Legislature(1999 - 2000)

03/23/1999 01:40 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE                                                                                                         
March 23, 1999                                                                                                                  
1:40 P.M.                                                                                                                       
TAPE HFC 99 - 52, Side 1.                                                                                                       
TAPE HFC 99 - 52, Side 2.                                                                                                       
CALL TO ORDER                                                                                                                   
Co-Chair Therriault called the House Finance Committee                                                                          
meeting to order at 1:40 P.M.                                                                                                   
Co-Chair Therriault   Representative Foster                                                                                     
Co-Chair Mulder    Representative Grussendorf                                                                                   
Vice Chair Bunde   Representative Kohring                                                                                       
Representative Austerman  Representative G. Davis                                                                               
Representative J. Davies  Representative Williams                                                                               
Representative Moses was not present for the meeting.                                                                           
ALSO PRESENT                                                                                                                    
Douglas Gardner, Assistant Attorney General, Oil, Gas &                                                                         
Mining Section, Department of Law; Eddie Grasser, Staff,                                                                        
Representative Beverly Masek; Matthew Robus, Acting Deputy                                                                      
Director, Wildlife Conservation Division, Department of Fish                                                                    
and Game; Dave Kelleyhouse, Alaska Outdoor Council,                                                                             
HB 102 An Act imposing certain requirements relating to                                                                         
cigarette sales in this state by tobacco product                                                                                
manufacturers, including requirements for escrow,                                                                               
payment, and reporting of money from cigarette                                                                                  
sales in this state; providing penalties for                                                                                    
noncompliance with those requirements; and                                                                                      
providing for an effective date.                                                                                                
 HB 102 was HELD in Committee for further                                                                                       
HB 114 An Act repealing the prohibition against the                                                                             
taking of antlerless moose.                                                                                                     
HB 114 was reported out of Committee with a "do                                                                                 
pass" recommendation and with a fiscal note by the                                                                              
Department of Fish and Game dated 3/16/99.                                                                                      
HOUSE BILL NO. 102                                                                                                              
"An Act imposing certain requirements relating to                                                                               
cigarette sales in this state by tobacco product                                                                                
manufacturers, including requirements for escrow,                                                                               
payment, and reporting of money from cigarette sales in                                                                         
this state; providing penalties for noncompliance with                                                                          
those requirements; and providing for an effective                                                                              
DOUGLAS GARDNER, ASSISTANT ATTORNEY GENERAL, OIL, GAS &                                                                         
MINING SECTION, DEPARTMENT OF LAW, stated that during the                                                                       
past two years, the Knowles Administration with the help of                                                                     
the Alaska Legislature has addressed the problems caused by                                                                     
tobacco and the challenge of limiting access on a number of                                                                     
fronts.  Joint efforts have included legislation to increase                                                                    
taxes on tobacco products, measures to limit youth access to                                                                    
tobacco, stepped-up enforcement activities, and litigation                                                                      
and participation in the national settlement with the                                                                           
industry.  The Department of Law's efforts have been closely                                                                    
coordinated with the Department of Health and Social                                                                            
Services and Department of Revenue, local tobacco control                                                                       
groups and other state attorneys general.                                                                                       
Mr. Gardner pointed out that the bill was contemplated by                                                                       
passage of the Master Settlement Agreement.  Every state and                                                                    
territory legislature is considering the same legislation.                                                                      
The State is not required to pass the model statute included                                                                    
in the settlement to receive settlement payments.  However,                                                                     
if the State does not pass the model statute, the State will                                                                    
risk a possible reduction in payments under the                                                                                 
nonparticipating manufacturers' payment (NPM) reduction                                                                         
formula of the settlement.  The settlement provides for an                                                                      
adjustment to the State's payments if the participating                                                                         
manufacturers experience a disadvantage and lose market                                                                         
share for sales of their tobacco products to other                                                                              
nonparticipating manufacturers as a result of the marketing                                                                     
restrictions, payments, and other limits in the settlement                                                                      
Mr. Gardner continued, every state is considering basically                                                                     
the same bill, however, stylistic changes have been made to                                                                     
it with the inclusion of the Department of Revenue.  The                                                                        
bill has resulted from a lot of negotiations.  With passage                                                                     
of the bill, the industry will not come back to the State if                                                                    
there is a decrease to the participating manufacturer's                                                                         
market share as a result of passage of the settlement                                                                           
