has to be administered. This would
be occuring as the company is attempting to find further investment
and partners; the company would have to show that the state still
owns its equipment. Mr. Kenworthy didn't believe that the desire
would be to create barriers to increased investment in start up
ventures.
MS. SWENSON suggested that perhaps this issue be left and allow the
bill to move in order for Mr. Kenworthy to obtain more information
and the issue of the fiscal notes to be addressed in the House
Finance Committee.
CHAIRMAN ROKEBERG commented that could be one strategy. He asked
Mr. Kenworthy if the language on page 2, line 22 "in part" was of
concern with regard to multiple owners of equipment.
MR. KENWORTHY pointed out that the problem is that often a piece of
equipment is used to create a new piece of equipment which creates
a different ownership pattern. "Imagine trying to get someone to
invest in a business where you have different ownership patterns
with a components of a machine."
Number 1296
REPRESENTATIVE BRICE withdrew Amendment 3.
REPRESENTATIVE BRICE moved that the committee adopt the following
amendment:
Page 2, Delete lines 15-25
CHAIRMAN ROKEBERG clarified that Sections 3 and 4 are amended or
new sections.
REPRESENTATIVE BRICE specified his intention to remove the proposed
changes.
Therefore, on page 2, line 17 "Subject to (l) of this section, at"
would be removed and "At" inserted and all of Section 4 would be
deleted.
CHAIRMAN ROKEBERG asked if there was objection to Representative
Brice's amendment. There being no objection, it was so ordered.
Number 1478
REPRESENTATIVE BRICE moved to report HB 117 as amended out of
committee with individual recommendations and the accompanying
fiscal notes.
REPRESENTATIVE HALCRO objected. He emphasized that the committee
seems to have spent the last two hours fixing a problem that did
not need to be fixed.
MS. SWENSON commented that Representative Bunde intended for the
statute to contain the remedies for these recommendations.
REPRESENTATIVE HALCRO withdrew his objection.
Therefore, there being no objection, CSHB 117(L&C) was reported
from the House Labor & Commerce Standing Committee.
The committee took a brief at-ease from 5:23 p.m. to 5:28 p.m.
CSSB 51(L&C) - LICENSING OF COSMETOLOGISTS
Number 1625
CHAIRMAN ROKEBERG announced the committee's next order of business
is CSSB 51(L&C), "An Act relating to barbers, hairdressers,
manicurists, and cosmetologists; providing that the only
qualification necessary for licensure as a manicurist, other than
payment of fees, is completion of a class that is 12 hours in
duration, addresses relevant health, safety, and hygiene concerns,
and is offered through a school approved by the Board of Barbers
and Hairdressers; and providing for an effective date." The
chairman stated the K Version [proposed committee substitute (CS)
1-LS0378\K, Lauterbach, 4/21/99] had been formally adopted by the
committee and is before it. He invited the bill sponsor's
representative forward to speak about the K.1 amendment.
Number 1641
DOUG SALIK, Researcher for Senator Tim Kelly, Alaska State
Legislature, came forward as the aide to the Senate Community and
Regional Affairs Standing Committee, the bill sponsor. The K.1
amendment has been drafted for clarification and as an attempt to
solve some of the concerns brought to the Senate Community and
Regional Affairs Committee regarding Senate Bill 51. Mr. Salik
indicated the amendment does not follow the Senate Community and
Regional Affairs Committee's wishes exactly; a few things were
missed and a few things included in error. The K.1 amendment's
intent is to allow a second-tier manicurist licensing, an advanced
manicurist licensing. The creation of a 250-hour class would be
allowed. In the original legislation, a person would be certified
for health, safety and hygiene with a 12-hour class. Mr. Salik
indicated this amendment would allow a person to receive additional
licensing as an advanced manicurist through a further 250-hour
course concerning more technical procedures in manicuring. Mr.
Salik wished Ms. Reardon [Director, Division of Occupational
Licensing, Department of Commerce and Economic Development] to
review the amendment and explain some problems she has found.
REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment K.1.
Amendment K.1, labeled 1-LS0378\K.1, Lauterbach, 5/5/99, read
[before the two subsequent amendments to the amendment]:
Page 2, line 22, following "hairdressing,":
Insert "advanced manicuring,"
Page 2, line 24, following "licensure":
Insert "or endorsement"
Page 2, line 27, following "manicuring":
Insert"; however, nothing in this sentence prohibits
the board from requiring a licensed manicurist to pass an
examination to obtain an optional endorsement as an
advanced manicurist under AS 08.13.080(c)"
Page 3, line 9, following ";":
Insert "however, an instructor for hairdressing may
teach in a school of manicuring if the instructor teaches
only courses that satisfy the requirements of AS
08.13.110(b);"
Page 4, line 9:
Delete "a new subsection"
Insert "new subsections"
Page 4, line 12, following "course":
Insert "approved under AS 08.13.110(b)"
Page 4, following line 17:
Insert a new subsection to read:
"(c) The board shall add an endorsement to a
license to practice manicuring or hairdressing
indicating that the person is an advanced
manicurist if the person
(1) holds, or has been approved for, a
current license issued under this chapter for
manicuring or hairdressing;
(2) requests the endorsement;
(3) submits documentation from a licensed
school of manicuring or hairdressing certifying
completion of 250 hours of instruction in
manicuring that meet the requirements of AS
08.13.110(c);
(4) passes an examination given by the
board for advanced manicurists; and
(5) pays the appropriate fee."
