Legislature(1993 - 1994)

04/07/1994 08:00 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
             HOUSE STATE AFFAIRS STANDING COMMITTEE                            
                          April 7, 1994                                        
                            8:00 a.m.                                          
                                                                               
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Representative Al Vezey, Chairman                                            
  Representative Pete Kott, Vice Chairman                                      
  Representative Bettye Davis                                                  
  Representative Gary Davis                                                    
  Representative Harley Olberg                                                 
  Representative Jerry Sanders                                                 
  Representative Fran Ulmer                                                    
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  None                                                                         
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  HB 543:        "An Act relating to unvented gas space                        
                 heaters in residential buildings."                            
                                                                               
                 MOVED FROM COMMITTEE AS CSHB 543(STA) WITH DO                 
                 PASS RECOMMENDATIONS                                          
                                                                               
  HB 531:        "An Act relating to the existence and                         
                 functions of certain multimember state                        
                 bodies, including boards, councils,                           
                 commissions, associations, or authorities;                    
                 and providing for an effective date."                         
                                                                               
                 MOVED FROM COMMITTEE AS CSHB 531(STA) WITH NO                 
                 RECOMMENDATIONS                                               
                                                                               
  HB 410:        "An Act relating to real estate appraisers                    
                 and the Board of Certified Real Estate                        
                 Appraisers."                                                  
                                                                               
                 MOVED FROM COMMITTEE AS CSHB 410(STA) WITH NO                 
                 RECOMMENDATIONS                                               
                                                                               
  HB 514:        "An Act relating to risk based capital for                    
                 insurers; and providing for an effective                      
                 date."                                                        
                                                                               
                 HELD IN COMMITTEE                                             
                                                                               
  HB 420:        "An Act relating to limited liability                         
                 companies; amending Alaska Rules of Civil                     
                 Procedure 20 and 24; and providing for an                     
                 effective date."                                              
                 HELD IN COMMITTEE                                             
                                                                               
  HB 393:        "An Act relating to the unincorporated                        
                 community capital project matching grant                      
                 program; and providing for an effective                       
                 date."                                                        
                                                                               
                 HELD IN COMMITTEE                                             
                                                                               
  HB 530:        "An Act relating to certain study,                            
                 publication, and reporting requirements by                    
                 and to state agencies; relating to certain                    
                 fees for reports; and providing for an                        
                 effective date."                                              
                                                                               
                 NOT HEARD                                                     
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  DAVID WALSH, Director                                                        
  Division of Insurance                                                        
  Department of Commerce & Economic Development                                
  P.O. Box 110805                                                              
  Juneau, AK  99811-0805                                                       
  Phone:  465-2515                                                             
  POSITION STATEMENT:  Supported HB 514                                        
                                                                               
  REPRESENTATIVE GENE THERRIAULT                                               
  Alaska State Legislature                                                     
  Alaska State Capitol, Room 421                                               
  Juneau, AK  99811-0460                                                       
  Phone:  465-4797                                                             
  POSITION STATEMENT:  Sponsor of SSHB 420                                     
                                                                               
  MIKE MONAGLE, Supervisor, Corporate Information                              
  Division of Banking, Securities, and Corporations                            
  Department of Commerce & Economic Development                                
  P.O. Box 110808                                                              
  Juneau, AK  99811-0808                                                       
  Phone:  465-2570                                                             
  POSITION STATEMENT:  Answered questions on CSSSHB 420                        
                                                                               
  BOB MANLEY, Working Group Chairman                                           
  Alaska State Bar Association                                                 
  324 East Cook                                                                
  Anchorage, AK  99501                                                         
  Phone:  263-8251                                                             
  POSITION STATEMENT:  Commented on CSSSHB 420                                 
                                                                               
  PETER BRAUTIGAN                                                              
  2170 Belmont                                                                 
  Anchorage, AK  99517                                                         
  Phone:  276-1592                                                             
  POSITION STATEMENT:  Answered questions on CSSSHB 420                        
                                                                               
  BRYAN DURRELL, Attorney                                                      
  Bogle & Gates                                                                
  1031 West 4th, Suite 600                                                     
  Anchorage, AK  99501                                                         
  Phone:  257-7828                                                             
  POSITION STATEMENT:  Answered questions on CSSSHB 420                        
                                                                               
  JOE RYAN, House State Affairs Committee Aide                                 
  Representative Al Vezey, Chairman                                            
  Alaska State Capitol, Room 102                                               
  Juneau, AK  99811-0460                                                       
  Phone:  465-3719                                                             
  POSITION STATEMENT:  Reviewed information for HB 393                         
                                                                               
  CRYSTAL SMITH                                                                
  Alaska Municipal League                                                      
  217 Second St., Suite 200                                                    
  Juneau, AK  99801                                                            
  Phone:  586-1325                                                             
  POSITION STATEMENT:  Commented on HB 393                                     
                                                                               
  PREVIOUS ACTION                                                              
                                                                               
  BILL:  HB 543                                                                
  SHORT TITLE: UNVENTED GAS HEATERS IN RESIDENTIAL BLDGS                       
  SPONSOR(S): STATE AFFAIRS                                                    
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  03/30/94      3074    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/30/94      3074    (H)   STATE AFFAIRS                                    
  04/05/94              (H)   STA AT 08:00 AM CAPITOL 102                      
                                                                               
                                                                               
  BILL:  HB 531                                                                
  SHORT TITLE: ELIMINATE SOME STATE MULTIMEMBER BODIES                         
  SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                 
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  03/11/94      2728    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/11/94      2728    (H)   STATE AFFAIRS                                    
  03/11/94      2728    (H)   -7 ZERO FNS (DCRA,2-DCED,CORR,                   
                              2-DOE                                            
  03/11/94      2728    (H)   DNR) 3/11/94                                     
  03/11/94      2729    (H)   GOVERNOR'S TRANSMITTAL LETTER                    
  03/29/94              (H)   STA AT 08:00 AM CAPITOL 102                      
                                                                               
                                                                               
  BILL:  HB 410                                                                
  SHORT TITLE: REAL ESTATE APPRAISERS                                          
  SPONSOR(S): LABOR & COMMERCE BY REQUEST                                      
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  01/28/94      2177    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  01/28/94      2177    (H)   L&C, STATE AFFAIRS, FINANCE                      
  02/17/94              (H)   L&C AT 03:00 PM CAPITOL 17                       
  02/17/94              (H)   MINUTE(L&C)                                      
  02/18/94      2453    (H)   L&C RPT  CS(L&C)  6DP                            
  02/18/94      2454    (H)   DP:  HUDSON, PORTER, SITTON,                     
                              MULDER                                           
  02/18/94      2454    (H)   DP:  WILLIAMS, GREEN                             
  02/18/94      2454    (H)   -ZERO FISCAL NOTE(DCED) 2/18/94                  
  03/17/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  03/17/94              (H)   MINUTE(STA)                                      
                                                                               
                                                                               
  BILL:  HB 514                                                                
  SHORT TITLE: RISK BASED CAPITAL FOR INSURERS                                 
  SPONSOR(S): LABOR & COMMERCE                                                 
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  02/28/94      2551    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/28/94      2551    (H)   L&C, STATE AFFAIRS, JUDICIARY                    
  03/24/94              (H)   L&C AT 03:00 PM CAPITOL 17                       
  03/28/94      2996    (H)   L&C RPT  CS(L&C)  5DP                            
  03/28/94      2997    (H)   DP:PORTER, SITTON, MULDER,                       
                              GREEN,HUDSON                                     
  03/28/94      2997    (H)   -ZERO FISCAL NOTE (DCED) 3/28/94                 
  03/28/94      2997    (H)   REFERRED TO STATE AFFAIRS                        
  04/07/94              (H)   STA AT 08:00 AM CAPITOL 102                      
                                                                               
