02/09/2022 01:30 PM Senate LABOR & COMMERCE

         SB 151-EXTEND ALCOHOLIC BEVERAGE CONTROL BOARD                                                                     
                                                                                                                                
2:24:07 PM                                                                                                                    
ACTING  CHAIR STEVENS  reconvened the  meeting and  announced the                                                               
consideration  of  SENATE BILL  NO.  151  "An Act  extending  the                                                               
termination  date of  the Alcoholic  Beverage Control  Board; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
He stated  the intention to  hear from the sponsor,  take invited                                                               
and public testimony, and asked the will of the committee.                                                                      
                                                                                                                                
2:24:43 PM                                                                                                                    
SENATOR PETER MICCICHE, sponsor of  SB 151, stated that his staff                                                               
would introduce the bill and go through the sectional analysis.                                                                 
                                                                                                                                
2:25:10 PM                                                                                                                    
MADISON  GOVIN,  Staff,  Senator  Peter  Micciche,  Alaska  State                                                               
Legislature, Juneau, Alaska,  introduced SB 151 on  behalf of the                                                               
sponsor  with an  abbreviated summary  of  the following  sponsor                                                               
statement.                                                                                                                      
                                                                                                                                
[Original punctuation provided.]                                                                                                
                                                                                                                                
     Senate  Bill  151  extends  the  sunset  date  for  the                                                                    
     Alcoholic  Beverage Control  (ABC)  Board  to June  30,                                                                    
     2026, in agreement with  the September 2021 Legislative                                                                    
     Audit sunset  review recommendation.  The ABC  Board is                                                                    
     made  up  of five  members,  two  industry, one  public                                                                    
     safety, one public, and one rural public.                                                                                  
                                                                                                                                
     In  accordance  with the  provisions  of  Title 24  and                                                                    
     Title 44, Legislative Audit  reviewed the activities of                                                                    
     the ABC  Board and determined the  board is effectively                                                                    
     serving   the  public   interest  by   controlling  the                                                                    
     manufacture, barter, possession,  and sale of alcoholic                                                                    
     beverages  in the  state. Findings  also included  that                                                                    
     board meetings were  conducted effectively, regulations                                                                    
     were  adopted  to   implement  statutory  changes,  and                                                                    
     investigations were conducted in a timely manner.                                                                          
                                                                                                                                
     The   audit   concluded   the  board   should   improve                                                                    
     procedures  for  licensing   efficiencies  and  issuing                                                                    
     renewals  such  as,   improving  the  completeness  and                                                                    
     accuracy  of  initial   applications,  reducing  delays                                                                    
     associated   with   compliance   information,   issuing                                                                    
     licenses   in   a   timely   manner,   automating   the                                                                    
     application process  and filling AMCO  staff vacancies.                                                                    
     Additionally,  operational improvements  are needed  in                                                                    
     enforcement,   monitoring   board-related   local   law                                                                    
     enforcement   activity,  and   processing  refunds   to                                                                    
     municipalities.   Given    the   important    role   in                                                                    
     safeguarding the health and safety  of Alaskans and the                                                                    
     economic importance  of the industry,  the continuation                                                                    
     of  this board  is critical  to the  regulation of  the                                                                    
     alcohol industry in Alaska.                                                                                                
                                                                                                                                
     I urge your  support of this bill to  extend the sunset                                                                    
     date of the Alcoholic Beverage Control Board.                                                                              
                                                                                                                                
MS. GOVIN noted that Kris Curtis would present the audit in more                                                                
detail.                                                                                                                         
                                                                                                                                
2:26:44 PM                                                                                                                    
KRIS  CURTIS, Legislative  Auditor,  Legislative Audit  Division,                                                               
Legislative  Affairs Agency,  Alaska  State Legislature,  Juneau,                                                               
Alaska, stated  that the Legislative Audit  Division conducted an                                                               
audit  of this  board,  the  purpose of  which  was to  determine                                                               
whether the board  should be extended and whether  it was serving                                                               
the public interest. She noted that  a copy of the September 2021                                                               
audit was  in the bill  packet. She  advised that this  audit was                                                               
unique because it  not only included the sunset audit  but also a                                                               
special   audit  of   the  board's   license  process   that  the                                                               
Legislative  Budget and  Audit  Committee  requested. The  report                                                               
summarizes both audits.                                                                                                         
                                                                                                                                
