Legislature(2001 - 2002)

04/12/2001 01:37 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     ALASKA STATE LEGISLATURE                                                                                   
                 SENATE LABOR & COMMERCE COMMITTEE                                                                            
                          April 12, 2001                                                                                        
                              1:37 pm                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Randy Phillips, Chair                                                                                                   
Senator Loren Leman                                                                                                             
Senator Bettye Davis                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Alan Austerman                                                                                                          
Senator John Torgerson                                                                                                          
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 138                                                                                                             
"An Act relating to the  business of insurance, including changes to                                                            
the insurance  code to implement federal financial  services reforms                                                            
for the  business  of insurance  and to  authorize  the director  of                                                            
insurance to  review criminal backgrounds  for individuals  applying                                                            
to engage in  the business of insurance;  amending Rule 402,  Alaska                                                            
Rules of Evidence; and providing for an effective date."                                                                        
     MOVED CSSB 138 (L&C) OUT OF COMMITTEE                                                                                      
CS FOR HOUSE BILL NO. 81(FIN)                                                                                                   
"An  Act extending  the  termination  date of  the Board  of  Dental                                                            
Examiners; relating to  the Board of Dental Examiners and regulation                                                            
of the practice of dentistry;  and relating to dental hygienists and                                                            
dental assistants."                                                                                                             
     MOVED CSHB 81 (FIN) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 165                                                                                                             
"An  Act  imposing  a  tax  on  employment;  and  providing  for  an                                                            
effective date."                                                                                                                
     MOVED SB 165 OUT OF COMMITTEE                                                                                              
SENATE BILL NO. 170                                                                                                             
"An Act relating  to wage and hour protections for  employees of the                                                            
Alaska Railroad Corporation."                                                                                                   
     MOVED CSSB 170 (L&C) OUT OF COMMITTEE                                                                                      
SENATE BILL NO. 168                                                                                                             
"An Act relating to loans made by the commercial fishing loan                                                                   
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
SB 138 - See Labor and Commerce minutes dated 3/20/01 and 4/10/01.                                                              
HB 81 - No previous action to consider.                                                                                         
SB 165 - No previous action to consider.                                                                                        
SB 170 - No previous action to consider.                                                                                        
SB 168 - No previous action to consider.                                                                                        
WITNESS REGISTER                                                                                                              
Mr. Bob Lohr, Director                                                                                                          
Division of Insurance                                                                                                           
Department of Community and Economic Development                                                                                
3601 C Street, Ste. 1324                                                                                                        
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Commented on SB 138.                                                                                      
Mr. John George                                                                                                                 
American Council of Life Insurance                                                                                              
National Association of Independent Insurers                                                                                    
3328 Fritz Cove Rd.                                                                                                             
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on SB 138.                                                                                      
Mr. Steve Conn, Executive Director                                                                                              
Alaska Public Interest Research Group (AKPIRG)                                                                                  
P.O. Box 101093                                                                                                                 
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Commented on SB 138 and opposed Opt out policy.                                                           
Ms. Suzanne Hancock                                                                                                             
Staff to Senator Alan Austerman                                                                                                 
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Commented on SB 138.                                                                                      
Representative Hugh Fate                                                                                                        
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT:  Sponsor of HB  81.                                                                                       
Mr. Sean Riley                                                                                                                  
Staff to Senator Alan Austerman                                                                                                 
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Commented on SB 165.                                                                                      
Mr. Mike Milligan                                                                                                               
12056 Gara Dr.                                                                                                                  
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT:  Supported SB  165.                                                                                       
Mr. Richard Walberts                                                                                                            
310 Maple Ave.                                                                                                                  
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT: Opposed SB 165.                                                                                           
Mr. Ben Ardinger                                                                                                                
1323 Mill Bay Rd.                                                                                                               
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT:  Supported SB  165.                                                                                       
Mayor Gabrielle Ledoux                                                                                                          
Kodiak Island Borough                                                                                                           
219 Mill Bay Rd.                                                                                                                
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT:  Supported SB  165.                                                                                       
Mr. Gregory P. Razo                                                                                                             
Kodiak Island Borough Assembly                                                                                                  
P.O. Box 4186                                                                                                                   
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT:  Supported SB  165.                                                                                       
Ms. Marilyn Davidson                                                                                                            
Kodiak Island Borough                                                                                                           
P.O. Box 8903                                                                                                                   
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT:  Supported SB  165.                                                                                       
Mr. David Jones, Director                                                                                                       
Division of Finance for the Kodiak School District                                                                              
Kodiak Island Borough                                                                                                           
P.O. Box 8635                                                                                                                   
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT:  Supported SB  165.                                                                                       
Ms. Pat Branson                                                                                                                 
Kodiak Island Borough Assembly                                                                                                  