Page 5, line 5, following "license":
Insert "or endorsement"
Page 5, line 26:
Delete "a new subsection"
Insert "new subsections"
Page 5, line 27:
Delete all material and insert:
"(b) The board shall issue a license to a
school of manicuring if it offers"
Page 5, line 28, following "training":
Insert "approved by the board"
Page 6, following line 4:
Insert a new subsection to read:
"(c) A school of manicuring may seek approval
from the board for a curriculum designed to qualify
students for an advanced manicurist endorsement.
The board shall establish the curriculum
requirements applicable under this subsection
through its authority under (a) of this section."
Page 6, line 15, following "manicurist":
Insert "or hairdresser"
Page 6, line 16, following "manicurist":
Insert "or hairdresser"
Page 6, line 17, following "concerns":
Insert "related to the practice of manicuring"
Page 6, line 29, following "(2)":
Insert "the practice of manicuring by a student as
part of instruction in a 12-hour course approved under AS
08.13.110(b);
(3)"
Page 6, line 30:
Delete "(3)"
Insert "(4) [(3)]"
Page 6, line 31:
Delete "(4)"
Insert "(5) [(4)]"
Page 7, line 24:
Delete "manicuring,"
Page 7, line 27:
Delete "manicuring or"
Page 7, lines 30 - 31:
Delete "if the permit is for the practice of
barbering, hairdressing, or esthetics"
Page 8, line 4, following "licenses":
Insert ", endorsements,"
Page 8, lines 13 - 15:
Delete
"(9) [(8)] temporary permit;
(10) temporary license;
(11) [(9)] student permit."
Insert
"(9) endorsement for advanced manicurist;
(10) [(8)] temporary permit;
(11) temporary license;
(12) [(9)] student permit."
REPRESENTATIVE BRICE objected for purposes of discussion.
CHAIRMAN ROKEBERG requested Ms. Reardon's recommendations.
Number 1767
CATHERINE REARDON, Director, Division of Occupational Licensing,
Department of Commerce and Economic Development (DCED), came
forward. Ms. Reardon agreed to speak first to the two adjustments
she would like to see to the amendment, then explain the entire
amendment. 1) Ms. Reardon recommended that lines 1 through 4, page
3, of the written amendment be deleted. [Page 3, lines 1-4,
Amendment K.1, read:
Page 6, line 15, following "manicurist":
Insert "or hairdresser"
Page 6, line 16, following "manicurist":
Insert "or hairdresser"]
MS. REARDON explained the insertion of this language, "or
hairdresser", in these two locations would require that the
language for the manicurist license regarding the health, safety
and hygiene training also appear on the hairdresser license,
indicating that the hairdresser has taken the 12-hour manicuring
course. Ms. Reardon indicated she did not think this was the
sponsor's or the current committee's intent. She did note that
hairdressers are allowed to practice manicuring under this
legislation.
CHAIRMAN ROKEBERG requested the judgement of the subcommittee.
The three members of the subcommittee - Representatives Brice,
Murkowski and Cissna - agreed the language should be deleted in
accordance with Ms. Reardon's recommendation.
Number 1848
MS. REARDON stated the other item is a conceptual amendment
concerning instructors. It would replace lines 9 through 12 on
page 1 of the written amendment. [Page 1, lines 9-12, Amendment
K.1, read:
Page 3, line 9, following ";":
Insert "however, an instructor for hairdressing may
teach in a school of manicuring if the instructor teaches
only courses that satisfy the requirements of AS
08.13.110(b);"]
MS. REARDON explained it had been realized that there would be no
mechanism to have people who could instruct the manicurist course.
The existing statute says that in order to instruct in any field of
practice, a person must have held the license as a practitioner
for, Ms. Reardon believes, 2 years and also have 600 hours of
additional training. Ms. Reardon indicated no one in the state
would fulfill these requirements since the manicurist license would
be created with this legislation. A "catch-22" would be created
where no one could instruct and therefore no one could get a
license. As the amendment currently reads, an instructor for
hairdressing would be allowed teach the manicuring course. Ms.
