SENATE BILL NO. 127 "An Act authorizing the commissioner of administration to enter into agreements with agents to perform for compensation certain transactions related to vehicles; relating to the duties of those agents; and providing for an effective date." 3:17:48 PM Co-Chair Stoltze discussed his intent to hear the bill presentation and public testimony. FORREST WOLFE, STAFF, SENATOR CATHY GIESSEL, discussed the bill. He spoke to long lines and high wait times at the Division of Motor Vehicles (DMV). He stated that limited hours caused people to sacrifice time out of their workday. SENATOR CATHY GIESSEL, SPONSOR, communicated that the bill supported a strong existing public/private partnership that had been in place for over 10 years. The partnership provided available, convenient, and responsive services from DMV. She detailed that about 10 years earlier the advanced business partnerships began to do contract work for DMV; contractors provided vehicle titles and renewals, registration renewals, duplicate registrations, lost licenses, etc. There were approximately 37 car dealerships and 11 private companies providing the service statewide. She relayed that the template was also used by the Department of Fish and Game (DFG) for hunting and fishing licenses; however, DFG allowed its business partners to retain a small portion of the fee to cover administrative services, whereas DMV did not. She shared that auto dealers and business partners were presently performing more than 25 percent of the DMV workload. She discussed a graph showing DMV services; DMV services were shown in orange and the business partners were shown in yellow (copy not on file). She reiterated that the business partners were currently doing 25 percent of the DMV workload; however, none of the costs for facilities, utilities, printers, credit card systems, credit card fees, and personnel were reimbursed by DMV. She relayed that a major part of the contractor services were conducted over the phone when people were unable to get through to the DMV. Senator Giessel communicated that the bill would allow business partners to retain 15 percent of the DMV fee to cover overhead costs. Currently business partners were charging an additional administrative fee in an effort to cover costs. She noted that out of convenience, citizens were still choosing to utilize the businesses despite the fee. She asked why citizens and the private sector should be funding a state agency's work. She added that DMV charged a $10 administrative fee for services rendered in person. Additionally, DMV collected local taxes for 16 communities around the state including Juneau, Anchorage, Kenai, Bristol Bay, Bethel, and others; DMV retained 8 percent of the taxes to cover its administrative costs. The workload for private vendors amounted to 336,527 transactions annually. The fiscal note estimated that costs would be just under $2 million to allow the business partners to retain 15 percent. She spoke to potential costs that would occur if the business partnerships went away. She detailed that DMV would be required to pick up the transactions that had previously been handled by the business partners. She pointed to an estimate that 23 additional state employees would be needed; if the employees were a range 10 on the state pay schedule, the cost would be slightly under $2 million. She stated that the fiscal note was essentially zero. Senator Giessel relayed that the calculations did not include the additional office space and the three state employee managers that would be required to supervise the new employees. She summarized that DMV took in an 8 percent administrative fee to cover tax collection for local governments and charged a $10 fee for services rendered in its office locations. She was compelled by testimony that DMV had taken in $48 million in surplus revenues the prior year. She believed $2 million of the figure belonged to the private sector. She stated that the bill was basically fiscally neutral, provided convenient government services, and was a small step towards reducing the size of state government. 3:25:10 PM Representative Munoz asked if businesses had the ability to charge a fee for walk-ins. Senator Giessel replied in the affirmative. She elaborated that the 11 private companies currently charged a walk-in fee; however, the auto dealers did not. She added that the dealers were considering dropping the service as it was costing them significantly. Co-Chair Stoltze remarked that the DMV was required by statute (passed in the 1990s) to charge a fee. Senator Giessel agreed; AS 28.10.421 related to the $10 service fee and AS 28.10.431(e) pertained to the retention of 8 percent from local governments' taxes. Representative Munoz asked if the auto businesses could collect the $10 fee. Senator Giessel replied in the affirmative. She recommended speaking to the auto dealers about the subject as well. She noted that auto dealers faced "grumbling" about additional fees that were tacked on when purchasing a car, which made them reluctant to charge for the service. Co-Chair Stoltze remarked that the business was just the agent. Senator Giessel agreed and added that $10 would not cover the cost. Representative Thompson did not see the comparison between fishing licenses and the one at hand. He elaborated that a vendor such as Fred Meyer did not receive any additional money above the cost of a [fishing or hunting] license. He noted that the state would refund a portion of the fee back to Fred Meyers. He discussed that he used the vendors to avoid standing in line for vehicle license renewals. He paid the extra fees and believed the vendors provided a great service; however, the vendors charged an extra fee for convenience. He surmised that the vendors would not be providing the service if they were not making a profit. He wondered why they should be given an additional $2 million out of state funds that could be used for something else. He questioned why the vendors should receive additional money when they were already charging close to what the state was charging. He did not understand the purpose of the bill and why it would be beneficial to the public. 