                                                                               
  BILL:  HB 420                                                                
  SHORT TITLE: LIMITED LIABILITY COMPANIES                                     
  SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Mulder,James                        
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  01/31/94      2206    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  01/31/94      2206    (H)   L&C, JUDICIARY, STATE AFFAIRS                    
  02/24/94      2522    (H)   SPONSOR SUBSTITUTE                               
                              INTRODUCED-REFERRALS                             
  02/24/94      2522    (H)   L&C, JUDICIARY, STATE AFFAIRS                    
  03/08/94              (H)   L&C AT 03:00 PM CAPITOL 17                       
  03/09/94      2676    (H)   L&C RPT  1DP 3NR                                 
  03/09/94      2676    (H)   DP:  MULDER                                      
  03/09/94      2676    (H)   NR:  WILLIAMS, SITTON, HUDSON                    
  03/09/94      2676    (H)   -ZERO FISCAL NOTE (DCED) 3/9/94                  
  03/09/94      2703    (H)   COSPONSOR(S):  MULDER                            
  03/18/94              (H)   JUD AT 01:15 PM CAPITOL 120                      
  03/21/94              (H)   MINUTE(JUD)                                      
  03/23/94              (H)   JUD AT 01:00 PM CAPITOL 120                      
  03/30/94              (H)   JUD AT 01:15 PM CAPITOL 120                      
  03/31/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  03/31/94      3106    (H)   COSPONSOR(S):  JAMES                             
  04/06/94      3153    (H)   JUD RPT CSSS(JUD) NEW TITLE                      
                              4DP 1NR                                          
  04/06/94      3153    (H)   DP:  GREEN, JAMES, PORTER,                       
                              NORDLUND                                         
  04/06/94      3153    (H)   NR:  KOTT                                        
  04/06/94      3153    (H)   -PREVIOUS ZERO FISCAL NOTE                       
                              (DCED) 3/9/94                                    
  04/06/94      3153    (H)   REFERRED TO STATE AFFAIRS                        
  04/07/94              (H)   STA AT 08:00 AM CAPITOL 102                      
                                                                               
                                                                               
  BILL:  HB 393                                                                
  SHORT TITLE: UNINCORPORATED COMMUNITY CAP PROJECT GRAN                       
  SPONSOR(S): REPRESENTATIVE(S) MOSES                                          
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  01/21/94      2125    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  01/21/94      2125    (H)   CRA, STATE AFFAIRS, FINANCE                      
  02/08/94              (H)   CRA AT 01:00 PM CAPITOL 124                      
  02/08/94              (H)   MINUTE(CRA)                                      
  02/22/94              (H)   MINUTE(CRA)                                      
  02/28/94      2545    (H)   CRA RPT  CS(CRA) 3DP 2NR 1AM                     
  02/28/94      2545    (H)   DP:  BUNDE, TOOHEY, OLBERG                       
  02/28/94      2545    (H)   NR:  WILLIS, WILLIAMS                            
  02/28/94      2545    (H)   AM:  DAVIES                                      
  02/28/94      2545    (H)   LETTER OF INTENT WITH CRA                        
                              REPORT                                           
  02/28/94      2546    (H)   -4 ZERO FNS (DCRA,ADM,LAW,DOT)                   
                              2/28/94                                          
  02/28/94      2546    (H)   REFERRED TO STATE AFFAIRS                        
  03/29/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  04/07/94              (H)   STA AT 08:00 AM CAPITOL 102                      
                                                                               
                                                                               
  BILL:  HB 530                                                                
  SHORT TITLE: REQUIRED REPORTS OF STATE AGENCIES                              
  SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                 
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  03/11/94      2727    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/11/94      2727    (H)   STATE AFFAIRS, FINANCE                           
  03/11/94      2727    (H)   -16 ZERO FNS (5-ADM, 2-DCED,                     
                              2-DOE, DEC,                                      
  03/11/94      2727    (H)   DNR, DMVA, 2-DPS, REV, DOT)                      
                              3/11/94                                          
  03/11/94      2727    (H)   GOVERNOR'S TRANSMITTAL LETTER                    
  03/29/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  04/07/94              (H)   STA AT 08:00 AM CAPITOL 102                      
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
  TAPE 94-45, SIDE A                                                           
  Number 000                                                                   
                                                                               
  CHAIRMAN AL VEZEY called the meeting to order at 8:01 a.m.                   
  Members present were REPRESENTATIVES KOTT, SANDERS and                       
  OLBERG.                                                                      
                                                                               
  CHAIRMAN VEZEY noted the meeting was on teleconference with                  
  Anchorage.                                                                   
  HB 543 - UNVENTED GAS HEATERS IN RESIDENTIAL BLDGS                           
                                                                               
  Under bills previously heard, CHAIRMAN VEZEY opened HB 543                   
  for discussion.  He stated when HB 543 was previously                        
  discussed, it appeared the wrong statute was being amended.                  
  He clarified the Department of Public Safety administers the                 
  Plumbing Code and the Mechanical Code due to its authority                   
  referenced in AS 18.60.000, and AS 28.05.011.  The                           
  mechanical code is adopted by regulation and updated every                   
  three years.  He stated HB 543 would amend the mechanical                    
  code to allow unvented space heaters, by putting in statute                  
  the standards set out by the National Standards Institute                    
  Accreditation Program, for unvented gas heaters.                             
                                                                               
  Number 045                                                                   
                                                                               
  REPRESENTATIVE HARLEY OLBERG moved to pass CSHB 543 from                     
  committee with individual recommendations.                                   
                                                                               
  CHAIRMAN VEZEY added the adoption of version K, CSHB 543 to                  
  the motion.  He asked the committee secretary to call the                    
  roll.                                                                        
                                                                               
  IN FAVOR:      REPRESENTATIVES VEZEY, KOTT, SANDERS, OLBERG.                 
  ABSENT:        REPRESENTATIVES B. DAVIS, G. DAVIS, ULMER                     
                                                                               
  MOTION PASSED                                                                
  HB 531 - ELIMINATE SOME STATE MULTIMEMBER BODIES                             
                                                                               
  CHAIRMAN VEZEY opened CSHB 531 for discussion.  He noted the                 
  committee had CSHB 531 version J, before them which                          
  incorporated the amendment adopted the previous Thursday.                    
  He stated CSHB 531 provides the Museum Collections Advisory                  
  Committee (MCAC) can meet by teleconference, gives them a                    
  threshold of $5,000 for purchase consultation, and provides                  
  their duties are to act in the general acquisition and                       
  deaccession policies of the museum.  The original HB 531                     
  eliminated the MCAC.                                                         
                                                                               
  Number 111                                                                   
                                                                               
  REPRESENTATIVE OLBERG moved to adopt version J, CSHB 531.                    
                                                                               
  Number 115                                                                   
                                                                               
  CHAIRMAN VEZEY, hearing no objection, adopted version J,                     
  CSHB 531.                                                                    
                                                                               
  Number 118                                                                   
                                                                               
  REPRESENTATIVE OLBERG moved to move CSHB 531 from committee                  
  with individual recommendations.                                             
                                                                               
  (REPRESENTATIVE ULMER joined the meeting at 8:05 a.m.)                       
                                                                               
  Number 120                                                                   
                                                                               
  CHAIRMAN VEZEY asked the committee secretary to call the                     
  roll.                                                                        
                                                                               
