Legislature(2017 - 2018)HOUSE FINANCE 519
02/20/2018 01:30 PM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB273 | |
| HB299 | |
| Public Testimony | |
| HB301 | |
| Public Testimony | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 299 | TELECONFERENCED | |
| += | HB 273 | TELECONFERENCED | |
| + | HB 301 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 20, 2018
1:35 p.m.
1:35:39 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:35 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Erika McConnell, Director, Alcohol and Marijuana Control
Office; Hannah Lager, Budget Analyst III, Division Of
Administrative Services, Department of Commerce, Community
and Economic Development; Kris Curtis, Legislative Auditor,
Alaska Division of Legislative Audit; Sara Chambers, Acting
Director, Alcohol and Marijuana Control Office, Department
of Commerce, Community and Economic Development; Janie
McCullough, Director, Division of Corporations, Business
and Professional Licensing, Department of Commerce,
Community and Economic Development; Representative Adam
Wool, Sponsor; Laura Stidolph, Staff, Representative Adam
Wool.
PRESENT VIA TELECONFERENCE
Debbie Cary, self, Ninilchik; Nancy Trump, Latitude 62
Lodge, Matanuska Susitna Borough; Allen Choy, Al's Alaskan
Inn, Anchorage; Pete Hanson, Alaska CHARR, Anchorage;
SUMMARY
HB 273 EXTEND: MARIJUANA CONTROL BOARD
HB 273 was HEARD and HELD in committee for
further consideration.
HB 299 EXTEND: ALCOHOLIC BEVERAGE CONTROL BOARD
HB 273 was HEARD and HELD in committee for
further consideration.
HB 301 ALCOHOL LIC.: BEV DISPENSARY/RESTAURANT
HB 301 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster reviewed the agenda for the day.
HOUSE BILL NO. 273
"An Act extending the termination date of the
Marijuana Control Board; and providing for an
effective date."
1:37:16 PM
ERIKA MCCONNELL, DIRECTOR, ALCOHOL AND MARIJUANA CONTROL
OFFICE, introduced the PowerPoint presentation: "Alcohol
and Marijuana Control Office." She turned to Slide
2: "Agency and Board Structure:"
Alcohol and Marijuana Control Office
• Alcoholic Beverage Control Board
• Marijuana Control Board
The Alcohol and Marijuana Control Office serves both
the Alcoholic Beverage Control Board and the Marijuana
Control Board. The boards were two separate entities.
Ms. McConnell reviewed slide 3: "Marijuana Control Board
Accomplishments":
• In nine months, developed and adopted the regulatory
structure for marijuana licensure through a robust
public process
• Between being constituted in July 2015 and present,
met over 24 times, including in each judicial district
each year as required by statute
• Between June 2016 and present, approved 278 license
applications, denied 8 applications, and revoked 2
licenses
• Opened 45 regulations projects, of which 8 are in
effect, and an additional 11 are adopted
Representative Ortiz asked about slide 3. He referenced the
third bullet point and asked how the application approval
process worked. Ms. McConnell responded that on occasion
the board tabled an application that was deficient or
incorrectly done. The applicant was given an opportunity to
correctly complete the application and once approved was
included in the 278 number. She estimated that between 6
and 12 approved applications had been temporarily tabled.
Representative Ortiz asked whether there were currently any
applications in an indeterminate state. She recollected
that one or two applications were tabled during the last
board meeting.
1:41:32 PM
Representative Tilton asked for a general idea of how many
applications were considered in one board meeting. Ms.
McConnell replied that the board reviewed 20 to 30
applications in one meeting. Representative Tilton asked
how many applications were currently pending for the next
meeting. Ms. McConnell answered that the application
process went through certain phases. Once the applications
were reviewed and deemed complete by staff they were
reviewed at the next board meeting. She was aware of 62
applications awaiting board review but was uncertain how
many were in the initial phase.
Representative Kawasaki had questions regarding the
licensing portion. He referred to a sunset review from July
2016. The audit mentioned 122 issued licenses. He wondered
whether approximately 150 licenses were issued since the
audit. Ms. McConnell answered in the affirmative.
Representative Kawasaki asked if each type of licenses took
a different amount of time to review. Ms. McConnell replied
that each license application was " extensive" and certain
license types took a significant amount of time to review.
She relayed that product manufacturers licenses had to
obtain approval for each product they produced. One
licensee had 91 products that needed approval, so the staff
had to review each one for compliance with the regulations.
Representative Kawasaki asked about an average wait time
from the time the applicant submitted the application until
it was reviewed by the board. He shared that he heard from
potential licensees waiting for the regulatory approval
process. He remarked that more license examiners were not
yet hired, and the license application process was backed
up. He wanted to better understand where the delays were to
help expedite the process.
1:46:12 PM
Ms. McConnell referred to a Flow Chart from February 2017
from the control office (copy on file) and explained that
the entire process took approximately 6 to 7 months. She
elucidated that the primary reason for the lengthy process
was staff turnover. As of November 2017, the office only
had three license examiners and were granted two more
positions in FY 2018 that were hired after November 2017.
However, the office had received 950 alcohol renewal
applications and the new staff was limited to processing
the renewals. Recently, one of the three examiners
resigned. The office attempted to keep the application
process moving forward. Additionally, the board was very
aware of the need to keep the process moving and scheduled
an extra meeting to accommodate the review of applicants.
The office was arduously working to hire and train
examiners.
Representative Kawasaki asked how Alcohol and Marijuana
Control Office (AMCO) decided what the examiners focused on
between alcohol and marijuana. Ms. McConnell replied that
ideally every examiner would be able to handle both types
of applications. However, examiners relayed challenges when
switching between processing for both substances. The
office tended to allow specialization. She determined that
the best structure was two examiners assigned to alcohol,
two examiners assigned for marijuana, and one that floated
between the two depending on marijuana license renewal or
alcohol license renewal periods.
1:49:36 PM
Representative Kawasaki asked about what the legislature
could do to ease the process. Ms. McConnell was not sure
there was anything currently necessary. The staff should be
adequately trained, and the backlog reduced in the time it
would take to hire and train new staff.
