02/13/2015 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB49 | |
| HB26 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 26 | TELECONFERENCED | |
| *+ | HB 49 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 13, 2015
3:16 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Shelley Hughes, Vice Chair
Representative Jim Colver
Representative Cathy Tilton
Representative Andy Josephson
Representative Sam Kito
MEMBERS ABSENT
Representative Gabrielle LeDoux
Representative Mike Chenault (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 49
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an effective
date."
- HEARD & HELD
HOUSE BILL NO. 26
"An Act extending the termination date of the Board of Certified
Direct-Entry Midwives; and providing for an effective date."
- MOVED HB 26 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 49
SHORT TITLE: BENEFIT CORPORATIONS
SPONSOR(s): REPRESENTATIVE(s) SEATON
01/21/15 (H) PREFILE RELEASED 1/16/15
01/21/15 (H) READ THE FIRST TIME - REFERRALS
01/21/15 (H) L&C
02/13/15 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 26
SHORT TITLE: EXTEND CERT. DIRECT-ENTRY MIDWIVES BOARD
SPONSOR(s): REPRESENTATIVE(s) OLSON
01/21/15 (H) PREFILE RELEASED 1/9/15
01/21/15 (H) READ THE FIRST TIME - REFERRALS
01/21/15 (H) L&C, FIN
02/13/15 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE PAUL SEATON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as prime sponsor of HB 49.
SARA CHAMBERS, Acting Director
Division of Corporations, Business, and Professional Licensing
Department of Commerce, Community, & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Provided comments and responded to
questions on HB 49.
ERIK TROJIAN, Director of Policy
B Lab
New York, New York
POSITION STATEMENT: Testified during the discussion of HB 49.
LAURA STIDOLPH, Staff
Representative Kurt Olson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 26 on behalf of the prime
sponsor, Representative Kurt Olson.
KRIS CURTIS, Legislative Auditor
Legislative Audit Division
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Presented auditor findings and
recommendations and answered questions during the discussion of
HB 26.
SARA CHAMBERS, Acting Director
Division of Corporations, Business, and Professional Licensing
Department of Commerce, Community, & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Provided comments and responded to
questions on HB 26.
CHERYL CORRICK, Chair
Board of Certified Direct-Entry Midwives (CDM)
Department of Commerce, Community & Economic Development
Fairbanks, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 26.
ACTION NARRATIVE
3:16:08 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:16 p.m. Representatives
Josephson, Kito, Hughes and Olson were present at the call to
order. Representatives Tilton and Colver arrived as the meeting
was in progress.
HB 49-BENEFIT CORPORATIONS
3:16:21 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 49, "An Act relating to corporations, including
benefit corporations, and other entities; and providing for an
effective date."
3:16:44 PM
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, speaking
as prime sponsor of HB 49, stated that this bill would expand
the options for Alaskan entrepreneurs and investors by placing a
new type of corporate entity, a benefit corporation, or "B Corp"
in Alaskan statute. He explained a benefit corporation as a
for-profit corporation that incorporates public benefits and
community improvements into their business practices, no matter
the principal services or products provided. Corporate law
generally requires corporations to consider the financial impact
to their shareholders as the top priority when making decisions.
REPRESENTATIVE SEATON asked to read a short paragraph from Dodge
v. Ford Motor Company, 170 NW 668 (Mich 1919), which read:
A business corporation is organized and carried on
primarily for the profit of the stockholders. The
powers of the directors are to be employed for that
end. The discretion of directors is to be exercised in
the choice of means to attain that end, and does not
extend to a change in the end itself, to the reduction
of profits, or to the non-distribution of profits
among stockholders in order to devote them to other
purposes.
REPRESENTATIVE SEATON said that maximizing corporate returns can
interfere with other corporate goals, such as electing to do
something beneficial for the community by enhancing social
benefits. By electing in their articles of incorporation to
become a benefit corporation (B-Corp), businesses simply gain
the flexibility to include mission and social impacts in their
business practices. Allowing the creation of benefit
corporations will give business owners more choices in how to
run their businesses and will bring to Alaska a slice of the
$6.6 trillion invested nationally by similar corporations.
3:18:43 PM
REPRESENTATIVE SEATON said that benefit corporations are formed
voluntarily and have the same tax status as any other for-profit
corporations. Twenty-seven other states and the District of
Columbia have passed benefit corporation legislation and many
more have benefit corporation bills in process. Over 1,440
benefit corporations have incorporated in other states,
including Patagonia, Rasmussen College, Epic Coffee, and King
Arthur Flour Company, which is America's oldest flour company.
Each of these companies works to benefit the public and their
communities in the way that matters most to them. He said that
B Lab is a non-profit corporation that created a benefit
corporation certification, similar to the LEEDS certification.
3:20:59 PM
CHAIR OLSON suggested the LEEDS certification is "green
certification."
REPRESENTATIVE SEATON agreed.
