03/17/2006 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB477 | |
| HB51 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 227 | TELECONFERENCED | |
| += | HB 477 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 51 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 17, 2006
3:33 p.m.
MEMBERS PRESENT
Representative Pete Kott
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
MEMBERS ABSENT
Representative Tom Anderson, Chair
Representative Gabrielle LeDoux
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 477
"An Act relating to charitable gaming."
- HEARD AND HELD
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 51
"An Act relating to modifying the qualifications required for
workers' compensation self-insurance and permitting employers in
the same trade or industry to form an employer association for
self-insured workers' compensation coverage; and providing for
an effective date."
- MOVED CSSSHB 51(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 227
"An Act relating to the Alaska Small Loans Act; and providing
for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 477
SHORT TITLE: CHARITABLE GAMING
SPONSOR(s): REPRESENTATIVE(s) KOTT
02/13/06 (H) READ THE FIRST TIME - REFERRALS
02/13/06 (H) L&C, FIN
02/24/06 (H) L&C AT 3:15 PM CAPITOL 17
02/24/06 (H) -- Meeting Canceled --
03/17/06 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 51
SHORT TITLE: EMPLOYER ASSN FOR WORKERS' COMP INS
SPONSOR(s): REPRESENTATIVE(s) MEYER
01/10/05 (H) PREFILE RELEASED 1/7/05
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) L&C, FIN
01/18/06 (H) SPONSOR SUBSTITUTE INTRODUCED
01/18/06 (H) READ THE FIRST TIME - REFERRALS
01/18/06 (H) L&C, FIN
02/10/06 (H) L&C AT 3:15 PM CAPITOL 17
02/10/06 (H) Heard & Held
02/10/06 (H) MINUTE(L&C)
03/06/06 (H) L&C AT 3:15 PM CAPITOL 17
03/06/06 (H) Heard & Held
03/06/06 (H) MINUTE(L&C)
03/15/06 (H) L&C AT 3:15 PM CAPITOL 17
03/15/06 (H) <Bill Hearing Postponed to 3/17/06>
03/17/06 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
MIKE O'HARE, Staff
to Representative Kott
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke on behalf of the sponsor of HB 477,
Representative Kott.
JEFF PRATHER, Gaming Group
Juneau Office
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: During hearing of HB 477, answered
questions.
LARRY MEYERS, Deputy Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: During hearing of HB 477, answered
questions.
ROBERT LOESCHER, Vice President
Juneau ANB Camp 2
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 477.
STEPHEN BORCHERDING, General Manager
Gold Cache Bingo
Anchorage, Alaska
POSITION STATEMENT: Expressed concerns with HB 477.
JACK POWERS
Anchorage, Alaska
POSITION STATEMENT: Expressed concerns with HB 477.
GREGORY PETERSON, General Manager
Alaska Indoor Sports Distributing
Ketchikan, Alaska
POSITION STATEMENT: Testified in opposition to HB 477.
LIEUTENANT JAMES HELGOE
Division of Alaska State Troopers
Department of Public Safety
Sitka, Alaska
POSITION STATEMENT: Expressed concerns with HB 477.
MIKE PAWLOWSKI, Staff
to Representative Kevin Meyer
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SSHB 51 on behalf of
Representative Meyer, sponsor.
LINDA HALL, Director
Division of Insurance
Department of Commerce, Community, & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Testified during hearing on SSHB 51.
PAUL F. LISANKIE, Director
Central Office
Division of Workers' Compensation
Department of Labor & Workforce Development
Juneau, Alaska
POSITION STATEMENT: Testified during hearing on SSHB 51.
ROBERT VOGAL, Vice President of Operations, Group Manager
Pro Group Management, Inc.
Carson City, Nevada
POSITION STATEMENT: Answered questions during hearing on SSHB
51.
ACTION NARRATIVE
REPRESENTATIVE PETE KOTT, ACTING CHAIR called the House Labor
and Commerce Standing Committee meeting to order at 3:33:18 PM.
Representatives Kott, Lynn, Rokeberg, and Crawford were present
at the call to order.
HB 477-CHARITABLE GAMING
3:33:50 PM
ACTING CHAIR KOTT announced that the first order of business
would be HOUSE BILL NO. 477, "An Act relating to charitable
gaming."
REPRESENTATIVE LYNN moved to adopt CSHB 477, Version 24-
LS1696\G, Luckhaupt, 3/3/06, as the working document. There
being no objection, Version G was before the committee.
3:34:26 PM
MIKE O'HARE, Staff to Representative Kott, Alaska State
Legislature, speaking on behalf of the sponsor, paraphrased from
the following written testimony [original punctuation provided]:
This bill is an effort to ensure that crimes within
the charitable gaming community are investigated and
prosecuted fully and passionately.
Many of these charities effected by these crimes are
discouraged by the results of investigations and lack
of prosecutions of these cases in the past.
HB 477 changes Alaska Statute 05.15.010, requiring the
Department of Public Safety to investigate theft and
the Attorney General to prosecute these crimes.
This requirement will hopefully deter criminal
activity associated with charitable gaming and keep it
clean, and all of the charities will get their
rightful share of the proceeds.