MS. CURTIS  advised that the  Report Conclusions begin on  page 9                                                               
of the audit. She paraphrased the second paragraph on page 9:                                                                   
                                                                                                                                
[Original punctuation provided.]                                                                                                
                                                                                                                                
     Overall,  the  audit  found that  board  meetings  were                                                                    
     conducted  effectively,  regulations  were  adopted  to                                                                    
     implement  statutory changes,  and investigations  were                                                                    
     conducted in a timely  manner. The audit also concluded                                                                    
     that the  Alcohol and  Marijuana Control  Office (AMCO)                                                                    
     operations  were impeded  by the  lack of  an automated                                                                    
     application   process    and   significant   vacancies.                                                                    
     Further,  deficiencies  in   controls  over  processing                                                                    
     licensee fee refunds were identified.                                                                                      
                                                                                                                                
MS. CURTIS stated that the  audit recommends that the legislature                                                               
extend the board four years,  which is half the extension allowed                                                               
in  statute. This  is  to  assure that  the  legislature has  the                                                               
ability to more timely review  the board's progress in addressing                                                               
these licensing deficiencies.                                                                                                   
                                                                                                                                
MS. CURTIS  directed attention  to Exhibit  2 on  page 14  of the                                                               
audit that reflects the 1,867  active licenses as of February 28,                                                               
2021.  Additionally, the  audit  notes the  board issued  [1,177]                                                               
catering and  special event permits from  FY2020 through February                                                               
2021. The  audit notes  a backlog of  applications that  were due                                                               
December 2020.  To allow  the applicants  to continue  to operate                                                               
while  the  review  was  pending,   the  board  issued  over  300                                                               
temporary licenses.  The division  was informed that  the backlog                                                               
was due to vacancies. The  division investigated this further and                                                               
the results of that review are on page 15.                                                                                      
                                                                                                                                
MS.  CURTIS advised  that  Exhibit 3  summarizes  the AMCO  staff                                                               
positions that were  vacant at least two months  during the audit                                                               
period. In total, 7 staff  positions were vacant for a cumulative                                                               
92  months from  FY2018 through  February 28,  2021. The  reasons                                                               
management gave  for the vacancies were:  the uncertainty related                                                               
to an  earlier proposal  to merge AMCO  into DCCED's  Division of                                                               
Corporations,  Business  and   Professional  Licensing,  and  the                                                               
unknown  effect  of  the  COVID-19   pandemic  on  the  alcoholic                                                               
beverage  and marijuana  industries.  Additionally, one  position                                                               
was not filled because the agency  could not find workspace for a                                                               
position  that  was  transferred  from Fairbanks  to  MatSu.  She                                                               
reported  that  the  audit  found  that  the  extended  vacancies                                                               
negatively affected AMCO's ability to support either board.                                                                     
                                                                                                                                
2:30:08 PM                                                                                                                    
MS. CURTIS stated that pages  16-18 summarize the detailed review                                                               
of the license process. The  audit found that overall, 76 percent                                                               
of new applications and 85  percent of transfer applications were                                                               
approved  within six  months. On  average,  it took  153 days  to                                                               
approve  and issue  a new  license and  131 days  for a  transfer                                                               
license. The  audit found that  the complex  license requirements                                                               
made the  application process complicated and  inherently subject                                                               
to error.  Because the applications are  submitted manually, they                                                               
are not subject to online edits that might help limit errors.                                                                   
                                                                                                                                
2:30:56 PM                                                                                                                    
MS.  CURTIS described  three main  aspects of  the audit  process                                                               
that  caused  delays.  (1 The  applications  were  incomplete  or                                                               
inaccurate 96  percent of  the time for  new applications  and 97                                                               
percent   for  transfer   applications.  Applications   that  are                                                               
determined deficient  are returned  for correction,  which causes                                                               
delays. 2)  Confirming compliance  with statutory  and regulatory                                                               
requirements   causes  significant   delays.   Waiting  for   the                                                               
compliance information adds an average  of 88 days to the license                                                               
process and  35 days for  transfer applications. 3) Once  all the                                                               
requirements are  met, issuing  the license takes  23 days  for a                                                               
new license and  28 for a transfer license.  The audit determined                                                               
that automating this process could reduce the timeline.                                                                         
                                                                                                                                
2:32:10 PM                                                                                                                    
MS. CURTIS summarized the five  recommendations of the audit that                                                               
start on page 27.                                                                                                               
                                                                                                                                
[Original punctuation provided with some formatting changes.]                                                                   
                                                                                                                                