Representative Grenn complimented Ms. McConnell and felt
that AMCO had accomplished a lot in a short time period. He
inquired about sensitive business information that was
required by applicants. He asked whether the board acted to
protect the information or change the process. Ms.
McConnell responded that several break-ins had occurred at
various marijuana facilities. There was a suspicion with
one burglary that occurred in December 2017, that the
thieves accessed the floor plans from the application
proposal. In response, AMCO took two steps to mitigate the
problem. One action revised the application form and
eliminated the requirement to show the location of security
cameras and devices on the floor plan. The second step was
that once an application was considered by the board the
floor plan diagram was removed from the website. The
application was included online for the public to provide
input during the application process.
Representative Ortiz asked whether the staff recommended
approval or denial after the initial reviewing process. Ms.
McConnell responded that the staff completed a cover memo
that highlighted dates and included opportunities to raise
issues. The staff did not engage in the approval or denial
process but might urge the board to take a particular look
at something specific in an application. Representative
Ortiz asked whether there was a "commonality" in board
rejections. Ms. McConnell answered in the negative.
Representative Tilton asked whether the staff spent a
significant portion of time reviewing initial applications
and requesting more or corrected information from the
applicants. She wondered whether the licensing process
could be streamlined in any way. Ms. McConnell indicated
the staff had not seen a "perfect" application when
initially submitted. When staff discovered errors a list of
what was needed was sent to the applicant. The office
recently revised its forms, resulting from what was learned
and experienced through the application process to date.
She recommended that applicants should listen to or attend
board meetings prior to submitting their application and
felt that the applicants had a certain level of
responsibility for a correct application.
1:56:22 PM
Vice-Chair Gara pointed out that the cost of labor or
commodities did not change from 2019 to 2023 according to
the fiscal note. He wondered whether the board would
increase license fees as wages and costs increased. Ms.
McConnell replied that she was not certain of future needs
and therefore left the numbers the same in the out years
considering the board's authority to alter fees as
necessary.
Co-Chair Foster asked members to hold their questions until
the end of the presentation.
Ms. McConnell turned to slide 4: "Alcohol and Marijuana
Control Office: Current Organization." She explained that
the organizational structure included 3 sections:
Enforcement, Administration, and Licensing and Education.
The enforcement section included one Special Investigator,
five Special Investigators, and one Criminal Justice
Technician based in Anchorage, two of the special
investigators were based in Fairbanks and one in Juneau.
The licensing and education section included a Local
Government Specialist that performed community outreach for
both alcohol and marijuana programs that was added in FY
17. The remaining positions were comprised of Occupational
Licensing Examiners and one administrative assistant.
Ms. McConnell continued to slide 5: "Marijuana Regulation
History":
• November 2014: Voter initiative to regulate marijuana
like alcohol passes
• April 2015: HB123 establishes the Marijuana Control
Board (Sec. 2 Ch. 4 SLA 2015, primarily changes AS
17.38)
• February 2016: Marijuana Control Board establishes
regulations, including fees for marijuana businesses
(enacted as 3 AAC 306)
• February 2016: Marijuana licensing begins
(applications are accepted)
• July 2016: Commercial marijuana operations begin
• October 2016: First retail marijuana store opens
• June 2017: First renewal period for all marijuana
licenses
1:59:52 PM
Ms. McConnell read from slide 6: "Marijuana Budget
History":
• November 2014: Voter initiative to regulate marijuana
like alcohol passes
• Spring 2015: UGF funding appropriated for FY2015 and
FY2016 for program implementation ($2,360.1 UGF,
supplemental multi-year appropriation for FY2015-
FY2016)
• Spring 2016: UGF and GFPR funding appropriated for
FY2017 for continued program operations ($1,470.7 UGF,
$100.0 GFPR) Component retitled from Alcoholic
Beverage Control Board (ABCB) to Alcohol and Marijuana
Control Office (AMCO)
• Spring 2017: UGF and GFPR funding appropriated for
FY2018 ($1,052.5 UGF, $756.6 GFPR)
Intent language in the budget regarding marijuana fees
• Spring 2018: UGF and GFPR funding requested for FY2019
($532.8 UGF, $1,282.6 GFPR)
HB273 introduced to extend the Marijuana Control Board
HB299 introduced to extend the Alcoholic Beverage
Control Board
Ms. McConnell reported that AMCO expected to be fully
supported by program receipts and carry forward funds by FY
2020.
Ms. McConnell read from slide 7: "Marijuana Fees":
• License and application fees are set by the Marijuana
Control Board in regulation (3 AAC 320)
• Fees were last set in February 2016
• Annual fees for marijuana licenses are $1,000 for
limited cultivation, concentrate manufacturing, or
testing licenses, and $5,000 for retail, unlimited
cultivation, and product manufacturing licenses
• Application fees are $1,000 for new and transfer
applications and $600 for renewal applications
• Half of each application fee is transferred from AMCO
to the appropriate local government
o This is different than alcohol licensing revenue
transfers, which are transferred from the
Department of Revenue's tax
• collections to the appropriate local government
• Intent language in the FY2017 budget
• The board will likely revisit fees in FY2019 or FY2020
Ms. McConnell advanced to slide 8: "Alcohol Fees":
• License fees are set by statute for all license types
in statute; licenses created by regulation have
license fees set by regulation
• Application fees are set by regulation
• Application fees were raised for the first time in at
least 20 years, to take effect 7/1/18
• Biennial fees for alcohol licenses range from $400
(golf course license; wholesale-malt beverage and wine
license) to $2,500 (beverage dispensary license)
• Application fees are $100 for new and transfer
applications and $200 for renewal applications; these
are increased to $500 for new and transfer
applications and $300 for renewal applications,
beginning 7/1/18
• License fees are transferred to the appropriate local
government from the Department of Revenue's tax
collections upon showing of local enforcement of
applicable laws
2:04:55 PM
Ms. McConnell highlighted the intent language on slide 9:
"2017 Legislative Intent Language":
Development, Alcohol and Marijuana Control Office
Operating Budget (CCS HB 256)
It is the intent of the legislature that the
Department of Commerce, Community and Economic
7 Development, Alcohol and Marijuana Control
Office, set marijuana application and licensing
8 fees to cover the cost of regulation and
recover unrestricted general fund appropriations
made
9 in prior fiscal years while the program was
being established.
