Legislature(1999 - 2000)

03/30/2000 02:40 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                SENATE LABOR AND COMMERCE COMMITTEE                                                                           
                          March 30, 2000                                                                                        
                             2:40 p.m.                                                                                          
MEMBERS PRESENT                                                                                                               
Senator Jerry Mackie, Chairman                                                                                                  
Senator Tim Kelly, Vice Chairman                                                                                                
Senator Loren Leman                                                                                                             
MEMBERS ABSENT                                                                                                                
Senator Dave Donley                                                                                                             
Senator Lyman Hoffman                                                                                                           
COMMITTEE CALENDAR                                                                                                            
CS FOR HOUSE BILL NO. 190(L&C)                                                                                                  
"An Act relating to viatical settlement transactions; and providing                                                             
for an effective date."                                                                                                         
     -MOVED CSHB 190(L&C) OUT OF COMMITTEE                                                                                      
SENATE BILL NO. 260                                                                                                             
"An Act relating to denial of an application for issuance of a new                                                              
alcoholic beverage license in an established village."                                                                          
     -MOVED CSSB 190(L&C) OUT OF COMMITTEE                                                                                      
PREVIOUS SENATE COMMITTEE ACTION                                                                                              
HB 190 - No previous action to consider.                                                                                        
SB 260 - No previous action to consider.                                                                                        
WITNESS REGISTER                                                                                                              
Representative Norman Rokeberg                                                                                                  
State Capitol Bldg.                                                                                                             
Juneau, AK 99811                                                                                                                
POSITION STATEMENT:  Sponsor of HB 190.                                                                                         
Mr. Terry Elder, President                                                                                                      
Division of Banking, Securities and Corporations                                                                                
Department of Community and Economic Development                                                                                
P.O. Box 110807                                                                                                                 
Juneau, AK 9811                                                                                                                 
POSITION STATEMENT: Supported HB 190.                                                                                           
Mr. Bob Lohr, Director                                                                                                          
Division of Insurance                                                                                                           
Department of Banking, Securities, and Corporations                                                                             
P.O. Box 110805                                                                                                                 
Juneau, AK 99811                                                                                                                
POSITION STATEMENT:  Supported HB 190.                                                                                          
Mr. Dan K. Coffey                                                                                                               
207 East Northern Lights Boulevard #200                                                                                         
Anchorage AK 99513                                                                                                              
POSITION STATEMENT:  Supported SB 260.                                                                                          
ACTION NARRATIVE                                                                                                              
TAPE 00-12, SIDE A                                                                                                            
Number 001                                                                                                                      
CHAIRMAN  MACKIE  called the  Senate  Labor and  Commerce  Committee                                                            
meeting  to order at  2:40 p.m. and  announced HB  190 to be  up for                                                            
                    HB 190-VIATICAL SETTLEMENTS                                                                             
REPRESENTATIVE  ROKEBERG, sponsor of HB 190, said  he worked closely                                                            
with the Division  of Banking, Securities, and Corporations  and the                                                            
viatical  settlement  industry.   Viatical  forms of  contracts  are                                                            
agreements by  investors to purchase a discount on  a life insurance                                                            
policy.   This particular  style  of insurance  and investment  came                                                            
about because  of the AIDS  crisis several  years ago.  Some  people                                                            
with the  disease had  life insurance  policies  but were unable  to                                                            
access the  value of them to help  pay for their medical  treatment.                                                            
HB 190 allows anyone with  an existing life insurance policy to sell                                                            
to an investor  who takes a risk on the remaining  length of time of                                                            
the life of the person against the discount paid for the policy.                                                                
Number 149                                                                                                                      
REPRESENTATIVE  ROKEBERG explained that this type  of transaction is                                                            
sometimes subject  to fraud because there is no way  to specifically                                                            
regulate this type of activity  in Alaska.  There is concern about a                                                            