     Recommendation  No.  1:  The  Department  of  Commerce,                                                                  
     Community,    and    Economic    Development    (DCCED)                                                                    
     commissioner  should ensure  AMCO  staff vacancies  are                                                                    
     filled in a timely manner  and the AMCO director should                                                                    
     implement written licensing procedures.                                                                                    
                                                                                                                                
      Recommendation No. 2: The board should significantly                                                                    
     enhance or replace its licensing database and automate                                                                     
     the application process where possible.                                                                                    
                                                                                                                                
     The audit found  several inefficiencies associated with                                                                    
     the   receipt,   review,   and  issuance   of   license                                                                    
     applications.                                                                                                              
                                                                                                                                
     Recommendation  No.  3:  The board  and  AMCO  director                                                                  
     should  strengthen procedures  for entering  restricted                                                                    
     purchasers  in   the  statewide  database   of  written                                                                    
     orders.                                                                                                                    
                                                                                                                                
MS. CURTIS  noted that the  prior sunset audit also  included the                                                               
above  recommendation. Testing  found  that  due to  insufficient                                                               
procedures, 27 individuals convicted  of relevant violations were                                                               
not entered  into the statewide  database of written  orders that                                                               
regulates the amount of alcohol that  can be sold or purchased in                                                               
areas that have voluntary restrictions on alcohol.                                                                              
                                                                                                                                
     Recommendation  No.  4:  The board  and  AMCO  director                                                                  
     should  implement procedures  to ensure  municipalities                                                                    
     receiving   refunds  of   biennial  license   fees  are                                                                    
     actively enforcing alcoholic beverage laws.                                                                                
                                                                                                                                
She noted that  the prior sunset audit  found that municipalities                                                               
were automatically receiving these  refunds even though they were                                                               
not submitting the required quarterly  reports. The current audit                                                               
found that  municipalities were submitting the  quarterly reports                                                               
but nobody looked at them.                                                                                                      
                                                                                                                                
     Recommendation No. 5: The  AMCO director should improve                                                                  
     procedures  and fill  vacancies in  a timely  manner to                                                                    
     ensure  refunds  to  municipalities  are  appropriately                                                                    
     reviewed.                                                                                                                  
                                                                                                                                
MS. CURTIS  noted that  similar to the  prior sunset  audit, just                                                               
one position  in the AMCO  office is responsible  for calculating                                                               
and  approving   the  refund,  and   there  is  no   review.  The                                                               
significant vacancies contributed to this deficiency.                                                                           
                                                                                                                                
2:34:36 PM                                                                                                                    
MS.  CURTIS directed  attention to  the responses  to the  audit,                                                               
beginning  with  Commissioner   Julie  Anderson's  response  that                                                               
begins  on  page  47.  Regarding Recommendations  1  and  5,  she                                                               
maintained  that all  the vacancies  had  been filled.  Regarding                                                               
Recommendation 2,  she reported  the department was  developing a                                                               
needs  assessment for  an automated  online  database and  online                                                               
license  renewals. Regarding  Recommendation 3,  the commissioner                                                               
stated  that  the  AMCO  Enforcement Unit  had  entered  all  the                                                               
individuals   into  the   database   and   had  implemented   new                                                               
procedures. Regarding  Recommendation 4, the  commissioner stated                                                               
that improved procedures would be implemented in the future.                                                                    
                                                                                                                                
2:35:38 PM                                                                                                                    
MS. CURTIS  stated that the  response from  the Chair of  the ABC                                                               
Board   is  on   page  49.   He  strongly   disagreed  with   the                                                               
recommendation to  extend the board four  years, maintaining that                                                               
an  early   sunset  would  jeopardize  the   public's  trust  and                                                               
undermine  confidence in  the public  process.  The Chair  agreed                                                               
with  the  recommendations but  believes  the  findings were  not                                                               
materially  sufficient   to  warrant   a  short   extension.  She                                                               
highlighted that over the last  20 years, this board has received                                                               
a three  or four year extension  in previous audits. She  did not                                                               
recall any  extension in the last  20 years that was  longer than                                                               
four years.                                                                                                                     
                                                                                                                                
ACTING  CHAIR  STEVENS  summarized   his  understanding  that  an                                                               
extension for  the ABC  Board would normally  be eight  years and                                                               
this audit recommends a four-year extension.                                                                                    
                                                                                                                                