agreement.  Any changes to the bill could change the                                                                            
industry's position whether or not it continues to be a                                                                         
qualifying statute.                                                                                                             
Mr. Gardner continued, under the terms of the settlement                                                                        
agreement, the objective is to prevent small tobacco                                                                            
manufacturers from taking unfair advantage given that major                                                                     
companies have signed an agreement.  That action would                                                                          
"level the playing field" and prevent the dumping of cheap                                                                      
Representative Grussendorf referenced Page 3, Line 11,                                                                          
"..and generally perform its financial obligations under the                                                                    
Master Settlement Agreement".  He asked the legal authority                                                                     
of using the word "generally".  Mr. Gardner advised that                                                                        
language was taken from the model.  He did not believe that                                                                     
industry intended to somehow loosen up their obligation by                                                                      
using that language.  He emphasized that the Department of                                                                      
Law had changed this area.  Those changes were made                                                                             
primarily to the enforcement section, tailoring it to the                                                                       
Department of Revenue and the Department of Law concerns.                                                                       
Representative Bunde asked where the escrow money would be                                                                      
placed.  Mr. Gardner explained that the money would be                                                                          
placed into a qualifying escrow account.  The money would be                                                                    
in escrow, not necessarily for the State to use.  It would                                                                      
act as an insurance policy.  The fund would continue to grow                                                                    
so that when an Alaska citizen had a claim, they would be                                                                       
able to satisfy the judgement.  The escrow account would                                                                        
prevent the small manufacturer from being "judgement proof"                                                                     
in the event that they had a lawsuit.  The funds would                                                                          
remain in that account for 25 years.                                                                                            
Representative Bunde stated that if there is a pool of                                                                          
money, people will sue to get at it.  He suggested that                                                                         
establishing such an account would create a "carrot" for                                                                        
additional lawsuits.                                                                                                            
Co-Chair Therriault asked if the State enters into a lawsuit                                                                    
against one of the small, non-participating manufacturers                                                                       
could those settlement costs and the legal court fees come                                                                      
from that account.  Mr. Gardner replied that whatever the                                                                       
State receives would be a judgement and it could be                                                                             
satisfied out of that account.  It is possible that the                                                                         
State could go against the fund to receive the recovery,                                                                        
whereas, if the fund were non-existent, the State would be                                                                      
out-of-luck if there wasn't "something" existent to satisfy                                                                     
such a claim.                                                                                                                   
Co-Chair Therriault pointed out that large manufacturers                                                                        
build possible settlement costs into their price structure.                                                                     
Mr. Gardner reiterated that the legislation would "level the                                                                    
playing field" and that the "dumping" of cigarettes would                                                                       
not be industry driven.                                                                                                         
Co-Chair Therriault asked if the "Findings and Purpose"                                                                         
Section of the bill was necessary.  Mr. Gardner explained                                                                       
that section of the bill could be important to the extent                                                                       
that it would be subject to a constitutional challenge or                                                                       
other litigation by another participating manufacturer in                                                                       
the future, who somehow felt that this was unfair or                                                                            
unnecessary on commerce.  That Section magnifies the public                                                                     
health problem in using tobacco and it keeps the statute                                                                        
consistent with the other bills throughout the nation.                                                                          
Representative J. Davies questioned what a "releasing party"                                                                    
was.  Mr. Gardner responded that Alaska is one of the                                                                           
releasing parties as would be each settling state.                                                                              
Representative J. Davies asked if a municipality could sue                                                                      
to gain recovery from the escrow account.  Mr. Gardner                                                                          
replied that they could and that anyone could access that                                                                       
account, i.e., the State, a municipality, or an individual.                                                                     
It would be necessary for them to have a judgment and                                                                           
settlement to make that claim.                                                                                                  
Co-Chair Therriault asked what the reference to "financial                                                                      
obligations", on Page 3, Line 11, would be.  Mr. Gardner                                                                        
explained that those obligations are the ones, which the                                                                        
participating manufacturer would be required to undertake as                                                                    
specified in the Settlement Agreement.  There is a sixty-day                                                                    
(60) wait period for a person to become a manufacturer;                                                                         
there has been discussion of extending that wait period.  At                                                                    
this time, approximately 99.8% of the market shares are not                                                                     
either participating or subsequent participating                                                                                
