Legislature(2017 - 2018)BELTZ 105 (TSBldg)
01/24/2017 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentations: Economic Indicators and Trends | |
| Alaska Travel Industry Association | |
| Department of Transportation & Public Facilities Presentation: Alaska International Airport System | |
| Division of Insurance Presentation: Alaska's Health Care Insurance | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
January 24, 2017
1:32 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Shelley Hughes, Vice Chair
Senator Kevin Meyer
Senator Berta Gardner
MEMBERS ABSENT
Senator Gary Stevens
OTHER LEGISLATORS PRESENT
Senator Tom Begich
Representative Chris Birch
COMMITTEE CALENDAR
PRESENTATIONS ON ECONOMIC INDICATORS AND TRENDS
Alaska Travel Industry Association
Alaska International Airport System
Division of Insurance
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
SARAH LEONARD, President and CEO
Alaska Travel Industry Association (ATIA)
Anchorage, Alaska
POSITION STATEMENT: Delivered a presentation on the trends of
tourism in Alaska.
COLLEEN STEPHENS, At-Large Representative
Alaska Travel Industry Association;
President, Stan Stephens Cruises & Tours
Valdez, Alaska
POSITION STATEMENT: Participated in the ATIA presentation.
JOHN BINDER, Deputy Commissioner
Alaska Department of Transportation and Public Facilities
Juneau, Alaska
POSITION STATEMENT: Discussed the Alaska International Airport
System (AIAS) as an economic engine.
FRED PARADY, Deputy Commissioner
Department of Commerce, Community and Economic Development
Juneau, Alaska
POSITION STATEMENT: Participated in the update on the health
care insurance market in Alaska.
LORI WING-HEIER, Director
Alaska Division of Insurance
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided an update on the health care
insurance market in Alaska.
ACTION NARRATIVE
1:32:20 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:32 p.m. Present at the call to
order were Senators Gardner, Meyer, Hughes and Chair Costello.
She noted that Senator Begich was in the audience.
^PRESENTATIONS: ECONOMIC INDICATORS AND TRENDS
PRESENTATIONS: ECONOMIC INDICATORS AND TRENDS
1:32:37 PM
CHAIR COSTELLO stated that the committee is continuing to look
at the Alaska economy and the presentations today will be from
industry. She said Alaska is in a recession that won't end
anytime soon so it is important for the legislature to look at
how its actions affect the economy.
^Alaska Travel Industry Association
1:34:38 PM
CHAIR COSTELLO invited Sarah Leonard and Coleen Stephens to come
forward.
SARAH LEONARD, President and CEO, Alaska Travel Industry
Association (ATIA), informed the committee that last year the
state's marketing program was transitioned to be managed by the
ATIA team. The goals are to provide efficient and effective
marketing resources, professional development opportunities,
advocacy statewide for members, and promote Alaska as a quality
tourism destination.
1:36:38 PM
MS. LEONARD said she was invited to share Alaska's travel
trends. She started by reviewing global travel trends,
transitioned to national trends, and then moved to Alaska
trends. Employment worldwide in the travel industry was forecast
to grow nearly two percent in 2016 and continue that trend until
2026. The World Travel & Tourism Council predicts that within
that timeframe, 25 percent of the world population will travel.
A 2015 national report indicates that travel generated $2.1
trillion for the U.S. economy. It supported more than 15 million
jobs in the U.S. and accounted for $928 billion in direct travel
spending by domestic and international travelers. In Alaska,
that translates to 47,000 peak-season jobs, over $4 billion in
economic activity, including $1.39 billion in labor income. She
emphasized that this upward trajectory reflects past strong
investment in tourism marketing.
She described Alaska's tourism industry as a renewable natural
resource and a major contributor to all three of Alaska's
budgets: the family budget, city & borough budgets, and the
state budget.
1:38:56 PM
MS. LEONARD reported that Alaska has had a competitive
destination marketing program and a record 2 billion people
visited the state in 2015. That was a 7 percent increase over
the previous season. [According to the McDowell Group, 2015] the
majority of Alaska leisure travelers came by cruise ship and
air. These visitors spend money on a wide range of activities
from lodging to gifts to transportation.
Initial indicators for 2016 show a 3 percent increase in cruise
arrivals, a 14 percent increase in personal vehicle Canada-
Alaska border traffic, and an increase of 3 percent in outbound
enplanements. Alaska Marine Highway traffic dropped 9 percent
and international air travel increased 4 percent. She noted the
latter might be a conservative number. She emphasized that these
positive economic indicators are partly due to the long-standing
competitive destination marketing program for Alaska. The
marketing strategies to attract visitors to Alaska focus on the
idea that Alaska is more similar to an international destination
than a U.S. state.