  IN FAVOR:      REPRESENTATIVES VEZEY, KOTT, ULMER, SANDERS,                  
                 OLBERG.                                                       
  ABSENT:        REPRESENTATIVES B. DAVIS, G. DAVIS                            
                                                                               
  MOTION PASSED                                                                
  HB 410 - REAL ESTATE APPRAISERS                                              
                                                                               
  CHAIRMAN VEZEY opened HB 410 for discussion.  He noted the                   
  committee had before them a CSHB 410(STA) work draft, which                  
  expands the scope of the Financial Institution Reform                        
  Recovery Enforcement Act (FIRREA) of 1989.  CSHB 410(STA)                    
  would bring Alaska standards for education and other                         
  training requirements in line with FIRREA.  Alaska would not                 
  exceed the federal standards for real estate appraisers.                     
                                                                               
  Number  160                                                                  
                                                                               
  REPRESENTATIVE FRAN ULMER inquired if the change in                          
  education and training standards was because there was a                     
  problem created with the existing regulations.                               
                                                                               
  CHAIRMAN VEZEY replied no, the Labor & Commerce Committee                    
  had proposed a committee substitute which reduced the                        
  educational requirements in real estate appraiser licensing                  
  to match federal standards.  The State Affairs proposal                      
  would reduce all of the requirements, both education and                     
  training.                                                                    
                                                                               
  Number 170                                                                   
                                                                               
  REPRESENTATIVE ULMER asked why.                                              
                                                                               
  CHAIRMAN VEZEY answered the question should be why not.  A                   
  federal standard is being adopted for part of Alaska's                       
  requirements which are in excess of our current                              
  requirements.  Federal standards which are less than our                     
  current requirements are not being adopted.                                  
                                                                               
  Number 179                                                                   
                                                                               
  REPRESENTATIVE ULMER asked if there had been any testimony                   
  from the board of real estate appraisers on the change.  Did                 
  they agree or disagree.                                                      
                                                                               
  (REPRESENTATIVE B. DAVIS joined the meeting at 8:08 a.m.)                    
                                                                               
  CHAIRMAN VEZEY was not aware of their testimony.                             
                                                                               
  REPRESENTATIVE ULMER expressed that Alaska would assume the                  
  federal standards are at the right level.  She questioned                    
  whether the state ever agrees with federal standards without                 
  first checking whether they are good or bad.  She assumed                    
  the board set the standards at another level for a reason.                   
  She stated she would be interested in knowing why the board                  
  set the training requirements differently from the federal                   
  standards; if there was a good reason then we may not want                   
  to do it and if there wasn't a good reason, then maybe we do                 
  want to do it.                                                               
                                                                               
  Number 195                                                                   
                                                                               
  CHAIRMAN VEZEY commented he believed Alaska's current                        
  regulations go back prior to FIRREA.  CSHB 310(STA) proposes                 
  Alaska move its standards in line with the rest of the                       
  country.                                                                     
                                                                               
  Number 207                                                                   
                                                                               
  REPRESENTATIVE OLBERG mentioned CSHB 410(STA) also addresses                 
  the fact that the federal standards continually change.  He                  
  noted the second paragraph of the sponsor statement as an                    
  example of the range of hour changes from consecutively 75,                  
  105 to 120.  If a state standard was to be fixed, every time                 
  the federal standard changed, the state would be out of                      
  compliance.  The state is always in compliance if it is the                  
  same as the federal standard.                                                
                                                                               
  Number 223                                                                   
                                                                               
  CHAIRMAN VEZEY stated CSHB 410(STA) would bring the                          
  educational and training requirements into compliance with                   
  the federal requirements.  Alaska's requirements would                       
  continue to follow federal standards.                                        
                                                                               
  CHAIRMAN VEZEY asked if there was a motion to adopt CSHB
  410(STA), version O.                                                         
                                                                               
  REPRESENTATIVE OLBERG so moved.                                              
                                                                               
  Number 242                                                                   
                                                                               
  CHAIRMAN VEZEY, hearing no objection, CSHB 410(STA) was                      
  adopted.                                                                     
                                                                               
  Number 244                                                                   
                                                                               
  REPRESENTATIVE OLBERG moved to move CSHB 410(STA) with                       
  individual recommendations.                                                  
                                                                               
  Number 250                                                                   
                                                                               
  CHAIRMAN VEZEY asked the committee secretary to call the                     
  roll.                                                                        
                                                                               
  IN FAVOR:      REPRESENTATIVES VEZEY, KOTT, ULMER, B. DAVIS,                 
                 SANDERS, OLBERG.                                              
  ABSENT:        REPRESENTATIVE G. DAVIS                                       
                                                                               
  MOTION PASSED                                                                
  HB 514 - RISK BASED CAPITAL FOR INSURERS                                     
                                                                               
  CHAIRMAN VEZEY opened HB 514 sponsored by the House Labor &                  
  Commerce Committee, for discussion.                                          
                                                                               
  (REPRESENTATIVE ULMER left the meeting at 8:15 a.m.)                         
                                                                               
  Number 277                                                                   
                                                                               
  DAVID WALSH, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF                  
  COMMERCE & ECONOMIC DEVELOPMENT, addressed HB 514.  He noted                 
  the presence of Katie Campbell, Life and Health Actuary, who                 
  had the primary responsibility of composing HB 514.  He                      
  stated HB 514 had a zero fiscal note and the support of                      
  regulators, the industry (particularly domestic), and                        
  national consumer groups.                                                    
                                                                               
  MR. WALSH stated historically, insurance company solvency                    
  has been regulated based upon a template.  This template is                  
  a general outline, whereby it can apply to State Farm, or                    
  the Alaska Timber Exchange.  He noted this template has                      
  proven inadequate as a predictor of insurance company                        
  solvency or as an early warning system for a company nearing                 
  trouble.                                                                     
                                                                               
  MR. WALSH stated risk based capital has been developed over                  
  the last 4-5 years by national insurance regulators, as well                 
  as consumer groups in the industry.  Risk based capital is a                 
  formula based upon the different levels of risk an                           
  individual company may have.  For example, an auto company                   
  that writes drag racing policies would have a higher level                   
  of exposure than a company writing only personal passenger                   
  auto policies.  Risk based capital would set up a formula                    
  for various kinds of risks that results in a number.  The                    
  average number a good solid company would have is around 580                 
  percent of risk based capital.  Alaska domestic companies                    
  are between 900-24,000 percent of risk based capital.                        
  Therefore, Alaska domestic companies are small, but very                     
  well capitalized and strong.  He stated the strength of a                    
  company does not come through in the traditional way of                      
  analyzing solvency.  Therefore, when they seek credit, the                   
  solvency laws do not allow them to present themselves in as                  
  strong of light as the company actually exists.  He pointed                  
  out risk based capital will help Alaskan companies to expand                 
  and grow.  They will be allowed to have an investment policy                 
  which will return a higher yield, thereby resulting in lower                 
  rates and growth in the domestic industry.                                   
                                                                               
  MR. WALSH stated the second feature of risk based capital is                 
  how it works as a warning system if the number decreases.                    
  Number decreases will be easy to detect.  HB 514 requires                    
  when a company reaches 200 percent of risk based capital,                    
  twice the minimum amount it needs to stay solvent, they have                 
  to administer a rehabilitation plan.  At 150 percent the                     
  Division of Insurance has to administer a plan.  At 100                      
  percent the Division of Insurance closes the company.  He                    
  believed these provisions will help insure problems that                     
  have happened outside will not effect Alaskan consumers                      
  again.  He noted the triggers where action is required.                      
                                                                               
