Legislature(2003 - 2004)

02/03/2004 01:30 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                        February 3, 2004                                                                                        
                           1:30 P.M.                                                                                            
TAPE(S) 04-3, 4                                                                                                               
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Hollis French                                                                                                           
Senator Gary Stevens                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Bettye Davis                                                                                                            
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 273                                                                                                             
"An act relating  to the Alaska seafood  marketing institute, the                                                               
seafood marketing assessment, the  seafood marketing tax, and the                                                               
seafood product tax; and providing for an effective date."                                                                      
     HEARD AND HELD                                                                                                             
HOUSE BILL NO. 305                                                                                                              
"An act relating  to the calculation and  payment of unemployment                                                               
compensation benefits; and providing for an effective date."                                                                    
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 276                                                                                                             
"An act  relating to the  Alaska insurance  guaranty association;                                                               
relating to  joint insurance arrangements and  assessments to the                                                               
association;  relating to  the powers  of  the Alaska  industrial                                                               
development and export authority  concerning the association; and                                                               
providing for an effective date."                                                                                               
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 273                                                                                                                  
SHORT TITLE: ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS                                                                            
SENATOR(S): STEVENS G BY REQUEST OF SALMON INDUSTRY TASK FORCE                                                                  
01/23/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/23/04       (S)       L&C, FIN                                                                                               
02/03/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
BILL: HB 305                                                                                                                  
SHORT TITLE: UNEMPLOYMENT COMPENSATION BENEFITS                                                                                 
REPRESENTATIVE(S): LABOR & COMMERCE                                                                                             
05/07/03       (H)       READ THE FIRST TIME - REFERRALS                                                                        
05/07/03       (H)       L&C, FIN                                                                                               
05/09/03       (H)       L&C AT 3:15 PM CAPITOL 17                                                                              
05/09/03       (H)       MOVED OUT OF COMMITTEE                                                                                 
05/09/03       (H)       MINUTE(L&C)                                                                                            
05/10/03       (H)       L&C RPT 4DP 2NR                                                                                        
05/10/03       (H)       DP: CRAWFORD, GUTTENBERG, DAHLSTROM,                                                                   
05/10/03       (H)       ANDERSON; NR: LYNN, ROKEBERG                                                                           
05/15/03       (H)       FIN RPT 6DP 3NR                                                                                        
05/15/03       (H)       DP: KERTTULA, BERKOWITZ, FOSTER,                                                                       
05/15/03       (H)       MEYER, HARRIS, WILLIAMS; NR: HAWKER,                                                                   
05/15/03       (H)       STOLTZE, MOSES                                                                                         
05/15/03       (H)       FIN AT 8:30 AM HOUSE FINANCE 519                                                                       
05/15/03       (H)       MOVED OUT OF COMMITTEE                                                                                 
05/15/03       (H)       MINUTE(FIN)                                                                                            
05/16/03       (H)       TRANSMITTED TO (S)                                                                                     
05/16/03       (H)       VERSION: HB 305                                                                                        
05/17/03       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/17/03       (S)       L&C, FIN                                                                                               
05/19/03       (S)       L&C AT 8:00 AM BELTZ 211                                                                               
05/19/03       (S)       HEARD & HELD                                                                                           
05/19/03       (S)       MINUTE(L&C)                                                                                            
02/03/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
BILL: SB 276                                                                                                                  
SHORT TITLE: ALASKA INSURANCE GUARANTY ASSOCIATION                                                                              
SENATOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
01/23/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/23/04       (S)       L&C, FIN                                                                                               
02/03/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
WITNESS REGISTER                                                                                                              
Senator Gary Stevens                                                                                                            
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of SB 273.                                                                                       
Mr. Ray Riutta, Executive Director                                                                                              
Alaska Seafood Marketing Institute (ASMI)                                                                                       
311 N. Franklin                                                                                                                 
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supports SB 273.                                                                                          
Mr. Brent Paine, Executive Director                                                                                             
United Catcher Boats (UCB)                                                                                                      
Anchorage AK                                                                                                                    
POSITION STATEMENT: Opposes SB 273.                                                                                           
Ms. Donna Parker                                                                                                                
F/v Sea Storm                                                                                                                   
No address provided                                                                                                             
POSITION STATEMENT: Supports SB 273 with changes.                                                                             
Mr. Bruce Schactler, Marketing Chairman                                                                                         
United Fishermen of Alaska                                                                                                      
211 4th Street, Suite 110                                                                                                       
Juneau, AK 99801-1172                                                                                                           
POSITION STATEMENT: Commented on SB 273.                                                                                      
Representative Tom Anderson                                                                                                     
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Sponsor of HB 305.                                                                                        
Commissioner Greg O'Claray                                                                                                      
Department of Labor & Workforce                                                                                                 
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Supports HB 305.                                                                                          
Mr. Bill Kramer, Chief                                                                                                          
Unemployment Insurance Program                                                                                                  
Department of Labor & Workforce                                                                                                 
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Supports HB 305.                                                                                          
Mr. Don Etheridge                                                                                                               
American Federation of Labor - Congress of Industrial                                                                           
Organizations (AFL-CIO)                                                                                                         
710 West 9th Street                                                                                                             
Juneau, AK  99801                                                                                                               
POSITION STATEMENT: Supports HB 305.                                                                                          
Ms. Pam LaBolle, President                                                                                                      
Alaska State Chamber of Commerce                                                                                                
217 2 St., Ste 201                                                                                                              
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Opposes HB 305.                                                                                           
Ms. Linda Hall, Director                                                                                                        
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Supports SB 276.                                                                                          
Mr. Kevin Smith, Executive Director                                                                                             
Alaska Municipal League - Joint Insurance Association (AML-JIA)                                                                 
807 G Street                                                                                                                    
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Commented on SB 276.                                                                                      
Mr. Jeff Bush, Deputy Director                                                                                                  
Alaska Public Entity Insurance (APEI)                                                                                           
431 N. Franklin, Ste. 301                                                                                                       
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on SB 276.                                                                                      
Mr. Mike Klawitter, Director                                                                                                    
Risk Management                                                                                                                 