Ms. McConnell moved to slide 10: "AMCO Budget History and
Projection." She highlighted that in both FY 2016 and FY
2017 expenditures were less than revenues and some funds
were returned to the general fund (GF) for alcohol
operations.
2:05:43 PM
Ms. McConnell indicated that slide 11 "Alcohol and
Marijuana Control Office: Current Organization" was a
duplicate slide from earlier in the presentation. She
turned to slide 12: "Alcohol and Marijuana Control Office:
Organization to Support One Regulated Substance." She
offered that slide 12 was the same duplicate denoting the
positions that would be eliminated if one of the boards
were not extended. She detailed that three special
investigators and the criminal justice technician would be
eliminated from the enforcement section, two occupational
licensing examiners and one supervisor from the licensing
and education section, and the administrative assistant
from the director's office would all be eliminated.
Representative Kawasaki cited the fee structure on slide
10. He asked why license fees for alcohol were set by
statute and the marijuana licensing fees were set by
regulation. Ms. McConnell was unable to answer the question
regarding alcohol licensing. She explained that the
marijuana statutes were initially adopted from the voter's
initiative and were limited. Some of the statutes were
further developed by the legislature in 2016. Many of the
rules relating to the marijuana program were in regulation
unlike alcohol, where most were in statute. Representative
Kawasaki asked whether the alcohol program had the same
rules when setting fees. Ms. McConnell explained that the
alcohol program was required to be self-supporting like the
marijuana program. Representative Kawasaki asked if the
alcohol fee structure was in statute. Ms. McConnell was
uncertain and would follow up. Representative Kawasaki
reported that the marijuana program was required to repay
the initial general fund expenditures. He asked how
repayment would be accomplished through the fee structure.
Ms. McConnell replied that essentially the office had one
year of data with all the licenses renewing. However, she
was uncertain how the licensure would settle out; how many
licenses would remain viable and supported by the public.
She needed a few more years of data to be able to project
expenses and revenues and set fees that would recover the
funding. Representative Kawasaki asked if the board would
set the fees to meet the goals and requirements of the
repayment mandate. Ms. McConnell responded in the
affirmative.
2:09:58 PM
Representative Wilson asked whether the Department of
Commerce, Community and Economic Development (DCCED) was
planning to submit a new fiscal note that reported the $1.5
million in GF expense that would eventually be repaid to
the general fund. Ms. McConnell explained that because the
office was still requesting GF to support the program. The
office was proposing to delay repayment until the program
was self-sufficient.
2:11:21 PM
Representative Wilson suggested a current fee adjustment in
anticipation of repayment might be necessary. She
reiterated that the fiscal note did not reflect the GF
obligation. She wanted the board to become self-sufficient
sooner rather than later. Representative Wilson inquired
about the exorbitant cost of an alcohol permit. Ms.
McConnell responded that alcohol licenses were capped based
on population. She explained that certain types of alcohol
licenses; beverage dispensary licenses (bar licenses) and
package store licenses were limited by population. The
situation created a secondary market for the licenses and
was a private transaction between two individuals; the
money was not part of the licensing program. Representative
Wilson wondered whether the board tracked active licenses
and licenses that were not being utilized. Ms. McConnell
indicated that minimum operation requirements were
established that mandated operating a certain number of
hours each year or a waiver was necessary. The board only
issued a limited number of waivers via regulation. The
licenses could not be hoarded.
2:15:38 PM
Vice-Chair Gara asked how the boards attempted to be cost
neutral through its fee structure. Ms. McConnell replied
that for the alcohol program the refund to the local
government came from taxes and did not affect the board's
budget. She elaborated that the marijuana program collected
2 fees; a licensing fee and an application fee. The license
fee was higher than the application fee. The licensure fees
were retained entirely, which could be adjusted to help the
program become self-sufficient. Vice-Chair Gara asked for
clarification. He inquired about remittances to local
governments. Ms. McConnell clarified that on the alcohol
side, local government assessed and collected taxes and was
a function of the Department of Revenue (DOR). She
clarified that on the marijuana side the money came from
the application fees and half of the amount collected was
refunded to the local government. The state retained the
other half of the fees. Vice-Chair Gara referenced the same
issue as the inquiry made by Representative Grenn regarding
floor schematics as part of the marijuana licensure. Ms.
McConnell reiterated that the marijuana application was
placed online for the benefit of the public and the
regulation deeming application documents public records was
set in statute. She reminded that the licensees premise was
part of the application but once the board ruled on an
application AMCO removed the diagram online and was only
made available via a public records request. Vice-Chair
Gara asked why a floor plan had to be posted. Ms. McConnell
replied that the internet was the easiest way to provide
access to the public and the regulations provided for a
thorough public process that included viewing the entire
application.
2:19:53 PM
Representative Ortiz asked whether the use of marijuana on
site was not allowed anywhere in the state. Ms. McConnell
answered that the prohibition for onsite use covered the
entire state. Representative Ortiz asked about the
reasoning behind the on-site consumption ban and if the
board considered the revenues gained through elimination of
the prohibition. Ms. McConnell answered in the negative.
She related that the provision in statute contemplated
onsite consumption as part of a retail outlet but was
subject to development of the regulations. The board
embarked on a regulation development project in February
2016 that was open to public comment and voted against
adopting the regulations. In March 2017, the board reopened
a new regulatory project on onsite consumption that was in
progress. Representative Ortiz asked if the number of
alcohol licenses was capped. Ms. McConnell responded in the
affirmative. Representative Ortiz questioned whether the
marijuana licenses would be capped. Ms. McConnell responded
that she was uncertain whether a limit would ever be
established.
