Legislature(2003 - 2004)
04/29/2003 01:37 PM Senate L&C
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
April 29, 2003
1:37 p.m.
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Hollis French
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 114(L&C)
"An Act relating to the fee for a state business license; and
providing for an effective date."
MOVED CSSB 114(L&C) OUT OF COMMITTEE
SENATE BILL NO. 175
"An Act relating to civil liability for commercial recreational
activities and for guest passengers on an aircraft or
watercraft; and providing for an effective date."
MOVED CSSB 175(L&C) OUT OF COMMITTEE
SENATE BILL NO. 176
"An Act relating to civil liability for injuries or death
resulting from livestock activities."
MOVED SB 176 OUT OF COMMITTEE
SENATE CS FOR CS FOR HOUSE BILL NO. 214(JUD)(efd fld S)
"An Act relating to the recovery of punitive damages against an
employer who is determined to be vicariously liable for the act
or omission of an employee."
HEARD AND HELD
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 184(L&C) am
"An Act relating to individual deferred annuities; and providing
for an effective date."
HEARD AND HELD
SENATE BILL NO. 102
"An Act increasing the amount of revenue received by the state
from charitable gaming activities; and providing for an
effective date."
HEARD AND HELD
PREVIOUS ACTION
SB 114 - See Labor and Commerce minutes dated 3/18/03, 4/10/03,
4/15/03 and 4/24/03.
SB 175 - No previous action to consider.
SB 176 - No previous action to consider.
HB 214 - No previous action to consider.
HB 184 - No previous action to consider.
SB 102 - See Labor and Commerce minutes dated 3/13/03 and
4/24/03.
WITNESS REGISTER
Mr. Rick Urion, Director
Division of Occupational Licensing
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported the CS to SB 114(L&C).
Mr. Brian Hove
Staff to Senator Seekins
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 175 for the sponsor.
Mr. Ron Peck, President
Alaska Travel Industry Association
Juneau AK 99801
POSITION STATEMENT: Supported SB 175.
Mr. Chris Vonimhof
Alyeska Resort
Girdwood AK
POSITION STATEMENT: Supported SB 175.
Mr. Steven Conn
Alaska Public Interest Research Group (AKPIRG)
PO Box 1690
Seward AK 99446
POSITION STATEMENT: Opposed SB 175 and commented on SB 176.
Mr. John George
3328 Fritz Cove Rd.
Juneau AK 99801
POSITION STATEMENT: Supported SB 175.
Mr. Bob Dindinger, Chairman
Alaska Travel Industry Association &
President and CEO
Alaska Travel Adventures
9085 Glacier Hwy., No. 303
Juneau AK 99801
POSITION STATEMENT: Supported SB 175.
Ms. Gabi Dominguez
Tanana Whirlwinds 4H Club
PO Box 10866
Fairbanks AK 99710
POSITION STATEMENT: Supported SB 176.
Mr. Ted Franke, Camp Director
Camp Lila
PO Box 10434
Fairbanks AK 99710
POSITION STATEMENT: Supported SB 176.
Ms. Lauren Wilfer
Tanana Whirlwinds 4H Club
PO Box 70192
Fairbanks AK 99707
POSITION STATEMENT: Supported SB 176.
Ms. Kate Sanders
PO Box 80982
Fairbanks AK 99708
POSITION STATEMENT: Supported SB 176.
Ms. Beverly Nester, Associate Coordinator
Cowboy Mounted Action Shooters
5465 Chena Hot springs Rd.
Fairbanks AK 99712
POSITION STATEMENT: Supported SB 176.
Ms. Shirley Schollenberg,
Kenai Peninsula Farm Bureau
2014 Lake, Ste. 201
Homer AK 99603
POSITION STATEMENT: Supported SB 176.
Mr. Matt Robus, Acting Director
Division of Wildlife Management
Department of Fish & Game
PO Box 25526
Juneau, AK 99802-5226
POSITION STATEMENT: Commented on SB 176.
Mr. Jim Douglas
Cooperative Extension Service
University of Alaska Fairbanks
Juneau AK
POSITION STATEMENT: Supported SB 176.
Ms. Jan Hanscom
4H leader
Tanana Valley
PO Box 72832
Fairbanks AK 99707
POSITION STATEMENT: Supported SB 176.
Ms. Marsha Davis, General Counsel
Era Aviation
POSITION STATEMENT: Supported HB 214.
Ms. Pam LaBolle, President
Alaska State Chamber of Commerce
217 Second Street
Juneau, Alaska 99801
POSITION STATEMENT: Supported HB 214.
