01/27/2004 01:30 PM Senate L&C
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ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
January 27, 2004
1:30 p.m.
TAPE(S) 04-1
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Hollis French
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
Pulltabs Subcommittee Report
SENATE BILL NO. 237
"An Act relating to the Alaska Railroad workforce development
scholarship program."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 237
SHORT TITLE: AK RAILROAD EDUCATION APPRENTICE PROGRAM
SENATOR(s): COWDERY
01/12/04 (S) PREFILE RELEASED 1/2/04
01/12/04 (S) READ THE FIRST TIME - REFERRALS
01/12/04 (S) L&C, HES
01/27/04 (S) L&C AT 1:30 PM BELTZ 211
WITNESS REGISTER
Mr. Richard Schmitz, Staff
Senator John Cowdery
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 237 for Senator Cowdery,
sponsor.
Ms. Wendy Lindskoog, Director
External Affairs
Alaska Railroad Corporation (ARRC)
PO Box 107500
Anchorage AK 99510-7500
POSITION STATEMENT: Opposed SB 237.
Ms. Susan Lindemuth, Director
Division of Human Resources
Alaska Railroad Corporation (ARRC)
PO Box 107500
Anchorage AK 99510-7500
POSITION STATEMENT: Opposed SB 237.
ACTION NARRATIVE
TAPE 04-1, SIDE A
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:30 p.m. Present were Senators
Seekins, Stevens, French and Chair Con Bunde. Senator Bettye
Davis was excused. The first order of business to come before
the committee was a report from the Pulltab Subcommittee, manned
by Senators Seekins and French.
SENATOR RALPH SEEKINS said he and Senator French had three
meetings on this issue. He recapped that last year a number of
witnesses referred to pulltab gambling as charitable gaming and
warned of dire consequences to the charities if the state raised
taxes on them. The definition of a charity was questioned as
well as which charities are permitted to participate in Alaska's
so-called charitable gaming activities. Further testimony
revealed that some permittees operate pulltab operations in
communities hundreds of miles from their home bases. The
question arose of whether or not authorized participants should
be limited by statute to operate within a fixed geographic
proximity to the community in which they are based. His further
comments today were primarily directed to participation and
proximity. He said:
One thing many people don't know, I suppose, is best
summarized in the quote from the 2002 gaming group
report, which says, 'In general, gambling is illegal
in Alaska.' However, the Legislature created an
exception for what is commonly, though somewhat
inaccurately, referred to as charitable gaming. The
use of the word 'charity' is really a misnomer. An
organization does not have to have any charitable
purpose in order to have a gaming permit. The
department 'may' only issue a permit to a municipality
or qualified organization and charities represent only
one of 15 qualified organizations eligible to game in
Alaska. Also, from the Department of Revenue, we've
listed 13 of those 15 categories including
municipalities on top of that and provided some of the
statutory definitions of those categories.
CHAIR BUNDE said he saw 13 categories listed and adding
municipalities made 14.
SENATOR SEEKINS responded that he only found 13 categories also,
and their subcommittee report provided some examples of the
diversity of types of organizations that fit inside a general
category. For instance, an education organization includes
licenses such as the Juneau Golf Club, the Southeast Alaska
State Fair and the Nome Public Schools. It does not recommend
that the statutory exception allowing charitable gaming be
changed. However, it does recommend that the Labor and Commerce
Committee review the list of permitted gaming groups to consider
changes that assure that pulltab licenses and revenue fulfill
some charitable purpose, as that was probably the intent of the
Legislature in the beginning. Municipalities, political
organizations, chambers of commerce, and the like should be
examined to see if they should be beneficiaries of pulltab
income from Alaska's charitable gaming exception.
However, because of the not-for-profit status of the
currently qualified organizations and so that there
are some legitimate fund-raising opportunities for
them, the subcommittee recommends that raffle licenses
continue to be granted to all the current game
groups....
During the committee hearings, it became evident that
some permittees that were domiciled in one community
operate their pulltab licenses in other communities
and so some so-called charitable gaming revenue from
pulltab gambling in some communities did not benefit
those communities at all; rather, that revenue went to
organizations in communities sometimes hundreds of
miles distant. This led to the question of whether or
not the Legislature should institute a geographic
proximity limit for the operation of pulltab licenses.