3:28:35 PM Senator Giessel replied that the private sector was doing the work of a government agency at no cost. She stated that it was a question of fairness. She expounded that DFG allowed vendors (e.g. Fred Meyer) to keep a portion of the fee to cover personnel costs. She stressed that work done by DMV vendors was more complex and abundant. Additionally, the fee charged by vendors did not cover the work done. She restated that it was a question of fairness. Representative Thompson believed the vendors would close their doors immediately if they were not making a profit. He felt uncomfortable with the bill. Representative Holmes was concerned by the $2 million loss in revenue. She spoke about the various types of vendors providing the service including auto dealers that had the ability to charge more, groups providing the service to members, and vendors operating the service as a business. She wondered how the 15 percent figure had been determined in the bill. She noted that Representative Thompson had relayed that DFG provided vendors with 5 percent [of the license cost]. She wondered what other states did. Senator Giessel did not know what other states did. She recommended asking the Alaska Trucker's Association and the auto dealers. She stressed that DMV was collecting from the private sector (what was analogous to a tax) for doing work for DMV. The cost was being passed on by some of the businesses as a user fee to citizens. She stated that it was truly a question of fairness and of being consumer friendly to Alaska's citizens. She questioned how the agency was able to bring in a surplus of $48 million and stated that part of the reason was because 25 percent of its workload was being done by citizens. 3:33:13 PM MELISSA CUCULLU, GENERAL MANAGER, ALASKA TAGS AND TITLES, ANCHORAGE (via teleconference), testified in support of the legislation. She read from a prepared statement: The private sector provides the staffing, the facilities, required technology, and office supplies to process the transactions that create millions in revenue for the State of Alaska. This legislation allows Alaskan owned businesses to hire additional employees, open new facilities, provide extended hours, and create more options for Alaskan residents. Senate Bill 127 is about fairness and is a win for Alaskan residents, a win for the private sector, and a win for the state government by reducing overhead costs while still generating income. I'd like to thank you for your time and consideration of Senate Bill 127. 3:34:19 PM AVES THOMPSON, EXECUTIVE DIRECTOR, ALASKA TRUCKING ASSOCIATION (ATA), ANCHORAGE (via teleconference), spoke in favor of the bill. He read from a prepared statement: ATA was approached in late December 2006 to see if the association was interested in becoming a DMV business partner and as we evaluated the proposal the ATA felt that this could be a good member benefit for our trucking members to facilitate the handling of our members' DMV transactions. Our members have benefited from our partnership as has the general public that walks into our office each and every day. Our customers are about half commercial vehicle operators and half are walk-in personal vehicle operators. Our association member companies enjoy the prompt service that we can give them. Our walk-in customers are a cross section of the Anchorage population. Our service is generally prompt, friendly, supportive, and helpful. Our customers appreciate the extra effort we put into these transactions to make the DMV experience a little more user friendly. In order for the ATA to better serve its customers we feel that a modest 15 percent commission on the work done for the state DMV is a small price to pay for the work that is currently being done by these business partners. Every workday since 2006 we have processed transactions for the State of Alaska with no compensation other than the nominal service fee that we charge our customers. DMV provides some supplies such as title and registration forms, tags for the license plates, and the license plates themselves. It has been our business partner responsibility to provide and pay for personnel, reception space, secure office space, dedicated computer systems and related technical support, copiers, paper, postage, and credit card fees. In 2013 we processed more than 11,000 transactions for the State of Alaska and generated revenue of more than $1.6 million in fees and local taxes. The local taxes as you've heard are passed through DMV to the local governments. So not only do we generate revenue for the State of Alaska, we are a tax collector for local governments. Our calculations indicate that of the $1.6 million, we generated a total of more than $1.1 million in fee revenue for DMV. The changes made in the committee substitute in House State Affairs allows the DMV to honor these current agreements during the time it takes for the department to promulgate and adopt regulations covering the agreement prerequisites and provisions set out in the statute. It will allow the department to begin the 15 percent retained commissions at the effective date of the bill. The bill language is clear in that all proceeds with the exception of municipal taxes are eligible for the 15 percent retained commissions and these changes also provide the 15 percent retained commission rather than the sliding scale from zero to 15 percent. We believe that the business partners are providing a valuable service that supplements DMV capabilities without increasing DMV's operating costs. We also believe that as a matter of fairness DMV business partners should be compensated for the service that they provide for the state. It boils down to sharing the revenue with the partners that generate the revenue. Business partners have become a way of delivering DMV services and the partners need to share in the revenue for the work that is being done to enable the partners to grow their business and improve service to our fellow citizens. We urge the committee to look favorably on Senate Bill 127. 