Ms. Jessica Graham, Chairman
Anchorage Society of Human Resources Management
1029 W 3rd, Ste. 300
Anchorage AK 99501
POSITION STATEMENT: Supported HB 214.
Representative Coghill
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 184.
Mr. Larry Persily, Deputy Commissioner
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Commented on SB 102.
ACTION NARRATIVE
TAPE 03-26, SIDE A
SB 114-INCREASE BUSINESS LICENSE FEE
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:37 p.m. Present were SENATORS
STEVENS, SEEKINS and FRENCH. The Chair announced SB 114 to be up
for consideration.
SENATOR SEEKINS moved to adopt CSSB 114(L&C), version I, as
their working document. There were no objections and it was so
ordered.
CHAIR BUNDE explained that the committee substitute (CS) deletes
the requirement for multiple licenses for businesses in multiple
locations.
MR. RICK URION, Director, Division of Occupational Licensing,
supported the new CS and urged the committee to pass it out
today.
CHAIR BUNDE asked him for an estimate of what revenue this bill
would now generate.
MR. URION replied that their original estimate was $77,000 for
multiple location licenses and that would be deleted.
CHAIR BUNDE noted that aside from stores like Fred Meyer, SB 114
also included cab drivers and coffee carts on the other hand.
SENATOR FRENCH asked if it is correct that the CS now says that
Safeway has to have only one business license for the whole
state.
MR. URION said that is correct.
SENATOR FRENCH said it isn't as if they are reducing what they
have to pay now, and, in fact, their fee is being increased from
$25 per year to $300.
SENATOR SEEKINS asked if Safeway has to have a tobacco
endorsement for each store or for just the one license.
MR. URION replied that tobacco endorsements go with each
location.
SENATOR SEEKINS moved to pass CSSB 114(L&C), version I, from
committee with individual recommendations and attached fiscal
note.
The roll was called. SENATORS STEVENS, FRENCH, SEEKINS and BUNDE
voted yea and CSSB 114(L&C), version I, passed from committee.
SB 175-LIABILITY:RECREATIONAL ACTIVITY/BOATS
CHAIR BUNDE announced SB 175 to be up for consideration.
MR. BRAIN HOVE, staff to Senator Seekins, sponsor, said that
Alaska has many recreational opportunities, but the high cost of
liability insurance is a significant factor to existing
enterprises that offer these types of activities. It also
presents a substantial barrier to new businesses, as the vast
majority of existing companies are small firms based in Alaska.
SB 175 delineates the burden of responsibility for the
commercial recreation business, as well as the person who elects
to participate in that activity.
CHAIR BUNDE asked if he could address the concerns of Mr.
Richard Dow with Alaska Resorts and Ms. Tracy Knutson, an
attorney.
MR. HOVE replied that those concerns resulted in the current
committee substitute (CS).
SENATOR SEEKINS moved to adopt CSSB 175, version H, as the
working document. There were no objections and it was so
ordered.
CHAIR BUNDE asked Mr. Hove if the CS adequately addressed the
concerns of Tracy Knutson and Richard Dow.
MR. HOVE replied that it does.
MR. RON PECK, President, Alaska Travel Industry Association,
said the industry has been working for 10 years to improve
reform in recreational liability and supported SB 175.
MR. CHRIS VONIMHOF, Alyeska Resort, said he had been with the
Resort for 30 years and when the ski liability package passed,
it was a tremendous help to their business. Safety is the key to
so many sports and this bill protects both the client and the
operator.
MR. STEVE CONN, Alaska Public Interest Research Group (AkPIRG),
said he is currently a resident of Seward, a community that
depends on many of the activities covered in this bill, although
he doesn't run a recreational activity personally. He said there
seems to be a kind of fever running through the Legislature
where favored persons or businesses are being immunized from all
forms of civil liability. He hoped legislators were prepared to
predict all situations, because they are going back in time and
recreating, through the reintroduction of an old horse in tort
law, contributory negligence, an absolute bar to lawsuits in all
situations - ones involving foreign tourists, elderly tourists,
ones involving less reputable operations that come and go. He
said that currently, Alaska juries have a real disdain for what
they view as a frivolous lawsuit. He thought a law like this
would seriously harm the tourism industry and create very bad
publicity for Alaska's burgeoning recreation industry.
MR. JOHN GEORGE said he was representing himself today, not the
insurance industry. He knows how difficult it is for the smaller
operators or anyone who is doing anything that isn't absolutely
mainstream to get insurance. He thought this bill would go a
long way to easing that by providing relief for the insurance
industry.
