Legislature(1995 - 1996)
04/18/1995 08:10 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE April 18, 1995 8:10 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Scott Ogan, Vice Chair Representative Joe Green Representative Ivan Ivan Representative Brian Porter Representative Caren Robinson Representative Ed Willis MEMBERS ABSENT None COMMITTEE CALENDAR CSSB 122(JUD): "An Act excluding certain direct sellers of consumer products from coverage under the state unemployment compensation laws." PASSED HCS CSSB 122(STA) OUT OF COMMITTEE *HJR 40: Proposing an amendment to the Constitution of the State of Alaska repealing provisions establishing and relating to the budget reserve fund." PASSED OUT OF COMMITTEE (* First public hearing) WITNESS REGISTER JOSEPH MARIANO, Vice-President and Legal Counsel Direct Selling Association 1666 K Street Northwest Washington, D.C. 20006 Telephone: (202) 293-5760 POSITION STATEMENT: Supported CS for SB 122 ANNE CREWS, Corporate Affairs Manager Mary Kay Corporation Dallas, Texas Telephone: (214) 905-5729 POSITION STATEMENT: Supported CS for SB 122 EVELYN JARVIS-FERRIS, Vice President of Government Relations Shaklee Corporation 444 Market Street San Francisco, CA Telephone: (415) 954-2016 POSITION STATEMENT: Supported CS for SB 122 DIRK BLOEMENDAAL, Corporate Government Affairs Counsel Amway Corporation 7575 East Fulton Road Ada, Michigan Telephone: (616) 676-7010 POSITION STATEMENT: Supported CS for SB 122 ROB SHUMAY, In-House Counsel Kirby Company 28800 Clemens Road West Lake, Ohio 44145 Telephone: (216) 892-3000 POSITION STATEMENT: Supported CS for SB 122 STEVE EGLI Kirby Corporation 9310 Glacier Highway Juneau, AK 99801 Telephone: (907) 790-4446 POSITION STATEMENT: Supported SB 122 DWIGHT PERKINS, Special Assistant Office of the Commissioner Department of Labor P.O. Box 21149 Juneau, AK 99810 Telephone: (907) 465-2700 POSITION STATEMENT: Provided information on SB 122 SHERMAN ERNOUF, Administrative Assistant Senator Tim Kelly Alaska State Legislature Capitol Building, Room 101 Juneau, AK 99801 Telephone: (907) 465-3822 POSITION STATEMENT: Supported SB 122 REPRESENTATIVE TERRY MARTIN Alaska State Legislature Capitol Building, Room 502 Juneau, AK 99801 Telephone: (907) 465-3783 POSITION STATEMENT: Sponsored HJR 40 PREVIOUS ACTION BILL: SB 122 SHORT TITLE: NO UNEMPLOYMENT COMP FOR DIRECT SELLERS SPONSOR(S): LABOR & COMMERCE BY REQUEST JRN-DATE JRN-PG ACTION 03/10/95 578 (S) READ THE FIRST TIME - REFERRAL(S) 03/10/95 578 (S) JUDICIARY 03/22/95 (S) JUD AT 01:30 PM BELTZ ROOM 211 03/22/95 (S) MINUTE(JUD) 03/23/95 765 (S) JUD RPT CS 3DP 2NR SAME TITLE 03/23/95 765 (S) ZERO FISCAL NOTE (LABOR #1) 03/27/95 (S) RLS AT 11:35 AM FAHRENKAMP RM 203 03/27/95 (S) MINUTE(RLS) 03/30/95 846 (S) RULES TO CALENDAR 3/30/95 03/30/95 848 (S) READ THE SECOND TIME 03/30/95 848 (S) JUD CS ADOPTED UNAN CONSENT 03/30/95 848 (S) ADVANCED TO THIRD READING UNAN CONSENT 03/30/95 848 (S) READ THE THIRD TIME CSSB 122(JUD) 03/30/95 849 (S) PASSED Y19 N1 03/30/95 849 (S) PEARCE NOTICE OF RECONSIDERATION 04/05/95 878 (S) HELD ON RECONSIDERATION TO 4/6 CALENDAR 04/06/95 897 (S) PASSED ON RECONSIDERATION Y18 N1 E1 04/06/95 900 (S) TRANSMITTED TO (H) 04/07/95 1170 (H) READ THE FIRST TIME - REFERRAL(S) 04/07/95 1170 (H) JUDICIARY 04/07/95 1172 (H) JUD REFERRAL REMOVED 04/18/95 (H) STA AT 08:00 AM CAPITOL 102 BILL: HJR 40 SHORT TITLE: REPEAL BUDGET RESERVE FUND(ART IX SEC 17) SPONSOR(S): REPRESENTATIVE(S) MARTIN JRN-DATE JRN-PG ACTION 04/05/95 1025 (H) READ THE FIRST TIME - REFERRAL(S) 04/05/95 1025 (H) STATE AFFAIRS, JUDICIARY, FINANCE 04/18/95 (H) STA AT 08:00 AM CAPITOL 102 ACTION NARRATIVE TAPE 95-49 SIDE A Number 000 CHAIR JAMES called the meeting to order at 8:10 a.m. All members were present at the call to order. She announced she was reversing the order of the bills on the calendar. SB 122 - NO UNEMPLOYMENT COMP FOR DIRECT SELLERS Number 040 JOSEPH MARIANO, with the Direct Selling Association, testified via teleconference from Washington, D.C., stating SB 122 is similar to the original version, HB 238, which the State Affairs Committee amended. He estimated there are approximately 10,000 independent contractor/direct sellers in Alaska, and more than 6 million nationally. They support the same amendment for SB 122 that was passed for HB 238 by House State Affairs, because SB 122 currently would apply only to sellers who make sales in the customers' homes. Many direct sellers sell in customers' offices or