HOUSE FINANCE COMMITTEE March 17, 1999 1:40 P.M. TAPE HFC 99 - 46, Side 1 TAPE HFC 99 - 46, Side 2 TAPE HFC 99 - 47, Side 1 CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:40 p.m. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Vice-Chair Bunde Representative Kohring Representative Austerman Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Representative Norman Rokeberg; Senator Dave Donley; Representative Jeannette James; Alison Elgee, Deputy Commissioner, Department of Administration; Rebecca Gamez, Director, Employment Security Division, Department of Labor; Dan Kanouse, Budget Analyst, Employment Security Division, Department of Labor; Don Dapcevich, Advisory Board on Alcohol and Drug Abuse. TESTIFIED VIA TELECONFERENCE Chris Anderson, Glacier Brew House, Anchorage; Ron Hancock, Moose's Tooth Brewing Company, Anchorage; Douglas B. Griffin, Director, Alcohol Beverage Control Board; Don D SUMMARY HB 69 "An Act relating to the Alcoholic Beverage Control Board; and providing for an effective date." HB 69 was HELD in Committee for further consideration. HB 87 "An Act relating to money credited to the account of the state in the unemployment trust fund by the Secretary of the Treasury of the United States; and providing for an effective date." HB 87 was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Labor, dated 3/5/99. HB 112 "An Act establishing the Alaska public building fund; and providing for an effective date." HB 112 was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Office of the Governor, dated 3/10/99. HOUSE BILL NO. 69 "An Act relating to the Alcoholic Beverage Control Board; and providing for an effective date." REPRESENTATIVE NORMAN ROKEBERG, SPONSOR testified in support of HB 69. He observed that HB 69 would extend the termination date of the Alcoholic Beverage Control Board (ABC) until June 30, 2003. He explained that the date was chosen by the House Labor and Commerce Committee to conform to the recommendation of a 1997 Legislative Budget and Audit Committee audit. During the last Legislature, the termination date was extended to June 30, 1999. Without the passage of this legislation the board would be in its wind down year. Representative Rokeberg maintained that the bulk of the legislation adds limited liability organizations, such as limited liability companies and limited liability partnerships, under the licensing authority of the Board. The Board requested this addition. Representative Rokeberg noted that sections 4 and 5 speak to a problem that arose in 1995, regarding the establishment of an exempt license for restaurant or eating-place establishments in combination with a brewery. He maintained that this allowed combined restaurant and brewery establishments to essentially create a tavern/brewpub without a dispensary license. Prior to this brewpubs were required to have a beverage dispensary liquor license. He asserted that this change created an unfair playing field. Tavern exempt licenses were allowed to compete with beverage dispensary licenses, which cost at that time, upwards of $200 thousand dollars. He noted that HB 372 was passed in 1996. This category of license was deleted under HB 372 and the five existing licenses were grandfathered in. Since that time, one business has gone out of business and another business only produces about 100 kegs of beer a year. The three main establishments are in the Anchorage area. House Bill 69 would allow these businesses to buy a beverage dispensary license and permit the holder of a beverage dispensary/brewpub license to sell their beer at another licensed premises of the same licensee. They would buy a beverage dispensary license and become brewpubs and give up their exempt brewery/restaurant license. Two of the three existing license holders support the measure the other will remain grandfathered into the exempt license by the legislation. There would be two less licenses when the exempt licenses are replaced by beverage dispensary licenses. Representative Rokeberg noted that the legislation also permits a package store licensee to deliver not more than two bottles of wine or champagne in a gift basket with a floral arrangement to a cruise ship passenger or hotel guest. It also permits a package store licensee to deliver alcoholic beverages to a responsible adult at a social event, such as a wedding reception. Representative Rokeberg added that the legislation permits a "corkage" policy to be adopted by the licensee. "Corkage" is where a person is permitted to bring a bottle or bottles of fine wine into a restaurant, with the permission of the licensee. The wine is then turned over and served by employees of a licensee and a "corkage fee" is charged. In response to a question by Co-Chair Therriault, Representative Rokeberg discussed businesses in Anchorage that would be affected by the legislation. Moose's Tooth and the Glacier Brewhouse would be the main parties affected. The legislation would allow these businesses to purchase another premise and deliver beer from the existing brewery to the new establishment. This is currently prohibited. The previous statute prohibited joint ownership of a brewery or a restaurant license. Representative Rokeberg noted that the March 12, 1999, letter of support by the Moose's Tooth provides a good explanation of the legislation (copy on file). Representative Rokeberg maintained that the Cabaret, Hotel, and Restaurant Retail (CHARR) and the Anchorage Restaurant and Beverage (ARBA) associations support the legislation. He stressed that the legislation is a compromise of competitors doing business with each other. He maintained that without