03/04/2014 01:30 PM Senate LABOR & COMMERCE

           SB 189-EXEMPTION: LICENSING OF CONTRACTORS                                                                       
                                                                                                                                
2:43:01 PM                                                                                                                    
CHAIR DUNLEAVY  announced the  consideration of  SB 189.  "An Act                                                               
relating  to an  exemption  from the  regulation of  construction                                                               
contractors." This was the first hearing.                                                                                       
                                                                                                                                
2:43:33 PM                                                                                                                    
STEVE RICCI, Aide, Senate Labor  and Commerce Standing Committee,                                                               
stated  that SB  189 resolves  an  issue with  AS 08.18.161  that                                                               
defines  the  qualifications  for an  exemption  from  contractor                                                               
licensing. He explained  that the issue is that  a growing number                                                               
of  people  are abusing  the  "owner-builder"  exemption that  is                                                               
designed  to  allow  people  to build  their  own  home,  duplex,                                                               
triplex, or four-plex or a  commercial building without obtaining                                                               
a contractor's license. These owner-builders  are in the building                                                               
business without the benefit of  licensure, insurance, or bonding                                                               
so   consumers  have   little   protection  against   potentially                                                               
substandard work.                                                                                                               
                                                                                                                                
Section 1, paragraph  (12), on page 2, adds  language that limits                                                               
the use of the exemption when  the homes are intended to be sold.                                                               
This will  prevent the current  situation where someone  can post                                                               
For Sale signs on a row  of homes they're building while claiming                                                               
the exemption. He said this  will protect consumers because their                                                               
recourse is limited  if the builder isn't  a licensed contractor.                                                               
He  noted that  the  bill is  the priority  of  the Alaska  State                                                               
Homebuilders Association.                                                                                                       
                                                                                                                                
2:45:57 PM                                                                                                                    
SENATOR OLSON asked if there was opposition to the bill.                                                                        
                                                                                                                                
MR. RICCI said the packet  contains one letter of opposition from                                                               
a  masonry  company  in  Fairbanks; it  makes  reference  to  the                                                               
monopolistic nature of contractors.                                                                                             
                                                                                                                                
SENATOR OLSON  asked if the  intent of the  bill was to  help the                                                               
Alaska Homebuilders Association become a monopoly.                                                                              
                                                                                                                                
MR. RICCI clarified that the bill  tries to close the loophole to                                                               
ensure that the intent of the current statute is followed.                                                                      
                                                                                                                                
SENATOR OLSON  asked how  often a  builder has  built a  home for                                                               
multiple family members.                                                                                                        
                                                                                                                                
MR. RICCI  suggested that the  Department of Labor  and Workforce                                                               
Development  (DOLWD) could  speak  to the  statistics and  abuses                                                               
that have occurred.                                                                                                             
                                                                                                                                
2:47:56 PM                                                                                                                    
AL NAGEL, Mechanical Inspection  Manager, Department of Labor and                                                               
Workforce  Development  (DOLWD),  Anchorage, Alaska,  offered  to                                                               
answer questions.                                                                                                               
                                                                                                                                
SENATOR OLSON said that he and  four others built a hanger at the                                                               
Barrow  airport and  he finds  it reprehensible  that the  Alaska                                                               
Homebuilders Association is  trying to get a law  passed that may                                                               
adversely affect  him as an  owner-builder. He questioned  how he                                                               
might  allay   the  concerns  of   people  who  see  this   as  a                                                               
monopolistic move by protected membership organizations.                                                                        
                                                                                                                                
MR.  NAGEL replied  that example  would  not be  affected by  the                                                               
bill. His  reading of  the bill  was that it's  more a  matter of                                                               
preventing someone from doing that on a regular basis.                                                                          
                                                                                                                                
SENATOR  OLSON asked  if  that means  he  couldn't build  another                                                               
hanger for himself  on a regular basis or add  on to the existing                                                               
hanger in Barrow.                                                                                                               
                                                                                                                                
MR.  NAGEL  clarified  that the  department  didn't  propose  the                                                               
language. He said his reading  was that the first hanger wouldn't                                                               
be  a problem,  but an  owner-builder  would be  limited for  two                                                               
years to building just that  one structure. Remodeling the hanger                                                               
wouldn't be affected by the bill.                                                                                               
                                                                                                                                
SENATOR OLSON asked where the language came from.                                                                               
                                                                                                                                
MR.  RICCI   said  the  sponsor  worked   with  the  homebuilders                                                               
association  to  develop  language  that  would  allow  DOLWD  to                                                               
decipher intent. He reiterated that  the focus of the legislation                                                               
was to  allow reasonable exemptions for  owner-builders but close                                                               
the unintended loophole.                                                                                                        
                                                                                                                                