P.O. Box 3888                                                                                                                   
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT: Supported SB 165.                                                                                         
Mr. Mike Williams                                                                                                               
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT: Commented on SB 165.                                                                                      
Mr. Kevin Ritchie                                                                                                               
Alaska Municipal League                                                                                                         
217 2nd Street                                                                                                                  
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on SB 165.                                                                                      
Mr. Carl Rose, Executive Director                                                                                               
Alaska Association of School Boards                                                                                             
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supported SB 165.                                                                                         
Ms. Wendy Windskoog                                                                                                             
Director of External Affairs                                                                                                    
Alaska Railroad Corporation (ARRC)                                                                                              
P.O. Box 107500                                                                                                                 
Anchorage AK 99510                                                                                                              
POSITION STATEMENT: Supported SB 170.                                                                                         
Mr. Kevin Bergsgood, Locomotive Engineer                                                                                        
Alaska Railroad Corporation                                                                                                     
State Legislative Director, United Transportation Union                                                                         
P.O. Box 107500                                                                                                                 
Anchorage AK 99510                                                                                                              
POSITION STATEMENT: Supported SB 170.                                                                                         
Mr. Ed Crane, CEO                                                                                                               
Alaska Commercial Fishing and Agriculture Bank                                                                                  
2550 Denali St. #1201                                                                                                           
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Supported SB 168.                                                                                         
Mr. Greg Winegar, Director                                                                                                      
Division of Investments                                                                                                         
Department of Commerce and Economic Development                                                                                 
P.O. Box 34159                                                                                                                  
Juneau AK 99803                                                                                                                 
POSITION STATEMENT: Opposed SB 168.                                                                                           
ACTION NARRATIVE                                                                                                              
TAPE 01-17, SIDE A                                                                                                            
Number 001                                                                                                                      
                 SB 138-INSURANCE CODE AMENDMENTS                                                                           
CHAIRMAN  RANDY   PHILLIPS  called  the  Senate  Labor   &  Commerce                                                          
Committee meeting to order  at 1:37 pm and announced SB 138 to be up                                                            
for consideration.                                                                                                              
SENATOR LEMAN  moved to adopt  the committee  substitute to  SB 138,                                                            
Ford 4/6/01/F. There were no objections and it was so ordered.                                                                  
MR.  BOB  LOHR,  Director,  Division   of  Insurance,  said  he  was                                                            
available to answer questions.                                                                                                  
CHAIRMAN  PHILLIPS asked  if he saw  any deficiency  other than  the                                                            
public policy question of opt in/out in the F version.                                                                          
MR. LOHR  answered no, other  than that one  issue, the rest  of the                                                            
issues were addressed quite nicely.                                                                                             
MR. JOHN  GEORGE,  American Council  of Life  Insurers and  National                                                            
Association  of Independent Insurers,  said the redraft of  the bill                                                            
was fine and all his clients would support it.                                                                                  
MR. STEVE CONN, Executive  Director, Alaska Public Interest Research                                                            
Group,  said the  concern  of consumer  organizations  over the  opt                                                            
in/out policy  is that it flows from the fact that  the Gramm-Leach-                                                            
Bliley  Act  did   away  with  the  walls  established   during  the                                                            
depression  days  between  the  financial   institutions,  like  the                                                            
brokerage  houses, insurance  companies,  small  loan companies  and                                                            
banks. "It allows them to merge."                                                                                               
     With   that  merger  comes  the   opportunity  for   these                                                                 
     financial  institutions to share important and  privileged                                                                 
     information  and, to be quite  blunt, many of them desire                                                                  
     to do so.  That is to take good customers to the  bank and                                                                 
     share  them with  their own  or a  third party  who is  an                                                                 
     insurance  company and  vice versa. So,  the consumer  who                                                                 
     gives information  for one discrete purpose may  find that                                                                 
     information  being  shared all  over. Of  course, here  in                                                                 
     Alaska with  our constitutional right to privacy,  we have                                                                 
     a  particular and  long standing  interest  in privacy  of                                                                 
     Many  of  the   institutions  suggest  that  opt   out  is                                                                 
     satisfactory,   but the  reality  of  that  is  very  much                                                                 
     something   different.  Many  of  us  have  received   the                                                                 
     documents  stuffed within statements from banks  and other                                                                 
     companies  lately, because  most of this  is beginning  at                                                                 
     the  federal level. It  is hard as the  devil to find  the                                                                 
     information  necessary to figure  out when and how and  on                                                                 
     what  basis  to opt  out. Most  people  just see  this  as                                                                 
     another  envelope  stuffer  and  pitch it  out.  This  lay                                                                 
     opinion  has now been  underscored by  an academic study.                                                                  
     Mark Hocheiser,  PhD. has conducted a study and  subjected                                                                 
     many   of  these  notices  to   the  various  readability                                                                  
     standards that have been  widely established and has found                                                                 
     out that most of these documents  according to the reading                                                                 
     scores  are  virtually  unreadable.  To  most, especially                                                                  
     people with English as a  second language and the elderly,                                                                 
     have  a difficult time  reading them.  The easiest way  to                                                                 
     deal with  this, and the way that certainly comports  well                                                                 
     with  our own concern  for privacy  in this  state and  to                                                                 
     make use of  the opportunity granted at the federal  level                                                                 
     for  each   state  to  make   this  choice,  is  to   have                                                                 
     individuals  opt in and  not opt out.  That is to say,  if                                                                 