Pulltab permittees operate in distant locations for a number of
reasons. The American Red Cross, for instance, has a statewide
presence and mission. Some rural permittees do not have a very
large population base and have found it more profitable to
operate in urban locations. Some communities charge a sales tax
on pulltab sales and permittees have found that they can net
more by operating in communities that do not have a sales tax.
Another reason is that some communities are saturated with
pulltab operations for their population and the opportunity to
play in some other community came up.
SENATOR SEEKINS said they didn't reach any unified
recommendation regarding specific actions to address the
proximity action, but agreed that the matter should be discussed
in the full committee and would benefit from further public
testimony before a final decision was reached on the matter.
Other considerations came forward, i.e., a lot of the permittees
depend on gambling revenue as "a" or "the" major source of their
revenue to operate. He maintained:
It's easier to have a pulltab license than it is to
run a bake sale.... Therefore, there is a lot of fear
out there that any change in the gaming structure at
all would have a devastating effect on their
operations.... Operators also testified that they
operated on small margins and changes could easily put
them out of business. There aren't a lot of operators.
I think 14, or something like that, were licensed last
year.
SENATOR SEEKINS said that Jerry Richards, a Fairbanks CPA who
does some auditing for gaming operations, presented several
suggestions for clarifying gaming statutes. He suggested that
the Legislature allow licensed operators to "pool" the gaming
activities of their permittees. Pooling is currently allowed
with the multiple beneficiary permittees (MBP) and if extended
to the operators, it would result in the sales being spread
between more permittees. In other words, the operator wouldn't
come to the end of what one person could earn and have to stop
play in the middle of a game; but he could pool it, which would
result in a more even flow of the net proceeds throughout the
year. He felt that was a good suggestion, because it simplifies
the operation, makes the cost of operating cheaper and gives a
more even flow to the people who are there.
In summary, I've shown here in our report that gaming
and gambling is big business in Alaska. In 2002, the
total amount gamed exceeded $358 million. After prizes
were paid out, approximately $85 million was available
for gaming expenses and net proceeds to benefit
municipalities and qualified organizations [from the
Department of Revenue report].
SENATOR SEEKINS said there are over 1,200 permittees and the $85
million pie gets sliced thinner and thinner. Competition makes
it harder and harder for small organizations to effectively
compete for any share at all. He felt it was time for the
Legislature to examine the charitable gaming exception to the
general gambling prohibition and start by redefining whether or
not municipalities, political organizations and others should be
permitted to operate pulltab operations. They recommended
considering a geographic proximity limitation that would keep
charitable gaming revenue in the community where the proceeds
are generated.
1:48 p.m.
SENATOR FRENCH said he appreciated the work Senator Seekins did
with him on this issue. They focused on pulltabs because they
are the biggest part of the gaming puzzle at 77 percent of
gaming receipts statewide. In general, he felt the system is
working fairly well. Since 1997, the gross increase in gaming
receipts has been 28 percent, the adjusted gross income has
grown by 25 percent and the net to charities has grown by 33
percent. "It's not as if charities are getting a smaller and
smaller slice of the gaming pie as time goes on.... I'd like us
to continue that trend."
He also thought that some groups that receive money from gaming
could generate their own income for their own purposes, like
municipalities. His sentiments fall with the smaller rural
villages and towns that continue to need access to gaming
receipts whereas bigger cities should have their own tax base to
fall back on. He wasn't that concerned about the proximity
question as long as the group of players is worthy.
SENATOR FRENCH revealed that some pulltab parlors post whose
permit is being played at any given moment on the wall, so you
can see which one is being played; and if a player doesn't want
to contribute any dollars to the Alyeska Ski Club, for instance,
he can walk out. He thought making that a requirement should be
considered. The flip side is that most players don't look at
that information and wouldn't be concerned.
SENATOR BUNDE said he heard rumors about inflated expenses and
asked if they had looked at what auditing is done.