1:40:37 PM
CHAIR COSTELLO recognized that Representative Chris Birch was in
the audience.
MS. LEONARD discussed the trend of decreased tourism marketing
funding from the state and how it impacts the economy. She
pointed out that in 2013-2015 tourism marketing funding from the
state was in the $16 million range. Last year, legislative
action and the governor's veto reduced the $4.5 million budget
to $1.5 million. It also included language requiring the tourism
industry to develop a plan to reduce reliance on state general
funds. By contrast, competitor destinations are increasing their
tourism promotion. Only the state of Washington spends less on
tourism marketing than Alaska.
She said the tourism industry is healthy right now and that is
expected to continue into 2017. However, Alaska requires more
investment to compete with other domestic destinations because
it is a long-haul, exotic yet safe destination that takes time
to plan and visit. Alaska's marketing strategies have focused on
these attributes and the economic benefits are being realized.
As destination marketing dollars diminish, the fear is this will
affect Alaska's share of the market. It will reduce the number
of visitors Alaska is able to attract generating less spending
and less economic impact in 2018, 2019 and beyond. National
trends also reflect the impacts of reduced statewide tourism
marketing dollars. Case studies show that when destinations
reduce their tourism marketing dollars, they lose market share
and revenue. In 1993, Colorado repealed its tourism funding and
within two years lost 30 percent of its U.S. visitor market
share. Conversely, Michigan doubled its state tourism marketing
funding during a recession and generated $6.6 billion in visitor
spending from 2006-2014. She provided two other examples of the
impact of reducing tourism funding.
1:45:47 PM
MS. LEONARD reported that the ATIA Board of Directors and
industry leaders at the Alaska Tourism Marketing Board met
several times since the last legislative session to research and
discuss different revenue options in an effort to meet the
legislative mandate to become less reliant on state funds. The
focus was on three guiding principles: any new funding solution
must be broad-based, not reliant on one industry or funding
source; revenue should focus primarily on visitor activity with
the least impact on Alaskans; and the plan would package new
revenue with existing revenue from the current vehicle rental
tax collected that can be allocated to tourism promotion.
These conversations gravitated to the Tourism Improvement
District (TID) Concept. She explained that industry pays an
assessment that is collected by government and the funding is
allocated for tourism promotion. TIDs are governed by those who
pay, managed by an existing nonprofit or industry association,
and payers can vote to stop the assessment. She relayed that
this concept has been shared within industry and a funding plan
for Alaska destination marketing based on the TID concept was
presented to the legislature just today.
1:47:26 PM
MS. LEONARD highlighted general trends in travel that can be
connected to a destination like Alaska. The Adventure Travel
World Summit was held in Anchorage in 2016 and attracted up to
750 tour operators, media and others. Partners at Visit
Anchorage provided a statewide experience for this group and
highlighted Alaska as an adventure travel destination. Multi-
generational travel is increasing. There is also a continued
interest in culinary and tasting tours that feature local foods
and goods. An increase in highway travel may increase if the
price of gas remains low. There is also an increase in Chinese
visitors, particularly students who are interested in visiting
Alaska and the Arctic. ATIA has also had discussions on tourism
development in the Arctic.
MS. LEONARD said the industry believes there is value in
statewide destination marketing for Alaska. Revenue is being
generated from tourism-related activities that filters back to
communities. She emphasized that maintaining a competitive
marketing brand is crucial to capture market share domestically
and worldwide. There are positive returns in infrastructure,
revenue to local governments, and jobs that are benefiting
Alaska communities and Alaskans. We want to remain a healthy
industry that supports Alaska jobs and Alaskans, she concluded.
1:49:47 PM
CHAIR COSTELLO asked if ATIA expects fewer visitors two years
from now and therefore fewer dollars in local economies, or is
the TID plan expected to bridge the more austere marketing
budgets.
MS. LEONARD said she can't predict the lag time but there is a
real fear that Alaska will see reduced economic activity because
of the lower tourism marketing budget. She suggested Ms.
Stephens offer her perspective but it's likely that anecdotal
evidence will show that individual businesses will be affected.
Also, it's likely that Alaska will see less general economic
activity as fewer visitors come to the state.
CHAIR COSTELLO asked what percentage of the state's gross
domestic product (GDP) comes from tourism. Ms. Leonard and Ms.
Stephens agreed to follow up with an answer.
COLLEEN STEPHENS, At-Large Representative of Alaska Travel
Industry Association, and President of Stan Stephens Cruises &
Tours, said the smaller, mostly Alaskan owned tourism businesses
will miss the outreach of the state program to the independent
traveler. In rural Alaska, ATIA's current program will have less
communication capabilities. The goal is to close that gap as
soon as possible, but ATIA will be looking to the legislature to
keep funding for marketing as high as possible for the next
year, as it works to have a TID in place to be able to do those
collections.