3:21:07 PM
REPRESENTATIVE SEATON clarified that this bill does not require
certification but incorporates the benefit corporation
provisions into statute. Just as traditional corporations
provides their shareholders with financial reports, a benefit
corporation will additionally create and publish a biannual
benefit report describing how the company has pursued the
general public benefit. This report, which is held against a
third-party standard, would allow shareholders, investors, and
the public to confidently invest in benefit corporations that
share their values. A two-thirds majority vote is required to
form or change any corporate status so shareholders will drive
the decisions and the selection of the general community
benefits that for-profit corporations might select.
3:22:26 PM
CHAIR OLSON recalled the last legislature had a similar non-
controversial bill related to benefit corporations.
REPRESENTATIVE SEATON agreed that he had introduced a bill last
legislature that passed out of the committee last year. He
added that this bill will afford shareholders flexibility, but
potential investors will be aware of the benefits prior to
investing.
3:23:46 PM
REPRESENTATIVE SEATON provided a section-by-section analysis of
the bill. He said that Section 1 would establish how
corporations may be dissolved and statutory language was amended
to include benefit corporations. Section 2 would add a new
chapter to the corporate code for benefit corporations.
REPRESENTATIVE SEATON related that proposed Article 1 would
establish how a new business corporation or existing entity may
become a benefit corporation and it declares that an amendment
of an existing corporation must be adopted by at least the
minimum two-thirds vote.
3:24:26 PM
REPRESENTATIVE SEATON said that proposed AS 10.60.020 indicates
that the plan of merger or status change must be approved by at
least the minimum required vote if an existing corporate entity,
that was not a benefit corporation but becomes a B-Corp as a
result of a merger or other status change.
REPRESENTATIVE SEATON stated proposed AS 10.60.030 would require
that in addition to the corporate purposes under existing AS
10.06.005, a benefit corporation shall have the purpose of
creating general public benefit from all effects of its business
and operations. In addition, creating the general public
benefit must be found to be in the best interest of the benefit
corporation.
REPRESENTATIVE SEATON said that proposed AS 10.60.040 will allow
a benefit corporation to identify or amend its articles to
include specific public benefit purposes in addition to the
general public benefit purposes, and it lists examples of
specific public benefits.
3:25:28 PM
REPRESENTATIVE SEATON related that proposed AS 10.60.050
indicates a professional corporation formed under AS 10.45 does
not violate this statute by being a benefit corporation.
Proposed AS 10.60.060 provides that a benefit corporation may
terminate its benefit status by amending its articles or by
being party to a merger, but it must be approved by at least the
minimum required vote. He stated that proposed AS 10.60.070
indicates if a benefit corporation disposes of all or
substantially all of its assets the transaction must be approved
by the minimum status vote required.
3:26:09 PM
REPRESENTATIVE SEATON directed attention to proposed Article 2,
AS 10.60.100, of HB 49 will establish seven factors that the
board of directors and individual directors of a benefit
corporation shall consider while discharging their duties.
However, the directors of the benefit corporation are not
required to give priority to any one of these listed factors
unless the intention to prioritize has been identified in the
benefit corporation's articles of incorporation.
REPRESENTATIVE SEATON referred to proposed AS 10.60.110, which
states that consideration of these factors does not constitute a
violation of existing Alaska statutes regarding the duties and
rights of corporate boards. Proposed AS 10.60.120 states that
except as provided in the articles of incorporation, a director
of a benefit corporation is not personally liable for monetary
damages for action, inaction, or failure of the benefit
corporation to create a general public benefit if the duties of
the director were performed in compliance with this chapter.
REPRESENTATIVE SEATON said AS 10.60.130 clarifies that the
director of a benefit corporation does not have a duty to a
person solely because that person is a beneficiary of the
benefit corporation's general or specific public benefit
purpose.
3:27:43 PM
REPRESENTATIVE SEATON said proposed AS 10.60.140 declares that
directors of a benefit corporation who make business judgments
in good faith fulfill their duties under this chapter, if they
are not personally invested in the subject, are informed on the
subject of the judgment, reasonably believe the business
judgment is in the best interest of the benefit corporation, and
have considered the interests and factors listed under AS
10.60.100.
3:28:14 PM
REPRESENTATIVE SEATON directed attention to proposed Article 3,
which would allow the board to include a benefit director who is
not financially liable if acting in good faith.
REPRESENTATIVE SEATON related that proposed Article 4, AS
10.60.230 directs an officer of a benefit corporation to
consider the factors listed in AS 10.60.100. It states that an
officer of a benefit corporation is not personally liable for
monetary damages if their duties were performed in compliance
with Alaska statutes.
