Legislature(1999 - 2000)
03/31/1999 06:00 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 31, 1999
6:00 PM
TAPES
SFC-99 # 76, Side A and Side B
CALL TO ORDER
Co-Chair John Torgerson convened the meeting at
approximately 6:00 PM.
PRESENT
Senator John Torgerson, Senator Sean Parnell, Senator Loren
Leman, Senator Pete Kelly and Senator Lyda Green.
Also Attending:
SENATOR RICK HALFORD; JACK KREINHEDER, Senior Policy
Analysis, Office of Management and Budget; JANICE ADAIR,
Director, Division of Environmental Health, Department of
Environmental Conservation; DEBORAH BEHR, Assistant
Attorney General, Legislation and Regulations Section,
Civil Division, Department of Law; DOUG GARDNER, Assistant
Attorney General, Oil, Gas and Mining Section, Civil
Division, Department of Law; CAROL CARROLL, Director,
Division of Support Services, Department of Military and
Veterans Affairs and Department of Natural Resources; JOHN
BITTNEY, Legislative Liaison, Alaska Housing Finance
Corporation, Department of Revenue; GEORGE UTERMOHLE, Legal
Council, Division of Legal Services, Legislative Affairs
Agency; JAMES CRAWFORD, Assistant Reviser, Division of
Legal Services, Legislative Affairs Agency;
Attending via Teleconference: From Mat-Su: GARVAN BUCARIA;
BILL BRUU, Treasure, Mat-Su Home Builders; DENNIS WALDOCK;
From Anchorage: TERESA WILLIAMS; ERIC DYRUD; DICK DOLMAN;
ARLENE PATTON, State Coordinator with Alaska Housing and
Urban Development; ARTHUR CLARK; SUE BENEDITTI,
representing the Alaska Banker's and Manager of First
National Bank; JUDY KEMPLEN, National Bank of Alaska and
Northland Mortgage; JAN SIEBERTS, representing Alaska
Bankers, employed at National Bank of Alaska; CHARLES
BLALOCK, representing Prudential Insurance; JEWEL JONES;
SUMMARY INFORMATION
SB 101-DEFINITION OF DISASTER
The committee had questions of the Division of Legal
Services. Testimony was taken from the Department of
Military and Veterans Affairs. A new committee substitute
and Amendment #10 were adopted. CS SB 101 (FIN) was
reported out of committee.
SB 24-REGULATIONS: ADOPTION & JUDICIAL REVIEW
The committee heard testimony from the Department of
Environmental Conservation, Department of Natural
Resources, Office of Management and Budget and Department
of Law on the fiscal notes. Amendments #14 - 25 were
considered. CS SB 24 (FIN) was reported out of committee
with new SFC fiscal notes.
SB 113-FINANCES OF ALASKA HOUSING FINANCE CORP
The committee heard testimony from the sponsor, the Alaska
Housing Finance Corporation and various members of the
public. The bill was held in committee.
SB 42-1999 REVISOR'S BILL
The Assistant Reviser from the Division of Legal Services
explained the bill to the committee. The bill was reported
out of committee.
SB 84-CIGARETTE SALES: AGREEMENT/ESCROW
The committee heard testimony from the Department of Law.
The bill was held in committee.
SENATE BILL NO. 101
"An Act amending the definition of 'disaster.'"
This was the sixth hearing for this bill.
Amendment #10 was distributed to members relating to
wildland fires.
Senator Sean Parnell moved for adoption of Amend #10.
Without objection, it was adopted.
Senator Loren Leman requested George Utermohle to explain
the flood provision.
GEORGE UTERMOHLE, Legal Council, Division of Legal
Services, Legislative Affairs Agency, told the committee
that the President of the US could declare a flood a
disaster emergency. He explained the flood provision and
how an event would qualify for $5 million or $1 million in
aid. It did not lower the amount of funds it just lowered
the threshold that the Governor must come to the
Legislature for further assistance.
Senator Loren Leman clarified that it just changed the
methodology that the Governor had to use to obtain the
floods. George Utermohle affirmed.