Anchorage School District                                                                                                       
POSITION STATEMENT:  Commented on SB 276.                                                                                     
ACTION NARRATIVE                                                                                                              
TAPE 04-4, SIDE A                                                                                                             
         SB 273-ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS                                                                     
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                             
Committee meeting  to order  at 1:30  p.m. Present  were Senators                                                               
Seekins,  French  and Chair  Bunde.  Senator  Davis was  excused.                                                               
Senator Stevens arrived at 1:31  p.m. The first order of business                                                               
to come before the committee was SB 273.                                                                                        
SENATOR  GARY  STEVENS,  sponsor  of   SB  273,  said  the  Joint                                                               
Legislative Salmon Task Force had worked  on this bill and it had                                                               
also been discussed in his marketing subcommittee. He commented:                                                                
     Very  quickly it  was apparent  to all  of us  that the                                                                    
     Alaska Seafood Marketing Institute  (ASMI) is the focus                                                                    
     of marketing for Alaska seafood.  It's a very important                                                                    
     element in  the industry and  whatever we do to  it, we                                                                    
     didn't want  to damage  it any more  than it  has been.                                                                    
     But because  of the loss of  funding, primarily through                                                                    
     salmon, the loss of the value  of salmon as well as the                                                                    
     volume, that  has had an  impact on ASMI. So  we looked                                                                    
     at the bottom  line. We realized that ASMI  - I believe                                                                    
     and the committee  believed, as well as  the task force                                                                    
     - that  we need to  keep around $7 million  coming into                                                                    
     ASMI annually  - plus assuming another  $2 million will                                                                    
     come in  from the federal  funding, as well -  in order                                                                    
     to allow  ASMI to  do the  job it is  supposed to  do -                                                                    
     which is  to market seafood products  from Alaska. They                                                                    
     are the generic marketer and do a very important job.                                                                      
SENATOR STEVENS said  one of the most contentious  elements in SB                                                               
273 is the reduction in the size  of the board from 25 members to                                                               
nine.  His   own  experience  on  large   membership  boards  and                                                               
observations  at  ASMI's  twice-yearly  meetings  illustrate  how                                                               
difficult it is for 25 members  to make decisions and move ahead.                                                               
Nine is not  a magic number, but he could  defend nine members as                                                               
being efficient and the number could always be increased.                                                                       
Second, ASMI needs to bring  in $7.3 million annually to function                                                               
properly.  Currently,  salmon fishermen  have  a  1 percent  tax.                                                               
Knowing  the industry  is  in  crisis, he  argued  to the  salmon                                                               
fishermen that it should be reduced  to .5 percent; but almost to                                                               
a  person, they  supported marketing  and didn't  want to  reduce                                                               
their tax.                                                                                                                      
SENATOR STEVENS  recapped that SB  273 changes the board  from 25                                                               
to nine members, keeps the  1 percent salmon tax, establishes the                                                               
.3  of  1  percent  processors'   tax  as  mandatory  instead  of                                                               
voluntary and  levies a  new tax on  all other  seafood products.                                                               
The  1  percent   salmon  tax  brings  in   $1.672  million,  the                                                               
processors'  tax would  bring  in $3.112  million  and all  other                                                               
species would bring  in $2.610 million. He  advised the committee                                                               
to keep an eye  on the bottom line and not  reduce taxes below $7                                                               
million.  ASMI's current  $4.5  million budget  is  less than  it                                                               
needs to do an adequate job.                                                                                                    
CHAIR BUNDE  asked Senator Stevens  to expand on  the controversy                                                               
surrounding the size of the board.                                                                                              
SENATOR STEVENS  elaborated that there  are many elements  in the                                                               
fishing industry, all  wanting to know how  they are represented.                                                               
If all were represented, the  board would have 125 people instead                                                               
of 25.                                                                                                                          
     You have  to assume  that a board  of nine  or whatever                                                                    
     the number  might be...that  the governor  appoints and                                                                    
     we  approve,  would  really be  looking  at  the  whole                                                                    
     industry....  I think  you have  to have  a board  that                                                                    
     represents the  whole state and when  they're appointed                                                                    
     realize  they are  statesmen, in  a way,  and not  just                                                                    
     representing their own particular interests....                                                                            
He  suggested the  best solution  for getting  the board  down to                                                               
nine members,  and one that he  has already talked over  with the                                                               
administration, is  for the governor  to ask for all  the current                                                               
members to resign and then establish an entirely new board.                                                                     
CHAIR BUNDE reminded the  committee that ASMI's constitutionality                                                               
had  been an  issue  in the  past  and asked  if  there had  been                                                               
discussion about SB 273's constitutionality.                                                                                    
SENATOR STEVENS said he hadn't heard anything about that issue.                                                                 
SENATOR  SEEKINS asked  if the  board members  were appointed  or                                                               
nominated by the governor for legislative approval.                                                                             
SENATOR STEVENS replied  that board members are  appointed by the                                                               
CHAIR BUNDE  added that  the board members  are not  confirmed by                                                               
the Legislature.                                                                                                                
SENATOR SEEKINS  said he  didn't know why  the word  "nominee" on                                                               
page 1,  line 14, is used  if the nominee wasn't  subject to some                                                               
sort  of   approval.  He  then   surmised  it  was   because  the                                                               
nominations  were made  by  people other  than  the governor.  He                                                               
asked why  salmon is  taxed at  1 percent  and all  other seafood                                                               
products are taxed at only .3 of 1 percent.                                                                                     
SENATOR  STEVENS replied  that  the current  tax structure  taxes                                                               
salmon at  1 percent  because salmon fishermen  are aware  of the                                                               
importance of marketing and see no reason to reduce it.                                                                         
SENATOR SEEKINS  asked if he  had received any feedback  from the                                                               
"others" who were going to have a mandatory tax.                                                                                
SENATOR STEVENS replied that one of the responses was:                                                                          
     You know,  I've never put  money into ASMI, so  I can't                                                                    
     complain  about  what  ASMI is  doing  and  actually  I                                                                    
     wouldn't  mind it  if some  of my  taxes went  to ASMI,                                                                    
     because  then I  would have  expectations of  what ASMI                                                                    
     does with that  money and I could have  some demands on                                                                    
     how that money is spent.                                                                                                   
Other  responses  from  various processing  firms  and  fishermen                                                               
indicated they don't want any new taxes.                                                                                        
SENATOR  SEEKINS  reflected  that  the salmon  industry  is  more                                                               
distressed than the rest, yet  they [salmon fishermen] are paying                                                               
the most.  He asked if  other segments  of the industry  need the                                                               
marketing  support as  well or  is  this assessment  meant to  be                                                               
industry's contribution to the salmon marketing effort.                                                                         
SENATOR  STEVENS clarified  that even  though fishermen  of other                                                               
species  have not  been taxed,  the processors  of those  species                                                               
have. He  estimated that twice as  much money would be  coming to                                                               
ASMI from  the processors than  from salmon fishermen  and almost                                                               
half again as much from fishermen of other species.                                                                             
1:47 p.m.                                                                                                                       
