Legislature(2003 - 2004)
06/23/2004 12:00 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
June 23, 2004
12:00 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Carl Gatto, Vice Chair
Representative Nancy Dahlstrom
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 1001
"An Act relating to taxes on cigarettes and tobacco products, to
tax stamps on cigarettes, to forfeiture of cigarettes and of
property used in the manufacture, transportation, possession, or
sale of unstamped cigarettes, to accounting for and use of part
of the proceeds of the additional cigarette tax, and to licenses
and licensees under the Cigarette Tax Act; relating to unfair
cigarette sales; and providing for an effective date."
- MOVED HB 1001 OUT OF COMMITTEE
HOUSE BILL NO. 1002
"An Act providing for a special deposit for workers'
compensation insurers; relating to assigned risk pools and
workers' compensation insurers; relating to the board of
governors of the Alaska Insurance Guaranty Association; stating
the intent of the legislature, and setting out limitations,
concerning the interpretation, construction, and implementation
of workers' compensation laws; relating to restructuring the
Alaska workers' compensation system; eliminating the Alaska
Workers' Compensation Board; establishing a division of workers'
compensation within the Department of Labor and Workforce
Development and assigning certain Alaska Workers' Compensation
Board functions to the division and the Department of Labor and
Workforce Development; establishing a Workers' Compensation
Appeals Commission; assigning certain functions of the Alaska
Workers' Compensation Board to the Workers' Compensation Appeals
Commission and the office of administrative hearings; relating
to agreements that discharge workers' compensation liability;
providing for administrative law judges in workers' compensation
proceedings; relating to workers' compensation awards; relating
to an employer's failure to insure and keep insured or provide
security; providing for appeals from compensation orders;
relating to workers' compensation proceedings; providing for
supreme court jurisdiction of appeals from the Workers'
Compensation Appeals Commission; providing for a maximum amount
for the cost-of-living adjustment for workers' compensation
benefits; providing for administrative penalties for employers
uninsured or without adequate security for workers'
compensation; relating to fraudulent acts or false or misleading
statements in worker's compensation; and providing for an
effective date."
- FAILED TO MOVE HB 1002 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB1001
SHORT TITLE: TOBACCO TAX; LICENSING; PENALTIES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
06/22/04 (H) READ THE FIRST TIME - REFERRALS
06/22/04 (H) L&C, FIN
06/23/04 (H) L&C AT 11:15 AM CAPITOL 120
06/23/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519
BILL: HB1002
SHORT TITLE: INSURANCE & WORKERS' COMPENSATION SYSTEM
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
06/22/04 (H) READ THE FIRST TIME - REFERRALS
06/22/04 (H) L&C
06/23/04 (H) L&C AT 11:15 AM CAPITOL 120
WITNESS REGISTER
JOHANNA BALES, Excise Audit Manager
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Presented HB 1001.
PAT LUBY, Advocacy Director
AARP - Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of the tobacco tax
measure.
KATTARYNA STILES
Alaskans for Tobacco Free Kids
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 1001.
JENNIFER APP
American Heart Association
(No address provided)
POSITION STATEMENT: Testified in support of HB 1001.
CAROL EDWARDS, Oncology Nurse;
Member, Board of Directors
Alaska Nurses Association
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 1001.
DOUG WOOLIVER, Administrative Attorney
Alaska Court System
Anchorage, Alaska
POSITION STATEMENT: Testified that the Alaska Court System is
neutral on HB 1002.
GREG O'CLARAY, Commissioner
Department of Labor & Workforce Development (DLWD)
Juneau, Alaska
POSITION STATEMENT: Discussed HB 1002.
LINDA HALL, Director
Division of Insurance
Department of Community & Economic Development (DCED)
Anchorage, Alaska
POSITION STATEMENT: During discussion of HB 1002, answered
questions.
MARTIN PIHL, Chairman
Alaska Timber Insurance Exchange
Ketchikan, Alaska
POSITION STATEMENT: Testified in support of HB 1002 and offered
amendments.
LORI WING, President
Alaska Independent Insurance Agents & Brokers
Anchorage, Alaska
POSITION STATEMENT: Expressed hope that HB 1002 would be passed
out of committee.
LON TROTTER, Director
Risk Management
Arctic Slope Regional Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 1002.
BARBARA WILLIAMS
Alaska Injured Workers Alliance (AIWA)
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 1002.
KEVIN DOUGHERTY
Alaska State District Council of Laborers
Eagle River, Alaska
POSITION STATEMENT: During discussion of HB 1002, discussed
workers' compensation.
ACTION NARRATIVE
TAPE 04-55, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 12:00 p.m. Representatives
Anderson, Gatto, Dahlstrom, Lynn, Rokeberg, Crawford, and
Guttenberg were present at the call to order.
HB1001-TOBACCO TAX; LICENSING; PENALTIES
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 1001, "An Act relating to taxes on cigarettes
and tobacco products, to tax stamps on cigarettes, to forfeiture
of cigarettes and of property used in the manufacture,
transportation, possession, or sale of unstamped cigarettes, to
accounting for and use of part of the proceeds of the additional
cigarette tax, and to licenses and licensees under the Cigarette
Tax Act; relating to unfair cigarette sales; and providing for
an effective date."
Number 0079
JOHANNA BALES, Excise Audit Manager, Tax Division, Department of
Revenue, explained that HB 1001 is basically the House Labor and
Commerce Standing Committee version [CSHB 538(L&C)] adopted by
this committee at the end of last session plus one additional
provision that was proposed by Senator Bunde to the Senate's
companion legislation. Ms. Bales explained that HB 1001
outlines the intent by the legislature to provide funding for
tobacco control programs and directs the legislature to deposit
8.9 percent of the cigarette tax proceeds, approximately $4
million each year, to the tobacco use, education, and cessation
fund. Furthermore, this legislation allows individuals to
personally transport up to 400 cigarettes without incurring any
cigarette tax. The aforementioned conforms with federal law.
