04/30/2004 09:12 AM Senate FIN

                                                                                                                                
     HOUSE BILL NO. 503                                                                                                         
     "An Act relating to the tobacco product Master Settlement                                                                  
     Agreement; and providing for an effective date."                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken stated this  bill, sponsored  by the House  Finance                                                            
Committee,  "was drafted  by the National  Association of  Attorneys                                                            
General and was  unanimously supported by its membership.  It closes                                                            
a loophole that benefits  tobacco manufacturers that are not covered                                                            
under the Master Settlement Agreement."                                                                                         
                                                                                                                                
TOM WRIGHT,  Staff  to Representative  John Harris,  reiterated  Co-                                                            
Chair Wilken's  statement. Mr. Wright noted that currently  AS 45.53                                                            
requires all  non-participating manufacturers  to deposit  a certain                                                            
amount of  money into an  escrow account with  the intent to  "level                                                            
the playing field". The  amount this year is two cents per cigarette                                                            
and every manufacturer  of a cigarette deposits that  amount into an                                                            
escrow account.                                                                                                                 
                                                                                                                                
Mr.  Wright  stated that  the  loophole  allows  those who  did  not                                                            
participate  in the Master  Settlement Agreement,  to withdraw  from                                                            
this escrow account,  anything above their eligible  share. Alaska's                                                            
allocable share  is about .34 percent.  He referenced a spreadsheet                                                             
prepared  by the  Department  of  Law titled,  "NPM  Escrow  Release                                                            
Calculations for  hypothetical non participating manufacturer  Cheap                                                            
Smokes,  Inc." [copy  on file]  detailing the  consequences of  this                                                            
loophole.  He  demonstrated   that  regardless   of  the  number  of                                                            
cigarettes  a non-participating  manufacturer  sells in Alaska,  the                                                            
manufacturer could maintain  a balance in the escrow account of only                                                            
the  amount  of  Alaska's  allocable  share,   thus  permitting  the                                                            
manufacturer  to  pay  significantly  less  than  the participating                                                             
manufacturers.                                                                                                                  
                                                                                                                                
Mr.  Wright  informed  that  this  legislation  would  provide  that                                                            
participating  and  non-participating  manufacturers  would both  be                                                            
required to contribute the same amount to the escrow account.                                                                   
                                                                                                                                
Mr. Wright noted  the bill is comprised of three sections,  with the                                                            
provision   that   if  the   first   section   were  found   to   be                                                            
unconstitutional,  the language of  Section 2 would be implemented.                                                             
If the  court  determines  that neither  section  is valid,  statute                                                            
would revert to existing language.                                                                                              
                                                                                                                                
MICHAEL  BARNHILL,   Assistant  Attorney  General,  Commercial/Fair                                                             
Business  Section, Civil  Division,  Department of  Law, added  that                                                            
similar  legislation has  been enacted  in at least  29 states.  The                                                            
purpose is  to close the loophole  unintentionally created  when the                                                            
statute was  first adopted in 1999.  The loophole was the  result of                                                            
an assumption  that non-participating manufacturers'  sales would be                                                            
in all states and therefore  the relative percentage of sales in all                                                            
states would  mimic the allocable  share. This  has not proved  true                                                            
and non-participating  manufacturers are selling to  "niche markets"                                                            
in  a few  states  and  thus  the  market  share in  each  state  is                                                            
significantly higher than the allocable share.                                                                                  
                                                                                                                                
Senator  Dyson  understood  from the  sponsor  statement  that  this                                                            
legislation  would only  apply to  cigarette. He  asked if it  would                                                            
apply to other tobacco products as well.                                                                                        
                                                                                                                                
Mr. Barnhill responded  that the Master Settlement Agreement applies                                                            
only to cigarettes.                                                                                                             
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.