Legislature(2003 - 2004)

02/10/2004 01:31 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 10, 2004                                                                                      
                           1:31 p.m.                                                                                          
                                                                                                                              
TAPE(S) 04-7, 8                                                                                                               
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                              
Senator Con Bunde, Chair                                                                                                        
Senator Gary Stevens                                                                                                            
Senator Hollis French                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Bettye Davis                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 291                                                                                                             
"An Act extending the transition  period for activities involving                                                               
unstamped cigarettes; and providing for an effective date."                                                                     
                                                                                                                                
     MOVED SB 291 OUT OF COMMITTEE                                                                                              
                                                                                                                                
SENATE BILL NO. 311                                                                                                             
"An   Act  providing   for  a   special   deposit  for   workers'                                                               
compensation insurers; relating to the  board of governors of the                                                               
Alaska  Insurance  Guaranty   Association;  relating  to  covered                                                               
workers'  compensation  claims  paid   by  the  Alaska  Insurance                                                               
Guaranty Association; stating the  intent of the legislature, and                                                               
setting   out   limitations,   concerning   the   interpretation,                                                               
construction, and  implementation of workers'  compensation laws;                                                               
relating  to  restructuring   the  Alaska  workers'  compensation                                                               
system;  eliminating  the  Alaska  Workers'  Compensation  Board;                                                               
establishing  a  division  of workers'  compensation  within  the                                                               
Department  of  Labor  and Workforce  Development  and  assigning                                                               
certain  Alaska  Workers'  Compensation Board  functions  to  the                                                               
division and  the Department of Labor  and Workforce Development;                                                               
establishing   a   Workers'  Compensation   Appeals   Commission;                                                               
assigning certain  functions of the Alaska  Workers' Compensation                                                               
Board to  the Workers' Compensation Appeals  Commission; relating                                                               
to  agreements that  discharge  workers' compensation  liability;                                                               
providing   for  hearing   officers   in  workers'   compensation                                                               
proceedings; relating  to workers' compensation  awards; relating                                                               
to an  employer's failure to  insure and keep insured  or provide                                                               
security;  providing   for  appeals  from   compensation  orders;                                                               
relating  to  workers'  compensation proceedings;  providing  for                                                               
supreme  court   jurisdiction  of   appeals  from   the  Workers'                                                               
Compensation Appeals  Commission; providing for a  maximum amount                                                               
for  the cost-of-  living  adjustment  for workers'  compensation                                                               
benefits;  providing for  administrative penalties  for employers                                                               
uninsured   or    without   adequate   security    for   workers'                                                               
compensation; relating  to assigned risk pools  and insurers; 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                                                                                                             
                                                                                                                                
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."                                                                      
                                                                                                                                
     MOVED SB 273 OUT OF COMMITTEE                                                                                              
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 291                                                                                                                  
SHORT TITLE: UNSTAMPED CIGARETTES                                                                                               
SPONSOR(s): LABOR & COMMERCE                                                                                                    
                                                                                                                                
02/04/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/04/04       (S)       L&C, FIN                                                                                               
02/10/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 311                                                                                                                  
SHORT TITLE: INSURANCE & WORKERS' COMPENSATION SYSTEM                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/09/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/09/04       (S)       L&C, FIN                                                                                               
02/10/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 276                                                                                                                  
SHORT TITLE: ALASKA INSURANCE GUARANTY ASSOCIATION                                                                              
SPONSOR(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                                                                               
02/03/04       (S)       Heard & Held                                                                                           
02/03/04       (S)       MINUTE(L&C)                                                                                            
02/10/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
BILL: SB 273                                                                                                                  
SHORT TITLE: ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS                                                                            
SPONSOR(s): 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                                                                               
02/03/04       (S)       Heard & Held                                                                                           
02/03/04       (S)       MINUTE(L&C)                                                                                            
02/10/04       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Ms. Johanna Bales, Revenue Auditor                                                                                              
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT: Supports SB 291.                                                                                          
                                                                                                                                
Mr. Mike Elerding, Owner                                                                                                        
Northern Sales Distribution Co.                                                                                                 
Anchorage AK                                                                                                                    
POSITION STATEMENT: Supports SB 291.                                                                                          
                                                                                                                                
Ms. Linda Hall, Director                                                                                                        
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Supports SB 311.                                                                                          
                                                                                                                                
Mr. Paul Lisankie, Director                                                                                                     
Division of Workers' Compensation                                                                                               
Department of Labor & Workforce                                                                                                 
  Development                                                                                                                   
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Supports SB 311.                                                                                          
                                                                                                                                
Mr. Chancy Croft                                                                                                                
Anchorage AK                                                                                                                    
POSITION STATEMENT: Commented on SB 311.                                                                                      
                                                                                                                                
Ms. Laura Fleming, Director                                                                                                     
Public Relations                                                                                                                
Alaska Seafood Marketing Institute (ASMI)                                                                                       
Juneau AK                                                                                                                       
POSITION STATEMENT: Supports SB 273.                                                                                          
                                                                                                                                
Mr. Jay Stinson, Chair                                                                                                          
Alaska Seafood Marketing Institute (ASMI)                                                                                       
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Commented on SB 273.                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-7, SIDE A                                                                                                             
                  SB 291-UNSTAMPED CIGARETTES                                                                               
                                                                                                                                
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                             
Committee meeting  to order  at 1:31  p.m. Present  were Senators                                                               
Stevens, French and  Chair Bunde. The first order  of business to                                                               
come before the committee was SB 291.                                                                                           
                                                                                                                                
MS.  JOHANNA   BALES,  Auditor,  Department  of   Revenue  (DOR),                                                               
explained that last  session a bill passed requiring  a tax stamp                                                               
(showing  tax  had been  paid)  on  all  packs of  cigarettes.  A                                                               
transition  period  of  90  days was  allowed  during  which  any                                                               
product brought into  the state prior to January 1  could be sold                                                               
until  March 31  without having  that stamp.  However, after  the                                                               
bill was signed  into law, the major  manufacturers changed their                                                               
returned goods  policy. Formerly, full  credit was given  for all                                                               
returned cigarettes no  matter what the reason, but  now none are                                                               
being taken back. Originally, the  department had assumed that 90                                                               
days   was   a  sufficient   transition   time,   but  with   the                                                               
manufacturers' new return policy,  distributors need more. SB 291                                                               
extends the transition period from March 31 to June 30, 2004.                                                                   
                                                                                                                                
The  Department of  Revenue  supports this  bill,  but would  not                                                               
extend the  period for  affixing stamps  on cigarettes  that were                                                               
not in the state prior to January 1, 2004.                                                                                      
                                                                                                                                
SENATOR  GARY STEVENS  asked if  she was  sure the  additional 90                                                               
days would be enough to sell all the cigarettes.                                                                                
                                                                                                                                
MS.  BALES replied  that  90  days should  be  sufficient as  the                                                               
normal shelf  time for cigarettes is  four to six months.  DOR is                                                               
also  working   with  the  manufacturers   to  get  all   of  the                                                               
distributors' products stamped as quickly as possible.                                                                          
                                                                                                                                
SENATOR FRENCH asked what prevents  a merchandiser from getting a                                                               
stamp on the cigarettes he has in stock now.                                                                                    
                                                                                                                                
MS. BALES said  the problem is one of  duplicate taxation because                                                               
the  statute says  the department  must  sell the  stamp and  the                                                               
excise  tax [on  in-stock  cigarettes] was  already paid  through                                                               
return filings.  They researched  other ways of  providing stamps                                                               
with the  Department of  Law, but found  that stamps  couldn't be                                                               
given away.                                                                                                                     
                                                                                                                                