This legislation changes the threshold from a class C felony for
[the theft of] 1,000 or more cigarettes to 5,000 or more
cigarettes, which was an amendment discussed in the House
Special Committee on Ways and Means. Raising the threshold
makes it consistent with the threshold for class C felony theft,
which requires a value of $500. Under HB 1001, the tax due on
5,000 cigarettes would be $500. Furthermore, this legislation
increases the tax on cigarettes by $1 per pack per 20
cigarettes. There is no phase-in. This legislation also
increases the tax on other tobacco products form 75 percent to
100 percent of the wholesale cost. This legislation levies a
tax on individuals who import other tobacco products for
personal consumption. The aforementioned was the amendment
offered by Senator Bunde, and the amendment is supported by the
in-state distributors and retailers who have systematically lost
business to out-of-state companies. The Department of Revenue
believes the aforementioned provision is important, she related.
MS. BALES highlighted that the legislation still contains the
provision allowing licensees with a physical location in the
state and a good payment record for the last five year with the
Department of Revenue to reduce their bonding requirement when
the tax rate increases. Therefore, the additional bonding won't
become a burden. Moreover, the legislation allows the state to
seize assets and includes forfeiture and seizure provisions.
Ms. Bales noted that HB 1001 includes all of the amendments
adopted by the House Special Committee on Ways and Means. Those
amendments from the original legislation require that the
seizure provisions only apply to class C felony violations. She
further explained that this legislation makes changes to the
Unfair Cigarette Sales Act. This legislation requires that a
floor stock tax be paid in six sequential monthly payments
beginning with the effective date of the legislation, which is
September 1, 2004.
Number 0497
MS. BALE, in response to Representative Gatto, explained that
the OTP [other tobacco products] amendment requires those who
import other tobacco products besides cigarettes, for personal
consumption, to obtain a license for a $25 fee. The
aforementioned fee is required of those who import cigarettes
for personal consumption. She noted that now there are
manufacturers making "machine-made cigars," which meet the
definition of a cigar and thus aren't taxed as a cigarette.
However, these "machine-made cigars" are advertised as a
substitute for cigarettes and are significantly less expensive.
She noted that cigarette-making kits are also prevalent and are
a cheap alternative that avoids taxes. Without the OTP
amendment, people can utilize cheap substitutes without any
price increase. She emphasized that the in-state retailers
support the OTP amendment because their business has been
impacted without such an amendment.
REPRESENTATIVE GATTO inquired as to when a cigarette isn't a
cigarette. He posed a situation in which there is only 20
percent tobacco in a single cigarette, and asked if the tax
would only [apply] to the 20 percent tobacco product. Would it
still be considered a cigarette, he asked.
MS. BALES specified that Alaska law, federal law, and most other
states define cigarettes as tobacco, regardless of the amount,
rolled in paper. Therefore, the distinction with cigars is that
they are rolled in tobacco leaf. With regard to there being
only a percentage of tobacco in the product, the tax would be
assessed regardless of the percentage of tobacco. Ms. Bales
specified that any product containing tobacco is taxed and if
it's tobacco wrapped in paper, it's taxed as a cigarette.
Number 0823
REPRESENTATIVE CRAWFORD requested review of the bonding
requirements.
MS. BALES explained that currently before a distributor or a
licensee can purchase tax stamps from the department, that
distributor or licensee has to post a bond when the taxes are
paid on a deferred basis. If the taxes are paid in cash, no
bond is necessary. The bond amounts to 200 percent of the
distributor's or licensee's monthly purchases, which covers
their outstanding tax liability until the first payment is made.
The provision in HB 1001 allows the distributor or licensee to
only pay 100 percent. Basically, the state will float a one-
month credit if cigarette tax stamps are purchased on a deferred
payment basis. She highlighted that this option would only be
available to those licensees with a physical presence in the
state and with a good payment history of at least five years
with the Department of Revenue. Such an option relieves the
bonding requirements on the licensee and/or distributor for
which the bond cost in this industry is fairly high. Those
without a physical presence in the state or a good payment
history must purchase cigarette tax stamps with cash or a bond
in the amount of 200 percent must be posted. She specified that
an out-of-state licensee, regardless of his or her payment
history, would have to post a bond in the amount of 200 percent.
REPRESENTATIVE ROKEBERG asked if the provisions in HB 1001 are
consistent with HCS CSSB 368(FIN).
MS. BALES clarified that HB 1001 is CSHB 538(L&C) plus the
amendment Senator Bunde made to SB 368. Therefore, all of the
amendments offered within this committee and the House Special
Committee on Ways and Means to [HB 538] are included in HB 1001.
In further response to Representative Rokeberg, Ms. Bales
related her belief that the bonding provisions in HCS CSSB
368(FIN) are similar to those in [CSHB 538(L&C)].