Representative Thompson cautioned that a bill [SB 63
Regulation of Smoking - Adopted 5/12/2018] that prohibited
smoking in public buildings was moving through the
legislature. He asked how a smoking prohibition would be
affected by adoption of onsite marijuana consumption. Ms.
McConnell understood that the bill contained a "carve out"
provision that allowed for marijuana consumption in a
stand-alone marijuana retail store. However, smoking
marijuana in a marijuana store that was not "discrete"
would be prohibited. She reminded committee members that
other methods of marijuana consumption existed and might be
universally legal in marijuana retail stores.
Representative Thompson asked about common walls and the
exclusion. Ms. McConnell understood that the retail store
was supposed to be an entirely separate and standalone
building.
2:24:17 PM
Representative Ortiz asked how often the board met to
review licenses. Ms. McConnell responded that once an
application was deemed complete the board had 90 days to
offer a ruling. She added that the board met approximately
every two and one-half months. Representative Ortiz asked
whether the board could meet more often to clear a backlog
of applications. Ms. McConnell observed that currently the
backlog was produced at the staff level and she was not
sure if adding board meetings was an effective way to
address a backlog if the applications were not ready for
board review. The board typically still met if the number
of applications was lower than what was usually addressed
in one meeting.
2:26:30 PM
AT EASE
2:27:53 PM
RECONVENED
Vice-Chair Gara noted that the committee had heard public
testimony on HB 273.
HB 273 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 299
"An Act extending the termination date of the
Alcoholic Beverage Control Board; and providing for an
effective date."
2:28:48 PM
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, referenced the audit report pertaining
to the Alcoholic Beverage Control Board (ABC) dated
November 17, 2017 [Sunset Review Audit Control Number 08-
20099-17](copy on file). She read the report conclusions:
In all areas except licensing, the audit found the
board was operating in the public's interest. Meetings
were conducted effectively, investigations were
processed timely, and the board developed and adopted
regulations necessary to implement statutes. The audit
concluded the board should improve its procedures for
issuing renewals, recreational site licenses, and
beverage dispensary licenses that encourage tourism.
Testing found these licenses were not consistently
issued in accordance with statutes. Additionally,
operational improvements are needed in enforcing laws,
monitoring board-related local law enforcement
activity, and processing refunds to municipalities. In
accordance with AS 44.66.010(a)(1), the board is
scheduled to terminate on June 30, 2018. We recommend
the legislature extend the board's termination date to
June 30, 2022
Ms. Curtis cited page 8 of the audit and reported further
on the conclusions. She announced the boards "enforcement
efforts had declined, and operational improvements were
needed." She read the following:
The board, through AMCO investigators, has
historically conducted compliance checks where
investigators employ underage individuals who attempt
to purchase alcoholic beverages. Licensees who fail a
compliance check receive criminal summons or
citations. According to management, the federal grant
funding for this program was terminated at the end of
2012, and the board received supplemental funds to
keep the program going through June 2014. AMCO's
enforcement section continued to conduct compliance
checks funded by program receipts until April 2015.
Although there is no statutory or regulatory
requirement to conduct compliance checks, AMCO
management reported it is an integral part of the
enforcement of alcoholic beverage laws and is
evaluating alternative means for providing the
enforcement through shared services with other
agencies. The audit noted the board and AMCO
management have not established a written enforcement
plan to direct its limited enforcement resources.
(Recommendation 4) For example, the board has not
formally established how often licensed premises
should be inspected. Furthermore, the control office
does not monitor and track all complaints to ensure
complaints are assessed for follow up action and
investigated in a timely manner. (Recommendation 5)
Ms. Curtis turned to page 9 and read:
As discussed in the Background Information, for
communities
designated as a restricted area for controlling the
availability of alcoholic beverages, the board
enforces limits on alcoholic beverages purchased from
package stores. However, the audit found the board and
control office staff have not maintained the list of
restricted purchasers within the statewide database of
written orders in accordance with regulation,
potentially allowing persons convicted of illegally
selling alcoholic beverages to continue purchasing
alcohol via written order. (Recommendation 6)
Ms. Curtis indicated that the audit contained 8
recommendations for improvements that began on page 12.
2:30:47 PM
Vice-Chair Gara handed Co-Chair Foster the gavel.
Ms. Curtis continued to provide details about the audit
report. She addressed the first recommendation. "The
authority to renew licenses should be limited to the
board." She read the following from page 12:
Per AS 04.11.070, only the board may issue, renew,
transfer, relocate, suspend, or revoke a license under
AS 04. Alaska Statute 04.06.080 states that
notwithstanding AS 04.11.070, the board may delegate
authority to the director to temporarily grant or deny
the issuance, renewal, or transfer of licenses and
permits. In a past board meeting, the board voted to
delegate its authority to renew licenses to the
director under the incorrect understanding that such
delegation was legal. The AMCO director, in turn,
assigned the function to license examiners.
Ms. Curtis highlighted the second recommendation: "The
board should issue recreational site licenses in accordance
with statutory requirements." She reported the following
findings:
Ten of 29 recreational site licenses active during the
audit period were judgmentally selected for testing.
All 10 did not meet the statutory definition of a
recreational site?. This same finding was reported in
the prior 2014 sunset audit. Alaska Statute
04.11.210(c) defines recreational sites as locations
where baseball games, car races, hockey games, dog
sled racing events, or curling matches are regularly
held during a season. The 10 noncompliant licensees
noted above included travel tour companies, bowling
alleys, an art council, a pool hall, movie theater,
and a spa?.
Review of board meeting minutes revealed that board
members
understood these businesses did not meet the
definition of a recreational site license yet believed
it to be in the public interest to issue them.
Furthermore, board members anticipated the criteria
for recreational site licenses would be addressed in a
future rewrite of AS 04.06. The issuance of these
licenses expanded the number of establishments
licensed to sell alcohol over the number allowed by
statute.