MR. BOB DINDINGER, Chairman, Alaska Travel Industry Association,
said he is also the President and CEO of Alaska Travel
Adventures, the state's largest provider of guided recreational
activities handling just under 100,000 clients per year. He said
SB 175 would be very beneficial to this industry, particularly
to the smaller businesses. He said it is always difficult to get
insurance in this state and there has never been more than two
or three underwriters for this type of service. At times there
has been only one underwriter, which led to a 50 percent to 60
percent rate increase per year. If this bill passes, clients,
many from out of state, would still be able to pursue frivolous
lawsuits and they would still be expensive to defend. However,
this legislation would help get those cases thrown out before
companies have to undertake a great deal of expense.
MR. DINDINGER explained that most of the suits are settled for
the deductible of the operator. The insurance company never eats
a dime, because it's very common to have deductibles of $5,000
to $10,000 per incident. The first thing an insurance company
does is offer up the first $5,000 to $10,000. At that point, his
company has to defend itself or agree to pay. This bill will
solve a lot of those frivolous suits and he is hopeful that it
encourages additional underwriters to enter the market.
SENATOR STEVENS asked if frivolous lawsuits happen regularly.
MR. DINDINGER replied about one dozen per year, but in 20 years
of business his company has never had to hospitalize a client.
He has had to pay $50,000 to $100,000 this year in defense of
those types of claims.
SENATOR STEVENS asked if this bill would affect the out-of-state
lawsuits.
MR. DINDINGER replied that it wouldn't.
SENATOR FRENCH asked how this bill would not immunize his
company from poorly trained employees.
MR. DINDINGER replied that it's not mentioned specifically in
the bill. To the extent employees make mistakes, the business is
liable for those mistakes. Those are errors, not inherent risks.
For example, with river rafting, his employees have to take 10
trips down a river under instruction before they can take a paid
client. There is a check-out process as well, and those expenses
would not be diminished by this bill. It is in his best
interests to have very well trained employees and he did not
think they would put attorneys out of business, but litigation
will be reduced. He has defended a lot of rafting incidents and
never lost a case.
SENATOR FRENCH asked what the differences would be from the
common laws that exist now.
MR. DINDINGER replied that this legislation will add clarity and
could be sent to clients in response to the first letter a
company receives in which the client is threatening to file
suit. The company could also send them a copy of the release
they signed saying that they are in good condition and accept
the inherent risks.
SENATOR FRENCH asked if Ms. Knutson has had the opportunity to
look at the CS.
SENATOR SEEKINS said he wasn't sure.
CHAIR BUNDE said that he knew that Mr. Vonimhof had reviewed the
CS and his concerns had been taken care of.
SENATOR SEEKINS noted that this bill goes to his committee,
Judiciary, next and he was sure that Ms. Knutson would contact
him if there were any concerns.
CHAIR BUNDE noted that there was no fiscal note, but that he
assumed one would be forthcoming.
SENATOR SEEKINS said that is correct. He moved to pass CSSB
175(L&C), Version H, from committee with individual
recommendations. SENATORS FRENCH, SEEKINS, STEVENS and BUNDE
voted yea and it moved from committee.
SB 176-CIVIL LIABILITY FOR LIVESTOCK ACTIVITIES
CHAIR BUNDE announced SB 176 to be up for consideration.
MR. BRIAN HOVE, staff to Senator Seekins, said that SB 176 is
largely a reincarnation of HB 111, introduced in the 22nd
Legislature. It is intended to give livestock owners and others
associated with livestock activities a certain measure of
protection from frivolous lawsuits. It recognizes that people
assume some degree of risk when placing themselves in the
vicinity of livestock. The livestock owner, with the best of
intentions, cannot completely prevent accidents from happening.
SB 176 will not protect the livestock owner who acts in an
unreasonable manner, but by reducing some of the liability, the
expectation is that this legislation will create an atmosphere
that will encourage more livestock activity. This bill is the
work of 4H members statewide and 44 other states currently have
similar legislation.
MS. GABI DOMINGUEZ, a livestock owner, supported SB 176.
MR. TED FRANKE, Camp Director, Camp Leila, supported SB 176. He
said Camp Leila is a non-profit organization and has about 450
kids each summer and additional kids who come up to visit.
MS. LAUREN WILFER, Tanana Whirlwinds 4H Club, supported SB 176.
She has fiends who have horses and other animals. SB 176 would
help her friend who is a riding instructor at the University
with liability if one of her students was killed or injured
accidentally. Anyone who accepts any payment is not considered a
volunteer and isn't eligible for the University's insurance.