Number 1070
PAT LUBY, Advocacy Director, AARP - Alaska, noted the dedication
of the World War II Memorial and the celebration of the sixtieth
anniversary of D-Day. He noted that at that time no one
connected smoking with cancer and respiratory disease. Although
many were lost in World War II, many more were lost after the
war, simply because of smoking. Mr. Luby highlighted that AARP
members are grandparents and if increasing the tax keeps any
grandchildren from smoking, AARP is in favor of it. He stressed
that AARP is entirely in support of the tobacco tax measure. He
referred to the governor's transmittal letter during the regular
session, which clearly states that a higher tobacco tax will
help prevent youth from beginning to smoke while also helping
current smokers stop. The governor's transmittal letter is of
concern in regard to the data that suggests Alaska Natives,
particularly Alaska Native high school youth, smoke at a much
higher rate than the non-Native population. Therefore, Mr. Luby
strongly recommended that some of the new revenue coming to
state government from the tax increase be used to target
cessation efforts for Native smokers, particularly Native youth.
MR. LUBY informed the committee that in March 2004 there was a
report from the Medicare trustees who indicated that health care
costs for Medicare were much higher than expected. He pointed
out that Medicare would be in a better financial state if many
of the current retirees hadn't been smokers earlier in their
lives. Therefore, Mr. Luby opined that increasing the tobacco
tax in Alaska would produce an immediate beneficial health
consequence as well as long-term beneficial consequences for the
financial situation of Medicare and Medicaid. Mr. Luby recalled
Senator Bunde's statement last week that a $1.00 increase will
result in "sticker shock" and youth and adults deciding not to
smoke because of the cost. Although the House Finance Committee
recommended a phased approach, AARP believes it should be an
immediate increase. In conclusion, Mr. Luby recommended the
committee support HB 1001.
Number 1234
REPRESENTATIVE LYNN inquired as to the percent decrease one
would expect as the result of a $1.00 tax.
MR. LUBY deferred to the department.
REPRESENTATIVE LYNN inquired as to the point at which an
increase in the tax would reach diminishing returns.
MR. LUBY reiterated the "sticker shock" notion. He related that
research throughout the world has proven that the best way to
stop people from smoking is to make it too expensive to start or
continue.
REPRESENTATIVE LYNN surmised that this is taxing behavior.
REPRESENTATIVE ROKEBERG pointed out that the last time the
legislature raised tobacco taxes it did so by $.71. He asked if
Mr. Luby believes that $.60 would create "sticker shock."
MR. LUBY said that a $1.00 is noticeable, and he opined will be
most helpful in keeping youth from starting to smoke. In
response to Chair Anderson, Mr. Luby confirmed that AARP
supports any [tobacco] tax and the higher, the better.
Number 1345
KATTARYNA STILES, Alaskans for Tobacco Free Kids (ATFK), began
by explaining that ATFK is a coalition of the Alaska Native
Health Board (ANHB), the American Heart Association, the
American Cancer Society, and the American Lung Association of
Alaska. She related that ATFK supports HB 1001, which is first
and foremost a health issue. By raising the tobacco tax by
$1.00, nearly 3,000 lives of youth will be saved and over 9,000
youth will never start smoking. With regard to the rate of
price increase in accordance with the reduction in smoking, Ms.
Stiles related that studies show nationwide that for every 10
percent increase there is about a 6.5 percent decrease in the
number of youth who smoke. Since the tobacco tax was last
raised, there was a 50 percent reduction in youth smoking. With
this proposed increase, she anticipated a 15 percent reduction.
Ms. Stiles encouraged the committee to pass a $1.00 increase in
the tobacco tax in order to obtain the maximum impact on the
health of today's youth. She related her data supporting the
notion that increasing the tobacco tax is a health issue.
Number 1546
REPRESENTATIVE GATTO surmised that one would want youth to be
tobacco free in order to be healthier. However, there are
plenty of ways to have healthier youth, such as [eliminating]
drugs, alcohol, abuse, and obesity. He asked if Ms. Stiles is
involved in any groups addressing the aforementioned areas.
MS. STILES specified that her work is only related to tobacco
use, although the organizations she represents do perform work
in those areas mentioned. The collected coalition is working on
tobacco because it is the number one killer of Alaskans. In
further response to Representative Gatto, Ms. Stiles said that
it's legal to smoke at age 19.
REPRESENTATIVE GATTO surmised then that if smoking under age 19
is illegal, then there should be better enforcement rather than
taxing.
MS. STILES said that she believes the state's enforcement
efforts have been successful and improving. However, youth
continue to obtain cigarettes.
Number 1633
REPRESENTATIVE ROKEBERG inquired as to whether [Ms. Stile's]
organization was involved with the Ketchikan Daily News
advertisement this spring, which lobbied Representative Williams
to release legislation from the House Finance Committee.
MS. STILES said that "our organizations" were involved with a
list of signatures from within the Ketchikan area. In further
response to Representative Rokeberg, Ms. Stiles confirmed that
no funds for that advertisement came from Alaska's Tobacco
Cessation and Education Fund. She specified that ANHB doesn't
receive any funds from the state. She explained that the Alaska
Tobacco Control Alliance is an organization in which everyone
involved in tobacco control across the state is involved. The
Alaska Tobacco Control Alliance doesn't have a formal governance
structure and isn't a 501(c)(3). However, she noted that
individual organizations that are part of the Alaska Tobacco
Control Alliance do hire lobbyists. "No state funds through
tobacco cessation and education funds are used for those
lobbyists," she said.
