02/10/2004 01:31 PM Senate L&C
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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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