MS. KATE SANDERS said she is thinking about becoming a
veterinarian and supported SB 176. Right now, if an owner helps
her hold or restrain their animal and gets hurt, they can sue
her. That is unfair. She also thought it was a good idea for the
person who owns an animal to do the restraining, because the
animal is more familiar with that person.
MS. BEVERLY NESTER, Associate Coordinator, Cowboy Mounted Action
Shooters, said she is also the founder of the Alaska Trail
Riders Association. She has worked with horses, horsemen and
private landowners for over four decades. She supported SB 176
because it would add much needed common sense to the lawsuit
crazed society we live in today.
MS. SHIRLEY SCHOLLENBERG, Secretary, Kenai Peninsula Farm
Bureau, said she had been a 4H leader for 26 years and gives
riding lessons and does tours on her farm. She said the bureau
voted to support the bill. She is also treasurer for the
Ninilchik Fair Association and this bill would definitely
benefit fairs, since they are continually dealing with liability
issues.
MR. STEVE CONN, AKPIRG, said there are parts of this bill that
AKPIRG very much supports.
TAPE 03-26, SIDE B
MR. CONN continued to say AKPIRG doesn't support some parts of
it, for example the part that lists rabbits, hamsters, guinea
pigs, turkeys, chickens, pheasants, peafowls, pigeons and ducks
as inherently dangerous and unpredictable livestock.
He said this immunizing bill stretches the definition of
livestock and the reach of individuals pretty far. He pointed
out that the conclusion on page 3, lines 16 - 20, does not
affect a civil action resulting from what may be the core
problem, which is when a participant who provides livestock
makes a reasonable and prudent effort to determine the ability
of someone to safely manage the livestock activity. He thought
this bill might not be as strong as the 4H folks think it is.
MR. MATT ROBUS, Acting Director, Division of Wildlife
Conservation, pointed out the definition of livestock on page 4,
line 19, includes caribou and they are, by definition elsewhere
in statute, a game animal and not a domestic animal. Caribou
cannot be owned by a person and can only be possessed under a
permit from the department. Therefore, a caribou is not an
appropriate animal for the list. The domestic form of that
species is reindeer, which is on the list. Furthermore, there
are three species that can legally be owned under some
circumstances that would otherwise be game animals. Those are
bison, musk ox and elk. Wild populations are managed as game
animals, but if a person has a bill of sale that is proof that
they are owned as domestic animals. He suggested that for the
purposes of this definition of livestock, it be clearly
indicated that the bill only addresses the domestic forms of
those species.
Finally, Mr. Robus suggested regarding the word "duck" that
there are other water fowl that are owned and shown as livestock
under these conditions. He suggested removing "duck" and, at the
end of the list, after "alpaca," inserting "waterfowl for which
a permit from the U.S. Fish and Wildlife Service is not
required".
SENATOR SEEKINS said he would work on language with Mr. Robus to
make sure the bill protects the people they intend to protect.
MR. JIM DOUGLAS, Cooperative Extension Service, UAF, said this
bill is an attempt by the Cooperative Extension Service and the
4H program to try to get kids to understand the process of law
by choosing a pertinent issue and finding out what happens to a
bill. They do not have litigious folks in their group, but they
certainly have litigious insurance companies that tend to look
at the University and property owners as deep pockets. He said
an excellent example is an incident that occurred last year when
four new horses were in a judging activity and someone slapped
one of them and was seriously stepped on. In that situation, one
might question whether the person should have been that close to
the horses in the first place, even though he was just trying to
help out. The bill is designed for people to use common sense.
SENATOR FRENCH said that kids like to pet attractive furry
animals. He questioned why an owner wouldn't put a screen around
such an animal so that a child doesn't get his fingers bit.
MR. DOUGLAS replied that the fair provides the cages, but it's
difficult to find a screen with holes that small. Domestic cages
have about a half-inch space and it does take some amount of
force to get a child's fingers through them, but some kids still
try - even with warning signs and moving the cages back.
SENATOR FRENCH asked if anyone he knew had been sued under these
circumstances aside from the owner of the horse who was slapped.
MR. DOUGLAS replied no, he has not seen a lot of suits in
Alaska, but fellow extension agents around the West are starting
to see them. He thought Alaskans had a little tougher mentality.
SENATOR FRENCH had some hesitance about this bill because
individual responsibility could go both ways.
MR. DOUGLAS responded that the bill says gross negligence as
opposed to just negligence.