  MR. WALSH estimated the standards were presently before 30                   
  states and they would most likely pass.  Risk based capital                  
  will become the national standard as of the end of 1995.  He                 
  emphasized they suggested HB 514 this year because Alaska's                  
  domestic companies are so strong that it is to their                         
  advantage to start operating under risk based capital this                   
  year.  HB 514 has the unanimous support of the Alaska                        
  industry.  The Division of Insurance strongly supports HB
  514.                                                                         
                                                                               
  Number 370                                                                   
                                                                               
  CHAIRMAN VEZEY considered HB 514 to be a major change.  He                   
  asked how long current standards had been in place.                          
                                                                               
  Number 373                                                                   
                                                                               
  MR. WALSH answered since statehood, and in other states                      
  before that.                                                                 
                                                                               
  Number 374                                                                   
                                                                               
  CHAIRMAN VEZEY commented there is good reason for the                        
  change, but HB 514 is a radical departure from current                       
  practice.                                                                    
                                                                               
  Number 378                                                                   
                                                                               
  MR. WALSH agreed.                                                            
                                                                               
  Number 382                                                                   
                                                                               
  CHAIRMAN VEZEY asked if risk based capital had not yet been                  
  adopted by any of the 30 states considering it.  Who                         
  composed the proposal?                                                       
                                                                               
  Number 384                                                                   
                                                                               
  MR. WALSH answered he did not know if the other states had                   
  adopted the proposal yet.  The proposal in HB 514 came from                  
  the National Association of Insurance Commissioners, made up                 
  of the 50 states, plus the five territories and other                        
  jurisdictions in the United States.  The National Conference                 
  of State Legislators and their subgroup, the  National                       
  Committee of Insurance Legislators, also contributed.                        
                                                                               
  Number 394                                                                   
                                                                               
  CHAIRMAN VEZEY asked how many years they had worked on risk                  
  based capital.                                                               
                                                                               
  Number 395                                                                   
                                                                               
  MR. WALSH responded 4-5 years.                                               
                                                                               
  Number 396                                                                   
                                                                               
  CHAIRMAN VEZEY stated the proposal must have came together                   
  fairly recently, noticing the filing date.                                   
                                                                               
  Number 397                                                                   
                                                                               
  MR. WALSH stated the final life and health formula was                       
  adopted in December.  They waited to introduce the proposal                  
  to ensure Alaska's domestic industry and other major                         
  companies had an opportunity to comment.  They suggested one                 
  amendment that House Labor & Commerce (L&C) adopted, which                   
  added a public hearing requirement, so as the formula                        
  changes the division is assured of a procedure to Alaskanize                 
  it.  HB 514 was only recently introduced; however, a lot of                  
  work was done on it by the national association, the Alaska                  
  domestic industry, and the Division of Insurance.                            
                                                                               
  Number 412                                                                   
                                                                               
  CHAIRMAN VEZEY noticed the L&C committee substitute.  He                     
  asked the role of a public hearing in the review of an                       
  organization's financial status.                                             
                                                                               
  Number 418                                                                   
                                                                               
  MR. WALSH answered the public hearing would be for any                       
  changes in the formula that were proposed for addition.  HB
  514 states the national formula will be used as the main                     
  solvency tool in Alaska.  He pointed out over the next few                   
  years there will be some minor adjustments to the formula.                   
  A formal public hearing, required by regulation, would be                    
  required before any of the adjustments could be adopted by                   
  the Division of Insurance.  He stated the public hearing                     
  requirement is a very good change and they have sent it to                   
  the national association as a suggestion for the national                    
  model.  Their job is to protect consumers and ensure their                   
  actions are not counter-productive to the development of                     
  Alaska's market.                                                             
                                                                               
  (REPRESENTATIVE ULMER returned at 8:25 a.m.)                                 
                                                                               
  Number 434                                                                   
                                                                               
  CHAIRMAN VEZEY clarified HB 514 would allow Alaskan                          
  companies to issue more policies, recognizing they have a                    
  stronger capital base than current regulations permit.  How                  
  would this help the consumers?                                               
                                                                               
  MR. WALSH responded the biggest problem currently in Alaska                  
  is availability, not affordability.  Over the last few                       
  years, he stated, Alaska has had four carriers with 85                       
  percent of the auto market - Geico, Nationwide, Allstate,                    
  and State Farm.  This market concentration does not lead to                  
  lower prices and product innovation.  They have been working                 
  to bring new companies into the Alaskan market place.                        
  Safeco entered into Alaska as of April 1, 1994, already                      
  causing prices to drop as a result of the competition.                       
  There are three carriers with 80 percent of the market in                    
  health insurance - Great West, Aetna, and Blue Cross.  More                  
  access and more companies are necessary for prices to remain                 
  low for consumers and choices are available.                                 
                                                                               
  MR. WALSH believed HB 514 would help in two ways: 1) non-                    
  Alaskan companies that are writing here will be able to                      
  operate what is going to become the national standard, risk                  
  based capital; 2) the small Alaska domestic industry will                    
  have a better competitive advantage because their strength                   
  will be more apparent.                                                       
                                                                               
  MR. WALSH noted there is only one admitted carrier for taxi                  
  cabs, and virtually no admitted carriers for aviation.                       
                                                                               
  Number 481                                                                   
                                                                               
  CHAIRMAN VEZEY characterized HB 514 as relaxing the                          
  financial standards of the underwriting companies.  How                      
  would it help consumers?                                                     
                                                                               
  MR. WALSH responded HB 514 would not relax any standards.                    
  Those companies who write higher risk insurance and tend to                  
  have an overly aggressive investment policy with their                       
  capital and surplus will be penalized by HB 514.  He noted                   
  HB 514 would provide a more accurate picture of the status                   
  of a company.  The National Insurance Consumers Organization                 
  have examined risk based capital and they are very                           
  supportive of HB 514.                                                        
                                                                               
  Number 509                                                                   
                                                                               
  CHAIRMAN VEZEY inquired why the insurance industry was not                   
  present to express their opinion.                                            
                                                                               
  Number 524                                                                   
                                                                               
  MR. WALSH said, to the division's knowledge, the industry is                 
  very supportive of HB 514.  He stated the Division had met                   
  with or talked on the phone with the management of all the                   
  Alaskan companies and all the legislative lobbyists or                       
  representatives of the other writers in Alaska.                              
                                                                               
  Number 535                                                                   
                                                                               
  CHAIRMAN VEZEY stated he recognized HB 514 would have a                      
  magnitude of impact of great import, therefore it would be                   
  held in committee for further review.  He appreciated the                    
  research done to make the proposal.                                          
                                                                               
  CHAIRMAN VEZEY called a recess at 8:34 a.m.  The meeting                     
  resumed at 8:44 a.m.  Members present were REPRESENTATIVES                   
  KOTT, OLBERG and ULMER.                                                      
                                                                               
  (REPRESENTATIVE G. DAVIS joined the meeting at 8:43 a.m.)                    
  CSSSHB 420:  "An Act relating to limited liability                           
  companies; and providing for an effective date."                             
                                                                               
  CHAIRMAN VEZEY opened SSHB 420 for discussion.                               
                                                                               
  REPRESENTATIVE GENE THERRIAULT, SSHB 420 sponsor, read the                   
  following sponsor statement:                                                 
                                                                               
  "The limited liability company is a relatively new, hybrid                   
  form of business structure that combines the tax advantages                  
  of a partnership and the liability safeguards of a                           
  corporation.  Although a combination of these two business                   
  structures is currently allowed in statute through formation                 
  of an S corporation, this structure has limitations that are                 
  avoided by LLCs.  For example, S corporations do not allow                   
  ownership by certain types of shareholders.                                  
                                                                               