the legislation business competition is not level. DOUGLAS B. GRIFFIN, DIRECTOR, ALCOHOL BEVERAGE CONTROL BOARD testified via teleconference in support of the continuation of the sunset date and the limited liability organization language (LLO). He observed that the Board does not object to the other issues added by the House Labor and Commerce Committee. Co-Chair Therriault questioned if the LLO reporting provisions are identical to requirements for other businesses. Mr. Griffin stated that they are identical to what is required for corporations. Mr. Griffin noted that the corporation or entity would have to be in existence for one year. There is a residency requirement for the corporation. Vice-Chair Bunde referred to section 7, which allows delivery to social events. Mr. Griffin stated that the provision needs to be explained in regulation. He observed that there are restrictions on deliveries. Deliveries must be made to a responsible adult, between the hours of 8:00 a.m. and 5:00 p.m. He stressed that a balance must be struck between commercial interest and public protection. Co-Chair Therriault asked how the delivery provision in section 7 would impact their enforcement budget. Mr. Griffin estimated that there would only be 10 - 20 businesses statewide that would take advantage of the provision. He did not expect the provision to greatly impact enforcement. Co-Chair Therriault questioned if "wine" on page 6, line 29 would cover champagne. Mr. Griffin stated that champagne would be included. CHRIS ANDERSON, GLACIER BREW HOUSE, ANCHORAGE testified via teleconference in support of the legislation. He observed that the bill represents a compromise. It would allow them to expand their businesses. Representative J. Davies questioned why the cost of the beverage dispensary licenses is so high. Mr. Anderson explained that there are approximately 10 licenses available in Anchorage at the current time. The number will not increase with population. Representative Moses felt that it is unfair to require a beverage dispensary license. He stated that it would make more sense to require them to get a restaurant or eating- place license. He stressed that the microbrewery industry is new and growing. He felt that the legislation would be restrictive. Representative Rokeberg spoke against Representative Moses' suggestion. He referred to HB 372, passed in 1996. He maintained that the goal of the industry is to repeal the grandfathered licenses. He stated that nothing prohibits breweries from selling their beer independently or becoming a brewpub. Representative J. Davies expressed support for comments by Representative Moses. He questioned why a brewery that wants to sell beer on the premises should have a beverage dispensary license. Any form of alcohol can be sold under a beverage dispensary license. He stated that it would make more sense for them to have a restrictive license. Representative Rokeberg observed that his office compiled a legislative history of the issue (copy on file). He reviewed the legislative history. He maintained that the 1995 legislation provided an unfair advantage. He noted that there are approximately 12 inexpensive restaurant or eating- place licenses available, while beverage dispensary licenses (required to be a brewpub) cost between $125 - $175 thousand dollars and must be bought on the secondary market. Anchorage is over licensed in terms of beverage dispensary licenses. Legislation in 1988 required that brewpubs have a beverage dispensary license. He maintained that unfair competition was created when this was changed in 1995. Representative Moses pointed out that it would be similar to requiring restaurants to have a beverage dispensary license before they can sell wine and beer. He observed that a beverage dispensary license allows the sale of any alcoholic beverage. The cost of a beverage dispensary license is similar to the cost of the equipment needed to begin a brewery. He did not think that the legislation leveled the playing field. Representative Rokeberg asserted that there is not a big market for brewpubs in Alaska. Mr. Griffin noted that there are four brewpub licenses in the state of Alaska. He reiterated that a beverage dispensary license allows the sale of any alcoholic beverage. The brewpub license allows the holder, who formerly held a brewery license and a restaurant or eating-place license, to manufacture limited quantities for sale on the licensed premises and to remove not more than five gallons a day from the premises. Representative J. Davies observed that in 1988, the Legislature required brewpubs to have a beverage dispensary license. In response to a question by Co-Chair Therriault, Mr. Griffin explained that a restaurant or eating-place license is required to sell beer and wine with food. There is only one beverage dispensary license for every 3,000 population. There can be one restaurant or eating-place license for every 1,500 population. Food sales must be at least 50 percent. (Tape Change, HFC 99 - 46, Side 2) Representative Rokeberg reiterated support by CHARR and ARBA. He emphasized that the rules of the game need to be consistent. In response to a question by Representative J. Davies, Representative Rokeberg clarified that the exempt licenses were allowed between the adoption of SB 87 in 1995 and HB 372 in 1996. Representative J. Davies observed that a restaurant or eating-place license allows the sale of beer and wine. He questioned the difference between a restaurant that wants to sell beer and a restaurant that wants to sell beer that it makes on the premises. Representative Rokeberg responded that it has to do with