HB 477 also adds provisions to the existing charitable
gaming statutes AS 05.15 that will enable permitted
charitable gaming organizations and operators to
present to the state biennial instead of the annual
reports currently required by law.
Currently both the State and gaming operators must
expend considerable resources each December to process
and prepare permits.
Changing to biennial reporting will be much more
efficient for everyone. The permittee currently
expends considerable resources to prepare each annual
permit application.
The State spends considerable resources examining each
permit application. The State loses neither revenues,
nor enforcement capability with this change.
HB 477 also amends AS 05.15.090 to include in the
department's detailed report containing a summary of
all reports required of permittees and operators.
This report must also include information concerning
any investigations or prosecutions undertaken by the
department of Public Safety or the Department of Law
as required under amended AS 05.15.010.
HB 477 also removes the Alaska Administrative Code AAC
160.580(e)
This code refers to the allowable number of bingo
games and limitations on the number of bingo sessions
as well as a one hour break between bingo sessions.
This section was originally enacted to prevent the
"Bingo Wars", where competing organizations would
raise pay-outs in order to compete with other games.
This 60 minute break is inconvenient, expensive and
inefficient
Players must sit and wait for an hour
Bingo is a social event in many communities
This mandatory halt disrupts the process as the
stoppage is in no way connected to the schedules of
the people that gather together to play.
Removing this section will allow operators to adjust
to the tempo and schedules of their customers.
With regard to the Hour break - utilities are being
run..the lights and the heat are still on, staff must
wait while still getting paid, etc
The removal of this section will increase the
enjoyment for those participants in bingo and reduce
the costs associated with providing the service. Any
reduction of costs would benefit those charities that
deserve the proceeds.
MR. O'HARE then informed the committee of the three fiscal notes
from the following departments: Department of Revenue,
Department of Public Safety, and the Department of Law.
3:38:28 PM
REPRESENTATIVE LYNN related his belief that changing from annual
reports to biennial reports means that it will take twice as
long to determine whether something improper is occurring.
MR. O'HARE related his understanding that the permittees will be
required to submit an annual summary report to the Department of
Revenue (DOR).
REPRESENTATIVE CRAWFORD turned to the elimination of the 60-
minute time-out, which will result in more gambling and more
revenues for the operators. He expressed his opposition to
anything that expands gambling.
ACTING CHAIR KOTT offered his understanding that currently
operators can expand the number of sessions and games, and
therefore he didn't believe this change would cause a great
degree of expansion.
3:42:35 PM
JEFF PRATHER, Gaming Group, Juneau Office, Tax Division,
Department of Revenue, explained that the sessions are limited
to 35 games or $5,000 in payouts. There can be no more than 4
sessions in a 24-hour period.
ACTING CHAIR KOTT surmised then that no matter the length of the
break between sessions, the gambling can't be expanded beyond
the aforementioned restrictions.
REPRESENTATIVE CRAWFORD related his understanding that the
elimination of the 60-minute time-out allows the use of a bingo
gaming machine. He inquired as to the pros and cons of such.
MR. PRATHER said that he didn't know anything about bingo gaming
machines being available between sessions. Mr. Prather related
his understanding that there are electronic bingo paper
machines, which are machines for which one can have numerous
cards that the machine can track.
LARRY MEYERS, Deputy Director, Tax Division, Department of
Revenue, explained that the traditional game of bingo is often
played with paper, and therefore the hour break would allow
closure of the game before the next game. However, electronics
has sped up the process such that a player can purchase more
games with electronic bingo paper. Mr. Meyers mentioned that
there has been some effort to bring in new types of machines
that would allow continuous play.
ACTING CHAIR KOTT asked if those machines allowing continuous
play would have to be approved by the department.
MR. MEYERS replied yes. He informed the committee that the
department is constantly seeing new types of products that it
must review in order to determine whether they meet the
intention and the purpose of the gaming statutes.
ACTING CHAIR KOTT opined that with technology, bingo sessions
have become shorter over the years. However, the aforementioned
restrictions remain.
REPRESENTATIVE ROKEBERG related his understanding that Section 9
only annuls 15 AAC 160.580(e), and therefore the other
aforementioned restrictions will remain in regulation.
3:50:30 PM
REPRESENTATIVE LYNN reiterated his concern regarding the change
from the annual to biennial report.
MR. MEYERS said that annual reports make the job easier for the
department, although it's more paperwork. With the biennial
report, the department will have to rely on reports from
permittees and any action against an operator or his/her bond
will have to wait until the final report is filed, which could
take up to two years. The aforementioned makes the regulator's
job a bit more difficult, especially if there is a complaint. A
similar situation will exist with the report from the certified
public accountants (CPAs). Therefore, the biennial report may
result in the department and other law enforcement not being
able to act in as timely a fashion when there are problems.
3:54:18 PM
ROBERT LOESCHER, Vice President, Juneau ANB Camp 2, informed the
committee that ANB Camp 2 has charitable gaming permits under
which it operates in Juneau. Mr. Loescher related support for
HB 477. In regard to biennial reports, he explained that
currently during the last week of December the charitable gaming
entities have to re-file the entity's permit application and put
together the year-end report. For charitable organizations,
which consist of volunteers, the aforementioned is a
"pressurized time." The department receives all the reports and
applications at once, which he indicated places pressure on the
department as well. Therefore, biennial report was suggested.