  "Under current law, corporate earnings are subject to double                 
  taxation throughout the payment of corporate taxes and                       
  personal taxes after distribution of dividends.  LLCs avoid                  
  this double taxation by allowing earnings to flow through to                 
  individual owners in the same manner partnership income is                   
  handled.  Although businesses can be organized through an S                  
  corporation to avoid double taxation and encompass some of                   
  the advantages of partnerships, they do not enjoy all the                    
  advantages of partnerships when it comes to allocating                       
  income and deductions.                                                       
                                                                               
  "One of the greatest advantages is, as the name implies, the                 
  limited liability offered by the LLC structure.  With LLCs                   
  as with regular corporations, only the company's assets and                  
  not the owner's personal assets, are at risk in business-                    
  related lawsuits.  In partnerships, so-called limited                        
  partners enjoy such protection, but general partners do not.                 
  And limited partners face restrictions on how active they                    
  can be in the business.  LLCs are designed to protect all                    
  the members while imposing no limits on their involvement in                 
  operation of the business.                                                   
                                                                               
  "Thirty-four states now permit limited liability companies,                  
  and passage in most of the remaining states is expected.                     
  Wyoming passed the first LLC Act in 1977.  Other states                      
  slowly followed suit until 1988, when the Internal Revenue                   
  Service issued Rev. Rul. 88-76, which classified a Wyoming                   
  LLC as a partnership for federal tax purposes, even though                   
  none of the members or managers were personally liable for                   
  any of the debts of the company.  Following the ruling,                      
  formation of LLCs burgeoned, with two states adopting LLC                    
  Acts in 1990, four in 1991, 10 in 1992 and more than 20                      
  states introducing measures in 1993.                                         
                                                                               
  "LLCs have tended to be family businesses, professional                      
  service firms, venture capital companies, real estate and                    
  business start ups  I believe the LLC will provide these                     
  business owners with an efficient and flexible investment                    
  vehicle that allows both limited liability, and federal                      
  income tax treatment as a partnership.  SSHB 420 is based on                 
  a prototype American Bar Association draft, with changes to                  
  conform the bill specifically to Alaska."                                    
                                                                               
  REPRESENTATIVE THERRIAULT stated he provided a proposed                      
  CSSSHB 420 for the committee to consider.  They have been                    
  working extensively with the Alaska Bankers Association and                  
  the tax and business law sections from the Alaska Bar                        
  Association to "Alaskanize" the language.  He noted the                      
  length of CSSSHB 420, and stated it includes a large section                 
  which outlines how corporations are to be formed and operate                 
  in Alaska.  Framework for a new business structure is being                  
  created, rather than altering existing statutes.                             
                                                                               
  Number 613                                                                   
                                                                               
  CHAIRMAN VEZEY commented the "so-called corporate shield has                 
  been pierced so many times that it is now like a screen                      
  door."  Why will an LLC establish a shield protecting                        
  individuals from the liability of a business structure of                    
  activities.                                                                  
                                                                               
  (REPRESENTATIVE OLBERG left the meeting at 8:48 a.m.)                        
                                                                               
  Number 622                                                                   
                                                                               
  REPRESENTATIVE THERRIAULT deferred the question to the                       
  witnesses at the Anchorage teleconference site who may                       
  better answer.  He stated CSSSHB 420 would not provide any                   
  more of a shield than a corporation.  The same level of                      
  personal asset protection provided in a corporate structure                  
  would now be provided through the LLC structure.  LLC                        
  structure has the advantage over a corporation, whereby                      
  double taxation would not exist.                                             
                                                                               
  Number 631                                                                   
                                                                               
  CHAIRMAN VEZEY asked how it would differ from a subchapter S                 
  corporation.                                                                 
                                                                               
  Number 633                                                                   
                                                                               
  REPRESENTATIVE THERRIAULT answered there are restrictions on                 
  what type of entities can be shareholders in a subchapter S                  
  corporation, which do not apply in the LLC structure.                        
                                                                               
  (REPRESENTATIVE OLBERG returned at 8:50 a.m.)                                
                                                                               
  Number 642                                                                   
                                                                               
  MIKE MONAGLE, SUPERVISOR, CORPORATE INFORMATION, DIVISION OF                 
  BANKING, SECURITIES, AND CORPORATIONS, DEPARTMENT OF                         
  COMMERCE & ECONOMIC DEVELOPMENT (DCED), answered questions                   
  on CSSSHB 420.  He said the DCED participates with the                       
  International Association of Corporation Administrators and                  
  over the last 10 years LLC legislation has been a real "hot                  
  topic" among the states.  The IRS has granted more and more                  
  private letter rulings and treated the states favorably for                  
  tax purposes, therefore there is a rush towards LLC                          
  organizations in the last 3-4 years.  He noted the                           
  anticipation that by the end of 1995 all 50 states will have                 
  LLC legislation before them.  DCED receives 3-4 inquires a                   
  week, from other states, wanting to know if Alaska                           
  recognizes the LLC structure.  Therefore, he believed                        
  business opportunity exists and Alaska businesses will                       
  benefit to organize under the LLC structure.                                 
                                                                               
  Number 661                                                                   
                                                                               
  REPRESENTATIVE ULMER asked how many existing companies in                    
  Alaska would shift over to the LLC structure.                                
                                                                               
  MR. MONAGLE stated he did not know.  He did not believe an                   
  existing corporation would switch over because of the                        
  difficulty.  Large corporations have shareholders and LLCs                   
  have managers, or members that manage.  Therefore, it would                  
  not be feasible to replace boards of directors with one                      
  manager, or a group of shareholders to make the decisions.                   
                                                                               
  MR. MONAGLE mentioned "ma and pa type corporations,"                         
  previously formed as an S corporation, may elect to go with                  
  a LLC.  They would not have as many restrictions.  He noted                  
  about 1,100 domestic corporations form a year, most of which                 
  are small.  A fair number of the small corporations would be                 
  subchapter corporations devoid the tax situation.                            
                                                                               
  Number 681                                                                   
                                                                               
  CHAIRMAN VEZEY clarified subchapter S corporations are                       
  established under federal law.                                               
                                                                               
  MR. MONAGLE affirmed CHAIRMAN VEZEY.                                         
                                                                               
  Number 685                                                                   
                                                                               
  CHAIRMAN VEZEY questioned if and where they were recognized                  
  under Alaska statute.  Federal only?                                         
                                                                               
  MR. MONAGLE responded he believed Department of Revenue                      
  recognizes the exemption granted by the IRS.                                 
                                                                               
  TAPE 94-45, SIDE B                                                           
  Number 000                                                                   
                                                                               
  CHAIRMAN VEZEY, in comparing a subchapter S corporation to                   
  an LLC, pointed out the state adopting federal law versus                    
  the federal IRS adapting to state law.  He questioned if                     
  there was not a great deal more uncertainty.                                 
                                                                               
  Number 014                                                                   
                                                                               
  MR. MONAGLE answered part of the reason there was not an                     
  exodus to the LLC structure initially was because of the                     
  question as to what the IRS might do.  Wyoming being the                     
  state with a private letter ruling.  He believed there has                   
  been no public letter rulings by the IRS granting blanket                    
  exemption for LLCs.                                                          
                                                                               
  Number 026                                                                   
                                                                               
  CHAIRMAN VEZEY inquired what he meant by a blanket                           
  exemption.                                                                   
                                                                               