MS. JAN HANSCOM, 4H leader in the Tanana Valley, favored keeping
small animals like chickens and guinea pigs in the bill. She
said they are very well behaved, but they do bite because kids
pull their hair and ears.
SENATOR SEEKINS moved to pass SB 176 from committee with
individual recommendations.
The roll was called. SENATORS STEVENS, FRENCH, SEEKINS and BUNDE
voted yea and SB 176 moved from committee.
CSHB 214(JUD)-PUNITIVE DAMAGES AGAINST EMPLOYERS
CHAIR BUNDE announced CSHB 214(JUD) to be up for consideration.
REPRESENTATIVE RALPH SAMUELS, sponsor of HB 214, said this bill
adds a section to the punitive damages statute that would create
a guideline for damages against an employer under vicarious
liability. It stipulates that an employer shall not be
responsible for paying punitive damages unless the employer
okays the act or knew about it later or that the employer knew
the employee to be unfit and recklessly employed them. One
example would be a construction company owner that requires drug
testing and training and specifically tells his employee that he
cannot drive the forklift or truck because the employee has not
been trained. If the employee does so anyway and someone gets
injured, then the company should still be on the hook for
compensatory damages to pay for the pain and suffering, but the
company should not be punished if it has not done anything
wrong. Their policies would not be changed and the punitive
damage factor should not apply.
REPRESENTATIVE SAMUELS explained that the bill does not affect
any portion of the law with respect to direct liability. If the
company, itself, does something wrong, the current law would
apply and this does nothing to change that. It does not affect
the ability of the plaintiff to get compensatory damages. The
language came almost word for word from a restatement of tort,
which is an amalgamation of case law from across the country.
The standard also comes from the Laidlaw Case, heard before the
Supreme Court, which commented if this had been brought up at a
trial, it would have ruled with language that is in the case
right now.
MR. STEVEN CONN, AkPIRG, cautioned against passage of this bill
because although a small employer would deserve immunization
from punitive damages in that particular instance, the only way
to motivate larger corporations is with punitive damages.
Hopefully, a message will be sent to big companies to tighten up
and improve their hiring and training practices. He opposed the
bill for its broad reach and asked them to trust civil juries.
MS. MARSHA DAVIS, General Counsel, Era Aviation, said the Exxon
Valdez punitive damages issue had been raised in the House Labor
and Commerce committee and the actual issues had been pretty
well clarified there. The $5 billion in punitive damages that is
being batted around in court right now was a direct assessment
against Exxon, therefore this bill would not touch that. This
bill does not affect employers' direct liability for their
compensatory damages or direct liability. What would be at stake
would be the $5,000 in punitive damages that was assessed
against Mr. Hazelwood and the question is would Exxon, in
addition, be vicariously liable for that $5,000. The issue of
big versus small is also a red herring. She told members:
The size of the employer isn't the issue; it's whether
or not an employer should be held strictly liable for
punitive damages assessed against their employee.
While the punitive damages are intended to motivate a
change in behavior, then it does no good to make
strict liability, because you have disconnected the
employer's behavior from the liability outcome. Only
where the employer's behavior affects the outcome of
that liability do you have a motivation. For example,
at Era Aviation, we do our best to make sure that
employees are screened for drug and alcohol usage
problems. We do drug and alcohol testing on a pre-hire
basis. We do required random testing at a set
percentage established by the FAA regulations. We also
have a right to do for cause drug and alcohol testing
anywhere we have suspicions of abuse. We do annual
training of all supervisors to spot drug and alcohol
problem usage amongst employees so that we can
activate our for cause program.
Yet, we had a situation several years back where an
employee stopped at their lunch break, drank a few
beers, drove the company van and hit a motorcycle. If
there's strict liability for the punitive damages that
would be assessed against our employee, what, if
anything, could Era have done differently? The answer
is nothing. So, in that instance, where Era does not
have a fault, has not done something wrong, it makes
no sense to make us vicariously liable for the
punitive damages assessed an employee who may have
acted outrageously or recklessly. Rather, the
standards set out in this bill are totally reasonable.
They have been tested and tried throughout the
nation...We strongly support the bill and encourage
its passage.
MS. PAM LABOLLE, President, Alaska State Chamber of Commerce,
stated support for fairness in the civil justice system and said
CSHB 214(JUD) brings a greater degree of fairness to the
system. Punitive damages are intended to punish wrongdoers, who
through outrageous conduct and acts of malice or indifference
have harmed or caused loss to another. To hold employers liable
for punitive damages when their acts have no affect on an
employee's behavior is not what punitive damages were intended
for.