Senator Gary Wilken asked if the Upper Chena River flooded
and ten years later, the Lower Chena River flooded would
that be considered the second flood. George Utermohle said
it would be incumbent upon the Governor to define the area
affected.
Co-Chair John Torgerson noted the limit was set at $5
million. The authority was actually broadened.
Co-Chair John Torgerson announced that Amendment #10 must
be rescinded to allow the committee to adopt the CS Version
"K". Action taken on Amendment #10 was rescinded without
objection.
Senator Sean Parnell moved to adopt the CS Version "K".
Without objection it was adopted.
Senator Sean Parnell moved to adopt Amendment #10. Without
objection, it was adopted.
Co-Chair John Torgerson asked if there was anyone wishing
to testify for SB 101.
CAROL CARROLL, Director, Division of Support Services,
Department of Military and Veterans Affairs and Department
of Natural Resources, testified. She asked the committee's
intent with the adoption of Amendment #10. Co-Chair John
Torgerson said wildfires were exempted. They discussed the
intent of the amendment. Co-Chair John Torgerson stated
that his intent was exactly as the amendment was worded.
Carol Carroll stated her interpretation of that. Co-Chair
John Torgerson agreed that was correct.
Senator Lyda Green wanted to know if that was the current
practice. Co-Chair John Torgerson said it was not, that it
had been set at $1 million.
Senator Lyda Green noted that there had been wildland fires
much in excess of $5 million and she had never been polled
on whether more funds should be expended. Co-Chair John
Torgerson explained that the presiding officers had made
the decision in the past. Under this legislation, the
Legislature would be polled.
Carol Carroll asked if wildland fires would be less than $5
million and more than $1 million. Co-Chair John Torgerson
requested George Utermohle explained the trigger procedure.
George Utermohle this provision provided that either $5
million or $1 million disaster depending on what the
Governor declared and depended on whether the President
declared. However, it exempted that it must be declared a
federal disaster before additional funds could be
appropriated.
Senator Sean Parnell made a motion to move CS SB 101 (FIN)
from committee. Without objection, it was so ordered.
CS FOR SENATE BILL NO. 24(JUD)
"An Act relating to regulations; relating to
administrative adjudications; amending Rule 65, Alaska
Rules of Civil Procedure; and providing for an
effective date."
This was the fifth hearing for this bill.
Co-Chair John Torgerson reminded the committee that a
motion to adopt Amendment #14 was on the table.
Senator Dave Donley moved to withdraw his motion to adopt
Amendment #14. There was no objection.
Senator Dave Donley moved for adoption of the CS Version
"Y". It was adopted without objection.
Senator Dave Donley stated he would not offer Amendment
Senator Dave Donley spoke to Amendment #16 and moved for
adoption. Senator Lyda Green asked how Section 3 would
read. Senator Dave Donley read into the record. Without
objection adopted.
Senator Dave Donley moved for adoption of Amendment #17.
Co-Chair John Torgerson explained his amendment that
clarified language to page 2 line 25. Without objection, it
was adopted.
Senator Dave Donley moved for adoption of Amendment #18.
Co-Chair John Torgerson explained. Senator Gary Wilken
wanted to make sure that it changed the * substantially. So
the burden was up to the commissioner? Co-Chair John
Torgerson believed the burden would be up to the plaintiff.
Senator Dave Donley explained it would first be up to the
Department of Law then the plaintiff. Co-Chair John
Torgerson commented it should reduce the number of times
the regulation had to go out for public notice.
Senator Gary Wilken question. Co-Chair John Torgerson
respond.
Without objection Amendment #18 was adopted.
Senator Dave Donley moved for adoption of Amendment #19.
Co-Chair John Torgerson explained. The burden of proof
would be the same.
Without objection, Amendment #19 was adopted.
Senator Dave Donley moved for adoption of Amendment #20 and
explained that it had the same scheme as Amendment #16 and
addressed the cost benefit analysis. Without objection,
adopted.
JANICE ADAIR, Director, Division of Environmental Health,
Department of Environmental Conservation, testified to the
fiscal note. She appreciated the work on the bill but
still had some concerns about how the department would
instigate some of the changes. She spoke to the number of
comments received on some of the proposed regulations. If
she received only 13 comments, they would be required to
send out second notices to all 3000 people on the mailing
list. While she would like to hear from more people, she
did not.