MR. MIKE  ELERDING, owner, Northern Sales  Distribution Co., said                                                               
he had submitted written testimony in support of SB 291.                                                                        
                                                                                                                                
SENATOR  STEVENS  moved  to  pass  SB  291  from  committee  with                                                               
individual  recommendations and  attached  fiscal note.  Senators                                                               
Stevens,  French and  Bunde  voted  yes and  SB  291 passed  from                                                               
committee.                                                                                                                      
                                                                                                                                
        SB 311-INSURANCE & WORKERS' COMPENSATION SYSTEM                                                                     
                                                                                                                                
CHAIR CON BUNDE announced SB 311 to be up for consideration.                                                                    
                                                                                                                                
MS. LINDA  HALL, Director, Division  of Insurance,  Department of                                                               
Labor and Workforce  Development (DOLWD), said SB  311 deals with                                                               
workers' compensation and  that she wanted to  give the committee                                                               
some background first.                                                                                                          
                                                                                                                                
     I  have discussed  on multiple  occasions with  most of                                                                    
     you the  financial crisis  in the  Guaranty Association                                                                    
     for which we are also  hearing proposed solutions in SB                                                                    
     276. There  is additional  concern with  the lack  of a                                                                    
     healthy  workers' compensation  environment in  Alaska.                                                                    
     Many  of  you, I  think  all  of  you here,  heard  the                                                                    
     overview of this problem at  the Joint House and Senate                                                                    
     Labor and Commerce Committee meeting  a couple of weeks                                                                    
     ago.                                                                                                                       
                                                                                                                                
     I would like  to outline the major  problems that we're                                                                    
     encountering   in  that   environment.  One   of  those                                                                    
     problems  is a  lack of  profitability in  our workers'                                                                    
     compensation market.  Between 1997 and 2002,  losses in                                                                    
     the workers' compensation line  of business ranged from                                                                    
     99.9 percent  to a  high of 154  percent. At  its high,                                                                    
     this meant  that insurance  companies are  paying $1.54                                                                    
     for every dollar in  workers' compensation premium they                                                                    
     collect.  It's  an  unacceptable  loss  amount.  Alaska                                                                    
     averaged 123.7 percent in losses  per dollar of premium                                                                    
     collected versus  a national  average of  118.8 percent                                                                    
     in that same  time period. Our carriers  are losing, in                                                                    
     Alaska,  approximately 5  percent  more  than even  the                                                                    
     national average.                                                                                                          
                                                                                                                                
     The  second problem  we're encountering  that leads  to                                                                    
     increases in premium are the  cost of medical benefits.                                                                    
     The   cost   of    medical   benefits   has   increased                                                                    
     dramatically;  the  cost   of  prescription  drugs  has                                                                    
     increased  dramatically.  We  have  seen  double  digit                                                                    
     increases in these  costs and while I think  most of us                                                                    
     tend to accept the  correlation between the rising cost                                                                    
     of health care and the  rising cost of health insurance                                                                    
     premiums,   we  generally   tend  not   to  make   that                                                                    
     correlation with  workers' compensation  premium. Those                                                                    
     pressures caused  by increasing medical costs  have the                                                                    
     same effect  on workers'  compensation that they  do on                                                                    
     health  insurance.   That's  a   substantial  increase.                                                                    
     Frequency  of  claims  has   decreased  over  the  past                                                                    
     several years, which  is a good sign. It  means we have                                                                    
     safer workplaces, fewer injured workers.                                                                                   
                                                                                                                                
     That  decline in  the number  of claims  has tended  to                                                                    
     mask  the increase  in the  cost of  individual claims,                                                                    
     which now  has resulted in,  what I will  term, problem                                                                    
     three  to address,  which are  premium rate  increases.                                                                    
     Effective January  1 of  this year,  we saw  an average                                                                    
     rate increase  of 21.2 percent.  As the cost  of claims                                                                    
     has  increased, the  actuarial  analysis of  historical                                                                    
     claims  data  and projections  on  the  cost of  future                                                                    
     claims  indicated  the  need  for  a  substantial  rate                                                                    
     increase,  which  was  approved   by  the  Division  of                                                                    
     Insurance. That  rate change ranged  from a  15 percent                                                                    
     decrease to  a 57  percent increase. While  the average                                                                    
     is 21.2, I think it's important  to look at the span of                                                                    
     these rate  changes. We had  30 classifications  out of                                                                    
     about  400 -  we  had  a rate  decrease  -  we have  17                                                                    
     classifications   whose   rate  increases   exceed   50                                                                    
     percent. So, when we talk  about what premium increases                                                                    
     are,  what  cost  claims   are  generating  in  premium                                                                    
     increases, we need to keep  those kinds of increases in                                                                    
     mind.  The current  cash deficit  in the  Guaranty Fund                                                                    
     has already resulted  in a 2 percent  assessment in the                                                                    
     workers' compensation policies.                                                                                            
                                                                                                                                
     Proposed  legislation in  SB  276  would increase  that                                                                    
     further. So,  the combination of  the rate  changes and                                                                    
     the  assessments   are  making   workers'  compensation                                                                    
     extremely expensive for employers.  The first problem I                                                                    
     think we need  to look at in our  work comp environment                                                                    
     is  the  Assigned Risk  pool.  I've  talked about  this                                                                    
     briefly  and I  will keep  that brief  again, but  I do                                                                    
     want to mention it. The  Assigned Risk pool is a factor                                                                    
     in the increasingly unattractive Alaskan marketplace.                                                                      
                                                                                                                                
     Workers' compensation  is mandatory  in Alaska.  So, if                                                                    
     an  employer  is  unable  to  obtain  coverage  in  the                                                                    
     voluntary  market,  they  can obtain  coverage  in  the                                                                    
     Assigned Risk pool.  So, there's always a  place for an                                                                    
     employer  to obtain  coverage. Today,  approximately 17                                                                    
     percent  of our  workers'  compensation  premium is  in                                                                    
     that  Assigned  Risk  pool. That  Assigned  Risk  pool,                                                                    
     however, is  also losing  money. When  the cost  of the                                                                    
     claims in  the Assigned  Risk pool exceeds  the premium                                                                    
     dollars that are collected,  that difference is charged                                                                    
     to the  insurance companies who write  insurance in the                                                                    
     state.  Currently, Alaska  has  the  largest charge  to                                                                    
     insurance  companies for  their Assigned  Risk pool  of                                                                    
     any  state in  the country.  That has  ranged over  the                                                                    
     last  six years  from four  to six  percent. What  that                                                                    
     represents  is  an   off-the-top  charge  to  insurance                                                                    
     companies for  every dollar they  write going  in. They                                                                    
     are  now going  to  pay  anywhere from  a  four to  six                                                                    
     percent charge for funding the Assigned Risk pool.                                                                         
                                                                                                                                
     Overall  we have  a  workers' compensation  environment                                                                    
     that has  become very expensive for  employers and very                                                                    
     unattractive  to  workers'  compensation  insurers.  As                                                                    
     these issues  became apparent over  the last  number of                                                                    
     months, staff from the Division  of Insurance, from the                                                                    
     Department  of Labor,  from the  Department of  Law and                                                                    
     the Administration have met and  struggled to find ways                                                                    
     to  overcome these  challenges. We  cannot continue  to                                                                    
     merely  increase  workers'  compensation  premiums  for                                                                    
     employers. We must look to  ways to stem the increasing                                                                    
     cost  of  benefits to  workers.  We've  looked at  many                                                                    
     options over  these past months. We've  looked at costs                                                                    
     of  medical care;  we've  talked  about provider  fees;                                                                    
     we've talked about  definition of compensability, value                                                                    
     of the  whole man, reemployment programs.  What we will                                                                    
     submit to you  today in SB 311 makes no  changes to any                                                                    
     benefit levels.  It does, however, propose  a change in                                                                    
     the  workers' compensation  system  that  we feel  will                                                                    
     bring more  efficiency, consistency  and predictability                                                                    
     to the process.                                                                                                            
                                                                                                                                