SENATOR SEEKINS responded that his sense is that there are
allegations of inflated expenses - for excessive rent being
charged, for instance, where 10 permittees were all paying 100
percent of the rent rather than one tenth each out of their
expenses. The permittees are reluctant to question the situation
because they might not be allowed to continue to participate. He
knows the Department of Revenue (DOR) doesn't have a huge
commitment to examine these types of allegations on a continued
basis and he felt they could have a few more investigators to go
through the process. The DOR annual report mentions some cases
where the state has found some abuses within the pulltab
operations. The industry also says that if an operator catches
an employee stealing, it's virtually impossible to get the
state's prosecutors to prosecute the case. He didn't know if
that was true or not. But if an employee is caught stealing, he
gets fired and nothing else happens to him. He might end up
working in another pulltab parlor down the street and doing the
same thing and the charity doesn't ever have a chance to recover
its losses.
SENATOR GARY STEVENS said the implication is that, "the
organizations that are not charitable are not charitable and I
know that that's not true."
The Alutiiq Museum in Kodiak is funded largely by a bingo parlor
in Anchorage, for instance.
CHAIR BUNDE asked the committee if they wanted to have a work
session on questions like the percentage that goes to charity
and whether the cost of licensing should be borne by the
applicant.
SENATOR FRENCH said he would be willing to do that. He pointed
out that the DOR has seven employees who are attached to
monitoring this $380 million industry. "There's a lot of money
being moved through here without a lot of oversight."
CHAIR BUNDE announced that he would schedule a meeting on the
regulatory regime of gaming probably February 5.
SB 237-AK RAILROAD EDUCATION APPRENTICE PROGRAM
CHAIR BUNDE announced SB 237 to be up for consideration.
MR. RICHARD SCHMITZ, staff to Senator John Cowdery, sponsor of
SB 237, said the purpose of the bill is to create a scholarship
program for study in fields related to railroad operation. The
state is coming up on what looks like a lot of construction -
realignments with the Alaska Railroad through the Mat-Su and an
extension to Delta Junction continuing down to the Canadian
border, perhaps. The Knik Arm Crossing and the gas pipeline are
also possible. History shows that whenever there is a heat up of
construction in Alaska, the positions get filled by a lot of
outside hire. Senator Cowdery wants to head this off at the pass
early. The proposed scholarship program would be for Alaskan
students to study in Alaskan institutions for railroad related
tasks.
He explained that two bills established the Alaska Railroad as
being state owned. One is the Alaska Railroad Transfer Act,
which is the federal legislation that gave the railroad to the
state from the Army, and the other is the Alaska Railroad Act,
the state enabling legislation.
The Alaska Railroad Corporation (ARRC) has a 93 percent Alaska
hire rate over the last five years, but 52 hires are from areas
outside of Alaska. The program in SB 237 is a way that the
Railroad can fill those positions. The $1.2 million per year
would come out of the Railroad's operating funds and would fund
about 200 scholarships for about $17,000 - $18,000 each. The
scholarships could cover positions from office work to welding
and engineering.
CHAIR BUNDE noted that a dividend back to the state from the
railroad had been discussed and asked if that would have to be
limited to railroad purposes also. He also asked if the
scholarship would take the dividend off the table.
MR. SCHMITZ replied that the dividend is a separate issue.
SENATOR STEVENS said while he supports Alaskan schools, there
might be only one place one could learn how to be a diesel steam
operator, for instance. Second, he asked if current employees
would be eligible to apply. Third, he asked if there would be
any commitment from those who get the scholarships to work for
the railroad.
MR. SCHMITZ replied that the idea is to give the railroad a
broad selection of people to choose from, but individuals don't
have to commit to work for the railroad when they get a
scholarship.
SENATOR STEVENS thought language could be added that says the
funds would be returned unless the individual is eventually
hired by ARRC.
MR. SCHMITZ responded that was not Senator Cowdery's intent.
CHAIR BUNDE said there has been talk of limiting the Alaska
student loan program to just Alaskan schools, but constituents
have strong feelings about whether they should be forced to go
to school here. He asked if an Alaska resident is defined for
the bill's purpose.
MR. SCHMITZ responded that latitude would be given to the ARRC.
CHAIR BUNDE said he thought the issue of repayment should be
discussed if the recipients of the scholarship don't stay in
Alaska.
MR. SCHMITZ added that the sponsor envisioned them staying some
period of time in Alaska. "The idea would be that this
scholarship would benefit Alaska students in a broad and general
sense...."
CHAIR BUNDE asked if the requirements could be stretched far
enough that someone who gets the scholarship, but doesn't work
for the railroad, and stays in Alaska, would somehow be
considered a benefit to the railroad.