REPRESENTATIVE SEATON directed attention to proposed Article 5,
AS 10.60.300 which states that persons may bring an action or
claim against a benefit corporation for a failure to pursue
general or specific public benefits as set out in their articles
or for a violation of duties under this chapter, but is limited
to someone within the corporation. Thus someone within the
community cannot bring a cause of action against the corporation
for not fulfilling its duties. He stated that proposed Article
6 requires a benefit corporation to file a biennial benefit
report in addition to the biennial report and provides details
of what must be in the report.
3:29:57 PM
REPRESENTATIVE SEATON stated that proposed Article 7 would
establish a status change for a merger or amendment for a
benefit corporation or domestic entity other than a business
corporation, which must be approved by at least a two-thirds
vote of all shareholders entitled to vote. It also would
establish statutory guidelines for third-party standards used as
an assessment tool in the required annual benefit report to
ensure that the general or specific public benefits are being
done.
REPRESENTATIVE SEATON stated that proposed Article 8 would allow
the department to adopt regulations to implement the new style
of corporation.
3:30:22 PM
REPRESENTATIVE COLVER asked whether this would be similar to
"Newman's Own" style of corporation instead of being just a pure
monetary profit driven corporation. He asked for further
clarification of the difference between this model and the
typical corporation model with a for-profit motive.
REPRESENTATIVE SEATON answered that the corporate categories are
nonprofit and for-profit corporations. He suggested that a for-
profit corporation may wish to do something to benefit the
community or to have a specific benefit; for example, recreation
may be vital to a sporting goods company that wants to improve
trails in a community. The corporate shareholders and investors
might object, but in a benefit corporation, they will be
informed of the general and specific benefits, such as the
improved trail motive. However, it doesn't mean the corporation
is a nonprofit corporation; however, the benefit corporation has
a general community social goal as well as making money.
3:33:12 PM
REPRESENTATIVE COLVER asked whether the goals and objectives of
the benefit corporation would lie within the articles of
incorporation and the bylaws or just be strictly stated in the
corporate articles.
REPRESENTATIVE SEATON answered that seven parameters are listed
on page 4 of the bill. If the corporation has a first priority,
the board of directors would be held to that goal as the primary
benefit, but if the corporation did not prioritize, the board
would decide how to best exercise the general benefit for the
community. He characterized it as being a very flexible
arrangement; however, third-party standards can apply. For
example, if the benefit corporation's mission was sustainable
farming, it would be measured against the third-party standards
that define sustainable farming. The benefit corporation report
to its investors will allow them to measure if the benefit
corporation has accomplished its goal.
3:34:55 PM
REPRESENTATIVE KITO asked whether the primary responsibility is
to shareholders is subsidiary support for beneficial purposes or
if it was possible for the primary component to be the benefit
corporation with the subsidiary being the for-profit purpose.
REPRESENTATIVE SEATON answered that the mix was up to the
corporation. He suggested the benefit corporation can mix and
match its goals based on the board of directors and
shareholders.
3:36:17 PM
REPRESENTATIVE KITO asked whether it could be nearly at the
level of a nonprofit, in which 95 percent of the revenue is put
towards its beneficial purpose.
REPRESENTATIVE SEATON answered that it would be up to the board
and the shareholders, in essence, since the shareholders elect
the board of directors.
3:36:39 PM
REPRESENTATIVE HUGHES offered her belief that the benefit
corporate structure is laid out well. She offered that for-
profit corporations already conduct charitable activities and
set up charitable foundations. She asked whether they were
limited by law. She understood the for-profit aspect would be
according to the shareholders; however, she asked why a
corporation would convert to a benefit corporation instead of
funneling funds to a nonprofit to obtain a tax write-off.
REPRESENTATIVE SEATON answered that corporations could be
subject to shareholder lawsuits since the corporate model for a
for-profit corporation provides the legal framework. Some
shareholders might object to reductions in stock dividends since
the corporation has a fiduciary responsibility to provide
profits. The benefit corporation's mission is clearly designed,
such that the benefit corporation will further certain specific
beneficial goals in the community. Thus, investors understand
they won't just receive a return on investment, but will also
promote the community goals listed in the benefit corporation's
portfolio.
3:41:23 PM
REPRESENTATIVE HUGHES asked whether any current corporations
want to transfer to benefit corporations.
REPRESENTATIVE SEATON replied that Gordon Blue, Executive
Director of the Alaska Sustainable Fisheries Trust has expressed
interest, as well as a coffee company in Homer that would like
to improve the status of coffee growers. He referred to letters
of interest in members' packets from groups who have expressed
an interest, but he indicated that there wasn't anyone yet.
3:43:06 PM
REPRESENTATIVE HUGHES said nonprofit organizations cannot weigh
in in on partisan or political matters during elections. Now
that the [U.S. Supreme Court ruled on] Citizens United,
corporations may seek to persuade the voting public through
other means, including advertising. She asked whether benefit
corporations could weigh in politically.
REPRESENTATIVE SEATON answered that nothing in HB 49 would
expand or limit that ability. He stated that if shareholders
are agreeable money could be funneled from a "C" corporation.