Number 1730
JENNIFER APP, American Heart Association, related that the
American Heart Association strongly supports the proposed $1.00
per pack cigarette tax as well as the 33 percent increase in tax
on other tobacco products. She informed the committee that
smoking is the number one preventable cause of cardiovascular
disease in Alaska. Furthermore, smoking is the leading cause of
preventable death in the state. Currently, smoking is
responsible for one of every five deaths in Alaska. Ms. App
expressed concern with statements from the House leadership that
the House may adjourn without voting on this important public
health measure. This would be a disappointment because 67
percent of Alaskans support the $1.00 per pack increase as do 70
percent of registered Republicans. Ms. App related that the
American Heart Association doesn't accept state funding and none
of the groups in ATFK use any state funding for lobbying
purposes. The Master Settlement Agreement (MSA) funds aren't
used by any of the organizations for lobbying activities. In
response to earlier comments regarding a point of diminishing
returns, Ms. App said that no state has reached a point of
diminishing returns in relation to the amount of the tax. In
fact, with New Jersey's tax of $2.05 and Rhode Island's proposed
$2.45 tax there has been no diminishing returns. Therefore,
nationwide statistics don't indicate that a $2.00 tax would
result in diminishing returns. However, she did agree that
there may be a point of diminishing returns. Ms. App concluded
by reiterating the American Heart Association's strong support
of HB 1001, which is an excellent public health measure.
CHAIR ANDERSON reminded Ms. App of the efforts the committee
took on this topic during the regular session and highlighted
the fact that the committee is hearing HB 1001.
Number 1879
REPRESENTATIVE GUTTENBERG commented that motives of the
cessation groups are clear and what he considered to be a fairly
high calling. Representative Guttenberg noted his appreciation
for the work of the cessation groups.
MS. APP thanked the committee for hearing the legislation and
for the action the committee took on the legislation during the
regular session. She acknowledged this committee's commitment
to this important issue. She clarified that [her comments
directed toward the leadership] were merely to relate the need
for HB 1001 to have a vote on the floor.
Number 1952
CAROL EDWARDS, Oncology Nurse; Member, Board of Directors,
Alaska Nurses Association, related that she has taken care of
many who have died from cancer-related tobacco illness. Ms.
Edwards related that the Board of Directors of the Alaska Nurses
Association strongly supports the $1.00 immediate increase in
the tobacco tax. She noted that she was recently appointed to
the state's workforce in order to develop a comprehensive cancer
plan for Alaska. As the chair of the prevention and early
detection committee, she has read many statistics on tobacco and
cancer. One of the issues that the committee has brought
forward is the need for the tobacco tax to cover the costs of
tobacco-related illnesses in Alaska. To accomplish the
aforementioned would require a $6.00 per pack tax. She
expressed concern that a graduated tax would never be able to
come close to covering the costs of tobacco-related illnesses in
Alaska. Ms. Edwards urged the committee to think of the lives
that would be saved.
REPRESENTATIVE GATTO recalled the testimony that one in five
dies of tobacco-related illnesses. He asked if there is a way
to verify the number of tobacco-related deaths.
MS. EDWARDS related her belief that if there is a malignancy
present, she believes the death is listed under that registry.
Whether the death would be listed under other related diseases,
she said she didn't know.
REPRESENTATIVE GATTO asked if the cause of death is listed under
each [registry under which it fits].
MS. EDWARDS said that she wasn't sure, although she believes the
cause of death listed is the primary cause at the time of death.
She suggested checking with a coroner, indicating that it may
vary with the physician or coroner.
Number 2152
REPRESENTATIVE LYNN asked if smoking is an addiction.
MS. EDWARDS replied yes. In further response to Representative
Lynn, Ms. Edwards related her belief that an addiction can be
stopped with taxes. She related her own experience in which she
quit smoking once it became too expensive. Furthermore,
statistics illustrate that taxes do decrease smoking.
CHAIR ANDERSON closed public testimony.
Number 2198
REPRESENTATIVE ROKEBERG moved to adopt CSHB 1001 [HCS CSSB
368(FIN), Version 23-GS2116\W] as the working document.
CHAIR ANDERSON objected for discussion purposes.
REPRESENTATIVE ROKEBERG pointed out that CSHB 1001 is the
legislation that moved out of the Finance Committees in May. He
noted that the committee packet should include a side-by-side
comparison between HB 1001 and CSHB 1001 [HCS CSSB 368(FIN),
Version W]. He mentioned the need to amend CSHB 1001 in order
to change the effective date.
MS. BALES pointed out that in CSHB 1001 [HCS CSSB 368(FIN)]
there is not an increase in the tax on other tobacco products,
and therefore the tax on other tobacco products would stay at 75
percent of the wholesale cost. Furthermore, CSHB 1001 [HCS CSSB
368(FIN)] doesn't include the amendment to tax individual
importation of other tobacco products, which is included in HB
1001.
REPRESENTATIVE ROKEBERG highlighted that CSHB 1001 [HCS CSSB
368(FIN)] had a provision, AS 43.50.200, "Nonparticipating
manufacturers equity excise tax", which was deleted in HB 1001.
He inquired as to why that was deleted.
MS. BALES explained that CSHB 1001 [HCS CSSB 368(FIN)] placed an
additional $.25 per package tax on cigarettes manufactured by
manufacturers that didn't sign the Master Settlement Agreement.
TAPE 04-55, SIDE B
MS. BALES related that less than .5 percent of nonparticipating
manufacturers (NPM) product is in the state. She said she
wasn't sure how helpful this additional tax would be, although
it's estimated that perhaps there would be an additional
$36,000-$40,000 in tax revenue by imposing this additional $.25
per pack tax on NPM product. It would cost an additional
$2,000-$3,000 per year to have a different tax stamp
manufactured to sell to retailers or distributors who sell NPM
product. The aforementioned coupled with concerns over the
constitutionality of this additional tax is why it wasn't
included in HB 1001.
Number 2319
REPRESENTATIVE ROKEBERG noted that NPM product in the national
marketplace is a large and growing area. The reasoning behind
including the additional tax is the anticipation that the NPM
segment of the market will be expanding quite rapidly because
these companies don't have to pay the MSA surcharge.