in the home of a third party hostess and would not qualify as direct sellers under the terms of SB 122. SB 122 was drafted, as was the original HB 238, to deal specifically with Kirby distributors' problems. These problems have not been experienced by other direct sellers. The amendment would bring Alaska into agreement with other states and the federal law requirements, and it would address Kirby's problem without endangering any other direct sellers. Number 161 ANNE CREWS, Corporate Affairs Manager, Mary Kay Cosmetics, testified via teleconference from Dallas, Texas, stating Mary Kay has direct sellers everywhere in Alaska, from small villages to large towns, offering career opportunities in all these areas. As written, the bill does not adequately clarify direct seller status. She stated the bill should be amended to comply with CSHB 238. Number 190 EVELYN JARVIS-FERRIS, Vice President of Government Relations, Shaklee Corporation, testified via teleconference from San Francisco, in support of amending SB 122 to comply with CSHB 238. This would solve Kirby's problems and it would not harm other direct sellers. Number 230 DIRK BLOEMENDAAL, Corporate Government Affairs Counsel, Amway Corporation, testified via teleconference from Grand Rapids, stating Amway opposes SB 122 in its current form. He observed although SB 122 has the laudable intent of exempting direct sellers from unemployment compensation laws in Alaska, it unfortunately does not accurately describe direct sellers doing business in Alaska. Amway sales take place not just in customers' homes but in offices and other locations. Amway direct sellers are not employees of Amway Corporation but are independent contractors. They define their own hours, prices, and expenses. The independent contractor status of these direct sellers is threatened by SB 122 in its current form by subjecting them to the unemployment compensation law in Alaska. Amway supports CSHB 238 because it contains the correct definition of direct seller, the same definition which has been adopted in 25 states since 1982 when Congress enacted the Tax Equity and Fiscal Responsibility Act (TEFRA), insuring that direct sellers are not considered employees for income tax purposes. The TEFRA language also insures that nondirect sellers do not fall within the same parameters. Number 312 ROB SHUMAY, In-House Counsel, Kirby Company, testified via teleconference from Cleveland. He stated the Kirby Company shares the opinion of the other members of the Direct Selling Association which testified today, adding the only direct sellers unable to qualify as independent contractors under the current law are Kirby distributors. Number 340 CHAIR JAMES noted there was no one else signed up to testify on teleconference. She observed SB 122 fixes the problem for Kirby and does not harm anyone else. She invited comments from the committee. Number 370 REPRESENTATIVE BRIAN PORTER discussed the Internal Revenue Service (IRS) definition of direct seller which prohibits selling in a permanent retail establishment. He asked if Kirby is in a permanent retail establishment and whether Kirby has two categories of sellers, those who are considered employees because they sell in a permanent establishment, and others who are not. STEVE EGLI, Kirby Corporation in Juneau, replied Kirby is unique in the direct seller structure, because they have an actual distributorship in the location. Their independent contractors purchase their equipment at wholesale from the local distributorship, which is considered a service center and distribution point, and then market it in the consumers' homes. Service and supplies are provided in the store, but the product is not sold retail in the store. Number 400 REPRESENTATIVE SCOTT OGAN inquired if Kirby actually had two categories of sales people, one outside the store and other "payrolled" people inside the store. MR. EGLI replied yes, the service personnel were employees, including an accountant, while all sales people sell outside the store. Kirby Corporation requires that the product not be sold in the store. Number 412 REPRESENTATIVE CAREN ROBINSON asked Mr. Egli if both he and the Department of Labor approved the language in SB 122. MR. EGLI replied yes, it solved the problem for Kirby as well as for other direct sellers. Number 421 REPRESENTATIVE JOE GREEN asked if all other direct selling organizations are covered, why do they object to this version. MR. MARIANO responded there