     We  need a  healthy workers'  compensation marketplace.                                                                    
     We need a stable  environment that is sustainable, that                                                                    
     will encourage current companies  to do business in our                                                                    
     state,   attract   new   markets.  We   need   workers'                                                                    
     compensation   insurance   that    is   available   and                                                                    
     affordable  to  employers  so   they  can  continue  to                                                                    
     develop jobs  and we can  have economic  development in                                                                    
     our state.                                                                                                                 
                                                                                                                                
     This  environment  depends  on four  factors:  adequate                                                                    
     [indisc.], a  self-funded Assigned  Risk pool,  a sound                                                                    
     regulatory   environment   and    a   viable   workers'                                                                    
     compensation  system. This  bill before  you is  fairly                                                                    
     unique as  it is  cross-departmental. We tried  to find                                                                    
     solutions   together  for   these   issues.  There   is                                                                    
     certainly  a  very  close  tie  between  insurance  and                                                                    
     workers'  compensation. I  will  address the  insurance                                                                    
     pieces of this bill  and Director Lisankie will address                                                                    
     the  workers'  compensation  pieces of  the  bill  and,                                                                    
     again,  we  don't  intend  to read  you  all  58  pages                                                                    
     today....                                                                                                                  
                                                                                                                                
CHAIR BUNDE indicated that he would schedule a hearing for this                                                                 
bill again next week.                                                                                                           
                                                                                                                                
MS. HALL explained the insurance section of the bill as follows:                                                                
                                                                                                                                
     There are  really six sections  of this bill  that deal                                                                    
     with insurance.  It begins  with -  I'm going  to begin                                                                    
     with section 2.  Section 1 is an intent;  section 2 has                                                                    
     Department of Labor; but, section  3 and 4 go together.                                                                    
     This  is one  of the  things we're  looking at  to have                                                                    
     more  financial  stake   for  Alaska  policyholders  in                                                                    
     Alaska. This  adds an increase in  the deposit required                                                                    
     of insurance companies  who write workers' compensation                                                                    
     in Alaska. This special deposit,  as it's called in the                                                                    
     bill,   will  be   for  the   protection  of   Alaska's                                                                    
     policyholders, Alaskan injured workers.  It would go to                                                                    
     the Guaranty Fund should there be an insolvency.                                                                           
                                                                                                                                
     Section 4  goes with that.  It makes the  Guaranty Fund                                                                    
     the first priority  over other delinquency proceedings.                                                                    
     So,  that money  would  specifically go  back into  the                                                                    
     Guaranty  Fund.  Statutory  requirements  today,  which                                                                    
     would be doubled by this,  are a minimum of $1 million.                                                                    
     So, we  would have an  additional amount of  money from                                                                    
     the insurance company who  might later become insolvent                                                                    
     to go to the Guaranty Fund.                                                                                                
                                                                                                                                
     Section   5  is   dealing  with   the  change   in  the                                                                    
     composition in  the board of governors  of the Guaranty                                                                    
     Association.  Currently,  it  is a  nine-member  board:                                                                    
     seven insurance  companies and  two public  members. On                                                                    
     the actual current board today  we only have one public                                                                    
     member I  appointed in November. As  we've gone through                                                                    
     the  problems   with  the  Guaranty   Association,  the                                                                    
     insurance company representatives  have been invaluable                                                                    
     board members. Their  advice, their obvious familiarity                                                                    
     with the workers'  compensation system, with insurance,                                                                    
     has  been very  very  beneficial.  However, it  appears                                                                    
     that in  the situation we  face, there are a  number of                                                                    
     stakeholders  in the  Guaranty  Fund.  In the  instance                                                                    
     case  where the  workers  may have  an interruption  of                                                                    
     benefits,  employers  who  may  get  those  obligations                                                                    
     back,  it was  my intent  to expand  that board  not by                                                                    
     number,   but   by   representation   to   give   those                                                                    
     stakeholders  a seat  at the  table as  these decisions                                                                    
     are being made.                                                                                                            
                                                                                                                                
     Section 6 is called the net worth...                                                                                       
                                                                                                                                
CHAIR BUNDE interrupted to ask which member represents                                                                          
licensees.                                                                                                                      
                                                                                                                                
MS. HALL replied the insurance agent member (who works with the                                                                 
insurance companies and employers). They are called licensees in                                                                
Alaska statute. She continued:                                                                                                  
                                                                                                                                
     Section  6  provides  for what's  called  a  net  worth                                                                    
     exclusion. This  provision would exclude  from coverage                                                                    
     under the Guaranty Association if  the net worth of the                                                                    
     insured  exceeds $25  million. Thirty-two  other states                                                                    
     around the  country have this type  of provision today.                                                                    
     It may range from a  $10 million net worth exclusion up                                                                    
     to $50.  This is  a more  middle of  the road,  the one                                                                    
     most common around the country.  The purpose here is to                                                                    
     provide some type of cap on  the costs of claims in the                                                                    
     fund.  It  does.  An employer  whose  net  worth  would                                                                    
     exceed the  $25 million  would not receive  the benefit                                                                    
     of the Guaranty Fund for their claims.                                                                                     
                                                                                                                                
     In the  situation we face  today in the  Guaranty Fund,                                                                    
     when all of  the Fremont claims, all 700  of them, were                                                                    
     transferred to the Guaranty  Association in July, those                                                                    
     claims are sent  back to the state of  residence of the                                                                    
     injured worker by  statute. As we sent  claims back out                                                                    
     to states, several of those  were returned to Alaska to                                                                    
     the Alaska Guaranty  Fund by states that  had this same                                                                    
     type  of  provision.  So, it  would  really  bring  our                                                                    
     Guaranty Fund more  on parity with those  of most other                                                                    
     states.                                                                                                                    
                                                                                                                                
CHAIR BUNDE asked her to list a couple of Alaskan firms that                                                                    
would have a net worth of more than $25 million.                                                                                
                                                                                                                                
MS. HALL said she knows of one, but didn't want to put the name                                                                 
in a public record.                                                                                                             
                                                                                                                                
CHAIR BUNDE said the committee would probably want some                                                                         
specifics as they go along.                                                                                                     
                                                                                                                                
MS. HALL said that was possible and continued:                                                                                  
                                                                                                                                
     Section 105,  I addressed in my  introduction purposely                                                                    
     - the  assigned risk pool -  and the need to  make that                                                                    
     self-funding.  It's a  major component  in our  fragile                                                                    
     insurance  environment.  This  section repeals  the  25                                                                    
     percent....                                                                                                                
                                                                                                                                
     Policies in the assigned risk  pool today have a cap of                                                                    
     25  percent   difference  between  the  rates   in  the                                                                    
     traditional  marketplace and  the  assigned risk  pool.                                                                    
     That also  has an  exclusion for policies  under $3,000                                                                    
     in  premium. As  I've indicated  earlier, I  think it's                                                                    
     critically  important that  the assigned  risk pool  be                                                                    
     self-funding. The  losses in  that pool have  been even                                                                    
     more   excessive  than   what  we're   seeing  in   the                                                                    
     traditional  marketplace. The  cap right  now is  lower                                                                    
     than  that in  many states.  We see  some states  - the                                                                    
     highest cap  I've seen is  65 percent and I  can't give                                                                    
     you the  state name. But  we see  a wide range  of caps                                                                    
     there,  obviously.  So  we don't  overly  burden  those                                                                    
     employers  who  have  their  policies  written  in  the                                                                    
     assigned risk pool  - when the burden  of that assigned                                                                    
     risk  pool starts  to affect  our whole  marketplace, I                                                                    
     think  we  really  desperately need  to  reassess  that                                                                    
     philosophy.                                                                                                                
                                                                                                                                