She noted the prior amendment to the fiscal note. The
highest cost to do the notices was newspaper publishing and
printing of the notices. Those costs were contained in the
contractual component.
Senator Loren Leman spoke to the number and length of
public notices published in newspapers. Janice Adair
detailed the requirements of public notices.
Senator Gary Wilken referred to Amendment #18 and the
addition of the word, "substantially" Janice Adair said it
did somewhat, but she was still unsure what substantially
meant in relationship to regulation changes.
Senator Gary Wilken thought it was the intent of the
amendment was to prevent from re-sending additional public
notices. Co-Chair John Torgerson responded not
necessarily. Senator Dave Donley agreed and said there was
a reason because if there was a substantial change, the
public may want to know of the changes.
Senator Gary Wilken referred to page 2 line 25 and the
relationship between the cost benefit analysis and the
fiscal note. He asked for clarification. Senator Dave
Donley replied there were three potential scenarios. The
department could research in the Legislative Library.
Second, *. If the commissioner found that the cost of doing
the analysis was greater than the benefit of the
regulation, there was an exemption. He said there were
about five other options.
Senator Gary Wilken asked if that applied to legislation
that was in place for over ten years. Senator Dave Donley
said it was. Senator Gary Wilken asked if Senator Dave
Donley would consider an amendment to limit this bill to
legislation passed in the past few years. Senator Dave
Donley said the point was to require the cost benefit
analysis to determine the impact to the public.
Senator Gary Wilken moved for adoption of Amendment #21.
This would delete language from page 4 lines 21-29. Co-
Chair John Torgerson objected and asked if this reflected
current statute. Senator Gary Wilken affirmed.
Senator Loren Leman felt that to delete members of the
standing committees would be a mistake. Senator Gary Wilken
withdrew his motion.
Senator Loren Leman questioned the mailing list of 3000
names and wondered how that list could be shortened.
Janice Adair noted the provision in the bill requiring all
interested parties be included.
Senator Loren Leman asked how good Janice Adair felt that
list was. Janice Adair replied that they did remove names
for undeliverable mail. Senator Loren Leman asked if they
ever did mailouts to determine interest in remaining on the
mailing list. She did not have very good response and then
received complaints from those who were purged as a result.
She added that the regulations were posted on the Internet.
Senator Dave Donley moved to amend the Department of
Environmental Conservation fiscal note as Amendment #22 to
delete all components but supplies and contractual for each
year. The contractual component would be reduced to $35.75.
Without objection, it was adopted.
Senator Dave Donley moved to amend the Department of Law
fiscal note to reflect the Department of Law memo as
Amendment #23. Without objection, it was also adopted.
Carol Carroll testified to the Department of Natural
Resources fiscal note.
Senator Dave Donley moved for adoption of Amendment #24,
which would amend the Department of Natural Resources
fiscal note. Without objection, it was adopted.
JACK KREINHEDER, Senior Policy Analysis, Office of
Management and Budget, testified. He asked for
clarification of dec fiscal note. Senator Dave Donley said
the contractual component was reduced 50 % and the supplies
remained the same. All other components were deleted.
Tape: SFC - 99 #76, Side B
Jack Kreinheder said that helped. However, the extent of
the fiscal note reductions would make it difficult to
implement the bill. He had trouble understanding the intent
for exemptions of the cost benefit analysis. They were not
done in an hour.
It seemed clear to him that the regulatory staff in the
state was already under funded. Therefore the ability to
absorb the costs of the analysis was limited.
He detailed that an acceptable cost benefit analysis would
not be possible under this provision so he assumed the
committee intended only cursurary analysis be done.
Senator Dave Donley said that was not the intent. They
wanted the agencies to exercise common sense.
Co-Chair John Torgerson noted that many regulations were
outside the statutory authority.