1:54:29 PM
SENATOR MEYER expressed optimism with the concept of TIDs and
asked if a bill has been introduced.
MS. LEONARD replied there is draft legislation that could be
ready to share next week.
SENATOR MEYER asked if tourism brings $100 million to the state
economy each year.
MS. LEONARD answered yes.
SENATOR MEYER commented that that number would go up
substantially if there were a statewide sales tax.
MS. LEONARD said ATIA is always looking at ways to grow that pot
through visitor contributed economic activity.
SENATOR MEYER asked if the different entities that market Alaska
coordinate efforts to maximize the marketing dollar.
MS. LEONARD replied ATIA manages a statewide program to attract
visitors to Alaska and it supports local organizations to
highlight their amenities and attract visitors to those
communities and regions. ATIA has very good partnerships with
many, if not all, destination marketing and management
organizations.
1:58:25 PM
SENATOR GARDNER asked if there is any data about how budget cuts
have impacted tourism. She cited anecdotal reports of reduced
maintenance and services and voiced concern about harming
industries that are healthy.
MS. LEONARD replied the positive impacts of past healthy tourism
budgets is still evident, but it's unclear what will happen in
2018 and 2019. The fear is that the cuts in destination
marketing will result in reduced community services to support
infrastructure. If we're not attracting visitors and paying the
vehicle rental car tax, for example, there is less money to
support state parks and roads, she said. ATIA is advocating for
the tool for industry to assess itself so the industry continues
to be healthy.
SENATOR GARDNER asked if ATIA had heard from communities that
had been affected by the ferry cuts.
MS. STEPHENS replied ATIA did a survey of impacted members a
year and one-half ago when ferry schedules started changing more
drastically, and the anecdotal reports were shared with Alaska
Marine Highway staff.
SENATOR GARDNER asked if the committee could get that data.
MS. STEPHENS agreed to supply the information.
CHAIR COSTELLO requested ATIA update slide [18] that shows the
decline in tourism marketing funding from the state.
Specifically, she asked how much revenue the industry brought in
to the state and the number of tourists that visited Alaska for
the years between 2013 and 2017.
2:02:06 PM
SENATOR HUGHES asked if ATIA had looked at the impact Alaska
reality television shows have had on the tourism industry and if
the interest those stimulate might help bridge the gap until the
TID program is up and running.
MS. LEONARD said ATIA has not had the resources to do that
specific study but more importantly, the tourism industry
doesn't control those marketing messages and often they are not
authentic Alaska stories. She added that there the number of
those shows might have decreased since the Alaska film office
closed two years ago.
SENATOR HUGHES asked about the geographic distribution of
tourism marketing funding and if the increased interest in
Arctic travel will have a positive economic impact on rural
communities. She asked the names of those communities.
2:04:54 PM
MS. LEONARD replied the funding is concentrated from
Southcentral to Southeast, but it still has a large impact in
the regions that receive a low percentage of the funding. "Where
1,500 jobs means a lot to Southwest Alaska, that would be a
really low number for Southeast Alaska." She offered to follow
up with the specific dollar amounts for each region. She said
there is growing interest in the Arctic and she's heard
anecdotally that tour companies have worked hard to partner with
local communities. She acknowledged that some communities are
not ready to host visitors and that may be a factor in where
cruise ships visit.
SENATOR HUGHES asked when she thinks Arctic tourism will be at
full throttle and economic benefits can be expected.
MS. LEONARD said the first cruise ship went through Arctic
waters 18 months ago and it is a good idea for ATIA to include
that area in the Alaska Visitor Statistics Program to be able to
capture that data.
MS. STEPHENS added that there is more opportunity in the Arctic
than just small cruise ships. Operators north of the Arctic
Circle that offer land excursions are in their busiest months
right now and they are seeing both national and international
travelers.
2:08:15 PM
CHAIR COSTELLO said she is encouraged to hear that ATIA is
discussing a statewide plan for tourism. The committee will hear
from ARDORs on Thursday and can ask if they have considered
tourism as part of their regional economic development plan.
SENATOR GARDNER questioned the benefit of having the TID
contributions collected and processed through the government.
"Can you members not simply contribute to your functioning and
then you don't have to worry about who's making the decision and
governing, who pays and how it's spent? It's all up to you now."
MS. LEONARD replied that will likely be part of the discussion
with the legislature going forward.
CHAIR COSTELLO thanked the presenters.