                                                                                                                              
     Approximately  6,000  of  the  8,800  policies  in  the                                                                    
     assigned  risk pool  have premiums  under $3,000.  I've                                                                    
     looked at  that cutoff;  I've looked at  5,000. Eighty-                                                                    
     three  percent  of  the  policies   in  the  pool  have                                                                    
     premiums under  $5,000. Generally, in the  under $3,000                                                                    
     [group],  the  average  premium is  $864.  These  small                                                                    
     employers are just  as likely to have  claims as larger                                                                    
     employers and  those claims  can be  just as  costly as                                                                    
     the  claim  of a  larger  employer.  Claims have  costs                                                                    
     based  on  the nature  of  the  injury. At  an  average                                                                    
     premium of  $864, a single  claim will  offset hundreds                                                                    
     of  those small  policies.  That's  the biggest  reason                                                                    
     today  that the  pool has  been unprofitable.  When you                                                                    
     have those  very small polices  and they're  not paying                                                                    
     the  surcharge,  even,  that the  smaller,  but  higher                                                                    
     premium  policies are,  we  don't  have a  self-funding                                                                    
     mechanism  here. As  I described  in the  introduction,                                                                    
     the financial  burden on insurance companies  from this                                                                    
     mechanism where they  are charged anywhere from  4 to 6                                                                    
     percent  has made  Alaska a  very unattractive  market.                                                                    
     It's that fragile  balance where we try  to do consumer                                                                    
     protection,   but  we   need   a  healthy   competitive                                                                    
     marketplace to do  that and I think we need  to look at                                                                    
     these factors that are affecting that.                                                                                     
                                                                                                                                
CHAIR BUNDE said, "My section 105 repeals that 25 percent cap."                                                                 
                                                                                                                                
MS. HALL replied that was correct,  but there would be no cap and                                                               
rates  would  still  go  through  the  filing  process  with  the                                                               
Division of Insurance.                                                                                                          
                                                                                                                                
CHAIR BUNDE  asked her  if this proposal  was something  like the                                                               
assigned  risk  auto   pool  where  a  young   man's  premium  is                                                               
substantially  higher   than  an  older  male's   premium  -  the                                                               
reasoning  being that  the  older  male should  not  have to  pay                                                               
higher insurance rates  because the younger male  would have more                                                               
claims.                                                                                                                         
                                                                                                                                
MS.  HALL  replied  that  was  right.  They  are  both  mandatory                                                               
insurance coverages, so  there is a place where  consumers can be                                                               
sure to obtain that coverage.                                                                                                   
                                                                                                                                
CHAIR BUNDE asked  if there was a cap on  the automotive assigned                                                               
risk pool.                                                                                                                      
                                                                                                                                
MS. HALL replied no and that concluded her testimony.                                                                           
                                                                                                                                
CHAIR BUNDE asked Director Lisankie to address the committee.                                                                   
                                                                                                                                
2:00 p.m.                                                                                                                       
                                                                                                                                
MR. PAUL  LISANKIE, Director, Division of  Workers' Compensation,                                                               
Department  of  Labor  and Workforce  Development  (DOLWD),  said                                                               
there is  one change to the  benefits that are payable  under the                                                               
Workers' Compensation Act. He explained:                                                                                        
                                                                                                                                
     Section  86 deals  with cost  of living  adjustments to                                                                    
     workers' compensation  benefits. Currently,  if someone                                                                    
     moves,  if  someone  resides,   outside  the  State  of                                                                    
     Alaska,  the division  contracts  with  a company  that                                                                    
     determines the cost  of living in various  parts of the                                                                    
     United States.  Right now,  if they are  in an  area of                                                                    
     the country where  the cost of living is less  than - I                                                                    
     think we're keyed to Anchorage  - then the compensation                                                                    
     rate would be adjusted down.  If, on the other hand, if                                                                    
     they live  in any other  part of the country  where the                                                                    
     cost  of living  actually  exceeds  that in  Anchorage,                                                                    
     their benefits would be  adjusted upwards. That's under                                                                    
     the current  act. What Section  86 would do is  that it                                                                    
     would  cap any  upward adjustments  at the  amount that                                                                    
     could be  paid to  someone who  resided in  Alaska. So,                                                                    
     essentially what it  would do is that no  one would get                                                                    
     paid more  compensation than someone who  is an Alaskan                                                                    
     by dint of  the fact that they moved  outside. That's a                                                                    
     subtle  change, but  it is  the  one change  that I  am                                                                    
     aware of to the actual benefits.                                                                                           
                                                                                                                                
     Mr.  Chairman,  you  alluded   to  the  rather  lengthy                                                                    
     section-by-section   analysis,  which   I  have   found                                                                    
     helpful and hope the committee  does, as well. I didn't                                                                    
     prepare it; I  don't want to take credit  for it. Other                                                                    
     people spent a lot of time putting it together.                                                                            
                                                                                                                                
MR.  LISANKIE   summarized  saying  that  because   the  Workers'                                                               
Compensation Act  is quite lengthy  and the board  is responsible                                                               
or  involved   in  almost  all   aspects  of  the   system,  this                                                               
legislation  contains  a large  number  of  what are  essentially                                                               
conforming amendments.                                                                                                          
                                                                                                                                
He explained  that the division  director gets  additional powers                                                               
that the position  doesn't have now, in part,  because nothing in                                                               
the current  act identifies the  position of director.  This bill                                                               
establishes that position  and puts the incumbent  in the overall                                                               
posture of administrating the workers' compensation system.                                                                     
                                                                                                                                
     One of the  most important changes and  a powerful tool                                                                    
     that would  be available to the  director surrounds the                                                                    
     area  of uninsured  employers. As  the committee  is no                                                                    
     doubt  aware,  there  [are]  a  significant  number  of                                                                    
     uninsured employers in the State  of Alaska who do not,                                                                    
     for whatever  reason, conform to the  legal requirement                                                                    
     that they  make sure  they insure for  their employees'                                                                    
     workers' compensation benefits.  The division currently                                                                    
     has  a   zero  tolerance  policy.  We   do  attempt  to                                                                    
     investigate and  when we  identify someone  who appears                                                                    
     to be an  uninsured employer, we take  steps to further                                                                    
     that  investigation. In  the appropriate  instances, we                                                                    
     file  an accusation  against them  and require  them to                                                                    
     appear  and   prove  whether  or  not   they  have  the                                                                    
     insurance that we believe they do not have.                                                                                
                                                                                                                                
CHAIR BUNDE  asked if some  employers also claim that  they don't                                                               
have to have insurance.                                                                                                         
                                                                                                                                
MR. LISANKIE  replied that is  correct. He explained  further, if                                                               
an  employer is  in  violation  of a  statute,  a  stop order  is                                                               
issued. Typically,  the employer either proves  that employees no                                                               
longer work for  them and, therefore, there's nothing  to stop or                                                               
they acquire the necessary insurance.                                                                                           
                                                                                                                                
What  SB 311  provides is  an important  civil penalty  provision                                                               
saying that even if an  employer brings his insurance current, he                                                               
would face  a penalty of  up to $100  per day, per  employee, for                                                               
the period of time they operated without the required insurance.                                                                
                                                                                                                                
