02/25/2016 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB72 | |
| SB141 | |
| SB127 | |
| SB149 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 127 | TELECONFERENCED | |
| *+ | SB 149 | TELECONFERENCED | |
| *+ | SB 152 | TELECONFERENCED | |
| *+ | SB 118 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 72 | TELECONFERENCED | |
| += | SB 141 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 25, 2016
1:31 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Cathy Giessel, Vice Chair
Senator Kevin Meyer
Senator Gary Stevens
MEMBERS ABSENT
Senator Johnny Ellis
COMMITTEE CALENDAR
SENATE BILL NO. 72
"An Act relating to caregivers of patients after release or
departure from a hospital; and providing for an effective date."
- MOVED CSSB 72(L&C) OUT OF COMMITTEE
SENATE BILL NO. 141
"An Act relating to possession of an electronic smoking device,
e-liquid or e-liquid product, vapor product, or alternative
tobacco product by a minor and to selling or giving an
electronic smoking device, e-liquid or e-liquid product, vapor
product, or alternative tobacco product to a minor."
- MOVED CSSB 141(L&C) OUT OF COMMITTEE
SENATE BILL NO. 127
"An Act relating to actions by insurers based on credit history
or insurance score; and providing for an exception to
consideration by an insurer of credit history or insurance
score."
- HEARD & HELD
SENATE BILL NO. 149
"An Act relating to the dividends from the Alaska Industrial
Development and Export Authority; relating to the meaning of
'mark-to-market fair value,' 'net income,' 'project or
development,' and 'unrestricted net income' for purposes of the
Alaska Industrial Development and Export Authority; and
providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 152
"An Act relating to a money services business; relating to
transmitting value that substitutes for money; relating to
licensing requirements and registration through the Nationwide
Multistate Licensing System and Registry; relating to surety
bonding requirements; authorizing certain licensees to contract
to use subdelegates for reloading funds onto stored-value cards;
relating to record retention, reporting requirements, and
enforcement provisions; relating to exemptions; relating to
money services Internet activities; relating to definitions
regarding the transmitting value, currency, and money
transmission business activities; and providing for an effective
date."
- BILL HEARING CANCELED
SENATE BILL NO. 118
"An Act relating to surveys required to be submitted to the
Department of Natural Resources; relating to peer review by the
State Board of Registration for Architects, Engineers, and Land
Surveyors of required surveys submitted to the Department of
Natural Resources; and providing for an effective date."
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: SB 72
SHORT TITLE: DESIGNATED CAREGIVERS FOR PATIENTS
SPONSOR(s): SENATOR(s) GIESSEL
03/11/15 (S) READ THE FIRST TIME - REFERRALS
03/11/15 (S) HSS, L&C
04/10/15 (S) HSS AT 1:30 PM BUTROVICH 205
04/10/15 (S) Heard & Held
04/10/15 (S) MINUTE(HSS)
02/01/16 (S) HSS AT 1:30 PM BUTROVICH 205
02/01/16 (S) Moved CSSB 72(HSS) Out of Committee
02/01/16 (S) MINUTE(HSS)
02/03/16 (S) HSS RPT CS 2DP 2NR NEW TITLE
02/03/16 (S) DP: GIESSEL, STOLTZE
02/03/16 (S) NR: STEDMAN, ELLIS
02/23/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
02/23/16 (S) Heard & Held
02/23/16 (S) MINUTE(L&C)
02/25/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 141
SHORT TITLE: E-CIGS: SALE TO AND POSSESSION BY MINOR
SPONSOR(s): SENATOR(s) STEVENS
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) L&C, JUD
02/04/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
02/04/16 (S) Heard & Held
02/04/16 (S) MINUTE(L&C)
02/18/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
02/18/16 (S) Heard & Held
02/18/16 (S) MINUTE(L&C)
02/25/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 127
SHORT TITLE: INSURER'S USE OF CREDIT HISTORY/SCORES
SPONSOR(s): SENATOR(s) HUGGINS
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) STA, L&C
02/11/16 (S) STA AT 9:00 AM BUTROVICH 205
02/11/16 (S) Heard & Held
02/11/16 (S) MINUTE(STA)
02/16/16 (S) STA AT 9:00 AM BUTROVICH 205
02/16/16 (S) Moved SB 127 Out of Committee
02/16/16 (S) MINUTE(STA)
02/17/16 (S) STA RPT 4DP 1AM
02/17/16 (S) DP: STOLTZE, COGHILL, HUGGINS, MCGUIRE
02/17/16 (S) AM: WIELECHOWSKI
02/25/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 149
SHORT TITLE: AIDEA:DIVIDEND TO STATE;INCOME;VALUATION
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/21/16 (S) READ THE FIRST TIME - REFERRALS
01/21/16 (S) L&C, FIN
02/25/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
JANE CONWAY, Staff
Senator Cathy Giessel
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided an explanation of changes for SB
72.