     the  banks  think  it's  in  your  best  interest  or  the                                                                 
     insurance  company to share this information with  someone                                                                 
     in  its  corporate  family  or  with  someone  beyond  its                                                                 
     corporate  family, let  it reach out  to the consumer  and                                                                 
     offer  the opportunity  and let that  consumer deliberate                                                                  
     and  agree  to  opt in  on  the  sharing  of information.                                                                  
     Unless,  as one  lobbyist for  an insurance  company  said                                                                 
     another day, we believe  privacy is dead, in which case we                                                                 
     have nothing to discuss  about this. We're sort of tilting                                                                 
     at windmills. I encourage  the committee to pass forward a                                                                 
     bill  that  makes  opt in  and  not opt  out  the choice,                                                                  
     because  at the  end of  the day,  opt out  is no choice,                                                                  
MR. GEORGE responded:                                                                                                           
     There's  two important  points.  One is  that the federal                                                                  
     government  has already regulated  financial institutions                                                                  
     that  are regulated  under  the federal  government  under                                                                 
     Gramm-Leach-Bliley.  So certain institutions already  have                                                                 
     the  opt out  provision.  By changing  that  standard  for                                                                 
     insurance companies, you  are now creating a different set                                                                 
     of  rules  for  insurance  companies   to  play  than  the                                                                 
     national  banks,  the  stock brokerages,  and  others.  So                                                                 
     automatically,  the insurance  companies  are placed at  a                                                                 
     disadvantage.  We can't  change the  federal standard  for                                                                 
     those federally  regulated institutions. We can  only deal                                                                 
     with the state.                                                                                                            
     We  believe  that  there are  certain  advantages  to  the                                                                 
     sharing  of  information,  not  only  from  the financial                                                                  
     institution   side,  but  from  the  consumer  side.   For                                                                 
     instance,  rather  than  an  institution  mailing  a  mass                                                                 
     mailing  to everyone in America,  they can target markets                                                                  
     of  people  who  are  more  likely  interested   in  their                                                                 
     product. As the prior witness  stated, we all get a lot of                                                                 
     junk mail  and we toss it, because it's totally  unrelated                                                                 
     to  us, but  once in  a while  you find  something that's                                                                  
     really hits your target.  Something you are interested in.                                                                 
     If we  could focus more  of these mailings  on things  you                                                                 
     are  interested in,  I think  that's an  advantage to  the                                                                 
     consumer.  It does improve competition  among the players                                                                  
     if they can get access to  the information and, therefore,                                                                 
     target  the consumers.  It creates  some efficiencies  and                                                                 
     those  can be passed  on as cost savings.  It's certainly                                                                  
     cheaper  to mail to  a target group  than to everybody  in                                                                 
     America.  Lastly,  the standard  that is going  to be  set                                                                 
     across the country for insurance  companies is going to be                                                                 
     opt out. I'm confident that  will be the case. Alaska will                                                                 
     be  different. That,  therefore, makes  it more expensive                                                                  
     for  insurance  companies  to  operate  for  that limited                                                                  
     purpose  in the state  of Alaska and,  therefore, may  not                                                                 
     provide  the opportunities  to people  in Alaska to  avail                                                                 
     themselves of these new and creative products.                                                                             
MR. GOERGE  said that  the efficiencies  technology  has brought  to                                                            
this industry  will be lost  and the cost  will be passed on  to the                                                            
consumer. "We  have done studies and  consumers are more  protective                                                            
of their time than their privacy on these types of issues."                                                                     
SENATOR DAVIS  moved to delete all  materials on page 25,  line 31 -                                                            
page 26, line 10 (the opt out provision).                                                                                       
MS. SUZANNE  HANCOCK, Staff  to Alan Austerman,  explained  that the                                                            
amendment gives  people the opportunity  to opt in, if they  choose,                                                            
but does  not put the onus  on the individual  to seek out a  way of                                                            
removing themselves from these lists.                                                                                           
CHAIRMANT PHILLIPS called  for the vote. SENATORS LEMAN and PHILLIPS                                                            
voted nay;  SENATOR DAVIS  voted yeah;  and the  motion failed  by a                                                            
vote of 2 to 1.                                                                                                                 
SENATOR  LEMAN moved  to pass  CSSB 138  (L&C) from  committee  with                                                            
individual recommendations.  There were no objections  and it was so                                                            
          HB  81-DENTISTS/DENTAL HYGIENISTS & ASSISTANTS                                                                    
CHAIRMAN PHILLIPS announced HB 81 to be up for consideration.                                                                   
REPRESENTATIVE  FATE, sponsor  of HB 81, said  the letter of  intent                                                            
was patterned  after the  letter that accompanied  the extension  of                                                            
the Medical  Board and  their effort  to raise  their assessment  to                                                            
$25,000.  He  said  there  was  an  attachment  that  explained  the                                                            
SENATOR DAVIS  moved to adopt  the letter  of intent. There  were no                                                            
objections and it was so ordered.                                                                                               
SENATOR LEMAN  moved to pass CSHB 81 (FIN) with accompanying  fiscal                                                            
note  and  the  accompanying   letter  of  intent  with   individual                                                            
recommendations. There were no objections and it was so ordered.                                                                
                SB 165-EDUCATION TAX ON EMPLOYMENT                                                                          
CHAIRMAN PHILLIPS announced SB 165 to be up for consideration.                                                                  
MR. SEAN RILED, Staff to Senator Austerman, said:                                                                               
     The  purpose of  this bill  would be to  generate revenue                                                                  
     that  would be geared  towards education.  There would  be                                                                 
     $100 per  person taken out in  two consecutive pay checks                                                                  
     per  year for  anyone  that is  working  in the  state  of                                                                 
     Alaska.  This would also incorporate  all the people  that                                                                 
     are  from   out-of-state,  generating   quite  a  bit   of                                                                 
      additional income that would go into the general fund.                                                                    
     The reason  this bill is here  is to generate more income                                                                  
     for  education. The  legislature has  given our schools  a                                                                 
     clear message - that they  want our schools to continue to                                                                 
     get and set high standards  for our students. This will be                                                                 
     facilitated  through  a competency  exam.  To  be able  to                                                                 
     implement this program,  we need to give our educators the                                                                 