Lack  of insurance  places  the health  and  financial health  of                                                               
employees  in jeopardy,  because neither  their medical  benefits                                                               
nor  their time  loss benefits  are typically  going to  be paid.                                                               
Lack of insurance also gives  those employers an unfair advantage                                                               
over other employers who follow the law.                                                                                        
                                                                                                                                
MR. LISANKIE  said this bill  also provides  a change in  the way                                                               
disputed workers'  compensation claims  are resolved in  a couple                                                               
of ways.  Currently, the board  resolves disputed claims.  It has                                                               
been   growing  continually   from  a   single  panel   of  three                                                               
individuals since  its inception  in 1959  to seven  panels. Each                                                               
one consists  of members appointed  by the  governor representing                                                               
industry  and  labor  and  then  the  panel  is  chaired  by  the                                                               
commissioner of the DOLWD or  their representative. Now there are                                                               
14  panel members,  plus the  commissioner  and the  last time  a                                                               
commissioner  had time  to  chair  a panel  was  many years  ago.                                                               
Typically,  a workers'  compensation  hearing  officer takes  his                                                               
place.                                                                                                                          
                                                                                                                                
Panels are  entitled to act based  on a quorum, so  it's possible                                                               
to have a decision made by any  two of the three. This means that                                                               
now  workers' compensation  hearing officers  are functioning  as                                                               
the multiple representatives of  the DOLWD commissioner. Industry                                                               
and labor representatives  don't always sit together  on the same                                                               
panel  and  over  300  potential  combinations  of  deciders  are                                                               
possible. Consequently,  the current  system is kind  of weighted                                                               
against consistency  simply by  the fact that  there are  so many                                                               
different panels  that are each  entitled to weigh in  with their                                                               
own    opinions    about    obligations,   rights    and    legal                                                               
interpretations.  Different panels  can make  different decisions                                                               
on the  same issues and, "They  are legally entitled to  do it as                                                               
far as I know. They are not doing anything wrong."                                                                              
                                                                                                                                
If an individual  knows there have been  two different decisions,                                                               
he has no  way of getting the question  resolved. Each individual                                                               
can appeal to  the Superior Court, but the problem  with that, as                                                               
far  as consistency  goes, is  that  the court's  opinion is  not                                                               
viewed by the board to be  binding other than for that individual                                                               
decision.   "The   current    structure   is   weighted   against                                                               
predictability or consistency by its  very nature. It has nothing                                                               
to do with the intentions of the people that are serving."                                                                      
                                                                                                                                
MR. LISANKIE explained  that this bill addresses  that concern by                                                               
replacing  the workers'  compensation board  in two  ways: first,                                                               
language  in  section  11  establishes  a  workers'  compensation                                                               
appeals  commission. This  commission  would  fill the  appellate                                                               
role that is  currently filled by the Superior  Court judges. The                                                               
initial  hearing  role  of the  workers'  compensation  board  is                                                               
replaced  (in  section  59)  by a  group  of  commission  hearing                                                               
officers, who would  be hired by the commission.  They would hear                                                               
the initial dispute  and issue a written ruling akin  to what the                                                               
workers' compensation  board does now (the  initial decision). If                                                               
the  parties were  unhappy  with the  results  of that  decision,                                                               
their  right of  appeal  would be  to  the workers'  compensation                                                               
appeals  commission.  It  would  not go  directly  to  the  court                                                               
system. The  commission would be  made up of three  attorneys who                                                               
are appointed by the governor and subject to confirmation.                                                                      
                                                                                                                                
TAPE 04-7, SIDE B                                                                                                             
                                                                                                                              
2:20 p.m.                                                                                                                       
                                                                                                                                
MR. LISANKIE  continued to explain  that the  commissioners would                                                               
be  required to  have  experience in  practicing  law within  the                                                               
State of Alaska and have  other requirements, as well. Their sole                                                               
function would  be to resolve  workers' compensation  disputes at                                                               
the  initial appellate  level by  rendering  a written  decision,                                                               
which  would have  full force  and effect  as precedent  on other                                                               
people  not  involved in  the  individual  appeal. The  decisions                                                               
would be  published so  they could be  researched by  others, who                                                               
would  know in  advance  whether  a decision  could  rule in  the                                                               
present case.  The Alaska Supreme  Court will continue to  be the                                                               
final stop.                                                                                                                     
                                                                                                                                
MR.  LISANKIE  said  the  Council of  State  Governments,  a  non                                                               
partisan, non  profit organization,  has fostering  excellence in                                                               
state governments  as one  of its  goals and in  1965 it  came up                                                               
with  a draft  workers' compensation  and rehabilitation  law. He                                                               
explained:                                                                                                                      
                                                                                                                                
     That law  was done with  the advice and guidance  of an                                                                    
     advisory   committee.  The   advisory  committee   that                                                                    
     originally  came up  with it  was chaired  by Professor                                                                    
     Arthur Larson  of Duke Law  School. The  late Professor                                                                    
     Larson, at  that time,  was recognized  as the  kind of                                                                    
     preeminent   expert   in    the   field   of   workers'                                                                    
     compensation.  Even  following  his death,  his  multi-                                                                    
     volume treatise is still consulted  by all of us who do                                                                    
     workers'  compensation  in  the United  States  and  is                                                                    
     frequently cited  by our Supreme  Court and  by anybody                                                                    
     who  is  trying   to  interpret  workers'  compensation                                                                    
     matters.                                                                                                                   
                                                                                                                                
     Since  1965,  there  has   been  a  suggested  workers'                                                                    
     compensation  and rehabilitation  law which  has in  it                                                                    
     this  framework that  is being  proposed of  having the                                                                    
     initial disputes  handled by a hearing  officer who has                                                                    
     to be admitted  to law and practice law in  the state -                                                                    
     and then  have the appeals  taken to either  an appeals                                                                    
     board,  an  appeal  commission,  an  appeals  tribunal,                                                                    
     whatever you call it.                                                                                                      
                                                                                                                                
     The  only change  that they  made was  in around  1970,                                                                    
     when   the   federal   government   was   passing   the                                                                    
     Occupational Safety and Health  Act. They established a                                                                    
     national  commission  on  state  workers'  compensation                                                                    
     laws, which Congress tasked with  examining the laws of                                                                    
     the  various states  and coming  up with  suggestions -                                                                    
     kind of  a state  of the  art or  union, I  guess. They                                                                    
     rendered a report  around about 1972 that  had about 84                                                                    
     specific recommendations for what  they deemed a modern                                                                    
     workers' compensation  program. But, as the  Council of                                                                    
     State  Governments points  out  in their  publications,                                                                    
     the  commission's recommendations  were never  put into                                                                    
     anything that could  be adopted as a  statute. So, what                                                                    
     the  Council  of State  Governments  did  in around  or                                                                    
     about   1974   was   they  revisited   their   original                                                                    
     recommended act;  they changed  it, as I  say, strictly                                                                    
     to  provide  language  that would  permit  a  state  to                                                                    
     follow the  recommendations of the  national commission                                                                    
     if it wished to do so  and they called it their revised                                                                    
     workers' compensation and  rehabilitation law. That law                                                                    
     was essentially the framework for  this proposal as far                                                                    
     as having  hearing officers be  the first  deciders and                                                                    
     then having  appeals taken  to, in  this case,  what we                                                                    
     have   called    a   workers'    compensation   appeals                                                                    
     commission.                                                                                                                
                                                                                                                                
SENATOR FRENCH  asked what the length  of a term would  be for an                                                               
appeals commissioner.                                                                                                           
                                                                                                                                