MR. SCHMITZ responded that a statutory requirement under the
federal Alaska Transfer Act says revenues generated by the
state-owned railroad shall be retained and managed by the state-
owned railroad for railroad related purposes. That's why this
bill mandates that the scholarships are for a railroad related
purpose.
CHAIR BUNDE bantered that he thought a semi-talented lawyer
could drive a train through that phrase.
SENATOR STEVENS asked if these funds could be managed through
the Commission on Postsecondary Education to avoid creating
another bureaucracy.
MR. SCHMITZ replied that Senator Cowdery would be amenable to
that.
TAPE 04-1, SIDE B
SENATOR SEEKINS asked if they were considering a ramp-up for
funding the program.
MR. SCHMITZ replied that they envisioned $1.2 million from the
railroad per year.
SENATOR SEEKINS asked how many employees the ARRC has now. He
also wanted to know what their retention rate was to justify
their turnover needs.
MR. SCHMITZ replied that there were 732 new hires over five
years and 52 of those were from areas outside of Alaska. In
2003, there were l17 new hires.
CHAIR BUNDE was concerned that Alaskans are very creative and
could figure out a way to absorb that money.
SENATOR SEEKINS related how a federal program tried to target
particular qualifications by designating a student trainee
status. To encourage students to start working for a certain
department, retirement benefits started accruing from the day
they enrolled in college as a student trainee. A lot of people
were retained as a result of that. He wondered if any thought
was given to using some kind of status for the students that
would be reportable back to the Alaska Railroad.
CHAIR BUNDE asked how many scholarships would be available next
year if this program started immediately.
MR. SCHMITZ replied 200 - 250 scholarships.
CHAIR BUNDE noted that the Railroad wouldn't hire 250 people
annually.
MR. SCHMITZ responded that the thinking is that ARRC would have
a broad range of trained people to choose from.
SENATOR SEEKINS said he would have a problem without a ramp-up.
MR. SCHMITZ said that Senator Cowdery would be amenable to
letting the Commission on Postsecondary Education run the
scholarship program; he just wants a workforce to be available
when needed.
MS. WENDY LINDSKOOG, Director, ARRC External Affairs, said:
While management for the Alaska Railroad Corporation
strongly believes that investing in an educated and
skilled workforce is essential to operating a safe and
successful railroad, we do not support SB 237. This
bill seeks to remedy a problem that does not exist and
fails to recognize the extensive training and
education programs already provided for Alaska
Railroad employees. In 2003, the Alaska Railroad spent
$1.8 million on workforce development programs and
plans to sustain that level of support in the years to
come. SB 237 contains no findings or other evidence
that ARRC is currently experiencing a shortage of
skilled and educated employees or expects such a
shortage in the future. In fact, there is an abundance
of Alaskan workers who can fill the few openings the
railroad has available each year for management,
administration, technical and professional employees.
The only area where ARRC may have problems recruiting
a qualified employee is in the specialized railroad
trades such as car men and locomotive electricians -
those types of trades. This bill will not increase the
pool of qualified workers in these trades, because,
quite frankly, there are no Alaska schools that teach
these types of specialized railroad skills. To address
the situation, ARRC does provide apprenticeship
programs and other in-house training for new
employees. And, as mentioned before, we spent
approximately $1.8 million last year to educate and
train employees over the past five years, and we have
a 93 percent Alaska hire rate.
Requiring ARRC to hand out $1.2 million per year in
scholarships to unnecessarily educate managers,
administrators, computer technicians, account
insulators and other white collar employees that are
already in abundant supply in Alaska would actually
reduce the amount of money ARRC does need to provide
its new operational employees with the unique
railroad-specialized training. The cost of a full-ride
scholarship at the University of Alaska, according to
what we found, is approximately $8,000 per year.
Requiring ARRC to provide $1.2 million per year for
such scholarships means we would be paying to educate
about 150 people per year to work at the railroad when
there are really only about 70 full-time permanent
positions available each year. Thus there would be no
ARRC jobs for approximately 50 percent of the people
trained each year. Furthermore, SB 237 does not
require scholarship recipients to actually go to work
for ARRC when they complete their training, nor does
it require a payback to the railroad if they fail to
complete their training.
