04/09/2003 03:29 PM House L&C

HB 224-CIGARETTE SALES REQUIREMENTS                                                                                           
                                                                                                                                
Number 0450                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG,  acting chair, announced that  the final                                                               
order of business  would be HOUSE BILL NO. 224,  "An Act relating                                                               
to  a  tobacco  product manufacturer's  compliance  with  certain                                                               
statutory requirements  regarding cigarette sales;  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
MIKE  BARNHILL, Assistant  Attorney General,  Commercial Section,                                                               
Civil Division  (Juneau), Department of Law,  testified on behalf                                                               
of the administration, presenting HB  224.  He explained that the                                                               
bill  helps the  state  protect its  revenues  derived under  the                                                               
Master Settlement  Agreement (MSA).   Alaska and 45  other states                                                               
entered into the MSA with the tobacco manufacturers in 1998.                                                                    
                                                                                                                                
MR.  BARNHILL  explained  that under  the  settlement  agreement,                                                               
Alaska's  revenues  are reduced  in  certain  circumstances.   To                                                               
avoid those reductions, Alaska  enacted an NPM (non-participating                                                               
manufacturers) statute, AS 45.53,  in 1999, and actively enforces                                                               
the  statute.    Unfortunately,  he  stated,  it's  difficult  to                                                               
enforce  the statute  because the  tobacco  manufacturer that  is                                                               
failing to comply  may be a small manufacturer located  in a far-                                                               
flung jurisdiction,  such as  India or  the Philippines.   Alaska                                                               
has, on  occasion, filed suit  against a tobacco  manufacturer in                                                               
India,  hiring  a  process  server   to  serve  the  summons  and                                                               
complaint  in  India,  and  has  ultimately  obtained  a  default                                                               
judgment.    But  that's  the difficult  way  of  [enforcing  the                                                               
statute], he said.                                                                                                              
                                                                                                                                
Number 0575                                                                                                                     
                                                                                                                                
MR. BARNHILL  stated that  in 2001,  Alaska enacted  AS 45.53.145                                                               
[Notification  of  noncompliance;  confiscation  of  noncomplying                                                               
cigarettes], and  other states followed  suit.  Last  summer, the                                                               
National Association of Attorneys General  set up a working group                                                               
to design  uniform legislation that  all states could  enact, and                                                               
House Bill 224 is the product of that [model legislation].                                                                      
                                                                                                                                
MR. BARNHILL stated  that HB 224 creates a  directory of [tobacco                                                               
manufacturing] companies  that have  complied, either  by signing                                                               
onto  the  Master  Settlement  Agreement  or  by  depositing  the                                                               
required  amounts of  escrow  under  AS 45.53.    If the  tobacco                                                               
manufacturers  certify that  they  have  [deposited the  required                                                               
escrow],  they  get  on  the  list;  companies  need  to  certify                                                               
annually.   Their cigarettes can then  be sold in Alaska.   House                                                               
Bill  224 also  provides  for penalties  for  noncompliance.   It                                                               
provides a  process by which  the Department  of Law can  serve a                                                               
summons  and complaint  against a  tobacco manufacturer  that has                                                               
failed to comply,  not by hiring a process server  and serving in                                                               
India,  as Alaska  has  done  in the  past,  but  by serving  the                                                               
complaint on the commissioner of  the Department of Community and                                                               
Economic Development.                                                                                                           
                                                                                                                                
Number 0685                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAHLSTROM asked  how much  is the  escrow from  a                                                               
[nonparticipating manufacturer] tobacco company.                                                                                
                                                                                                                                
MR. BARNHILL  replied that  it changes every  year, but  in 2001,                                                               
the escrow was approximately 1.5 cents per cigarette.                                                                           
                                                                                                                                
Number 0703                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked  what he knew about  the ability of                                                               
Altria Group [the parent company  of Philip Morris] to pay [money                                                               
owed under the  Master Settlement Agreement].  He  also asked the                                                               
ramifications to Alaska's budget if Philip Morris does not pay.                                                                 
                                                                                                                                
MR. BARNHILL said he hasn't  seen the confidential financial data                                                               
about  Altria  Group's  ability  to  pay.    He  said  Alaska  is                                                               
expecting  a  [tobacco settlement]  payment  next  week of  $17.6                                                               
million, of  which Philip Morris  would pay 50 percent.   Because                                                               
the State  of Alaska  securitized 80  percent of  these revenues,                                                               
the ultimate impact  to the general fund would be  a loss of $1.7                                                               
million if Altria Group does not pay.                                                                                           
                                                                                                                                
Number 0797                                                                                                                     
                                                                                                                                
JOHANNA BALES, Revenue Auditor,  Department of Revenue, explained                                                               
that  she currently  runs  the  tobacco tax  program.   She  also                                                               
enforces certain  provisions of the Master  Settlement Agreement.                                                               
She  said  HB  224  will definitely  be  helpful  in  enforcement                                                               
responsibilities, especially with  foreign manufacturers that are                                                               
very  difficult to  track down.   This  legislation is  extremely                                                               
important, and she stated that the department supports it.                                                                      
                                                                                                                                
Number 0884                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG,  noting no additional  witnesses, closed                                                               
the public hearing on HB 224.                                                                                                   
                                                                                                                                
Number 0888                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAHLSTROM moved to report  HB 224 out of committee                                                               
with  individual recommendations  and the  two accompanying  zero                                                               
fiscal  notes.   There being  no objection,  HB 224  was reported                                                               
from the House Labor and Commerce Standing Committee.