Legislature(2001 - 2002)

04/18/2002 01:35 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 18, 2002                                                                                         
                             1:35 pm                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Ben Stevens, Chair                                                                                                      
Senator Alan Austerman                                                                                                          
Senator Loren Leman                                                                                                             
Senator John Torgerson                                                                                                          
Senator Bettye Davis                                                                                                            
MEMBERS ABSENT                                                                                                                
All Members Present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
CS FOR SENATE BILL NO. 320(TRA)                                                                                                 
"An Act  prohibiting discrimination  in  insurance rates  based on                                                              
credit rating  or credit scoring;  and providing for  an effective                                                              
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 252                                                                                                             
"An Act renaming  the Alaska Human Resource Investment  Council as                                                              
the  Alaska  Workforce  Investment   Board  and  relating  to  its                                                              
membership; repealing  the termination date of the  state training                                                              
and  employment  program;  relating  to  employment  and  training                                                              
activities; and providing for an effective date."                                                                               
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
SB 320  - See Transportation minutes  dated 2/28/02 and  Labor and                                                              
Commerce minutes dated 3/5/02 and 3/26/02.                                                                                      
SB 252 - See Labor and Commerce minutes dated 2/14/02.                                                                          
WITNESS REGISTER                                                                                                              
Mr. Kurt Olson                                                                                                                  
Staff to Senator Torgerson                                                                                                      
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Commented on SB 320 for sponsor.                                                                          
Mr. David McCarter, Consumer                                                                                                    
857 Faultline                                                                                                                   
Fairbanks AK 99705Mr.                                                                                                           
POSITION STATEMENT: Opposed SB 320.                                                                                           
Mr. David Valdez                                                                                                                
658 Fairbanks St.                                                                                                               
Fairbanks AK 99709                                                                                                              
POSITION STATEMENT: Opposed SB 320.                                                                                           
Mr. Steven Conn, Executive Director                                                                                             
Alaska Public Interest Research Group (AKPIRG)                                                                                  
507 E St #213                                                                                                                   
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Opposed SB 320.                                                                                           
Mr. Mark Niehaus                                                                                                                
Progressive Insurance                                                                                                           
No Address Provided                                                                                                             
POSITION STATEMENT: Supported CS SB 320.                                                                                      
Mr. John Furuness                                                                                                               
National Association of Retired Federal Employees (NARFE)                                                                       
1285 Fritz Cove Rd.                                                                                                             
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Opposed SB 320.                                                                                           
Ms. Sarah McNair Grove, Property Casualty Actuary                                                                               
Division of Insurance                                                                                                           
Department of Community and Economic Development                                                                                
POB 110805                                                                                                                      
Juneau AK 99811-0805                                                                                                            
POSITION STATEMENT: Commented on SB 320.                                                                                      
Mr. Michael Harrold, Northwest Manager                                                                                          
National Association of Independent Insurers (NAII)                                                                             
9611 Rainier Ave. S.                                                                                                            
Seattle WA 98118                                                                                                                
POSITION STATEMENT: Commented on SB 320.                                                                                      
Mr. Michael Lessmeier                                                                                                           
State Farm Insurance                                                                                                            
3000 Vintage Blvd, Ste 100                                                                                                      
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on  SB 320.                                                                                     
Ms. Pat Davidson                                                                                                                
Division of Legislative Audit                                                                                                   
POB 113300                                                                                                                      
Juneau AK 99811                                                                                                                 
POSITION STATEMENT:  Commented on SB 252.                                                                                     
Ms. Rebecca Gamez, Deputy Commissioner                                                                                          
Department of Labor and Workforce Development                                                                                   
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Commented on  SB 252.                                                                                     
Ms. Mary Jackson                                                                                                                
Staff to Senator Torgerson                                                                                                      
State Capitol Bldg.                                                                                                             
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Commented on  SB 252.                                                                                     
Ms. Eden Larson                                                                                                                 
No address provided                                                                                                             
POSITION STATEMENT: Commented on  SB 252.                                                                                     
Mr. Michael Shiffer, Program Coordinator                                                                                        
Workforce Investment Office                                                                                                     
Department of Labor & Workforce                                                                                                 
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Commented on  SB 252.                                                                                     
Mr. Mike Andrews                                                                                                                
Alaska Works Partnership, Inc.                                                                                                  
19839 S. Amalga                                                                                                                 
Eagle River AK                                                                                                                  
POSITION STATEMENT: Commented on  SB 252.                                                                                     
ACTION NARRATIVE                                                                                                              
TAPE 02-22, SIDE A                                                                                                            
Number 001                                                                                                                      
            SB 320-MOTOR VEHICLE INSURANCE & REPAIRS                                                                        
CHAIRMAN BEN STEVENS called the Senate Labor & Commerce Committee                                                             
meeting to order at 1:35 pm and announced SB 320 to be up for                                                                   
CHAIRMAN  TORGERSON   moved  to   adopt  the  proposed   committee                                                              
substitute,  LS1462\B. There  were  no objections  and  it was  so                                                              
MR. KURT OLSON, Staff to Senator  Torgerson, explained that the CS                                                              
differs  significantly from  the  previous version  of this  bill,                                                              
which was  one paragraph  long and  prohibited  the use of  credit                                                              
scoring for  personal insurance.  The CS  allows it under  certain                                                              
circumstances. Section  1 deals primarily with the  restriction on                                                              
the use  of credit  history and  credit scoring  and outlines  the                                                              
duties and the  responsibilities of the insurers who  are going to                                                              
be using it. Section 2 deals with  filings the insurance companies                                                              
have  to make  to the  Division of  Insurance.  Probably the  most                                                              
important part  of the section is  the fact that it  would require                                                              
the insurance companies to give the  scoring model to the Division                                                              
of  Insurance.  This is  what  actually  makes the  credit  rating                                                              
program work  and up until this  time, they haven't had  access to                                                              
the model.  This will allow the  Division to determine  whether or                                                              
not there's  anything  that might  have an adverse  impact  on the                                                              
consumers  in Alaska  that are buying  insurance.  Section 3  is a                                                              
sunset provision and takes effect  July 2006. The final section is                                                              
the effective date, January 1, 2003.                                                                                            
MR.  DAVID  MCCARTER,   consumer  from  Fairbanks,   said  he  was                                                              
testifying  due  to  credit  scoring   and  because  there  is  no                                                              
recourse. He  said that  he thought his  insurance rates  would go                                                              
down  when  he hadn't  had  any  tickets  or accidents.  But  with                                                              
Atlanta Casualty,  his rate on  a 2001 Buick  Regal - for  him and                                                              
his  wife  -   for  a  2001  Ford  F250  pickup   was  $2,400  for                                                              
comprehensive, collision  and liability.  Now it's going to  go up                                                              
to $4,400  because of  his credit  score, which  according  to his                                                              
mortgage company  is 620,  650 and 680,  with a combined  score of                                                              
about 640. This  is bad economics, because it's going  to make him                                                              
not want to buy  any more vehicles. Furthermore the  new bill says                                                              
that the guy just  needs to get oral permission,  so he could lie.                                                              
There's no proof. "This bill has no teeth whatsoever…"                                                                          
MR. MCCARTER  said they are not  protecting the consumer  and that                                                              
credit fraud is a number one crime in the U.S. right now.                                                                       
SENATOR DAVIS  said he was acting  like they were  already passing                                                              
this bill  out of  committee and  all they are  doing is  having a                                                              
hearing to debate the issue.                                                                                                    
MR. DAVID  VALDEZ, Fairbanks resident,  said this bill  would have                                                              
an adverse impact on the working  poor, minorities and people from                                                              
the  villages who  can't  establish credit.  He  said they  should                                                              
change Article 1  to an Act that allows rate  discrimination based                                                              
on credit ratings or credit scoring.                                                                                            
CHAIRMAN STEVENS  encouraged the  public to stay  on line  to hear                                                              
what transpires  in committee before  they make a judgment  on the                                                              
final product.                                                                                                                  
MR.  STEVE  CONN,  Executive  Director,   Alaska  Public  Interest                                                              
Research  Group,  agreed  with  the  previous  testifier.  He  was                                                              
shocked to see the committee substitute.                                                                                        
     It  is absolutely  worthless  in terms  of the  original                                                                   
     motivation  of Senator  Cowdery  and it's  in fact  anti                                                                   
     consumer. All  of the so-called rights in  this bill are                                                                   
     already  guaranteed by  federal law.  The way this  bill                                                                   
     simply deals  with the subject  is that it  mixes credit                                                                   