     tools with which they can implement that program.                                                                          
     I do fully  agree that you don't  take money and throw  it                                                                 
     at  a problem  and hope  that it will  go away,  but I  do                                                                 
     believe  that  the money  that the  school tax  bill  will                                                                 
     generate  would offer  the tools with  which to implement                                                                  
     that  program  and also  to  help some  of  the education                                                                  
     programs we presently have.                                                                                                
MR. RILEY continued:                                                                                                            
     Children  are  our  future.  I  think  it's  important  to                                                                 
     remember  that we need to fund  these areas. As President                                                                  
     Hamilton  [UAA] said  many times before  the legislature,                                                                  
     "We  don't want to see  a brain drain  going to the  Lower                                                                 
     48. We want to keep our  people here and by providing good                                                                 
     educational  programs and good  infrastructure, we can  do                                                                 
     that.  Some  day, those  same  children  that we  will  be                                                                 
     educating  here and giving the  best education to will  be                                                                 
     passing bills  for taking care of us when we become  older                                                                 
     people  and  passing good  legislation.  By  showing  good                                                                 
     support  in  that regard  at  this early  stage  would  be                                                                 
     helping the state and helping  ourselves at the same time.                                                                 
     Whenever  anyone  comes  before the  legislature  to  pass                                                                 
     legislation,  the second question  everyone asks is,  "How                                                                 
     are we going to fund this?"                                                                                                
     Historically,  we've already  had this tax in place.  It's                                                                 
     nothing  new  to us.  It's  something  we've  worked  with                                                                 
     before  and can  continue to  work with. One  of the  good                                                                 
     aspects about  this tax is that it goes after  some of the                                                                 
     people  who  come up  here and  reap  the harvest  of  the                                                                 
     resources and the infrastructure  of Alaska and take their                                                                 
     money  down south where  they end up  paying state income                                                                  
     tax.  Since we have  no state  income tax  and we have  no                                                                 
     state tax,  the only way we're generating money  to offset                                                                 
     our deficit  budget is from the CBR and unless  we want to                                                                 
     drain  that completely,  we  need to  take steps  in  that                                                                 
     regard  to start  instituting a  way to  start paying  for                                                                 
     some  of these  programs. This  would be a  small step  in                                                                 
     that regard to make plans for Alaska's future.                                                                             
Number 1900                                                                                                                     
SENATOR LEMAN corrected  Mr. Riley's assertion that we have no state                                                            
income tax.  He said  we have a  state income tax,  but not  a state                                                            
personal income  tax or a state sales  tax. "For instance,  on fuel,                                                            
that is a tax  that's applied generally throughout  the state with a                                                            
few exceptions.                                                                                                                 
MR. RILEY thanked  him for the correction  and added that  the point                                                            
he was trying  to make is  that Alaska is  very unique in  that they                                                            
are generating  money for  their budget from  places other  than the                                                            
people themselves.                                                                                                              
SENATOR LEMAN  said that since  the tax of  $100 per head is  due on                                                            
those employed  and those  self employed by  February 1, he  assumed                                                            
that a self employed person  on a form supplied by the Department of                                                            
Revenue  would  submit  $100  before February  1  and  fulfill  that                                                            
requirement,  but what  if the self  employed person  does not  earn                                                            
income before February 1?                                                                                                       
MR. RILEY  replied that  the mechanism  for that  would be that  the                                                            
tax,  itself, is  not due  until the  following year  after you  had                                                            
already worked through that one year.                                                                                           
MR.  MIKE  MILLIGAN,  Kodiak,  supported  SB  165.  He  thought  the                                                            
greatest problem facing  Alaska now is that we have developed into a                                                            
culture of give-me. "We  expect a check from the government. We have                                                            
to begin now reducing the rate of deficit spending."                                                                            
Mr. Milligan said that  we need to put more money into education and                                                            
the question is how to  pay for it and this bill begins to deal with                                                            
the problem.                                                                                                                    
MR. RICHARD WALBERTS,  Kodiak, said he is for public  education, but                                                            
opposed SB  165. He can't  support it, because  it's an unfair  tax,                                                            
especially  to low-income  people. He thought  that schools  receive                                                            
more than enough money to teach basic academics.                                                                                
MR.  BEN  ARDINGER,  Kodiak  businessman,  said  he  serves  on  the                                                            
Committee  for  Better  Education  and  supports  SB 165.  They  are                                                            
striving  to get  the music  program  reinstated  at the  elementary                                                            
level and they  need the money. He  said the people he talks  to are                                                            
all for it, but they want to make sure it goes for education.                                                                   
MAYOR  GABRIELLE  LEDOUX, Kodiak  Island  Borough,  said the  Kodiak                                                            
Assembly supports this  bill and has passed a resolution stating so.                                                            
She  supports  this   bill  personally.  "Our  schools   are  having                                                            
difficulty.  They are having difficulty  with maintenance.  They are                                                            
having difficulty  with large  classrooms.  We're close to  the cap;                                                            
other school districts are already there."                                                                                      
She realizes this is a  regressive tax, but said, "At some point, we                                                            
have to figure  there is no such thing as a free lunch.  This is our                                                            
first step  to a  long-range fiscal  plan and  that's why I  support                                                            
MR. GREG RAZO,  Kodiak Island Borough  Assembly, said he  ran with a                                                            
commitment to  education as part of his platform.  He said the local                                                            
community is  interested in quality  schools, but they are  having a                                                            
hard time  achieving that  when they have over  10 years of  lack of                                                            
inflation proofing  for education  funding from the state.  He said:                                                            
     We have  heard recently  with the tax  cap initiative  how                                                                 
     concerned  people around the  state are at the increasing                                                                  
     burden of  local property tax. That burden is  going to do                                                                 
     nothing  but continue  unless we receive  assistance  from                                                                 
     both the state and federal government.                                                                                     
MR.  RAZO said  the  citizens  of  Alaska are  ready  to  see a  new                                                            