SENATOR HOLLIS FRENCH  asked Senator Stevens to  elaborate on the                                                               
elimination of the geographic  distribution requirement for board                                                               
SENATOR STEVENS  replied that other fishing  organizations in the                                                               
state,  like  the  North  Pacific  Fisheries  Management  Council                                                               
(NPFMC),   operate   with   fairly   small   boards   and   don't                                                               
geographically divide  up the state  for their  board membership.                                                               
By   dividing  the   state   geographically,   the  board   could                                                               
conceivably end  up with  all salmon fishermen  on it  instead of                                                               
other parts  of the  industry being  represented. "If  you really                                                               
try to  be totally representational  by gear type,  by fisheries,                                                               
by geographical area, that way leads to insanity."                                                                              
SENATOR FRENCH  surmised that  another danger  might be  having a                                                               
nine-member  board whose  members  are all  from  the Lower  Cook                                                               
Inlet and asked what in the bill would keep that from happening.                                                                
SENATOR  STEVENS  replied  that  that responsibility  is  on  the                                                               
shoulders of the governor who does the appointing.                                                                              
MR.  RAY RIUTTA,  Executive  Director,  Alaska Seafood  Marketing                                                               
Institute (ASMI, said  ASMI supports SB 273  and thanked everyone                                                               
for their efforts to help identify  the problems it is facing. He                                                               
related  how  ASMI  has become  extremely  dependent  on  federal                                                               
grants and  how the  value of [wild]  salmon has  decreased while                                                               
the world markets  have been flooded with  farmed salmon. Funding                                                               
that comes from the industry  to ASMI has decreased in proportion                                                               
to that  decrease in  value. Federal grants  have been  taking up                                                               
that slack  for a number of  years, but one grant  for $1 million                                                               
ends  this year  and  won't  be repeated.  Another  grant for  $2                                                               
million is  carrying ASMI  through this  year and  partially into                                                               
next year, but its continuance beyond that is in question.                                                                      
MR. RIUTTA  projected that  ASMI would receive  $2 million  to $3                                                               
million  in federal  grants  to fund  its  market access  program                                                               
(export program overseas) and very  little other money to support                                                               
domestic  marketing operations.  He said  the board  figures ASMI                                                               
needs a  $10 million to  $11 million  annual budget. ASMI  is not                                                               
asking for an increased budget,  but a stable budget that doesn't                                                               
fluctuate wildly  with the swings  of the fisheries  market. With                                                               
the estimated  $2 million in  federal funds, it needs  $7 million                                                               
to  $8 million  of additional  baseline funding.  The white  fish                                                               
industry is having  the same problems as the  salmon industry did                                                               
10 years ago. Part of  the across-the-board assessment is to help                                                               
address that problem.                                                                                                           
SENATOR SEEKINS  asked if the  red meat  scare had any  effect on                                                               
demand for seafood.                                                                                                             
MR. RIUTTA  replied that it is  too early to measure,  but people                                                               
are   increasingly  moving   from  red   meat  to   seafood.  The                                                               
marketplace  for seafood  has great  opportunities in  the months                                                               
MR. BRENT PAINE, Executive Director,  United Catcher Boats (UCB),                                                               
Anchorage, said they  had been in existence for 11  years and are                                                               
primarily based  in Seattle. They  represent most of  the catcher                                                               
vessels  that fish  for Pollock  and cod  and half  their vessels                                                               
fish for  crab in  the Bering  Sea. There  are 63  member vessels                                                               
from the roughly  112 catcher boats that fish the  Bering Sea for                                                               
pollock and  cod and the 300  vessels that fish for  crab. UCB is                                                               
primarily involved with  fisheries at the federal  level and less                                                               
at the  state level, since  National Marine Fisheries  Service is                                                               
the primary manager of their fishery.                                                                                           
UCB  strongly  opposes  increased  taxation on  their  fleet  for                                                               
marketing  services by  ASMI for  ground  fish at  this time.  He                                                               
informed them that  the pollock fleet in the  Bering Sea harvests                                                               
roughly 600,000 metric  tons of pollock a year and  they would be                                                               
responsible for paying  almost half of the  increased taxation or                                                               
almost $1 million.                                                                                                              
Members' concerns  include not  knowing what  the money  would be                                                               
used  for  and that  it  would  address  problems in  the  salmon                                                               
industry, not in the white  ground fish industry. They don't like                                                               
filling  in the  gap  to  solve the  falling  revenues of  salmon                                                               
fishermen.  Marketing of  their  products is  done  at a  private                                                               
level through  the producers of  the final product made  from the                                                               
fish that they catch.                                                                                                           
MR.  PAINE  bewailed  the  fact that  this  measure  is  taxation                                                               
without representation  because most of the  Bering Sea fishermen                                                               
are not  Alaskan residents.  Further, shrinking  the size  of the                                                               
board doesn't allow for representation  of all fisheries that are                                                               
being taxed.                                                                                                                    
MR. PAINE  pointed out that the  UCB is made up  of fishermen and                                                               
not marketing  experts and he  felt that  the board needed  to be                                                               
made  up  of  professional   marketing  people,  not  necessarily                                                               
fishermen or processors.                                                                                                        
SENATOR SEEKINS asked him to  repeat what percentage of his fleet                                                               
is Alaska owned.                                                                                                                
MR. PAINE  replied that the fleet  that fishes in the  Bering Sea                                                               
is probably about 95 percent non-Alaskan.                                                                                       
2:00 p.m.                                                                                                                       
MS. DONNA  PARKER, F/V Sea Storm,  said she and her  husband fish                                                               
for  pollock and  cod  and  also own  a  gillnetter in  Southeast                                                               
Alaska. She is the former  fisheries liaison with ASMI and helped                                                               
draft the original legislation.                                                                                                 
She suggested making all the  assessments in SB 273 voluntary and                                                               
felt  that the  duties of  the board  should be  expanded to  all                                                               
seafoods on a  species by species basis. Finally,  language in SB                                                               
273 proposes to  tax the boat, the permit, the  quota and all the                                                               
deck  hands and  she favored  an  assessment on  the vessel  only                                                               
     Having been  a fisherman  for many  years in  Kodiak, I                                                                    
     know how it filters down  to the back deck. These costs                                                                    
     are taken  off of the  top, so we  would pay for  it at                                                                    
     that point  - on the  expenses of the boat,  then taken                                                                    
     off the top  in terms of expenses for the  quota and by                                                                    
     the time  it got down to  us who are on  the back deck,                                                                    
     we already would have paid  for two or three times. So,                                                                    
     I  think  that  language  should be  amended  to  be  a                                                                    
     specific assessment to the vessel.                                                                                         
CHAIR BUNDE  responded that Senator  Stevens was making  notes of                                                               
her concerns for further discussion.                                                                                            
MR.  BRUCE SCHACTLER,  Marketing  Chairman,  United Fishermen  of                                                               
Alaska,  said  he   is  also  president  of   the  United  Salmon                                                               
Association. He felt the tax proposal  was fair and had heard the                                                               
white  fish  industry  vigorously   asking  for  money  to  begin                                                               
addressing  the   marketing  problems   they  foresee   in  their                                                               
industry. While he supported a  smaller board, Mr. Schactler felt                                                               
that  the issue  should be  dealt with  in separate  legislation,                                                               