MS. JESSICA GRAHAM, Anchorage Society of Human Resources
Management, said she is also an employment lawyer. She strongly
seconded Marsha Davis's comments and added that in the last
several years when she has been litigating employment cases, she
has not seen a complaint that has not included a claim for
punitive damages. She feels this is a feather in the cap of the
plaintiff's bar that they regularly use to up the ante against
employers. It increases the cost for litigation regardless of
whether the claim actually has any merit or not. She commented:
Secondly, in the greater scheme of things, under the
current system, if an employer is held strictly liable
for the actions of an employee, regardless of whether
the employer did anything to encourage it or benefited
in any way, what happens at the end of the day is that
the employer can pay out an enormous sum of money and
do enormous damage to their ability to continue
business while the employee, who actually did the harm
probably gets fired, walks off essentially scott free,
goes and gets another job at a different employer,
does not disclose where he previously works and a new
employer is going to be ultimately responsible for the
same kind of conduct that can happen again and again.
In the general spirit of Alaska independence you want
to put the responsibility where it lies and put it on
the individuals who are doing these kinds of
activities that give rise to these punitive damages.
If you want to stop the conduct, tell the employee who
sexually harasses someone that they will hold them
personally liable rather than tagging that on the
employer who has otherwise done everything right.
SENATOR FRENCH said he heard her and others mention strict
liability with respect to assigning fault to an employer for the
acts of their employees and asked what cases in Alaska have set
forth that standard.
MS. DAVIS replied in 1986 the Alaska Supreme Court initially
enunciated the standard that is called the Scope of Employment
Rule for liability for punitive damages in the Alaskan Village
versus Spaulding case. That case was over a dogfight in a
trailer court and was later cited by the Alaska Supreme Court in
the Laidlaw case and others as the standard in Alaska. She
continued:
Essentially the public employment rule as the Supreme
Court enunciated it is if an employee is acting within
the scope of their employment at the time the injury
or damage is incurred and the jury assesses punitive
damages against that employee, the employer will be
vicariously liable for those damages the same as it
would be for the comparative or the standard damages.
That stands in contrast to the restatement, which
essentially sets out a set of four criteria that needs
to be met before an employer could be held liable for
those punitive damages.
SENATOR FRENCH asked if that is what she would call strict
liability.
MS. DAVIS replied that it's strict liability if you assume that
acting within the scope of employment is a given on both of
those standards. For instance, the employee was hired to drive,
and while the employee wasn't hired to drive drunk, the employee
was doing something in furtherance of the employer's conduct -
as opposed to them employee driving the company vehicle on his
own time at night to a bar when the vehicle wasn't supposed to
be used.
CHAIR BUNDE asked if the legal arguments could be deferred to
the Judiciary Committee. Representative Samuels indicated
concurrence and the Chair set HB 214 aside.
CSSSHB 184(L&C)am-INDIVIDUAL DEFERRED ANNUITIES
CHAIR BUNDE announced CSSSHB 184(L&C)am to be up for
consideration.
REPRESENTATIVE COGHILL, sponsor, said the National Association
of Insurance Commissioners (NAIC) made a recommendation with
regard to minimum values of annuity contracts. Currently, the
minimum amount is set in statute. HB 184 deals with deferred
annuities and has an effective date. It started out on a minimum
non-forfeiture amount of 3 percent. However, the NAIC does not
think that can continue and has asked to have the statute
changed from 3 percent to 1.5 percent. In addition, the NAIC
wants to bring in an index system and faxed him copies of it as
he introduced the bill. Although he is still learning about the
index system, he explained that it basically allows for the
reasons for the variable indexing. Page 2, subsection 2 contains
what they will need to study the most - the interest rate used
to determine the minimum non-forfeiture amount. The NAIC wants
to halve the cap of 3 percent and on line 8, and tie it to a 5-
year constant maturity treasury, an index that the NAIC agreed
would always be there and could be discovered readily every day.
Subsection (c) is the floor, which is a resulting interest rate
of not less than 1 percent. This protects the company from
collapsing under a payout it can't sustain and it protects the
customer who wants to get money out under a non-forfeiture from
costing more than it's worth.
REPRESENTATIVE COGHILL said the Division of Insurance and the
National Association of Insurance Commissioners endorse this
bill. Fourteen other states have already made this change.
CHAIR BUNDE said it would be nice to have a win-win situation
and that he looked forward to working with him on this issue
next week.