approach to state funding.                                                                                                      
MS. MARILY  DAVIDSON,  Kodiak, supported  SB 165.  The local  school                                                            
district support high quality  education and those efforts are being                                                            
impaired  by  the  fiscal  restraints  that  are  the  result  of  a                                                            
shrinking budget.  "We need to fund,  not the minimum necessary  for                                                            
education, but a high quality  education for all Alaskan students so                                                            
they  can be  competitive  in whatever  avenue  the  choose as  they                                                            
finish their standard school career…"                                                                                           
MR. DAVID JONES,  Director of Finance, Kodiak School  District, said                                                            
he is also a parent and  a non-tax payer in Kodiak. He has addressed                                                            
the legislature  a number of times expressing the  need for money to                                                            
provide  an adequate education.  As  a parent in  Kodiak, he  pays a                                                            
property tax and a 6 percent  sales tax. In October, the state sends                                                            
his family a permanent  fund dividend. He is willing  to pay for the                                                            
services he receives from the government.                                                                                       
MS.  PAT BRANSON,  Kodiak  Island  Assembly, said  that  she has  no                                                            
children, but believes  the schools are temples of learning and, "It                                                            
is most important that  we provide the proper amount of funding in a                                                            
diverse manner for quality education throughout the state."                                                                     
Property owners  are the ones who bear the burden  of school funding                                                            
and if the legislature  doesn't look for other sources of long-range                                                            
funding,  their  local  government  will have  to  continue  raising                                                            
property taxes, Ms. Branson said.                                                                                               
Number 2300                                                                                                                     
MR.  MIKE WILLIAMS,  Department  of Revenue,  said  he would  answer                                                            
SENATOR LEMAN  asked if wouldn't  make sense  for people to  pay the                                                            
amount  out of the  Permanent Fund  portion so  that it wouldn't  be                                                            
taxable,  because the language  now has them  paying taxes  on their                                                            
full dividend, plus paying another $100.                                                                                        
MR. WILLIAMS  replied that  there is some  concern on the method  of                                                            
reducing  a  PFD  because  there would  be  tax  implications  on  a                                                            
personal  level.  "You would  have  a proposed  statute  that  would                                                            
propose a tax  and, if you have used the PFD to offset  that act, it                                                            
could be considered  to be debt relief.  That debt relief  in itself                                                            
would be taxable to the individual."                                                                                            
SENATOR LEMAN  asked if it could be designed in a  way that it would                                                            
avoid that?  He thought  it might  be possible  to "grab that  money                                                            
before it enters the dividend  distribution stream and that would be                                                            
the offset."                                                                                                                    
TAPE 01-17, SIDE B                                                                                                            
CHAIRMAN  PHILLIPS said  the fiscal  note looked  like it was  about                                                            
$700,000, "which raises some flags."                                                                                            
MR.  WILLIAMS  responded that  he  would  have to  research  Senator                                                            
Leman's question.                                                                                                               
MR. KEVIN RITCHIE, Alaska  Municipal League, said they do not have a                                                            
position  on this  bill,  but their  top  priority is  a  long-range                                                            
financial plan for the  state of Alaska and their second priority is                                                            
funding  education.  "This is  obviously one  option  that could  be                                                            
considered in  terms of developing a long-range financial  plan. And                                                            
of  course,  the  plan  may  come  together  incrementally.   So  we                                                            
encourage you  to keep moving such  bills forward and at  some point                                                            
consider  them. Just to let  you know that  Alaskans United  Against                                                            
the Cap, a group  of 90 partner organizations that  worked to defeat                                                            
the tax cap,  will be working in various  communities to  talk about                                                            
the various  options for  creating a long-range  financial  plan for                                                            
the state."                                                                                                                     
SENATOR LEMAN  encouraged him and  his organization to come  up with                                                            
some suggestions on how  to do it and work within the organizations,                                                            
because he  was convinced  this would be  "grass routes led"  rather                                                            
than more top down.                                                                                                             
SENATOR  DAVIS said  she  appreciated  his testimony  and  a lot  of                                                            
things would  have to happen when  they begin to talk about  a long-                                                            
range plan  and if they  don't happen at  the legislature,  they are                                                            
going to have  to come through grass  routes efforts. She  plans to,                                                            
"Take it to the public."                                                                                                        
She asked him  to keep the legislature informed about  what they are                                                            
MR. CARL  ROSE, Executive  Director,  Association  of Alaska  School                                                            
Boards,  supported SB  165. He  said they  know  revenues have  been                                                            
reduced and that essential  services have costs attached. "We have a                                                            
window of four to five  years to fashion some kind of plan that will                                                            
project  us into the  future successfully.  Our  other option  is to                                                            
slam head-long into the wall in four years."                                                                                    
He said  that it will entail  talk about  revenue streams like  this                                                            
bill and perhaps and sales  tax, personal income tax or some kind of                                                            
investment for the purpose of generating revenue.                                                                               
MR. RILEY said  he had been in committee meetings  before where this                                                            
committee's  chairman  recognized  the  need  for  long-term  fiscal                                                            
planning and this was an  opportunity to take the first step in that                                                            
SENATOR LEMAN said he was concerned about the fiscal note, but                                                                  
would look at it in the Finance Committee.                                                                                      
SENATOR DAVIS moved to pass SB 165 from committee with individual                                                               
recommendations. There were no objections and it was so ordered.                                                                
            SB 170-RAILROAD EMPLOYEE SALARIES AND WAGES                                                                     
CHAIRMAN PHILLIPS announced SB 170 to be up for consideration.                                                                  
MS. WENDY WINDSKOOG, Director of External Affairs, Alaska Railroad                                                              
Corporation, said:                                                                                                              
     SB 170 accomplishes two  very important objectives for the                                                                 
     Alaska  Railroad and its employees.  It would be amending                                                                  
     our  statute, AS 42  to do two things  - clarify that  the                                                                 
     Alaska Railroad  falls under the Alaska Wage and  Hour Act                                                                 
     and  also  it  would  allow  the  members  of  the United                                                                  
     Transportation  Union  and management  the flexibility  to                                                                 