because it wasn't connected to taxation at all.                                                                                 
CHAIR  BUNDE  thanked  everyone for  their  testimony  and  asked                                                               
Senator Stevens to notify him when  he was ready to hear the bill                                                               
SENATOR  STEVENS  thanked  ASMI   members  for  their  input  and                                                               
reiterated that  the real goal  is to establish  stable long-term                                                               
funding so that ASMI can continue to operate into the future.                                                                   
           HB 305-UNEMPLOYMENT COMPENSATION BENEFITS                                                                        
CHAIR CON BUNDE announced HB 305 to be up for consideration.                                                                    
2:13 p.m.                                                                                                                       
REPRESENTATIVE TOM ANDERSON, sponsor of  HB 305, said it provides                                                               
an  8.2  percent  increase in  the  maximum  weekly  unemployment                                                               
benefit  amount. The  increase would  be phased  in a  three-year                                                               
period and  minimizes impact to  employers and  employees. Alaska                                                               
currently  ranks 47   in  the nation  with a  maximum benefit  of                                                               
$248. Alaska  would rank 28   if the benefit was  fully increased                                                               
to  $308 in  2006. He  reminded the  committee members  that this                                                               
would not  take effect  for several years.  In 2005,  the maximum                                                               
benefit  for base  period wages  exceeding $26,750  will increase                                                               
and in 2006, the maximum  weekly benefit amount will increase for                                                               
Alaskan's whose base period wages  exceed $29,750. In 2007, wages                                                               
will be $32,750.                                                                                                                
REPRESENTATIVE  ANDERSON concluded  by  saying that  unemployment                                                               
insurance promotes  economic stability and creates  a balance for                                                               
those who are not working.                                                                                                      
CHAIR BUNDE  reminded the committee  that the  business community                                                               
was   being  impacted   with   increased  workers'   compensation                                                               
assessments, as well.                                                                                                           
TAPE 04-3, SIDE B                                                                                                             
CHAIR  BUNDE asked  where  Alaska stands  among  other states  in                                                               
terms of qualification for benefits.                                                                                            
REPRESENTATIVE ANDERSON deferred to the commissioner.                                                                           
COMMISSIONER  GREG O'CLARAY,  Department of  Labor and  Workforce                                                               
Development,  said  Governor   Murkowski  recently  launched  his                                                               
Alaska hire program  that pressures employers to  meet and exceed                                                               
the  90 percent  Alaskan  hire  rule and  the  importance of  the                                                               
unemployment benefits  are often overlooked. He  further apprised                                                               
the committee that:                                                                                                             
     Over $150  million went on  the street  in unemployment                                                                    
     benefits that  stayed within Alaska's  boundaries. That                                                                    
     kept skilled  workers here that could  afford to remain                                                                    
     in Alaska  at those  rates. I  think it's  important to                                                                    
     remember we  haven't had an  increase in  several years                                                                    
     and  this particular  bill does  push out  the negative                                                                    
     impact or  the rate increases  some two years  from the                                                                    
     effective date of the new benefits....                                                                                     
CHAIR BUNDE asked  if it was possible for someone  to draw Alaska                                                               
unemployment benefits in another state.                                                                                         
COMMISSIONER   O'CLARAY   deferred   to   Bill   Kramer,   Chief,                                                               
Unemployment Insurance Program.                                                                                                 
MR. BILL  KRAMER, Chief, Unemployment Insurance  Program, replied                                                               
that  Alaska   is  part  of   the  National   Interstate  Benefit                                                               
Agreement. He  explained that  a client  who has  an unemployment                                                               
claim based on  wages he earned while working in  Alaska may move                                                               
about the  country and continue  to draw benefits based  on wages                                                               
he earned while he was in Alaska.                                                                                               
CHAIR BUNDE asked if he knew how many people do that.                                                                           
MR.  KRAMER  replied  that  about  17  percent  of  the  benefits                                                               
annually go to interstate clients.                                                                                              
CHAIR  BUNDE asked  where Alaska  ranked among  other states  for                                                               
eligibility for the unemployment insurance program.                                                                             
MR. KRAMER replied that the  department tracks the recipient rate                                                               
and that Alaska ranks within the top 20 percent.                                                                                
SENATOR  SEEKINS asked  if someone  files for  unemployment in  a                                                               
state other than Alaska, are they paid at the Alaska rate.                                                                      
MR.   KRAMER  replied   that  claims   are   based  on   Alaska's                                                               
unemployment insurance law and an  individual would be paid based                                                               
on the wages earned while in Alaska.                                                                                            
CHAIR BUNDE  commented: "So, it  logically follows that  if we're                                                               
47,   they might  want to  move to  someplace that  was  a little                                                               
higher on the scale than that."                                                                                                 
SENATOR SEEKINS  asked the commissioner  if the zero  fiscal note                                                               
is still accurate.                                                                                                              
COMMISSIONER  O'CLARAY  replied that  the  fiscal  note is  still                                                               
zero. He added  that the State of Washington ranks  second in the                                                               
United States for its maximum weekly benefit.                                                                                   
     What  usually  occurs when  an  Alaskan  worker in  the                                                                    
     construction trades, as an  example, moved or relocated                                                                    
     in the Washington area, they  would choose to return to                                                                    
     work  in  order to  get  at  this [Washington  state's]                                                                    
     benefit  rather than  ours. That's  the concern  that I                                                                    
     have in terms of the  construction workers - is that we                                                                    
     are  losing valuable  trained workforce  - that  end up                                                                    
     staying south when our  construction season starts. And                                                                    
     so,  it's going  to lead  to a  shortage at  some point                                                                    
     among our trained journeymen.  We're already looking at                                                                    
     a  20  percent  replacement factor  in  our  journeymen                                                                    
     construction workers over the next five years....                                                                          
SENATOR  SEEKINS sought  to clarify  whether the  change in  rate                                                               
would have a fiscal effect on employees of the State of Alaska.                                                                 
COMMISSIONER  O'CLARAY replied  that  was correct,  but the  rate                                                               
increase would happen in 2006.                                                                                                  
CHAIR BUNDE  added that employers  would feel the full  impact in                                                               
2010  and that  employees would  be impacted  with a  0.4 percent                                                               
COMMISSIONER O'CLARAY  replied that was correct,  but 0.4 percent                                                               
is not a major increase.                                                                                                        
SENATOR  SEEKINS said  the state  would be  impacted fiscally  in                                                               
2006. He explained  that in the previous session this  bill had a                                                               
significant  fiscal note  and now  the fiscal  note for  the same                                                               
bill is zero. He pondered:                                                                                                      
     In my  mind, I was  just trying  to figure out,  if the                                                                    
     State  of Alaska  were anticipating  no one  from state                                                                    
     employment  drawing  unemployment,  then  I  understand                                                                    
     that  it  could have  a  zero  fiscal impact.  I'm  not                                                                    
     trying to be argumentative,  but just trying to qualify                                                                    
     it. I  see zeros across  the board all the  way through                                                                    
     2009, but  yet I see  an increase  in the rate.  Is the                                                                    
     State of Alaska exempt from  that rate increase or does                                                                    
     the  state  participate  in  that  rate  increase  and,                                                                    
     therefore,  result in  a fiscal  note? That's  the only                                                                    