TIM LAMKIN, Staff
Senator Gary Stevens
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided a sectional analysis for the
committee substitute for SB 141.
SENATOR CHARLIE HUGGINS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 127.
LAUREN RASMUSSEN, Staff
Senator Charlie Huggins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided an overview of SB 127 on behalf
of the sponsor.
LORI WING-HEIER, Director
Division of Insurance
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to SB 127.
KRISTIE BABCOCK, Agent
State Farm Insurance
Kenai, Alaska
POSITION STATEMENT: Testified in support of SB 127.
GARY STRANNIGAN
Safeco and Liberty Mutual Insurance
POSITION STATEMENT: Testified in support of SB 127.
MARK CHOATE, representing himself
Juneau, Alaska
POSITION STATEMENT: Testified on SB 127.
DANIEL LYNCH, representing himself
Kenai, Alaska
POSITION STATEMENT: Testified in support of SB 127.
TIM MAUDSLEY, President
Alaska USA Insurance Brokers
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 127.
ARMAND FELICIANO
Property Casualty Insurers Association of America
California
POSITION STATEMENT: Testified in support of SB 127.
CINDA SMITH
Geico Insurance Company
Maryland
POSITION STATEMENT: Stated support for SB 127.
JEFFERY KINSEY
State Farm Insurance
Bloomington, Illinois
POSITION STATEMENT: Testified in support of SB 127.
GENE THERRIAULT, Policy Director
Alaska Industrial Development and Export Authority (AIDEA)
Anchorage, Alaska
POSITION STATEMENT: Introduced SB 149.
MICHAEL LAMB, Chief Financial Officer
Alaska Industrial Development and Export Authority (AIDEA)
Anchorage, Alaska
POSITION STATEMENT: Delivered a PowerPoint relating to SB 149.
ACTION NARRATIVE
1:31:58 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:31 p.m. Present at the call to
order were Senators Giessel, Stevens, and Chair Costello.
Senator Meyer arrived during the introductory remarks.
SB 72-DESIGNATED CAREGIVERS FOR PATIENTS
1:32:32 PM
CHAIR COSTELLO announced the consideration of SB 72. She noted
that public testimony was closed on 2/23/16, and asked for a
motion to adopt the work draft committee substitute (CS).
1:32:53 PM
SENATOR GIESSEL moved to adopt the work draft CS for SB 72,
labeled 29-LS0047\L, as the working document.
1:33:07 PM
CHAIR COSTELLO objected for an explanation.
1:33:24 PM
JANE CONWAY, Staff, Senator Cathy Giessel, said these changes
were made working in conjunction with the Alaska Nurses
Association and the Alaska State Hospital and Nursing Home
Association (ASHNHA). She read from the following prepared
explanations of changes: [Original punctuation provided.]
1. Deletes the word "lay" in these places:
Page 1, line 8, 11, 14
Page 2, line 1, 3, 7, 18
Explanation: Eliminates use of term "lay caregiver" as
a defined term (which we've deleting from the
definitions) and uses the term we're using which is
"designated caregiver."
2. On page 1, line 9:
Delete "in the patient's home"
Insert "in a private residence"
Explanation: Patients may not always receive aftercare
in their home, but perhaps in a sibling's or child's
home.
3. On page 2, lines 8-9:
After "patient", delete ".",
insert "," and the following new language:
"including professional follow-up as specified
in the discharge plan."
Explanation: The purpose of the addition is to
explicitly acknowledge that often follow up will be
required by the patient's primary care provider or a
specialized care provider.
4. Page 2, line 29 deletes "an instruction contractor"
and adds
" a person who contracts with the hospital to provide
instruction to a designated caregiver"
5. Page 3, line 7 deletes "individual" and inserts
"patient"
6. On page 3, line 16 deletes the word "lay" and adds
"in a private residence" after the word "patient"
Explanation: This clarifies that the caregiving will
not be occurring in a healthcare facility.