are two issues. CSHB 238 solves the problem and accurately describes Kirby's method of doing business. The current version of SB 122 makes exemptions which not all direct sellers can meet; it compounds the problem by suggesting this exemption is necessary under the "ABC test" and could result in lengthy litigation. Number 462 REPRESENTATIVE PORTER asked if he was correct in assuming what Mr. Mariano meant, in plain English, was that Mary Kay and others besides Kirby do direct selling in something other than the specific consumer's home, and if that was what he was trying to maintain. MR. MARIANO replied that was precisely right, and one of the key problems with SB 122 was the language requiring direct sellers to sell the product only when physically present in a consumer's home. Many sales take place in other than a retail establishment but not necessarily in a prospective consumer's home. Number 475 CHAIR JAMES added Alaska recognizes Avon, Mary Kay, Shaklee, and other direct sellers, as independent business people, so they are not threatened by having to pay unemployment compensation, and the state would like to leave it that way. Kirby is different because of their service outlets. SB 122 fixes it for Kirby and doesn't threaten the others. REPRESENTATIVE GREEN asked Mr. Egli if, because of the wording in the IRS code, their stores were not considered retail establishments. MR. EGLI replied they sell supplies such as shampoo, belts, and bags for a product, but the actual product, the Kirby Home Cleaning System, is not sold through the store. But since the sales people do not operate in the store, it is not considered a retail store. REPRESENTATIVE GREEN asked Mr. Egli if, by the definition in the IRS code, he felt the salesmen of the vacuum cleaners would be threatened. MR. EGLI replied either bill would solve Kirby's problem. REPRESENTATIVE GREEN said if CSHB 238 did not cause any problems and took care of Kirby, and there is some concern that SB 122 might cause problems, shouldn't the committee accept CSHB 238 which is the least argumentive version. CHAIR JAMES said she would like to hear from the Department of Labor before making a decision. Number 518 DWIGHT PERKINS, Special Assistant to the Commissioner, Department of Labor, requested the committee adopt the Judiciary version of SB 122, noting the bill packet contains no in-state direct seller opposition to SB 122. He stated Mr. Mariano is misinforming people that "the sky is falling" when it really isn't. CSSB 122(JUD) is an Alaskan solution for an Alaskan employer. He referred to a memorandum from Ed Flanagan, Deputy Commissioner with the Department of Labor, which states: In the case of HB 238, the Department's initial reaction was to oppose any exemption for direct sellers. During discussions with the proponents of the bill, however, the Commissioner asked how the situation of Kirby vacuum cleaner salespeople differed from other sellers of consumer products such as Amway, Avon, Shaklee, Mary Kay, etc. Our UI (unemployment insurance) tax section responded that those entities were never audited or taxed because the sellers involved were clearly independent contractors, not employees, under existing law. Kirby's situation differed in that the sellers had a relationship with a distributor who operated a retail establishment, was in the same business as the dealers, and provided support to them in the form of training, leads, etc. This relationship has always caught the Kirby sellers in the statutory definition of "employees," subject to UI tax. He continued the "fix" to this is in SB 122 and he asked the committee to stay with that version. Number 552 REPRESENTATIVE PORTER asked why the provision of SB 122 saying "sale in a prospective consumer's home" would not adversely affect people who sell in someone else's home, in their office, or a hotel room. MR. PERKINS replied the Department of Labor had an agreement with Kirby "that the designation `independent seller' whereby this is their normal business mode of operation for selling vacuum cleaners through direct home sales." REPRESENTATIVE PORTER said he understood Kirby's situation, but he was talking about everybody else. MR. PERKINS said everybody else is already covered under existing law where they are indeed independent contractors. There is not, has not been, and will not be a problem with them. REPRESENTATIVE PORTER asked what then, is the concern about HB 238. What does it do that causes