He stated that a benefit corporation might decide it wants to
improve the community by putting part of its profits into
political campaigns, but regular corporations can also do so.
It doesn't "fool" anyone since the benefit is transparent and
will be listed on the corporate paperwork. He said that HB 49
doesn't expand the ability of benefit corporations to gain or
lose tax credits. Therefore, benefit corporations are no more
restrictive or permissive in terms of the structure, but
investors will know what the social benefit will be for benefit
corporations.
3:45:45 PM
REPRESENTATIVE JOSEPHSON asked if the benefit corporation could
surprise its shareholders and pursue a political path through a
political action committee (PAC) even if it wasn't the targeted
benefit.
REPRESENTATIVE SEATON answered no; that he did not believe so.
He reminded members that benefit corporations also must file
reports.
3:47:23 PM
REPRESENTATIVE KITO said there might be potential for Alaska
Native Regional Corporations to take advantage of benefit
corporations since some fiduciary firewalls currently prohibit
the corporation from putting funding back into the community or
the tribe affiliated with the corporation. He offered his
belief the benefit corporations will provide additional
responsibility in the corporate bylaws that allow corporations
to bring benefits back to their shareholders communities and not
just to shareholders in the form of dividends. He saw some
potential, whether or not the Native Regional Corporations will
choose to do so. He thanked the sponsor for bringing this bill
forward.
REPRESENTATIVE SEATON commented that those are the types of
general or specific benefits that could be put forth in the
findings of a benefit corporation.
3:48:48 PM
CHAIR OLSON directed attention to the fiscal note of $40,000.
He stated that the fiscal impact was for "one time" information
technology and legal costs.
3:49:35 PM
REPRESENTATIVE KITO asked whether the division anticipates that
the business licensing fee would be used to pay for some of the
start-up costs.
SARA CHAMBERS, Acting Director, Division of Corporations,
Business, and Professional Licensing, Department of Commerce,
Community, & Economic Development (DCCED), stated that the
division is funded through program receipts. Thus the division
would need to recover costs for filing fees to those
corporations, she said.
3:50:29 PM
CHAIR OLSON opened public testimony on HB 49.
3:50:42 PM
ERIK TROJIAN, Director of Policy, B Lab, stated that his
organization has had time to deliberate on how to take companies
who instill beliefs and want to continuously grow. He
reiterated that there is $6 trillion available in social impact
investment in the marketplace. That has actually doubled over
the past few years, he said, and continuously grows because
people don't want to just think about the bottom line and their
earnings, but also what happens with that money. He has
observed that as young people graduate from college, they want
to work for companies with morals and beliefs. He stated that
profit must be the central part for all of the companies to pay
employees and shareholders or the companies will go out of
existence since making profits is central. As this bill was
developed with their corporate attorney, the idea was to touch
the areas that impact the ability for companies to exercise
their morals and beliefs.
3:53:27 PM
MR. TROJIAN stated that the first benefit corporation law passed
about four years ago, and in the last four years 27 states have
passed it, including Delaware, which is seen as the home of
corporate law. Last fall, now Chief Justice Leo Strine Jr.,
Delaware Supreme Court, wrote a 22-page article in the Harvard
Law Review in support of the necessity of benefit corporations.
If a company wants to think this way and act this way, this law
needs to be put in place or he must rule against them.
Recently, the U.S. Supreme Court ruled on the Hobby Lobby case
[Burwell v. Hobby Lobby, 573 U.S. ___(2014)] and the cited
benefit corporations, which pertained to the Patient Protection
and Affordable Care Act (PPACA) ruling that does have the right
to have morals and beliefs. The dissenting view said that
corporations can only maximize profits so how can Hobby Lobby
have a religious belief in the company. The majority ruled that
the only reason they can is because the beliefs are very closely
held. However, if the company had been a general corporation
with multiple shareholders, it could have been sued for having
this religious belief in there company, but benefit corporations
would allow companies to grow and bring in multiple shareholders
who maintain this belief. Thus the corporate culture could
range from a moral belief to a community belief. He stated that
these are not quasi nonprofit companies, but benefit
corporations are businesses that want to instill morals and
beliefs however it wishes. He characterized it as deregulating
the purpose of corporations. He stated that corporations are
the method that companies use when going from small to big since
that is the structure for multiple shareholders.
3:55:54 PM
MR. TROJIAN offered his belief that the structure has
artificially constrained companies with a moral belief to a
small size. In four years' time there are well over 1,700
corporations and it just keeps growing and growing, with some
states producing one or two benefit corporations per day. Other
legislatures are working on benefit corporation legislation,
such as Montana and Idaho. He stated that benefit corporations
provide an option, which doesn't impact traditional companies.
Benefit corporations must consider shareholders and the general
public benefits equally so it isn't feasible to donate 95
percent of the profits to nonprofit organizations or
shareholders will have a right to object. Thus the entities
have to be treated equally and the shareholders have a right to
oust the directors if they are not performing in a proper way.