7. Page 3, line 22-24 Adds the definition of "private
residence":
"private residence does not include a rehabilitative
facility, a hospital, a nursing home, an assisted
living facility, a group home or another licensed
health care facility."
8. On page 3, lines 20-21 of version F
Delete the definition of "lay caregiver"
Explanation: Keeping this in as a definition is
confusing and redundant with definition of "designated
lay caregiver" in this same section. There's no need
to define the term.
1:37:32 PM
SENATOR STEVENS asked if the bill defines the training the
hospital will provide to caregivers.
MS. CONWAY replied there was a specific list initially, but this
version directs hospitals to write their own policies using best
practice methods. This gives hospitals more latitude to write
their policies and provide training that is pertinent to a
patient's particular needs.
SENATOR STEVENS said he'd like more specific direction regarding
what the hospital is being asked to do.
SENATOR GIESSEL said the Centers for Medicaid and Medicare
Services already have checklists that hospitals use for
discharge planning so the very specific list in the initial bill
raised concern. Most hospitals already provide discharge
training and this bill is intended to ensure that all hospitals
do that.
1:40:01 PM
CHAIR COSTELLO removed her objection and version L was before
the committee. Finding no further questions, she solicited a
motion.
1:40:12 PM
SENATOR GIESSEL moved to report the CS for SB 72, labeled 29-
LS0047\L, from committee with individual recommendations and
attached fiscal note(s).
1:40:25 PM
CHAIR COSTELLO announced that without objection, CSSB 72(L&C) is
reported from the Senate Labor and Commerce Standing Committee.
1:40:28 PM
At ease
SB 141-E-CIGS: SALE TO AND POSSESSION BY MINOR
1:41:42 PM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 141. She noted that public testimony was
closed on 2/18/16, and asked for a motion to adopt the work
draft committee substitute (CS).
1:42:07 PM
SENATOR GIESSEL moved to adopt the work draft CS for SB 141,
labeled 29-LS1258\P, as the working document.
CHAIR COSTELLO objected for discussion purposes.
1:42:38 PM
TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State
Legislature, sponsor of SB 141, reminded the committee that this
bill is about protecting Alaska's youth and it treats e-
cigarettes and all their components the same as tobacco. Similar
to tobacco, vendors would be required to get a business license
endorsement to sell electronic smoking products of any kind. The
requirements relating to vending machines, signage, and
penalties for violating the statutes also would be the same as
for tobacco. The definition for electronic smoking product is
consolidated to keep any loophole from being exploited regarding
what these products really are.
He displayed a short video to illustrate the possible dangers of
these products.
MR. LAMKIN provided the following sectional analysis for version
P:
Section 1: AS 11.76.105(a) Adds to existing law
that, as with prohibiting minors from possessing
cigarettes or tobacco, to also prohibit possession of
electronic cigarettes and any component thereof.
Section 2: AS 11.76.107(a) Adds to existing law
that, as with tobacco product vending machines,
vending machines dispensing electronic cigarette or
nicotine products must also be supervised.
Section 3: AS 11.76.109(a) Adds to existing law that a
minor may not sell tobacco or nicotine products, nor
sell electronic cigarettes, or any related component
thereof.
Section 4: AS 11.76.109(b) Provides an exception for
persons to sell or give E-cigarettes to a minor,
provided the minor is using an e-cigarette for an
approved medical purpose, such as smoking cessation,
and is provided by a parent or prescribed by a doctor.
Section 5: AS 11.76.109(f) adds a new subsection
that is consistent with existing law regarding
placement of vending machines dispensing tobacco
products; that the same requirements are applied to
vending machines dispensing E-cigarette or nicotine
products.
Section 6: AS 11.81.900(b) Makes new definition for
"electronic smoking product," summarized as follows:
(67) a device designed to aerosolize and inhale
nicotine, a synthetic of nicotine, or other a
potentially hazardous substance that "may have an
adverse effect" on the person inhaling it.
Section 7: AS 43.50.105(b) is amended for conformity,
changing "tobacco" endorsement to "business license"
endorsement, for purposes of shipping or transport of
cigarettes. It also sets up conformity for the
following Section 8 of the bill, relating to a
required business license endorsement for selling E-
cigarette or nicotine products.
Section 8: AS 43.70.075(a) amends existing law
requiring a special business license endorsement in
order to lawfully sell tobacco products, by including
the same licensing requirements for lawfully selling
E-cigarette or nicotine products.