3:38:41 PM Representative Guttenberg asked what the current service fee was. Mr. Thompson replied that transaction fees involving a title were $15 and fees for other items were $12. Representative Guttenberg asked for verification that the cost exceeded the cost of a title. Mr. Thompson replied in the affirmative. Representative Guttenberg remarked that the Alaska Trucking Association had conducted 11,000 of the transactions. Mr. Thompson replied that the association collected the registration fees and the local taxes according to the schedule provided by DMV. The association remitted the money to the DMV on the following business day to the DMV. He reiterated that the association's service fees were between $12 and $15. Representative Thompson asked how many locations the business operated. Mr. Thompson answered that the association operated one location in Anchorage. Representative Thompson asked for verification that the business was not losing money. Mr. Thompson replied that the business was not losing money given that it owned its facility. He relayed that the association made a small amount on the services annually, but it was hoping for increased revenues to add additional staff and expand business hours. Representative Thompson asked if there was a maximum fee the business could charge above state costs. Mr. Thompson replied in the negative. Representative Wilson asked if any of the savings would be passed on to the people of Alaska. Mr. Thompson replied that fees would not be increased. Representative Wilson asked how much additional money the association would receive if the bill passed. Mr. Thompson replied that in 2013 the association had turned over slightly over $1 million to DMV; 15 percent of the total equaled approximately $150,000. 3:42:49 PM STEVEN ALLWINE, ALASKA AUTO DEALERS ASSOCIATION, JUNEAU, spoke in support of the legislation. He communicated that for over a decade a number of auto dealers in Alaska provided licensing for customer's vehicles. The association had taken on the responsibility to ease the load for DMV. He detailed that the association had taken on the responsibility because the titling had not been getting done promptly. He furthered that a number of dealers in Alaska provided the service free-of-charge. The dealers had absorbed the associated costs (e.g. paper, credit card fees, computers, and other). He was no longer willing to provide the service without a fee because of its cumbersome, expensive, and complicated nature. He stressed that making a mistake on DMV related services had negative consequences. He pointed to items such as mileage and VIN numbers and explained that the work was an exact science; therefore, it was necessary to have employees who were qualified and proficient at the work. He added that in larger stores the work required a full-time position. He explained that the dealerships had never charged customers for the service beyond the license fee; the cost was absorbed as a cost of doing business. He relayed that the bill would provide some income to offset a portion of the expense. He would consider hiring an employee to provide the service within his store if the bill passed. He believed the tool could be wonderful for DMV if it was used in locations with high demand for services. He discussed that DMV services in Washington State were either provided online or by a non-governmental agency. He reiterated his support for the legislation. 3:46:26 PM Representative Gara asked for verification that the service to customers was voluntary. Mr. Allwine answered in the affirmative. Representative Gara surmised that dealerships were able to pass on any absorbed costs to consumers. He referred to an Alaska dealer price markup. He asked for verification that the big three American auto manufacturers charged all dealers the price for a vehicle regardless of the state. Mr. Allwine replied that auto manufacturers charged all car dealers the same price. He relayed that there were some slight differences in destination charges for import models. He stressed that the freight charge for a Chrysler was the same anywhere in the United States (including Alaska). He communicated that a dealer could choose to charge more for a vehicle; however, he and many other association members did not conduct business that way. 3:48:10 PM Representative Guttenberg used the purchase of a new car as an example and asked why providing a vehicle registration required anything beyond the standard use of a warranty clerk and financing officer. He observed that accuracy was critical for basic services associated with the purchase of a car. Mr. Allwine answered that the fields were unrelated. He explained that the finance officer was essentially a banker, responsible for handling all of the financial paperwork after an automotive transaction was completed. He detailed that the finance officer was primarily responsible for the completion of all legal documents (e.g. financing contracts, trade-in documents, payoffs, or other). A warranty clerk had nothing to do with the sale of a new vehicle. The clerk was involved with the processing of warranty repairs and for bringing in payment (like an insurance clerk in a doctor's office). The business finance officer provided the initial paperwork for DMV. He did not participate in DMV's program; therefore, the paperwork was delivered to DMV every three days. The titling of the vehicle was specialized and was done by DMV. Representative Guttenberg pointed out that the finance and warranty employees handled difficult work where accuracy was required. He had used a vendor to renew his vehicle registration and had been amazed at the quick turnaround time. He did not believe the difficulty or technical aspect of the work was problematic. Mr. Allwine noted that Representative Guttenberg was referring to the renewal a currently owned vehicle. He agreed that the transaction was relatively simple and did not include a transfer of ownership, verification of VIN numbers, or other. He was specifically discussing paperwork related to new vehicles including the VIN, proper titling, and other items. For used out-of-state vehicles the dealership had to do extensive paperwork to create an in- state title. Additionally, paperwork became more complicated when a transaction involved two lien holders. He provided other examples of various paperwork required in different transactions. Representative Guttenberg remarked that he had three dealerships in his family. He shared that he received all of the paperwork when he made a transaction. 