2:10:22 PM
At ease
^Department of Transportation & Public Facilities Presentation:
Alaska International Airport System
2:13:13 PM
CHAIR COSTELLO reconvened the meeting and invited Mr. Binder to
come forward. She said Mr. Binder was invited to discuss air
cargo, its impact on the economy, and any thoughts on how to
keep that sector strong and thriving during this recession. She
noted that Commissioner Luiken was present.
2:14:13 PM
JOHN BINDER, Deputy Commissioner, Alaska Department of
Transportation and Public Facilities, reported that the Alaska
International Airport System (AIAS) is thriving, largely due to
low fuel prices. He agreed with the previous speakers that the
tourism industry has a large impact on airport traffic and AIAS
has benefited.
He informed the committee that the Department of Transportation
and Public Facilities (DOTPF) owns and operates 242 airports.
The airports in Anchorage and Fairbanks are separated by statute
as international enterprise systems so they are self-sustaining.
The remaining 240 airports are referred to as the rural system.
The presentation today is focused on the international piece
with a few references to the rural system.
MR. BINDER displayed the aviation mission statements for the
Department of Transportation and Public Facilities, the Alaska
International Airport System, and Statewide Aviation.
2:16:20 PM
He spoke to the AIAS vision and core values.
Our Vision:
By 2030, AIAS is a global nexus for aviation-related
commerce
•We will be a model government-owned enterprise,
adaptive and agile
•We will proactively address global changes and world
markets
•We will operate safely while striving for efficiency
•We will optimize our contribution to Alaska's economy
and quality of life
•We will involve, value, and balance the interests of
stakeholders
•We will be a coveted place to work
Our Core Values:
Integrity: Honesty, dependability, unity, and a high
ethical standard
Enterprising: Innovative, proactive, pioneering,
business-centric airport system
Excellence: Commitment to improve and a passion to
provide superior service and infrastructure
Respect: Professional regard for colleagues and
customers
2:17:02 PM
MR. BINDER said the international airports work together and
benefit each other. Carriers come to Anchorage knowing that
Fairbanks is a ready alternate.
CHAIR COSTELLO related that the Ted Stevens Anchorage
International Airport is in her district and some of her
constituents have concerns about communication with the airport.
She asked him to discuss how the enterprise management structure
works to interact with the community.
MR. BINDER explained that as deputy commissioner, he serves as
the executive director of the Alaska International Airport
System. The managers of the two airports report directly to him,
but have complete control of their respective airports.
Regarding public engagement, the governor has an aviation
advisory board that represents the various stakeholder groups.
These include representatives for passenger airlines, cargo
airlines, regional airlines, communities, the unorganized
borough, and organized boroughs. The different aviation groups
and air carriers also have avenues to both him and the airport
managers. Because DOTPF falls under the Administrative Act, all
public engagement includes hearings and public notice.
CHAIR COSTELLO asked if he believes there is room for
improvement or if he is happy with the way that process is
working.
MR. BINDER replied he is generally happy with the way things are
working, but believes that communication can always be improved.
CHAIR COSTELLO said, "I actually would be interested in making
improvements to that in terms of outreach to the local
community." She added that she would be very interested in
meeting with him to pursue this further. "It might be time to
give more confidence to those neighbors who live near the
airport."
MR. BINDER said he would be happy to discuss that further.
He displayed a depiction of a world map to illustrate the
strategic location of the Anchorage and Fairbanks airports. They
are within 9.5 hours of 90 percent of the industrialized world
and, except for 9/11, these airports have never been closed at
the same time.
2:21:20 PM
MR. BINDER discussed what an economic engine AIAS is for the
Alaskan economy. The Ted Stevens Anchorage International Airport
accounts for 1 in 10 or 15,577 jobs. It has about $724 million
in direct annual payroll and another $303 million in annual
payroll for jobs in the community. Fairbanks International
Airport accounts for 1 in 20 or 1,900 jobs. It has about $225
million in economic output and in 2010 was ranked 85th in the
nation in weight of total mail and freight.
He said a lot of that is fed by the regional impact. He listed
the following: just 2 percent of Alaska's land area is
accessible by road; 82 percent of Alaska communities are not
connected to the road system; and year-round transport of
people, freight and mail is primarily by air.
2:22:10 PM
CHAIR COSTELLO asked if any federal changes regarding weather
reporting stations or the FAA have affected cargo delivery to
communities that only have an aviation option.
MR. BINDER said DOTPF is always striving to get more weather
reporting stations in Alaska and it continues to be a challenge.
They continually strive for more stations. Most of the freight
and all the mail is part of the USPS Bypass Mail System and is
always subject to cuts.
CHAIR COSTELLO summarized that he is not aware of any recent or
upcoming changes that would affect access to those communities.
MR. BINDER said that's correct.