Section 9: AS 43.70.075(d) amends existing law
relating to selling tobacco to minors, by adding the
same penalty provisions, including graduated fines,
for selling E-cigarette or nicotine products to
minors.
Section 10: AS 43.70.075(f) amends existing law
requiring signage when selling tobacco products, to
also require signage for selling E-cigarette or
nicotine products. The signage must read "The sale of
electronic smoking products or products containing
nicotine to a person under the age of 19 without a
prescription is illegal."
Section 11: AS 43.70.07(i) amends existing enforcement
provisions that, as with tobacco sales, to allow the
State to seize a vendors' business license endorsement
and E-cigarette or nicotine products in the event of
such products being sold to minors.
Section 12: AS 43.70.075(l) is amended for conformity
that, as with tobacco sales, to allow one business
license endorsement to serve as an umbrella if a
vendor has multiple locations they are selling E-
cigarette or nicotine products, and to shut down only
the offending vending machine or outlet location in
the event of a violation.
Sections 13 through Sections 18: AS 43.70.075(m), (r),
(t), (v), (w), and (x) are amended for conformity
that, as with tobacco sales, to allow an evidentiary
and administrative hearing, appeal process, and
penalties in the event of violations of these
statutes, involving the sale of E-cigarette or
nicotine products to minors.
Section 19: AS 43.70.075(y) is added for consistency,
linking the definitions of "electronic smoking
products," and distinguishing between traditional
cigarette (tobacco) products and other modern nicotine
alternatives.
Section 20: AS 43.70.105(b) is amended for conformity
that, as with tobacco products, a vendor must have the
appropriate business license endorsement in order to
lawfully sell E-cigarette or nicotine products.
Section 21: AS 44.29.092 is amended for conformity
that, as with tobacco sales, providing the Dept. of
Health and Social Services the authority to issue
citations for violating state law regarding minors
buying, selling or possessing E-cigarette or nicotine
products.
Section 22: Is the applicability and effective date,
applying to offenses committed only after the
effective date of the bill, which would be 90 days
after the bill is enacted.
CHAIR COSTELLO noted the individuals available to answer
questions.
1:53:29 PM
CHAIR COSTELLO removed her objection and version P was before
the committee.
1:53:37 PM
SENATOR GIESSEL moved to report the CS for SB 141, labeled 29-
LS1258\P, from committee with individual recommendations and
attached fiscal note(s).
1:53:52 PM
CHAIR COSTELLO announced that without objection, CSSB 141(L&C)
is reported from the Senate Labor and Commerce Standing
Committee.
1:53:55 PM
At ease
SB 127-INSURER'S USE OF CREDIT HISTORY/SCORES
1:55:25 PM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 127. She noted this is the first hearing.
1:56:00 PM
SENATOR CHARLIE HUGGINS, Alaska State Legislature sponsor of SB
127, said the bill relates to renewing insurance for an auto or
home mortgage. He explained that Alaska is the only state that
allows credit scoring to be used when the initial insurance
policy is written, but not upon renewal. SB 127 very simply
allows credit scoring to be used on renewal, which is more
convenient for the policyholder.
1:57:50 PM
LAUREN RASMUSSEN, Staff, Senator Charlie Huggins, provided an
overview of SB 127 on behalf of the sponsor, speaking to the
following sponsor statement.
When Alaskans apply for personal auto and homeowners
insurance, there are several variables of which
companies take into consideration to assess risk.
Factors such as motor vehicle record, good student
discount, marital status, age, and credit history are
allowable by statue; however, when an Alaskan consumer
considers renewing a policy with the same company, the
business is not allowed to use credit history. Under
current law, insurers must strip out credit
information after two years and may only include it
with request from the policy holder.
By not being able to include credit when it benefits
consumers, increases in renewal rates can often be
significant, causing unnecessary market disruption and
consumer complaints. This occurrence leads consumers
to seek new insurance companies which means they may
not secure the benefits of being a long-term policy
holder. Senate Bill 127 would allow for insurance
companies to include credit history at the time of
policy renewal.
The passage of Senate Bill 127 would also require
insurers to make exceptions to a consumer's rate when
the consumer's credit is unfavorably impacted by
extraordinary life circumstances. This applies to the
time of policy inception and policy renewal. An
extraordinary life circumstance clause is a safeguard
for consumers. Unforeseen circumstances include
incidents such as death of an immediate family member,
military deployment, suffering a catastrophic event,
and divorce.