Benefit corporations have given shareholders increased rights
that did not previously exist.
3:57:50 PM
MR. TROJIAN said the traditional corporation's duty is to
maximize profits, but benefit corporations allow shareholders to
hold the company to the standards that were understood when the
stock in the company was purchased. Thus benefit corporations
create legal protections on both parts - for the director and
the shareholders in a fair and balanced way. He related a
scenario to illustrate choices benefit corporations can make.
If an Alaska manufacturer wanted to buy parts and the cheapest
ones were in China, the corporation normally must purchase them
at the lowest cost; however under the benefit corporation
structure, the company could buy locally as part of its
community benefits and absorb the additional costs since
supporting the community has a value to the benefit corporation.
3:59:46 PM
REPRESENTATIVE KITO related his understanding that the value of
selecting the benefit corporation model is to provide a benefit
to shareholders and to the public. He expressed concern that
allowing a corporation to withhold or withdraw a benefit means
the benefit corporation wouldn't be providing a beneficial
purpose. He asked for further clarification under the benefit
corporation structure whether corporations would be allowed to
deny or limit benefits to other individuals.
MR. TROJIAN said the benefit is in the "eye" of the directors of
the shareholders, which is the unique part of this. It's not a
benefit that government considers a benefit to society, but
benefit corporations let the free market identify that benefit.
Thus if a benefit corporation comes up with some crazy idea of
what benefits the community, it may well result in no one
investing and no one purchasing the benefit corporation's
products. The benefit corporation would fail and not succeed.
That's the way the free market works. Through the annual
benefit report the public, shareholders, and potential investors
obtain transparency and make a determination on whether to
support the company. This process results in a much better
informed public and allows the free market to determine if the
benefit corporation positively benefits the community.
4:01:47 PM
REPRESENTATIVE KITO related a scenario in which a benefit
corporation that holds a specific religious value or belief as
its community benefit, only hires people with that religious
belief and denies other individuals employment, and the
shareholders support this effort, it wouldn't provide a benefit.
Instead it would allowing for a restriction of commerce and a
limitation for the ability of other people to participate in the
workforce because the benefit corporation decides to only hire
certain people. He expressed concern that this type of
structure will actually allow companies to discriminate and
obtain public support from shareholders to do so.
MR. TROJIAN responded that other laws also apply, which prevent
companies from hiring based on their religion. In addition,
this bill would not allow benefit corporations to shirk fair
hiring practice laws. Thus, the aforementioned scenario would
be illegal. Of course, the Hobby Lobby demonstrates that
companies can currently hold values important. This bill would
create a corporate form that allows a company to have multiple
shareholders without the fear of shareholder lawsuit. He often
hears that corporations can do this already and they can so long
as they don't bring in multiple shareholders, which artificially
limits companies with a moral or community belief to a certain
size. This bill will remove that aspect, but it's also already
been happening in many instances with LLCs or closely-held
corporations.
4:04:06 PM
REPRESENTATIVE JOSEPHSON, with respect to Hobby Lobby, said it
would be illegal or unconstitutional to ask applicants about
their religious or cultural beliefs, but according to the U.S.
Supreme Court decision because the company was closely held it
could proscribe or prohibit certain types of health care
coverage. He asked whether that was what happened.
MR. TROJIAN answered yes; but it did not have anything to do
with the benefit corporation law. Companies have the right to
do this, if they so wish; however, if shareholders object they
have the right to sue for not maximizing profit.
4:05:24 PM
REPRESENTATIVE JOSEPHSON said the Calvert Investments, Inc. is
an investment management firm that he described as an ethics
fund, since it avoids investments that would contribute to
tribal war or pollution. He asked whether that describes the
benefit corporation model.
MR. TROJIAN said that is the beginning of it. He stated that
approach is called negative screening, such as not investing in
tobacco. However, the benefit corporations tend to go that
extra step and do positive screens, such as investing in
companies that purchase from local suppliers or hire people from
within the community. Currently, the funds are very limited and
corporations don't have the ability to enforce their investments
as they pertain to general public benefits. This allows
shareholders to hold corporations accountable, he said, noting
that the Calvert Investments, Inc. has been very limited in how
it can operate. He characterized it as being very myopic in
terms of its view in how the economy can utilize this. He said
he always thinks of the benefit corporation as beginning a whole
new sector of the society. He acknowledged that some people
will still want to buy the cheapest products and will want to
obtain the maximum return on their money.
4:07:25 PM
MR. TROJIAN emphasized that there is a sector of the economy
that wants this and new and innovative ideas will come up. For
example, when he was debating this issue in Colorado, he
discovered in a hearing that NASA [National Aeronautics and
Space Administration] had expressed an interest. He related his
understanding that NASA wants to commercialize patents but not
purely for-profit but in terms of how patents can improve
society as a whole. These are ways that these funds will have
additional powers, rights, and grow and expand this sector of
the economy, he said.