He reviewed the economic contribution of aviation from 2009 to
2012. During that timeframe, aviation accounted for about $3.5
billion or 8 percent of the gross state domestic product and
almost 10 percent of the statewide annual average employment.
2:24:58 PM
MR. BINDER reviewed the attributes of the Anchorage
International Airport. It has three 10,500-foot runways; 60
wide-body parking positions; CAT IIIb ILS; 24/7 operation for
immigration, air traffic, and U.S. Customs; multiple fuel
suppliers; and an in-ground fuel hydrant system. Anchorage is
the number 2 airport in North America for landed cargo weight;
number 1 for excellence for 5 years running; number 4 in the
world for cargo throughput, and a five-time recipient of the
award for excellent snow and ice control.
Anchorage International Airport has about 5 million passengers
that enplane and deplane each year; cargo throughput is 2.4
million tons; and about 70 wide-body freight aircraft land and
takeoff each day. It is a major gateway for FedEx and UPS, and
most of the cargo traffic through Anchorage and Fairbanks are
Asian carriers.
He displayed data from the Airports Council International that
shows that Anchorage International Airport ranks second
domestically and fourth worldwide for metric tons of cargo
moved.
2:27:13 PM
MR. BINDER reviewed the attributes of the Fairbanks
International Airport. It has one 11,800-foot runway; CAT IIIb
ILS; 33 aircraft parking positions; 97 percent Visual Flight
Rules (VFR); 24/7 operation for immigration, air traffic, and
U.S. Customs; ground service, deicing, catering to all size
aircraft, a convenient 1,065,800 square foot cargo apron; and
five heavy cargo parking positions.
Fairbanks International Airport has over 1 million passengers
that enplane and deplane each year; is a vital connection to
rural Alaska; is a popular winter tourism destination and the
gateway to Denali Park; is a premier cold weather testing
location; and has an active GA area with multiple surfaces
including a 6,000-foot runway, a ski strip in the winter, a
gravel strip in the summer and a float pond water strip.
2:28:02 PM
MR. BINDER explained that commencing July 1, 2013, 29 airlines
signed a ten-year operating agreement with AIAS. The signatory
carriers share financial risk in exchange for capital and
operating input and they receive reduced landing rates and fees.
The rates and fees are set to meet the anticipated budget each
year. There are quarterly meetings during which there is a
complete financial review.
He reviewed the cargo/passenger activity from FY07 to FY17. The
peak was 2007 and 2008 and it's been down 20 percent to 30
percent since then. He pointed out that the slide is based on
weight of aircraft and freight landed. As the industry has
continued to upgrade, it takes fewer aircraft to move the same
amount of cargo. Thus, the total landed weight has decreased
while the amount of cargo, primarily international, has remained
constant. Instate freight is constant at about 100 million
pounds and international passenger traffic has slacked off as
passenger carriers have improved their fleets to aircraft that
don't need to stop to refuel.
2:30:20 PM
MR. BINDER explained that overall activity is measured based on
certified maximum gross takeoff weight (CMGTW). This is how the
carriers are assessed landing fees. He noted that things are
going well in the current year (FY17).
He displayed a pie chart that depicts the FY16 carrier market
share by CMGTW. He pointed out that Cathay Pacific Airways, UPS,
China Airlines, and Korean Air tend to dominate, and that most
carriers are not American. He displayed a depiction of the globe
to illustrate why carriers stop in Anchorage for fuel. "You draw
the lines connecting Asia and North America and you're flying
right over the top of Alaska." Carriers have the option of
flying half full and avoiding a stop in Anchorage to refuel or
flying completely full and stopping for fuel. Generally, it's
more profitable to take on full weight and stop to refuel.
MR. BINDER pointed to data that illustrates the importance of
the Asian market. He highlighted that almost 80 percent of all
cargo that passes between North America and Asia, passes through
Anchorage, and that most of the revenue comes from cargo. He
displayed a chart showing that passenger activity was up about
4.5 percent in FY16 and is slightly down through December FY17.
Alaska Airlines dominates the passenger market. He pointed to
the domestic and global destinations that have direct service
from Anchorage and Fairbanks. While there are quite a few direct
flights to Asia, they are charters. The direct flights to
Frankfurt and Reykjavik are scheduled, but seasonal.
2:33:35 PM
The AIAS FY16 revenue from airline and tenant customers was
$141.9 million. He reiterated that the system does not have a
profit mindset; the revenue generated is based on projected
costs. He noted that [revenue] exceeded the planned costs by
about $20 million; $10 million was better than expected activity
and the other $10 million related to revenue that was collected
for capital costs.