     scoring and  credit history and, of course,  they're not                                                                   
     the same.  Section 1 still gives the  insurance company,                                                                   
     upon the refusal of the consumer,  the right to allow it                                                                   
     to use credit scoring, but the  absolute right to reject                                                                   
     that  consumer  as a  customer.    This the  problem  we                                                                   
     confronted  with the  original bill  and the reason  for                                                                   
     the  ban  was several-fold.  The  credit  histories  are                                                                   
     known  throughout the  country, which  are the  material                                                                   
     used by these  mysterious credit scores to  be in error,                                                                   
     in bad  error and  if you correct  them, they leave  the                                                                   
     errors  in  place. This  does  nothing for  people  like                                                                   
     Senator Cowdery's daughter who  had a unique and serious                                                                   
     event  that effected  her credit history  or victims  of                                                                   
     identity  theft  or  emergency   situations.  This  does                                                                   
     nothing. This  bill effectively says that  the insurance                                                                   
     companies can do what they want…                                                                                           
MR. MARK NIEHAUS, Progressive Insurance,  said he would not repeat                                                              
his previous testimony. He thought  the CS was far superior to the                                                              
original bill  and that about  two-thirds of their  policy holders                                                              
in Alaska,  about 15,000,  are getting  significantly lower  rates                                                              
due to the  use of credit as  part of the rating formula  they are                                                              
using today. If  that ability were to go away,  those people would                                                              
get big rate  increases and they  are trying to prevent  that from                                                              
Section 1, paragraph  (b) requires an adverse notice  action to be                                                              
sent, which is fine, but the second  sentence says the notice must                                                              
state the significant  factors of credit history  that resulted in                                                              
the adverse  action and provide  information on how  credit scores                                                              
can be  improved. Mr. Niehaus said  his company already  does that                                                              
on request,  but that the cost  of the reports is  significant and                                                              
most don't  want it. Their adverse  action notice says that  it is                                                              
free of charge and provides an 800 number to call to get it.                                                                    
MR. NIEHAUS suggested  modifying the second sentence  to something                                                              
like  the  notice  must  state "that  consumers  may  obtain  upon                                                              
request a  free report containing  the significant factors  of the                                                              
credit history" as  opposed to mandating that it  be give to every                                                              
His second  recommendation  concerned page  4, section 2,  (c)(1),                                                              
the absence of credit. His concern  was an increase in no-hits, if                                                              
they were  automatically giving them  a better rate.  As insurers,                                                              
they have  no way of determining  accuracy or completeness  of the                                                              
MR.  NIEHAUS  said,  "The  requirement  that they  can't  use  the                                                              
absence of  credit history  to calculate a  rate doesn't  make any                                                              
sense in a world where we're using credit as part of the rate."                                                                 
He could  not implement that  if he wanted  to and he  thought the                                                              
committee might be saying that they  want no-hits to be treated as                                                              
having average credit  or - he just wasn't sure.  He said that no-                                                              
hits  are  a  very  small  percentage,  less  than  5%,  of  their                                                              
business.  They  have  significant  data showing  that  they  have                                                              
dramatically  higher loss  costs. He suggested  using an  approach                                                              
that was  used in  Washington to  simply require  that the  filing                                                              
justify actuarially  the handling  of the charges  associated with                                                              
credit  no-hits. He  also suggested  using the  effective date  of                                                              
January 1, 2003 to give them time for implementation.                                                                           
SENATOR DAVIS asked  if they serve Washington and  what do they do                                                              
MR. NIEHAUS replied  that they serve Washington  and are currently                                                              
using credit.  The bill  he mentioned  has passed,  but it  hadn't                                                              
taken effect  yet. It allows insurers  to continue to  use credit;                                                              
it  just has  to be  filed with  the Department  of Insurance  and                                                              
approved  and   justified  actuarially.   There  are   some  other                                                              
limitations on information  within the credit reports  that can be                                                              
SENATOR DAVIS asked if they are doing  business in any state where                                                              
they are not allowed to use credit.                                                                                             
MR. NIEHAUS replied yes - in Hawaii and California.                                                                             
SENATOR  DAVIS asked  if they are  still doing  business in  those                                                              
MR. NIEHAUS replied yes and that  it's not a statutory prohibition                                                              
in California, but it's a regulatory requirement.                                                                               
     However,  there are  a  lot of  people  that are  paying                                                                   
     rates  that  are  a  lot higher  than  they  would  have                                                                   
     otherwise  been if  they  would have  been  able to  use                                                                   
     credit…In the state of Alaska  we have been using credit                                                                   
     for a number  of years now and to take  it away…It's one                                                                   
     thing if you've  never had it, but to take  it away now,                                                                   
     the  only way  we  could accomplish  that  - the  result                                                                   
     would be about  two-thirds of the people who  get a rate                                                                   
     increase. There's no way around that.                                                                                      
SENATOR DAVIS  asked if they  had ever had  to remove credit  as a                                                              
factor in rates.                                                                                                                
MR. NIEHAUS replied no.                                                                                                         
SENATOR LEMAN  said that section  2 adds a  new section on  how to                                                              
rate  and it  says  an  insurer may  not  use a  methodology  that                                                              
incorporates gender, race, nationality  or religion. He understood                                                              
that for automobile coverage it's common to use gender.                                                                         
MR. NIEHAUS replied  that he would be happy to  have that deleted.                                                              
"They  don't  want  us  to  treat   the  credit  of  a  woman  any                                                              
differently  from  that of  a  man. A  credit  score  is a  credit                                                              
score…We already use gender ratings anyway…"                                                                                    
CHAIRMAN  STEVENS said  the language  came  from Washington  State                                                              
that prohibits certain types of credit history from being used.                                                                 
MR. KURT  OLSON said the intent  was to specifically  outline that                                                              
credit scoring couldn't be factored in with race and gender.                                                                    
CHAIRMAN STEVENS  said that  the majority of  the issues  that are                                                              
brought up now are  related to the use of the  credit history, not                                                              
to the use of  how the credit scoring is used  in the rate making.                                                              
"This was  an attempt  to say if  you're going  to use  the credit                                                              
history,  you've got  to treat  all credit  histories exactly  the                                                              
MR. OLSON indicated that was right.                                                                                             
CHAIRMAN  STEVENS asked  how  many years  they  were using  credit                                                              
scoring in Alaska.                                                                                                              
2:05 pm                                                                                                                         
MR. NIEHAUS replied approximately four years.                                                                                   
CHAIRMAN STEVENS asked  if they had approval from  the Division of                                                              
MR. NIEHAUS replied yes.                                                                                                        
CHAIRMAN STEVENS asked if any other  state had used credit scoring                                                              
and then removed the ability to use it.                                                                                         
MR. NIEHAUS replied none that he was aware of.                                                                                  
CHAIRMAN STEVENS  asked him to  explain how two-thirds  of Alaskan                                                              
customers' rates would be affected.                                                                                             
MR.  NIEHAUS replied  that  almost all  rates  would be  affected.                                                              
About  two-thirds  of  their customers  would  see  higher  rates,                                                              
hypothetically, if they were required  to completely remove credit                                                              
from the underwriting process.                                                                                                  
CHAIRMAN STEVENS asked, "Why would  everybody's rates go up if you                                                              
eliminated this?"                                                                                                               
MR. NIEHAUS  replied, "It's a zero  sum game. The total  amount of                                                              
premium we would collect would be unchanged."                                                                                   
He  said that  about 30%  of folks  would get  rate decreases  and                                                              
about two-thirds would  get rate increases. "The sum  of all those                                                              
changes would be zero."                                                                                                         
MR. JOHN FURUNESS,  AARP Capitol City Task Force,  said he is also                                                              
the legislative  representative for the local chapter  of National                                                              
Association of Retired Federal Employees  (NARFE). He hadn't had a                                                              
chance to study  the revised bill, but they just  don't think that                                                              
credit ratings should be used to determine auto insurance rates.                                                                
MS. SARAH MCNAIR GROVE, Division of Insurance, said:                                                                            
     We   support   the  legislature's   efforts   to   place                                                                   
     parameters   on  the  use   of  credit  information   in                                                                   
     insurance   rating  and  underwriting.   Now  that   the                                                                   
     discussion has  turned from a prohibition of  the use of                                                                   
     credit information  to identifying what  the appropriate                                                                   
     parameters  should be,  we would  like to  offer just  a                                                                   
     couple of comments on the committee substitute.                                                                            
     Some  of  the  issues  that   the  Division  hears  from                                                                   
     consumers  relate to  credit  problems that  seem to  be                                                                   
     beyond  the  control  of  the  consumer.  As  they  have                                                                   
     identified, it really is the  use of credit history that                                                                   
     seems to  be an  issue - not  complaints about how  it's                                                                   
     actually used in the rate-making  process, but should it                                                                   
     be used at all. For example,  some of the issues we hear                                                                   
     about  are medical bills  that are  caused by a  serious                                                                   
     injury  or  sickness  that can  result  in  poor  credit                                                                   
     through no  fault of the  consumer, themselves.  Some of                                                                   
     the  other issues  we hear  about  are denying  coverage                                                                   
     because  of the number  of hits  on your credit  report.                                                                   
     Part of the insurance industry  and the increased use of                                                                   
     credit  information has  created the  number of hits  on                                                                   
     the reports,  so it  seems like there  needs to  be some                                                                   
     way  to alleviate  that effect  when it  is being  used.                                                                   