MS. BALES agreed that nonparticipating manufacturers don't have
to pay the MSA surcharge, but pointed out that they must put a
similar amount in an escrow fund in the state each year.
Therefore, an additional $.25 per pack tax as well as requiring
an escrow account is where the concern over the constitutional
challenge stems. In response to Chair Anderson, Ms. Bales
highlighted that under CSHB 1001 [HCS CSSB 368(FIN)] the tax is
phased in such that this year the tax would be $.60 and in two
years an additional $.20 would be added and in another year
there would be an additional $.20 increase bringing the total
tax to $1.00 per pack in fiscal year 2007. Under CSHB 1001 [HCS
CSSB 368(FIN)] there is no increase in the tax on other tobacco
products and no provision for taxing individuals who bring other
tobacco products into the state for personal consumption.
REPRESENTATIVE ROKEBERG pointed out that [HB 1001] includes a
provision allowing the department to immediately adopt
regulations, which he suggested would be good to include in CSHB
1001. He also mentioned that there are transitional tax
provisions for the floor stock in HB 1001.
MS. BALES confirmed that under HB 1001 there would be a floor
stock tax in order to alleviate the amount of stock piling that
distributors and retailers could do at the old rate. Under CSHB
1001, there is no floor stock tax and thus any retailer and
distributor could stock pile cigarettes and basically delay the
effective date of any revenue increases. She informed the
committee that in 1997 there was no floor stock tax on the
effective date of the increase and several of the retailers
increased the price immediately. The aforementioned resulted in
the state revenue going into the pockets of retailers and
distributors. She highlighted that the Department of Revenue is
charged with protecting state revenues, which will be protected
with a floor stock tax.
CHAIR ANDERSON recalled that under HB 1001, the Department of
Public Safety (DPS) enforces this while under CSHB 1001 the
state would provide enforcement.
MS. BALES said that is a minor change by which it says the DPS
is responsible to post notice of seized property rather than the
Department of Law.
Number 2104
REPRESENTATIVE ROKEBERG referred to AS 43.53.050, an indirect
court rule amendment. He asked if that provision was included
due to the phased approach.
MS. BALES explained that when the tax rate increased in 1997,
the entire increase was placed into the school tax fund, which
is a dedicated fund. However, session law at the time specified
that if there was ever a constitutional challenge to placing
that increase in the school tax fund, the [AS 43.53.050]
provisions would apply and the entire tax increase would be
placed into the general fund. The CSHB 1001 [HCS CSSB 368(FIN)]
changed the session law of 1997 to reflect the new tax increase
rates. In further response to Representative Rokeberg, the
language wasn't included in HB 1001 because there hasn't been a
challenge in seven years and the [governor/department] doesn't
believe there will be a challenge to the 1997 increase. She
pointed out that under HB 1001 the entire amount of the increase
would be placed in the general fund. Ms. Bales pointed out that
CSHB 1001 [HCS CSSB 368(FIN)] includes [HB 468] regarding
tobacco appeals bonds in its entirety. The language referring
to tobacco appeals bonds specifies that if a tobacco company is
sued for harm that its product has caused, the court can't
require the company to post more than $100 million bond to
appeal. The aforementioned came about after court cases in
Florida and Illinois. In fact, in Illinois there was a $12
billion judgment against the tobacco industry, which appealed
and thus was concerned about posting the bond.
CHAIR ANDERSON interjected that such language would place Alaska
in the group of about a third of the states that have the same
range or lower than that proposed in CSHB 1001.
MR. BALES acknowledged that some are concerned that by limiting
the amount of appeal bonds in one industry, other industries
might want to be included.
CHAIR ANDERSON removed his objection.
Number 1946
REPRESENTATIVE CRAWFORD objected for purposes of discussion. He
related that he didn't like the appeals bond provision.
Representative Crawford said that he wants to see the
legislation move out of committee today and if CSHB 1001 is
what's forwarded, he would vote to do so although he disagrees
with it.
A roll call vote was taken. Representatives Lynn, Rokeberg, and
Anderson voted in favor of adopting CSHB 1001 [HCS CSSB
368(FIN)]. Representatives Crawford, Guttenberg, Gatto, and
Dahlstrom voted against it. Therefore, CSHB 1001 failed to be
adopted by a vote of 3-4 and thus HB 1001 is before the
committee.
Number 1843
REPRESENTATIVE ROKEBERG mentioned that he had an amendment which
would prohibit a municipal government or borough from levying
further taxes on tobacco, and therefore the state would be left
as the sole taxing source. Representative Rokeberg suggested
that there should be some discussion regarding whether another
governmental agency/entity could impose a tax in addition to the
state tax. He noted that Juneau, Fairbanks, and Anchorage have
additional taxes on to tobacco products, which would result in
tax rates within the state.
The committee took an at-ease from 1:05 p.m. to 1:01 p.m.
CHAIR ANDERSON noted that the committee was receiving a third
fiscal note from the Department of Health and Social Services.
He noted that Representative Rokeberg has decided to withhold
his amendment.
Number 1765
REPRESENTATIVE CRAWFORD moved to report HB 1001 out of committee
with individual recommendations and the accompanying fiscal
notes.
REPRESENTATIVE LYNN objected.
A roll call vote was taken. Representatives Rokeberg, Crawford,
Guttenberg, Gatto, Dahlstrom, and Anderson voted in favor of
reporting HB 1001 from the House Labor and Commerce Standing
Committee. Representative Lynn voted against it. Therefore, HB
1001 was reported out of the House Labor and Commerce Standing
Committee by a vote of 6-1.