DEBORAH BEHR, Assistant Attorney General, Legislation and
Regulations Section, Civil Division, Department of Law,
testified. She had questioned many in the timber and other
industries on this matter and was told that this would be a
new tool that could be used to halt development. Parties
wishing to prevent timber sales and other development could
use this process to stop or slow such sales.
In the section addressing supplemental notices, there was
some question on whether the burden of proof would be
placed on the person contesting the regulation. Several
areas of the bill lent the process to inadvertent errors.
She suggested if the intent was to place the burden of
proof on the challenger, it needed to be stated in the
supplemental notice as it was done in other provisions.
She addressed the fiscal note. Some of the costs listed
would be to cover the preparation of the regulation to
ensure they would be defensible in court. The remaining
costs would be incurred for defense of the regulations when
they actually went to court.
She spoke to the Department of Law's ability to defend the
provisions of the bill. She referred to sections 2, 3 and
13 as the greatest concerns. There would need to be an
excellent record to show that the regulation was necessary.
Frankly, most regulations in the environmental area were
compromises, she warned. The result was that these were
often not the least intrusive methods, but rather the
agreement of the involved parties as a compromise.
She believed that very few state regulations would be
required by substantial state interest, which was another
provision of the bill.
She anticipated litigation to determine the provisions of
the bill.
She felt this would result in an unsettling environment for
business and investment in the state.
GARVAN BUCARIA, testified via teleconference from Mat-Su.
He spoke to the definition of "reasonable" and suggested
that word meant different things to different people. He
commented that the bill contained superlative language and
needed to be cleaned up.
He was unsure which state agencies the current bill would
encompass.
Co-Chair John Torgerson clarified that the bill excluded
everyone but Department of Environmental Conservation, the
Department of Natural Resources and the Division of Habitat
and Restoration. Garvan Bucaria could not go along with
that since those agencies were responsible for the health
and safety of the state. They had enough to do without the
extra burden placed on them by the Legislature to do these
analyses. He spoke of water quality standards in Wasilla
saying the only protection was these regulations.
Co-Chair John Torgerson debated that this would not change
the way water would flow into Wasilla Lake. Garvan Bucaria
countered. He was concerned about the regulations being
less effective since the agencies were working on limited
resources.
TERESA WILLIAMS, via teleconference from Anchorage. She
was on line to address Amendment #11, which was not
offered. She was concerned that the sponsor might offer it
in the future.
Senator Dave Donley took the testimony from Office of
Management and Budget to heart and noted language on page 2
line 19 saying that was included early in the process and
was no longer needed.
Senator Dave Donley moved to delete page 2 line 17 "or that
the cost and benefits cannot be easily determined" as
Amendment #25. Senator Loren Leman or Senator Gary Wilken
objected. Senator Dave Donley commented that the preceding
line in the bill addressed the issue of when the cost of
the analysis was prohibitive.
Senator Gary Wilken felt they should defer to the
commissioner's judgement and this amendment would nail down
the options more than what was necessary.
Amendment #25 was adopted by a vote of 4/2/3. Senator Gary
Wilken and Senator Loren Leman voted nay. Senator Al Adams,
Senator Randy Phillips and Senator Sean Parnell were
absent.
Senator Dave Donley made a motion to move from committee CS
SB 24 (FIN). Senator Pete Kelly objected.
Break 7:05 PM / 7:06 PM
Senator Pete Kelly removed his objection and the bill moved
from committee without objection.
Break 7:08 PM
SENATE BILL NO. 113
"An Act making activities of the Alaska Housing
Finance Corporation subject to the Executive Budget
Act, relating to appropriations to the Alaska Housing
Finance Corporation; relating to bonds and bond
anticipation notes issued by the Alaska Housing
Finance Corporation; and providing for an effective
date."
SENATOR RICK HALFORD spoke to the bill. The bill was
drafted in response to a Commonwealth North Report that
dealt with the consolidation and maximization of return on
state assets. AHFC was the third highest cash asset of the
State Of Alaska behind the permanent fund and the
constitutional budget reserve. Its cast value was somewhat
in question because the corporation would not provided
information on what the liquidated value would be.
Instead, information was given about bond conveyances and
provisions.