     Including  some of  these kinds of  prohibitions on  the                                                                   
     pieces  of information  that  can be  used  on a  credit                                                                   
     report, I think, would go a  long way towards addressing                                                                   
     some of the consumer issues we have heard about.                                                                           
     I just  have one other  suggestion on the  bill, itself,                                                                   
     and  that is that  the definition  of 'adverse  action,'                                                                   
     while it's fine,  is defined by the federal  Fair Credit                                                                   
     Reporting Act  and it might be good to  put specifically                                                                   
     what  we  mean in  Alaska  law  rather than  relying  on                                                                   
     federal legislation.                                                                                                       
SENATOR  AUSTERMAN asked  if she heard  the Progressive  Insurance                                                              
position saying  if credit rating  is eliminated  altogether, that                                                              
the rates  would  change and,  if she  would have  any say on  how                                                              
those rate changes would take place.                                                                                            
MS. GROVE replied:                                                                                                              
     Every  rate filing  or  every change  in  rates must  be                                                                   
     filed  with the  Division of  Insurance and  we look  at                                                                   
     them and review them to be sure  they comply with Alaska                                                                   
     law.  So  a  change  could   not  be  made  without  our                                                                   
SENATOR  AUSTERMAN asked  if she  anticipated  approving the  rate                                                              
change  they are suggesting  taking  place if  there is no  credit                                                              
MS. GROVE replied  that she would have to look at  the reasons and                                                              
support for that and couldn't say yes or no at this point.                                                                      
MR. MICHAEL  HARROLD, Northwest  Manager, National Association  of                                                              
Independent Insurers, said:                                                                                                     
     I think  this is  a workable  and good compromise  bill,                                                                   
     but certainly  contains aspects that I would  prefer not                                                                   
     be in law.  We truly believe that the way  our companies                                                                   
     have used credit  is to help better price  their product                                                                   
     and that they  use it to write more business,  not less.                                                                   
     They  have been giving  discounts to  consumers who  are                                                                   
     less  of a  risk than  other consumers.  So I  certainly                                                                   
     would not support  some of the restrictions  that are in                                                                   
     the bill, but  I would simply point out again  that it's                                                                   
     a compromise  that I think we  could live with  and that                                                                   
     it does simply more than require  some type of notice or                                                                   
     disclosure  to  be  given.  The fact  that  it  says  an                                                                   
     insurer cannot  deny personal  insurance in whole  or in                                                                   
     part  on the  absence of  credit history.  It does  take                                                                   
     into account  the no-hits that Mr. Niehaus  was speaking                                                                   
     about.  It takes  them into  account both  in regard  to                                                                   
     underwriting as well as coming up with a rate.                                                                             
MR. HARROLD  said he  disagreed with  their treatment of  no-hits,                                                              
because  they  have  been  actuarially   proven  to  be  the  most                                                              
expensive  to  insure.   He  passed  the  committee   a  chart  to                                                              
illustrate  that fact.  He  added that  it  included "thin  files"                                                              
which is  a file  with little  credit. People  who have  the worst                                                              
credit scores have  losses that are well over the  amount of a one                                                              
to one  ratio. It's even  more so for  the no-hits or  thin files.                                                              
That's why insurers use that as a tool.                                                                                         
CHAIRMAN STEVENS asked if there were  percentages that he had from                                                              
his pool of insurers and what percentage  had good credit and what                                                              
percent had average and high risk credit.                                                                                       
MR.  HARROLD  replied  that  insurers  could  probably  have  that                                                              
information. Individual  companies compete in the  market place by                                                              
choosing where they are going to have their break points.                                                                       
CHAIRMAN STEVENS  asked what  is the  percentage of consumers  who                                                              
are going to be  affected by this. How many consumers  have a good                                                              
or average credit rating.                                                                                                       
MR. HARROLD  replied  that he hears  from his  companies that  the                                                              
overwhelming majority of consumers  have good to excellent credit.                                                              
That's why they  have testimony saying the majority  of them would                                                              
have increased  rates  if they couldn't  use credit  for a  rating                                                              
CHAIRMAN STEVENS asked if this tool  was removed and every company                                                              
had to file  for rate changes,  how many of their  companies would                                                              
participate in that. "Would anyone pull out of the market?"                                                                     
MR. HARROLD  replied that  it's possible. "Alaska  has not  been a                                                              
lucrative market from the loss perspective."                                                                                    
CHAIRMAN STEVENS  asked how  many would leave  if the  Division of                                                              
Insurance didn't approve their rate changes.                                                                                    
MR. HARROLD replied,  "Perhaps more would leave or  you would have                                                              
consumers that are simply paying rates that aren't fair."                                                                       
CHAIRMAN STEVENS asked  if he had 700 companies  writing insurance                                                              
in this  state, what would  be the effect  on those  consumers who                                                              
are still looking for insurance.                                                                                                
MR.  HARROLD  replied, "The  less  companies  you have,  the  less                                                              
availability  you have,  but all  600  of those  companies do  not                                                              
write in Alaska."                                                                                                               
SENATOR  AUSTERMAN said  one of  the  concerns he  has with  using                                                              
credit is  that, for example, it  took his daughter six  months to                                                              
get  something off  of  her credit  rating  that  she didn't  know                                                              
anything about.  It took  him, personally, over  one year  when he                                                              
lost his credit  card and had a  bill for $3,800, which  came back                                                              
three years  later when it wasn't  paid. It took him a  year after                                                              
that to get rid  of it with the credit agencies.  He was concerned                                                              
about that  type of example and  how many people  don't understand                                                              
the whole process  of credit rating for insurance  and the effects                                                              
it has on their rates.                                                                                                          
MR. HARROLD  responded that specifically  there is a  provision in                                                              
this  bill  that   states  if  there  is  incorrect   or  disputed                                                              
information,  they could  submit that  and the  insurer has  to go                                                              
back  to  the  inception  of the  policy  period  and  rewrite  or                                                              
reunderwrite and recalculate the premium.                                                                                       
     So,  something positive  could  come out  of getting  it                                                                   
     checked. A  more general comment  would be that  the use                                                                   
     of credit information is just  permeating society and it                                                                   
     isn't just insurance. I would  say the best job that any                                                                   
     consumer advocate can do is  to encourage people to look                                                                   
     at their credit  information. If someone has  an adverse                                                                   
     action  taken against  them, underneath  this bill  they                                                                   
     would be  able to get  their consumer report  free under                                                                   
     the Fair  Credit Reporting Act,  but I think  everybody,                                                                   
     whether   you're   looking   for   auto   insurance   or                                                                   
     homeowner's  insurance or you're  looking at a  mortgage                                                                   
     or buying  a car, it simply  permeates our life  here at                                                                   
     the  beginning of  the 21  Century and  I can't  imagine                                                                   
     that we would be willing to  stop using the information,                                                                   
     because it has so many other benefits.                                                                                     
SENATOR AUSTERMAN asked  for the year that it took  him to get the                                                              
error off his  bill, would they have given him  insurance until it                                                              
was corrected.                                                                                                                  
MR. HARROLD  replied the  way the bill  reads, he didn't  think it                                                              
would go back through  the years, but it says to  the inception of                                                              
the current  policy  term. He also  thought that  the Fair  Credit                                                              
Reporting Act also  requires that if somebody says  that they have                                                              
incorrect  data  in  their  report,  that they  have  30  days  to                                                              
determine whether  or not  that is correct.  If the credit  bureau                                                              
has not made  that determination within  30 days, then it  goes to                                                              
the consumer's advantage.                                                                                                       
MR. MICHAEL  LESSMEIER, State Farm  Insurance Co., said  they have                                                              
approximately  24%   of  the  automobile  insurance   premium  and                                                              
approximately  34  -  35%  of  the  homeowners  insurance  premium                                                              
written  in Alaska.  He said  that they  have found  from all  the                                                              
testimony  up to today  that credit  is an  accurate predictor  of                                                              
loss. The representative from the  Division of Insurance testified                                                              
that the correlation between this  tool and risk of loss was high.                                                              
It has also proven to be a high correlation in their experience.                                                                
     This  is a  tool just  like  many other  tools used  for                                                                   
     predicting  future loss. The  second point that  I would                                                                   
     make  to the  committee is  that  the use  of credit  in                                                                   
     insurance  has not  presented a  significant problem  in                                                                   
     Alaska. I don't know if this  testimony was presented to                                                                   
     your committee,  but it certainly  was presented  to the                                                                   
     House Labor  and Commerce Committee. The  representative                                                                   
     from  the   Division  of   Insurance  was  asked   about                                                                   
     complaints  about the use  of this  tool. I recall  that                                                                   
     her testimony  was that  there may have  been a  few and                                                                   
     she  was then  asked if  there had  been any  complaints                                                                   
     that had  been found to be  valid about the use  of this                                                                   
     tool  and I  think  she said  that  there  was still  an                                                                   
     instance under investigation.                                                                                              
TAPE 02-22, SIDE B                                                                                                            
MR. LESSMEIER  didn't think  it was a  significant problem  in the                                                              
State of Alaska.  His third point was that this is  a tool that is                                                              
used differently by different insurers.                                                                                         
     I  think it's  really important  for  you to  understand                                                                   