2:01:13 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community and Economic Development (DCCED), Anchorage,
Alaska, described credit scoring as an emotional topic and said
this bill is written to be neutral and that is the
administration's position on it.
She confirmed that Alaska is the only state that removes the use
of credit scoring to effect a discount or lower insurance rate
upon renewal. A policyholder can, however, receive a discount by
applying for one through their insurance agent or company
representative. Because some people may suffer from the use of
credit scoring, the bill is written so that it cannot impact
someone who might have a lesser credit score than as if credit
scoring were not used at all. She noted that provision was added
when the bill was redrafted last year.
MS. WING-HEIER reported that the division receives complaints
from consumers whose renewed homeowner or auto policy had
increased as much as 70 percent. Their option is to find a new
agent or broker. The consumer got into this situation because
they either didn't understand that for renewals credit scoring
is not automatically allowed in the underwriting practice or
they didn't agree with the use of credit scoring and didn't
complete the form.
She clarified that credit scoring is not based on income, but
how the consumer uses credit and how timely they pay their
bills. She said there is a statistical correlation between a
credit score and the number of claims a person is likely to
have, and that provides an underwriting guideline.
SENATOR GIESSEL asked if a consumer could pay the higher premium
one year and sign the form to use credit scoring for the next
renewal.
MS. WING-HEIER said the consumer would probably be better off
looking for a new insurance company to get started back on using
a credit score in their portfolio.
2:06:01 PM
CHAIR COSTELLO opened public testimony.
2:06:10 PM
KRISTIE BABCOCK, State Farm Agent, Kenai, Alaska, testified in
support of SB 127. She described the impact of the current law
on her customers and why SB 127 offers a solution. Current law
allows the agent to use certain credit components in the
original rate, but after two years those characteristics are
stripped out. The result is a significant increase in the
premium unless the agent is able to get the policyholder's
written permission to use their credit. If the customer doesn't
sign the form in time for the annual renewal, existing law
prohibits the use of credit for subsequent renewals on that
policy. She shared the experiences of several customers that are
all paying more than they should.
SB 127 will alleviate the dramatic swing in rates; eliminate the
frustration and cumbersome process of getting a manual waiver
signed at each renewal; and allow consumers to shop with
confidence, knowing that there is stability in the rating
factors.
2:11:40 PM
SENATOR STEVENS asked how someone is affected if their credit
rate fluctuates.
MS. BABCOCK explained that the policy will be written based on
the consumer's credit at the time. If their credit has improved
when the policy is due for renewal they may see a better
premium. If their credit doesn't improve or worsens, they may
want to do more shopping.
2:12:52 PM
GARY STRANNIGAN, Safeco and Liberty Mutual Insurance, testified
in support of SB 127. He shared Safeco's experience conforming
to the current statute. He related that the cost to program
software to comply with the current statute was $1.25 million.
That becomes a barrier to entry in the broader marketplace given
the size of the market.
2:14:32 PM
MARK CHOATE, representing himself, Juneau, Alaska, testified on
SB 127. He questioned why credit scoring should be used for
something that is mandatory. He further questioned why, after
two years of proven use, the policyholder's credit score has
anything to do with the risk the insurance company is taking in
terms of their driving or maintaining their home.
He claimed that the insurance companies are creating a false
paradigm to create the situation. They factor in credit scores
on buying the policies and then pull that out of the algorithm
for renewal, but they don't consider anything else. What they
should do is reweight other factors, he said.
He suggested the Division of Insurance should look at the
algorithm because there's no reason that two years of driving
history shouldn't be the basis for calculating the premium.
2:18:24 PM
DANIEL LYNCH, representing himself, Kenai, Alaska, testified in
support of SB 127. He is completely opposed to using credit
scores to determine insurance rates at any time. He shared his
personal story of having no credit score. Through choice he has
had no credit cards or loans for 40 years. He maintains his old
vehicle and is a good driver, yet his auto rates go up every
renewal. He urged the committee to go old school and base
insurance rates on driving history, vehicle value, and distance
driven, not a credit rating.
2:21:25 PM
TIM MAUDSLEY, President, Alaska USA Insurance Brokers,
Anchorage, Alaska, testified in support of SB 127. He said the
change embodied in SB 127 will provide consumers with a fair and
accurate rate on insurance renewals and eliminate the confusion
due to policy cancellations and the burden of changing carriers
to maintain insurance and rate discounts. He opined that this
legislation will likely open the door for more insurance
carriers to come to Alaska. This means lower premiums for
consumers.