3:00 - 3:06 p.m. - at ease
SB 102-CHARITABLE GAMING REVENUE/TAXES
CHAIR BUNDE announced SB 102 to be up for consideration. He told
members he wanted to put something together that would work and
move it from committee today so that it has some possibility of
being discussed at another level. He noted that some folks in
the pulltab industry in Fairbanks have found a way to cancel any
communication with his office by sending out epistles like the
one he had before him.
CHAIR BUNDE said there was concern that a surety bond might be
difficult to get at any level in this industry so he wanted that
deleted.
He said the other issue was the amount of tax and Mr. Persily
had provided them with a comparison of the different returns. He
said they had already turned down the 8 percent of gross that
would have generated $24 million in taxes. The current committee
substitute (CS) suggests 5 percent of gross, which would
generate $15 million in taxes. Industry doesn't like it, but
feels it could live with 3 percent of gross, which would
generate $9 million in taxes.
SENATOR SEEKINS asked Mr. Persily if he believes any operators
in the state could be out of compliance in the way they pay out
to either their charities or their taxes and to what extent.
MR. PERSILY replied if charities are out of compliance when they
renew their licenses, they are given the opportunity to come
into compliance. If they don't, their permits are yanked. He
wasn't aware of any charities that are currently operating out
of compliance, but he did know of some who were out of
compliance that are no longer gaming.
SENATOR SEEKINS asked what number he figured the various
percentages of the gross against.
MR. PERSILY replied those numbers were based on the assumption
that the total gross receipts to gaming do not change. The
people in gaming would have to change their prizes or deal with
expenses in order to come up with extra money for taxes.
SENATOR SEEKINS asked if he could think of any reason the
committee should base the tax on the ideal net rather than the
gross.
MR. PERSILY replied that from the charities' perspective, the
ideal net is more realistic as that is what is left after
prizes. The Governor's proposal is based on gross, so the state
would take a percentage of the total amount of gaming regardless
of how much charities choose to pay out in prizes. From a
charity's perspective, he assumed a tax on net would be a more
reasonable basis.
CHAIR BUNDE said according to figures from the Department of
Revenue, a 3 percent tax on gross would be equal to a 15 percent
tax on the ideal net; 4 percent would be 18 percent of the ideal
net; and 5 percent would be 20 percent of the ideal net. He
thought that 5 percent would be closer to 25 percent of the
ideal net and asked why he was confused.
MR. PERSILY replied that the department doesn't know how
changing the tax rate would affect prizes or expenses and he
felt these figures are close enough for the discussion. He
clarified that currently, the department takes in about $2
million per year in charitable gaming proceeds and these numbers
are not in addition to that, but a total.
CHAIR BUNDE pointed out that the CS refers to 25 percent of the
ideal net. He suggested that they have three options - to go
with the CS that has the 25 percent of the ideal net, to change
the amount of the ideal net, or they can allow the bill to die
in committee. However, this was the last day he wanted to invest
time in it.
SENATOR SEEKINS said he was wondering if there was a formula
somewhere in the net that would make the equation work.
TAPE 03-27, SIDE A
SENATOR SEEKINS asked how much of the net charities currently
take.
Someone replied 30 percent.
SENATOR SEEKINS said the Governor was trying to get 35 percent,
which would leave 65 percent of the ideal net for the operator
and expenses or for the charity if they were running their own
operation. He wondered if that is how they should consider it if
they are going to try to roll the Governor's numbers into the
equation.
MR. PERSILY responded that the Governor's bill proposed setting
in statute a limit on the prize payout, because they are now a
little more than $60 million. However, if the charities are
going to pay a higher tax bill, they are going to have to take
it out of their own pockets or out of the pockets of the players
by reducing the prize payout. Without limiting the size of the
payout, it would be hard to guesstimate what would happen with
the volume of gaming.
CHAIR BUNDE reminded them that the committee rejected the
Governor's latest proposal of 8 percent of the gross, plus a
limit of 68 percent on prize payout. He noted information from
Mary Magnuson that indicates that the volume of gaming went down
in other states when they were too restrictive.
SENATOR FRENCH asked Mr. Persily to comment on section 5 of the
CS, which removes a borough's ability to collect a sales tax on
pulltabs. He asked if he knew how much Juneau, or any other city
that levies a sales tax on pulltabs, is taking in right now
through the tax.
MR. PERSILY replied that Juneau is the largest city that
assesses a sales tax on pulltabs and he believes it is
collecting about $400,000 to $500,000 per year.
CHAIR BUNDE said that is what the city is owed, but he didn't
think Juneau had collected all of that.