     that  we  in  Alaska  have   a  marketplace  that  is  a                                                                   
     competitive marketplace.  It is also important  that you                                                                   
     understand that  as it is used differently  by different                                                                   
     insurers  and  that how it's being used in  rating today                                                                   
     requires the  approval of the Division of  Insurance. To                                                                   
     my  knowledge  there are  very  few companies  that  are                                                                   
     using credit today for rating  purposes. State Farm does                                                                   
     not use  credit for rating purposes,  but if it  is used                                                                   
     for rating  purposes, it must  first be approved  by the                                                                   
     Division  of Insurance  that has  the responsibility  of                                                                   
     insuring that the use of this  tool does not result in a                                                                   
     rate that is excessive. I think that is important.                                                                         
     A final point  that I would make is that  there are many                                                                   
     tools  that already exist  in the  law that would  allow                                                                   
     the Division  of Insurance to address issues  of credit.                                                                   
     The  first one  of course  is  to the  extent that  it's                                                                   
     being  used  in  rating,  that   use  has  already  been                                                                   
     approved  by the Division  of Insurance.  To the  extent                                                                   
     that it's being  used in underwriting, if  it results in                                                                   
     unfair   discrimination,  the   Division  of   Insurance                                                                   
     already  has the  ability to  investigate  that to  take                                                                   
     significant action through the  amendments to the Unfair                                                                   
     Trade  Practices Act  that this  legislature passed  two                                                                   
     years  ago, Senator  Donley's amendment.  So, there  are                                                                   
     significant tools  in the law  right now to  prevent the                                                                   
     misuse of this tool.                                                                                                       
MR. LESSMEIER thought the issue before  them was if they could use                                                              
this tool  to identify  those that present  higher risk  of future                                                              
loss and shouldn't they be able to do that.                                                                                     
     Isn't that better for the consumer  as a whole? Isn't it                                                                   
     better  for  people  to  be able  to  pay  an  insurance                                                                   
     premium  that is more  in accord with  the risk  of loss                                                                   
     that they present?  Isn't that better policy?  We say it                                                                   
CHAIRMAN STEVENS  asked him what other  tools he uses in  basing a                                                              
customer's rates.                                                                                                               
MR. LESSMEIER  replied that  as he understands  it, the  rates are                                                              
based on frequency and severity of  loss. When someone comes in to                                                              
State Farm, they are asked about  their loss experience, accidents                                                              
and  tickets for  automobiles. Their  underwriting  tool looks  at                                                              
loss history,  which has an aspect  of credit. They do  not use it                                                              
to determine what rate they will  pay, but who to accept and where                                                              
to place them.                                                                                                                  
CHAIRMAN  STEVENS  asked how  they  handle  a good  ratepayer  who                                                              
hasn't had any losses and all of  a sudden has bad credit for some                                                              
reason that doesn't have to do with automobiles.                                                                                
MR. LESSMEIER replied that they don't  look at the data other than                                                              
at the very beginning when they determine  whether to write or not                                                              
CHAIRMAN STEVENS asked  if they have ever gone back  to rerate and                                                              
if he knew of anyone who did.                                                                                                   
MR. LESSMEIER replied  that they had not used this  tool in Alaska                                                              
to do that.                                                                                                                     
CHAIRMAN STEVENS  asked if he knew  of any companies who  write in                                                              
Alaska that do a credit history with a renewal.                                                                                 
MR. LESSMEIER replied  that he didn't know about  other companies,                                                              
but his didn't.                                                                                                                 
CHAIRMAN STEVENS asked  if Mr. Harrold knew of  any companies that                                                              
did that in Alaska.                                                                                                             
MR. HARROLD replied  that he imagined some companies  would use it                                                              
as a tool.                                                                                                                      
     Different   companies   treat   it   differently.   Some                                                                   
     companies  do not once  they get  them through the  door                                                                   
     they don't look at it upon renewal.  Other companies may                                                                   
     look  every year  and try to  reshuffle the  deck so  to                                                                   
MR.  LESSMEIER  finished  saying   that  they  looked  at  800,000                                                              
records, created a  formula, and applied it to a  control group of                                                              
500,000 and followed that control  group for two years. They found                                                              
that formula  was very  predictive  of future  loss and they  then                                                              
applied  it to  over  one million  new cases  and  found the  same                                                              
thing. As a  tool for them it  is very predictable and  helps them                                                              
in  their goal  of making  sure that  people  pay a  rate that  is                                                              
commensurate with  the risk that  they present. He thought  it was                                                              
important  that   the  legislature  does  not   place  unnecessary                                                              
restrictions on use of this important tool.                                                                                     
In response  to some  testimony there were  two changes  that deal                                                              
with the  issue of  what happens  to someone  who doesn't  have an                                                              
accurate credit  history. At  State Farm  Insurance the  number of                                                              
people who complain  about having an inaccurate  credit history is                                                              
infinitesimally small.  A good change  is allowing the use  of the                                                              
credit model  to be presented to  the Division of  Insurance under                                                              
confidentiality  giving them the  tools they  need to prevent  any                                                              
misuse of it.                                                                                                                   
SENATOR LEMAN  moved on page 1,  line 11, after "state"  to insert                                                              
"that consumers may obtain on request".                                                                                         
SENATOR DAVIS objected for purposes of explanation.                                                                             
SENATOR  LEMAN explained  that the  concern  was that  there is  a                                                              
substantial  cost to  doing this  and many  people probably  won't                                                              
necessarily want  it. The amendment  just says that  when somebody                                                              
asks for it, they have a right to get it.                                                                                       
SENATOR DAVIS  asked if  it was an opt  in/opt out  situation. She                                                              
withdrew her objection.                                                                                                         
SENATOR AUSTERMAN asked  if they would be given the  option in the                                                              
letter of adverse action.                                                                                                       
SENATOR  LEMAN explained  that there  would be  directions in  the                                                              
letter to  call an 800  number or return  a post card  - something                                                              
like that and they would send it to them.                                                                                       
SENATOR DAVIS  said she understood what  it did, but felt  that it                                                              
needed to be  discussed more. She  asked if they were going  to be                                                              
sent  a letter  of  adverse action,  why  the  reason couldn't  be                                                              
stated in the one letter. "Everybody would get it."                                                                             
SENATOR LEMAN withdrew his amendment.                                                                                           
CHAIRMAN STEVENS said  that he would hold SB 320  at the sponsor's                                                              
SENATOR  DAVIS said Mr.  Niehaus from  Progressive Insurance  said                                                              
they  would not  be  withdrawing  credit rating  in  the state  of                                                              
Washington and this bill says that it does.                                                                                     
MR. NIEHAUS explained  that Senator Davis is under  the impression                                                              
that the bill passed in Washington  disallows credit and he stated                                                              
that the  bill requires that the  credit be filed with  the office                                                              
of the  Insurance Commissioner  and approved by  them and  it does                                                              
specifically  allow  the use  of  credit saying,  "Credit  history                                                              
shall  not be  used to  determine personal  insurance premiums  or                                                              
eligibility for  coverage unless the insurance scoring  models are                                                              
filed with the commissioner."                                                                                                   
CHAIRMAN  STEVENS  said he  understood  that the  difference  with                                                              
Washington State is that it prohibits certain types of credit.                                                                  
SENATOR  DAVIS  added  that  it   would  have  to  be  filed  [and                                                              
CHAIRMAN STEVENS said he appreciated  everyone's comments and held                                                              
the bill.                                                                                                                       
          SB 252-EMPLOYMENT AND TRAINING PROGRAM/BOARD                                                                      
CHAIRMAN STEVENS announced SB 252 to be up for consideration.                                                                   
MS.  PAT  DAVIDSON,  Legislative   Auditor,  said  they  had  just                                                              
completed an audit  on the State Training and  Employment Program.                                                              
There were  a number  of purposes  for the audit  - to  review the                                                              
administration   of  the  STEP  by   the  Alaska   Human  Resource                                                              
Investment Council (ERIC) to determine  the compliance of the STEP                                                              
with state laws, to assess the impact  of the STEP on the solvency                                                              
of  the  unemployment  compensation  fund  and  to  calculate  the                                                              
employer  and the  calculation  of  the employers'  insurance  tax                                                              
rates  and to  provide some  detail  expenditure information  with                                                              
regard  to the  STEP.  Their conclusions  are  that  the STEP  was                                                              
generally  being administered  in  accordance  with statutes  with                                                              
five main exceptions.                                                                                                           
     The  first one  is that STEP  served only  a portion  of                                                                   
     those that  were eligible. We  had found that  there was                                                                   
     no  systematic  marketing of  the  STEP program  to  all                                                                   
     those that  were eligible for the program.  Secondly, we                                                                   
     found  that federal  and possibly  state training  funds                                                                   
     were  being  displaced  by  STEP.  Basically,  STEP  was                                                                   
     created  to  assist  clients  that failed  to  meet  the                                                                   
     federal or  other programs and  that it was  intended to                                                                   
     be the  employment training  program of last  resort. We                                                                   
     found that  in the Municipality of Anchorage  employment                                                                   
     coordinators   used  STEP   funds   when  clients   were                                                                   
     potentially eligible for the  federal program, that STEP                                                                   
     grantees  were not  being required  to ascertain if  the                                                                   
     trainees  were eligible  for the  federal programs  when                                                                   
     recruiting,  that STEP  funds  were used  even when  the                                                                   