manufacturers.  Most companies are involved in the deal.                                                                        
Representative G. Davis noted that the proposed legislation                                                                     
would provide a means for the State to "catch" those                                                                            
manufacturers who did not sign the master agreement.                                                                            
Representative Bunde questioned how that law would be                                                                           
enforced.  Mr. Gardner advised that the Department of                                                                           
Revenue currently tracks all tobacco volume coming into the                                                                     
State.  They have a long-standing practice of doing this                                                                        
accounting.  The importer is responsible for paying State                                                                       
taxes.  He elaborated that the tobacco industry is a very                                                                       
"cut-throat" business and self-policing industry, and                                                                           
consequently, if there is any deviation the Department hears                                                                    
about it quickly.                                                                                                               
Co-Chair Mulder referenced Page 3, regarding the amounts                                                                        
placed into the escrow account.  He asked if that amount was                                                                    
determined per pack or per cigarette.  Mr. Gardner replied                                                                      
that it had been distilled down per unit, per cigarette.                                                                        
Mr. Gardner did not know the formula used to determine that                                                                     
Co-Chair Therriault referenced Page 4:  "The Commissioner of                                                                    
Department of Revenue shall adopt regulations to ascertain                                                                      
the amount of excise tax on cigarettes".  Mr. Gardner                                                                           
explained that the purpose of that section was to guarantee                                                                     
that to the extent that the Department of Revenue could,                                                                        
under existing statute or regulation, they would be given                                                                       
the regulatory authority to adopt regulations.  The escrow                                                                      
account will be based on taxable sales of tobacco into the                                                                      
Representative J. Davies asked if the deposit of money into                                                                     
the escrow account would limit the liability of these                                                                           
companies.  Mr. Gardner acknowledged that was an interesting                                                                    
perspective and that the industry might try to make that                                                                        
argument, however, he thought such an argument would be a                                                                       
"loser".  There is no intention to limit liability but                                                                          
rather to provide for some sort of compensation.                                                                                
Representative J. Davies questioned the earnings of the                                                                         
escrow account.  Mr. Gardner advised that no money could be                                                                     
released from the escrow account for a period of twenty-five                                                                    
(25) years.  It is intended that it become an income-                                                                           
producing stream for companies.                                                                                                 
Co-Chair Mulder calculated that the State would need to sell                                                                    
130 million packs of cigarettes in order to arrive at the                                                                       
$20 million dollar amount for the escrow account.  Mr.                                                                          
Gardner suggested that Department of Revenue would be better                                                                    
able to generate information regarding those calculations.                                                                      
Representative Grussendorf asked if payment on an agreement                                                                     
would be tax deductible.  Mr. Gardner did not know, however,                                                                    
thought that there would be a difference between a                                                                              
settlement and an agreement.                                                                                                    
Representative Foster referenced the letter from the                                                                            
Governor in member's packets.  He asked if the items                                                                            
recommended by the Governor would be the best use for the                                                                       
funds.  Mr. Gardner reiterated that the proposed statute                                                                        
would create an escrow account.  The purpose of the statute                                                                     
would not be revenue generating for the State but rather to                                                                     
provide a claim to potentially satisfy a judgment or                                                                            
settlement against a company.  Discussion followed between                                                                      
Representative Foster and Mr. Gardner regarding the                                                                             
Governor's letter and its relationship to the legislation.                                                                      
Co-Chair Therriault referenced Page 4 & 5, "Certificate of                                                                      
Compliance" requirement.  He asked if that action would                                                                         
consist of a written letter.  Mr. Gardner agreed that the                                                                       
"letter" was not well defined, leaving that statute open, in                                                                    
order that the Commissioner of Department of Revenue,                                                                           
through regulation, could recommend considerations.  Mr.                                                                        
Gardner suggested that the letter would need to address                                                                         
taxable volume coming into the State.                                                                                           
(Tape Change HFC 99 - 52, Side 2).                                                                                              
Representative J. Davies asked the intent of the model                                                                          
issue.  Mr. Gardner explained that within a provision under                                                                     
state law, advertising would be restricted from those                                                                           
companies and would be considered unconstitutional.  There                                                                      
is a limit as to what the State can legislate.                                                                                  
Co-Chair Therriault asked without a settlement, could the                                                                       
State require tobacco companies to set up an escrow system                                                                      
like this.  Mr. Gardner believed that it was possible that                                                                      
