HOUSE BILL NO. 409 "An Act relating to excluding qualified real estate licensees from workers' compensation coverage." REPRESENTATIVE BOB LYNN, sponsor, addressed the purpose of HB 409, which is to exclude real estate licensees from workers' compensation coverage. He noted that he is currently a licensed real estate broker acting as an associate broker. He related that every state has laws governing real estate licenses. Most real estate licensees in Alaska are independent contractors. They are licensed under a broker, but they operate as "independent contractors", paying for all of their own expenses. They do not receive a wage, salary, or benefits. They control and decide what days and hours they will work and pay for business expenses such as licensing fees, continuing education, advertising, long-distance phone calls, and business insurance on their vehicles. They often pay for their own computer and other office equipment, and quarterly estimated income tax and social security tax. Real estate licensees operate an independent business within a business, controlling their own hours of work. The IRS recognizes them as independent contractors and the state should likewise. 1:54:38 PM Representative Holm asked for more information about how the real estate business works with brokers and their associates. Representative Lynn responded that brokers can list themselves independently. A sales associate must operate under a broker. A broker receives a commission, such as 40 percent of the sales. Representative Holm asked what the broker offers to the associate broker for their cut. Representative Lynn replied that the broker oversees transactions as they apply to state law. Representative Holm asked how workers' compensation applies to the hierarchical nature of the industry. He wondered, if real estate licensees cannot work on their own, why they wouldn't qualify for workers' compensation. Representative Lynn explained the difference between a broker's license and a sales associate license. He emphasized that sales associates are not employees. Representative Holm restated the question to compare a sales associate's job to a car salesman who gets a percentage of the sales. Representative Lynn clarified that a real estate sales associate does not get a salary, only a commission. 2:00:48 PM Representative Kerttula wondered if there has ever been a workers' compensation claim filed by a licensee. Representative Lynn said he does not know. Representative Hawker noted that this situation regarding independent contractors and workers' compensation is a pervasive problem. He wondered why the bill was limited to the real estate industry. Representative Lynn agreed that other areas could be looked at later. He chose to limit the bill to real estate licensees. 2:02:50 PM DAVE FEEKEN, ALASKA ASSOCIATION OF REALTORS, KENAI, stated that the bill would clarify a confusing issue that his organization has been working on. He noted that the Department of Labor recognizes the status of independent contractors and exempts them from workers' compensation coverage. The relationship in a brokerage firm between the broker and licensee meets the standards of independent contractor. The IRS recognized this relationship for tax purposes in the 70's as self-employed. The broker does not withhold taxes on commissions earned by the licensees. The licensee is responsible for filing quarterly returns. This does not mean that a brokerage firm would not carry workers' compensation insurance for staff, personal assistants, and hourly employees. It only exempts licensees with a written independent contract agreement with the broker. He concluded that the Department of Labor, the director of workers' compensation, and the real estate commission support the bill. Representative Kerttula asked if there had ever been any workers' compensation claims by licensees against realtors. Mr. Feeken said there have only been a few. He recalled one instance of a person slipping on the ice when showing a house and collecting compensation for two weeks. Representative Kerttula summarized that it seems to be related to the type of work done, rather than the job title. 2:06:37 PM PAUL LISANKIE, DIRECTOR, DIVISION OF WORKERS COMPENSATION, DEPARTMENT OF LABOR, agreed to answer questions. Representative Kerttula asked if Mr. Lisankie thought there was a risk, with the passage of this bill, of leaving employees out who qualified for workers' compensation. Mr. Lisankie replied that part of the problem is there has to be a written agreement that identifies the relationship between the worker and the employee. What happens sometimes is that people believe, due to the paperwork that they have filled out, that they have an independent contractor relationship. But at some later point, someone is unsatisfied with that view and may want an injury considered by the workers' compensation board. Another example would be if an insurance company audits premiums on the office staff insurance and determines that the associate brokers are employees and should be subject to a back premium. It is the uncertainty that causes problems. Representative Kerttula asked if that is true for many professions. Mr. Lisanke agreed that it applies to other occupations as well. 2:10:16 PM Representative Foster MOVED to REPORT CSHB 409 (L&C) with individual recommendations and with the accompanying zero fiscal notes. There being NO OBJECTION, it was so ordered. CSHB 409 (L&C) was REPORTED out of Committee with a "no recommendation" and with zero note #1 by the Department of Commerce, Community and Economic Development and with zero note #2 by the Department of Labor and Workforce Development. 2:11:06 PM HOUSE BILL NO. 471 "An Act amending the Knik Arm Bridge and Toll Authority Act and the powers and authority of the authority, and making conforming changes to statutes relating to issuance, renewal, or reinstatement of driver's licenses and to levy on permanent fund dividends; and providing for an effective date." Representative Stoltze MOVED to ADOPT the work draft to HB 471, labeled 24-LS1670\Y, Kane, 3/3/06. There being NO OBJECTION, it was so ordered. REPRESENTATIVE BILL STOLTZE, sponsor, reported that this bill sets up the mechanisms for when money is provided for the Knik Arm Bridge project. It does not request funds for the project, but sets up the bonding and toll mechanisms. He termed it an innovative means of achieving this public project by leveraging private sector funds to construct a toll bridge across the Knik Arm and connect the municipality of Anchorage and the Matanuska-Susitna. 