The committee took an at-ease from 1:05 p.m. to 1:14 p.m.
HB1002-INSURANCE & WORKERS' COMPENSATION SYSTEM
CHAIR ANDERSON announced that the final order of business would
be HOUSE BILL NO. 1002, "An Act providing for a special deposit
for workers' compensation insurers; relating to assigned risk
pools and workers' compensation insurers; relating to the board
of governors of the Alaska Insurance Guaranty Association;
stating the intent of the legislature, and setting out
limitations, concerning the interpretation, construction, and
implementation of workers' compensation laws; relating to
restructuring the Alaska workers' compensation system;
eliminating the Alaska Workers' Compensation Board; establishing
a division of workers' compensation within the Department of
Labor and Workforce Development and assigning certain Alaska
Workers' Compensation Board functions to the division and the
Department of Labor and Workforce Development; establishing a
Workers' Compensation Appeals Commission; assigning certain
functions of the Alaska Workers' Compensation Board to the
Workers' Compensation Appeals Commission and the office of
administrative hearings; relating to agreements that discharge
workers' compensation liability; providing for administrative
law judges in workers' compensation proceedings; relating to
workers' compensation awards; relating to an employer's failure
to insure and keep insured or provide security; providing for
appeals from compensation orders; relating to workers'
compensation proceedings; providing for supreme court
jurisdiction of appeals from the Workers' Compensation Appeals
Commission; providing for a maximum amount for the cost-of-
living adjustment for workers' compensation benefits; providing
for administrative penalties for employers uninsured or without
adequate security for workers' compensation; relating to
fraudulent acts or false or misleading statements in worker's
compensation; and providing for an effective date."
Number 1685
DOUG WOOLIVER, Administrative Attorney, Alaska Court System,
related that his testimony on this matter during the regular
session would stand, which is that the Alaska Court System is
neutral.
Number 1609
GREG O'CLARAY, Commissioner, Department of Labor & Workforce
Development (DLWD), explained that HB 1002 attempts to empower
the lay board concept of the Alaska Workers' Compensation
Commission. He further explained that unlike SB 311, HB 1002
substitutes administrative law judges for the multiple panels.
The administrative law judges will hear the initial controverted
claims without the three-person panel. If the matter is
appealed, the claim will go before the three-member panel
comprised of the professional attorney who is a professional
expert on workers' compensation as well as two members of the
four-member lay group. The structure is for a commission of
five in which two members are designated from employee
representatives and two from employer representatives. One of
each of the two representatives will sit on the three-person
panel to adjudicate appeals from the administrative law judge
decision. If the parties aren't in agreement, they can appeal
to the Supreme Court.
COMMISSIONER O'CLARAY noted that HB 1002 also includes
authorities for addressing workers' compensation fraud. He
mentioned that there are other small tweaks in the legislation.
Commissioner O'Claray highlighted that during the last several
months, there have been discussions with representatives of
organized labor. The department hasn't been able to reach
agreement on all of [organized labor's] concerns. He related
his understanding that organized labor believes that this
workers' compensation issue should be addressed in the interim
when there isn't a time crunch. However, the administration
will continue to pursue this issue because he predicted that at
some point the state will face a major issue with workers'
compensation. The matter should be addressed sooner rather than
later in order to avoid a situation in which the real costs have
to be addressed. "This administration is not interested in
depriving injured workers of the payments and compensation they
deserve under the law," he emphasized.
Number 1379
REPRESENTATIVE DAHLSTROM referred to a chart entitled, "Current
NCCI Voluntary Market Approved Rate/Loss Cost Changes". She
pointed out that Nevada, which has one of the highest growth
rates in the country, has a decline of 12.3 percent [in workers'
compensation]. She inquired as to the reason for that.
COMMISSIONER O'CLARAY specified that this chart was prepared by
NCCI in order to show what happened as of last year in regard to
rates. If this chart was prepared in 1988 or 1989, it would've
shown a decline for Alaska.
Number 1282
LINDA HALL, Director, Division of Insurance, Department of
Community & Economic Development (DCED), informed the committee
that the chart only reflects the rates of 39 states because only
39 states use NCCI as their rate modeling organization. She
noted that Nevada has been reviewed and it was discovered that
there were some anomalies that will have no impact on what
Alaska will do because they were changes that the state could
incorporate. As workers' compensation reforms are enacted,
changes in rates are occurring.
REPRESENTATIVE GUTTENBERG pointed out that this legislation
basically deals with restructuring the appeals process. He
asked if there has been any review of restructuring the [point
at which] claims are denied. "Is there any way that claims
could be accepted and not denied that would significantly reduce
the number of appeals that go forward," he asked.
COMMISSIONER O'CLARAY reminded the committee that out of the
approximately 25,000 claims that are filed, about 100 move into
the controverted area. Of those 100 appeals, some 30 or so go
to the superior court under the current system. The current
system in place is a no fault system, and therefore the question
is regarding "where do we get the disputes?" He indicated [that
the problem] is that attorneys become involved. If an employer
dealt with an employee through workers' compensation, many of
the litigation costs would be eliminated, he opined. However,
because it's such a complicated body of law, both sides need to
be represented by legal counsel at some point. The
aforementioned is why the change to make a swifter decision [and
simpler process] is being made. The delay in reaching judgment
with these cases create difficult times for employees. This
legislation attempts to review the litigation costs in order to
avoid cutting benefits or costs of medical reimbursement for the
services provided to injured workers.
Number 1010
REPRESENTATIVE GUTTENBERG recalled working on a workers'
compensation case in which the claim denial of a welder with
heavy metal poisoning was a considerable [problem]. He then
turned to Section 12 of HB 1002, which defines two members [of
the commission] as representative employees. How will that be
defined, he asked.