the State could have done that, however, it would be                                                                            
difficult because the litigation brought out all the                                                                            
problems with tobacco and health related issues.  If there                                                                      
had been no litigation, it would have been difficult for the                                                                    
Legislature to make a "finding" to create such escrow                                                                           
accounts for protecting the public.                                                                                             
Co-Chair Therriault stressed that there has been no court                                                                       
finding, only a settlement.  Mr. Gardner agreed that it was                                                                     
during a settlement, however, that the litigation process                                                                       
unearthed the documents which illustrate all the problems                                                                       
and health effects.  Ultimately, those documents have                                                                           
painted the picture of serious health problems.  Without the                                                                    
litigation and settlement, it would have been difficult for                                                                     
the Legislature to have done this.                                                                                              
Representative Bunde characterized the model legislation as                                                                     
a "take it or leave it" piece.  Mr. Gardner pointed out that                                                                    
every word and punctuation mark in the bill was determined                                                                      
through extensive negotiation with the industry.  He                                                                            
reiterated, it took 1.5 months of hard bargaining to create                                                                     
the bill before the Committee.  Three (3) of the 46                                                                             
jurisdictions have adopted the model legislation.                                                                               
Co-Chair Therriault asked if the State does not participate                                                                     
in the program, would payments be reduced by 60%.  Mr.                                                                          
Gardner explained that if the model statute is passed, the                                                                      
way that it is, the State of Alaska would not be subject to                                                                     
any non-participating manufacturer adjustments, however, if                                                                     
Alaska determined that the statute was unconstitutional,                                                                        
that would not be the result.  In that event, the State                                                                         
would be subject to a 65% reduction.  Co-Chair Therriault                                                                       
asked if it were not passed, would the State be subject to                                                                      
100% lose.  Mr. Gardner replied that it could be zeroed out.                                                                    
Co-Chair Therriault asked if there had been any unanswered                                                                      
questions from the meeting in the House Judiciary Committee.                                                                    
Mr. Gardner replied that the Attorney General Botelho had                                                                       
testified before that Committee.  He did not know if all                                                                        
questions had been answered.                                                                                                    
Representative Grussendorf requested that if amendments were                                                                    
being offered, on Page 3, Line 11, the word "generally" be                                                                      
deleted.  Co-Chair Therriault additionally request further                                                                      
clarification of "financial obligation".  Representative                                                                        
Bunde asked why the bill would sunset in 25 years.                                                                              
HB 102 was HELD in Committee for further consideration.                                                                         
HOUSE BILL NO. 114                                                                                                              
"An Act repealing the prohibition against the taking of                                                                         
antlerless moose."                                                                                                              
EDDIE GRASSER, STAFF, REPRESENTATIVE BEVERLY MASEK, advised                                                                     
that HB 114 would remove the statutory stipulations                                                                             
requiring advisory committees to approve anterless hunts                                                                        
before the Board of Game can implement them.  He stated that                                                                    
it would effectively reduce the time involved in                                                                                
implementing anterless hunts, as well as save money.                                                                            
Mr. Grasser continued, since 1975, the Board of Game has                                                                        
been required to obtain the approval of a majority of the                                                                       
local advisory committees in proximity to the game                                                                              
management unit for which the hunt is proposed.  The                                                                            
requirement has caused the Department of Fish and Game and                                                                      
the Board, time and expense to pursue antlerless moose                                                                          
hunts.  Originally, the provision was instigated on behalf                                                                      
of Alaskans who felt that cow moose hunts were wrong for a                                                                      
variety of reasons regardless of the biological evidence.                                                                       
Since then, the Department has managed to educate most                                                                          
Alaskans about the benefits of anterless hunts in relation                                                                      
to overall population dynamics and quality of habitat.                                                                          
Mr. Grasser stated that HB 114 would benefit the State and                                                                      
the Board of Game by streamlining the regulatory process                                                                        
providing a cost savings to the State in time and money.                                                                        
The Board costs about $10 thousand dollars a day in order to                                                                    
be in session.                                                                                                                  
Co-Chair Therriault questioned if the Department of Fish and                                                                    
Game's fiscal note adequately reflected the anticipated                                                                         
savings.  Mr. Grasser ascertained that the Department                                                                           
hastily had calculated the fiscal note, however, he believed                                                                    
that there would not be huge savings.  In response to Co-                                                                       
Chair Therriault, Mr. Grasser informed members that an                                                                          