4:08:22 PM
CHAIR OLSON commented that he is familiar with a coffee merchant
in Kodiak that sells fair trade coffee and although the coffee
is more expensive, customers are willing to pay for it because
the growers are paid fairly. He suggested that the company's
shareholders are interested in fair trade.
MR. TROJIAN answered yes. He suggested that the second benefit
corporation created was Blessed Coffee, a Maryland company. The
specific benefit of Blessed Coffee is that it gives 40-50
percent of its profit to Ethiopian coffee growers. He pointed
out this is something very specific that would not be allowed
under a traditional corporation.
[HB 49 was held over].
4:11:15 PM
The committee took a brief at-ease.
HB 26-EXTEND CERT. DIRECT-ENTRY MIDWIVES BOARD
4:11:44 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 26, "An Act extending the termination date of the
Board of Certified Direct-Entry Midwives; and providing for an
effective date."
4:11:59 PM
LAURA STIDOLPH, Staff, Representative Kurt Olson, Alaska State
Legislature, on behalf of the prime sponsor, stated that HB 26
would extend the sunset date for the Board of Certified Direct-
Entry Midwives to June 30, 2017. The Division of Legislative
Audit conducts audits to determine if state boards and
commissions should be reestablished. The division reviewed the
activities of the Board of Certified Direct-Entry Midwives to
determine if there is a demonstrated public need for the board's
continued existence and whether it has been operating in an
effective manner. She directed attention to a copy of the
legislative audit in members' packets. The auditors recommended
that the board be extended two years until June 30, 2017.
MS. STIDOLPH explained that auditors found the Board of
Certified Direct-Entry Midwives has been serving the public's
interest by effectively licensing certified direct-entry
midwives (CDM) and apprentices. In addition, it was found that
the board continues to improve the profession by modifying and
adopting midwifery regulations to conform to current standards
of care.
MS. STIDOLPH highlighted that the auditors had four findings and
recommendations, including the Department of Commerce, Community
& Economic Development (DCCED) should immediately pursue
disciplinary sanctions for CDM cases when warranted; increase
licensing fees to eliminate the board's operating deficit; that
the board should communicate certificate requirements to
continuing education providers to facilitate compliance with
centralized licensing regulations; and the board should approve
apprentice permit applications in accordance with statute. In
response to a question, she reiterated the chair of Board of
Certified Direct-Entry Midwives (CDM) is Cheryl Corrick.
4:15:15 PM
REPRESENTATIVE JOSEPHSON referred to page 10 of the audit. He
expressed concern about the failure of the certified direct-
entry midwives (CDM) respondents to sign consent orders (CAs).
He asked whether the committee should be concerned about
anything in terms of the nature of the reason the CDMs wouldn't
sign. He said he was concerned about this given that the
legislature removed the statute and gave the board the liberty
to create its own regulations.
KRIS CURTIS, Legislative Auditor, Legislative Audit Division,
Legislative Agencies and Offices, answered that the division
doesn't see any correlation or cause and effect related to last
legislature's Senate Bill 136, which moved the requirement for
what the profession could do from statute to regulations to give
the board more flexibility. At the end of an investigation if
any problems are found and sanctions are necessary,
investigators draft consent agreements and ask the respondents
to voluntarily agree to the sanctions. If that does not occur,
the investigators can use standard procedures to elevate the
matter to the commissioner, file an accusation, and move forward
with civil licensing action through the Office of Administrative
Hearings (OAH). However, it is not uncommon for respondents to
refuse to sign consent agreements, she said.
4:17:45 PM
REPRESENTATIVE JOSEPHSON suggested that he felt less secure when
the process changed. He read page 10, paragraph 2, as follows,
"By not pursing licensing action, the respondents were allowed
to continue practicing, and the public's safety was placed at
risk." He went on to say that this referred to 4 of 52
providers, but he wanted to be sure a pattern wasn't developing
that the legislature should be concerned about.
MS. CURTIS answered that the audit period covered four years.
There were 28 complaints filed and investigated, with all
addressed timely except for these four cases. She reported that
the four investigations involved two people and investigators
concluded the disciplinary sanctions should occur, but were not
pursued timely. She explained that two of the four cases were
forwarded to the Department of Law's Office of Special
Prosecutions and Appeals (OSPA) for criminal action. At the
time of the audit the cases had been at OSPA for over a year
without action. OSPA regarded these cases as the lowest
priority due to the cases being classified as class B
misdemeanors. She stated that due to turnover, the auditors
were not able to determine why the investigators did not pursue
a civil licensing action, which at a minimum, should have been
pursued concurrently with criminal action to ensure the public
safety is protected. Auditors characterized this as a fairly
serious deficiency which is why the audit only recommend a two-
year extension. She said it is unusual for the auditors to give
such a short extension, but auditors felt it was important for
the division to follow up on this matter to ensure that
corrective action has been taken.