MR. BINDER reported that the FAA, through its Airport
Improvement Program (AIP), allocates about $200 million to DPTPF
airports. About $50 million goes to Anchorage and Fairbanks
International Airports and the remaining $150 million goes to
the remaining 240 airports in the rural system. He explained
that airports receive these funds based on how much cargo passes
through as a percentage of the overall national total. There is
also a passenger entitlement based on the national total.
Another factor is airports that are not hubs. By law, Alaska
receives a state apportionment and there is also an
apportionment based on population. The FAA also apportions funds
based on nationwide priorities. The current priorities in Alaska
are rural access and safety.
2:35:42 PM
MR. BINDER described the economic development study that is
underway and noted that he has been working on it with the
Municipality of Anchorage. The goal is to find business areas
where value can be added to the things that are happening at the
airport. For example, it would benefit the airport and state to
find ways to have more impact on the cargo that passes through
the airport. Figuring out what those business propositions might
look like and finding the appropriate target is another piece of
the challenge. Right now, they are working on an aircraft
maintenance facility.
2:37:19 PM
MR. BINDER discussed the master plans. He explained that the
AIAS Strategic Plan is focused on results based alignment,
market indicators, revenue-expense ratios, and system
optimization. The annual review is scheduled for February 2017.
Lake Hood is also part of Anchorage International Airport. It is
the largest seaplane base in the world. The Lake Hood Master
Plan is a process required by the FAA every 10 years. The public
comment period for the draft plan ended January 16, 2017 and the
final plan will be released in early spring 2017.
CHAIR COSTELLO asked if Lake Hood is managed with more community
input than the rest of the airport.
MR. BINDER replied the Lake Hood manager works for the Anchorage
airport manager, and there is also a Lake Hood users group that
is involved with the community groups.
He reviewed the future aviation challenges. These include fleet
changes both international and instate, climate change impacts,
and increasing federal compliance requirements.
2:41:57 PM
CHAIR COSTELLO cited the new $40 million Alaska Airlines hanger
and asked how he is actively trying to grow opportunities at the
airport.
MR. BINDER replied the new Alaska Airlines hanger is the big
news, but the department is encouraging opportunity by
advertising that land is available to lease.
SENATOR MEYER asked if raising the fuel tax would impact the
number of international flights that might land at the airport.
MR. BINDER said no because current statute exempts international
traffic from the state fuel tax.
SENATOR MEYER asked if the state gets landing fees from all the
airports.
MR. BINDER replied Anchorage and Fairbanks International
Airports and airports that are run by the local communities all
charge landing fees, but not the other state-owned airports.
SENATOR MEYER asked if the [board] continues to favor increasing
the aviation fuel tax instead of the landing fees.
MR. BINDER said that was the discussion last year and the board
still generally feels that a fuel tax for the industry is the
most equitable way to collect revenue.
SENATOR MEYER said he isn't sure what the impact would be if a
landing fee was charged at all the airports. He assumed that
most of the maintenance costs are in the rural airports.
2:47:00 PM
SENATOR HUGHES asked if he has considered where to spend
additional federal funds for airports if they do come about for
Alaska.
MR. BINDER said AIAS has a prioritized list should those funds
become available.
SENATOR HUGHES asked if economic benefit is part of the criteria
to prioritize a project.
MR. BINDER replied that is one criteria, but safety and runway
structural problems will dominate the scale.
SENATOR HUGHES said she understands that most iPhones that come
into the U.S. come through Alaska and there is a lot of talk
about the space that's available on the return flight. She
identified that as an opportunity.
MR. BINDER replied that is a perfect example of the potential
opportunity to have a distribution center in Alaska that would
add value to a product. In general, aircraft flying east are
full and have been partly empty on the return partly due to the
lack of demand for North American goods. However, that is
gradually changing.
2:51:41 PM
CHAIR COSTELLO thanked Mr. Binder.
^Division of Insurance Presentation: Alaska's Health Care
Insurance
Division of Insurance Presentation
CHAIR COSTELLO welcomed Ms. Wing-Heier and Deputy Commissioner
Parady who were invited to talk about health care insurance.
2:52:18 PM
FRED PARADY, Deputy Commissioner, Department of Commerce,
Community and Economic Development (DCCED), thanked the
legislature for passing House Bill 374 during the last special
session, and appropriating $55 million to the Alaska
Comprehensive Insurance Association fund to stabilize the
individual insurance market. At that time, Alaska had just a
single health insurance carrier and had experienced two previous
years of 35-40 percent rate increases in the individual market.
He said he is happy to report that the effort succeeded, and the
anticipated 42 percent increase dropped to 7.3 percent.