Reardon believes it was the sponsor's intent to allow an instructor
for hairdressing to teach the 12-hour course. The conceptual
amendment would clarify that an instructor in hairdressing can
automatically teach the 12-hour course, but it would be up to the
board to determine by regulation the instructor requirements for
the 250-hour course.
MS. REARDON indicated it is probably not desirable to have
hairdresser instructors, who may only have 12 hours of manicuring
instruction themselves, teaching the 250-hour advanced manicuring
course. It would probably be desirable to have someone who is an
advanced manicurist as an instructor. Ms. Reardon further
indicated she thought the sponsor felt it would be better to allow
the board to determine this through regulation than to attempt to
specify the exact training an advanced manicuring instructor would
need. Ms. Reardon stated the suggestion would be to replace lines
9 to 12 [page 1] of the current amendment with a conceptual
amendment stating, "An instructor for hairdressing ... can instruct
a manicuring 12-hour course, but 'regs' [regulations] must be
written to determine who can instruct the course longer than
12-hours." Ms. Reardon noted the conceptual amendment should also
include any necessary conforming items.
CHAIRMAN ROKEBERG confirmed Ms. Seitz, aide to the House Labor and
Commerce Standing Committee, had the suggested language. He
indicated the committee would move the following language.
Number 1960
JANET SEITZ, Legislative Assistant to Representative Norman
Rokeberg, as aide to the House Labor and Commerce Standing
Committee stated, "Clarify that ... [an] instructor for
hairdressing may instruct the manicuring 12-hour course, but it's
up to the board to develop regulations for instructors for advanced
courses.
CHAIRMAN ROKEBERG noted this is in the form of a conceptual
amendment. He asked if there were any objections.
REPRESENTATIVE BRICE objected. He assumes there are current
regulations establishing who can teach manicuring for hairdressers.
MS. REARDON clarified they call those hairdresser instructors.
CHAIRMAN ROKEBERG mentioned "component part."
REPRESENTATIVE BRICE agreed. He suggested they say, "The board can
develop their instructor requirements for both, rather than --"
MS. REARDON indicated that was fine.
CHAIRMAN ROKEBERG indicated the board already has regulations for
hairdressers. He added, "We need some immediacy in order to get
these folks (indisc.--talked over) 12 hours so..."
REPRESENTATIVE BRICE talked over, "So the board's not spinning
around trying to (indisc.--talked over) for the 12 hour."
CHAIRMAN ROKEBERG talked over and agreed, "Right, let's not do that
... let's leave the conceptual amendment alone because that's what
it does. It leaves the hairdressers in place to instruct the
12-hour certification, then it allows the board to develop the
regulations to provide for the instructor qualifications for the
longer course. That's what the intent..."
REPRESENTATIVE BRICE agreed and added, "Which they already have,
okay ...." He removed his objection.
CHAIRMAN ROKEBERG confirmed there were no other objections to the
first conceptual amendment to Amendment K.1, possibly designating
Amendment K.1 as Amendment 1. As there was no further objection,
the conceptual amendment to the amendment was adopted.
Number 2040
CHAIRMAN ROKEBERG made a motion to amend Amendment K.1 by deleting
lines 1 through 4 on page 3. There being no objection, it was so
ordered.
Number 2078
MS. REARDON proceeded to explain Amendment K.1 as amended,
beginning with page 1 of the written amendment. Lines 1 through 8
are conforming adjustments to make it clear that a board
examination is mandatory for the advanced manicuring endorsement.
Lines 9 through 12 have been replaced with the conceptual
amendment. Lines 13 through 15 corrects grammar because there will
now be two sections. Lines 16 and 17 refer to the 12-hour course;
documentation must be submitted that a person has completed a
manicuring course approved under the manicuring school licensing
section. Lines 18 and 19 on page 1 and lines 1 through 11 on page
2 describe the requirements for the advanced manicuring
endorsement. Ms. Reardon indicated she thinks this is the core of
the sponsor's intent with this "bill" [amendment].
Number 2145
CHAIRMAN ROKEBERG questioned that the 250 hours are acceptable to
Senator Tim Kelly.
MR. SALIK answered in the affirmative.
REPRESENTATIVE HALCRO questioned that they had gone from 12 to 250.
CHAIRMAN ROKEBERG noted they had gone to 12 plus 250.
REPRESENTATIVE MURKOWSKI indicated an advanced endorsement for 250
hours has been included.
CHAIRMAN ROKEBERG asked about the concerns raised regarding
utilization of Alaska Commission on Postsecondary Education (ACPE)
[Alaska Student Loan Corporation] monies. The chairman indicated
he wished to know if there was satisfaction that abuses would not
be occurring.
MR. SALIK answered it is correct. He said they tried to choose a
number high enough that loans could be made. Mr. Salik indicated
that if a large enough number of hours to cover most of the
curriculum was selected but this number was under the threshold for
which a student loan could be granted, a class would be created
that would be too costly for people to pay for themselves but for
which loans could not be received. He further indicated the number
of hours chosen could allow for reciprocity with other states,
would be eligible for loan monies, and would allow the majority of
the advanced manicuring techniques to be covered.