2:14:30 PM GEORGE WUERCH, EXECUTIVE DIRECTOR, KNIK ARM BRIDGE & TOLL AUTHORITY (KABATA), introduced the others who were available to answer questions. He congratulated the legislature for adopting the state's first toll authority in 2003. He spoke of a specific responsibility related to that legislation which requires KABATA to set a debt ceiling. KABATA requested a $500 million cap on its debt, an amount in response to the governor's budget. He suggested it is a workable number to finance that which is needed to begin the project. WILLIAM GREEN, PROJECT COUNSEL, KNIK ARM BRIDGE & TOLL AUTHORITY, referred to a packet made available to the members of the committee entitled "Knik Arm Bridge and Toll Authority Presentation" (copy on file). HB 471 is a product of several efforts. The CS contains recommendations and additions made by the State Bond Council. In 2003 the legislature charge KABATA to build a bridge across Knik Arm. Federal funds have been made available to this project, which includes the bridge and all access approaches. It has always been understood by KABATA that other funding would be necessary, such as revenue bonds. Visits with other state Departments of Transportation and toll facilities, and discussions with senior representatives with the Federal Highway Administration and their loan programs, have provided information about other funding sources. He termed the bill a good and unique toll authority statute. He offered clear and specific suggestions for financing options. 2:22:18 PM Mr. Green clarified the purposes of the bill: to clean up language in state statutes and to assure and give competence to public and private financing sectors that KABATA has the authority it needs to enter into financing arrangements. The bill serves to "fill in the blank" of the original statute to request the level of revenue bonds to be issued. He offered to review the proposed bill: It provides authority to KABATA to set the amount of the bridge tolls. It provides authority to enter into public-private partnerships for the construction, maintenance and operation of the toll bridge. It authorizes obtaining non-recourse loans from the U.S. DOT's TIFIA loan program. It sets the dollar of non-recourse revenue bonds that may be issued and refunded. It provides means for the collection of tolls and other obligations owing KABATA in the operation of the toll bridge. He concluded that it is a housekeeping bill. 2:24:52 PM TOM BOUTIN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, offered to answer questions. Representative Kerttula noted that the statute says that the bonds issued by the Authority are not going to be a liability of the state. She wondered what happens if there was not enough funding within the Authority. Mr. Boutin described the language as standard, stand-alone, revenue bond language. The bond holders and KABATA would not have the ability to give the bond holders a pledge of anything other than the rates and fees and reserve funds associated with the facility. There would not be a way to penetrate the revenues and funds on hand for a bondholder to get the general fund or any other funds of the state. These bonds would not carry the moral obligation of the state. They are stand-alone revenue bonds of a state agency that are independent. Representative Kerttula asked for an example of a bond that does not carry a moral obligation by the state. Mr. Boutin related that International Airport Revenue Bonds are an example of stand-alone revenue bonds. Representative Stoltze summarized that the risk is to the investor who is buying the bonds. Mr. Boutin agreed. 2:28:37 PM HOPE LOUISE CERMELJ, ALASKA ELDER VOTERS, spoke about her participation on the Petition Trail Campaign. She testified in opposition to HB 471. She termed it a $600 million project of which $94 million will be appropriated by the federal government, a large decrease from $240 million. She referred to the last page of the bill, which states that persons can lose their permanent fund if their toll is unpaid. She suggested that the toll could be as high as $12 round trip. She proposed that seniors and veterans receive a toll exemption or compensation to use this facility. She spoke about the loss of the longevity bonus. Co-Chair Meyer noted that gas prices are high, which makes the toll seem reasonable. 2:32:48 PM EMILY FERRY, ALASKA TRANSPORTATION PRIORITIES PROJECT, stated relief that the contract is being tightened down, but voiced concern about strengthening KABATA's authority to bond. She referred to a handout of KABATA's 2005 Annual Report (copy on file) that shows a graph of anticipated project spending. $200 million would be from the bond revenue, which is one-third of the cost of the bridge if it is $600 million. She mentioned that there have been estimates of up to $1.5 billion for the same project. She noted $94 million from the federal government and $50 million from the general fund for Mat-Su road improvements. That still leaves $256 million unfunded. She questioned where that money would come from. She suggested that other projects that depend on general fund money may be left short. Co-Chair Meyer closed public testimony. Mr. Wuerch concluded that the issue before the committee is to grant KABATA the authority to proceed with private and public financing. The rest of the funding issue would come later. There will be roughly $100 million in public money. He pointed out that toll facilities are subject to rigorous public scrutiny. 2:37:40 PM Representative Kerttula asked why the right to garnish the permanent fund dividend was included. Mr. Wuerch replied that is just a mechanism of collecting debt to the state. KABATA is not asking for police power, but to set fees. Agencies can enforce collection of the tolls. Representative Kerttula cautioned to use good sense when dealing with permanent funds. 2:38:53 PM Mr. Green addressed the permanent fund concern and speculated how high the toll bill would have to be before collection was enacted. He suggested that discretion would be used for leans against the PFD. The PFD provisions do provide for use as a lean for all debts. Representative Kerttula said she would check into how many state agencies have that authority. 2:40:09 PM Representative Foster MOVED to REPORT CSHB 471 (FIN) out of Committee with individual recommendations and with the accompanying two new zero fiscal notes. There being NO OBJECTION, it was so ordered. 2:41:30 PM