     federal funding  had not been  exhausted - for  example,                                                                   
     the  Municipality  of  Anchorage  carried  forward  over                                                                   
     $650,000 in federal adult and  dislocated worker funding                                                                   
     and the  balance of the  state carried approximately  $2                                                                   
     million of  that same type of  federal funds -  and that                                                                   
     STEP  funds may  be displacing  private funding  through                                                                   
     union training  programs. While employment  coordinators                                                                   
     are pleased with the partnership  between the unions and                                                                   
     the  STEP  funds, we  question  whether STEP  funds  are                                                                   
     being used to supplant private union training funds.                                                                       
     The  third   major  exception  was  that  there   was  a                                                                   
     requirement to reimburse the  Department for such things                                                                   
     as tools,  work-related clothing, safety gear  or others                                                                   
     and this was not being actively  enforced. We found that                                                                   
     the  statutory program  elements  that  define the  STEP                                                                   
     program  do not  include a  category called  "employment                                                                   
     assistance."  However, a  lot  of the  funds were  being                                                                   
     spent   under  that   categorization.   We  found   that                                                                   
     administrative  costs exceeded  the maximums defined  in                                                                   
     In  FY01, the  Federal Employment  Training Program  was                                                                   
     substantially changed,  the old one being JDPA,  the Job                                                                   
     Training Partnership Act. The  new federal program was a                                                                   
     Workforce  Investment Act  and referred  to as WIA.  The                                                                   
     new federal  program is more  inclusive and  more people                                                                   
     are  eligible for  this program.  Additionally, the  new                                                                   
     federal program allows for funding  of industry specific                                                                   
     training and,  therefore, the purpose and need  for STEP                                                                   
     needs to  be reevaluated so  again it's in  the position                                                                   
     where it's the training funds  of last resort - that you                                                                   
     maximize the use of those federal  funds first. We found                                                                   
     that as a  result of the funding mechanism  for STEP and                                                                   
     the Alaska technical vocational  education programs that                                                                   
     the financial  benefits accruing  back into the  UI fund                                                                   
     do not  exceed their  cost. The  difference is borne  by                                                                   
     employers  through  increased  UI taxes.  It  should  be                                                                   
     pointed  out that  while all Alaskans  are eligible  for                                                                   
     the STEP  program, not all  employers will shoulder  the                                                                   
     burden  of  the net  costs  of  the  STEP and  the  ATVE                                                                   
     We found  that the STEP  program does provide  a direct,                                                                   
     though not precisely measurable,  benefit to the UI fund                                                                   
     through  either reduced  UI benefit  payments or  larger                                                                   
     wage  base. The ATVE  program doesn't  have that  direct                                                                   
     measurable benefit.                                                                                                        
     In our opinion the STEP program  should be reauthorized.                                                                   
     Our recommendation  was for four years. The  new Federal                                                                   
     Employment  Training  Program   addresses  many  of  the                                                                   
     reasons  STEP  was originally  created  and,  therefore,                                                                   
     STEP needs to be realigned to  fill the missing gaps. In                                                                   
     this  report,  we  made  seven  recommendations  to  the                                                                   
     Department and they include:                                                                                               
     -The  need for  additional outreach  to  those that  are                                                                   
     actually eligible for the STEP program.                                                                                    
     -To improve the monitoring of STEP grantees                                                                                
     -That   legislation   that   directs   the   unexpended,                                                                   
     unobligated balance of the STEP  funds to lapse into the                                                                   
     UI fund                                                                                                                    
     -To actively monitor that admin  costs to not exceed 15%                                                                   
     of total STEP expenditures                                                                                                 
     -That UI accounting  costs that are charged  to STEP and                                                                   
     ATVE are done in an equitable and supported manner                                                                         
     -That the  programmatic data  be collected and  reported                                                                   
     in a manner that demonstrates  legal compliance with the                                                                   
     -And that labor  and staff work together  to ensure that                                                                   
     STEP does  not replace federal, private or  other public                                                                   
     training funds.                                                                                                            
MS. REBECCA  GAMEZ, Deputy Commissioner,  Department of  Labor and                                                              
Workforce Development, said she wanted  to comment after she had a                                                              
chance to read the amendments.                                                                                                  
SENATOR LEMAN asked why they changed the name to ERIC.                                                                          
MS. GAMEZ  replied that  under the  Workforce Investment  Act that                                                              
replaces the  Job Training  Partnership Act  on the federal  level                                                              
the name change - Alaska Workforce  Board - falls in line with the                                                              
local workforce  board name. "It's  kind of a naming  protocol, if                                                              
you will."                                                                                                                      
SENATOR  TORGERSON  stated that  he  wouldn't move  amendment  #1,                                                              
labeled  GS2052\A.2,  because  the  report  said  there  was  some                                                              
concern  about money  going  to the  union  training programs.  He                                                              
didn't have enough  information to do a total ban  on it. They are                                                              
asking for  reports to come back  to the legislature next  year to                                                              
see if they have adjusted.                                                                                                      
SENATOR TORGERSON offered amendment A.4:                                                                                        
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 1, line 2, following "membership;":                                                                                      
     Insert  "providing  that lapsing  employment  assistance  and                                                            
training program account  funds may be appropriated  to the Alaska                                                            
technical and vocational education program;"                                                                                  
Page 15, following line 9:                                                                                                      
     Insert a new bill section to read:                                                                                         
   "* Sec. 11.   AS 23.15.625 is amended to read:                                                                             
          Sec. 23.15.625.  Employment assistance and training                                                                 
     program  account.   The  employment assistance  and  training                                                            
     program  account is  established in  the general  fund.   The                                                              
     commissioner of  administration shall separately  account for                                                              
     money  collected  under  AS  23.15.630  that  the  department                                                              
     deposits in the  general fund.  The annual  estimated balance                                                              
     in the account may be appropriated  by the legislature to the                                                              
     department  to   implement  AS 23.15.620  -   23.15.660.  The                                                              
     [LEGISLATURE  MAY  APPROPRIATE THE]  lapsing  balance of  the                                                              
     employment  assistance and  training program  account may  be                                                      
     appropriated   to  the   Alaska   technical  and   vocational                                                      
     education  program established  in  AS 23.15.820 -  23.15.850                                                          
     [UNEMPLOYMENT     COMPENSATION     FUND    ESTABLISHED     IN                                                              
     AS 23.20.130]."                                                                                                            
Renumber the following bill sections accordingly.                                                                               
Page 28, line 20:                                                                                                               
     Delete "sec. 52"                                                                                                           
     Insert "sec. 53"                                                                                                           
SENATOR DAVIS objected for purposes of explanation.                                                                             
SENATOR TORGERSON explained that  the auditor suggested that there                                                              
are currently  about $2 million left  of unobligated funds  in the                                                              
STEP and,  "We created this  program to  train people, not  to sit                                                              
around in the bank for these guys.  I didn't want it to go back to                                                              
the UI  trust because  we're actually  formally intercepting  this                                                              
money, the one tenth of one percent,  and putting it back in there                                                              
and taking  it out again, so I  would suggest this lapse  into the                                                              
Alaska  Training  and Vocational  Educational  Program,  which  is                                                              
currently in  a grant mode for one  more year and then  it will go                                                              
into a new vocational  education program. He asked  his staff, Ms.                                                              
Mary Jackson, to explain that.                                                                                                  
MS. MARY JACKSON, Staff to Senator  Torgerson, said he was correct                                                              
that  this  would  lapse  directly  into  the  ATVE  program.  The                                                              
Department is  currently promulgating regulations for  the program                                                              
and it should be in place shortly.                                                                                              
CHAIRMAN STEVENS asked  if there were any objections  to amendment                                                              
#2. There were none and it was adopted.                                                                                         
SENATOR TORGERSON moved amendment #3, GS2052\A.4:                                                                               
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 1, line 2, following "membership;":                                                                                      
     Insert  "providing  that lapsing  employment  assistance  and                                                            
training program account  funds may be appropriated  to the Alaska                                                            
technical and vocational education program;"                                                                                  
Page 15, following line 9:                                                                                                      
     Insert a new bill section to read:                                                                                         
   "* Sec. 11.   AS 23.15.625 is amended to read:                                                                             
          Sec. 23.15.625.  Employment assistance and training                                                                 
     program  account.   The  employment assistance  and  training                                                            
     program  account is  established in  the general  fund.   The                                                              
     commissioner of  administration shall separately  account for                                                              
     money  collected  under  AS  23.15.630  that  the  department                                                              
     deposits in the  general fund.  The annual  estimated balance                                                              
     in the account may be appropriated  by the legislature to the                                                              
     department  to   implement  AS 23.15.620  -   23.15.660.  The                                                              
     [LEGISLATURE  MAY  APPROPRIATE THE]  lapsing  balance of  the                                                              
     employment  assistance and  training program  account may  be                                                      
     appropriated   to  the   Alaska   technical  and   vocational                                                      
     education  program established  in  AS 23.15.820 -  23.15.850                                                          
     [UNEMPLOYMENT     COMPENSATION     FUND    ESTABLISHED     IN                                                              
     AS 23.20.130]."                                                                                                            