     thing I am trying to determine.                                                                                            
MR. KRAMER replied that Senator Seekins' thinking is accurate.                                                                  
     The  State of  Alaska pays  dollar for  dollar for  any                                                                    
     benefits that  are paid out on  their former employees'                                                                    
     behalf. So,  starting in, depending  on when  this bill                                                                    
     is effective,  if it's effective next  January 2005, as                                                                    
     the  department  pays   out  unemployment  benefits  to                                                                    
     individuals whose claims are  based on their wages from                                                                    
     the State of  Alaska, the State of  Alaska will receive                                                                    
     a bill -  dollar for dollar - for any  benefits that we                                                                    
     pay out.  So, there will  be some increase in  the cost                                                                    
     of  their benefits,  because we  will be  paying out  a                                                                    
     higher benefit amount for them.                                                                                            
SENATOR SEEKINS  wondered if  the fiscal  note should  be revised                                                               
for accuracy and clarity.                                                                                                       
CHAIR  BUNDE noted  that the  bill's sponsor  was taking  note of                                                               
that  question.  He  asked  the   next  person  to  testify,  Don                                                               
MR.  DON  ETHERIDGE,  Alaska  Federal  of  Labor  -  Congress  of                                                               
Industrial Organizations (AFL-CIO), supported HB 305 saying:                                                                    
     This is  our third year  trying to get  something moved                                                                    
     through to help the unemployed  of our state to be able                                                                    
     to remain here.                                                                                                            
He  related how  a laborer  who just  transferred to  Alaska from                                                               
Washington State was getting ready  to move back there because he                                                               
can survive much better on  Washington unemployment payments when                                                               
he  is out  of work.  "Half my  list is  talking about  moving to                                                               
Washington and starting to go to work, now."                                                                                    
MR. ETHERIDGE urged the committee  to move an immediate effective                                                               
date rather  than January 2005,  but said  he could live  with HB                                                               
305 the way it is if it is allowed to move out of committee now.                                                                
SENATOR  SEEKINS  asked Mr.  Etheridge  to  comment on  the  huge                                                               
disparity  in the  construction  trades' wages  in  the State  of                                                               
Alaska versus the State of Washington, because:                                                                                 
     At one time, the incentive  was for people to remain in                                                                    
     the workforce because  of the disproportionately higher                                                                    
     wage rate  that they  received up  here. Is  that still                                                                    
MR. ETHERIDGE replied  that wages are not  as disproportionate as                                                               
they used  to be and  some areas of  the country have  wages that                                                               
are higher than Alaska's. He reiterated that:                                                                                   
     We are comparable with the  state of Washington on most                                                                    
     of  our  construction trades....  There  is  not a  big                                                                    
     incentive for them  to stay here anymore  when they can                                                                    
     go down  there and make almost  as much an hour  on the                                                                    
     paycheck  and benefits  and  then draw  a  lot more  on                                                                    
     unemployment when they aren't working.                                                                                     
He pointed out that tax rates are the major difference.                                                                         
MS.  PAM LABOLLE,  President, Alaska  State Chamber  of Commerce,                                                               
said qualifications  and benefits  of the  unemployment insurance                                                               
program have  historically been confusing.  Few states  provide a                                                               
benefit  for  dependents and  Alaska  does.  Nearly half  of  the                                                               
claims in  Alaska include a  dependent benefit and the  extra $72                                                               
per week  puts Alaska  in the  middle of  the pack;  the increase                                                               
would put  Alaska in the  top 10  percent. Further, she  said the                                                               
increase would cost employers $8 million.                                                                                       
MS.  LABOLLE  said  in  the  past the  Chamber  of  Commerce  has                                                               
supported  the  first  year  increase  and  half  of  the  second                                                               
increase in the  past. She painted the employers'  big picture by                                                               
pointing  out that  the minimum  wage increased  last year  and a                                                               
significant  workers'  compensation  increase started  just  this                                                               
month, an average increase of 21 percent.                                                                                       
MS.  LABOLLE agreed  that the  Department of  Labor would  have a                                                               
zero fiscal  note, because it  just administers the  program, but                                                               
felt strongly  that the state  [as an employer] should  provide a                                                               
fiscal note. She informed the  committee that Washington State is                                                               
overhauling its  [unemployment] tax structure  because companies,                                                               
like Boeing, are leaving in  part or considering leaving totally.                                                               
Alaska,  on  the other  hand,  is  trying  to create  a  business                                                               
friendly climate.                                                                                                               
MS. LABOLLE  stated that the  unemployment insurance  program was                                                               
created  for people  who become  unemployed through  no fault  of                                                               
their  own. Forty-six  states provide  for a  complete denial  of                                                               
benefits for the  duration of a claimant's  unemployment until he                                                               
gets  another job,  earns a  certain level  of wages  and applies                                                               
again.  Of the  other four  states, Alaska's  policy is  the most                                                               
SENATOR SEEKINS asked her to  briefly comment on last year's task                                                               
force on this issue.                                                                                                            
MS. LABOLLE responded  that the Alaska State  Chamber of Commerce                                                               
was  asked to  join a  working group  last year,  but because  of                                                               
various  scheduling  problems,  didn't  make  any  of  the  three                                                               
meetings.  It was not because of unwillingness to attend.                                                                       
SENATOR FRENCH  asked if other  states have a  separate dependent                                                               
provision like Alaska's.                                                                                                        
MS. LABOLLE replied  that Alaska pays $24 per  dependent child up                                                               
to  three children  and is  one of  twelve states  that do  that.                                                               
About 44 percent of claimants  in 1999 or 2000 received dependent                                                               
SENATOR FRENCH  commented that  he had  just entertained  his 15-                                                               
year  old  son  over  the weekend  in  Juneau  and,  "Twenty-four                                                               
dollars would barely get you through the first pizza party."                                                                    
CHAIR BUNDE set HB 305 aside and encouraged the sponsor to                                                                      
consider the enforcement issues and to try to find middle ground                                                                
between labor and the chamber.                                                                                                  
          SB 276-ALASKA INSURANCE GUARANTY ASSOCIATION                                                                      
CHAIR CON BUNDE announced SB 276 to be up for consideration.                                                                    
MS. LINDA HALL, Director, Division of Insurance, recapped:                                                                      
     The  Alaska Insurance  Guaranty  Association (AIGA)  is                                                                    
     formed  under  Alaska  statute  -  the  purpose  is  to                                                                    
     minimize   financial   loss    to   policyholders   and                                                                    
     claimants. Assessments  are made through  that guaranty                                                                    
     association to  pay the  claims of  insolvent insurers.                                                                    
     In July 2003, Fremont  Insurance was declared insolvent                                                                    
     by the Los Angeles Superior  Court and even though they                                                                    
     had  actively written  business  for approximately  two                                                                    
     and a half  years, they left $60 million  in claims and                                                                    
     outstanding claims  reserves. When they were  an active                                                                    
     insurer in  our state, they  insured 27 percent  of our                                                                    
     workers'  compensation premium.  The magnitude  of this                                                                    
     insolvency  far  surpassed  any  prior  insolvency  and                                                                    
     dramatically exceeds the resources of the association.                                                                     
     There  are  actually  three other  insolvent  insurance                                                                    