He highlighted that the biennial reports don't negate the
quarterly reports the department receives from every charitable
gaming organization nor does it eliminate the 1 percent fee to
the state. In fact, the fees would be paid two years in advance
under the current legislation. The impact on the department
would also be lessened by staggering the year in which the re-
filing would occur for the applicant. In conclusion, Mr.
Loescher opined that this legislation would help charitable
gaming by keeping the costs down while maintaining the quarterly
reporting and the 1 percent annual fee as well as the permit
application fee two years in advance.
3:58:00 PM
ACTING CHAIR KOTT asked if the quarterly reports are similar to
the full reports.
MR. LOESCHER explained that the quarterly report includes all
the aspects found in an annual summary report. The quarterly
report delineates the revenues gained and the activities of the
charity during that quarter. The annual report is merely a
summary of the four quarter reports. He opined that under the
biennial report, the department will have more time to deal with
the reporting from the charities than under the current yearly
reporting scenario. Mr. Loescher viewed this legislation as a
benefit to the state.
ACTING CHAIR KOTT surmised then that under HB 477, the
charitable gaming entities would submit a two-year report, which
would be a compilation of the previous eight quarters. If there
was an anomaly in that quarterly report, the department could
analyze and review it.
MR. LOESCHER confirmed Acting Chair Kott's understanding.
REPRESENTATIVE LYNN questioned why the annual report is required
if the quarterly reports are the same.
MR. LOESCHER explained that the annual report combines the
quarterly reports in a summary and is helpful for the department
in regard to reporting to the legislature about how much revenue
it's making.
REPRESENTATIVE LYNN commented that he would like to talk with
the administration about these reporting requirements later.
4:01:33 PM
MR. LOESCHER noted that he worked with the sponsor's staff and
the department in regard to the necessary conforming statutory
changes, which are encompassed in Version G. He then went on to
relate the difficulty in investigating theft or embezzlement
within charitable gaming as well as the difficulty in being able
to prosecute the perpetrators and recover losses. Therefore,
the law should include provisions that allow charitable gaming
officials to go the Department of Public Safety (DPS) and local
law enforcement for investigation and prosecution, when
appropriate. As a result of the inability to investigate and
prosecute cases, fidelity bond coverage is very limited and thus
the entity may only recover partially or not at all. Therefore,
Mr. Loescher requested that the legislature provide a provision
in the bill that would allow DPS and local law enforcement to
investigate, and when appropriate, prosecute cases of theft and
embezzlement.
MR. LOESCHER, in response to Acting Chair Kott, recalled that
recently a key employee of ANB who managed the gaming operations
embezzled over $50,000. All relevant information was given to
local law enforcement, but to date there has been no action from
local law enforcement or the state. Moreover, the fidelity bond
company has only been willing to offer a small amount against
the loss. Mr. Loescher surmised that local law enforcement
hasn't taken any action because this type of crime is a "low
priority." Furthermore, there is nothing in current statute
that provides DPS, the attorney general's office, or district
attorney authority to become involved.
ACTING CHAIR KOTT asked if this type of crime would fall under
the jurisdiction of the state or local authorities.
MR. LOESCHER opined that it falls under the jurisdiction of the
state because charities are enabled, authorized, and permitted
by state statute.
ACTING CHAIR KOTT inquired as to how many of these offenses Mr.
Loescher is aware. He expressed interest in determining how
many cases would be turned over to DPS to investigate in order
to determine the amount of time this would require of the
departments. This legislation, he highlighted, mandates that
DPS investigate these cases and the Department of Law prosecute
the offenders.
MR. LOESCHER estimated that perhaps there would be two to three
such cases in a five- to seven-year period. However, when it
happens a lot of money is usually involved. He related his
understanding that the charities are willing to gather
information for the local police, but these cases don't seem to
proceed past the local law enforcement level. Those involved
haven't found any way to sue, which is why the state is being
requested to assist the charities dealing with theft and
embezzlement.
4:11:58 PM
MR. LOESCHER reiterated the difficulties with regard to the one-
hour break that in charitable gaming include incurring the cost
of the facility and the employees during that break. Moreover,
it's an inconvenience to the customers. Furthermore, the reason
to have this regulation has diminished. Mr. Loescher recalled
that the one-hour break was a rule that was the result of a
departmental task force several years ago and thus he opined
that the department wouldn't be easily convinced to delete this
rule. Therefore, the legislature is being asked to do so.
4:17:47 PM
STEPHEN BORCHERDING, General Manager, Gold Cache Bingo,
Anchorage, Alaska, paraphrased from the following written
testimony and verbal additions [original punctuation provided]:
I am writing this letter to express my concerns about
HB 477 and ask that you reconsider its introduction
and/or your support for this bill. I can not foresee
any significant benefit to the charities or the
regulators of this industry in its three basic
sections. My concerns are as follows:
Public Safety Requirement
The Department of Revenue is already tasked with, and
is required to investigate any complaints by the
industry or its consumers. HB 477 requires all
complaints of theft or embezzlement to be handled by
the Department of Public Safety, and would eliminate
the investigative powers and duties of the Department
of Revenue, specifically the gaming unit, with regard
to theft.