Renumber the following bill sections accordingly.                                                                               
Page 28, line 20:                                                                                                               
     Delete "sec. 52"                                                                                                           
     Insert "sec. 53"                                                                                                           
Page 28, line 22:                                                                                                               
     Delete "secs. 1 - 45"                                                                                                      
     Insert "secs. 1 - 46"                                                                                                      
Page 29, line 13:                                                                                                               
     Delete "Section 49(a)"                                                                                                     
     Insert "Section 50(a)"                                                                                                     
Page 29, line 14:                                                                                                               
     Delete "sec. 51"                                                                                                           
     Insert "sec. 52"                                                                                                           
MS. JACKSON  explained  that the  intent of this  amendment  is to                                                              
rectify the  problem that was  identified by the  audit concerning                                                              
the  15% limitation  on  administrative  expenses.  There are  two                                                              
conflicting statutes and this clarified  the intent, which is that                                                              
it be 15% of program expenses.                                                                                                  
CHAIRMAN STEVENS asked if there were any objections to amendment                                                                
#3. There were none and it was adopted.                                                                                         
SENATOR TORGERSON moved amendment #4, GS2052\A.3:                                                                               
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 1, line 2, following "membership;":                                                                                      
     Insert "relating to repayment on promissory notes for work-                                                              
related items paid for by grant programs;"                                                                                    
Page 15, following line 9:                                                                                                      
     Insert a new bill section to read:                                                                                         
   "* Sec. 11.   AS 23.15.640(c) is amended to read:                                                                          
          (c)  The department shall [, TO THE EXTENT ECONOMICALLY                                                               
     FEASIBLE  FOR  THE  INDIVIDUAL,] require  an  individual  who                                                              
     participated in  a program that  was funded at least  in part                                                              
     by a grant under AS 23.15.651  and that included as a program                                                              
     element  the  provision  of   necessary  tools,  work-related                                                              
     clothing,  safety gear,  or  other necessities  to obtain  or                                                              
     retain employment  under (a)(6) of this section  to reimburse                                                              
     the department  for the portion  of the grant that  was spent                                                              
     on an  element listed in (a)(6)  of this section.   Repayment                                                          
     shall  begin no later  than six  months after the  individual                                                          
     completes  or  leaves  the   state  training  and  employment                                                          
     program  and may not  be less than  $25 each calendar  month.                                                          
     The department  shall separately  account for receipts  under                                                              
     this subsection.   The annual estimated receipts  may be used                                                              
     by the legislature  to make appropriations  to the department                                                              
     to  the employment  assistance and  training program  account                                                              
     (AS 23.15.625)   for   grants   under  AS 23.15.651.      The                                                          
     department   shall   institute   collection   procedures   on                                                          
     outstanding  promissory  notes  for amounts  due  under  this                                                          
     subsection.   Collection procedures must include  obtaining a                                                          
     judgment for  default on a  promissory note.   The department                                                          
     shall seek satisfaction of the  judgment from an individual's                                                          
     permanent  fund   dividend  to  the  extent   possible  under                                                          
     AS 43.23.065  until the  judgment  has been  satisfied.   The                                                          
     department shall implement this subsection by regulation."                                                               
Renumber the following bill sections accordingly.                                                                               
Page 28, line 20:                                                                                                               
     Delete "sec. 52"                                                                                                           
     Insert "sec. 53"                                                                                                           
Page 28, line 22:                                                                                                               
     Delete "secs. 1 - 45"                                                                                                      
     Insert "secs. 1 - 46"                                                                                                      
Page 29, line 13:                                                                                                               
     Delete "Section 49(a)"                                                                                                     
     Insert "Section 50(a)"                                                                                                     
Page 29, line 14:                                                                                                               
     Delete "sec. 51"                                                                                                           
     Insert "sec. 52"                                                                                                           
MS. JACKSON  explained that this  was also identified as  an issue                                                              
in the audit. The program provides  for the STEP monies to be used                                                              
for  individuals to  purchase tools,  for example.  It has  always                                                              
been  if you  purchase  these  tools and  you  get  a job,  you're                                                              
supposed to  reimburse the program.  The audit found there  was no                                                              
mechanism  in  place to  make  that  take effect.  This  amendment                                                              
specifies procedures for that reimbursement to be accommodated.                                                                 
SENATOR  AUSTERMAN asked  how much  that would  offset the  actual                                                              
SENATOR TORGERSON  said he understands that they  hadn't collected                                                              
any yet.  He said there  could be a  cost for collections;  he was                                                              
sure it would take another employee.                                                                                            
CHAIRMAN STEVEN  asked if anyone  objected to amendment  #4. There                                                              
were none and amendment #4 was adopted.                                                                                         
MS. EDEN  LARSON said  the issue  that concerns  the builders  and                                                              
contractors is the  funding of the union training  programs to the                                                              
exclusion of open shop construction train programs.                                                                             
SENATOR   TORGERSON  responded   that  he   doesn't  have   enough                                                              
information to act on that and it's a concern of the auditors.                                                                  
MS. LARSON  said in the interim  the language that's  currently in                                                              
this bill  prohibits people  training in  the construction  trades                                                              
that are  non-union from applying  for grants under the  STEP. For                                                              
another year they would be concerned about that.                                                                                
CHAIRMAN  STEVENS   said  the  intent  today  was   to  adopt  the                                                              
amendments and circulate the new  CS and then bring it up again at                                                              
a later date.                                                                                                                   
MS. LARSON  said she would save  her comments until she  could see                                                              
the CS.                                                                                                                         
SENATOR TORGERSON moved amendment #5, GS2052\A.6:                                                                               
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 1, line 2:                                                                                                                 
     Delete "repealing"                                                                                                       
     Insert "extending"                                                                                                       
Page 27, lines 24 and 25:                                                                                                       
     Delete all material and insert:                                                                                            
   "* Sec. 46.  The uncodified law  of the State of Alaska enacted                                                          
in sec. 6,  ch. 116, SLA 1996,  as amended by sec. 9,  ch. 85, SLA                                                              
1998, is amended to read:                                                                                                       
          Sec. 6.  AS 23.16.620, 23.15.625, 23.15.630, 23.15.635,                                                               
     23.15.640, 23.15.645, 23.15.651, and 23.15.660 are repealed                                                                
     June 30, 2003 [2002]."                                                                                                 
Page 29, following line 12:                                                                                                     
     Insert new bill sections to read:                                                                                          
   "*  Sec. 51.   The uncodified  law  of the State  of Alaska  is                                                          
amended by adding a new section to read:                                                                                        
     RETROACTIVITY OF SEC. 46.  If sec. 46 of this Act takes                                                                    
effect after June 29, 2002, sec.  46 of this Act is retroactive to                                                              
June 29, 2002.                                                                                                                  
    *  Sec. 52.   Section  46 of  this Act  takes effect  June 29,                                                            
Renumber the following bill sections accordingly.                                                                               
Page 29, line 14:                                                                                                               
     Delete "sec. 51"                                                                                                           
     Insert "secs. 52 and 53"                                                                                                   
He explained that  this repeals the sunset clause  and puts a one-                                                              
year extension in. He added that  the next amendment is requesting                                                              
all the  reports to  come back, which  is how  they are  trying to                                                              
handle  the auditor's  issue  so it  didn't  have to  drag on  for                                                              
CHAIRMAN STEVENS  asked if there  were any objections  to adopting                                                              
amendment #5. There were no objections and it was adopted.                                                                      
CHAIRMAN TORGERSON moved amendment #6, GS2052\A.7:                                                                              
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 27, following line 25:                                                                                                     
     Insert a new bill section to read:                                                                                         
   "*  Sec. 47.   The uncodified  law  of the State  of Alaska  is                                                            
amended by adding a new section to read:                                                                                        
     REPORT TO THE LEGISLATURE.  The Department of Labor and                                                                    
Workforce  Development  shall  present  a written  report  to  the                                                              
legislature on the state training  and resources program within 10                                                              
days of the beginning of the First  Regular Session of the Twenty-                                                              
Third Alaska State Legislature.  The report must include                                                                        
          (1)  an outreach plan for the state training and                                                                      
resources program;                                                                                                              
          (2)  a certification verification plan;                                                                               
          (3)  the department's recommendations on allowable                                                                    
nonadministrative costs for program expenses;                                                                                   
          (4)  a data collection and reporting plan;                                                                            
          (5)  the status of the governor's discretionary fund                                                                  
for statewide  activities established  as part of the  1999 Alaska                                                              
Human Resource Investment Council action plan;                                                                                  
          (6)  facts supporting the need for the state training                                                                 
and resources program;                                                                                                          
          (7)  the department's recommendations on including                                                                    
reimbursable  employers  in  the   state  training  and  resources                                                              