4:20:17 PM
REPRESENTATIVE COLVER assumed these cases were not simple
licensing actions, but were due to cases driven by mothers or
families who experienced problems with the midwifes. He asked
for further clarification on the cases without breaching
anything that is confidential.
MS. CURTIS answered that one or two of the consent agreements
asked for voluntary license revocation, which would indicate
severe problems were encountered. She recalled that another
consent agreement asked for continuing education, which is a
common outcome for an investigation. She declined to provide
any details about the cases.
4:21:38 PM
REPRESENTATIVE COLVER related his understanding that some
direct-entry midwives practice at a birthing center and others
assist with home births. He said that he and his wife used
midwives with the birth of both of his children, and the births
went very well. In their experience, the midwives were very
professional. He asked whether the mother or child endangered
by the procedures or care since, at some point, he has found
that midwives are very clear to determine when the mother needs
to go to a hospital. He thought it would be helpful for the
committee to have a better understanding of what happened.
MS. CURTIS responded that the audit does not comment on the
profession as a whole, but does comment on investigative
practices, which are in place to protect the public and to
ensure quality of care. She said that the allegations were
pretty serious and the auditors found the lack of timely
disciplinary sanctions as fairly significant. In response to a
question, she reiterated that there were four cases that
involved two people.
4:23:30 PM
REPRESENTATIVE KITO referred to page 10 of the audit and read,
"A year after the cases were forwarded to OSPA, no action had
been taken." He asked whether it was the board's responsibility
or of OSPA.
MS. CURTIS stated that board members were asking for and
receiving updates on the investigations. Thus, there isn't
anything in the auditor recommendations on the board not taking
appropriate action. She stated that the board must recuse
themselves since the board must weigh in later as an
adjudicative entity. Therefore the board typically is not
furnished details. The board was advised that the cases had
been referred to the Department of Law. She described the
typical process is that cases are referred to the Department of
Law for review of sufficiency of evidence prior to an accusation
being filed for civil licensing action. However, the cases were
at OSPA, in an effort to pursue a criminal case.
4:25:05 PM
REPRESENTATIVE TILTON referred to page 10, to recommendation 2
in the audit. She related her understanding that this board has
a small number of people who pay a large licensing fee, but face
a deficit. She acknowledged that she personally used midwives
when she gave birth to her children, so her questions are not
about care, but relate to the fiscal impact. Recommendation 2,
which read, "DCBPL, in consultation with the board, should
increase licensing fees to eliminate the board's operating
deficit." She asked whether there is a plan for that action.
MS. CURTIS answered that the license fees for certified direct-
entry midwives have been a continual problem. In 2006, during
the sunset review, the licensing fees were over $2,000 and they
paid the highest fees of any occupation. Thus this issue is not
new to the occupation. She directed attention to the table on
page 15 that lists license fees. She stated that in fiscal year
[FY] 10, the initial certification fee was $500. Fees were
increased in FY 11 and again in FY 13, at which time fees were
$1,450. However, the fees were not sufficient enough to cover
increased costs, which were associated with regulation changes
and investigative costs. As of March 2014, the number of
licensees was 35, plus 13 apprentices. Thus to shoulder the
cost for such a small group of licensees results in higher
license fees. In terms of the future plan, the department would
need to address how it plans to reduce the deficit.
4:27:15 PM
CHAIR OLSON stated that the Legislative Budget and Audit
Committee (LB&A) started a year ago to grapple with the issue.
He recalled one board had $150,000 in legal costs and other
boards have large numbers of licensees to spread out the costs.
He explained the difficulty in establishing standards that can
be applied to all of the boards. He said the LB&A committee and
the division spent the interim working on these issues.
4:28:24 PM
REPRESENTATIVE TILTON expressed thanks for the work the
Legislative Budget & Audit (LB&A) and the division have done on
this matter.
4:28:31 PM
REPRESENTATIVE HUGHES asked for the typical extension time for
boards.
MS. CURTIS answered that the statutes provide a maximum
extension of eight years.
4:28:57 PM
REPRESENTATIVE HUGHES related her understanding that the
auditors questioned why the board didn't pursue civil action
simultaneously with the referral of cases to OSPA and that the
board wasn't criticized because OSPA didn't take action.
MS. CURTIS said she expected to see civil licensing action to be
taken to be sure a negligent or incompetent practitioner isn't
allowed to practice.
REPRESENTATIVE HUGHES asked for further clarification on who
would initiate the civil action.
MS. CURTIS answered that it would be filed by the commissioner
in conjunction with the board. The respondents are allowed to
file a response to the accusation, and the Office of
Administrative Hearings (OAH) has 120 days to conduct their
hearings after which the board has time to make a decision.