The program included operations that would occur regardless
of the state's cash situation, such as veteran's housing
bonds since they were not subsidized and passed along a
benefit from the federal government.
It was a complicated issue. He referred to the great deal
of feedback the Legislators had received.
The bill was drafted to put AHFC under the Executive Budget
Act and draw the corporation into the financial system of
the state in such a way that the Legislature would be in
control of the appropriation and expenditure processes as
well as the authorization of future bonds.
There were concerns from people who represented
bondholders. There were other legitimate concerns about the
requirement for appropriation, refunding bonds or debt
service on existing bonds. Jeopardizing those items was not
the intention of the legislation as far as drawing the
system back under state control. If the original bond was
authorized and could be refunded at a lower cost, the
original authorization was the legislative action that said
the appropriation process was followed as well as the
constitutional entity behind it.
In the same sense, the appropriation of the debt service on
a bond that was already authorized would not need to go
back through the process. He felt this addressed the
concerns voiced.
He speculated that the marketplace would love to see $2
billion stay in the account and was satisfied with the
current system. He spoke about the state's budget
appropriations and stressed that the money belonged to the
people of Alaska. They had a right to know the worth and
what the program was accomplishing. He didn't believe that
was currently the case.
He continued speaking to the merits of the bill.
Senator Dave Donley felt that the Commonwealth North did an
excellent study showing how the state could maximize its
assets. AHFC was one of the largest public assets and until
the Legislature had authority to implement the
recommendations of the commonwealth study, there was no way
to reach those goals. The intent of the legislature was to
do that.
JOHN BITTNEY, Legislative Liaison, Alaska Housing Finance
Corporation, Department of Revenue, testified. He provided
a letter to the committee expressing the position of the
corporation.
The corporation was concerned and perplexed with the bill.
They were unaware that is was being drafted.
The main concern was that AHFC was in the midst of issuing
the debt that was authorized by SB 260 last year. The
corporation had issued $92.4 million of that debt and did
receive an upgrade from Standard and Forbes as part of that
issuance. It was uncertain what the impact of this
legislation would have on that rating. That could affect
the timing and issuance of debt to complete the state
capital projects authorized in SB 260
He pointed out that the corporation was already subject to
the Executive Budget Act. The operating budget was
presented to the Legislature for authorization. The same
was done with the capital budget and the mortgage program.
However, the extent that the corporation should be under
the act had been discussed in the past. The bonding
authorizations had always been left to the discretion of
the corporation in terms of timing and the amounts. This
would allow flexibility under the review and the public
process of the board of directors to take advantage of the
best timing, interest rates and other factors affecting the
investment environment.
He was dismayed because the corporation felt it already had
a process that worked very well. AHFC provided $103
million annually to the state. That was used to leverage
$200 million in bond issuance on behalf of the state. In
addition to that, the corporation provided financing for
purchases such as the Bank of America building for state
office lease space as well as subsidized financing for the
University of Alaska. This was the net of the hundreds of
millions of dollars of mortgage activity the corporation
provided inside the State Of Alaska.
He apologized for any misperception that the
representatives of the corporation did not provide adequate
information. However, he said they would welcome any
request and felt that if there was an intent to review the
performance of the corporation, he believed that could
happen without this legislation.
Senator Loren Leman asked if the sponsor had worked with
the corporation how would the bill be different. John
Bittney said if the intent was to implement the suggestions
of the Commonwealth study, they would have been willing to
work with the Legislature to implement the programs.
There was concern of whether or not the Legislature should
approve each and every bond issuance. Section 8 was the
main accounting section and would apply to every single
home mortgage issuance saying the Legislature would have to
appropriate each one. Section 10 would require front
section language in each budget to accomplish.
Co-Chair John Torgerson had asked the AHFC for a sectional
analysis of the bill and asked if he had that with him.
John Bittney did not and said the bond council and the tax
council were working on drafting it. He also noted the
request for the fiscal note and gave the reason it was not
provided. He said it was a complex matter and detailed how
loan program would have to be analyzed. It would need
front section language.
Co-Chair John Torgerson asked when the section by section
overview would be available. John Bittney replied he could
have that delivered later in the evening.