program,   and  excluding   current   and   former  employees   of                                                              
reimbursable employers from the program; and                                                                                    
          (8)  an analysis of the reasons for decreased public                                                                  
training institution funding in relation  to the increase in union                                                              
training program funding."                                                                                                      
Renumber the following bill sections accordingly.                                                                               
Page 28, line 20:                                                                                                               
     Delete "sec. 52"                                                                                                           
     Insert "sec. 53"                                                                                                           
Page 29, line 13:                                                                                                               
     Delete "Section 49(a)"                                                                                                     
     Insert "Section 50(a)"                                                                                                     
Page 29, line 14:                                                                                                               
     Delete "sec. 51"                                                                                                           
     Insert "sec. 52"                                                                                                           
He explained  that this  is the laundry  list of things  that came                                                              
out of the audit report and says  that we want to have a report 10                                                              
days after the  beginning of the first session of  the 23rd Alaska                                                              
Legislature and  the report  must include all  of this.  He didn't                                                              
have a report ready to address the  union concern with the private                                                              
money and this is where he anticipated inserting that language.                                                                 
MS. JACKSON pointed out a technical  amendment on lines 16 and 18.                                                              
It  should not  say "training  and resources",  but "training  and                                                              
SENATOR TORGERSON  moved an amendment  to the amendment  to delete                                                              
"resources"  on lines  16 and  18 and  insert "employment".  There                                                              
were no objections and it was adopted.                                                                                          
CHAIRMAN STEVENS  asked if there  were any objections  to adopting                                                              
amendment  #6 amended.  There were  no  objections and  it was  so                                                              
SENATOR TORGERSON moved amendment #7, GS2052\A.1:                                                                               
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 3, lines 30 - 31:                                                                                                          
     Delete "The commissioner of administration is a nonvoting                                                              
member of the board."                                                                                                       
Page 4, lines 2 - 3:                                                                                                            
     Delete ", and the commissioner of administration under (b)                                                             
of this section"                                                                                                            
Page 4, lines 9 - 10:                                                                                                           
     Delete "and the commissioner of administration under                                                                   
AS 23.15.550(b)"                                                                                                            
Page 5, line 4:                                                                                                                 
     Delete " or (b),"                                                                                                      
SENATOR  TORGERSON  said he  has  had  many discussions  with  Mr.                                                              
Andrews about  the size  of this  group. "It's  a herd of  turtles                                                              
that they're  so damn  big that  they can't  get anything  done. I                                                              
don't want to add to that."                                                                                                     
He  didn't  see  any  advantage  to  having  the  commissioner  of                                                              
Administration as another part of this.                                                                                         
CHAIRMAN STEVENS asked if there were  any commissioners on it now.                                                              
SENATOR TORGERSON replied that there  are, the Commissioner of the                                                              
Department  of  Labor and  Department  of Community  and  Economic                                                              
CHAIRMAN STEVENS asked  if there were any objections  to amendment                                                              
#7. There were none and it was adopted.                                                                                         
SENATOR TORGERSON moved amendment #8, GS2052\A.8:                                                                               
                        A M E N D M E N T                                                                                   
OFFERED IN THE SENATE                      BY SENATOR TORGERSON                                                                 
     TO:  SB 252                                                                                                                
Page 5, lines 16 - 17:                                                                                                          
     Delete "[NOT MORE THAN THREE TIMES IN A CALENDAR YEAR]"                                                                    
     Insert "not more than three times in a calendar year"                                                                      
He explained  that the  Governor's bill  took out the  requirement                                                              
that they couldn't meet more than  three times a year and although                                                              
he wanted  to limit it  to two, he  thought they could  just leave                                                              
the language that's already in statute - three times per year.                                                                  
CHAIRMAN STEVENS asked  if there were any objections  to amendment                                                              
#8. There were none and it was adopted.  He asked Ms. Gamez if she                                                              
had enough time  to read the amendments and she  indicated she was                                                              
ready to testify now.                                                                                                           
MS.  GAMEZ said  it was  helpful to  delay her  testimony for  the                                                              
amendments. She  was surprised that  a few of the  amendments went                                                              
against the recommendations they both agreed on.                                                                                
     On amendment #2, recognizing  that amendment #1 has some                                                                   
     work that Senator Torgerson  would like to take care of,                                                                   
     both  the legislative  audit report  and the  Department                                                                   
     concurred that the lapsed money  should go back into the                                                                   
     UI trust  funds. I think  that that is more  appropriate                                                                   
     for  the lapsing.  There have  been  some problems  with                                                                   
     expenditures  of   STEP  monies.  Part  of   it  was  an                                                                   
     appropriations  problem and part  of it was with  one of                                                                   
     the local workforce boards in  terms of expending funds.                                                                   
     So that has been a challenge.                                                                                              
     On  amendment #3,  we, too,  would like  to clarify  the                                                                   
     15%. I did have an opportunity  to talk with Ms. Jackson                                                                   
     about this  and if the  language said Program  Awards as                                                                   
     opposed  to expenses,  we would  be in  the position  of                                                                   
     defining   what   is   programmatic   and   what   isn't                                                                   
     programmatic  expenses. For  example, on something  that                                                                   
     the  audit  counted  as an  administrative  cost  it  is                                                                   
     necessary for  us to have a  STEP program in  this state                                                                   
     and I would argue that that  would be programmatic cost.                                                                   
     Because  without that  function in  the data  collection                                                                   
     piece,  we wouldn't  be able  to  have a  program. So  I                                                                   
     would argue  that that's  not administrative, that  that                                                                   
     would be a  programmatic, but I think we  could probably                                                                   
     work those differences out now  that we're hammering out                                                                   
     the disagreement in those two statutes.                                                                                    
MS. GAMEZ  said if  there were  a three-year  funding period  that                                                              
would be in  line with the federal  WIA funds, it would  be easier                                                              
for them to agree with this.                                                                                                    
     Business  statistics  show  that  there  are  a  certain                                                                   
     amount  of administrative  costs  regardless of  program                                                                   
     expenditures  to  a certain  degree.  Some  of the  sub-                                                                   
     grantee  adjustments affect  expenditures and those  can                                                                   
     occur  after the  year-end.  So, the  accurate  year-end                                                                   
     expenditures  aren't always known  until the process  is                                                                   
     Moving  to   amendment  #4  that  was  adopted   on  the                                                                   
     repayment of promissory notes,  the point was brought up                                                                   
     by one of  the committee members here that  there may be                                                                   
     costs  to the  department to  collect  those funds.  The                                                                   
     STEP  program is  not a  loan program.  We do,  however,                                                                   
     have  signed  promissory  notes   for  people  who  have                                                                   
     received monies  for tools or boots or other  items that                                                                   
     they  may  need.  Collections  will  also  represent  an                                                                   
     increased  cost to  the department  for record  keeping,                                                                   
     tracking and accounting.                                                                                                   
TAPE 02-23, SIDE B                                                                                                            
MS. GAMEZ said that amendment #5 caused them concern because                                                                    
it's very difficult to think ahead if you have such a short                                                                     
period of time in which to make changes.                                                                                        
On amendment  #6 she was  glad that Ms.  Jackson caught  the typo,                                                              
because they would have to start  calling it the STREP program and                                                              
it would truly be unpopular with certain folks at the table.                                                                    
     We are working  on an outreach plan and I  would like to                                                                   
     make   the  comment   that  we   have  a   certification                                                                   
     verification plan  for classroom training only  and that                                                                   
     is a  recommendation that  we have.  When I was  reading                                                                   
     over  Ms. Jackson's  overview  to Senator  Torgerson,  I                                                                   
     think there was a typo and I  would like the opportunity                                                                   
     to talk  with Ms. Jackson  after the hearing  because we                                                                   
     already  insure that there's  authorization of  training                                                                   
     ACPE and  the department  will require certification  of                                                                   
     all classroom training…                                                                                                    
She said it would  be helpful to see a comprehensive  package with                                                              
the  CS  and hoped  she  would  be invited  to  staff  discussions                                                              
regarding the department's concerns before a CS is adopted.                                                                     
SENATOR  AUSTERMAN  asked  her  if  she  had  concerns  about  the                                                              
amendments, why didn't she speak up before they were adopted.                                                                   
MS.  GAMEZ said  she  didn't  realize she  was  in  a position  to                                                              
disagree with the amendments until they were on the table.                                                                      
SENATOR TORGERSON said  he wouldn't deviate a whole  lot from what                                                              
they have,  but he wants  to make it  work. He wouldn't  have gone                                                              
with the sunset if it weren't for the reporting requirements.                                                                   
CHAIRMAN STEVENS  said he  had a  concern on page  47, which  is a                                                              
summary of  the type of vendors  or clients served, and  asked her                                                              
for a short definition of the six categories.                                                                                   
MS. GAMEZ said she  would like to invite Mike Shiffer  who is more                                                              
technically versed in those things.                                                                                             
MR.  MIKE  SHIFFER,  Program  Coordinator,   Workforce  Investment                                                              