     negotiate an agreement that  would allow the UTU employees                                                                 
     to  be paid on  a salary basis  rather than  on an hourly                                                                  
     I'll give  you a little bit of  background. When we  began                                                                 
     negotiations  several months  ago with  the UTU Union,  we                                                                 
     discovered  that there  was a  real question  whether  the                                                                 
     Alaska Railroad falls under  the Alaska Wage and Hour Act.                                                                 
     This  was a little  disconcerting  to us,  because we  are                                                                 
     exempt  from the Fair  Labor Standards  Act, which is  the                                                                 
     federal   law   governing  minimum   wage   and  overtime                                                                  
     protection for employees.                                                                                                  
     The Railroad  has always operated  as though we are  under                                                                 
     the Alaska Wage and Hour  Act and we would definitely like                                                                 
     to see  this clarified  through our  statute that we  have                                                                 
     that protection for our employees.                                                                                         
     That's the first part of  the bill. The second part of the                                                                 
     bill deals with some flexibility  in our negotiations with                                                                 
     the UTU Union.  The exemption for UTU members  provided by                                                                 
     the bill would not leave  the UTU members unprotected with                                                                 
     regard  to overtime  and  wage  issues, because  they  are                                                                 
     protected  by the Hours of Service Act. That Act  prevents                                                                 
     excessive  or  unreasonable  work hours  by  limiting  the                                                                 
     number of  hours these employees can work to twelve  hours                                                                 
     a day and  after that have to take some time off.  They do                                                                 
     have that protection.                                                                                                      
     The other  thing I would like to mention is why  this bill                                                                 
     benefits   both  labor  and   management  at  the  Alaska                                                                  
     Railroad.   The  UTU  members   would  benefit  from   the                                                                 
     exemption  by  having  their  pension  plan  enhanced.  In                                                                 
     exchange,   the  Railroad  management  would  be  allowed                                                                  
     eventually  to  operate  trains  with  a two-person   crew                                                                 
     rather  than  a  three-person  crew.  This  is  where  the                                                                 
     industry  is going in  the Lower 48  with railroads.  With                                                                 
     some  of  the  technical  upgrades  we are  doing  to  the                                                                 
     Railroad,  we would  be eventually  able  to operate  with                                                                 
     two-person  crews. We get there through attrition,  not by                                                                 
     laying off  jobs now, but as people retire, we  would move                                                                 
     in that direction…                                                                                                         
MS.  WINDSKOOG  said  they have  letters  of  support  from  several                                                            
unions, both public and  private. They have a verbal commitment from                                                            
the AFL-CIO  in support of  the bill. However,  she said they  would                                                            
like to change the effective date to immediate.                                                                                 
MR. KEVIN BERGSGOOD, Locomotive  Engineer, Alaska Railroad Corp. and                                                            
State Legislative  Director, United Transportation  Union, said they                                                            
support SB 170.                                                                                                                 
SENATOR  DAVIS made  a conceptual  amendment to  add section  3 that                                                            
would make  an immediate  effective date.  There were no  objections                                                            
and it was so ordered.                                                                                                          
SENATOR  DAVIS moved  to pass  CSSB 170  (L&C) from  committee  with                                                            
individual recommendations.  There were no objections  and it was so                                                            
              SB 168-COMMERCIAL FISHING LOAN PROGRAM                                                                        
CHAIRMAN PHILLIPS announced SB 168 to be up for consideration.                                                                  
MR. ED CRANE,  CEO, Alaska Commercial Fishing and  Agriculture Bank,                                                            
said they requested this  legislation and appreciate having it under                                                            
consideration.  He said  there were  a number of  factors over  time                                                            
that led up to  them introducing this bill. Five years  ago when the                                                            
Division of  Legislative Audit took  a limited look at CFAB  and the                                                            
Division  of Investments'  Revolving Commercial  Fishing Loan  Fund,                                                            
they recommended that a  process be explored by which CFAB would end                                                            
up with  essentially  taking over  the functions  of the  Division's                                                            
Fund.  He  cited  various  practices   and  policies  and  made  the                                                            
observation  that over the  previous five  years, borrowers  (on the                                                            
surface)  appeared much  better  with CFAB  than they  had with  the                                                            
Division of Investments.                                                                                                        
MR. CRANE explained  that CFAB is  a private institution  structured                                                            
as a cooperative,  responsible  to the Board  of Directors,  who are                                                            
responsible  to  the  borrowing  owners.  "We  have  the  burden  of                                                            
operating  as  efficiently  and as  effectively  as  possible.  That                                                            
provides benefits  to our borrowing members. Over  the past 10 years                                                            
for every $100  of interest we have  collected from those  borrowing                                                            
members, we have  returned $13.50 in cash to them.  There is another                                                            
$4.80 set aside  in funds, which will  soon be paid to them,  also."                                                            
He said that this  bill provides that for most of  the various kinds                                                            
of fishing loans made by  the Division there will be a step inserted                                                            
saying  the applicant  must first  be declined  by  CFAB before  the                                                            
Division  can  entertain  their  application.  The  exception  is  a                                                            
section b  loan (page 2,  line 7), which  covers loans the  Division                                                            
makes  to areas  where  there is  either  economic depression  or  a                                                            
limitation on employment  opportunities and a historic dependence on                                                            
commercial fishing.  CFAB thinks those loans are very  important for                                                            
the state to  do, but which as a private  lender, they wouldn't.  It                                                            
would not be appropriate for them to attempt it. He said:                                                                       
     SB  168  holds  substantial  benefits  for  many resident                                                                  
     fishermen  and will not result  in denial of financing  to                                                                 
     anyone.   It  does  not  affect  those  elements   of  the                                                                 
     Commercial  Fishing Loan Act, which are directed  toward a                                                                 
     resident  who cannot qualify  for conventional financing.                                                                  
     However, there  is potential over time, for a  significant                                                                 
     reduction   in  utilization  of  the  Commercial  Fishing                                                                  
     Revolving Loan Fund and  for incremental transfers tot the                                                                 
     General Fund.                                                                                                              
     Finally, SB 168 removes  direct and subsidized competition                                                                 
     by the state  and promotes the services of a successfully                                                                  