Ms. Curtis summarized recommendation 3: "The board should
issue beverage dispensary licenses in accordance with
statutory requirements." She read:
In a sample of 169 of 126 beverage dispensary licenses
issued to encourage tourism, the audit found five
licenses were transferred and six were renewed despite
not meeting statutory requirements. Alaska Statute
04.11.400(d) states the board may approve the issuance
or transfer of ownership of a beverage dispensary
license without regard to statutory population limits
if it appears that the issuance or transfer will
encourage tourism. Statutes provide for the minimum
number of rental rooms that must be met by a business
to encourage the tourist trade. Alaska Statute
04.11.330(a)(4) states the renewal of a license shall
be denied if the board finds the issuance of an
existing license under AS 04.11.400(d) has not
encouraged the tourist trade. The board believed it
was appropriate to approve the licenses, as the
original licenses were issued before June 1985;10
however, there was no statutory provision to
"grandfather" the licenses. The issuance of the
licenses expanded the number of establishments
licensed to sell alcohol over the number allowed by
statute.
Ms. Curtis reviewed Recommendation 4: "The board, AMCO
director, and enforcement supervisor should work together
to formally establish an enforcement plan to direct AMCO's
limited enforcement resources." She noted that the same
recommendation along with recommendation 5 were included in
the Marijuana Control Board audit. She moved to
Recommendation 5: "The board and AMCO director should
implement a process to monitor and track complaints to
ensure they are assessed for follow up action and
investigated in a timely manner." Ms. Curtis underlined
Recommendation 6: "The board and AMCO director should
develop written procedures for updating the statewide
database with restricted purchasers." She cited the
Background Information section of the audit and explained
that the section described the Statewide Database of
Written Orders. She explained that the database was used to
control and monitor the sale of alcohol to restricted areas
of the state. Furthermore, regulation 3 AAC 304.645
requires the board to maintain a list of persons convicted
of a violation of AS 04.11.0103 [illegal sale or
manufacture of alcohol] and provide the listing of these
restricted purchasers to package store licensees. Package
store licensees were prohibited from selling alcoholic
beverages to a person who is identified as a restricted
purchaser in the statewide database. She noted that
restricted purchasers were not entered in the statewide
database, and reports of convictions were not routinely
forwarded to the office from the Court System.
Ms. Curtis pointed to Recommendation 7: "The board and AMCO
director should improve procedures to ensure municipalities
report violations of alcoholic beverage laws." She reported
that municipalities must report the information as a
condition to receive half of the biannual license fees.
The audit discovered that only four of 40 locations
submitted reports in FY 17 regarding enforcement efforts by
municipalities, yet the fees were routinely funded.
2:36:28 PM
She summarized Recommendation 8: "The AMCO director should
develop and implement procedures to ensure refunds to
municipalities are appropriately reviewed." She indicated
that the audit found one employee in the control office was
responsible for calculating the amounts to be refunded to
municipalities, and the calculation was not reviewed prior
to processing the refund. By not having procedures that
require a separate review, the risk that refunds were
inaccurate was increased.
Ms. Curtis highlighted the Agency Response from the Office
of the Governor on page 27, of the audit report. She
relayed that the administration agreed that the board
sunset should be extended. She pointed out that the
department's response was found on page 29. She indicated
that the agency concurred with all the audit's finding
except Recommendation 1. The commissioner [Mike Navarre}
believed that an alternative interpretation of statute
existed but agreed to move forward with corrective action.
She mentioned that the board's response was found on page
33. The board concurred with all recommendations except
Recommendation 3 that related to issuing beverage
dispensary licenses to encourage tourism. The board chair
felt that grandfathering the licenses issued before June
1985 was appropriate. In response to the board's
conclusions regarding recommendation 3, the division of
audit wrote a letter found on page 35, that reaffirmed the
audit's conclusion and recommendation. She noted that the
board chair provided no legal basis for his disagreement.
2:38:26 PM
Representative Wilson asked if the last audit was performed
in 2014. Ms. Curtis answered in the affirmative.
Representative Wilson thought the audit had several
recommendations that were very serious. She asked when a
board "could finally get shut down" due to repeatedly
ignoring findings and recommendations. Ms. Curtis qualified
her earlier statement. She revealed that the audit
originally granted the board a conditional 6-year extension
that was reduced to 3 years if the marijuana initiative
passed. She interpreted Representative Wilson's question to
mean how bad findings would have to be to reduce the
extension to one year. She specified that a bad audit would
never receive less than a two-year extension due to the
time it took to perform an audit. She referred to the list
of "License Count by Type" on page 7. She noted that there
were only 27 recreational site licenses out of a total of
1,800 licenses. She indicated that "materiality" was
factored into the audit conclusions. The issues regarding
enforcement plans and complaint tracking was a symptom of
the two boards lack of resources, sharing staff, and
defining their organizational structure. She wanted to give
at least 4 years to allow time to establish a working
structure between the two boards and allow the Marijuana
Control Board to become functional. She was very concerned
about the decrease in enforcement activities and how the
issue factored into the public's interest. Representative
Wilson responded that if there was not enough money for
enforcement then the fees needed to be adjusted. She
related that the lack of enforcement was her largest
concern. She wondered whether money was the issue.
2:42:59 PM
Representative Kawasaki contended that the audit was not
"clean" and wanted the bill held over. He repeated some of
the findings. He commented that in Recommendation 3 the
auditor sampled 16 of 126 beverage dispensary licenses and
discovered that 11 did not meet statutory requirements. In
Recommendation 1, 36 out of 40 licenses were renewed by
AMCO license examiners without board approval, contrary to
statute. All 10 of 10 recreational sites tested in
Recommendation 2 did not meet statutory definition. He
believed the audit was "bad." He wondered whether the
issues were related to AMCO and the consolidation of the
functions between both boards. He discerned that merging
two boards under one administrative organization was
problematic. He questioned how AMCO was functioning. Ms.
Curtis responded that she did not routinely hear that AMCO
was "the cause of findings."
Vice-Chair Gara apologized for not allowing the sponsor to
present his bill before Ms. Curtis testified.