COMMISSIONER O'CLARAY interpreted this provision to mean that
the employee representatives would have to be individuals who
have spent the majority of their time representing employees.
In fact, he opined,
these individuals should currently represent employees. In
further response to Representative Guttenberg, Commissioner
O'Claray opined that it would have to be someone from organized
labor.
Number 0885
REPRESENTATIVE CRAWFORD recalled his own experience as an
injured worker when the insurance carrier did all it could to
stall the process to the point at which he would accept whatever
settlement was offered. Representative Crawford said that he
didn't know how reducing the number of panels hearing these
cases would actually expedite the process.
COMMISSIONER O'CLARAY explained that under the current system
the logistics of setting up hearings is difficult and often just
two people will hear the case, the hearing officer and a
representative from management or labor. However, under this
proposed legislation the administrative judges will primarily
work on these cases and won't have to deal with the logistics of
the cases. Therefore, he opined that the system would be
reactive and more nimble in terms of time. The appellate group
will be restricted to 90 days to make a decision.
Number 0748
REPRESENTATIVE ROKEBERG remarked that in the global framework of
the cost of workers' compensation the focus on the
"lawyerization" of workers' compensation in order to avoid
impacts to benefits of workers is only a portion of the total.
Although Representative Rokeberg noted his agreement with the
goal of not impacting the employee in regard to the services
delivered to the employee, he questioned how everything couldn't
be reviewed in order to work down the premium costs by
controlling the costs of the benefits.
COMMISSIONER O'CLARAY answered that initially the entire
spectrum was reviewed. However, the administration felt that it
didn't want to be seen as attacking injured employees. He
related that out of the $210 million spent in 2002, almost $131
million went to medical providers, which is a little over 50
percent of the entire cost of workers' compensation in 2002.
Just under $80 million went into the pockets of injured workers
for wage replacement or other benefits and $11 million went to
litigation costs. If this legislation doesn't pass, he opined
that [the administration] will be forced to look at the entire
spectrum and it'll be harder because of the potential problem of
increasing rates. He further opined that without passage of
this legislation, he will have to review how to administer the
program in order to decrease costs.
REPRESENTATIVE GUTTENBERG returned to the matter of
administrative law judges to whom this legislation provides much
power. He pointed out the language on page 38, line 15-18. He
asked if administrative law judges are responsible for any type
of judicial review or qualifications beyond three years of
experience with workers' compensation.
COMMISSIONER O'CLARAY answered, "I don't see anything other than
their qualification requirements here. I think the suggestion
earlier on the [SB] 311 commission was that they come through
the judicial council, in terms of appointments instead of the
governor appointing them. There's clearly a constitutional
problem there with the judicial council under the separation of
powers under the constitution." He related that the current
workers' compensation hearing officers who are admitted to the
bar will be in these positions.
Number 0311
MARTIN PIHL, Chairman, Alaska Timber Insurance Exchange,
informed the committee that the Alaska Timber Insurance Exchange
was formed in 1980 as a reciprocal owned by its policyholders.
He noted that the organization has specialized in logging and
higher risk insurance. The Alaska Timber Insurance Exchange has
been successful in promoting work place safety because the
companies get close to their insurance program. Over the last
10 years the aforementioned has resulted in a return of profit
as a dividend to the policyholder, which has been 67 percent of
the premium returned. However, last year the organization's
profit was wiped out by assessments against the organization
that occur as a result of the assigned risk pool. Over the last
seven years, the assigned risk pool has experienced losses in
the amount of $60 million, of which $2.9 million is the Alaska
Timber Insurance Exchange's portion. "We can't continue to
absorb these assessments; our own solvency will be at stake," he
stated.
MR. PIHL pointed out that the losses continue into 2004 and
there have been increases in rates. Frankly, the aforementioned
is the result of mismanagement of the system and lack of control
by the Division of Insurance. However, he emphasized that one
shouldn't blame the current director because the situation has
developed over a number of years. "A former director of
insurance suppressed rates, there's just no doubt about it and
it's led to this crisis in the assigned risk pool," he remarked.
Furthermore, heavy discounts by insurance companies led to
insolvencies that are assessed back to the surviving insurance
companies. He related that rates have been so inadequate that
insurance companies are forced to turn down applications and
send them to the assigned risk pool, which has grown by three-
fold. With regard to the 21 percent rate increase, Mr. Pihl
urged the committee to view it in perspective because the rates
today are back to about the 1993 level in spite of years of
increases in costs.
TAPE 04-56, SIDE A
MR. PIHL noted his appreciation of some of the changes, such as
the lost cost development system provided by HB 540. The steps
of collateralizing assigned risk pool loss reserves and a
mandate that the assigned risk pool be managed to at least break
even on a three-year basis were in HB 357 until stripped out on
the last day of session. The aforementioned will cost the state
millions. He urged the committee to do collateralization, which
other states require. By not collateralizing, the state is
accepting a third or fourth mortgage position. Mr. Pihl
highlighted that the items [stripped from HB 357] are included
in HB 1002, which he appreciated. However, he suggested the
"quota share fix." He reminded the committee that last year the
insolvency of Freemont cost everyone a lot of money because
under current rules the cost of insolvency is assessed back to
surviving companies. He opined that when an insolvency occurs,
that company's assigned risk pool losses should travel as part
of its bankruptcy to the guaranty fund. He noted that the
insolvent company's own direct writing reserves go to the
guaranty fund, although that's not the case for the assigned
risk pool losses. In several discussions with the director of
the Division of Insurance, she seems to agree that the
aforementioned is unfair. However, she doesn't seem inclined to
do anything about it. Therefore, Mr. Pihl related that he has
amendment language on the aforementioned matter. Mr. Pihl
concluded by noting that the Alaska Timber Insurance Exchange
supports the changes [included in HB 1002].