2:54:10 PM
LORI WING-HEIER, Director, Alaska Division of Insurance,
Department of Commerce, Community and Economic Development, said
it's been an active time for the division since June 2016 when
House Bill 374 passed and allowed for the Alaska Reinsurance
Program. It was a lot of work to promulgate regulations and get
the contract for the grant agreement with ACHIA to operate, but
it has been completed and the program is operating.
She clarified that the program was intended to run on a calendar
year and the funds were appropriated for a fiscal year so none
of the $55 million has been spent. The funds were appropriated
on July 1, 2016 and the policies related to that appropriation
began January 1, 2017. She explained that the money is being
held by the state until Premera receives a claim. At that time,
Premera would pay the claim and then it would be ceded to the
Alaska Reinsurance Program.
MS. WING-HEIER agreed with Mr. Parady that passage of the bill
had an immediate result. The anticipated 40-42 percent rate
increase became an average 7.3 percent rate increase. It also
gave the division the authority to apply for a Section 1332
waiver which will likely provide funding for the program going
forward. The application was deemed complete a week ago.
2:57:50 PM
MS. WING-HEIER directed attention to slide 3 that contains
language that repeals what was in the budget last year. Section
10 in the Governor's FY18 Budget re-appropriates the money in
FY17 and asks for an additional $55 million for FY18, but
allowing it to be spent over the calendar year when the
insurance policies actually run. For example, if someone is
treated December 30, 2017, that claim will not be paid in 2017.
It will likely be ceded to the re-insurer in March 2018. She
emphasized the importance of allowing time for that claim to be
processed, ceded to the re-insurer and administered correctly.
2:59:52 PM
She turned to slide 4 that relates to the proposed budget and
request for funding for FY17 and FY18. She clarified that the
$55 million for FY17 was to pay high-cost claims incurred in
calendar year 2017.
MS. WING-HEIER discussed the Section 1332 waiver that the
division could apply for under House Bill 374. This waiver was
not allowed to be granted until January 2017. There have been
just three applications: Hawaii was granted a waiver, California
withdrew its application, and Alaska's was deemed complete. All
the waivers have been different. Hawaii's had to do with the
small group, California's had to do with immigration, and
Alaska's has to do with re-insurance.
She directed attention to the description of a waiver on Slide 6
and noted that the language is ambiguous as to when to apply.
"We were kind of going somewhat by the seat of our pants, hoping
that we could convince them that our [reinsurance program] was
going to be a viable waiver." What can be waived includes:
benefits and subsidies, marketplace and qualified health plans,
the individual mandate, and the employer mandate. Each waiver
application must satisfy four criteria: 1) it must be budget
neutral, 2) it cannot discriminate, 3) it must remain
affordable, and 4) the coverage must remain comprehensive.
3:02:05 PM
MS. WING-HEIER explained that Alaska's application met all the
requirements that the secretary of Health and Human Services
asked the division to provide. This included a description of
the legislation that passed and an analysis and overview of the
program. She noted the link at the bottom of slide 9 for
Alaska's 200-page waiver application.
During the deliberation on House Bill 374, Senate Finance asked
the division to find alternative funding in two years to support
the reinsurance program. "So, we knew we had our work cut out
for us."
3:03:24 PM
MS. WING-HEIER directed attention to the Oliver Wyman Actuarial
Report on slide 11 to explain Alaska's waiver. It shows that the
estimated premium tax credits in Alaska were $233 million for
2018, and with the waiver they are $182 million. The department
is asking the federal government to return that $51.6 million
difference to the state to fund the reinsurance program. She
clarified that the entire $51 million will not come back to the
state, but that is what the waiver represented to the federal
government.
She reported that this idea has stimulated tremendous interest
because it worked so well and stabilized the market. The bill
was innovative, and it was even more innovative to ask for the
waiver. The argument was that the federal government would have
paid this money to Alaska consumers if the state hadn't done
this and the waiver is necessary because the Alaska legislature
has said it wouldn't fund the program forever. The application
was deemed complete by Health and Human Services Secretary
Burwell a week ago.
3:06:43 PM
SENATOR HUGHES asked if the bill and the waiver were her idea.
MS. WING-HEIER replied, "I work with an incredible team."
SENATOR HUGHES asked if she is getting good vibes that the
waiver will be approved.
MS. WING-HEIER answered yes. The Trump transition team reached
out in December because they liked the idea and she took it as a
positive sign that this reinsurance program and funding from the
federal government has a chance of surviving.
SENATOR HUGHES asked if the division would come back to the
legislature for continued funding if this weren't to come
through.
MS. WING-HEIER replied, "There is a real possibility in that to
stabilize the market."
3:09:08 PM
MR. PARADY directed attention to the January 17, 2018 letter
from Secretary Burwell to Governor Walker that cautions that
approval of the waiver is contingent on enacting legislation in
Alaska that appropriates the funds for the Alaska Reinsurance
Program. He said the department is exploring ways to develop
language that satisfies the federal government without
requesting a blank check from the legislature.