CHAIRMAN ROKEBERG noted, then, 250 hours had been chosen, not more
or less than that.
Number 2204
MR. SALIK agreed. He indicated this number had been based on other
states' requirements in the interests of reciprocity for an
advanced manicurist course.
CHAIRMAN ROKEBERG commented this would then prohibit a course of
more than 250 hours. He indicated a longer course would increase
the tuition.
MS. REARDON said she did not think this would prevent a school from
saying it offers a 1,000-hour course, but state only has to see 250
hours to provide someone the certification.
CHAIRMAN ROKEBERG indicated the issue here, however, is Alaska
Student Loans.
MS. REARDON said she assumes ACPE will not loan for more hours than
it takes to get a license, but she is not 100 percent sure of this.
She noted she is also not 100 percent sure ACPE will choose to loan
on this type of program. Ms. Reardon indicated ACPE might decide
the risk of non-repayment would be too high, no matter the
legislation's language.
CHAIRMAN ROKEBERG asked Mr. Salik if he thinks that is an accurate
statement.
MR. SALIK answered that is his understanding through their
discussions with ACPE. He indicated the commission was hesitant,
but the intent had been to not make the number of hours too high so
that ACPE would completely rule out the loaning capabilities.
Number 2255
REPRESENTATIVE HALCRO asked about failure to repay the loan.
MR. SALIK indicated he didn't know ACPE's procedures in this
situation.
MS. REARDON indicated one consequence of non-repayment of an Alaska
Student Loan is non-renewal of an occupational license; therefore,
the person would lose the product which he/she obtained with that
loan. Ms. Reardon continued with her explanation of Amendment K.1.
Referring to the language, "passes an examination", on page 2, line
9, of the printed amendment, she noted this is why the earlier
conforming changes on page 1 had been made. Lines 12 and 13 of
page 2 refer to a section of the law which speaks about coming into
the profession through "credentialling" from another state. It was
the intent to make it clear that a person could credential into the
advanced manicurist endorsement, as well as to the licenses, if
she/he had the background. Lines 14 through 16 of page 2 are
grammar. Ms. Reardon indicated the bottom of page 2 clarifies that
the board will set the curriculum for the 250 hours as it does for
the other programs. Lines 1 through 4 at the top of page 3 have
been eliminated through the second amendment to the amendment.
Continuing with page 3, lines 5 and 6 provide that the manicurist
license printout will say a person's health and safety training was
related to the practice of manicuring.
Number 2350
REPRESENTATIVE MURKOWSKI asked if the license for the endorsed
manicurist degree would be different than the regular [manicurist]
license.
MS. REARDON answered she perceives that someone would have a
manicurist license with something additional on the license saying
that person has an endorsement as an advanced manicurist. She
explained that since the statute would require manicurists'
licenses to say that the holder has taken the hygiene course, the
advanced manicurist's license would contain that language along
with the likely wording, "with an advanced manicurist endorsement".
Ms. Reardon noted this is how contractor licenses with residential
endorsements are handled. Returning to the explanation of the
amendment, Ms. Reardon commented that lines 7 through 10 on page 3
of the printed amendment relate to the student permit. This adds
an exemption for people who need to have licenses to work. It says
that if someone is practicing manicuring as part of her/his 12-hour
course, she/he does not have to get a student permit. The thought
was that if it is only a 12-hour course, obtaining a $50 student
permit from the division would only delay completion of the entire
course. However, if someone is taking the 250-hour course and is
actually performing manicuring at a shop as part of her/his
training, she/he will have to have the manicurist license first to
legally do that. Ms. Reardon commented the rest of the printed
amendment's page 3 is related to the student permit situation she
has described. The final page, page 4, of the printed amendment
adds those endorsements as something the division can charge money
for.
Number 2462
CHAIRMAN ROKEBERG stated the committee has the amendment as amended
before it. There being no objection, Amendment K.1, as amended,
was adopted.
TAPE 99-53, SIDE B
Number 0001
MS. REARDON indicated that once the House CS is formally adopted,
the department will be able to prepare a fiscal note for it.
Because people will be paying the division for the advanced
manicurist exam and the division will be purchasing the exam, the
fiscal note presented to the next committee of referral [House
Finance Standing Committee] will show a small amount of
"pass-through money."
Number 0056
REPRESENTATIVE MURKOWSKI made a motion to move the House CS
[Version K], as amended, for CSSB 51(L&C) out of committee with the
attached fiscal notes and individual recommendations. There being
no objection, HCS CSSB 51(L&C) moved out of the House Labor and
Commerce Standing Committee.
ADJOURNMENT
Number 0082
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 5:51 p.m.
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