     companies  in the  Guaranty Fund  right now.  Those are                                                                    
     Reliance,  Paula and  Legion. So,  the problem  we have                                                                    
     was  created with  the massive  insolvency of  Fremont,                                                                    
     but we're  still dealing  with four  insolvent workers'                                                                    
     compensation insurers.                                                                                                     
     I  am asked  regularly for  the causes,  what happened,                                                                    
     how did it get here,  and they become very technical. I                                                                    
     would put  forth that generally there  are many factors                                                                    
     that cause  insolvencies in insurance companies  - poor                                                                    
     management  is  high on  that  list,  lack of  adequate                                                                    
     reserving for future claims,  and there are allegations                                                                    
     that they  have lower income due  to price discounting.                                                                    
     In the case of Fremont, we  saw a rapid growth that was                                                                    
     unable to be sustained.  There have been no allegations                                                                    
     of  fraudulent behavior,  misappropriation  of funds  -                                                                    
     the types of things we read  about in some of the large                                                                    
     national funds. I would throw that out.                                                                                    
     When  there  are  insufficient funds  in  the  Guaranty                                                                    
     Association  to  pay  claims, statute  allows  for  the                                                                    
     prorating of  payments to claimants.  That has  a great                                                                    
     impact on  the beneficiaries  of the payments  from the                                                                    
     Guaranty  Fund. That  prorating today,  I just  checked                                                                    
     statistically yesterday, as of  2/4/04, there are still                                                                    
     open  claims of  580 injured  workers being  handled by                                                                    
     the   Guaranty  Association.   There  were   originally                                                                    
     approximately 700 Fremont  claims; approximately 200 of                                                                    
     those  have been  settled and  finalized, but  we still                                                                    
     have almost 600 injured  workers whose claims are being                                                                    
     When a claim is prorated,  that injured worker will get                                                                    
     a prorated  amount of their  weekly wage  payment; they                                                                    
     will  get   a  prorated  amount  to   pay  for  medical                                                                    
     benefits. So,  the worker will  suffer with  the result                                                                    
     of   that    pro-ration.   Ultimately,    the   workers                                                                    
     compensation  obligation   is  an  obligation   of  the                                                                    
     employer. If  there are insufficient  funds to  pay the                                                                    
     claims   of  the   injured   workers,  that   statutory                                                                    
     obligation  will revert  to the  employer. So,  we have                                                                    
     currently -  and I checked these  statistics yesterday,                                                                    
     also  -  we have  currently,  claims  of 380  employers                                                                    
     being handled by the Guaranty  Association. So, we have                                                                    
     a  potential impact  of 380  employers  who purchase  a                                                                    
     workers'  compensation policy  in good  faith, who  now                                                                    
     will get  that obligation  back. I  think that  has the                                                                    
     potential for a  pretty dramatic impact on  some of our                                                                    
     small businesses  that are  certainly not  prepared for                                                                    
     that kind of unanticipated financial cause.                                                                                
CHAIR BUNDE asked  if receiving only a prorated  benefit could be                                                               
viewed  as a  breach of  contract [because  workers' compensation                                                               
law says an injured worker can't  sue his employer] and allow the                                                               
injured worked actionable cause against his employer.                                                                           
MS. HALL deferred the liability question to Mr. Lisankie and                                                                    
continued to brief the committee:                                                                                               
     We are in  very uncharted territory. Not  only has that                                                                    
     never  occurred  here,  to the  best  of  our  research                                                                    
     ability,  it  has  never  occurred  any  place  in  the                                                                    
     country.  So, procedurally,  we're  really aren't  sure                                                                    
     what  would   happen.  In  likelihood,   those  injured                                                                    
     workers would apply first  to the workers' compensation                                                                    
     board  to enforce  that  statutory  obligation. So,  in                                                                    
     that  process we  would have  some forms  of litigation                                                                    
     whether it was through  the Workers' Compensation Board                                                                    
     or through  the courts  for the  employer to  take back                                                                    
     that responsibility for payments.                                                                                          
CHAIR BUNDE  said the committee  would like  expanded information                                                               
on what  the liability would  likely be if the  Legislature chose                                                               
not to take any action [going to pro-ration].                                                                                   
MS. HALL  informed the committee  that for the month  of January,                                                               
the division received  a $2.1 million claims payment  and that is                                                               
the  size of  the obligation  for  that month.  The payments  get                                                               
smaller  as   they  are  projected   out  in  time,   because  of                                                               
settlements and workers going back  to work. The magnitude of the                                                               
problems  is  estimated  to  reach its  maximum  [more  than  $20                                                               
million] in  2008. That is the  obligation that would go  back to                                                               
employers, however it is prorated.                                                                                              
2:50 p.m.                                                                                                                       
MS.  HALL said  the goal  of  SB 276  is,  "To find  a method  of                                                               
securing   a  stream   of  funds   without  a   bailout  of   the                                                               
SB  276  attempts  to  utilize   the  traditional  philosophy  of                                                               
insurance, which is  to spread the risk across a  large number of                                                               
people and  to spread  the cost  of the  current crisis  across a                                                               
large population. This is not  a popular proposal, because no one                                                               
wants to pay more.                                                                                                              
MS. HALL  likened the Guaranty  Fund to  a safety net  to protect                                                               
policyholders and claimants in the  event of a insolvency. It has                                                               
covered  insolvencies  for  20  years and  works  well  in  other                                                               
states. She said the policy  question the Legislature must decide                                                               
is,  "Do  we want  to  have  that safety  net  in  place for  the                                                               
protection of our claimants and our policyholders?"                                                                             
The  Guaranty Fund  has  three  accounts: workers'  compensation,                                                               
automobile and  "others" and SB  276 changes how  assessments are                                                               
     The  first piece  of the  funding proposal  will be  to                                                                    
     deal  with   the  assessments  as  they   stand  today.                                                                    
     Currently, there  is a  statutory cap  of 2  percent of                                                                    
     assessments made on  the line of business  - work comp,                                                                    
     auto or  other and  we're proposing  that that  line of                                                                    
     business   cap  be   increased  to   4  percent.   That                                                                    
     generates, obviously,  double the 2 percent  cap. Right                                                                    
     now  we  generate  $4.2 million;  with  our  2  percent                                                                    
     assessment  it  would  obviously   double.  That  is  a                                                                    
     projection. We have $2.4 million  - I just mentioned in                                                                    
     January the  expenditures were $2.1 million.  So, we're                                                                    
     only generating at best with  that four months worth of                                                                    
     payments of claims.                                                                                                        
     The second  piece of the  assessment would be  to allow                                                                    
     assessing  the  other  two unaffected  funds  up  to  a                                                                    
     maximum of  2 percent. These two  provisions expand the                                                                    
     current statutory assessment base  just for the cost of                                                                    
     the whole crisis. Neither  increasing the assessment to                                                                    
     pay for the  loss of others nor  assessing the accounts                                                                    