MR. PIHL, in response to Representative Rokeberg, explained that
the Alaska Timber Insurance Exchange is a reciprocal insurance
company that's owned by the policyholders, who put up capital
and deposit premiums. In return, any profit is distributed in
the form of a dividend. Mr. Pihl confirmed that the Alaska
Timber Insurance Exchange falls under all the regulations of the
state as would another insurance underwriter.
Number 0432
LORI WING, President, Alaska Independent Insurance Agents &
Brokers, informed the committee that collectively the
association represents employers from Ketchikan to Barrow and
the clients of the organization are governmental entities,
privately held and publicly traded corporations, limited
liability companies (LLC), and joint ventures. Furthermore, the
employers are for profit and not-for-profit, large and small.
Over the past few years these employers have experienced
significant increased cost in the workers' compensation program.
However, these increases don't correspond to any increase in
workplace hazard or change in the types of reported injuries or
diseases. In fact, employers have successfully reduced the
frequency of work place injuries by almost 40 percent since
1990. Still, workers' compensation costs have risen faster than
medical inflation. In the past year alone, the rates in Alaska
have changed dramatically. For instance, clerical rates are up
40 percent this year and hospital employee rates are up 54
percent. She highlighted that sometimes these increases occur
during jobs that are already bid or are in progress. Therefore,
there's no way for the contractor to recover these additional
costs. She reviewed various companies in which the [workers'
compensation] rates have increased. Although one can't
guarantee this legislation would result in a decrease in rates,
one can guarantee that without it rates will continue to
increase. The increase in workers' compensation [rates]
nationwide is a problem. She highlighted that workers'
compensation is not a negotiated benefit. Ms. Wing concluded by
expressing hope that HB 1002 will be passed out of committee.
LON TROTTER, Director, Risk Management, Arctic Slope Regional
Corporation, testified in support of HB 1002 as a first step in
streamlining the workers' compensation process.
Number 0740
BARBARA WILLIAMS, Alaska Injured Workers Alliance (AIWA),
explained that AIWA represents union and non-union members
alike. She related that AIWA doesn't support HB 1002 because
five new positions total are created to perform all of the work
of 19 designees in the court system. The aforementioned leaves
labor and management out of the hearing process and places them
in the appellate process, although their expertise is dealing
with workers rather than judicial processes. Therefore, the
cost of appeals is driven up to 60 [percent] rather than 30 and
there's no anticipated cap. She suggested that injured workers
are going to have to do more litigation to receive benefits.
She noted that in most cases, the injured worker is going
through litigation without assistance from an attorney.
Furthermore, there's no education program or continuing
education charges for those being placed [on the commission].
MS. WILLIAMS highlighted that the fiscal note specifies that the
costs for this legislation exceed $1.2 million and the figures
don't quite add up. She reminded the committee that Ms.
Johnson, a representative for the state risk manager, related
that the [division] anticipates eventually capping the costs but
savings can't be insured through administrative figures. Ms.
Williams informed the committee that she's in a unique position
because she is one of the few workers in the state who has had
her insurance company fined for deliberately not paying bills 22
consecutive times. "There's no adequate oversight of the
insurance process, the self-insured employers are grossly
unregulated," she related. Shuffling these benefit programs and
rearranging the administrative and adjudicative process is a
disturbance to injured workers, industry, labor, and management.
She highlighted that the attorneys for injured workers are $.50
on the dollar, which is the lowest paid in the nation. If the
process is changed and complicated, there's no incentive for
injured workers' attorneys to work for injured workers.
However, there is no review of capping the defense costs,
although $702,000 of the guaranty fund has been used for the
cost of defense of the insurance companies. Ms. Williams opined
that HB 1002 isn't going to help injured workers at all. In
fact the legislation doesn't address many items, such as injured
workers with catastrophic injuries who are stuck in the system
for 10 years plus before their claims are litigated.
Number 0914
KEVIN DOUGHERTY, Alaska State District Council of Laborers,
began by saying that there's no question that workers'
compensation is important for injured workers, widows, and
surviving families. Workers' compensation is also very
important to employers and insurance companies. Over the past
24 years, work has been done with the aforementioned communities
in order to develop a fair balance. He turned to the issue of
worker safety, which this legislation doesn't address. He
mentioned incentives for worker safety and deterring poor safety
records through experience modification, et cetera. Mr.
Dougherty remarked that the increase in rates has nothing to do
with the Alaska Workers' Compensation Board, which has wonderful
business and labor representatives. He said the problem really
begins with Freemont and the other 41 insurers that have gone
bankrupt. Therefore, the aforementioned needs to be regulated
and stopped. In response to Chair Anderson, Mr. Dougherty
agreed to work on this matter in the interim.
CHAIR ANDERSON closed public testimony.
Number 1156
REPRESENTATIVE CRAWFORD moved to report HB 1002 out of committee
with individual recommendations and the accompanying fiscal
notes.
REPRESENTATIVE DAHLSTROM objected.
A roll call vote was taken. Representative Rokeberg voted in
favor of reporting HB 1002 from the House Labor and Commerce
Standing Committee. Representatives Dahlstrom, Lynn, Crawford,
Guttenberg, Gatto, and Anderson voted against it. Therefore, HB
1002 failed to be reported out of the House Labor and Commerce
Standing Committee by a vote of 1-6.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
2:05 p.m.
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