Theft and embezzlement are already under the
jurisdiction of public safety. The department of
revenue does not have jurisdiction over these criminal
acts, but it does have the ability to investigate the
claims, build cases, utilize its judgment and, based
on its expertise in this area, present its findings to
the proper authorities. Under HB 477 any complaint of
theft or embezzlement, whether justified or not, will
be immediately turned over to a department that does
not have the expertise or the resources to properly
investigate these claims.
Additionally, section 5 of HB 477 provides for
essentially a "blotter report" of ongoing
investigations. Since the power of reasonable
judgment by the Department of Revenue is removed, any
and all complaints, justified or not, about
organizations, individuals, or operations will show up
on this report. Ongoing operations and individuals
may be victimized by erroneous complaints, bad
publicity, or unscrupulous competitors.
I am a huge proponent of keeping gaming free of
corruption, so I believe in keeping the investigative
powers in the hands of the experts.
Biennial Reporting
The industry itself, for the most part, has made it
clear that we are not in favor of loosening
regulations or restrictions. We have continually
shown through our actions that we not only support
tighter regulations, we actually help the Department
of Revenue draft and implement them. HB 477 not only
loosens some restrictions, it may actually promote, or
open the door to large scale corruption. Biennial
reporting creates holes in the system that may be
exploited.
According to the Department of Revenue, the majority
of issues investigated by the Gaming Unit are as a
direct result of current reporting requirements. The
Gaming Unit's investigations or audits of reports are
the best tool they have for deterring illegal
activity. More importantly, according to the Gaming
Unit these reports are used quite often to assist
permittees with their various gaming activities. The
Gaming Unit routinely uses its reports to help educate
permittees on the rules and regulations, resulting in
a cleaner and more profitable industry.
In addition, HB 477 does not make provisions or change
other Statutes that may also be affected by biennial
reporting: Licensing, operator contracts, odd year
applications, reports by self directed or MBP
organizations, biennial State gaming reports, as well
as the formidable amount of regulations that will have
to be re-written.
The proponents of this bill have insisted that
biennial reporting will relieve the Department of
Revenue of some of its burden. The bill, however,
only seems to apply to operators. There are only 22
operators in Alaska, and there are 1,200 total
permittees. I do not see the significant relief of
burden. In fact, this legislation would create more
of a burden, according to the Department of Revenue.
And one of the things that was brought up on the
previous testimony was that quarterly reports are the
same as the annual report, that is not completely
true. The annual report is an audited report by a
CPA, the quarterly reports are not. So, the annual
report may show differences that the quarterly reports
... may not show.
I do not believe this section will relieve the
Department of Revenue of any of its work load and will
more than likely create additional work, especially in
the area of auditing. It will open up an avenue for
large scale corruption, especially in the hands of an
unscrupulous operator and it will hinder the
department's ability to assist struggling charities.
And that's one of the parts of the department that
these reports help .... The Department of Revenue has
done a wonderful job of helping those charities,
through reading their reports, to be able to stay in
compliance and become profitable. The other thing I
would like to address on that section is that not all
charities are required or permits are required to file
quarterly reports, as was stated earlier. Only
permittees that have hit ... $50,000 a quarter are the
only ones that are required by law to turn in a
quarterly report. If they don't do $50,000 or if they
don't report, now we're talking about two years where
a charity would not have to report because they could
just simply claim that we weren't doing $50,000 a
quarter whether they were or were not. So, a two-year
scenario opens up several holes that I'm not very
comfortable with being in this industry.
One Hour Session Break
First of all this is not a statute. It is a
regulation. And this particular regulation was
introduced and adopted at the request of the industry.
(An example of our commitment to self-regulating)
This regulation was put in place to prevent the
exploitation of the Bingo session payout limitations
of $5,000 per session.
Bingo halls, in the past would routinely offer
$10,000, $15,000, $20,000 or more sessions and claim
that they were simply running sessions concurrently.
In addition to side stepping the spirit of the law,
these concurrent sessions created an auditing
nightmare for the non-profits and the State. The
competition to offer these large scale sessions and
the inevitable price wars that resulted from them,
nearly destroyed Bingo operations in Anchorage.
It is my understanding that this section of the bill
was included under the auspices that remote community
Bingo halls suffer because players do not want to wait
around for an hour to play again. In the 16 years I
have been in this industry and throughout my extensive
travels to various villages and remote bingo halls, I
have never heard this complaint. If anything, I would
feel that the one-hour break between sessions gives
you an opportunity to make more money, either through
your snack bar sales, vending, pull-tab sales, and so
on and so forth.
The proponents of HB 477 and specifically section [9]
are pushing another agenda that opens the door for an
unprecedented expansion of Gaming. If this section
passes, it will move us one step closer to the use of
Class II electronic bingo machines, (SLOT MACHINES)
that could be played under the umbrella of concurrent
Bingo sessions, 24 hours a day, 7 days a week. It is
my understanding that machines of this nature are
already in Alaska, warehoused and ready to go and the
Department of Revenue has been continually pressured
to approve their use. Section 9 moves these machines
a little closer to the warehouse exit door. PLEASE DO
NOT BE FOOLED BY THE RHETORIC.