     involved  is a  popular  solution.  The Guaranty  Fund,                                                                    
     again, functions  as a  safety net  and the  premise is                                                                    
     that the  cost of the  safety net is spread  across the                                                                    
     insured population.                                                                                                        
MS.  HALL explained  that the  proposed  approach, although  it's                                                               
controversial, is not unique to  this state [18 other states have                                                               
one  guaranty fund  within their  property casualty  account] and                                                               
that Alaska already  has a .5 percent  assessment for homeowners,                                                               
commercial property, boat and whatever  because of the insolvency                                                               
of  one   insurance  company   [primarily]  that   wrote  medical                                                               
The second  piece of SB 276  is the assessment of  other entities                                                               
that  are  not  currently  part of  the  assessment  pool,  which                                                               
includes  self-insureds  and  joint insurance  arrangements.  The                                                               
division has  considered either  bringing them  into the  fund or                                                               
starting  a separate  guaranty fund  for self-insureds.  However,                                                               
that  idea has  been tried  in  other states,  but hasn't  worked                                                               
because there is no "hammer" to collect assessments.                                                                            
MS. HALL informed  the committee that her  division has oversight                                                               
of  traditional  insurance companies,  but  not  for any  of  the                                                               
entities she is proposing to  assess. That means if she concluded                                                               
that a financial  statement wasn't stable, she  couldn't stop the                                                               
company from continuing to do business.                                                                                         
     Therefore, I don't think it's  fair to put them in this                                                                    
     Guaranty  Association.   I  do  recognize   that  these                                                                    
     entities  did not  create the  crisis  but, again,  the                                                                    
     general  philosophy  of  this whole  proposal  [is]  to                                                                    
     spread  the  cost  of risk  to  the  broadest  possible                                                                    
She has  been asked if  doing that is  fair and her  response has                                                               
been that it may not be fair, but  she didn't know if it was fair                                                               
for the  injured worker  to suffer  a loss of  benefits or  for a                                                               
small business  employer to get the  cost of the claim  back. She                                                               
continued to explain:                                                                                                           
     The third component of this  legislation is the ability                                                                    
     to allow  [the] Alaska Industrial Development  & Export                                                                    
     Authority  (AIDEA)   to  provide  guarantees   for  the                                                                    
     Guaranty  Association  to  obtain loans.  The  Guaranty                                                                    
     Association  by statute  currently has  the ability  to                                                                    
     borrow,  but they  are not  really a  viable commercial                                                                    
     loan prospect.  They don't have any  assets. Their only                                                                    
     asset is the stream of  assessments that by the current                                                                    
     cash  flow projections  is going  to be  used up  until                                                                    
     2010.  So,  we've  got  six where  that  would  not  be                                                                    
     available to  pay back loans.  So on its own,  they are                                                                    
     not a commercial viable  prospect. Legislation does cap                                                                    
     the maximum  outstanding principal  balance at  any one                                                                    
     time at $30 million.                                                                                                       
     We've worked  with financial experts  to find  the most                                                                    
     efficient cost  effective manner  of finding  funds and                                                                    
     this seemed  to be  the best route  as we've  looked at                                                                    
     that. We have explored  various options with commercial                                                                    
     lenders, with  other states - insurance  companies have                                                                    
     been  willing to  step forward  and  talk about  making                                                                    
     loans to the Guaranty  Association. As we evaluated the                                                                    
     cost of all of those -  and cost is of concern, because                                                                    
     that  repayment   cost  will  still  be   part  of  the                                                                    
     assessment process,  this seemed to be  the most viable                                                                    
     of all those options....                                                                                                   
     In   closing...SB  276   contains  painful,   expensive                                                                    
     unpopular provisions.  I do not believe,  however, that                                                                    
     the  provisions  are as  painful  as  doing nothing.  I                                                                    
     think that  the outcomes of doing  nothing and allowing                                                                    
     prorating   and   allowing  injured   workers   without                                                                    
     immediate  access  to  their payments  they  have  been                                                                    
     getting every two weeks,  to have employers potentially                                                                    
     out  of  business  because   they  cannot  afford  this                                                                    
     obligation  is  more  painful -  more  painful  to  the                                                                    
     I would  urge you to  focus on the overall  major issue                                                                    
     at hand.  If we allow  ourselves to get  sidetracked by                                                                    
     each of the individual components of the bill, we have                                                                     
      groups that oppose this piece, but not this piece, I                                                                      
     don't think we're going to find a solution....                                                                             
MS. HALL  said in the six  months since this problem  was brought                                                               
to her  attention, she has  not found any other  viable solutions                                                               
brought to  her, but she is  willing to talk about  anything that                                                               
would work.                                                                                                                     
CHAIR BUNDE  noted that  she had spread  the assessment  over the                                                               
widest possible base of employers  only and asked if spreading it                                                               
over the general public had been considered.                                                                                    
MS. HALL  replied no  and she  wasn't sure of  how that  would be                                                               
accomplished.  She  tried  to  keep  the  assessment  within  the                                                               
3:05 p.m.                                                                                                                       
SENATOR  SEEKINS asked  why insurance  for health  and life  have                                                               
separate guaranty associations.                                                                                                 
MS. HALL replied that those are separate funds in every state.                                                                  
SENATOR SEEKINS asked  how much money the State of  Alaska has in                                                               
the separate guaranty accounts.                                                                                                 
MS. HALL  replied that they don't  keep cash in the  accounts and                                                               
don't assess until there is a loss [post-loss assessment].                                                                      
SENATOR  SEEKINS  asked if  that  meant  they would  start  being                                                               
assessed now.                                                                                                                   
MS. HALL replied  that the maximum 2  percent assessments started                                                               
in August  2003 as soon  as this  problem became known.  The 2004                                                               
[for the whole year] assessment was  made in January. This is the                                                               
only way prorating was averted.                                                                                                 
SENATOR SEEKINS  asked if the assessment  included homeowners and                                                               
MS. HALL replied no, only  a workers' compensation account can be                                                               
TAPE 04-4, SIDE A                                                                                                             
SENATOR SEEKINS asked  what cash reserves AIDEA has  and what the                                                               
rate of return is, if they are invested.                                                                                        
MS. HALL answered that AIDEA doesn't make loans.                                                                                
CHAIR BUNDE asked  the committee to hold their  questions so that                                                               
people on-line  could testify. He  noted that this bill  would be                                                               
heard again.                                                                                                                    
SENATOR FRENCH  asked if there  was a sunset  provision, assuming                                                               
this bill is adopted and solves the crisis.                                                                                     
MS. HALL replied that she  has considered a sunset provision, but                                                               
she wanted  to make sure that  the mechanism they use  solves not                                                               
only  the  current crisis,  but  provides  sufficient ability  to                                                               
handle another crisis down the road.                                                                                            