He explained that the table on slide 14 that shows how the
Alaska Reinsurance Program and the Section 1332 Waiver would
work is for illustrative purposes. It combines the Oliver Wyman
actuarial analysis and an ISER economic analysis to come up with
an estimate of the savings to the federal government and what it
may be willing to pass back to the state. The best estimate
right now is there will be an $11 million bill to the state and
a $44-45 million cost-share with the federal government.
He summarized that the hope is to see some sort of cost-share
agreement with the federal government where 80 percent of the
funds come back to the state and 20 percent remain a state
obligation. Importantly, the individual market in Alaska is
sustained for Alaskans. He said it isn't that you're subsidizing
500 of the sickest individuals, it's the 23,000 Alaskans who are
in that market, a third of whom are not subsidized, who see
insurance rates that are larger than their mortgage. He added
that this also helps ensure that Alaska has a carrier available
to provide coverage.
CHAIR COSTELLO asked Ms. Wing-Heier to talk about the 80 percent
rule and how Alaska can get a handle on the rising cost of
health care.
3:14:50 PM
MS. WING-HEIER explained that regulation says that insurers will
pay out-of-network claims at the 80th percentile. That has led
to allegations that providers that have little competition are
setting the 80th percentile and driving up the cost of claims.
"It's been a very emotional topic between the insurance industry
and the medical providers and, of course, the consumers are left
in the middle."
MS. WING-HEIER related that earlier this month the division held
scoping hearings to find out what people thought about the 80th
percentile and if it was benefiting Alaskans. The two hearings
were well attended, and more than 60 written comments were
submitted. The takeaway was that insurers are seeing that
certain providers appear to be driving the market. However,
providers who are not specialists testified that they are
charging well below the 80th percentile and they are struggling
to make ends meet. "So, you've got this mixed bag; you hear the
insurers on one part and you've got a divided medical
community."
CHAIR COSTELLO asked if she is suggesting that the legislature
should also address cost transparency.
MS. WING-HEIER replied it must be addressed at some point, but
it may be taken care of depending on what comes out of
Washington, D.C.
MR. PARADY added that while transparency is a major discussion
point, the division is still sorting out the testimony on the
80/20 question and trying to develop ideas.
3:19:22 PM
SENATOR GARDNER asked how quickly the federal government would
move if it decided to pick up on the transparency issue. "Do we
have a couple of years in which we still have to address this
locally?"
MS. WING-HEIER said she can't imagine that it would be less than
a year. She added, "We are looking at it and I think that we
were surprised by the number of comments that we received and
the varying opinions from consumers and, certainly, transparency
was one of them."
She related that she asked the House Labor and Commerce
Committee to introduce the Governor's bill to update the Model
520 Act for the Alaska Life and Health Guarantee Association.
This is the entity that would step in to pay claims if an
insurer fails financially. The Model 520 Act was adopted by the
National Association of Insurance Commissioners in 2009, but
Alaska has yet to adopt those updates. The bill also asks that
the state add hospital and medical service corporations to the
list of those that can be assessed to pay these claims. She
explained the reasoning.
Insurance companies that want to transact business in Alaska
file in one of two ways: as an insurance company or as a
hospital or medical service corporation. Alaska has one very
large insurer in the individual market that has filed as a
hospital and medical service corporation. If that insurer were
to fail in medical, there are not enough remaining members to
pay claims.
CHAIR COSTELLO asked if she had additional comments on the broad
topic of health care.
MS. WING-HEIER replied things are coming fast and furious out of
Washington, D.C. and the division is trying to stay abreast and
provide comments to the Alaska delegation regarding health care
for all Alaskans.
3:24:38 PM
CHAIR COSTELLO thanked Ms. Wing-Heier and Mr. Parady and
reviewed the agenda for Thursday.
3:25:20 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 3:25 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2017.01.24 - ATIA Labor and Commerce Travel Trends.pdf |
SL&C 1/24/2017 1:30:00 PM |
Economic Indicators |
| 2017.01.24 - AIAS Economic Engine.pdf |
SL&C 1/24/2017 1:30:00 PM |
Economic Indicators |
| 2017.01.24 - Div. of Insurance Healthcare Insurance Update.pdf |
SL&C 1/24/2017 1:30:00 PM |
Economic Indicators |
| 2017.01.24 - Div. of Insurance Annual Report 2016.pdf |
SL&C 1/24/2017 1:30:00 PM |
Economic Indicators |
| 2017.01.24 - Presenter Bios.pdf |
SL&C 1/24/2017 1:30:00 PM |
Economic Indicators |