My opinions on this bill were formed after numerous
conversations with my peers and others in the industry
and as a result of my extensive experience in Alaska's
Charitable Gaming Industry. Although I do not
represent all of the organizations. I do, however,
represent and speak on behalf of the several native
non-profit organizations that I am tasked with
managing.
Please help stop HB 477. I thank you for your
consideration.
4:26:42 PM
JACK POWERS paraphrased from the following written testimony:
I want to start by saying that I support Steve
Borcherding's testimony 100%. Between his
organization and mine we probably represent the
largest MBP and operator in Alaska. On that subject,
I would be interested to find out from the Department
of Revenue exactly out of the 22 operators--how many
large operators exist in the state? By large I mean
operators that are fully bonded and have contracts
with over four permittees. I would venture to guess
that there are very few.
But back to HB 477; as far as involving the State
Troopers at the front end of gaming investigations.
This bill, in essence, would make it possible for
anyone to claim anything and the troopers would have
to investigate. They would have no choice. A simple
phone call from an "anonymous" caller would require an
investigation if this passes, regardless of whether
the claim seems credible or not.
Not to mention that the key regulator involved in
gaming, the Department of Revenue, may not even be in
the loop before an investigation is initiated by a
secret call or email to troopers. The Department of
Revenue are the experts in gaming. On the other hand
the State Troopers are not as informed about gaming
laws and individuals in the gaming industry as the
department--so it seems that this bill puts the cart
before the horse.
Moreover, the bill supposedly intends to 'clean up
gaming' with these provisions, but then at the same
time loosens all the reporting requirements upon which
prosecution would depend. There is nothing to stop an
unscrupulous individual from intentionally not
reporting via quarterly reports and then have two
years before the department could catch any mistakes.
Some are saying that the annual audits are just too
time consuming and expensive for most charities.
Well, they would be just as expensive if done
"biannually" rather than annually. The auditor would
charge by the amount of work, so two years worth of
audits would cost twice as much.
Also, I see removing the hour break in between bingo
sessions as a mistake in many ways. Bingo players use
that hour in various ways--they grab a bite to eat,
play pull-tabs or socialize with friends. Without the
hour break I can see business running bingo non-stop,
24 hours a day. It opens the door to setting up bingo
machines which could be set up anywhere. I can see
bingo machines set up next to pull-tab kiosks in the
middle of the mall.
While I appreciate the intent of HB 477, because of
the manner in which it is written, it will create more
issues that it will solve.
MR. POWERS then turned to Mr. Loescher's testimony and said that
he doesn't know of any operator who hasn't received the permit,
even a temporary one, to operate. With regard to the annual
report, Mr. Powers characterized it as easy since it's merely a
compilation of the quarterly reports. Moreover, the annual
report isn't due until March, which provides plenty of time for
CPA review. He mentioned that the annual report, unlike the
quarterly report, must be accompanied by an independent CPA
review. In conclusion, Mr. Powers opined that running a full-
scale operation such as bingo hall necessitates having
independent operators, comptrollers, and cameras in the ceiling
as it's a fairly large business.
4:34:00 PM
ACTING CHAIR KOTT inquired as to how one could have bingo games
24 hours a day 7 days a week under HB 477 when there will
continue to exist restrictions with regard to the number of
sessions, prizes, and games that can be played.
MR. POWERS replied that up to 35 bingo games per session and
four sessions a day are allowed. Therefore, if one offered 35
blackouts/cover alls, which can last up to an hour, could result
in play for 35 hours. In response to comments regarding the age
of the clientele at bingo halls, Mr. Powers related that a
younger crowd is coming on Friday and Saturday nights. He
asked, "Wouldn't you rather have young people sitting in a nice
clean, drug-free bingo hall with no alcohol than being up around
the corner at a bar?"
4:37:17 PM
GREGORY PETERSON, General Manager, Alaska Indoor Sports
Distributing, related his belief that the Gaming Unit does a
great job enforcing the rules and regulations of the gaming
industry, and therefore no change is necessary. Therefore, any
mandate to review or investigate should remain within the Gaming
Unit. Furthermore, the Department of Revenue should review
licenses and permittees on an annual basis because this is one
of the few cases in which the Gaming Unit can review for
compliance. He characterized it as a "good solid process" that
shouldn't change. Mr. Peterson highlighted that this
legislation only covers operators, of which there are only 22
while there are 1,200 permittees. With regard to the reporting,
he opined that the quarterly reports are very general for which
there is no reconciliation process or bank statements provided
whereas annual reports require a more rigorous process that is
more than a compilation of quarterly reports. Mr. Peterson
opined that he doesn't want to "go backwards." He stated that
the gaming industry has always been in favor of tighter
regulations, while this legislation loosens existing regulations
from which the gaming industry wouldn't benefit. He then turned
to the proposal to remove the one-hour break between sessions
and characterized it as creating a "loophole" to expand gaming
in the state. Furthermore, in the 10 years he has worked with
the permittees across the state he said that he has never heard
any complaints about the one-hour break. In conclusion, Mr.