the changing patterns of alcohol consumption and the greater popularity of microbreweries. Representative J. Davies suggested that the 1988 law should be reversed to level the playing field. He did not understand why a brewpub that wants to sell beer is being treated substantially different from a restaurant that sells beer and wine. Representative Rokeberg observed that the brewpubs had limited menu options. Mr. Anderson clarified he was originally licensed with a brewery and a restaurant or eating-place license. This allowed them to brew unlimited beer and sell beer and wine in the restaurant. He clarified that their food sales are 77 percent of their total sales. Beer accounts for only 12 percent of their total sales. They are asking to be able to expand. He observed that they would need to brew 200,000 barrels of beer a year to be profitable without the sale of beer. RON HANCOCK, MOOSE'S TOOTH BREWING COMPANY, ANCHORAGE testified via teleconference in support of HB 69. He stated that their food sales are over 70 percent of the total. Beer sales account for 10 - 20 percent of the total. He stressed that they need the opportunity to grow as other restaurants do. He stressed that it is not logical that the brewery, which is a small part of their business, should hold them back from growth. Co-Chair Therriault clarified that if they expanded to another location that the brewery would not be duplicated. Mr. Hancock stated that at the time they created their business that the statutes allowed them to open multiple locations. That right was taken away. Their intention at inception was to open multiple restaurants. Representative Rokeberg clarified that the restriction is under AS 04.11.450. Senator Halford introduced this language in 1996. "A person who is a representative or owner of a wholesale business, brewery, winery, bottling works, or distillery may not be issued, solely or together with others, a beverage dispensary license, a restaurant or eating-place license, or package store license. A holder of a beverage dispensary license may be issued a brewpub license, subject to the provisions of AS 04.11.135. The prohibition against issuance of a restaurant or eating-place license imposed under this subsection does not apply to a restaurant or eating- place license issued on or before October 1, 1996 or a restaurant or eating-place license issued under an application for a restaurant or eating-place license approved on or before October 1, 1996." Co-Chair Therriault observed that Mr. Larry Hackenmiller, CHARR indicated that CHARR supports the bill, but that they have some concerns over whether or not the brewhouse operators are satisfied with the language. Representative Rokeberg pointed out that the legislation is a negotiated compromise between CHARR and the brewhouse operators. Mr. Hancock emphasized that the legislation allows them to grow. Mr. Anderson added that it is a compromise that can work. Representative G. Davis asked for more information regarding section 12, corkage fee. Representative Rokeberg noted that the provision would be at the discretion of the licensee. DON DAPCEVICH, ADVISORY BOARD ON ALCOHOL AND DRUG ABUSE testified in support of the original legislation. He observed that the Board has not reviewed the House Labor and Commerce Committee amendments. He noted that the Advisory Board on Alcohol and Drug Abuse and the Alcohol Beverage Control Board work together. He stated that if beverage dispensary licenses were calculated only by population that there would need to be a population of 1.6 million people to accommodate the existing number of licenses. Representative J. Davies questioned if comparisons have been made between restaurants and taverns. Mr. Dapcevich observed that the number of alcohol related instances are less when food is sold in addition to alcohol. He observed that the concern in 1995 was that a new tavern industry was being created. He stressed that there is a difference between having a primary emphasis of alcohol and entertainment or food service. Representative J. Davies pointed out that businesses that sell more than 70 percent food are being required to get beverage dispensary licenses that would allow them to sell more forms of alcohol. He thought that the legislation moves in the wrong direction as a matter of public policy. He stressed that allowing these establishments to be a restaurant with a beer and wine license should solve the problem. Co-Chair Therriault asked if a second location could be opened and the beer purchased from the first establishment. Representative Rokeberg replied that they would not be allowed to sell their beer at the second location. Representative Rokeberg acknowledged that the fears of competitors in regards to the alcohol/food ratio have proven in practical application not to be justified. He pointed out that if a new type of license were created that they would be in competition with existing beverage dispensary licensees. Representative J. Davies asked if Mr. Anderson and Mr. Hancock would support the ability to operate under a restaurant or eating-place license and a brewery license. Mr. Anderson stated that he would support such a scenario. He observed that CHARR and ARBA rejected similar legislation, which was introduced at the request of the Alcohol Beverage Control Board. He acknowledged that HB 69 is a compromise. Mr. Hancock pointed out that after they purchase a beverage dispensary license and convert their original license they would only have to buy restaurant or eating-place licenses for additional locations. Mr. Griffin clarified, in response to a question by Representative