     privatized institution.                                                                                                    
MR. CRANE explained  that CFAB was  created in 1979 - 1980  when the                                                            
state put  $32 million of  state money at  risk to create it.  "That                                                            
money has since been returned to the state."                                                                                    
Over  it's  21-year  history,  CFAB has  made  several  hundreds  of                                                            
millions of loans  to residents. That's a pretty good  return of the                                                            
state's  investment. CFAB  is a private  institution, paying  taxes;                                                            
they are totally self-sufficient.  He found it hard to believe there                                                            
is any justification for  the state to be continuing on a subsidized                                                            
basis to compete with CFAB in the same markets.                                                                                 
SENATOR  LEMAN  asked  why  there  was  the  specific  reference  of                                                            
protection for  CFAB instead of just saying "and whose  applications                                                            
for identical financing has been declined by private lenders."                                                                  
He asked if there are others  in the business CFAB competes with and                                                            
they  don't mind  competing  with,  and if  there was  a  particular                                                            
MR. CRANE  replied that they  asked for the  bill and wanted  to see                                                            
their name there. He added:                                                                                                     
     When  I was  first  with  CFAB, the  Revolving  Loan  Fund                                                                 
     Statute  provided  almost exactly  what they  are saying,                                                                  
     that  most loans could  not be made  unless the applicant                                                                  
     had  been declined  by  two other  institutions.  At  that                                                                 
     time,  the Division  of Investments  and CFAB  had a  very                                                                 
     workable  arrangement  for exchanging  applications to  be                                                                 
     sure that  when we did decline someone, they wanted  us to                                                                 
     pass  on his  application  to the  Division.  We could  do                                                                 
     that.  That was changed.  I don't recall  why, but if  you                                                                 
     look on  page 3, lines 1 - 3,  which has to do with  loans                                                                 
     for  quota  shares, when  that  part  of the  statute  was                                                                 
     created, it  said the Division could make loans  for quota                                                                 
     shares  to borrowers  who,  among  other things,  are  not                                                                 
     eligible  for financing from  other recognized commercial                                                                  
     lending  institutions.  That's been in  place for four  or                                                                 
     five years.                                                                                                                
     Our perception, to the best  of our knowledge, that's been                                                                 
     ignored by the Division  of Investments, even though there                                                                 
     has been  numerous discussions  with them. As a matter  of                                                                 
     fact,  we were specifically told  in writing that what  we                                                                 
     do,  we look at  the applications  and if  it looks to  us                                                                 
     like  we wouldn't do  it, we would go  ahead and make  the                                                                 
     loan.  I'm offended  by  that. That's  my answer  to  your                                                                 
     question.  If  it said  other  financial  institutions,  I                                                                 
     wouldn't  have any problem  with that.  I would say  this,                                                                 
     that  CFAB is the  only private institution  that has  the                                                                 
     statutory  authority  to take a  lien on  a limited  entry                                                                 
     permit.  For 80 percent  or more of  the applications,  it                                                                 
     would be CFAB.                                                                                                             
SENATOR  LEMAN said he  traditionally tried  to defend competition.                                                             
"As long  as we  have it, I  would just  as soon  enable it to  take                                                            
place. I  have no problem  with sort of putting  an extra hurdle  on                                                            
the department,  because I really don't think the  state ought to be                                                            
competing  in areas  that are handled  capably by  those in  private                                                            
industry. And this is an example…."                                                                                             
MR. CRANE  commented that  section 2 (page  4, line 12) caused  some                                                            
confusion. He explained:                                                                                                        
     A year  ago, when the legislature  passed a tax loan  bill                                                                 
     for  the  Revolving  Commercial  Fishing  Loan  Fund,  the                                                                 
     decision was  made in some Senate Committee in  HB 238, to                                                                 
     limit the  life of that tax loan program to two  years and                                                                 
     rather  than use what  seems to be  the more conventional                                                                  
     sunset  language, there was enacted  a delayed amendment.                                                                  
     Under  that delayed  amendment,  which  becomes effective                                                                  
     August 1, 2002, the tax  program goes away. This section 2                                                                 
     refers to  that delayed amendment. That delayed  amendment                                                                 
     is  reflected in  section 3,  Chapter 127 of  the acts  of                                                                 
     2000. All  section 2 is doing, assuming this bill  passes,                                                                 
     it says that  when that delayed amendment comes  back into                                                                 
     effect, it  will have the new language included  in SB 168                                                                 
     in that delayed amendment. I hope that's clear.                                                                            
CHAIRMAN PHILLIPS asked if he supported it.                                                                                     
MR. CRANE said he does.                                                                                                         
Number 800                                                                                                                      
MR. GREG WINEGAR, Director, Division of Investments, said his                                                                   
agency administers the Commercial Fund that would be affected by                                                                
this bill. He said:                                                                                                             
     The  Fund  was  created  in 1972  and  has  been  a  major                                                                 
     financing  mechanism  for harvesters  in the  state  since                                                                 
     that  time. The  purpose of the  program is  to create  or                                                                 
     maintain our  predominantly resident fishery.  The fund is                                                                 
     totally  self-sufficient; there  has been no general  fund                                                                 
     money  going there since FY 1985.  As of June 30, we  have                                                                 
     made  a total of $341  million dollars  in loans to  about                                                                 
     5,400  different borrowers. The  majority of the loans  we                                                                 
     make under this program  are ones that typically would not                                                                 
     be  made by the private  sector. We've  referred numerous                                                                  
     applicants to private sector  lenders on a daily basis and                                                                 
     if  the applicant  is  unable to  get financing  from  the                                                                 
     private sector, then we  consider them under this program.                                                                 
     One  of the concerns  we do have, which  was mentioned  by                                                                 
     Senator  Leman,  is that  this  program  would completely                                                                  
     eliminate  all of our applicants'  private sector choices                                                                  
     other than just one lender,  CFAB. As far as the number of                                                                 
     permit  loans we're involved  with, it's  roughly 50 -  55                                                                 