Peterson urged the committee not to pass HB 477 from committee.
4:41:24 PM
LIEUTENANT JAMES HELGOE, Division of Alaska State Troopers,
Department of Public Safety, directed the committee's attention
to the new language in Section 1 of HB 477, which is of concern.
As written, it would make the Division of Alaska State Troopers
the investigating agency for all thefts and embezzlement by a
permittee, operator, employee, or consumer regardless of local
police jurisdiction or the credibility of the complaint.
Therefore, DPS, he related, believes it would be better to have
existing local law enforcement agencies along with Department of
Revenue task force to investigate such alleged criminal
misconduct. The Department of Public Safety would investigate
when asked and when there is no local law enforcement agency.
4:43:07 PM
REPRESENTATIVE ROKEBERG inquired as to whether a local
jurisdiction can enforce state law.
LIEUTENANT HELGOE replied that local law enforcement agencies
enforce state statute on a regular basis.
4:43:46 PM
ACTING CHAIR KOTT noted that there was no quorum to take action
on the legislation. He then closed public testimony and
announced that HB 477 would be held over.
4:45:22 PM
HB 51-EMPLOYER ASSN FOR WORKERS' COMP INS
ACTING CHAIR KOTT announced that the final order of business
would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 51, "An Act
relating to modifying the qualifications required for workers'
compensation self-insurance and permitting employers in the same
trade or industry to form an employer association for self-
insured workers' compensation coverage; and providing for an
effective date."
MIKE PAWLOWSKI, Staff to Representative Kevin Meyer, Sponsor,
noted that during the last bill hearing, the members adopted
committee substitute (CS) 24-LS0233\S, Bailey, 3/3/06, as the
working document and the members were waiting for testimony from
the director of the Division of Insurance. He said that letters
of support from the State Chamber of Commerce and the Alaska
Chapter of the National Electrical Contractors Association had
been added to members' packets.
4:47:07 PM
LINDA HALL, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development, said that one of
the basic principles of insurance regulation is financial
oversight to ensure that claims are paid. She stated that while
[Version S] includes more detailed requirements, she still has
concerns regarding the bottom line repercussions of insolvency.
She said that Mr. Pawlowski had indicated adding a new term
"tangible net worth," and she stated that there is no definition
[in current statute]. She explained that insurance regulation
limits the types and value of assets in determining an insurer's
financial position, adding that the quality of assets and
liquidity is a concern.
4:49:13 PM
MS. HALL said that she feels the $5 million net worth aggregate
is "excessively low." She noted that the Department of Labor &
Workforce Development's projection, which is adjusted for
inflation, is approximately $10 million. She said that the CS
also requires a solvency bond, which she is not sure is
practical. She noted that she has spoken to a bond underwriter
who is active in the Alaska bond market, and was informed that
this would be very difficult to obtain because the individual
employers who would be members of the association have not been
required to provide audited financial statements in the past.
She stated that requiring the association to be the principle on
the bond would require a corporate signer who is willing to
indemnify the bonding company, and she opined that it would be
difficult to find an employer in the association willing to take
on this responsibility.
4:50:41 PM
MS. HALL expressed concern that the bill places primary
financial responsibility on the association, and added that in
general, trade associations do not have the financial assets to
provide the workers' compensation benefits. In regard to the
termination of membership, she said that Version S does not
address what happens to the liabilities for the time the
employer was a member of the association. She said that there
is a section which deals with insufficient assets and the
circumstances in which an association would be considered
insolvent; however, there is no provision dealing with what
happens afterward. She stated that the 36-month time period for
retention of the security deposit is not a sufficient length of
time, as some workers' compensation claims can take up to 20
years to close. She suggested that it may be more appropriate
to condition the release of the deposit upon termination of
liabilities as determined by actuarial analysis.
4:52:45 PM
MS. HALL went on to say that Version S would not allow the
statutes controlling unfair discrimination, misrepresentation
and false advertising, and unfair claims settlement practices to
apply to the self-insured associations. She stated that while
the division currently licenses adjusters who handle workers'
compensation claims, Version S does not require the third party
administrator be licensed as an adjuster, and therefore would
not provide any oversight of the claims handling practices. She
added that there is no complaint process or authority to require
accountability for the handling of claims.
4:54:16 PM
MS. HALL noted that the majority of the bill is based on Nevada
statute and regulation, although some significant provisions
have not been included. These include: The indemnity agreement
includes the association; annual assessments must be at least
$300,000 or an amount determined by the director to be
satisfactory based on an annual review of actuarial solvency;
each member of the association must have a tangible net worth of
at least $250,000 and a minimum premium for workers'
compensation insurance of at least $10,000; the director would
approve annual assessments; provisions are made to assess other
self-insured associations for the claims obligations of an
insolvent association. She noted that in the Nevada
regulations, there are provisions regarding the assessment of
other self-insured associations for claims obligations once a
member becomes insolvent. She said "I'm still concerned, if one
of these self-insured groups becomes insolvent, somebody's going
to have to pay, and I think we ... need to talk about who that
is."
