Legislature(1999 - 2000)
03/30/2000 02:40 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 consideration. 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 problem. 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 place. 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 problems. SENATOR KELLY moved to pass CSSB 260(L&C) from committee with individual recommendations. There were no objections and it was so ordered. CHAIRMAN MACKIE adjourned the meeting at 3:10 p.m.