turf war within our bureaucracy  as this bill allows dual regulation                                                            
by the Divisions  of Insurance and  Securities.  Dual regulation  is                                                            
not uncommon in a number  of business areas.  There are $1.5 million                                                            
worth of viatical contracts in Alaska.                                                                                          
CHAIRMAN MACKIE asked if  there is any known opposition to the bill.                                                            
REPRESENTATIVE  ROKEBERG  answered  no.   There were  some  concerns                                                            
about  the  jurisdiction,   which  were  dealt  with  in  the  House                                                            
Judiciary Committee.                                                                                                            
CHAIRMAN MACKIE asked what the House vote was.                                                                                  
REPRESENTATIVE ROKEBERG said it was unanimous.                                                                                  
Number 346                                                                                                                      
MR. TERRY  ELDER,  Director, Division  of Banking,  Securities,  and                                                            
Corporations,  testified  that  a majority  of states  have  already                                                            
adopted  statutes that  are similar  to the  insurance provision  of                                                            
this bill.   Their insurance department  regulates the relationship                                                             
between  people who  are selling  their insurance  products and  the                                                            
middle people who are buying and selling them to investors.                                                                     
About 44  states take  the position  that viaticals,  when they  are                                                            
sold to investors, are  investment contracts and, therefore, covered                                                            
under the Securities  Act.  Most states take the position  that they                                                            
have  jurisdiction  on the  security side  when that  middle  person                                                            
turns around  and sells it to investors.   This bill codifies  that.                                                            
MR. ELDER  said there are  two benefits.   On the insurance  side it                                                            
provides protection  for the insurance company against  fraud, which                                                            
has  taken place  in  other  states.   In  this case,  his  Division                                                            
asserts  jurisdiction   because  they   are  investment   contracts.                                                            
However,  when they do that,  they would have  to go to court  if it                                                            
was challenged  and argue each case as an investment  contract. Last                                                            
year  a lawsuit  was filed  blocking  the  Division's jurisdiction.                                                             
Putting  "viatical"  in the  definition of  a security,  which  four                                                            
other states have  already done and several other  states are in the                                                            
process of  doing, would benefit the  State of Alaska because  there                                                            
would be no question of jurisdiction.                                                                                           
CHAIRMAN MACKIE  asked if the cost  of those suits was substantial.                                                             
MR. ELDER replied absolutely.                                                                                                   
SENATOR LEMAN  said it doesn't  make sense  to prosecute people  who                                                            
may have  been proceeding  in good  faith on the  basis of what  has                                                            
been occurring  in some other  state.  He  supported clarifying  the                                                            
state's position, but he  didn't know about past actions.  He wasn't                                                            
sure the state's  position had been as clearly stated  to the public                                                            
as it was to the committee.                                                                                                     
MR. ELDER  agreed that  it wasn't clearly  stated. Viaticals  aren't                                                            
mentioned anywhere in Alaska  statutes or regulations; so they would                                                            
have to ask, as  some companies did.  This legislation  is needed to                                                            
clarify  our  statutes and  to  make it  clear  to the  public  that                                                            
viaticals are a security.                                                                                                       
SENATOR LEMAN asked if  we were prosecuting anyone who was operating                                                            
in good faith or whether that has been resolved.                                                                                
MR. ELDER  replied  that everything  has  been resolved.   Only  one                                                            
order was issued against a company, not an agent.                                                                               
SENATOR  KELLY asked  if the  middle people  who  buy the  contracts                                                            
package  them in  a portfolio  and  sell them  to  an investor  like                                                            
mortgage companies do.                                                                                                          
MR. ELDER explained  that typically it's almost a  one-on-one thing.                                                            
Sometimes  they will fractionalize  it: they  buy a $100,000  policy                                                            
from someone and  turn around and sell that policy  to 10 people for                                                            
$10,000  each.  It's  rare that they  would be put  in some  kind of                                                            
portfolio, although it probably could be done.                                                                                  
SENATOR KELLY  asked if the  investment return  depends on  how long                                                            
the person lived.                                                                                                               
MR. ELDER answered yes.   That's one of the difficulties.  The total                                                            
return may be clear, but  you may earn it next year or 40 years from                                                            
now.  It's hard to tell.   One of the problems with no regulation is                                                            
that an advertisement will  say a 40 percent return is available and                                                            