SENATOR OLSON  commented that deciphering intent  reminded him of                                                               
the  thought police,  so he  had reservations  about some  of the                                                               
language in the bill.                                                                                                           
                                                                                                                                
2:52:39 PM                                                                                                                    
GREY MITCHELL,  Assistant Commissioner,  Department of  Labor and                                                               
Workforce Development (DOLWD), Juneau,  Alaska, offered to answer                                                               
questions related to SB 189.                                                                                                    
                                                                                                                                
SENATOR OLSON asked if the department was in favor of the bill.                                                                 
                                                                                                                                
MR. MITCHELL replied DOLWD was neutral on the bill.                                                                             
                                                                                                                                
SENATOR OLSON asked  why they hadn't taken a position  one way or                                                               
the other.                                                                                                                      
                                                                                                                                
MR.  MITCHELL replied  they may  develop a  position as  comments                                                               
come in and the bill proceeds.                                                                                                  
                                                                                                                                
SENATOR OLSON asked  if he understood the concern  he was raising                                                               
that  some large  membership organizations  could push  statutory                                                               
requirements and  regulations that would  hamstring independently                                                               
minded  people who  don't have  access to  a contractor  in rural                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR. MITCHELL said  he didn't believe the intent  was to hamstring                                                               
a true owner-builder.  It's intended to separate  the true owner-                                                               
builder from the  people that are trying to use  the exemption of                                                               
an owner-builder  when they're actually  acting as  a contractor,                                                               
he said.                                                                                                                        
                                                                                                                                
SENATOR  OLSON  asked  how  often  he's  seen  examples  of  this                                                               
problem.                                                                                                                        
                                                                                                                                
MR. MITCHELL  deferred to Mr.  Nagel who deals  specifically with                                                               
enforcement, but anecdotally he knows that it happens regularly.                                                                
                                                                                                                                
SENATOR OLSON  commented on the cost  to a private person  who is                                                               
acting legitimately but has to defend himself.                                                                                  
                                                                                                                                
2:56:33 PM                                                                                                                    
CHAIR DUNLEAVY offered his understanding  that the purpose of the                                                               
bill is  to limit the  shadow type  business whose purpose  is to                                                               
churn  out  homes without  having  to  adhere to  the  licensing,                                                               
bonding,  and   insurance  requirements  imposed   on  legitimate                                                               
contractors.  The  bill is  not  intended  to prevent  a  private                                                               
person from building their own  home, duplex, triplex, four-plex,                                                               
or commercial building. He asked Mr.  Nagel if he had anything to                                                               
add.                                                                                                                            
                                                                                                                                
MR.  NAGEL reiterated  that the  existing  language protects  the                                                               
rights of  a person to build  his/her own home. The  intent is to                                                               
protect against people  acting as a general  contractor when they                                                               
haven't  assumed the  responsibility of  insurance, bonding,  and                                                               
licensure. Responding to Senator  Olson's question about numbers,                                                               
he said he  didn't have that information, but  the department has                                                               
found  that  in  certain  areas   of  the  state  individuals  do                                                               
routinely build primarily  residential structures without holding                                                               
licensure  or  insurance. "They  hold  themselves  out to  be  an                                                               
owner-builder when the  For Sale sign oftentimes  beats the paint                                                               
drying," he said.  Responding to a further  question from Senator                                                               
Olson, he offered to follow  up with information about the number                                                               
of  unlicensed  contractors  that  DOLWD  has  taken  enforcement                                                               
action against.  He warned that owner-builders  aren't tracked in                                                               
a separate category.                                                                                                            
                                                                                                                                
SENATOR OLSON asked  how many times the state  has prevailed when                                                               
it has taken enforcement action.                                                                                                
                                                                                                                                
MR.  NAGEL  explained that  on  a  first  or second  offense  the                                                               
department generally  issues an  administrative fine and  a civil                                                               
cease-and-desist  order. The  criminal penalties  of the  current                                                               
statute are considered on a third or subsequent offense.                                                                        
                                                                                                                                
SENATOR  OLSON  commented  that defending  oneself  from  a  fine                                                               
oftentimes is more expensive than paying the fine.                                                                              
                                                                                                                                
3:02:00 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
3:02:18 PM                                                                                                                    
CHAIR DUNLEAVY reconvened the meeting.                                                                                          
                                                                                                                                
SENATOR MICCICHE summarized that the  essence of the bill is that                                                               
somebody  who  is  in  the  building  business  should  become  a                                                               
building contractor.  It doesn't  change a  thing for  the people                                                               
who want to build their own home.                                                                                               
                                                                                                                                
CHAIR DUNLEAVY held SB 189 for further consideration.