Finally, the Railroad's net earnings are our only
source of federal match funds. We do not receive any
state matching funds to garner federal funds. The
Railroad currently has a 9 percent Federal Transit
Administration (FTA) match. Requiring the Railroad to
pay $1.2 million for unneeded scholarships could cause
ARRC to lose over $12 million in FTA formula funds per
year.
CHAIR BUNDE commented that if they couldn't put $1.2 million
toward scholarships each year, why not just have ARRC give the
state a dividend each year to grow the economy and that would
help railroad related purposes. Seriously, though, he wanted to
hear from their legal department about why some dividend can't
come back to the state since it capitalized the railroad
originally.
SENATOR GARY STEVENS asked Ms. Lindskoog to talk about the
railroad's current education program for its employees.
MS. LINDSKOOG replied that apprenticeship programs are offered
through the Union. They also have a scholarship type program in
house for someone who wants to get a new skill that would
benefit the railroad.
CHAIR BUNDE asked if those people who get the extra training
have an obligation to work for the railroad afterward.
MS. SUSAN LINDEMUTH, Director, ARRC Human Resources, answered
that they don't, but the job relatedness of the training is
reviewed before any training is started.
SENATOR SEEKINS asked if the railroad has a method of tracking
residency status of its employees.
MS. LINDEMUTH replied that it doesn't have a method in place
now, but uses the address on the job application for residency
and doesn't do any kind of verification.
SENATOR SEEKINS asked if she had any indication of what percent
of ARRC's new hires are Alaska residents.
MS. LINDEMUTH replied that a majority of ARRC's employees are
Alaska residents and "have been here for some period of time."
SENATOR SEEKINS asked how many railroad employees are sent to
ARRC from local unions.
MS. LINDEMUTH replied that the local union doesn't have any kind
of local hiring hall. In other words, when people are hired,
they then join the union.
SENATOR STEVENS said he heard that Alaskan schools don't teach
railroad trades and asked where people go to learn those skills.
MS. LINDEMUTH replied that scales and maintenance of weights is
taught on the job and workers move up through the ranks by union
seniority. ARRC has an apprenticeship program for the car men,
the locomotive electricians, and the locomotive mechanics that
eight apprentices have recently been hired for. If skilled
journeyman are needed, ARRC looks outside to other areas.
MS. LINDSKOOG added that there are special schools for some
railroad skills in the Lower 48 and offered to get a list of
them for the committee.
SENATOR SEEKINS asked her to estimate what percentage of
railroad jobs required either a vocational or a four-year
college degree.
MS. LINDEMUTH replied that a majority of the 120 people in the
mechanical department require an apprenticeship. There are about
150 management positions, 75 percent of which may not require a
college degree, but would certainly require in-lieu experience.
CHAIR BUNDE asked what ARRC's minimum requirements are for
someone walking in off the street to apply for a job.
MS. LINDEMUTH replied that each job has different requirements,
but an entry level skill like track laborer requires high school
graduation and a good driving record and preferably some type of
mechanical aptitude and background.
SENATOR HOLLIS FRENCH asked how the FTA match works.
MS. LINDSKOOG explained that the ARRC is required to provide a 9
percent match for any money it receives from FTA. No state match
is involved.
SENATOR FRENCH said if $1.2 million is taken out of the railroad
side, ARRC would lose $12 million in federal matching funds and
asked how high up that figure could go.
MS. LINDSKOOG replied that she didn't have the FTA totals, but
could get them. The railroad has a net income between $1 million
and $10 million; $1.2 million is used for workforce development
programs and matching funds for internal capital projects, etc.
"There is a limited amount that we have and we try to make the
most of it."
CHAIR BUNDE inserted that the federal match is not an unlimited
amount of money. ARRC wouldn't get the 9:1 ratio from the feds
with $10 million, for instance.
SENATOR SEEKINS commented that not coming up with enough money
to get the matching funds was a worst-case scenario. The
committee indicated its general agreement.
CHAIR BUNDE said he would hold SB 237 and hoped the ARRC and
Senator Cowdery could find some middle ground. He looked forward
to learning how tightly the federal regulation on railroad-
related purposes is written. There being no further business to
come before the committee, he adjourned the meeting at 2:45 p.m.
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