4:55:56 PM
MS. HALL stated that AS 21.75 provides for the formation of
reciprocal insurers, which she feels would achieve the
objectives of the proposed self-insured association program. In
conclusion, she stated that while she is pleased to see the
efforts to include more accountability, she continues to have
reservations about the viability of the small plans when there
is potential to have insufficient funds with which to pay the
claims of injured workers. She urged the committee to consider
the possible effects of the bill. She said that the bill has
been crafted by an Alaska trade group in an attempt to find a
viable alternative and remain responsible; however, the bill
would apply to any group who decided to participate. She added
that other groups may not have the same principals of
accountability that may be looking for a way to "skimp" on
workers' compensation costs.
4:58:00 PM
REPRESENTATIVE ROKEBERG asked if Ms. Hall could provide her
written concerns to the members.
MS. HALL said yes and added that her office would also provide a
comparison of the current and previous versions.
REPRESENTATIVE ROKEBERG asked if the net worth requirement would
remain at $5 million if a reciprocal was formed.
MS. HALL replied that there is no net worth requirement. She
said that there are capital and surplus requirements for
reciprocal, which begin at $1.5 million and are required to have
$1,375,000 in capital and surplus.
5:00:18 PM
REPRESENTATIVE ROKEBERG asked where the $5 million figure came
from.
MS. HALL replied that this amount is from the current workers'
compensation statutes and is the minimum requirement for an
individual employer to be considered for a self-insurance
certificate.
REPRESENTATIVE ROKEBERG, referring to Ms. Hall's testimony,
asked if the amount would be twice as much if adjusted for
inflation.
MS. HALL replied that her testimony was based on information
received from Director Lisankie. She expressed her
understanding that this was promulgated in 1983.
5:01:21 PM
REPRESENTATIVE ROKEBERG, in regard to the issue of insolvency,
asked if there is any link between this and the guaranty funds.
MS. HALL said no, and added that she does not think there should
be. She suggested implementing a method for determining what
would occur in case of an insolvency, as someone would be
required to pay. She stated that when the guaranty fund runs
out of money to pay for claims, the responsibility is then
placed on the individual employer; however, if the individual
employer is bankrupt, there is little course of action for the
injured employee.
5:03:01 PM
REPRESENTATIVE ROKEBERG asked if there are currently other
provisions under certified self-insured or reciprocal.
MS. HALL replied that there are no provisions under Title 23 for
certified self-insured, and she added that the reciprocals fall
under the guaranty association.
REPRESENTATIVE ROKEBERG asked if the reciprocals pay into the
guaranty fund.
MS. HALL said yes.
5:03:35 PM
REPRESENTATIVE ROKEBERG asked if there are any provisions in the
bill that provide for assessments of the guaranty fund.
MS. HALL said no, and opined that unless the division is dealing
with a "level playing field", it would be unfair to include
self-insurers in the same guaranty fund as the insured market.
REPRESENTATIVE ROKEBERG agreed with this and asked about the
joint and several liability.
MS. HALL explained that in the CS, the joint and several
liability agreement is between the members and does not extend
to the association; however, the association is required to pay
for the workers' compensation benefits for the members'
employees. She noted that in the Nevada statutes and
regulations, the association is included in the joint and
several liability agreement.
5:05:15 PM
REPRESENTATIVE ROKEBERG asked for an example to further clarify
how this works.
MS. HALL offered her understanding that joint and several
liability means that, if an association has five employers and
one employer files for bankruptcy, the remaining employers must
then take over the bankrupt employer's obligations to the group,
in addition to their own. She said that one of the "prime
concepts" of this type of arrangement is that each member agrees
to be responsible for the other members and take on the
financial responsibility of the other members. She stated that
if the association is not included and yet is responsible for
payment, the five members are not required to pay for the
obligations of the association.
5:06:27 PM
REPRESENTATIVE ROKEBERG asked if the bill is written to make
association responsible.
MS. HALL replied that she is not sure how the financial
responsibility would take place.
5:07:01 PM
REPRESENTATIVE CRAWFORD asked if the bill contains a provision
to protect the group against individual bankruptcy.
MS. HALL surmised that this was the intent of the solvency bond;
however, this may not be practical. She stated that bankruptcy
is a financial risk and not an insurance risk, therefore it is
not typically the subject of insurance. She said that the self-
insured association can purchase excess insurance, which is
required by the bill.
5:08:36 PM
REPRESENTATIVE ROKEBERG asked if there is a way to prove with
documentation that solvency bonds are available.
MS. HALL replied that she does not know.
5:09:50 PM
ACTING CHAIR KOTT asked how "the director may issue a self-
insurance certificate" as specified on page 1 of the CS versus
page 5, which reads "the director shall issue a self-insurance
certificate."
MS. HALL expressed her understanding that the sponsor would like
to change the "shall" on page 5 of the CS to "may."
ACTING CHAIR KOTT asked if Ms. Hall would prefer "may" to
"shall."
MS. HALL replied that "may" would allow some discretion, which
would be preferable. She added that the discretion would need
to be based on factual information.