Section 8 was the most egregious and would affect the
ability for the corporation to do business. All the
sections of the bill would severely impact the
corporation's ability to conduct business. Section 7 would
leave things as a status quo regarding authority for the
grant fund within the corporation since that was done
already.
ERIC DYRUD, Co-Chair, Anchorage Board of Realtors
Legislative Committee, testified via teleconference from
Anchorage in opposition to SB 113. He suggested passing
legislation requiring the corporation to submit reports
rather than impede their operations. He invited the
committee members to a legislative meeting the organization
was holding on Monday.
Senator Loren Leman accepted the invitation. He would not
be able to give background to the bill since he did not
draft it.
Eric Dyrud gave the time and place of the meeting.
DICK DOLMAN, VP Alaska Manager of a Seattle mortgage
company, testified in opposition to the bill. He said this
bill would place leg irons and hand cuffs on AHFC. AHFC was
very successful and had a good reputation. He was one of
the founders of the corporation. Its independence was what
allowed it to be successful. He compared it to Fanny Mae
and asked how that program would do if each of its loans
had to be approved by Congress.
ARLENE PATTON, State Coordinator with Alaska Housing and
Urban Development, testified via teleconference from
Anchorage. During FY98 Alaska benefited from over $780
million in federal resources. She limited her comments to
the programs HUD relied on AHFC for funds to administer.
She listed the positive recognition the corporation
received. AHFC must have flexibility. Future opportunities
would be jeopardized. She gave figures for the homeless
rate in Alaska. "Please remember what we do today is for
the long term."
Co-chair Torgerson asked the testifier to point out the
relationship with AHFC in contrast to HUD. He requested
this be done in writing and faxed to his office.
ARTHUR CLARK, Key Working Group Chairman, Alaska
Association of Realtors for Industry Issues, testified via
teleconference from Anchorage. His concern with bill was
due to a lack of understanding regarding the bond market.
He reminded that the corporation has been benefiting the
state with dividends. Problems with communication and
management must be addressed, he stated.
SUE BENEDITTI, representing the Alaska Banker's, and
Manager of First National Bank testified via teleconference
from Anchorage. In her travels around U.S. she heard how
respected the AHFC was. This was a missing opportunity for
Alaskans.
JUDY KEMPLEN, National Bank of Alaska and Northland
Mortgage testified via teleconference from Anchorage. If
Alaska Housing cannot maintain bonds then there would be
higher interest rates for potential homebuyers, he warned.
This would encourage substandard housing.
JAN SIEBERTS, representing Alaska Bankers, employed at
National Bank of Alaska testified via teleconference from
Anchorage. Over the years, she had seen authority by
Legislature over AHFC increased. More independence should
be given to AHFC. The Banker's Association saw no purpose
to this bill.
CHARLES BLALOCK, representing Prudential Insurance
testified via teleconference from Anchorage. He noted that
twenty-five percent of business was first time homebuyers.
He felt the bill just needed to be fine-tuned.
JEWEL JONES, testified via teleconference from Anchorage on
her concerns about section 8 and said she needed additional
time to look at the impact of the bill. She had worked
with Senator Rick Halford for many years and would continue
to work with him regarding this matter.
BILL BRUU, Treasure, Mat-Su HomeBuilders, testified via
teleconference from Mat-Su. He was concerned that the bill
smacked of "killing the golden goose". The Legislature was
always trying to strangle Alaska Housing to get last little
bit of cash, in his opinion. He asked who drafted the
bill. Co-Chair John Torgerson responded that the bill
drafters had.
DENNIS WALDOCK testified via teleconference from Anchorage.
He had many suggestions on improvements to the bill.
Co-Chair John Torgerson requested he submit his suggested
changes in writing to the committee.
Senator Loren Leman wanted to hear from a representative of
the real estate industry who could tell the committee the
percentage of home sales with AHFC financing. There was no
response.
Co-Chair John Torgerson ordered the bill held in committee.
He requested a sectional analysis from AHFC.
