HOUSE JOINT RESOLUTION NO. 12 Relating to federal claims against funds obtained by settlement of state tobacco litigation. Co-Chair Therriault pointed out to the Committee that Representative Harris and his staff worked with the Chairman's office in preparing the proposed committee substitute. REPRESENTATIVE JOHN HARRIS spoke to the work draft that addresses the tobacco settlement which the State of Alaska has been involved with the federal government. The State is requesting Congress to not include funding from the lawsuit in the federal budget. The lawsuit states that Alaska, along with other states, should receive the full amount of those funds. DOUG GARDNER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, distributed a handout "Presentation on Tobacco Issues and HJR 12". [Copy on file]. The handout summarizes some of the issues relating to the tobacco settlement. It was Attorney General Botelho's view that in order to better understand the Health Care Finance Administration (HCFA) claims against the federal level, it would be important to create a context for it. (Tape Change HFC 99 - 21, Side 2). Mr. Gardner addressed the enforcement of tobacco vendor and tax laws. The tobacco vendor enforcement (STING Operations) has resulted in many criminal citations and convictions for clerks selling tobacco. A settlement has been reached with those vendors. Rather than litigating those issues with the vendors, the Department of Law has entered into a settlement which provides for a suspension of their licenses and will require that they re-train their clerks. The stores involved have agreed to make contributions to an advertising campaign to further the effort to educate people that tobacco is a dangerous substance. He continued, the Legislature has increased the per pack tax with regard to the State sales tax enforcement. Mr. Gardner noted that there is no evidence of smuggling of cigarettes into the State, however, the State is working to guarantee that all taxes are being paid on cigarettes imported into the State. The average monthly revenues received by the State has increased from $1.5 million to $4.3 million dollars. Mr. Gardner spoke to the litigation and the national settlement which the State has entered into. The settlement consists of $670 million dollars to Alaska to be paid over 25 years. HCFA, the federal agency that administers the Medicaid program, has taken a position that as much as $400 million dollars of the settlement belongs to them. The State of Alaska, however, assumes that the State did not sue to recover "federal" money. Mr. Gardner understood that the HCFA claim would not be made until the year has past, allowing time for the issue to be debated. Mr. Gardner advised that U.S. Senator Murkowski and U.S. Senator Kay Bailey Hutchinson co-sponsored SB 346, which would essentially protect all states tobacco settlement dollars from HCFA's claim. He pointed out the payment distribution date chart accompanying the handout on Page #5. Mr. Gardner noted that there is currently legislation relating to the settlement. It is assumed that all states will enact the legislation called the "Model Statute" or the "Renegade Provision". The Department expects to have the Model Law available and conforming to statute within the next two weeks. It is not necessary for this legislation to be enacted in order for the State to receive settlement money, but it is essential for it to be enacted against the tobacco industry fight. Co-Chair Therriault asked if the Department was involved with any litigation with Internet sales currently taking place for tax-free cigarettes. Mr. Gardner replied that anyone who causes cigarettes to be imported into the State of Alaska must have a license and must pay tax. The Department of Revenue is monitoring that activity closely. Co-Chair Mulder asked how much the State would be receiving from settlement payments. Mr. Gardner stated that a total of $8.1 million dollars followed by $30 million dollars would be received before June 30, 2000. Representative Bunde questioned the use of the settlement funds, and asked if the committee substitute was essential. Mr. Gardner advised that the State's position is that we do not want the federal government to "take" any of this money. However, many states are taking steps to try to comply with the McCain Bill. The debate on that legislation states that if you use 50% of the money from the tobacco bill to supplement existing health care programs, the feds would then assume a "hands-off" approach. Many states are allocating funds in a way which would insulate them from HFCA's plan. Representative Bunde asked, without the resolution, could the State spend these funds on something other than health care. Mr. Gardner pointed out that the proposed resolution does not deal with particular appropriations. Co-Chair Therriault stated that the McCain Bill did not pass U.S. Congress. Mr. Gardner added that the Attorney General believes that this is a long-standing commitment of HFCA and that agency wants to see the problem fixed and health care interests addressed. Representative J. Davies asked if there was information available regarding the position of HFCA and that of the Clinton Administration. Mr. Gardner replied that it is a broadly held view and that he could supply some info regarding that concern. Co-Chair Mulder MOVED to adopt work draft version 1- LS0418\G, Ford, 2/16/99, as the version before the Committee. There being NO OBJECTION, it was adopted. Co-Chair Mulder MOVED to report CS HJR 12 (FIN) out of Committee with individual recommendations and with the accompanying zero fiscal note. There being NO OBJECTION, it was so ordered. CS HJR 12 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the House Finance Committee.