Rokeberg, that there are two brewpubs that have beverage dispensary licenses. He noted that the first brewpub was established in 1994. He noted that the Alcohol Beverage Control Board was asked to present a recommendation for the issue in 1996. The Alcohol Beverage Control Board introduced SB 138 during the 1997 session. They recommended that a restaurant or eating-place establishment be allowed to purchase a brewpub license. The Board expanded what a brewpub could do through marketing. The reason the legislation did not move was that the beverage dispensary licensees objected. He observed that the legislation by the Alcohol Beverage Control Board tried to push the industry toward beverage moderation. The Senate Finance Committee introduced the legislation on behalf of the Alcohol Beverage Control Board. SENATOR DAVE DONLEY provided information regarding the extension of the Alcohol Beverage Control Board's sunset date. He observed that the Legislative Budget and Audit Committee made recommendations in their sunset audit (September 8, 1997, copy on file). The Senate adopted some of the audit's recommendations. He discussed concerns and recommendations of the audit. The House only adopted one of the audit's recommendations. The Senate limited the sunset to a one-year extension. Members of the Senate felt that it was important that the audit's recommendations be addressed. He suggested that the title be broad enough to consider the recommendations of the Legislative Budget and Audit Committee's audit. He noted that the current title would not allow the Senate to address concerns raised by the audit without a title change. (Tape Change, HFC 99 -47, Side 1) HB 69 was HELD in Committee for further consideration. HOUSE BILL NO. 112 "An Act establishing the Alaska public building fund; and providing for an effective date." REPRESENTATIVE JEANETTE JAMES, SPONSOR testified in support of HB 112. She observed that HB 112 would establish the Alaska Public Building Fund as recommended by the Deferred Maintenance Task Force. The fund would be established within the general fund. The money in the fund would not lapse at the end of the year. The Administration plans to set up a rent schedule for state owned office space. The rent would be deposited into the Alaska Public Building Fund. It could then be used for maintenance. Co-Chair Therriault pointed out that the House Finance Committee reviewed similar legislation during the previous session. The legislation failed to pass in the final hours. Representative James clarified that agencies would pay rent for the space they utilize in state buildings. The rent would be calculated based on the depreciation and value of the property. The rent money could then be used for maintenance issues. She observed that money needs to be accumulated for long term maintenance. Co-Chair Therriault pointed out that the money would still be general funds. There would be no prohibition on future legislatures. He asked if the money would be identified as other funds. Representative James felt that it would be general funds. Co-Chair Therriault noted that "agencies" was changed to "occupant" in order to take into account private occupancy in the Bank of America building. Representative Grussendorf spoke in support of the legislation. Co-Chair Therriault noted that pressure to spend the funds for other items would remain. Representative J. Davies expressed concern that not all agencies would participate in the program equally. He suggested that participation be based on a square foot formula. He asked the meaning of "use" on page 2, line 1. Representative James observed that maintenance has to be described. She emphasized the need to fund long term maintenance. ALISON ELGEE, DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION testified in support of the legislation. She explained that there are a variety of federal rules that govern the way rental rate funds are established. The Administration is working with a statewide indirect cost consultant to develop a rate schedule to take to the federal government for approval. The rate schedule includes annual maintenance costs, janitorial service, and utilities. These costs are currently appropriated in the Department of Transportation and Public Facilities's budget for public facility maintenance. She stressed that it allows them to add depreciation. Depreciation would be added into the rental structure and collected for major maintenance renewal and replacement components. Each program will pay based on their space occupancy. The money will go into the fund. Annual operating and maintenance costs would be appropriated out of the fund. The capital budget would use the fund for replacement of building components. The monies would be accounted as general fund in the agency's program budget. When the funds are appropriated out of the building fund they would be accounted as an internal service fund source. The legislation would allow the state to leverage other funds. Co-Chair Therriault questioned if the same dollar would be counted twice. Co-Chair Mulder explained that the funds would be backed out. Co-Chair Therriault questioned if the funds carried forward for renewal and replacement would also be backed out. Ms. Elgee clarified that the capital expenditure would also be backed out as duplicated expenditures. Representative J. Davies summarized that there would be annual operating expenses and capital expenses. He asked the definition of "use". Ms. Elgee clarified that "use" is intended to encompass all of the components of the maintenance schedule. She observed that the components of the rental schedule would