concern? MR. PERKINS replied, "This has been a problem of an Alaskan employer. The Department of Labor has gotten together with this individual, their counsel, and we have come up with this version of this bill, in SB 122. We feel that this addresses the needs, and we don't need federal language pre-empting things that are in-state." Number 583 CHAIR JAMES noted Kirby has been around a long time, and so has she. She has owned Kirbys and she has been in Kirby stores where new machines were on display, and she bought a second-hand Kirby vacuum cleaner in a Kirby store. She understands that Kirby has a different way of doing business. She said SB 122 would be so specific that if one Kirby salesperson does any selling in the store, he would disqualify himself from being a direct seller. She was not sure Kirby wanted to be in that vulnerable position. She added the federal law gives them more protection than SB 122 does. MR. PERKINS said SB 122 would be the proper vehicle. Number 611 MR. MARIANO refuted Mr. Perkins' statement that direct sellers would have no problem and reiterated CSHB 238 contains "tried and true language" which addresses the Kirby problem and eliminates any of the uncertainty which SB 122 would create. Number 618 REPRESENTATIVE GREEN described a hypothetical situation in which a direct seller invites 10 people to a public display room in a hotel and "touts his wares." Under SB 122, would the seller be in violation and no longer considered an independent contractor? MR. PERKINS replied he did not think there would be a problem with that. REPRESENTATIVE GREEN referred to page 1, line 7 of SB 122, "only when physically present in a prospective consumer's home," stating it "mucks up the waters." He added using the federal definition instead would not usurp the state's authority. He asked Mr. Perkins why he would not accept the simpler version. MR. PERKINS did not respond. Number 639 REPRESENTATIVE PORTER asked about Mr. Perkins' statement that other direct sellers which aren't specifically defined in SB 122 are protected somewhere else in the law. MR. PERKINS replied the "ABC test" clearly states the difference between independent contractors and employees. REPRESENTATIVE PORTER asked where the ABC test is in statute. MR. PERKINS said it was case law. REPRESENTATIVE PORTER observed case law can be changed tomorrow by any judge. He stated he would not favor SB 122 because, if the ABC test which supposedly covers all other direct sellers is in case law, and case law is based on existing statute, then changing the statute would create potential restrictions. SB 122 changes the statute and creates a problem, whereas HB 238 fixes that problem. He added he had yet to hear a reasonable explanation of what is wrong with HB 238. REPRESENTATIVE CAREN ROBINSON said she thought the ABC law was under the employment tax section. Number 665 SHERMAN ERNOUF, administrative assistant for Senator Tim Kelly, stated he had said "case law" because the problem with Kirby goes back to the interpretation of the ABC test which is codified in the unemployment compensation laws. Everyone other than Kirby has been exempted. He said Senator Kelly introduced SB 122 as an immediate fix for Kirby's being in court right now, this legislative session. It was not intended to affect anyone else. SB 122 is consensus language with the Department of Labor. Kirby went to Senator Kelly for help, and since the department opposes HB 238 it could die and leave Kirby in the same situation. REPRESENTATIVE PORTER asked again what is the Department of Labor's problem with HB 238. MR. ERNOUF said he could not speak for the Department of Labor, but the TEFRA language in the federal law is expansive and the department worked very hard with him on SB 122. He could not say why they did not like TEFRA. He asked the committee to keep the vehicle SB 122 together and "let the two collide at a later date instead of potentially killing the bill by adopting TEFRA in this committee." Number 692 REPRESENTATIVE GREEN said it made him nervous to rush out to fix a specific company's problem at the potential detriment of the other committees. He referred to Mr. Ernouf's statement to "fix Kirby now and let these two collide later," asking if that really was the best thing to do. He asked again why HB 238 did not address his same concerns. MR. ERNOUF clarified what he said earlier. The House version has the TEFRA language in it; the Senate version has the consensus