imply that's a  lot larger than the five or six percent  you can get                                                            
from a CD, not mentioning the liquidity problem.                                                                                
MR.  BOB  LOHR, Director,  Division  of  Insurance,  said  that  the                                                            
Division's  position is that it is  not seeking involvement  in this                                                            
area, but  it is willing  to become involved  at the request  of the                                                            
legislature  to assist  and make  sure there  is complete  coverage.                                                            
The  division  believes  someone ought  to  be  regulating  viatical                                                            
settlements.   The division  came forward because last year, under a                                                            
previous director,  there was opposition  to any involvement  by the                                                            
Division but it is not interested in any active "turf grab."                                                                    
SENATOR LEMAN  moved to pass HB 190  from committee with  individual                                                            
recommendations.   There were no objections  and it was so  ordered.                                                            
            SB 260-DENIAL OF ALCOHOLIC BEVERAGE LICENSE                                                                     
CHAIRMAN MACKIE announced SB 260 to be up for consideration.                                                                    
SENATOR TAYLOR, sponsor,  said a friend wrote to him about a problem                                                            
at a lodge he  has been to on Prince of Wales Island.   The lodge is                                                            
near Whale  Pass, a  very small  rural community.   Whale Pass  fits                                                            
within the definition of  a village.  A liquor license was issued to                                                            
this lodge  by the Alcoholic Beverage  Control (ABC) Board  in 1991.                                                            
In 1998,  the ABC  Board did  not issue  a license  but instead,  in                                                            
1999, the ABC  Board denied the license saying that  an election had                                                            
not been held in the Whale Pass area.                                                                                           
SENATOR TAYLOR  explained that this  lodge costs $850 per  night and                                                            
the owners  are  only asking  for the  right to  serve beverages  to                                                            
their registered  guests and employees.   The ABC Board did  not say                                                            
why the  license was originally  issued without  a vote. To  hold an                                                            
election in  Whale Pass to decide  whether or not it is going  to be                                                            
wet or dry  will open the door in  an unacceptable fashion.   Should                                                            
that vote  pass, the  lodge would  be restricted  to selling  on the                                                            
premises and  only to guests, which  is what the lodge owners  want.                                                            
But,  it would  also  mean  that anyone  could  apply  for a  liquor                                                            
license in the Whale Pass  area and, because an election had already                                                            
been held,  a license  would  have to be  issued.   It's a  catch-22                                                            
situation.   The bill is not an attempt  to expand licensure  to the                                                            
general public; it just  tries to take care of this very limited and                                                            
narrow situation.  The bill is very constrained in  its application.                                                            
The lodge cannot  be accessible by automobile, it  can only serve to                                                            
guests,  and that  there  are not  more  than 75  registered  voters                                                            
within  a five  mile radius  of the  premise.   Although the  bill's                                                            
application is small, this  situation might be replicated in several                                                            
other  areas across  the state.   He  questioned why  the people  of                                                            
Whale Pass would vote for  this if they cannot participate.  He said                                                            
a legislative  change  is the only  solution he  could find  to this                                                            
Number 1100                                                                                                                     
CHAIRMAN  MACKIE noted  that a person  could drive  and walk  down a                                                            
trail to that  lodge.  He asked what Senator Taylor's  definition is                                                            
of "accessible by automobile"  and whether there is any objection to                                                            
inserting "directly"  before "accessible by automobile"  on line 25.                                                            
SENATOR  LEMAN said  he would  like  to limit  the bill  as much  as                                                            
possible to  this unique situation  in which the lodge was  issued a                                                            
license that was not renewed.                                                                                                   
SENATOR KELLY agreed and  asked if the lodge is serving alcohol now.                                                            
SENATOR TAYLOR  replied if so, the lodge owners are  giving it away.                                                            
SENATOR KELLY asked if  the license would be a renewal as opposed to                                                            
a new issue.                                                                                                                    
SENATOR TAYLOR  answered it would be a new issuance  because the ABC                                                            
Board can't renew  something it shouldn't have granted  in the first                                                            
SENATOR KELLY  noted that  the statute says  if the village  is dry,                                                            
the ABC Board cannot issue a new license.                                                                                       
SENATOR  TAYLOR indicated  that is  correct so if  Whale Pass  votes                                                            
itself dry, no license could be issued.                                                                                         
CHAIRMAN MACKIE  asked, regarding the accessibility  issue, if there                                                            
was consensus to add the word "directly."                                                                                       
SENATOR  LEMAN  moved  that  amendment   conceptually  to  give  the                                                            
drafters leeway. There were no objections and it was so ordered.                                                                
