Legislature(1995 - 1996)
04/18/1995 08:10 AM House STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= 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.
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