  Number 027                                                                   
                                                                               
  MR. MONAGLE replied if one formed subchapter S corporation,                  
  recognized as tax exempt, the IRS has not said that they                     
  will blanket recognize every state that comes forth with a                   
  LLC Act.  IRS reviews each state and then makes a ruling.                    
  He noted this as another reason for not having a mass exodus                 
  to the LLC structure.  He believed within the next five                      
  years the IRS would provide a blanket ruling due their                       
  indication.                                                                  
                                                                               
  Number 053                                                                   
                                                                               
  CHAIRMAN VEZEY mentioned MR. MONAGLE's statement that they                   
  received three-four outside interest calls.  He asked weekly                 
  or monthly.                                                                  
                                                                               
  MR. MONAGLE answered weekly.                                                 
                                                                               
  Number 059                                                                   
                                                                               
  CHAIRMAN VEZEY inquired if three-four viable business                        
  enterprises a week would be actually considering entering a                  
  vague IRS status, or do they not know what is in Alaska.                     
                                                                               
  Number 063                                                                   
                                                                               
  MR. MONAGLE responded they are already formed as a LLC in                    
  their own state.  They inquire as to how they will be                        
  treated in Alaska.  Their structure needs to be recognized                   
  to not put their limited liability at risk.                                  
                                                                               
  Number 081                                                                   
                                                                               
  CHAIRMAN VEZEY clarified they are not aware of the Alaska's                  
  status.                                                                      
                                                                               
  MR. MONAGLE answered most do not know.  Most calls are from                  
  comptrollers and service companies.                                          
                                                                               
  Number 086                                                                   
                                                                               
  REPRESENTATIVE ULMER asked what kind of companies are                        
  considering doing business in Alaska, whereby LLC status is                  
  critical for them.                                                           
                                                                               
  Number 089                                                                   
                                                                               
  MR. MONAGLE replied what kind of business they are is                        
  usually not discussed.  They question where Alaska's                         
  legislation is.  Calls come from all over the country.                       
                                                                               
  Number 094                                                                   
                                                                               
  REPRESENTATIVE ULMER questioned who is considering coming to                 
  Alaska to do business.                                                       
                                                                               
  Number 095                                                                   
                                                                               
  MR. MONAGLE clarified they call to inquire about Alaska's                    
  legislation, therefore he was assuming they were doing                       
  studies or making business decisions.                                        
                                                                               
  Number 099                                                                   
                                                                               
  REPRESENTATIVE ULMER questioned if they were discussing the                  
  "ma and pa" type businesses.                                                 
                                                                               
  Number 103                                                                   
                                                                               
  MR. MONAGLE replied he did not think so.  States that                        
  developed LLCs first were those who do a lot of resource                     
  development.  He mentioned Colorado and Wyoming as examples.                 
  He stated most of Alaska's corporations which deal with                      
  mineral extraction are Canadian owned.  Therefore, if they                   
  have already formed a LLC in another state, it would be an                   
  attractive alternative to be able to come and enjoy the same                 
  protection in Alaska as they do in their own state.                          
                                                                               
  (REPRESENTATIVE SANDERS returned to the meeting at 8:59                      
  a.m.)                                                                        
                                                                               
  Number 118                                                                   
                                                                               
  REPRESENTATIVE THERRIAULT mentioned his wife is an attorney                  
  dealing with business practice in Fairbanks, and she has                     
  also had two-three people per month inquire about forming a                  
  business and the possible structures they can form under.                    
  He believed, by suggestion of their accountant, these people                 
  have questioned whether the LLC form is available in Alaska.                 
  He stated it was his intent to add the LLC structure to the                  
  list of choices.                                                             
                                                                               
  Number 150                                                                   
                                                                               
  BOB MANLEY, WORKING GROUP CHAIRMAN, TAX and BUSINESS LAW                     
  SECTIONS, ALASKA STATE BAR ASSOCIATION, commented on CSSSHB
  420.  He reiterated CSSSHB 420 was drawn from the American                   
  Bar Association Prototype Act, with significant influence                    
  from the banking community, corporations, and other                          
  interested persons.  He stated he read in the Wall Street                    
  Journal last week, that 38 states have now adopted LLC                       
  legislation.  He noted the California State Senate just                      
  passed LLC legislation by a 39-0 vote and the Governor is                    
  expected to sign shortly.                                                    
                                                                               
  MR. MANLEY stated LLCs blend corporate and partnership tax                   
  and operational characteristics.  LLCs provide a flexible                    
  operating system and a federal income tax advantage to the                   
  members.  LLCS provide a state planning advantage.  LLCs                     
  facilitate foreign investment, because nonresident aliens                    
  may not be subchapter S corporation shareholders.  Double                    
  taxation is avoided.                                                         
                                                                               
  MR. MANLEY mentioned LLCs will mostly replace subchapter S                   
  corporations and partnerships.  He directed to the question                  
  of how many companies will change over to LLCs.  He answered                 
  few, if any regular corporations will change over because                    
  the transactual and tax cost of changing would be too                        
  significant.  Some partnerships, however, will change over.                  
                                                                               
  MR. MANLEY directed to the question about the uncertainty of                 
  tax classification.  He answered the IRS does not like to                    
  issue blanket rulings.  He noted that the Alaska version of                  
  the Uniform Limited Partnership Act adopted in 1992, the IRS                 
  has still not issued a ruling as to whether it will be                       
  classified as a partnership for tax purposes.  IRS moves at                  
  its own pace and speed.  He stated their working group has                   
  already opened informal communication with the IRS and they                  
  have indicated they will open a revenue ruling project.                      
  Therefore, any uncertainty as to tax classification should                   
  be resolved promptly.                                                        
                                                                               
  Number 224                                                                   
                                                                               
  CHAIRMAN VEZEY commented under the current corporate                         
  structure, the "corporate shield" is getting thin.                           
  Corporate officers now go to jail and boards of directors                    
  are now held liable.  He asked how current structure would                   
  compare to shield provided by the LLC structure.                             
                                                                               
  Number 238                                                                   
                                                                               
  MR. MANLEY answered he did not believe the LLC would offer                   
  any greater shield.  While the operating systems may be a                    
  little bit different, people will still be "tagged" in some                  
  circumstances, for their own individual acts.                                
                                                                               
  Number 256                                                                   
                                                                               
  CHAIRMAN VEZEY mentioned anyone who sits on a board of                       
  directors, needs to give consideration to a director's                       
  liability insurance policy.                                                  
                                                                               
  Number 263                                                                   
                                                                               
  MR. MANLEY responded, "absolutely."  Even with a person                      
  serving on a nonprofit volunteer board handling significant                  
  amounts of money, is very important to maintain liability                    
  insurance.  He noted Alaska's corporate code allows                          
  corporations to indemnify members to the board of directors.                 
  LLC structure does likewise.                                                 
                                                                               
  Number 278                                                                   
                                                                               
  CHAIRMAN VEZEY asked if all partners in an LLC would need to                 
  carry a partners liability insurance policy.                                 
                                                                               
  Number 281                                                                   
                                                                               
  MR. MANLEY answered a LLC can be operated either member-                     
  managed or manager-managed.  In a manager-managed LLC, he                    
  believed it would be appropriate for the manager to secure                   
  directors and officers insurance or an equivalent.  In a                     
  member-managed LLC, he believed some businesses may opt not                  
  to because they had previously operated with partners                        
  without any protection.  He noted protection is prudent.                     
                                                                               