CHAIRMAN MACKIE noted the  guests arrive by plane and road access is                                                            
not used.                                                                                                                       
MR. DAN COFFEY said this  situation exists throughout Alaska in many                                                            
remote  locations  and  this  bill  is  very  appropriate.    It  is                                                            
basically  impossible  for these  very  expensive remote  lodges  to                                                            
obtain  liquor licenses  under current  provisions.  He thought  the                                                            
limitations  in the  bill  will reflect  the business  practices  of                                                            
those  remote lodges  and  strictly limit  beverages  to guests.  He                                                            
suggested one  further change.  Title  4 contains an on premise  and                                                            
off premise  sales licensing  scheme.  The  practice of most  remote                                                            
lodges  is  a combination   of the  two.    They  provide  alcoholic                                                            
beverages  to their  guests at  the lodge  and then  sell liquor  to                                                            
guests to take while out  on the river.  If the lodge owner does not                                                            
have a license  to do that, the owner  is in violation.   He guessed                                                            
there are dozens and dozens  of lodges that are in violation because                                                            
they cannot get  a license.  He thought this bill  should be amended                                                            
to solve that problem.                                                                                                          
Number 1500                                                                                                                     
SENATOR  LEMAN said the  bill has  a revision  to AS 04.11.320,  but                                                            
also AS  04.11.330 (7) says  "Renewal of  the license is  prohibited                                                            
under  this title  as a result  of an  election  conducted under  AS                                                            
04.11.507.  He asked if  the license renewal can be subject to local                                                            
option elections  and whether they need to put a parallel  amendment                                                            
in .330.                                                                                                                        
MR. COFFEY  said they need  to do that because  they divide  renewal                                                            
and new issuance into two  separate sections.  You would not want to                                                            
have two conflicting provisions.                                                                                                
SENATOR LEMAN asked why the drafters didn't pick that up.                                                                       
SENATOR TAYLOR  responded that, "Primarily I believe  because we had                                                            
instructed  the drafter  that if one  of these  lodges was within  a                                                            
community  where  an election  could or  had  to be  held, and  that                                                            
community chose to vote  dry, that we would not want to be operating                                                            
a lodge  selling out  there if they  voted dry.   In other words,  I                                                            
didn't want  to take  on that war  because I  think that's a  bigger                                                            
issue.  If you never had  an election or, if they have elected to go                                                            
dry, then I wouldn't grant a license in that area if it was me.                                                                 
CHAIRMAN MACKIE  asked if this bill  only deals with new  issuances.                                                            
SENATOR TAYLOR said yes.                                                                                                        
MR. COFFEY  said the  question comes  up what  happens in two  years                                                            
when the lodge owner applies for renewal.                                                                                       
SENATOR TAYLOR  answered that he applies for renewal  under the same                                                            
section and since no election has been held, he's still fine.                                                                   
SENATOR LEMAN  asked if an election  is held in Whale Pass  and they                                                            
vote to  be a dry  community, that  would change  the way the  lodge                                                            
would operate.                                                                                                                  
SENATOR TAYLOR said that would stop the license.                                                                                
CHAIRMAN MACKIE pointed out the bill provides for local control.                                                                
SENATOR TAYLOR  said he is not trying to take away  anyone's ability                                                            
to vote on this subject.                                                                                                        
CHAIRMAN MACKIE  said from his experience  as a lodge owner,  lodges                                                            
don't make money on the  sale of alcohol.  It's strictly provided as                                                            
a convenience  for their  guests.   If anything,  he loses money  on                                                            
alcohol.   He  thought the  bill was  very  tight.   He stated  that                                                            
although Mr. Coffey's point  was a good one, he is not interested in                                                            
entertaining  any amendments  on packaged liquor  at this time.   He                                                            
noted that  to serve wine with dinner  is a huge convenience  but to                                                            
sell beer to take out on a boat is a huge liability.                                                                            
MR. COFFEY said the lodge  owners don't sell it, it comes as part of                                                            
the package but  they will continue to do it and since  there is not                                                            
enforcement,  the state will  not get the  revenue and the  practice                                                            
will continue.   He  thought the bill  at least  solves some  of the                                                            
SENATOR KELLY moved to pass CSSB 260(L&C) from committee with                                                                   
individual recommendations.  There were no objections and it was so                                                             
CHAIRMAN MACKIE adjourned the meeting at 3:10 p.m.                                                                              

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