4:30:17 PM
CHAIR OLSON remarked that two years is short extension time. He
recalled that the Alaska Bar Association was extended for three
years in a row.
MS. CURTIS replied that she did not specifically recall.
4:31:06 PM
REPRESENTATIVE JOSEPHSON referred to the repeal of AS 08.65.140
since he was unsure of what fills that gap. He asked for
further clarification on part of the statutes that at a minimum
the regulations must require that the certified direct-entry
midwife not knowingly deliver a woman with certain types of
health conditions, prior history or complications as specified
by the board. He suggested that the language was ambiguous. He
asked for clarification that safeguards are in place before he
could vote to extend the board. He said he was curious about
the status of the regulations. He asked for an explanation
since the legislature deferred to the board to make the rules.
SARA CHAMBERS, Acting Director, Division of Corporations,
Business, and Professional Licensing, Department of Commerce,
Community, & Economic Development (DCCED), answered that the
board has been conscientious in working to adopt its new
regulations. The department has been working with the board to
minimize the window between the statutory repeal and the
effective date of new regulations. The Board of Certified
Direct-Entry Midwives (CDM) met over the past two days. She
related her understanding that the board planned to continue to
work on regulations and if they adopted the regulations, the
division would expedite the public comment within the next
month. She said Ms. Corrick could provide more details but the
board and division are very aware of the concern.
4:34:12 PM
CHAIR OLSON pointed out that Representative Josephson
participated this summer during the Legislative Budget and Audit
Committee hearings on the board issues.
4:34:51 PM
REPRESENTATIVE JOSEPHSON asked about the status of the
regulations. He further asked what part of the prohibited
statutes that was particularly unfair that the board wanted the
authority over regulations for prohibited actions.
CHERYL CORRICK, Chair, Board of Certified Direct-Entry Midwives
(CDM), Department of Commerce, Community & Economic Development
(DCCED), replied she serves as one of two midwifes on the board
that also includes a certified nurse midwife and a physician who
practices in obstetrics/gynecology. She said the board felt the
prohibitions were somewhat out of date, particularly since they
had not been addressed in over 20 years. She reported that the
board just finished its regulations project today that will
further guide midwives. Up until that point, the board has made
it clear to practitioners through board actions that the old
regulations still apply until the new ones were promulgated.
4:36:28 PM
MS. CORRICK recalled one in terms of prohibitions for treating
with women with gestational diabetes. The new regulation will
allow midwives, in consultation with a physician, to manage a
woman as long as she can be managed without medication,
basically through diet and exercise, and can deliver the baby.
Midwives can now co-manage the patients with the physician, but
the physician will deliver the baby.
REPRESENTATIVE JOSEPHSON related that she has provided enough
information that gives him comfort and he appreciated her time.
4:38:35 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 26.
4:38:49 PM
REPRESENTATIVE COLVER deferred to the Chair, but he wondered
whether it might be possible to extend the board for three
years. He expressed a concern that the legislature will have to
revisit this again.
CHAIR OLSON deferred to the legislative auditor on the extension
time and said he completely trusts her judgment. He could not
think of any time that he disagree with the auditor's judgment
on extension times.
4:40:42 PM
REPRESENTATIVE HUGHES commented that she personally has had
wonderful experiences with midwifes and was grateful that the
state has very competent midwives who provide wonderful services
to families. She viewed the two-year extension for the board
was more a reflection on the division and not the midwives as a
profession. She commended the midwives who provide a very
wholesome and wonderful experience delivering babies.
CHAIR OLSON commented that most of the boards the committee will
review request a four to eight year extension, but this
represents an exception. He acknowledged the importance of
protecting Alaskans.
4:42:11 PM
REPRESENTATIVE COLVER echoed earlier comments that midwifery
provides a valuable service that allow families to make choices.
He emphasized the importance of allowing families to make
choices, especially since this is their baby and their family.
He offered his belief that it is important in medical care that
government does not mandate women must to go to a hospital to
have her baby. He stressed that it is up to the family to
decide what works for them. He imagined that using a midwife
also has an economic role since women can have their babies at
home, which is especially important for the uninsured. He said
that it is important to help families. He hoped that there
won't be any complications that will cause an expensive birth,
but again, it offers a means to deliver health care without an
expensive trip to the hospital. He offered that this bill will
accomplish a number of goals and objectives in our society. He
said he is very supportive of the profession and he hoped the
punitive issues would soon be resolved.
4:43:55 PM
CHAIR OLSON remarked that boards are comprised of volunteers and
most of the time things go well. The only time the legislature
hears about it is when something goes wrong and in those
instances often the whole profession is blamed. He commended
the volunteers who serve on boards, stating his "hat goes off"
to them.
4:44:44 PM
REPRESENTATIVE HUGHES moved to report HB 26 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, HB 26 was reported from the
House Labor and Commerce Standing Committee.
4:45:14 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:45 p.m.