MR. LISANKIE replied that SB  311 proposes four-year terms, which                                                               
is in the range of other Alaskan boards and commissions.                                                                        
                                                                                                                                
SENATOR FRENCH  asked if an  individual could be  reappointed and                                                               
if there was a limit to the time one could serve.                                                                               
                                                                                                                                
MR. LISANKIE  replied that commissioners  are not limited  to one                                                               
term, but  there is a  limitation on consecutive terms  for being                                                               
the chair and the bill distinguishes  one of the three members as                                                               
the chair.                                                                                                                      
                                                                                                                                
SENATOR FRENCH asked  if the commission would  sit essentially as                                                               
a court of appeals over the decision made by hearing officers.                                                                  
                                                                                                                                
MR. LISANKIE replied that is correct.                                                                                           
                                                                                                                                
SENATOR  FRENCH   asked  if  their   decisions  would   have  the                                                               
precedential effect of being binding on the commissioners.                                                                      
                                                                                                                                
MR. LISANKIE answered that was correct.                                                                                         
                                                                                                                                
SENATOR FRENCH asked  if the commissioners would, then,  be a set                                                               
of judges that would never  go before the public for confirmation                                                               
- the way judges do now.                                                                                                        
                                                                                                                                
MR.  LISANKIE  replied  that  they  would  be  confirmed  by  the                                                               
Legislature,  but they  would  not be  judges.  The statute  that                                                               
applies to judges would not apply directly to them.                                                                             
                                                                                                                                
SENATOR  FRENCH  said the  court  of  appeals hears  hundreds  of                                                               
criminal cases per year and  issues, maybe, 20 decisions that are                                                               
sort of precedential.                                                                                                           
                                                                                                                                
MR. LISANKIE said that was correct.                                                                                             
                                                                                                                                
SENATOR  FRENCH said  he  is  trying to  figure  out  why SB  311                                                               
contemplates giving an appointed  board more legal authority than                                                               
the court of appeals has.                                                                                                       
                                                                                                                                
CHAIR  BUNDE  interjected  that  there was  some  concern  as  to                                                               
whether this bill should have  a Judiciary hearing and maybe that                                                               
should be part of the discussion.                                                                                               
                                                                                                                                
SENATOR FRENCH strongly agreed.                                                                                                 
                                                                                                                                
SENATOR  STEVENS  said  it  seemed that  making  the  board  more                                                               
professional would lead to fewer  appeals on the surface, but the                                                               
cost would be  much higher [for the  commissioners' salaries] and                                                               
he asked him to explain the zero fiscal note.                                                                                   
                                                                                                                                
MR.  LISANKIE replied  that DOLWD  didn't provide  a zero  fiscal                                                               
note.                                                                                                                           
                                                                                                                                
CHAIR BUNDE clarified  that there are several fiscal  notes and a                                                               
Finance referral.                                                                                                               
                                                                                                                                
SENATOR STEVENS wanted a brief explanation of the cost.                                                                         
                                                                                                                                
MR.  LISANKIE  replied that  there  would  certainly be  a  cost.                                                               
Currently,  the  workers'  compensation   board  is  made  up  of                                                               
volunteer members  of the public  who serve at  considerable cost                                                               
to their  own lives and  receive a  $50 per day  stipend, whether                                                               
they need it or not. To  replace that system with three full-time                                                               
commissioners and staff would have a cost associated with it.                                                                   
                                                                                                                                
SENATOR FRENCH  asked if this bill  reclassifies hearing officers                                                               
or  does anything  different with  the way  they are  employed or                                                               
retained by the state.                                                                                                          
                                                                                                                                
MR.  LISANKIE   replied  yes;  the  hearing   officers  would  be                                                               
partially exempt.                                                                                                               
                                                                                                                                
SENATOR FRENCH  asked him  to explain  what the  difference would                                                               
be.                                                                                                                             
                                                                                                                                
MR.  LISANKIE replied  that the  hearing officers  right now  are                                                               
members  of the  general government  unit and  are hired  through                                                               
that  system. The  commission would  be  hiring partially  exempt                                                               
hearing officers, a different system.                                                                                           
                                                                                                                                
SENATOR  FRENCH asked  if the  commissioners  would be  non-union                                                               
members.                                                                                                                        
                                                                                                                                
MR.  LISANKIE replied  that he  didn't know  if partially  exempt                                                               
hearing officers are union members or not.                                                                                      
                                                                                                                                
SENATOR  FRENCH said  that  he worked  partially  exempt for  the                                                               
Department of Law  as a criminal prosecutor and wasn't  part of a                                                               
union. Partially exempt means that  one serves at the pleasure of                                                               
the district attorney or the governor.                                                                                          
                                                                                                                                
MR.  LISANKIE said  he didn't  know enough  to make  a definitive                                                               
statement.                                                                                                                      
                                                                                                                                
SENATOR FRENCH said  he [Mr. Lisankie] was  the person presenting                                                               
the  bill  and  asked  if  it  was  his  understanding  that  the                                                               
administration envisions union or non-union hearing officers.                                                                   
                                                                                                                                
MR.  LISANKIE   replied  that  his  understanding   is  that  the                                                               
partially exempt  hearing officers  would not  be expected  to be                                                               
members of a union.                                                                                                             
                                                                                                                                
MR. CHANCY CROFT, Anchorage attorney,  said he thought this was a                                                               
very important bill  and he hoped it received a  lot of scrutiny.                                                               
While  he admired  and respected  Ms. Hall  and Mr.  Lisankie, he                                                               
thought a major problem existed and explained:                                                                                  
                                                                                                                                
      I was often accused by Senator Zeigler in my days in                                                                      
      the Legislature of doing unprovoked good and I think                                                                      
     doing  away with  the workers'  compensation board  and                                                                    
     instituting a system of  hearing officers dismisses the                                                                    
     public and  it would be  very bad policy. I  would like                                                                    
     to  spend some  time talking  about it  and I  would be                                                                    
     glad to come next week to do that.                                                                                         
                                                                                                                                
CHAIR BUNDE set SB 311 aside until next week.                                                                                   
                                                                                                                                
          SB 276-ALASKA INSURANCE GUARANTY ASSOCIATION                                                                      
                                                                                                                              
CHAIR CON BUNDE announced SB 276 to be up for consideration.                                                                    
                                                                                                                                
SENATOR GARY  STEVENS moved to  adopt CSSB 276(L&C),  version 23-                                                               
GS2105\H.                                                                                                                       
                                                                                                                                
SENATOR FRENCH objected for purposes of discussion.                                                                             
                                                                                                                                
CHAIR BUNDE recapped that, from  the insurance point of view, Ms.                                                               
Hall had  told the  committee about  the necessity  for spreading                                                               
the premium  as wide  as possible, even  requiring people  who do                                                               
not directly  benefit from the  Guaranty Fund to  contribute. The                                                               
proposed CS  removes any additional  assessment and has  a letter                                                               
of intent  suggesting that the  shortfall be made up  from excess                                                               
earnings  of  the  Permanent  Fund.  It  is  the  intent  of  the                                                               
Legislature  to   spread  the  appropriations  to   the  Workers'                                                               
Compensation program over  the course of five years  to cover the                                                               
projected  shortfalls:  $5,800,000  for 2004  and  $8,800,000  in                                                               
2005. This year's fiscal note is for $8,890,700.                                                                                
                                                                                                                                
SENATOR  FRENCH continued  his objection  stating that  he shared                                                               
their desire  to solve  this problem, but  the general  fund and,                                                               
ultimately,  the Constitutional  Budget Reserve  (CBR) would  pay                                                               
for the shortfall.                                                                                                              
                                                                                                                                