be the management (administration and overhead of operating maintenance personal), operations (utilities), maintenance (janitorial), and the depreciation costs (renewal and replacement). "Use" was used to clarify the sentence. She emphasized that everything would be covered under management, operation, maintenance and depreciation. Representative Austerman observed that major maintenance and depreciation are the two new things that would be accomplished by the legislation. Ms. Elgee explained that the failure to provide sufficient funding on an annual basis creates problems. The deferred maintenance backlog has developed because of an inability to replace major building components on a timely basis and because major building components have deteriorated more rapidly then anticipated. The legislation would allow an expansion of dollars available for annual maintenance by leveraging other fund sources that are not being charged for their space cost and provide a pool of funds for major building component replacements. Representative Grussendorf asked if the federal government or other entities occupy space in state buildings. Ms. Elgee stated that there is federal and private occupancy in the Bank of America building and private occupancy in the Court Plaza building. Representative Grussendorf observed that "use" broadens the language, but that the wording "management, operation, maintenance, and depreciation" would be sufficient. Co-Chair Therriault noted that there is a zero fiscal note. Representative Kohring MOVED to report HB 112 out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 112 was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Office of the Governor, dated 3/10/99. HOUSE BILL NO. 87 "An Act relating to money credited to the account of the state in the unemployment trust fund by the Secretary of the Treasury of the United States; and providing for an effective date." REBECCA GAMEZ, DIRECTOR, EMPLOYMENT SECURITY DIVISION, DEPARTMENT OF LABOR testified in support of HB 87. She observed that HB 87 provides statutory language to allow a federal Reed Act distribution. She explained that the current statute AS 23.20.145(f) allows Reed Act funds to be used for the payment of unemployment benefits and the administration of both the Employment Services program and the Unemployment Insurance program. Under the Balance Budget Act of 1997, Congress specified that the distribution of these funds could only apply to the administration of unemployment insurance. The Balance Budget Act also required states to pass enabling legislation. The Reed Act distribution is a transfer of excess funds that are collected through the federal Unemployment Tax Act. When these funds have met a proscribed federal ceiling they give the excess back to the state. The last Reed Act distribution was in 1958. The legislation would allow the state to receive the funds. In response to a question by Co-Chair Therriault, Ms. Gamez explained that the administrative funds would be used for equipment purchases. They anticipate a distribution of $600 - $700 thousand dollars. She observed that $500 - $600 thousand dollars were shifted from an unemployment tax redesign capital improvement project to meet their Y2K needs. The Reed Act distribution would be used to replace the capital project funds. There are no general funds in this component. The department has two years to obligate the funds. Representative Kohring asked how much of the money was paid into the system by Alaskan business. Ms. Gamez stated that the Alaska base is divided by the federal base. Alaskan employers do not pay in as much as other states. The state receives more back then it pays in. Representative Kohring asked if Alaskan businesses could receive a rebate. Ms. Gamez stated that they have not considered a rebate. She noted that Alaska receives 320 percent back for administrative funding. The next highest state receives 120 percent. She did not think that a rebate would substantially lower employer taxes. Co-Chair Mulder asked if the funds were limited to administration of unemployment compensation. Ms. Gamez stated that they were limited to administration of unemployment compensation. Co-Chair Therriault asked if a square footage fee charged to the program for their space in a state building would be covered under administrative costs. Ms. Gamez thought that the rental fee would be covered under administration as long as it was square footage for offices that administered the unemployment insurance program or tax sections. She noted that there are offices in Juneau, Anchorage and other parts of the state. In response to a question by Co-Chair Therriault, Ms. Gamez clarified that the department expects three distributions beginning in 1999. Co-Chair Mulder observed that the funds would have to be appropriated by the legislature. He summarized that a portion could be appropriated to an Alaska Public Building Fund. Ms. Gamez explained that the funds would be appropriated from the rent collections to the Unemployment Security Division. The money could then be applied to the square footage of maintenance in state buildings. Co-Chair Therriault clarified that it is not an appropriation bill. DAN KANOUSE, BUDGET ANALYST, EMPLOYMENT SECURITY DIVISION, DEPARTMENT OF LABOR explained that the Department of Labor would receive the funds on October 1, 1999 for use in FY00. Representative J. Davies MOVED to report HB 87 out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 87 was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Labor, dated 3/5/99. ADJOURNMENT The meeting adjourned at 3:50 p.m. House Finance Committee 13 3/17/99