SENATOR FRENCH said he didn't know about other cities like
Sitka, Ketchikan, Wrangell and Kenai where they have a sales
tax, as well.
CHAIR BUNDE replied that his understanding is that Juneau is the
only major city where the sales tax applies to pulltabs.
MR. PERSILY added that was his understanding as well, and that
Juneau charges it on the gross, so that when a player comes in
and has $5, but wins and keeps playing pulltabs, he may play $20
worth of pulltabs for the $5 investment. Under the Juneau sales
tax code, Juneau wants 5 percent of the $20, a much higher
percent of the actual cash that was played at the table. This is
certainly the problem from the charity's perspective.
SENATOR FRENCH said that he was just given information
indicating that Palmer does 3 percent of the gross, Kotzebue
does 6 percent of the gross, North Pole does 3 percent of the
gross and Wasilla does 2.5 percent of the ideal net.
CHAIR BUNDE said one of his arguments is that Juneau's industry
continues even though charities are paying the state tax and the
local sales tax, which would, in his mind, come close to 5
percent of the gross. He has heard some feedback that if this
legislation was 15 percent of the ideal net or 3 percent of the
gross, it would raise the revenue to about $9 million and might
have some negative impact on marginal operations, but it appears
that many people in the industry could survive the shake out and
become more efficient.
SENATOR FRENCH said he feels like he has barely scratched the
surface of this issue and that Senator Seekins has learned a lot
about it. He offered to serve with any other members on an
interim committee to figure out how to make some needed reforms.
SENATOR STEVENS said he appreciated Senator French's comments
and said he wasn't ready to make any decisions. He asked the
Chair if he considered working on SB 102 in the interim.
CHAIR BUNDE replied that he didn't ever want to work on it
again, being the charitable gaming guru that he is, but he would
bring it up again if that was the wish of the committee.
SENATOR SEEKINS said it seem this issue boils down to four
things. The first is the tax issue and the fact that the
Governor wants to get a larger portion of gambling revenue for
the state in a manner that doesn't harm the beneficiaries. The
question is what pot of money they are looking at. He thought
the committee needs to look at the ideal net and then decide
what percentages goes to whom.
He said the second issue seems to be the size of the prize
payout and how to change that without reducing the incentive for
people to gamble. He thought the committee could establish
target ranges. The third and fourth issues relate to the sphere
of operation. He questioned whether it is right to be able to
raise money for a Little League baseball team by allowing
someone hundreds of miles away to have a gambling operation in a
community not connected to the license holder in any way. The
fourth issue is who can participate. There is a certain size pie
and as more groups qualify, they flood the pie and everyone gets
a smaller piece - the competition gets fiercer, which could lead
to abuses.
SENATOR SEEKINS reasoned if the Governor wants more money this
year, the committee should focus on the first two issues. If
they want to look farther, and he thought they should, they
would have to look at the other questions.
CHAIR BUNDE noted a youth sports organization in Fairbanks has
benefited from charitable gaming and it has been able to set
aside a nest egg of $2 million.
SENATOR SEEKINS said Senator Wilken sits on that Board of
Directors and it's very well known that group has done a great
job. He related they helped get wheelchair ramps for his wife's
disabled handicapped riding program so that the kids could get
up beside the horse.
CHAIR BUNDE asked Mr. Persily how much money the state currently
brings in from pulltabs.
MR. PERSILY replied that it was slightly more than $60 million
in calendar year 2001 and the state's take was a couple million.
CHAIR BUNDE asked how much the Governor's original proposal to
make the tax 25 percent of the ideal net would have increased
the taxable income.
MR. PERSILY replied that it would change the state's take from
$2 million to $14.5 million.
CHAIR BUNDE pointed out if the legislature does nothing, the
administration will ask for reductions elsewhere to fill the
$10.5 million hole to limit the CBR draw. If the legislature
does nothing, it will need to look for another $10.5 million. He
asked if Senators Seekins, French and Stevens wanted to look at
potential short-range solutions this year or form a subcommittee
over the interim and come back with recommendations.
SENATOR SEEKINS said if the state is going to allow gambling and
the intent is to do something for charities, they have to make a
comprehensive review of this whole matter. He said he is more
than willing to work on the matter over the summer with the
understanding that the subcommittee would be undertaking a
comprehensive review.
SENATOR STEVENS also thought the issue needed a comprehensive
review.
SENATOR FRENCH said he would participate as well.
CHAIR BUNDE appointed them to a subcommittee and said he hoped
to have a report from them by January at the latest.
CHAIR BUNDE adjourned the meeting at 3:35 p.m.
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