MS. CURTIS  clarified that eight  years is the  maximum extension                                                               
if  the audit  determines  the entity  is  operating without  any                                                               
concerns.  If  the  division  determines   an  entity  should  be                                                               
reviewed more frequently because of  things such as major changes                                                               
to the alcohol  laws, that would be a reason  to review the board                                                               
earlier than eight years.                                                                                                       
                                                                                                                                
ACTING CHAIR STEVENS asked when the last audit was conducted.                                                                   
                                                                                                                                
MS. CURTIS replied it was four years ago.                                                                                       
                                                                                                                                
ACTING   CHAIR   STEVENS   asked   if  she   believes   all   the                                                               
recommendations could be achieved in the next four years.                                                                       
                                                                                                                                
MS.  CURTIS offered  her  belief  that it  would  be possible  to                                                               
implement  a new  database in  that timeframe  but the  board has                                                               
some concern  about whether that  is possible. She  suggested the                                                               
board and the division explain why it might take longer.                                                                        
                                                                                                                                
2:37:56 PM                                                                                                                    
ACTING CHAIR STEVENS turned to invited testimony.                                                                               
                                                                                                                                
2:38:02 PM                                                                                                                    
DANA  WALUKIEWICZ,  Chair,   Alcoholic  Beverage  Control  Board,                                                               
Anchorage, Alaska, stated  that the ABC Board asked  him to speak                                                               
to the sunset  provisions in SB 151. In particular,  the board is                                                               
requesting a six  or eight year extension as opposed  to the four                                                               
year extension  that the Legislative Audit  Division recommended.                                                               
Speaking as a CPA with more  than 20 years of experience, he said                                                               
he  agrees  with the  individual  findings  but not  the  overall                                                               
conclusion that the board should be extended just four years.                                                                   
                                                                                                                                
MR. WALUKIEWICZ discussed  the audit findings relating  to 1) the                                                               
lack  of staffing;  and 2)  the lack  of an  automated system  to                                                               
process and  track new and renewal  applications. He acknowledged                                                               
that the  AMCO office had  vacancies during the period  the audit                                                               
reviewed,  but maintained  that it  had  nothing to  do with  the                                                               
board  or executive  director. Rather,  it  was a  result of  the                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED) delaying  job vacancy announcements. He  pointed out that                                                               
the AMCO office currently is fully staffed.                                                                                     
                                                                                                                                
Speaking  to the  second finding,  he emphasized  that the  board                                                               
fully supports procuring and implementing  an automated system to                                                               
process and  track new and  renewal applications.  He highlighted                                                               
that the board  asked the executive director to  scope the system                                                               
requirements and  investigate potential vendors  and acknowledged                                                               
that DCCED  was assisting.  However, neither  the board  not AMCO                                                               
has  the resources  to  procure such  a system.  SB  9 has  funds                                                               
earmarked for  this project  and the  hope is  that it  will pass                                                               
both chambers  this session and  the funds will  become available                                                               
to automate  the application process.  The board agrees  that the                                                               
paper-based process is both time consuming and error prone.                                                                     
                                                                                                                                
2:41:22 PM                                                                                                                    
MR. WALUKIEWICZ  restated his belief  that the  recommendation to                                                               
extend the board for just  four years was a mistake, particularly                                                               
given that it  has served the public interest for  over 40 years.                                                               
He stressed  that the board  would have a lot  of work when  SB 9                                                               
becomes  law and  a six-  to  eight-year extension  would send  a                                                               
strong  message of  support for  the  board that  has upheld  the                                                               
public process and met the public need.                                                                                         
                                                                                                                                
2:42:24 PM                                                                                                                    
ACTING  CHAIR   STEVENS  noted  who   was  available   to  answer                                                               
questions.                                                                                                                      
                                                                                                                                
2:42:50 PM                                                                                                                    
ACTING CHAIR STEVENS  opened public testimony on  SB 151; finding                                                               
none, he closed public testimony.                                                                                               
                                                                                                                                
He solicited the will of the committee.                                                                                         
                                                                                                                                
2:43:10 PM                                                                                                                    
SENATOR GRAY-JACKSON moved to report SB 151, work order 32-                                                                     
LS1280\A, from committee with individual recommendations and                                                                    
attached fiscal note(s).                                                                                                        
                                                                                                                                
2:43:28 PM                                                                                                                    
ACTING CHAIR STEVENS found no objection and SB 151 was reported                                                                 
from the Senate Labor and Commerce Standing Committee.