language. He did not mean by "collide" that Mary Kay would end up in court later. He meant keep both bills alive and see which one passes. If TEFRA is adopted here and then does not make it through the system, then Kirby has another whole year to be in court. CHAIR JAMES said the vehicle they have is SB 122 because it is already in the House. HB 238 is a dead issue because it is still in the House. So they do not have both languages, they only have SB 122. She asked the Department of Labor, regarding their lawsuit with Kirby, if they were saying they were willing to fix something for Kirby which would make the department lose the lawsuit. TAPE 95-49, SIDE B Number 000 MR. PERKINS said he did not know where the lawsuit was right now. REPRESENTATIVE ROBINSON said she understood SB 122 would void the lawsuit, and both the Department of Labor and the Kirby industry would like to see that happen. As things stand now, the Department of Labor has no choice but to continue the lawsuit. CHAIR JAMES asked Mr. Egli who the plaintiff was in this case. Number 042 MR. EGLI responded the Department of Labor was the plaintiff. Kirby has gone through three years of appeals with the Department of Labor. He added this is not a new problem, in fact Kirby prevailed in court in 1974 against the Department of Labor in Superior Court. The ABC test currently is too ambiguous. No Kirby sales people have applied for unemployment and the law needs to be changed. Number 111 REPRESENTATIVE GREEN asked Mr. Egli if he was in agreement with SB 122. MR. EGLI replied yes, he was. REPRESENTATIVE GREEN asked Mr. Egli about the hypothetical scenario of giving a sales demonstration at a hotel to several people instead of at a consumer's home, thus violating SB 122, inquiring if Kirby would never do that. SB 122 would prohibit their doing that. MR. EGLI replied in principle someone might be fortunate enough to sell a Kirby in that situation. REPRESENTATIVE GREEN said maybe vacuums were not the right example, but Shaklee and other health product sellers deal with groups of people in a neutral location. He asked if they would be out of line even though they meet the ABC test. MR. EGLI said his sales people do meet the ABC test currently. REPRESENTATIVE GREEN noted SB 122 was an agreement with the Department of Labor to get their litigation out of the way, even though it could jeopardize other network sales people. MR. EGLI replied the opinion of his attorney was that if someone fell outside of this particular statute, they would still be subject to the ABC test in the current statute. REPRESENTATIVE GREEN spoke to Mr. Egli, saying, "You are an independent contractor, you feel, because ABC protects you; but the Department of Labor doesn't feel that way." MR. EGLI said yes, and that was why they need to change the law. REPRESENTATIVE GREEN added, "Or change the attitude of the Department of Labor." Number 162 REPRESENTATIVE ROBINSON said the ABC test under the IRS definition says "in the home or otherwise than in a permanent retail establishment." This takes care of the problem. She said by moving SB 122, Kirby's problem is taken care of this year without hurting anyone else. She added HB 238 could continue to move forward and go through the Senate, and maybe be the final language next year. CHAIR JAMES noted HB 238 would die because SB 122 replaces it. REPRESENTATIVE ROBINSON agreed that was true for this year, but there was no reason HB 238 had to die; it could progress next year. Number 197 REPRESENTATIVE GREEN said he was concerned with Representative Robinson's reference to the IRS code which says "or otherwise." He said that is covered in the House version, but it conflicts with the Senate version. The Senate version says the sales must occur within the consumer's home or the seller is not an independent contractor. He added the Department of Labor had still not answered that concern. REPRESENTATIVE IVAN asked why the Department of Labor opposes the federal language. MR. PERKINS said they were starting to go in circles. He returned to the original intent. The Department of Labor sees no problem with the current direct sellers other than Kirby. In good faith, the Department of Labor worked with the bill sponsor and came up with SB 122, and that is the language they prefer. Number 249 MR. BLOEMENDAAL asked the committee not to solve one problem and create another for direct sellers in Alaska. He said they had chosen not to notify the direct sellers in