2:45:32 PM
LAURA STIDOLPH, STAFF, REPRESENTATIVE ADAM WOOL, thought
that the members had already heard a significant amount
about how the ABC Board functioned. She reiterated some of
the findings. She related that the sponsor felt the ABC
Board served an important function in public safety and
appreciated the support of the committee.
Vice-Chair Gara mentioned the testimony that the marijuana
board set its license fees for marijuana through regulation
and the ABC board fees were set through statute. He
mentioned a change in the ABC board's fees and asked
whether the fees were changing.
REPRESENTATIVE ADAM WOOL, SPONSOR, remarked that renewal
fees remained the same and acknowledged that other fees
were increasing but did not have access to the information.
Representative Pruitt opined that there were 2 policy calls
beyond an extension. He asked why the director was not a
member of the board and what regulation the board was
annulling. Representative Wool responded to his question as
to why the director was no longer able to cast a tie-
breaking vote nor a voting member. The related statute had
been repealed, but the regulation remained. He wanted
regulations to remain consistent with statute. He indicated
that the board hired the director and he thought the
director's tie-breaking vote was a conflict of interest. He
deferred to Ms. Stidolph to answer his second question.
Ms. Stidolph cited the Administrative Code, AAC 304.025
"Conduct of Board Meetings" Section C and read the
following:
For the purposes of AS.04.06060 the whole membership
is all persons appointed in serving as members of the
board if necessary the director shall cast a
tiebreaking vote with consent of the board executed at
the beginning of the meeting.
Ms. Stidolph identified the regulation as the one that was
annulled.
2:50:44 PM
Representative Guttenberg asked for Representative Wool's
perspective on the audit based on his own personal
experience from the industries' perspective. Representative
Wool remarked that he agreed with the staff's handling of
the renewal process due to the high volume of renewals. He
had been satisfied with the answer form the board chairman
and director regarding the issue. Overall, even though
there were administrative issues with the board and AMCO,
he believed the entities were working through the initial
growth stage of the new organizational structure. He
thought it was a heavy lift to combine the two boards and
previously shared some of Representative Kawasaki's
concerns but believed that things were leveling out.
^PUBLIC TESTIMONY
2:53:04 PM
Co-Chair Foster OPENED Public Testimony.
Co-Chair Foster CLOSED Public Testimony.
2:53:34 PM
AT EASE
2:53:58 PM
RECONVENED
Representative Wool had an additional response to
Representative Guttenberg's question. He referred to the
questions regarding enforcement and whether the board had
adequate resources to carry out the function properly. He
surmised that considering its limited resources the board
should prioritize enforcement of more serious violations.
Representative Wilson declared that the board had the
authority to raise fees. She was concerned that ABC was not
enforcing serious violations like underage drinking. She
asked whether he discussed the matter with the board. She
wondered what it would take to change the fees to maintain
sufficient staff to carry out adequate enforcement.
Representative Wool replied that he did not engage in
discussions over the issue and was uncertain how much fees
needed to increase. He related his personal experience
paying licensing fees and would not advocate for the amount
to increase. He knew that some of the fees were increasing
and was uncertain whether the increases were sufficient to
provide adequate enforcement. Representative Wilson knew
that licensees would not want fees increased. She imagined
that a budget would be proposed by the board that enabled
them to carry out its statutory duties and generate the
fees from the bottom line. She wanted to know how much
would be needed to comply and fix the concerns. She
requested budgetary information and reiterated her concern
over lack of enforcement. Representative Wool understood
her request.
2:58:29 PM
Representative Guttenberg ascertained that currently the
board's resources were spread across both boards causing
the loss of priorities by the ABC. He guessed that the
problem was created by combing the two boards since the ABC
was self-sustaining when it operated as a single entity. As
a license holder, he wondered whether Representative Wool
thought things were in a state of flux until the marijuana
board's costs were determined and if ABC was "suffering"
under the combined organization and newness of the
marijuana board. Representative Wool had not heard any
concerns from the alcohol industry consistent with
Representative Guttenberg's supposition. He referred to
"sting operations" to determine whether underage youth was
being served alcohol. He understood that a large federal
grant previously supported sting operations and had been
eliminated, which affected the frequency of current sting
operations. He did not feel that his industry lacked proper
enforcement and oversight and believed the industry "had
done a good job" carrying out enforcement. He was uncertain
whether the limited resources were due to the inception of
the marijuana board. He related that most ABC revenues
collected were from license renewals and that marijuana
licenses were new and there were more revenue streams for
its board. He suggested that an examination of whether less
revenue from some of the ABC fees could be directed from
municipalities and more redirected to the state. He
believed that the issue of limited resources should not
fall directly on the alcohol industry to raise fees.
3:03:22 PM
Co-Chair Seaton referred to the analysis on page 2 of the
fiscal note that stated the license fee were mostly set in
statute. He wondered whether the issue was related to the
statutory fee structure and if he thought it was necessary
for a fee structure change in statute. Representative Wool
deferred to the AMCO director for the answer.
Ms. McConnell reported that the fiscal note was almost
identical to that of HB 273. She reiterated that 8
positions would be eliminated if one board was not
reauthorized and noted that the positions were detailed in
the fiscal note analysis as well as the portion of travel,
services and commodities that would not be expended. She
reported that the ABC was fully supported through license
and application fees and if the board was not extended the
revenue loss would total of roughly $1.6 million. Co-Chair
Seaton inquired whether "it was a characteristic of the
board that it did not set the fees to actually fund the
enforcement by the department." Ms. McConnell clarified
that the license fees for alcohol were set mostly by
statute and the application fees were set by regulation.
She was uncertain of when the last statutory fee increase
occurred. She explained that ABC recently increased its
application fees for FY 2019. She listed the fee increases
from $200 to $300 totaling $570 thousand for 1,900
applications. She informed the committee that SB 76
(Alcoholic Beverage Control; Alcohol Reg) was a "re-write
of Title 4" statutes that included a reexamining of alcohol
license fees, but she was uncertain whether the fees
increased. Prior to the inclusion of the marijuana board,
ABC had 5 enforcement officers that had "clear" priorities.