  Number 300                                                                   
                                                                               
  PETER BRAUTIGAN, CORPORATE SHAREHOLDER, commented on CSSSHB
  420 from the Anchorage teleconference site.  He stated his                   
  practice entails business and transactional tax planning,                    
  along with significant estate planning.  He sees the LLC as                  
  a viable alternative for many clients.  LLC structure is                     
  being considered in ventures proposed in Alaska that have                    
  been organized in other states.  LLCs are important for                      
  commerce in the long run.  There are no limitations as to                    
  the number of investors, thereby trusts and other                            
  partnerships can be involved in the LLC.  LLCs also allow                    
  participation in management, which would not regularly be                    
  allowed under a limited partnership theory.                                  
                                                                               
  MR. BRAUTIGAN addressed the question regarding the corporate                 
  veil.  He answered the LLC would not provide anymore                         
  protection for its investors than a corporation already has.                 
  Typically, there are numerous clients who do not maintain                    
  their corporations, thereby making it more difficult for                     
  them to be protected from liability.  He noted as long as                    
  the corporation is maintained, the corporate veil will                       
  protect the investors' personal assets from the liabilities.                 
                                                                               
  MR. BRAUTIGAN stated the types of businesses interested in                   
  LLCs are entities from other states that have LLC                            
  legislation.  Specifically, mining ventures, fishing                         
  operations, and entities that want to invest through trust                   
  or other partnerships.                                                       
                                                                               
  Number 362                                                                   
                                                                               
  CHAIRMAN VEZEY questioned director liability versus LLC                      
  partner liability.  He stated individual members of boards                   
  of directors are held liable particularly for taxes.  How                    
  would this transfer over to a LLC partnership.                               
                                                                               
  Number 370                                                                   
                                                                               
  MR. BRAUTIGAN clarified CHAIRMAN VEZEY was questioning the                   
  100 percent penalty imposed by the IRS, Section 6672 of the                  
  Internal Revenue Code.  This section states if a director,                   
  officer, or manager of the corporation directs funds to                      
  someone other than the IRS, relating to withholding taxes,                   
  they can be held responsible for the payment of those taxes.                 
  This same rule under federal law would apply to a LLC.  He                   
  was not aware of them being held liable for other taxes of a                 
  corporation.                                                                 
                                                                               
  Number 383                                                                   
                                                                               
  CHAIRMAN VEZEY agreed he had been referring to withholding                   
  taxes.  He questioned if the manager did not make a                          
  withholding payment, and members of the board are fiducially                 
  responsible, how would it translate to a LLC.                                
                                                                               
  MR. BRAUTIGAN answered under current federal law a person                    
  who is responsible for making the withholding payments, who                  
  wilfully failed to pay them to the IRS, can be held                          
  responsible for the payments.  Therefore, the same law                       
  applies to both a regular corporation under current status                   
  and to the LLC members.                                                      
                                                                               
  Number 400                                                                   
                                                                               
  CHAIRMAN VEZEY stated his interpretation is that the boards                  
  of directors are expected to exercise responsible oversight,                 
  and failure to do that is usually interpreted as intentional                 
  neglect.                                                                     
                                                                               
  MR. BRAUTIGAN responded, from his experience with Section                    
  6672, there has to be a flagrant disregard for the rules                     
  before the IRS will hold a person responsible.  The IRS                      
  frequently claims flagrant violations; however, it usually                   
  ends up that the person either did not have the                              
  responsibility or did not willfully make the payment to                      
  someone other than the IRS.                                                  
                                                                               
  MR. BRAUTIGAN stated the example that he now sits on a board                 
  of directors; however, he does not have the authority to                     
  sign checks.  Therefore, he could not be held responsible.                   
                                                                               
  Number 415                                                                   
                                                                               
  CHAIRMAN VEZEY clarified this analogy would extend over to                   
  the LLC.                                                                     
                                                                               
  MR. BRAUTIGAN responded "absolutely."                                        
                                                                               
  Number 418                                                                   
                                                                               
  REPRESENTATIVE THERRIAULT addressed the potential impact to                  
  the state treasury from the loss of corporate taxes.  He did                 
  not believe this loss would be experienced.  Because of the                  
  difficulty involved in transferring from the corporate                       
  structure to the LLC structure, he did not expect any                        
  corporations to make a structural change.  Businesses that                   
  would most likely choose the LLC structure he felt would be                  
  those which would have chosen subchapter S or partnership                    
  structure on which there are no state corporate taxes                        
  applied.  Therefore, the state treasury should not be                        
  impacted.  When a business reaches the size where it would                   
  have paid any kind of significant corporate taxes, he                        
  believed that business would still want a pure corporate                     
  structure.                                                                   
                                                                               
  Number 436                                                                   
                                                                               
  CHAIRMAN VEZEY commented corporate taxes are a misnomer                      
  because they do not just apply to corporations, they apply                   
  to any business entity.  If the business has a profit                        
  operating under a business license, it would be subject to                   
  the corporate tax.  He assumed that a LLC retaining earnings                 
  would be subject to the same tax.                                            
                                                                               
  REPRESENTATIVE THERRIAULT replied the business would be                      
  treated just as a partnership would for taxes.                               
                                                                               
  Number 447                                                                   
                                                                               
  CHAIRMAN VEZEY questioned how a LLC would ever accumulate                    
  capital and retained earnings.                                               
                                                                               
  Number 450                                                                   
                                                                               
  BRYAN DURRELL, CERTIFIED PUBLIC ACCOUNTANT and LAWYER, BOGLE                 
  & GATES, answered questions on CSSSHB 420.  He stated taxes,                 
  under Alaska state law, the only income taxes are assessed                   
  against regular or C corporations.  S corporations made the                  
  special election under the federal Internal Revenue Code to                  
  be taxed as if they were akin to a partnership, a flow                       
  through tax where the profits and losses are allocated to                    
  the shareholders.  S corporations and partnerships are not                   
  subject the Alaska income tax, only C corporations.                          
                                                                               
  MR. DURRELL addressed CSSSHB 420 where a LLC would be                        
  formed.  He stated there would be an option of the                           
  organizers to structure it either as a corporation subject                   
  to tax, or as a partnership.  He believed most will opt for                  
  partnership structure for the primary tax advantage.  An LLC                 
  organized as a partnership would not be subject to tax.                      
  Income would be allocated to the members and they would not                  
  have to pay taxes on it.                                                     
                                                                               
  Number 492                                                                   
                                                                               
  CHAIRMAN VEZEY clarified for a LLC, partnership, or an S                     
  corporation to accumulate capital or retained earnings, the                  
  individual partners would have to pay the taxes on the                       
  retained earnings.                                                           
                                                                               
  Number 497                                                                   
                                                                               
  MR. DURRELL affirmed CHAIRMAN VEZEY.  The individual members                 
  of the LLC would pay taxes on any allocable share of the                     
  profits.  Whether they were retained earnings or capital, or                 
  if they were distributed it would not matter.                                
                                                                               
  Number 501                                                                   
                                                                               
  REPRESENTATIVE ULMER inquired, in trying not to have a                       
  significant revenue impact to Alaska, which kinds of                         
  companies may opt to use the LLC structure in the future,                    
  thereby potentially reducing state revenues.  She noted the                  
  mining and fishing companies trying to avoid state corporate                 
  income taxes.                                                                
                                                                               
  Number 519                                                                   
                                                                               
  MR. DURRELL responded he did not believe there would be any                  
  significant loss of tax revenues to the state.  Mining and                   
  fishing companies which have worked within the corporate                     
  structure, could use the LLC structure.  He noted they would                 
  replace their corporate structure they currently have with                   
  the LLC structure.  A joint venture structure would be                       
  replaced.                                                                    
                                                                               