Alaska of the existence of this legislation because they needed to concentrate on building their businesses, and asked the committee not to take the absence of Alaskan testimony as a sign there was no local concern about the bill. He again asked the committee to adopt the TEFRA language, as 25 other states have already done. He noted the Department of Labor still has not adequately expressed their objections to that language. Number 276 CHAIR JAMES referred to her own experience in the accounting field with small businesses, saying she knows how the Department of Labor auditing works. Kirby does a quarterly employee report to the Department of Labor. If there is an audit, the department goes through the checkbook to see if the person is on the payroll. A commission check could be seen as creating an employee situation. This would not happen with Shaklee, Avon, Amway, or the others, because the sellers send their money to the supplier and they are treated as small businesses. She said she realizes the Department of Labor wants a "narrow fix." Number 348 REPRESENTATIVE GREEN asked if any other network marketers on teleconference had a problem with being restricted to selling only in the consumer's home. CHAIR JAMES said they were considered small business people, not direct sellers, and would not be affected. Number 362 MS. FERRIS said the question just raised really explained a major part of Shaklee's concern with SB 122, because their sales do not just take place in the prospective consumer's home. She was also concerned that for the first time in Alaska they would be excluded from the definition of direct seller. CHAIR JAMES asked Ms. Ferris if it was true that they were classified as small business people. MS. FERRIS said they are classified as independent contractors/ direct sellers, and added it is critical that they continue to be defined this way. CHAIR JAMES asked why they would not like to be called small businesses. MS. FERRIS said in general they were, but under a variety of state laws which specifically refer to direct sellers as a component of the independent contractor world, they find it of great concern that Alaska might have a definition which excludes them. REPRESENTATIVE PORTER asked what the status of Kirby is during the lawsuit. MR. PERKINS said the sales people were doing business as usual. Number 415 REPRESENTATIVE ED WILLIS moved CSSB 122(JUD), 9-LS9857/F. There were objections. REPRESENTATIVE PORTER noted two bills have been in this committee. No one but the Department of Labor had a problem with HB 238, though the problem was never specified. Five large national sales companies have a problem with SB 122. If the Department of Labor causes HB 238 to be vetoed, Kirby had stated they would probably win their case anyway. CHAIR JAMES called for the vote. Representatives Ogan, Green, Ivan, Porter, and James voted no. Representatives Willis and Robinson voted yes. The motion failed to pass. Number 451 REPRESENTATIVE GREEN moved to amend SB 122 by substituting CSHB 238. Representative Willis objected. Representatives James, Ogan, Green, Ivan, and Porter voted yes. Representatives Robinson and Willis voted no. REPRESENTATIVE PORTER moved the committee move HCS CSSB 122(STA) with individual recommendations and fiscal notes attached. There were no objections; the bill was moved out of the State Affairs Committee. HJR 40 - REPEAL BUDGET RESERVE FUND (ART IX SEC 17) Number 485 REPRESENTATIVE TERRY MARTIN, sponsor of HJR 40, said the Constitutional Budget Reserve Fund (CBR) is not what it was intended to be. It has not accomplished any of the original goals of cutting the budget and getting state spending under control. Instead, it has helped increase state spending by compelling majority and minority members of the legislature to work out deals, including expensive capital projects, to obtain the necessary three-quarters vote to gain access to the CBR. In addition, the CBR might have a negative effect on permanent fund dividends because those funds would have to be spent before the CBR could be tapped. It could also have a devastating impact on the state's cash flow, delaying availability of funds when the general fund runs low. The legislature has borrowed from the CBR and not paid it back, in spite of the requirement that debts be paid back before the end of the next fiscal year. The voters should be allowed to repeal the CBR and avoid the potential disasters it creates. Number 562 REPRESENTATIVE