5:11:51 PM
PAUL F. LISANKIE, Director, Central Office, Division of Workers'
Compensation, Department of Labor & Workforce Development, in
regard to an earlier question, said that the $5 million net
worth amount is in the current board regulations. He stated
that the board requested that the regulations be updated, and in
response to this, he plans to suggest raising this amount to $10
million to reflect the passage of time and inflation. He said
that current regulations require security bonds to be a minimum
of $300,000 and this would change to $600,000 if adjusted for
inflation.
ACTING CHAIR KOTT asked if there is a definition of "tangible
net worth" in the current regulations or statutes.
MR. LISANKIE replied that there is a definition of "net tangible
assets."
5:14:08 PM
ACTING CHAIR KOTT asked if there is a difference between
"tangible net worth" and "net tangible assets."
MR. LISANKIE replied that he would hesitate to say no.
5:14:39 PM
MR. LISANKIE, in response to a question from Representative
Rokeberg, said that the board regulations give the entity that
is required to post the security several options regarding what
is utilized to post a security. He stated that these options
include: a letter of credit, purchasing a security bond, and a
certificate of deposit.
REPRESENTATIVE ROKEBERG asked if this is this equivalent to what
the CS refers to as a "security deposit."
5:16:19 PM
MR. LISANKIE said it may be, and added that the CS gives the
director a fair amount of leeway to decide what is a sufficient
security. He referred to the testimony from Ms. Hall and said
that the bonds that are collected are retained to cover
liabilities after the employer is no longer a self-insured
employer, and he noted that this is not always utilized by the
workers' compensation board. He opined that this is a
"weakness" in the division.
REPRESENTATIVE ROKEBERG asked if this is the $300,000 in current
regulation.
MR. LISANKIE replied that the $300,000 is the security for an
on-going operation. He said that there is a provision that
allows the board to retain a similar security bond in the event
that the employer ceases to be an independent insurer. He
stated that this is not currently required, which he does not
believe is a "good" thing. He said that the regulations were
developed for large entities, and opined that the belief at that
time was that a large entity was not at risk of becoming
insolvent. He said that he does not believe this to be correct,
and remarked that if a large company loses enough money it can
"fall just like anybody else."
5:18:43 PM
REPRESENTATIVE ROKEBERG asked if, in regard to the length of
time and amount [of the security deposit], the CS is more
"forward thinking" than the current regulations.
MR. LISANKIE replied that this aspect is an improvement from
what is currently being done with large self-insurers.
ACTING CHAIR KOTT closed public testimony.
5:19:24 PM
ACTING CHAIR KOTT asked if the annual audits are reported back
to the division.
MS. HALL surmised that the audits are sent to the director of
the division, although this is not specifically stated in the
CS.
REPRESENTATIVE ROKEBERG agreed with this, and remarked that it
would be good to specify where the audits are sent.
MR. PAWLOWSKI pointed out that the audits are required when the
certificate is granted, and added that the CS contains a
provision which allows the director to audit the books at the
expense of the association. He added that the CS gives the
director regulation authority, and said that the sponsor looks
forward to working with the director to develop the system
correctly.
5:23:06 PM
ROBERT VOGAL, Vice President of Operations, Group Manager, Pro
Group Management, Inc., said that the annual audits are handled
by the group which is subject to the audit. He stated that the
CS does not specify this and said that this "could be cleaned
up." He explained that the aforementioned audits are intended
to ensure that the correct classification, correct payroll, and
assessments are collected. He said that if the company is
deficient, it will be sent a bill from the association, and if
the company has over paid, it will receive a refund.
MR. PAWLOWSKI pointed out that page 10, lines 4-25 is the annual
statement of financial condition.
5:24:41 PM
REPRESENTATIVE ROKEBERG asked Mr. Vogal if he is aware of any
provisions from the Nevada structure that are not included in
the CS.
MR. VOGAL replied that the sections that are not included are
part of the Nevada administrative code, not in the regulations.
He stated that the CS sets out the framework for the director to
adopt regulations to implement the provisions.
MR. VOGAL, in response to a question, said that if a self-
insured group is insolvent, the director can require the group
to assess it's members for the additional assets. He stated
that the solvency bonds are generally available through excess
carriers. He said that this is an additional protection that is
used until the group has enough assets. He stated that
currently, of the groups that PGM manages, the highest retention
is $750,000. He said that the builders group has a $500,000
retention, adding that most excess carriers will not go below
this amount. He explained that the intent of the self-insured
group is to grow and add strong, solvent members. He said that
this would result in less impact if one member filed for
bankruptcy. He added that if there is enough regulatory
oversight, there will be enough collected in advance to cover
the projected liabilities.
5:29:32 PM
REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 1,
which read [original punctuation provided]:
To page 1 line 14 insert "tangible" following "a"
before "net worth."
There being no objection, Amendment 1 was adopted.
REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 2,
which read [original punctuation provided]:
To Page 5 line 5 replace "shall" with "may" to make
consistent with page 1 line 1.
There being no objection, Amendment 2 was adopted.
The committee took a brief at-ease.
5:31:22 PM
REPRESENTATIVE ROKEBERG moved to report CSSSHB 51, Version 24-
LS0233\S, Bailey, 3/3/06, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, CSSSHB 51(L&C) was reported from the
House Labor and Commerce Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:31:58 PM.
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