CHAIR BUNDE responded that going  to the general fund seemed more                                                               
logical than dunning people who  can't directly benefit. He said,                                                               
"It may  be also an  illustration of a personal  philosophy about                                                               
how those monies in the earnings  reserve really ought to be used                                                               
for."                                                                                                                           
                                                                                                                                
SENATOR STEVENS said he has  heard from many communities that are                                                               
self insured  in joint insurance  arrangements who would  be very                                                               
seriously  affected   by  paying   additional  premiums   and  he                                                               
appreciated their being taken out of the mix.                                                                                   
                                                                                                                                
MS.  HALL  commented  that for  philosophical  reasons,  she  had                                                               
presented  him  with  alternatives  that  didn't  draw  on  state                                                               
monies.                                                                                                                         
                                                                                                                                
     These are unpopular; they are  controversial and I hear                                                                    
     from those same people  that Senator Stevens refers to.                                                                    
     That  to me  is a  public policy  call that  I think  I                                                                    
     would prefer  not to  comment on.... I  want to  have a                                                                    
     piece in our legislation to  make sure we never go back                                                                    
     where we are.  I don't want the letter  again that says                                                                    
     we're   going   to    prorate   workers'   compensation                                                                    
     claims.... I would  like to keep the  ability, at least                                                                    
     of   the  Alaska   Industrial   Development  &   Export                                                                    
     Authority (AIDEA)  to guarantee  a loan should  we ever                                                                    
     get in a  situation again if there were  changes to the                                                                    
     bill.                                                                                                                      
                                                                                                                                
CHAIR BUNDE said he would be  happy to put the reference to AIDEA                                                               
back into the bill.                                                                                                             
                                                                                                                                
SENATOR FRENCH  said he maintains  his objection to  the proposal                                                               
although he understands the chair's intention.                                                                                  
                                                                                                                                
CHAIR  BUNDE said,  because  two members  of  the committee  were                                                               
missing, he  would like to  wait until  next Tuesday to  pass the                                                               
bill out, but wanted to vote on the adoption of the CS.                                                                         
                                                                                                                                
Senators Stevens  and Bunde voted  yea; Senator French  voted nay                                                               
and CSSB 276(L&C) was adopted.                                                                                                  
                                                                                                                                
CHAIR BUNDE  said that he would  hold the letter of  intent until                                                               
next week, as well.                                                                                                             
                                                                                                                                
         SB 273-ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS                                                                     
                                                                                                                              
CHAIR CON BUNDE  announced SB 273 to be up  for consideration. He                                                               
asked Senator  Stevens if he  wanted to make  additional comments                                                               
on his bill.                                                                                                                    
                                                                                                                                
SENATOR  GARY STEVENS  responded that  the  goal was  to find  an                                                               
adequate  way to  fund ASMI  in the  future, realizing  there had                                                               
been  substantial reductions  to its  funding because  of reduced                                                               
salmon price and  catch. SB 273 is an attempt  to see the funding                                                               
continue for  the good  work that ASMI  does in  marketing Alaska                                                               
seafood products.                                                                                                               
                                                                                                                                
A question was raised about  whether the seafood marketing tax is                                                               
unconstitutional and  Senator Stevens  referenced a  letter dated                                                               
February 4,  2004, from George  Utermohle, Legislative  Legal and                                                               
Research Services, which basically answers no.                                                                                  
                                                                                                                                
The  second  question raised  is  what  ASMI  would do  with  the                                                               
additional  $2,610,000 in  revenue from  the proposed  .3 percent                                                               
tax  on  non-salmon  species.  He   wanted  Laura  Fleming,  ASMI                                                               
representative to address that.                                                                                                 
                                                                                                                                
MS.  LAURA FLEMING,  Director, Public  Relations, Alaska  Seafood                                                               
Marketing Institute (ASMI), said she  was asked to answer several                                                               
questions  and  would begin  with  the  shortest answer.  The  .3                                                               
percent tax on  other species, if it were  enacted, would restore                                                               
ASMI's funding  to where it  was three  years ago and  that would                                                               
allow  them to  restore their  programs to  what they  were three                                                               
years  ago  and  put  an additional  emphasis  on  whitefish  and                                                               
shellfish varieties.  The current board has  many representatives                                                               
of whitefish interests, both harvesters  and processors. Very few                                                               
processors  confine  themselves  to one  species  and  processing                                                               
whitefish varieties  has been  very lucrative,  keeping a  lot of                                                               
companies, which  have formerly processed salmon,  on their feet.                                                               
She said:                                                                                                                       
                                                                                                                                
     Whitefish  varieties include  pollock, sole,  black cod                                                                    
     and halibut  and are an  integrated part of  all ASMI's                                                                    
     marketing  activities.  They  are part  of  the  Alaska                                                                    
     seafood  basket of  products that  are associated  with                                                                    
     the brand.  We leverage that  brand equity in  the U.S.                                                                    
     and overseas.  The overseas market  is probably  of the                                                                    
     greatest  interest  to  the pollock  industry.  We  are                                                                    
     paying  for most  of the  activities  in those  markets                                                                    
     with  federal  dollars,   because  our  federal  export                                                                    
     activities  are   paid  for  through   an  agricultural                                                                    
     service.  We  provide   year-round  assistance  to  the                                                                    
     surimi industry  and to the  pollock industry  in those                                                                    
     key  overseas markets.  We have  market representatives                                                                    
     in  those  overseas  markets.  We  do  promotions  that                                                                    
     retail and do food service with restaurants.                                                                               
                                                                                                                                
     A lot of  the surimi processing and so  on involves our                                                                    
     educating the trade  about availability and superiority                                                                    
     of our  products - that  means the people who  take the                                                                    
     raw  product  and  turn  it   into  wide  varieties  of                                                                    
     products  that  you  see in  their  magazines.  I  just                                                                    
     brought along  an example [indicates  pamphlet].... The                                                                    
       French and Germans use huge amounts of surimi. The                                                                       
      market in France has grown three times in ten years.                                                                      
     It's tripled in 10 years. So, it's a huge part of it.                                                                      
                                                                                                                                
CHAIR BUNDE asked what role ASMI has had.                                                                                       
                                                                                                                                
MS. FLEMING replied that ASMI has  had trade seminars for the big                                                               
importers and  exhibits at the  European Seafood  Exposition, the                                                               
biggest seafood tradeshow  in the world, where  $70 million worth                                                               
of  business was  done  last year.  A lot  of  that business  was                                                               
whitefish. Also, she  noted the shrinking of  Atlantic cod stocks                                                               
has opened up big opportunities  for Alaska and ASMI. Pacific cod                                                               
and  pollock are  being  used  in place  of  Atlantic cod,  until                                                               
farming operations ramp up.                                                                                                     
                                                                                                                                
ASMI  organizes promotions  for food  service suppliers  that use                                                               
Alaska seafood to  make their products and then  brand it Alaskan                                                               
in  their  catalogues.  They  also do  promotions  in  Spain  and                                                               
Portugal where fish fillet sandwiches are a huge growth market.                                                                 
                                                                                                                                
MS.  FLEMING  said  she  is   not  surprised  that  some  pollock                                                               
fishermen don't  know about ASMI's  efforts, because  even though                                                               
they  sell  fish at  the  dock,  they  don't sell  the  processed                                                               
product.  Sometimes the  product is  used just  as a  value-added                                                               
ingredient and ASMI also promotes those.                                                                                        
                                                                                                                                