Currently, AMCO had 8 enforcement officers. She shared
Representative Wilson's concerns about enforcement and
agreed with the audit's findings on the need to establish
priorities on how resources would be distributed. She
thought 8 enforcement officers based on the number of
licenses in the state might be inadequate but deferred to
the legislature to make the determination. She commented
that marijuana licenses were generally on the road system
due to challenges related to transporting the substance
that was still illegal on the federal level. The alcohol
licenses were much more distributed around the state
including many rural areas and travel costs related to
enforcement was higher. She indicated that the matters she
just mentioned were the types of issues needed to be worked
out in terms of setting priorities as directed by the
audit.
3:10:42 PM
Co-Chair Seaton asked whether the extra $570,000 in
increased revenue was sufficient enough to fulfill the
recommendations listed in the audit. Ms. McConnell
apologized for the mix-up and clarified that the $570,000
was the total revenue over a two-year period. Currently,
AMCO collected $280,000 in renewal fees and the increase
amounted to approximately $310,000. The board had two
programs and 8 enforcement officers and believed that there
was only a certain amount the board could do to mitigate
the situation, since some of its fees were set through
statute. Co-Chair Seaton inquired whether the $310,000 was
sufficient to address the audit recommendations. Ms.
McConnell determined that the additional funds would help.
She could not speak to the decisions that would be made by
the board.
3:13:13 PM
Representative Kawasaki compared the two board's fiscal
notes and highlighted that both boards showed each had 8
full-time positions. He referenced slide 12 from the
previous bill and asked what the yellow lines through
certain position titles denoted. Ms. McConnell answered
that the yellow "X" represented those positions that would
be eliminated if one board was not extended.
Co-Chair Foster relayed that amendments were due on
Thursday, February 22, 2018.
HB 299 was HEARD and HELD in committee for further
consideration.
Representative Wilson wondered whether the policy to
combine the two boards was appropriate. She believed the
question was over sufficient resources and understood it
was difficult to determine given the newness of the
marijuana board. She wanted to ensure that one board was
not being disadvantaged due to the other board's inclusion.
She requested further information regarding whether
combining the board's administration and sharing
enforcement was the reason for the lack of enforcement. She
did not want to "stifle" either industry.
Co-Chair Foster agreed with getting things right the first
time and wanted the committee to take deliberate action.
3:16:29 PM
AT EASE
3:17:14 PM
RECONVENED
HOUSE BILL NO. 301
"An Act relating to the renewal and transfer of
ownership of a beverage dispensary license or
restaurant or eating place license."
3:17:20 PM
Co-Chair Seaton MOVED to ADOPT proposed committee
substitute for HB 301, Work Draft 30-LS1217\E (Bruce,
2/16/18).
Representative Wilson OBJECTED for discussion.
LAURA STIDOLPH, STAFF, REPRESENTATIVE ADAM WOOL, indicated
that the changes were recommended by DCCED. She reviewed
the changes in the committee substitute (CS):
Section 3
Page 3, Line 27, remove "established village"
Removes the phrase established village from the room
rental requirement calculations. This is consistent
with how the statute has been applied in the past, and
removing it maintains the status quo rather than
requiring the recalculation of populations and room
requirements, further disrupting the industry and
current licensees.
Page 4, Line 16, remove "on the licensed premises,"
after "holder of the license"
This was removed to ensure that the entire
establishment wasn't considered the licensed premises,
otherwise it is possible that a cottage or hotel room
Representative Wilson did not understand why the language "
established village" was removed.
Ms. Stidolph deferred to Ms. McConnell.
3:20:12 PM
Ms. McConnell clarified that an established village was
defined in statute as "to include an unincorporated
community and organized borough that has 25 or more
permanent residents and is either on or off the road system
depending on its distance to a unified municipality." She
explained that her research determined that the concept of
an established village was included in the calculation of
population for the application of license limits and the
number of rooms for a beverage dispensary tourism license
but had never been implemented. Including the language had
a significant effect on the location and transfer of
licenses and would cause momentous disruption.
Representative Guttenberg had recently heard that if there
was a 10-room hotel a person would be eligible for a
license to serve alcohol. He wondered whether the matter
was related to the deleted language. Ms. McConnell
explained that the Beverage Dispensary Tourism license
cited in AS.04.11.400d was an exemption to the population
licenses if certain requirements were met including the
number of rooms a hotel, motel, or resort had available
predicated on the location of the hotel. The larger the
community the more rooms were required. She understood that
in 1985, the number of rooms changed to more rooms per
larger community to halt the increase in alcohol licenses
in large communities like Anchorage. Representative
Guttenberg asked what effect eliminating established
village had on licensing. Ms. McConnell answered that it
did not affect how Title 4 was implemented since 1980. She
delineated that it appeared that unincorporated communities
like Talkeetna and Nikiski inside a borough would have a
population limit applied to them that did not apply prior
to the addition of the language.
3:24:29 PM
Co-Chair Seaton asked whether the definition of the
population area established under (a) of this section [in
the bill] was the same as the definition DCCED used for
community assistance and whether the list was inclusive.
Ms. McConnell suggested he was referring to statute
concerning established villages as it related to refunds to
municipalities. Co-Chair Seaton clarified that he was
referring to page 3 of the bill and referred to the
definition Ms. McConnell read for established village and
thought it sounded like the definition of "a community"
that was used to determine DCCED's Community Assistance
Program. He wondered whether the same population parameters
applied. Ms. McConnell was not familiar with the Community
Assistance Program but offered to provide the information.
Representative Wilson WITHDREW her OBJECTION.
CSHB 301 (FIN) was adopted as the working draft.