Office, responded that examples of  a private training institution                                                              
would  be  a  charter  college;  the  unions  would  be  like  the                                                              
operating engineers  who run a  training program.  Public training                                                              
institutions would be things like  the Alaska Vocational Technical                                                              
School in Seward; Native organizations  would be training programs                                                              
such as the one run out of the Bristol  Bay Native Association. He                                                              
was drawing  a blank  on "other" kinds  of training programs,  but                                                              
client reimbursements  would be expenses paid directly  back to an                                                              
institute directly on behalf of a participant.                                                                                  
CHAIRMAN  STEVENS  said  he  was  confused  about  the  difference                                                              
between  a private  training  institution  and a  public  training                                                              
MR. SHIFFER explained that a public  training institution would be                                                              
things  that   the  legislature   appropriates  directly   to  the                                                              
University of Alaska and the Alaska Vocational Technical Center.                                                                
CHAIRMAN STEVENS asked  what the process was for  the distribution                                                              
of the money on an annual basis.                                                                                                
MR. SHIFFER replied  that in general the funds  are distributed in                                                              
two methods.  The first  is through  direct client  services  - an                                                              
individual comes  in and  is identified for  services and  goes to                                                              
school - and  the other option is through grant  funds. Grants are                                                              
announced  and let  out  and training  providers  compete for  the                                                              
funds and provide training programs.                                                                                            
CHAIRMAN STEVENS said he was concerned  with the number of clients                                                              
served  and asked why  the numbers  have changed  from public  and                                                              
private losses to  gains with the unions. He asked  if the funding                                                              
mechanism  inserting the  money into  the program  has changed  in                                                              
correspondence with  the change to  the number of people  that are                                                              
receiving the benefit.                                                                                                          
MR. SHIFFER  replied no.  They rely  on information received  from                                                              
research and  analysis and there is  a great deal of  effort being                                                              
focused on the  areas of construction, the trades  and things like                                                              
that. They  target the  funds towards those  areas where  they see                                                              
the  most opportunity  for creating  employment opportunities  for                                                              
folks. Currently,  those tend to rest with training  programs that                                                              
happen to parallel with union type training programs.                                                                           
SENATOR TORGERSON  asked what  the fund balance  was right  now of                                                              
the STEP program.                                                                                                               
MR. SHIFFER replied that he didn't know that right now.                                                                         
SENATOR TORGERSON  asked if  he told him  it was over  $2 million,                                                              
could he tell him why.                                                                                                          
MR. SHIFFER replied that a number of things contribute to that.                                                                 
     First of  all, when  the appropriations were  occurring,                                                                   
     Ms. Gamez  referred to that  at one point where  we were                                                                   
     sort  of chasing  our  tails. Each  appropriation  would                                                                   
     occur and  the amount that  was available from  the fund                                                                   
     would exceed  the appropriation and so we  saw ourselves                                                                   
     chasing after  money that was increasing faster  than we                                                                   
     were using it.                                                                                                             
     Another issue is that there  has been several changes in                                                                   
     terms of how  services were delivered and  that resulted                                                                   
     in one  of the  local areas not  expending the funds  as                                                                   
     greatly as  they had done in  the past. And  other funds                                                                   
     came  into the  state that  were unexpected  and in  the                                                                   
     form of an unusually large award  for dislocated workers                                                                   
     and   for  funds   that   related  to   foreign   worker                                                                   
     certification.  Those large  amount of  funds that  came                                                                   
     into  the program  have  served people  who  potentially                                                                   
     could have been eligible for services here.                                                                                
SENATOR  TORGESON asked  what  they  were going  to  do with  that                                                              
     It upsets  me that it's not  out in the street  and that                                                                   
     we're not training people. We  went in there a couple of                                                                   
     years ago and  took $4 million out of there.  Now you've                                                                   
     got $2  million again.  If you're not  going to  use the                                                                   
     damn money,  let's do away with  the program. Put  it in                                                                   
     the ATV program. That's where I'm coming from on this…                                                                     
MR.  SHIFFER replied  that  they have  an  opportunity to  utilize                                                              
those funds by  looking at the way they're distributing  the funds                                                              
by focusing on the opportunities  for spending the STEP funds as a                                                              
last resort.  "We'd be happy  to work  with you on  clarifying how                                                              
that goes."                                                                                                                     
SENATOR  TORGERSON replied,  "Don't work  with me.  Work with  the                                                              
University…or  work with others  out there  who are wondering  why                                                              
they can't get into this pot of money."                                                                                         
SENATOR AUSTERMAN said he wanted  to see a good description of how                                                              
the grant  program works -  who sets it up,  etc. - that  might be                                                              
helpful in  figuring out exactly  why there are  institutions that                                                              
want to train people, but can't get the funds.                                                                                  
MR. SHIFFER said he would be happy to provide that information.                                                                 
MR. MIKE ANDREWS, Alaska Works Partnership,  Inc., said they are a                                                              
statewide construction job training  organization that's formed in                                                              
partnership with  Alaska's construction trade unions  and sponsors                                                              
a statewide  apprenticeship program that  is not a  union program.                                                              
They have a lot of experience across  the board with some of these                                                              
issues.  He thanked  Senator  Torgerson  for withdrawing  the  one                                                              
amendment  until more  information came  forward in  terms of  why                                                              
there  is a  discrepancy  between  union  and non  union  training                                                              
programs. He  thought they could  give them some  reasoning behind                                                              
MR.  ANDREWS supported  continuing the  STEP program  and said  he                                                              
used to work  as director of the Alaska Human  Resource Investment                                                              
Council  and worked  very  closely with  the  Senate Majority  and                                                              
Senator Torgerson on  a lot of these issues of how  to make a very                                                              
hard-to-understand  workforce development  system  in this  state,                                                              
particularly  that  is  mostly federally  funded,  work  well  for                                                              
Alaskans. "How  do we  align job training  with the University  of                                                              
Alaska, with  AVTEC, with  Alaska Technical  Center and  also with                                                              
private sector training that occurs in the state."                                                                              
With this kind  of background, Mr. Andrews said he  thought he had                                                              
some things  he could add and he  would like to come  back and add                                                              
them. One of the problems that needs  to be looked at is that STEP                                                              
has been  a pilot program  for 10  years. It's reauthorized  every                                                              
two  years and  in 1997,  when  they did  the  major reform,  they                                                              
aligned  STEP performance  with the Job  Training Partnership  Act                                                              
and other performance measures that  the majority wanted to see in                                                              
their performance based budgeting.  Now there's quite an extensive                                                              
performance report  on all  these programs. They  can look  at the                                                              
performance of STEP, which is a high  performing program, in terms                                                              
of short-term less-expensive training  that put people to work and                                                              
keeps them employed.                                                                                                            
One  of the  problems they  have reached  with reauthorization  is                                                              
that STEP has always had a two-year timeline.                                                                                   
     Federal programs allow two or  more years for a rollover                                                                   
     for the  ability to  monitor and  spend funds. STEP  has                                                                   
     always fought  this battle  of getting reauthorized  and                                                                   
     then  trying to  basically lurch  out there  again as  a                                                                   
     pilot,  be a low  priority on  someone's table,  because                                                                   
     it's  a pilot  and  try to  function  as  well. We  have                                                                   
     worked  hard, the  state,  the legislature,  and  people                                                                   
     involved  to cap  administrative  cost,  to bring  those                                                                   
     costs  down from  20% to  15% and  to really  understand                                                                   
     what  line items  go into a  program and  what would  go                                                                   
     into actual admin. I would say  just in general that's a                                                                   
     good  move to  cap  that, but  that  does  also make  it                                                                   
     harder  for some of  the public  institutions that  have                                                                   
     indirect  cost fees  that have  administrative fees  set                                                                   
     who can't  reach that  barrier. They cannot  necessarily                                                                   
     apply for training  because of that cap.  I'm not saying                                                                   
     remove that cap, but that may  be one of the reasons why                                                                   
     we're  seeing  more of  the  grants  go out  to  private                                                                   
     sector   training  vendors.   For  example,  the   union                                                                   
     apprenticeship  training  programs  are  private  sector                                                                   
     programs  funded by  labor and management  and they  are                                                                   
     one of the programs that has  received more recently. To                                                                   
     compete  for that  on the  open  market, announce  bids,                                                                   
     etc. One of the reasons I think  is the actual nature of                                                                   
     STEP  being reauthorized  on a two-year  basis and  then                                                                   
     between that,  there's all kinds  of things added  on in                                                                   
     terms  of performance  and  measuring  and other  things                                                                   
     that  people want to  see done  that add  a cost to  the                                                                   
     system. I think  what we really need to focus  in on is,                                                                   
     are  we putting  Alaskans  to  work? Are  we  increasing                                                                   
     Alaska hire as  a result of STEP? Are they  getting more                                                                   
     income  in  their  pockets  and  are  they  paying  less                                                                   
     unemployment with this? Let's  all work together so that                                                                   
     we can have the best workforce in Alaska….                                                                                 
CHAIRMAN STEVENS thanked him for his testimony and adjourned the                                                                
meeting at 3:30 pm.                                                                                                             

Document Name Date/Time Subjects