SENATOR FRENCH commented:                                                                                                       
     Maybe it's  my background as  a prosecutor, but  when I                                                                    
     see  a  $60 million  hole  in  the ground  that  really                                                                    
     developed before  your watch  began, my  approach might                                                                    
     be to  throw somebody in  the hole, if I'm  being asked                                                                    
     to fill it.                                                                                                                
He wanted  to see  some reassessment of  the decisions  that were                                                               
made that got the state into this mess.                                                                                         
MS. HALL  added that one  of the  division's major focuses  is an                                                               
analysis of  the situation.  She said  that Alaska  veered higher                                                               
than  the  national  average  for   a  couple  of  years  in  the                                                               
discounting  area,  but was  lower  in  a  number of  years.  The                                                               
state's loss ratios  have tracked in many ways,  although for the                                                               
last  three years  it has  significantly  outpaced national  loss                                                               
averages.  Put together  with rates  and  discounting, there  has                                                               
been an overall effect.                                                                                                         
MS.  HALL said  she meets  quarterly with  regulators around  the                                                               
country and  discusses things  like solvency  regulations. Alaska                                                               
defers to the  state of domicile of an insurer  for the oversight                                                               
of every insurance company that  does business in Alaska annually                                                               
but  today, the  division  is  much more  aware  of the  combined                                                               
impact of  discounting, reserving  practices and the  rate making                                                               
CHAIR BUNDE  said he joined Senator  French in asking her  for an                                                               
expanded suggestion for a solution.                                                                                             
MR. KEVIN  SMITH, Executive Director,  Alaska Municipal  League -                                                               
Joint Insurance  Association (AML-JIA),  said the  JIA is  a self                                                               
insurance  program for  140 Alaskan  cities, boroughs  and school                                                               
districts that would  ordinarily be considered too  small to self                                                               
insure on  their own,  but as  a group  are able  to take  a self                                                               
insured  retention  in  workers'  compensation  of  $300,000  and                                                               
purchase excess insurance above that.                                                                                           
AML-JIA pays an actuary to  calculate the estimated losses in the                                                               
self-insured  retention  layer.  The  estimate is  a  best  guess                                                               
figure  and, if  the guess  is  too low,  the JIA  already has  a                                                               
mechanism to assess its own membership  to come up with the cash.                                                               
The  AML-JIA is  not  entitled to  and does  not  expect or  need                                                               
access to the Alaska Guaranty Fund.                                                                                             
MR.  SMITH said  he estimated  that  $1 million  of the  proposed                                                               
assessment would come from the  self-insured employers - $317,000                                                               
from  the  State   of  Alaska  and  about   $500,000  from  local                                                               
governments and  school districts. About $90,000  would come from                                                               
the AML-JIA and be due in  this fiscal year with no prior notice.                                                               
He said  the AML-JIA does  not have  the funds that  an insurance                                                               
organization, which shows profits to stockholders, does.                                                                        
AML-JIA's goal  is to run  on a narrow  margin. It would  have to                                                               
ask  for  additional  monies  from  local  governments  that  are                                                               
already struggling  with retirement  issues, the  increasing cost                                                               
of health  insurance, diminishing  revenue sharing  and municipal                                                               
assistance and increased costs in workers' compensation.                                                                        
MR.  SMITH said  he did  not  think asking  for a  user fee  from                                                               
people who can't use the fund is good public policy.                                                                            
     Is it  fair? No,  it's not fair.  It's not  even right.                                                                    
     Essentially,  this money  would have  to come  from the                                                                    
     classrooms;   this  money   would   come  from   police                                                                    
     departments; this  money would  come from  snow removal                                                                    
       budgets and I would ask that we eliminate the self-                                                                      
     insureds and the joint insurance arrangements from the                                                                     
SENATOR  SEEKINS said  that most  entities  in the  AML have  the                                                               
ability to raise taxes locally.                                                                                                 
MR. SMITH replied  that is theoretically correct and  that is why                                                               
joint insurance  arrangements are  restricted to  public entities                                                               
only [and not entities like tribes, for example].                                                                               
SENATOR SEEKINS reasoned that if  those employers had to share in                                                               
this unexpected burden along with  the private sector, they would                                                               
have a mechanism to recover those losses.                                                                                       
MR.  SMITH  replied  that  would   depend  on  the  size  of  the                                                               
community.  Some communities,  like Koyuk,  would have  to figure                                                               
out how to survive.                                                                                                             
SENATOR  SEEKINS asked  if those  same entities  were asking  the                                                               
non-public employees of the State  of Alaska to jointly help them                                                               
address the PERS and TRS shortages.                                                                                             
MR. SMITH replied that was beyond his scope to comment on.                                                                      
SENATOR GARY  STEVENS asked where  a school district that  was at                                                               
its cap already could get funds.                                                                                                
MR. SMITH responded  that he is not a school  finance expert, but                                                               
in that case, it would seem  that securing those funds would have                                                               
to be taken from the classroom.                                                                                                 
CHAIR BUNDE thanked him for his testimony.                                                                                      
MR. JEFF  BUSH, Deputy Director,  Alaska Public  Entity Insurance                                                               
(APEI), said  he represents 27  Rural Education  Attendance Areas                                                               
(REAAs)  and school  districts and  12  municipalities. Based  on                                                               
National  Council  on  Compensation Insurance  (NCCI)  estimates,                                                               
local  government workers'  comp premiums  could  go up  22 -  32                                                               
percent. The proposal in SB 276  talks essentially about a tax on                                                               
top of that premium increase.                                                                                                   
MR. BUSH  emphasized the  fact that  school districts  don't have                                                               
the  power to  tax, making  it difficult  to come  up with  extra                                                               
money. "So,  it would,  in fact,  come out  of the  classroom and                                                               
many  of our  school districts  around the  state are  struggling                                                               
right now...."                                                                                                                  
He added that many municipalities  don't have powers of taxation,                                                               
because they are in the unorganized borough.                                                                                    
MR. BUSH  said APEI would  be charged approximately  $32,000 this                                                               
year  if SB  276  passes.  He joined  Mr.  Smith  in saying  that                                                               
assessing APEI  is not  fair because it  does not  participate in                                                               
the [Guaranty Fund]  program and their local funding  would go to                                                               
subsidizing  the  program.  He  asked  the  committee  to  delete                                                               
sections of the  bill that apply to  joint insurance arrangements                                                               
and self-insureds.                                                                                                              
MR. MIKE  KLAWITTER, Director, Risk Management,  Anchorage School                                                               
District, said SB 276 would  cost the school district $127,000 in                                                               
unexpected  and  unfunded  assessments   or  about  2.5  teaching                                                               
positions. He  pointed out  that the district  could not  use the                                                               
[Guaranty] fund in any way.                                                                                                     
CHAIR BUNDE thanked  Mr. Klawitter for his testimony  and said he                                                               
would  hold the  bill for  further work.  There being  no further                                                               
business to come  before the committee, he  adjourned the meeting                                                               
at 3:27 p.m.                                                                                                                    

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