Break 7:56 PM / 8:11 PM
Tape: SFC - 99 #77, Side A 8:11 PM
CS FOR SENATE BILL NO. 42(JUD)
"An Act making corrective amendments to the Alaska
Statutes as recommended by the reviser of statutes;
and providing for an effective date."
JAMES CRAWFORD, Assistant Reviser of Statutes, Division of
Legal Services, Legislative Affairs Agency, testified. He
said the area of most concern to the committee would
probably be Section 21. This addressed an internal
numbering reference within an appropriations bill. Between
versions of that bill, the section numbering changed and
two numbers were skipped. This would correct that and make
the changes retroactive to the effective date of the
original legislation. He explained the reason for the error
was that the original sections contained effective dates
that failed to receive the required super-majority vote to
be adopted. As a consequence, when the bill was reprinted
those sections were removed but the remaining sections were
not renumbered properly.
Co-Chair John Torgerson clarified that this bill contained
technical corrections to previously adopted statutes.
James Crawford confirmed and detailed.
Co-Chair John Torgerson asked about the different versions
of this bill adopted by past committees. James Crawford
spoke about changes to more controversial sections of the
bill that did not apply to the Senate Finance Committee.
Those sections addressed the criminal justice system and
were separated into a supplemental reviser's bill.
Senator Dave Donley made a motion to move CS SB 42 (JUD)
from committee. Without objection, it was so ordered.
SENATE BILL NO. 84
"An Act imposing certain requirements relating to
cigarette sales in this state by tobacco product
manufacturers, including requirements for escrow,
payment, and reporting of money from cigarette sales
in this state; providing penalties for noncompliance
with those requirements; and providing for an
effective date."
DOUG GARDNER, Assistant Attorney General, Oil, Gas and
Mining Section, Civil Division, Department of Law, gave an
overview of the bill.
Co-Chair John Torgerson asked him to begin by explaining
why this bill was offered. Doug Gardner explained that on
November 30, 1998, the State Of Alaska along with 46 other
states and the District of Columbia and five other
jurisdictions settled tobacco litigation in a master
settlement agreement with the tobacco industry.
The master settlement agreement contained a "non-
participating manufacturer adjustment." That was an
equation in the agreement that provided that if the
industry as a result of entering into this agreement with
the state, experienced a loss of market share, the industry
was entitled to offset its payments to the state by the
amount of the non-participating manufacture percentage. A
non-participating manufacturer was one that did not sign
the agreement. The bill was envisioned to provide that any
small company that did not sign the agreement should not be
entitled to gain a cost advantage over those competitive
companies that signed the agreement. For example, a small
renegade manufacturer might decide to sell cheaper
cigarettes since they did not have the burdens of the
agreement and flood the market and cause the same public
health problems.
This bill would provide for payment of money by non-
participating manufacturer into an escrow fund so that the
playing field would remain level between the main
manufacturers and the non-participating manufacturers.
In essence this bill gave the companies two options either
to sign the agreement or not sign the agreement and pay
into an escrow the amount they would have paid had they
participated.
He detailed why this was important to the State of Alaska.
He referred to a handout before the members that showed a
hypothetical scenario that envisioned the problems that
could occur if the bill did not pass. It would expose the
state to a non-participating manufacturer adjustment. If
the bill passed, the state would not have to share in any
downside risks if the industry's market share dropped and
they reduced payments to the state. It was a way of
protecting the state's payments and to provide a mechanism
for the citizens to have a fund to recover against.
Co-Chair John Torgerson asked for an example of a
nonparticipating manufacturer. Doug Gardner said that was
not easy to do. As of this date, 99.8 percent of the
tobacco market share was either an original participating
manufacturer, or was one of the smaller companies that
became a subsequent participant. There were very few
companies that had not taken the deal offered in the
settlement. The fear was that in the future, a smaller
manufacturer or newly created company could take advantage
of the situation. Co-Chair John Torgerson clarified that
none could be identified. Doug Gardner said he could
research the matter.
Co-Chair John Torgerson said he thought it looked like the
tobacco companies locked in their sales numbers. This bill
addressed the possibility of another company taking a share
and impacting the participants.