2:23:20 PM
ARMAND FELICIANO, Property Casualty Insurers Association of
America, California, testified in support of SB 127. This
legislation will allow consumers to receive the full benefit of
credit scoring. He suggested the committee look at what has
happened in Arkansas since it started allowing credit scoring.
Over 40 percent of policyholders have seen their premiums
decrease. The number of policyholders that have seen their
premiums increase has held steady at about 14 percent. A good
number of policyholders have been unaffected since 2011.
2:24:54 PM
CINDA SMITH, Geico, Maryland, echoed previous testimony and
stated support for SB 127.
2:25:44 PM
JEFFERY KINSEY, State Farm Insurance, Bloomington, Illinois,
testified in support of SB 127. He said State Farm insures 1 in
4 autos in Alaska and 1 in 3 homes. He leads a team of
predictive modelers that develop insurance risk scores using
credit-related information. Their analysis and other studies
show that certain credit-related variables are highly predictive
of future insurance losses. Using this information benefits
consumers but neither adds to nor reduces an insurer's profit.
Because it is such a proven effective tool, credit information
is allowed in 47 states including Alaska.
He clarified that the credit information that insurance
companies use is not a FICO score. Those were developed to
estimate a person's ability to repay debt. An insurance risk
score uses credit related variables that have been shown to be
predictive of future insurance losses. He further clarified that
current Alaska law requires all insurance companies to consider
the absence of credit history as rate neutral.
MR. KINSEY said many low-income policyholders benefit from the
use of credit-related information initially, but based on
current Alaska law they are not allowed to continue to enjoy
those benefits after two years with a company. Approximately 60
percent of State Farm personal auto and homeowners policyholders
entering their third year of coverage would receive a rate
increase if their credit information is stripped out at renewal.
State Farm supports SB 127 because it will lead to a healthier
insurance market and increase the affordability of insurance for
Alaskans, he said.
2:29:12 PM
CHAIR COSTELLO asked if he heard Mr. Lynch's testimony.
MR. KINSEY said yes.
CHAIR COSTELLO asked if current law allows the absence of credit
history to be considered rate neutral.
MR. KINSEY said that's correct; existing law requires insurers
to treat the lack of credit history as rate neutral.
CHAIR COSTELLO asked for clarification that a person's credit is
considered when the initial policy is written, but upon renewal
it's absent from the analysis.
MR. KINSEY confirmed that without the waiver, insurance
companies are required to strip out any credit variables that
were used as new business. He recalled that requirement was the
result of a court case.
SENATOR STEVENS asked for help understanding risk and credit
score in the context of insurance.
MR. KINSEY explained that a credit score is oftentimes geared
toward banking and whether or not an individual will repay debt,
whereas an insurance risk score is geared toward insurance and
the likelihood an individual will file a future claim.
CHAIR COSTELLO asked him to put that into an email and send it
to her office.
MR. KINSEY agreed.
SENATOR STEVENS asked if he's saying that a poor credit rating
is predictive of a future insurance claim.
MR. KINSEY said the credit score itself isn't predictive of
future losses, but individual elements from a credit report are
predictive of future losses.
SENATOR STEVENS asked what elements are predictive of future
losses.
MR. KINSEY said they vary by company but generally fall into
four broad categories: performance on credit obligations, credit
seeking behavior, consumer's use of credit such as outstanding
balance to available credit, and length of the credit history.
2:34:47 PM
At ease
2:35:22 PM
CHAIR COSTELLO reconvened the meeting and asked Ms. Wing-Heier
if she had any comment on the testimony today.
MS. WING-HEIER said the comments have all been valid including
those from Mr. Lynch.
SENATOR MEYER asked if it matters to the division that the bill
has no effective date. He would prefer it became effective
immediately.
MS. WING-HEIER said it makes no difference to the division.
SENATOR MEYER asked about the process for an insurance company
to consider a consumer's extraordinary life circumstances.
MS. WING-HEIER said the onus would be on the consumer to explain
to the insurer why their credit score was impacted.
2:38:25 PM
SENATOR MEYER asked if this covers more than auto and home
insurance policies. He mentioned his wife's lost diamond ring.
MS. WING-HEIER replied this is for all personal lines, not
commercial. It would be auto, home, and could extend to
watercraft, equipment, artwork, the loss described, and
umbrellas.
SENATOR MEYER asked about discrimination. He noted that his
insurance increased when his daughter started driving.