  MR. DURRELL mentioned the example of the organization of the                 
  Greens Creek Mine, originally the largest silver mine in the                 
  United States.  A joint venture was originally selected to                   
  organized by because it would give them pass through tax                     
  benefits.  Mining companies could make their investments in                  
  Alaska more efficient using a LLC because they would still                   
  have the pass through tax benefits, and the limited                          
  liability aspect would be an added attraction.  He explained                 
  in order to go into a project like Greens Creek, they have                   
  to form a corporate subsidiary which holds the joint venture                 
  interest in order to get limited liability.  The result is a                 
  half a dozen publicly held corporations, each with fully                     
  owned subsidiaries, and each are joint venture partners.                     
  Under the new format, the corporations can avoid the                         
  intermediary fully owned subsidiary.  In an LLC, they can                    
  have a membership interest without any impact on tax                         
  revenues to the state.                                                       
                                                                               
  Number 558                                                                   
                                                                               
  CHAIRMAN VEZEY asked if REPRESENTATIVE ULMER wanted to hold                  
  CSSSHB 420 for further review.                                               
                                                                               
  REPRESENTATIVE ULMER affirmed CHAIRMAN VEZEY.                                
                                                                               
  Number 563                                                                   
                                                                               
  REPRESENTATIVE THERRIAULT asked when CSSSHB 420 would be                     
  reheard and if it would make the deadline for moving house                   
  bills to house rules.                                                        
                                                                               
  Number 566                                                                   
                                                                               
  CHAIRMAN VEZEY answered CSSSHB 420 would not make the                        
  deadline because it would be reheard next Thursday.  He                      
  noted the companion bill in the Senate.                                      
                                                                               
  Number 567                                                                   
                                                                               
  REPRESENTATIVE THERRIAULT pointed out the Senate bill had                    
  been held waiting the arrival of CSSSHB 420.                                 
                                                                               
  Number 570                                                                   
                                                                               
  CHAIRMAN VEZEY noted CSSSHB 420 as a major piece of                          
  legislation and believed there would not be a problem                        
  getting a waiver for the internal rule.  Senate bills will                   
  be heard until April 20.  If he requested it, he believed a                  
  one-week extension would be granted.                                         
                                                                               
  CHAIRMAN VEZEY held CSSSHB 420 in committee.                                 
                                                                               
  (REPRESENTATIVE ULMER left the meeting at 9:31 a.m.)                         
  HB 393 - UNINCORPORATED COMMUNITIES CAPITAL PROJECT GRANT                    
                                                                               
  CHAIRMAN VEZEY opened HB 393 for discussion.  He stated                      
  information had been prepared to answer questions about                      
  financing additional cities.  He asked JOE RYAN for an                       
  explanation of the report.                                                   
                                                                               
  Number 595                                                                   
                                                                               
  JOE RYAN, STATE AFFAIRS COMMITTEE AIDE, explained the report                 
  on HB 393.  He stated there had been concern from the                        
  Fairbanks North Star Borough as to whether it would lose                     
  revenue if HB 393 went into effect.  He discussed the                        
  concern with Judi Slajer, Chief Financial Officer, Fairbanks                 
  North Star Borough, who felt there would be an approximate                   
  10 percent loss, or perhaps $120,000 less moneys.                            
                                                                               
  MR. RYAN stated the report (on file) illustrates what the                    
  allocations would be.  He understood the legislative                         
  function would be that two programs will be set up, whereby                  
  certain amounts of funds will be allocated to the rural                      
  program and other amounts will be allocated to the other                     
  programs.  The report breaks down what each community would                  
  be eligible to receive, examining grant number, population,                  
  matching amount and grant, if HB 393 goes into effect.                       
                                                                               
  MR. RYAN stated he was unable to answer whether the                          
  percentage of grant would be reduced for the smaller                         
  communities.  He noted a 30 percent reduction for the larger                 
  communities.                                                                 
                                                                               
  Number 619                                                                   
                                                                               
  CHAIRMAN VEZEY clarified the report illustrates how the                      
  program would distribute if HB 393 became law.  He noticed                   
  there was not a comparison of current status.                                
                                                                               
  Number 624                                                                   
                                                                               
  MR. RYAN commented there have been several people out sick                   
  from different departments, therefore he has had difficulty                  
  getting comparative data.                                                    
                                                                               
  Number 631                                                                   
                                                                               
  CHAIRMAN VEZEY stated the extra grants to the unincorporated                 
  communities within boroughs would be allocated out of the                    
  total program receipts.                                                      
                                                                               
  MR. RYAN clarified the allocation is made by the                             
  legislature.  He stated the distribution formula is based                    
  upon population figures, with central pie.  If the                           
  population in a borough was reduced or not counted, they                     
  would proportionately receive less money.  Additional                        
  communities figured in individually would subtract from the                  
  total population figure, thereby the share of the pie for                    
  the larger community would proportionately reduce.                           
                                                                               
  Number 641                                                                   
                                                                               
  CHAIRMAN VEZEY estimated the formula appears to allocate in                  
  boroughs about $10 per citizen.  For example, presently if                   
  Salcha represented 400 people in the Fairbanks North Star                    
  Borough (FNSB), the borough would receive $4,000.  Under HB
  393, if Salcha was eligible, it would receive $25,000,                       
  reducing the money available in the pool.                                    
                                                                               
  Number 645                                                                   
                                                                               
  MR. RYAN added the population of the FNSB would be reduced.                  
                                                                               
  (REPRESENTATIVE KOTT left the meeting at 9:39 a.m.)                          
                                                                               
  Number 658                                                                   
                                                                               
  REPRESENTATIVE GARY DAVIS agreed HB 393 would reduce the                     
  amount to the borough; however, in most cases the borough                    
  would already have a project they were funding in that                       
  unincorporated area.                                                         
                                                                               
  MR. RYAN pointed out HB 393 hinges on legislative                            
  appropriation because, from his understanding, there will be                 
  two appropriations.                                                          
                                                                               
  Number 674                                                                   
                                                                               
  CRYSTAL SMITH, ALASKA MUNICIPAL LEAGUE, commented on HB 393.                 
  She stated there are two concerns about HB 393:  1) funding                  
  within a borough would shift from the borough to the                         
  unincorporated communities - organized to unorganized                        
  government structure; and 2) in the absence of additional                    
  funding and the letter of intent from the Community &                        
  Regional Affairs Committee, the effect of adding several                     
  unincorporated communities would be to reduce every                          
  incorporated community's share of the total appropriation.                   
  She noted there is a net need for additional funds, or a net                 
  decrease for municipal governments.  HB 393 is another                       
  example of a disincentive to the organization of local                       
  government.                                                                  
                                                                               
  (REPRESENTATIVE OLBERG left the meeting at 9:40 a.m.)                        
  (REPRESENTATIVE KOTT returned to the meeting at 9:40 a.m.)                   
                                                                               
  Number 692                                                                   
                                                                               
  CHAIRMAN VEZEY clarified HB 393 would be a good policy if                    
  the legislature was looking for a method to go to something                  
  other than organized boroughs.                                               
                                                                               
  Number 693                                                                   
                                                                               
  MS. SMITH stated she would not say that, but HB 393 is                       
  another disincentive for people to organize or keep                          
  organized.                                                                   
                                                                               
  Number 695                                                                   
                                                                               
  CHAIRMAN VEZEY recognized the joint session starting at 9:45                 
  a.m.  HB 393 was held in committee.                                          
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  CHAIRMAN VEZEY adjourned the meeting at 9:43 a.m.                            
                                                                               
  BILLS NOT HEARD                                                              
  HB 530 - REQUIRED REPORTS OF STATE AGENCIES                                  

Document Name Date/Time Subjects