antlerless moose is a cow moose.                                                                                                
Representative Grussendorf voiced concern with the                                                                              
Department not being able to call emergency closures to                                                                         
regulate the stocks.                                                                                                            
Representative Bunde spoke in support of the legislation.                                                                       
He went on to say that scientific research has proven that                                                                      
anterless harvest can be beneficial.  Representative                                                                            
Austerman asked if the reason for the legislation was that                                                                      
the advisory board was no longer needed.  Mr. Grasser                                                                           
explained that historical record has proven that they are no                                                                    
longer required.  He pointed out that anterless moose hunts                                                                     
are the only regulated hunt in the State, which require this                                                                    
special step to take place before the hunt can begin.  He                                                                       
added that in Alaska, it is legal to hunt cow caribou, nanny                                                                    
goats and sows without cubs.                                                                                                    
MATTHEW ROBUS, ACTING DEPUTY DIRECTOR, WILDLIFE CONSERVATION                                                                    
DIVISION, DEPARTMENT OF FISH AND GAME, stated that the                                                                          
Department supports HB 114 which would repeal the                                                                               
requirement to annually reauthorize each moose hunt in the                                                                      
State.  Current law causes an unnecessary burden and some                                                                       
extra costs to the Department staff.  The present Board of                                                                      
Game cycle addresses four regions of the State once every                                                                       
two years.  The Department is forced every spring to address                                                                    
every anterless moose season in the State.  Each spring,                                                                        
area biologists and advisory committees are required to go                                                                      
through this process.                                                                                                           
Mr. Robus commented that the fiscal note was based on the                                                                       
increased costs from the annual reauthorization exercise at                                                                     
the Board of Game level.  There have been increased costs                                                                       
for area biologists to travel to advisory boards.  Those                                                                        
costs are not well reflected in the note, and he admitted                                                                       
that there could be additional savings.  Mr. Robus urged                                                                        
passage of the legislation to achieve better wildlife                                                                           
management while saving money.                                                                                                  
Co-Chair Therriault asked if the "other" travel by the                                                                          
biologists would be listed in the Fish and Game fund or the                                                                     
general fund travel expenditure.  Mr. Robus replied it would                                                                    
be listed in the fish and game funds and the federal program                                                                    
receipt funds.                                                                                                                  
Representative Grussendorf commented that if the advisory                                                                       
boards were no longer used, the Department would be called                                                                      
upon more often to address questions and give advice to the                                                                     
Board of Game.  He suggested that would result in not much                                                                      
savings.  Mr. Robus replied that the Department meets with                                                                      
the advisory committees quite regularly and offered                                                                             
assurance that if there was a problem, it would continue to                                                                     
be addressed.  Area biologists have emergency authority                                                                         
delegated to address any harvest season.                                                                                        
Mr. Robus continued, there has been much effort put into                                                                        
working situations out with advisory committees.  He                                                                            
recommended that it is always better to address concerns at                                                                     
a local level.  Advisory committees will continue to be                                                                         
involved in the management process.  Mr. Robus added that                                                                       
the federal subsistence process and the dual management                                                                         
system have substantially modified the State's jurisdiction                                                                     
for wildlife.                                                                                                                   
Representative Bunde advised that the legislation does not                                                                      
preclude advisory board participation; it simply removes                                                                        
their statutory veto power.  He added that advisory boards                                                                      
will participate on many subjects and would continue to be                                                                      
involved on important concerns.                                                                                                 
DAVID KELLYHOUSE, ALASKA OUTDOOR COUNCIL, FAIRBANKS,                                                                            
acknowledged that the test of any good government is its                                                                        
willingness to take unnecessary and expensive regulations                                                                       
off statute when the opportunity arises to save money.  He                                                                      
urged the Committee's support of the legislation.                                                                               
Representative Foster MOVED to report HB 114 out of                                                                             
Committee with individual recommendations and with the                                                                          
fiscal note.  There being NO OBJECTION, it was so ordered.                                                                      
HB 114 was reported out of Committee with a "do pass"                                                                           
recommendation and with a fiscal note by the Department of                                                                      
Fish and Game dated 3/16/99.                                                                                                    
The meeting adjourned at 3:00 P.M.                                                                                              
H.F.C. 9 3/23/99                                                                                                                

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