MARTIN continued, adding the legislature did not intend to have to spend the permanent fund earnings before being able to use the CBR, and Alaska can't afford to keep borrowing money from the CBR. It has become inoperative and is choking Alaska. The voters need to be told the truth. Number 617 REPRESENTATIVE GREEN asked Representative Martin how a ballot measure could be phrased so it would not look like a legislative raid on an account the public had set aside. He feared it would just look like a way for the Nineteenth Legislature to get their "sticky fingers" on the money. REPRESENTATIVE MARTIN replied people are not dumb; they will be able to understand there is nothing left, and we owe $3.4 billion. They will see the CBR is not workable when they have all the information. There will be a lawsuit anyway, when the CBR is not repaid after this session. Let the people see the facts and discuss the issue during the interim. We would really get their attention if we had to tap the permanent fund dividends and there were none for the people. Number 660 REPRESENTATIVE PORTER said the problem is finding a precise definition of the CBR. People's ideas of what it means have changed. He did not believe anyone intended the CBR to be the beginning and the end of every capital budget in the state, but because of court interpretations that is what it has become. He will support the Resolution. CHAIR JAMES referred to a time when they had the statutory budget reserve, which contained the remainder of the money that was on the table, and asked if it were possible to use that when there was a cash flow shortage. She also asked, did Legislative Budget and Audit have to authorize that, or how was it accessed? REPRESENTATIVE MARTIN said that money was put into the CBR. CHAIR JAMES said technically the statutory budget reserve would go away and not be there at all until the CBR was repaid and there was money left. So in reality, there never would be any money in the statutory budget reserve, and in fact, if there were any it would be there illegally. Even if this Resolution passed, a ballot vote would still be 18 months away. If education were taken out of the budget language, there would still be money left over which should go into the CBR. She asked where money would come from for a cash flow deficit on a month-to-month basis. REPRESENTATIVE MARTIN replied the automatic use of the CBR should not be allowed, if we are to put a restraint on government spending. There should not be easy access to the CBR. TAPE 95-50, SIDE A Number 000 REPRESENTATIVE MARTIN said education funding could be prorated. CHAIR JAMES said that was her exact point. It would be easy for the legislature to prorate it and give schools 1/12 each month, but that forces them into a negative cash flow, throughout the state. There is no guarantee, even on a monthly basis, that there will be enough money. REPRESENTATIVE MARTIN agreed, noting money was being borrowed from other accounts. Number 092 CHAIR JAMES again stated that was her point. Before money can be taken from the CBR with a simple majority vote, the earnings reserve of the permanent fund must be first expended. She expressed concern about serious cash flow deficits and the devastating effects on the economy of the state as a whole. Number 135 REPRESENTATIVE MARTIN said this Resolution is not the entire answer, but it would tell the people a serious mistake had been made. The people could be shown there is no way to spend other accounts first. In any case, after the education budget is passed, there will be no money in the CBR. There will be one, maybe two, lawsuits this year. CHAIR JAMES stated $600 million of the money used from the CBR was directly from the reduction in the price of oil to less than $10 a barrel. She did not want to take the blame for that, and it could happen again before July 1. Number 173 REPRESENTATIVE MARTIN pointed out this could be a good education process for the public. Alaska is the richest state in the Union, with almost $20 billion in different accounts, and yet we are so poor we cannot pay our monthly bills. Number 187 REPRESENTATIVE GREEN moved to move HJR 40 out of committee with attached fiscal note and individual recommendations. There were no objections. REPRESENTATIVE MARTIN noted representatives from Legal and from Management and Budget would attend the next hearing on this Resolution in Judiciary. ADJOURNMENT CHAIR JAMES adjourned the meeting at 9:45 a.m.