ASMI  helps  the  Genuine  Alaska   Pollock  Producers,  a  trade                                                               
organization,  in setting  up  exhibits in  the  U.S and  Europe.                                                               
Membership in that  organization has a lot of  crossover with the                                                               
whitefish  committee  of  ASMI.  She noted  a  newspaper  with  a                                                               
circulation of 8 million readers that  had an article in it about                                                               
the benefits of  adding fishing to the diet. About  60 percent of                                                               
seafood in  the U.S. is consumed  in restaurants and ASMI  does a                                                               
lot  of promotions  with restaurants  and Sysco,  a food  service                                                               
distribution company.  For instance, there are  56 Alaska seafood                                                               
items in  Sysco's food catalogue;  of those items, a  big portion                                                               
are made with  Alaska whitefish varieties. "So,  about 60 percent                                                               
of  our  promotions with  those  Syscos  of  the world  are  with                                                               
pollock and cod."                                                                                                               
                                                                                                                                
CHAIR BUNDE asked  her for rough numbers on the  time, effort and                                                               
money  ASMI puts  into  salmon compared  to  whitefish and  other                                                               
seafood.                                                                                                                        
                                                                                                                                
MS. FLEMING replied:                                                                                                            
                                                                                                                                
     We always  do all-species  marketing for almost  all of                                                                    
     our promotions.  Some might be  specifically benefiting                                                                    
     halibut or cod  or salmon, but we always  bring a whole                                                                    
     basket  of products  to the  table. So,  it's a  little                                                                    
     tricky to  split out exactly  the dollars, but  I would                                                                    
     say...in the  past, it  has been  about half  and half,                                                                    
     but  now the  balance  is shifting  and  the amount  of                                                                    
     money from  salmon is less. So,  the whitefish industry                                                                    
     has been  asking us to  demonstrate that we  are giving                                                                    
     them  their fair  share. We  have on  several occasions                                                                    
     tried  to break  out for  them  what we  are doing  for                                                                    
     whitefish. So  far, they have  always been  satisfied -                                                                    
     all the people on our  board and on our committees have                                                                    
     been  satisfied  with  the results  we  are  obtaining,                                                                    
     especially since we leverage  every industry dollar and                                                                    
     leverage a lot of value out of it....                                                                                      
                                                                                                                                
CHAIR  BUNDE  asked  if  she  is saying  that  if  the  whitefish                                                               
industry  is paying  for a  larger portion  of their  funds, ASMI                                                               
would provide them an equal effort.                                                                                             
                                                                                                                                
MS. FLEMING replied that so  far industry has been satisfied with                                                               
ASMI's promotion  of the species.  She pointed out that  the ASMI                                                               
chairman of the  board fishes for whitefish and the  board is the                                                               
entity that tells staff what to do.                                                                                             
                                                                                                                                
CHAIR BUNDE said  this would be a good time  to bring Mr. Stinson                                                               
in to the conversation.                                                                                                         
                                                                                                                                
MR. JAY  STINSON, Chair, ASMI,  added that the apparent  needs of                                                               
various industries create  a different dynamic from  year to year                                                               
and there is no hard and  fixed number for what ASMI's promotions                                                               
do   every   year.   Its  allocation   efforts   revolve   around                                                               
equitability within  the industry and  where the money  is coming                                                               
from.  Currently, the  board  has 25  members,  but counting  ex-                                                               
officios,  there  is  a  total   industry  representation  of  80                                                               
members.                                                                                                                        
                                                                                                                                
CHAIR BUNDE asked Mr. Stinson if he favors SB 273.                                                                              
                                                                                                                                
MR. STINSON replied  that the board has  long-term concerns about                                                               
stable funding  for ASMI and  supports that portion of  the bill.                                                               
However, it supports  a board of 15 members, not  the nine in the                                                               
proposed language.  He rationalized  that part of  ASMI's charter                                                               
is to  represent the  interests of  the fishing  organizations as                                                               
well  as  to  maintain  a certain  fiscal  responsibility  and  a                                                               
certain tension needs to be maintained.                                                                                         
                                                                                                                                
SENATOR STEVENS  countered that whatever  the size of  the board,                                                               
representation  of the  whole industry  is always  a concern.  He                                                               
asked  Mr. Stinson  to comment  on how  non-salmon fishermen  and                                                               
processors are currently represented on the standing committees.                                                                
                                                                                                                                
MR. STINSON replied that there are seven standing committees.                                                                   
                                                                                                                                
3:07 p.m.                                                                                                                       
                                                                                                                                
TAPE 04-8, SIDE A                                                                                                             
                                                                                                                              
MR.  STINSON  continued saying  that  there  is a  Canned  Salmon                                                               
Committee,  a Salmon  Marketing Committee,  an Export  Promotions                                                               
Committee, a  Seafood Technical Committee, a  Shellfish Committee                                                               
and a  Whitefish Committee. The committees  have approximately 90                                                               
individuals  representing  the  various aspects  of  the  seafood                                                               
industry. Current  by-laws say the  board has to have  12 members                                                               
that are involved in commercial  fishing and nothing prevents the                                                               
governor   from    including   whitefish   harvesters    in   his                                                               
appointments. Any segment that wants  to be involved is more than                                                               
welcome to come  to the table. "Basically, we try  to maintain an                                                               
equitable representation, both  by region and by  species, in the                                                               
entire Alaska fishing industry."                                                                                                
                                                                                                                                
CHAIR  BUNDE asked  Senator Stevens  to respond  to a  communiqué                                                               
from  a  gillnetting  association  about its  concerns  with  the                                                               
hatchery cost recovery tax.                                                                                                     
                                                                                                                                
SENATOR STEVENS  said a letter  from the United  Southeast Alaska                                                               
Gillnetters  is  supportive of  the  1  percent salmon  tax,  but                                                               
opposes  applying  it  to the  hatchery  cost  recovery  program,                                                               
because of  double taxation -  an issue that should  be discussed                                                               
further.                                                                                                                        
                                                                                                                                
CHAIR  BUNDE encouraged  him to  address that  issue as  the bill                                                               
moves through the process. He closed public testimony.                                                                          
                                                                                                                                
SENATOR STEVENS  recapped that  they had  heard from  Ms. Fleming                                                               
what ASMI would do with additional  revenue and noted at the last                                                               
board meeting  Executive Director Riuta indicated  that whitefish                                                               
was also facing problems in the  future with fish farming. So, it                                                               
was important to know what ASMI intended to do about that issue.                                                                
                                                                                                                                
Figures  from the  Commercial Fisheries  Entry Commission  (CFEC)                                                               
show that of the 6,848  non-salmon permit holders, 22 percent are                                                               
non-resident.  The  National   Marine  Fisheries  Service  (NMFS)                                                               
report on federally licensed fisheries  indicates 20 percent out-                                                               
of-state addresses.                                                                                                             
                                                                                                                                
SENATOR  STEVENS  said  the  issue of  the  future  of  whitefish                                                               
farming  had not  been  discussed  by Ms.  Fleming,  but ASMI  is                                                               
prepared to deal with it.                                                                                                       
                                                                                                                                
CHAIR BUNDE quipped  that he assumed ASMI would  not advocate for                                                               
it.                                                                                                                             
                                                                                                                                
SENATOR STEVENS agreed  and added that he felt he  could defend a                                                               
nine-member  board since  most boards  work best  with a  smaller                                                               
number and  this measure maintains  and enhances funding  to ASMI                                                               
at  previous levels.  With that,  he moved  to pass  SB 273  from                                                               
committee  with  individual   recommendations  and  the  attached                                                               
fiscal note.                                                                                                                    
                                                                                                                                
Senator Stevens,  French and  Bunde voted yea;  and SB  273 moved                                                               
from committee.                                                                                                                 
                                                                                                                                
CHAIR BUNDE adjourned the meeting at 3:25 p.m.                                                                                  
                                                                                                                                

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