Senator Dave Donley said this was the kind of bill that he
would like to see the recommendations from the previous
committees. He would like to have this provided for all
previous bills.
Co-Chair John Torgerson said it would be considered but
that it may cause an additional burden.
Co-Chair John Torgerson wondered if another option would be
to impose a separate tax on those that did not sign the
agreement. Doug Gardner wagered to say there would be a
high likely hood there would be difficulties in taxing
interstate commerce at different rates. This would not
comply with the state constitution and perhaps the federal
constitution as well.
Co-Chair John Torgerson asked if this was required in order
to collect the settlement monies. Doug Gardner affirmed.
However, if the bill did not pass there was exposure to
adjustments of reduced market-share.
Co-Chair John Torgerson asked what was the outward timeline
if the bill was not passed this year. Doug Gardner replied
that the Legislature could do that but that by the time the
problem was identified, the bill would not be in place for
the year prior that the industry requested a reduction. The
state would then be out the funds for that year.
Co-Chair John Torgerson asked if some of the larger tobacco
companies announced that they sold off their to another
company, how do we know that they won't form some funny
company that was not part of the agreement. Doug Gardner
said there were protections in the Master Settlement
Agreement.
Co-Chair John Torgerson asked about RJR/Nabisco's
announcement of a sell-off. Doug Gardner said it was
complicated and he would research the matter. Co-Chair
John Torgerson requested him to do that. Doug Gardner
understood that the exposure was not great, but if we
allowed them to do that then if the tobacco companies were
allowed to sell without the underlying agreement this would
become an important piece of legislation.
Senator Loren Leman had questions on page 4 regarding
identifying the qualifying financial institutions for the
escrow funds. How many institutions in Alaska met that
requirement? Doug Gardner said the intention of that
language was to prevent a company from managing the escrow
account itself. He didn't think there was a company in
Alaska that had the assets to manage the escrow account.
Senator Loren Leman wondered why it was necessary to have
that great of market capitalization for the portion that
Alaska was concerned about. Doug Gardner responded that the
escrow account would hold funds for all the participating
parties that could collect from the settlement agreement.
Senator Loren Leman noted the language "revert back" on
line 13 was probably a technical amendment. He suggested
deletion of the word "back".
Senator Lyda Green asked if every tobacco manufacturer in
the nation was named and involved in the original suit.
Doug Gardner replied that the suit primarily named the
larger companies. There could have been smaller companies
that might be unable to pay the judgements.
Senator Lyda Green assumed at that time the department did
not anticipate non-participating manufacturers be an issue.
Doug Gardner said that was possible.
Senator Lyda Green asked if every plaintiff named agreed to
the settlement. Doug Gardner answered yes. Senator Lyda
Green wanted to know if this applied to those in business
now or could be in the future. Doug Gardner said this was
market share today in America and there could be an
infinite number in the future. Without this legislation,
there could be an incentive to do business in that way.
Senator Loren Leman returned to the escrow fund matter. It
appeared that the manufacturer had to identify what was
sold in the state. Was there any reason listed in the
Master Agreement why it could not be required that the fund
be held in Alaska? Doug Gardner said there wasn't anything
in the agreement. However, the model agreement was
tailored to Alaska to fit within the statutory scheme and
was hard-fought with the opponents. They had indicated to
him that if they made changes they would take the position
that the statute was not qualifying and challenge. In
principle, he did not see a problem but warned that the
industry could challenge.
Co-Chair John Torgerson asked if the settlement funds were
handled by an independent source. Doug Gardner explained
the system. He stated there was an independent auditor and
that was where the challenge would be heard.
The bill was held in committee.
Doug Gardner clarified the information requested by Co-
Chair John Torgerson.
Co-Chair John Torgerson announced the next meeting schedule
to hear SB 100 and SB 6.
Break 8:38 PM / 8:40 PM
Senator Gary Wilken asked about the schedule for the next
week. Co-Chair John Torgerson detailed.
Senator Sean Parnell commented that he did not anticipate
subcommittee closeouts on the operating budget until later.
ADJOURNED
Senator Torgerson adjourned the meeting at 8:45 PM.
SFC-99 (21) 3/31/99
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