3:52:28 PM Representative Munoz wondered if the dealership could charge a $10 fee for providing DMV related services in person (similar to the $10 fee charged for in person DMV services). Mr. Allwine replied in the negative. Representative Munoz wondered if the 15 percent would cover employee costs. Mr. Allwine believed the number was reasonable and fair. Vice-Chair Neuman referred to language in the bill that would require a new business to wait one year before entering into a vendor agreement with the department [DMV]. He wondered if the provision created an unfair business practice. Mr. Allwine did not believe so. He commented on the importance of discretion and ensuring a business had a positive track record. He thought that at least one year was a good idea. Vice-Chair Neuman remarked on the State of Alaska offering an advantage to one company over another. Mr. Allwine opined that discretion was required. He did not believe it was a question of fairness. He noted that too often businesses "set up shop and leave." He believed caution was not necessarily a bad thing. Representative Thompson expressed confusion on the issue. He had been in two business locations where registration renewals were the sole service. The one-year requirement shut out others from entering into the business. He compared it to telling a business they could have a license to sell cars, but limiting them to selling only Fords. He stressed that the provision restricted a person from going into business. He believed it constituted an unfair business practice. Mr. Allwine deferred the question to the bill sponsor. He felt that the issue was outside his purview. 3:56:42 PM AMY ERICKSON, DIRECTOR, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF ADMINISTRATION, shared that the DMV had been in partnerships with businesses since early 2000. The DMV provided all supplies businesses needed to conduct registrations, title transactions, license plates, tabs, forms, motorcycle manuals, and placards free of charge. Additionally, the DMV trained business partners on how to conduct transactions and provided free access to its database. She communicated that while the business partners accounted for 26 percent of DMV's revenues, DMV still touched each transaction conducted by the partners. Information gathered by the partners was sent to DMV each night for reconciliation to ensure all documentation and auditing was done and that transactions were completed accurately. Representative Thompson wondered if there was a set fee that a vendor could charge above the cost of a renewal or title change. Ms. Erickson replied that the DMV did not regulate any fees charged by partners. She added that auto dealerships could charge a fee, but did not currently do so. Representative Thompson asked for verification that a dealership could charge a fee. Ms. Erickson answered in the affirmative. Representative Thompson was troubled by the bill's requirement that a business could not enter into an agreement with the department until they had been in business for a minimum of one year. He noted that vendors were required to receive training from DMV prior to offering the services. He thought the requirement was unfair and would shut out any new vendors from entering the business. Ms. Erickson could not speak to the sponsor's intent related to the bill provision. Representative Costello asked if the department or division had a position on the bill. Ms. Erickson replied in the negative. Co-Chair Austerman asked if the division agreed with the $1.9 million fiscal note. Ms. Erickson agreed that paying 15 percent to business partners would mean [a reduction in revenue to the division] in the amount listed on the fiscal note. Co-Chair Austerman wondered how valuable the service provided by vendors was to the division. Ms. Erickson replied that she could not quantify the service with a number, but it was a great service to customers and kept the lines at DMV locations shorter. Representative Munoz asked about the annual surplus generated by the division. Ms. Erickson answered that the division collected approximately $70 million in revenue; its own budget was approximately $17 million. Representative Munoz asked if the excess revenues were deposited into the general fund. Ms. Erickson replied in the affirmative. Representative Munoz surmised that a reduction of $2 million would not impact DMV. Ms. Erickson hoped that the loss would not impact DMV. She noted that the funds were deposited into the state general fund. Representative Wilson asked if the DMV could choose to discontinue partnership with vendors to prevent the loss of revenue. Ms. Erickson replied in the affirmative. The DMV could choose to end a contract within 30 days. Representative Wilson asked if DMV was forcing vendors to do the work. Ms. Erickson answered that dealerships had opted into the program to provide a service to customers. She detailed that many dealerships did not participate. The division had a specific dealer unit in Anchorage that processed paperwork dropped off by vendors. Representative Wilson asked if dealerships could charge a fee to customers. 4:03:21 PM Ms. Erickson replied that there was nothing preventing dealerships from charging a fee. Senator Giessel addressed the bill's one-year requirement for business partners. She stated that there were 11 private business partners and 37 auto dealers providing the services. Many of the companies provided more than one DMV service. She agreed that DMV trained business partner employees funded by the business partners. She stressed that the primary emphasis of the bill was fairness. She stated that the companies were conducting over 25 percent of DMV's work and were receiving no compensation. She believed it was another form of tax. The bill's purpose was to support the private sector and the convenience provided to the state's citizens. Co-Chair Austerman CLOSED public testimony. SB 127 was HEARD and HELD in committee for further consideration.