MS. WING-HEIER said insurers are not allowed to discriminate and
their research has found it has not been a factor in credit
scoring.
2:40:36 PM
CHAIR COSTELLO closed public testimony and held SB 127 in
committee.
SB 149-AIDEA: DIVIDEND TO STATE;INCOME;VALUATION
2:40:56 PM
CHAIR COSTELLO announced the consideration of SB 149. She noted
that this is the first hearing.
2:41:32 PM
GENE THERRIAULT, Policy Director, Alaska Industrial Development
and Export Authority (AIDEA), introduced himself.
2:41:51 PM
At ease
2:42:26 PM
CHAIR COSTELLO reconvened the meeting.
MR. THERRIAULT directed attention to the word "excluding" on
page 2, lines 3 and 21, of the bill to help explain the
presentation. The exclusions were added by the legislature in
recognition that certain things needed to be excluded from the
determination of available net income in order to calculate the
dividend AIDEA pays the state. Some new accounting rules are
becoming problematic and AIDEA would like the legislature to
consider adding things to the exclusion. He said Mr. Lamb will
have examples of the new rules, the impact they are having on
the dividend, and the proposed solution.
He said the PowerPoint would cover the dividend: history (which
he just summarized), goal, statutory language, and two
accounting problems they are working to solve.
He displayed a chart showing the AIDEA dividends that have been
paid starting in FY1997 since AIDEA was capitalized with a
little more than $300 million. Since then, AIDEA has repaid just
under $380 million. The bill is intended to bring a little more
predictability to that income stream going forward. He turned
the discussion over to Mr. Lamb.
2:46:33 PM
MICHAEL LAMB, Chief Financial Officer, Alaska Industrial
Development and Export Authority (AIDEA), explained that the
state receives an annual dividend based on AIDEA's operations
and SB 149 seeks to make that dividend more stable and
predictable. This has become an issue because accounting rules
have changed since the statute was written. This matters because
the dividend is based on the statutorily defined net income
which is based on the financial audit. As the audit numbers
change, the statutory net income number changes which changes
the dividend.
Three types of transactions affect the financial statements that
affect the dividend. The first type are entries from "real
transactions" that occurred. Examples are booking what was paid
for an asset, revenue that is generated, payroll that is paid,
taxes paid, and what cash was received and why. There isn't a
problem with this type of transactions.
The second type of transactions are entries from "estimates and
allocations." Examples are booking depreciation and amortization
expenses which recognizes and records that an asset used up some
of its estimated useful life over the period of operations.
There isn't a problem with this type of transactions.
The third type of transactions are entries from "market value
adjustments." These are entries related to transactions that did
not happen, but the statute requires them to be recorded for the
audit as though they did occur. [The statute requires compliance
with GASB (Generally Accepted Auditing Standards) and GAAP
(Generally Accepted Auditing Principles).] He clarified that
market value adjustments have a purpose for an audit or to read
a financial statement, but it's a policy decision as to whether
they should be used to compute the dividend or excluded like
other things.
2:50:34 PM
MR. LAMB summarized the pertinent language in the existing Sec.
44.88.088 relating to the payment of the dividend:
The authority shall adopt a policy for payment of a
dividend to the state each year. The amount of which
may not be less than 25 percent nor more than 50
percent of the net income for the base fiscal year.
The meaning of "net income" is the change in net
position, or the equivalent term under GAAP as set out
in the audited financial statements of the authority
for the base fiscal year, excluding amounts
attributable to intergovernmental transfers, capital
contributions, grants, or impairment losses on
development projects financed under AS 44.88.172.
2:50:42 PM
CHAIR COSTELLO asked why "market value adjustment" doesn't
appear in the bill.
MR. LAMB replied it's part of the proposed new language.
He displayed a chart to illustrate how the dividend is
calculated. It is based on the statutorily defined "net income,"
which comes from the audited financial statements that the board
approves. Those board-approved audited statements must include
applicable "market value" and/or "write-down/loss" entries. GAAP
requires those entries and that all applicable GASB statements
are implemented.
SB 149 would modify the existing excluded language such that
"net income" would not include any market value adjustments
and/or state or federal write-down activity when calculating the
dividend.
2:53:01 PM
CHAIR COSTELLO asked how the dividend would have been affected
if this change had been in statute in previous years.
MR. LAMB said he would point that out later in the presentation.
MR. THERRIAULT clarified that AIDEA will continue to follow all
GAAP and GASB rules to get the audited financial statement.