3:27:14 PM
Representative Wool explained the bill. He reiterated that
under the tourism dispensary license an establishment in
any size community could provide a facility with 10 rooms
and obtain a liquor license and the number of bars
proliferated. As a result, the population determinates were
added to statute. He detailed that the limit in Anchorage
and Fairbanks was 50 rooms; the number of rooms required
depended on the size of the municipality. He qualified that
34 establishments obtained their tourism dispensary license
prior to 1985. He communicated that when the room law was
rewritten the 34 establishments were not grandfathered in,
were in areas such as Fairbanks and other locations in the
state. Allowing the establishments to continue to operate
was challenged and the ability for the them to renew their
licenses was in question. House Bill 301 would grandfather
hospitality businesses that have been operating prior to
1985 except for a "couple" business that obtained licenses
in 1986 with an inadequate number of rooms that were
included in the bill. He reported that many businesses had
been operating for over thirty years and he wanted them to
remain in business. The legislation primarily grandfathered
in the 34 businesses. In addition, current statute mandated
that alchohol licensed businesses remain open for 30 8-hour
days per year. He noted that some businesses were only open
on weekends, and one was being fined for not operating
under the 8-hour day requirement. The bill changed the
statute to state that the business had to operate for 240
hours per year. Finally, a provision added "outdoor
recreation lodge licenses" to the list of establishments
that could be voter approved. He noted the its omission
from statute was an oversite and the outdoor lodges had
been issued licenses.
Representative Thompson asked whether the grandfathered
licenses were eligible to be sold. Representative Wool
answered in the affirmative and added that the
establishment must remain in the location and operate in
the same manner.
3:33:33 PM
Representative Pruitt wanted further clarification. He
wondered whether the businesses would operate under the
previous provisions in place at the time they were
licensed. Representative Wool replied in the affirmative.
Ms. Stidolph interjected that section 3, lines 8 through 10
of the bill specifically addressed the issue. She read the
following:
however, an application may not be denied because a
prospective transferee under AS 04.11.400(d)(2) does
not have the qualifications required under AS
04.11.400(d)(1);
Representative Pruitt asked if a grandfathered
establishment could sell to a newly built lodge in another
location meeting the requirements of the grandfathered
licensed. Representative Wool responded in the negative.
Representative Pruitt asked for the definition of an
outdoor recreation lodge. Ms. Stidolph read the definition
from statute:
Sec. 04.11.225. Outdoor recreation lodge license.
(a) An outdoor recreation lodge license
authorizes the holder to sell alcoholic beverages to a
registered overnight guest or off-duty staff of the
lodge for consumption on the licensed premises or in
conjunction with purchased outdoor recreation
activities provided by the licensee. An outdoor
recreation lodge license may not be transferred.
(b) The biennial fee for an outdoor recreation
lodge license is $1,250.
(c) In this section, "outdoor recreation lodge"
means a licensed business that provides overnight
accommodations and meals, is primarily involved in
offering opportunities for persons to engage in
outdoor recreation activities and has a minimum of two
guest rooms.
Representative Kawasaki asked about the value of the
licenses. Representative Wool clarified that the licenses
were not separate from beverage dispensary licenses, and if
the business was sold the license would have to remain at
the same address. He was uncertain of the sale price.
Representative Kawasaki was confused because of the number
of different types of licenses. He asked if all were
considered beverage dispensary licenses and whether the
tourism dispensary license was not limited to caps that
were currently assessed per community for other beverage
dispensary licenses. Representative Wool replied in the
affirmative. He affirmed that there were many kinds of
beverage dispensary licenses and agreed it was confusing.
^PUBLIC TESTIMONY
3:39:11 PM
DEBBIE CARY, SELF, NINILCHIK (via teleconference),
supported the legislation. She owned one of the licenses in
question. She was a bar owner and operated her
establishment for 28 years; the license was originally
issued in 1963. She argued that the 40-room update was not
possible on the Kenai Peninsula due to lack of supporting
infrastructure such as wells and septic systems. She
related that her business served her community by providing
a meeting place, hosting weddings and funerals. She had
personally provided her services for fund raisers as a way
of "giving back" to the community.
3:41:17 PM
NANCY TRUMP, LATITUDE 62 LODGE, MATANUSKA SUSITNA BOROUGH
(via teleconference), had owned her establishment since May
1986. She was not just a bar but a full-service motel,
restaurant, and bar. She characterized her business as a
"town meeting place" and hosted weddings, birthday parties,
baby showers, and much more. The location was near an
elementary school, which enabled the lodge to be listed as
a safe place for school evacuation. She operated year
around and employed 15 to 20 people. She maintained that it
would be difficult to stay in business without the
grandfathered license. She thanked members for their
support.
3:43:12 PM
ALLEN CHOY, AL'S ALASKAN INN, ANCHORAGE (via
teleconference), spoke in favor of the legislation and
provided a history of his business. He explained that his
father moved to Anchorage in 1956 and at the time there was
a severe lack of housing. Anchorage had no hotels south of
13th Avenue. He believed the tourism dispensary license was
provided as an incentive. His father opened the business in
1964 then called the Candle Inn. He spoke to the 10-room
requirement and explained how it was changed based on
population after Atlantic Richfield Company discovered oil
on the North Slope in 1968. He agreed with the change and
did not want a "bar on every corner." He indicated that the
intent of the legislature in 1985 was to grandfather in the
prior tourism licensees. He believed that the ABC board
"misinterpreted" the intent of the law by deciding that the
pre-1985 license holders were currently non-compliant. He
argued that it was not economically feasible to add the
rooms in Anchorage. Currently in Anchorage there were
hotels on every corner. He emphasized that the
legislature's intent in 1985 was for the pre-1985 licensees
to be grandfathered in.
3:50:17 PM
PETE HANSON, ALASKA CHARR, ANCHORAGE (via teleconference),
favored HB 301. He noted that the bill supported long-
standing business. He believed that the intent of the
legislature wanted grandfathered protection for the
existing business and "the unintended ambiguity" existed in
the law. He thanks the legislature for it consideration.
3:51:18 PM
Co-Chair Seaton CLOSED Public Testimony.
He reviewed the agenda for the following day. He also
indicated that amendments for HB 301 were due to Co-Chair
Foster's office by Friday, February 22 at 5:00 P.M.
ADJOURNMENT
3:52:26 PM
The meeting was adjourned at 3:52 p.m.