     percent  of the portfolio  are permit  related. The  other                                                                 
     types  of loans we do are loans  for vessels, gear,  quota                                                                 
     shares, and other fisheries related activity.                                                                              
     As far  as other sections  of the  program are concerned,                                                                  
     there is some overlap with  the private sector, especially                                                                 
     under  section (a), which is  primarily for limited  entry                                                                 
     permits. By  statute, CFAB and the state are the  only two                                                                 
     lenders  that  can secure  loans  with the  limited  entry                                                                 
     Currently,  applicants can choose which program  they wish                                                                 
     to  participate in.  This legislation  would require  that                                                                 
     they all go  through CFAB first. This concerns  us for two                                                                 
     reasons.   A  substantial  number   of  our  section   (a)                                                                 
     borrowers  would not qualify  for a CFAB  loan and so  the                                                                 
     extra time and effort necessary  for them to obtain a loan                                                                 
     would  increase substantially  because of that. Also,  the                                                                 
     overall  strength of the fund  would be affected, because                                                                  
     CFAB  basically  would   pick  and  choose  and  take  the                                                                 
     stronger  loans.  We currently  use  those loans  to  help                                                                 
     balance  the portfolio  which is mostly  made up of  loans                                                                 
     that wouldn't be made by the private sector.                                                                               
     We  also  have  problems  with the  changes  it  makes  to                                                                 
     section  10.  This  section  allows  existing   loan  fund                                                                 
     borrowers  to  lower  their  interest   rates  through  an                                                                 
     internal refinancing  program. We have a very  streamlined                                                                 
     process  for them  to do this.  If the  interest rates  go                                                                 
     down,  our  existing  borrowers   with  a basic  one-page                                                                  
     application  can lower the rate.  This bill would prevent                                                                  
     borrowers   from  taking  advantage  of  the  streamlined                                                                  
     program,  because they  would have to  turn around and  go                                                                 
     through an entirely new  application process through CFAB.                                                                 
     The final concern we have  is more technical in nature. It                                                                 
     relates to  the word "identical" on page 1, line  12; page                                                                 
     3, line 2; and page 4, lines  1 and 8. The concern we have                                                                 
     here  is that  our  interest  rates in  terms are  set  by                                                                 
     statute  and regulation  and they are  not connected  with                                                                 
     CFAB's  rates and terms  in any way.  Because they aren't                                                                  
     related,  it may be very difficult  for our applicants  to                                                                 
     meet the identical  financing requirement. That  concludes                                                                 
     my testimony,  Mr. Chairman.  We do  oppose this bill.  We                                                                 
     feel  it will  limit Alaskan  harvesters'  ability to  use                                                                 
     this loan fund.                                                                                                            
SENATOR DAVIS asked if he had any further problems in the section                                                               
if "identical" were deleted.                                                                                                    
MR. WINEGAR replied that they have problems with the concept, but                                                               
also one of the concerns they have is with the term "identical",                                                                
because it may make it almost impossible for someone to qualify.                                                                
"We are concerned  that limiting section (a) borrowers  to only CFAB                                                            
as  an alternative  is  not something  we  would support.  We  don't                                                            
believe that's  in the best interests of our borrowers.  We are also                                                            
concerned about  the effect that would have on the  loan fund. Those                                                            
stronger loans help balance the risk of the portfolio."                                                                         
Number 400                                                                                                                      
CHAIRMAN  PHILLIPS asked  what other  industry  does the  Department                                                            
make loans to that have private loans available.                                                                                
MR.  WINEGAR replied  that  they have  a  couple of  small  business                                                            
CHAIRMAN PHILLIPS said  his point is that the Department is supposed                                                            
to promote  commerce  within the state  and other  than the  fishing                                                            
industry,  there's no  other industries  that have  the private  and                                                            
state sectors competing for a pool of potential borrowers.                                                                      
MR.  WINEGAR  replied that  to  some  extent  that's true,  but  the                                                            
largest portion  of their  borrowers would  not qualify for  private                                                            
sector financing. He said they used to have a mining program.                                                                   
CHAIRMAN  PHILLIPS asked what  his default  rate was, the number  of                                                            
loans taken, etc.                                                                                                               
MR. WINEGAR replied:                                                                                                            
     As of  March 31, we  put out a statistics  report. We  had                                                                 
     1,801  accounts on the books  that are owned by the  Fund.                                                                 
     The total outstanding balance  is $80,464,000; the average                                                                 
     loan amount was $44,700.  The delinquency rate is based on                                                                 
     number of  loans and is 18.3% and they have 2.9%  loans in                                                                 
CHAIRMAN PHILLIPS  asked him to define  "default" and "delinquent."                                                             
MR. WINEGAR  responded that "default"  is in litigation.  Delinquent                                                            
is 60 days or more past due.                                                                                                    
CHAIRMAN PHILLIPS  asked if 60 days  is delinquent, how far  do they                                                            
go before going to court.                                                                                                       
MR. WINEGAR replied that  it varies depending on the situation. "Our                                                            
philosophy is to work with  borrowers as best we can. Foreclosure is                                                            
a real last resort for us."                                                                                                     
CHAIRMAN PHILLIPS asked how much time the average default is.                                                                   
MR. WINEGAR replied  that they have a number of folks  who are going                                                            
through an extension process and they show up as delinquent.                                                                    
TAPE 01-18, SIDE A                                                                                                            
MR. WINEGAR said he didn't have an average number of days before                                                                
they issue a final demand, but he would look into it.                                                                           
CHAIRMAN PHILLIPS said he intended to move this bill next Tuesday                                                               
or Thursday and asked everyone to come forward with their comments                                                              
before then.                                                                                                                    
SENATOR LEMAN said he wanted to see an amendment drafted that would                                                             
incorporate "other financial institutions" for the committee to                                                                 
look at.                                                                                                                        
CHAIRMAN PHILLIPS thanked the committee for its patience and                                                                    
adjourned the meeting at 2:15 pm.                                                                                               

Document Name Date/Time Subjects