AIEDA is asking the legislature to back out market value
adjustments only for the purpose of calculating the dividend.
MR. LAMB added that the question is whether or not the
components that now make up the audit are appropriate for the
calculation of the dividend.
2:54:37 PM
MR. LAMB restated the problems that arises when market value
adjustments are factored into calculating the dividend. Entries
that did not happen are booked as though they did. This causes
AIDEA's net income to swing, which also causes the dividend to
the state to swing. When the swings are material it makes a
material difference in the size of the dividend. It's a problem
for AIDEA when it has to pay a dividend based on cash it hasn't
actually earned, and a problem for the state when AIDEA pays a
dividend based on unrealized losses, not the cash it earned.
He drew an analogy to an individual taxpayer who has to use
market value adjustments in their tax return. The individual had
W-2 earnings of $100,000, interest and dividend income of
$7,500, and a permanent fund dividend of $1,500 for total income
of $109,000. If the taxpayer's income calculation had to include
hypothetical unrealized GASB 31, 68, 72, and 75 market value
adjustments, the total income would be $169,000. That figure
presumes the taxpayer sold the assets when in fact he did not.
He noted that while the analogy shows more income than was
actually earned, it could just as easily go the other direction.
MR. LAMB displayed a chart showing 25 years of AIDEA's audited
net income pre-GASB 31 market value adjusting entries. He noted
that the year-to-year changes are not large. The next chart
superimposes net income calculations after GASB 31 mark-to-
market adjustments started in 1997. Including unrealized
revenues and losses results in dramatic swings in net income
from year to year. This causes the dividend to swing just as
dramatically. He pointed to the number of times that AIEDA has
paid a dividend based on unrealized income. For example, in 2010
the dividend was based on nearly $20 million in unrealized
income. Assuming a 50 percent dividend, AIDEA would have paid
$10 million more in dividends than it actually earned. The
situation reversed in 2013 when AIDEA paid a dividend based on
about $20 million in unrealized losses. The cost to the state
was $10 million less in the dividend.
3:03:34 PM
CHAIR COSTELLO asked how he would describe the public policy
value of the bill.
MR. LAMB said tying the dividend to the cash that AIDEA actually
earned from its operations provides much more stability and
predictability for both AIDEA and the state.
SENATOR MEYER asked if it's safe to say that this change doesn't
necessarily mean the state will get more of a dividend or less
of a dividend.
MR. LAMB said we could be better off in some instances and not
in others.
3:08:44 PM
MR. LAMB said the bill also seeks to fix the potential for a
dividend penalty. When the value of a project has been
determined to have been permanently reduced, GAAP requires an
adjusting entry to be booked to reduce and/or remove some or all
of the value of the asset or project from AIDEA's balance sheet.
The resulting entry reduces net income, which either reduces the
dividend or stacks the dividend AIDEA pays due to the adjusting
entry reducing value. The dividend penalty for an adjusting
entry could be 25 percent to 50 percent. He discussed a
hypothetical example.
If the state funded a project with $8.8 million and it were to
go away, the $25.3 million in net income that the dividend would
have been based on would be reduced by $8.8 million so the net
income would be $16.5 million. The $8.8 million has no value and
the dividend is reduced by 50 percent or $4.4 million. He
displayed a visual to discuss the same example. AIDEA believes
this should be fixed, he said.
3:14:27 PM
He reviewed the new statutory language proposed in SB 149. The
language on page 1, lines 10-11, would fix the first problem,
and the language on page 2, lines 5-8, would fix the second
problem.
3:16:06 PM
MR. THERRIAU summarized that the bill adds to the excluded
items, accommodates the new GASB rules, and ensures that
projects that are written off won't drag the dividend down. The
policy of the bill is to add predictability to the dividend.
Referring to Senator Meyer's question, he said these changes
will smooth the impact to the dividend.
CHAIR COSTELLO asked what precipitated the bill.
MR. LAMB said part of it was that the board wanted the ability
to explain why the dividend had shrunk to the legislature. Also,
as he became more familiar with the statutory language he
realized it needed to be fixed. The third reason is that new
GASB rules are coming and there is a compounding effect.
3:21:33 PM
CHAIR COSTELLO held SB 149 in committee.
3:21:57 PM
CHAIR COSTELLO recessed the Senate Labor and Commerce Standing
Committee. [The meeting adjourned at 6:00 p.m. when the next
scheduled meeting was convened.]