HOUSE BILL NO. 116 "An Act extending the termination date of the Alcoholic Beverage Control Board; and providing for an effective date." 1:32:04 PM LAURA STIDOLPH, STAFF, REPRESENTATIVE KURT OLSON, reviewed the sponsor statement with the committee. HB 116 extended the sunset date for the Alcoholic Beverage Control (ABC) Board to June 30, 2018. Each year the Division of Legislative Audit reviewed boards and commissions to determine if they should be reestablished in accordance with Title 24 and Title 44 of the Alaska Statutes. The Division of Legislative Audit reviewed the activities of the Alcoholic Beverage Control Board. The purpose of the audit was to determine whether there was a demonstrated public need for the board's continued existence and whether it had been operating in an effective manner. The board had addressed all issues found in prior audits with two being resolved and one being partially resolved. As the members might have noted from the most recent audit there were five findings and recommendations. First, the board's director should ensure that all board meetings were properly published on the State's Online Public Notice System. Second, the board should notify local governing bodies of applications for new and transfer licenses within 10 days of receipt. Third, the board should issue catering permits in accordance with statutory requirements. Fourth, the board should issue recreational site licenses in accordance with statutory requirements. Finally, the board should implement a process to monitor and track all complaints to ensure they were resolved in a timely manner. As the members noted in their review of the audit in their packets it was the opinion of the Division of Legislative Audit that the board be extended three years to June 30, 2018. In the opinion of the auditors the board was serving the public's interest by effectively licensing and regulating the manufacture, barter, possession, and sale of alcoholic beverages in Alaska. To speak to the recommendations mentioned earlier, Kris Curtis, Legislative Auditor, Alaska Division of Legislative Audit and Cynthia Franklin, Director, Alaska Alcoholic Beverage Control Board were available online from Anchorage. In closing, the ABC Board served an important role in guarding the health and safety of Alaskans by protecting the general public through the issuance, renewal, revocation, and suspension of alcoholic beverage licenses. The continuation of the board was very important. Ms. Stidolph thanked committee members for supporting HB 116. Representative Wilson asked about the fiscal note. She noted there was money coming from the general fund. She wondered why the fees collected from serving alcohol did not pay for operating expenditures making the program cost neutral. 1:34:38 PM CYNTHIA FRANKLIN, EXECUTIVE DIRECTOR, ALCOHOLIC BEVERAGE CONTROL BOARD, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), spoke to Representative Wilson's question. She explained that if the licensed premise was inside a municipality, by statute the entire fee was refunded to the municipality for law enforcement efforts to do with Title 4 provisions. Many of the licensing fees in alcohol were returned to the individual communities where the licensed premise existed. In non-municipality settings the license fees were placed into the general fund. Although the ABC Board collected licensing fees its costs were not technically cancelled out by the licenses because the bulk of the funds received were returned to the municipalities by statute. Representative Wilson asked if the municipalities were required to provide enforcement having to do with ABC Board issues in their communities. She wondered about enforcement outside of a municipality. Ms. Franklin responded that the refunds were based on enforcement of Title 4. Over previous years she reported there had been different definitions of the statute. Currently, the ABC Board required municipalities to report their Title 4 activities annually. The report included the number of Title 4 violations filed and prosecuted in their jurisdiction. Presently, the board had five officers statewide that were employed by the state that conducted special enforcement efforts. The Alcoholic Beverage and Control Board had a couple of programs that were law enforcement related centering on preventing underage access to alcohol. Officers of the ABC Board performed special enforcement whereas municipalities focused on everyday enforcement of Title 4 laws and rules around alcohol. Typically municipalities had their own conditional use permits or zoning requirements for alcohol licenses. However, the responsibility of renewing licenses, preparing for board meetings, and other activities fell on ABC Board employees. 1:37:44 PM Representative Wilson asked if there was anything preventing the legislature from changing the fee structure. She was not opposed to municipalities getting monies back if they were doing enforcement. However, if the state was also doing some of the enforcement activity she believed the cost needed better distribution. She wondered if there was a way to track the fees. Ms. Franklin stated that there was a desire and an effort to see that more of the licensing receipts remained within the agency for the purpose of funding the ABC Board's efforts. She mentioned that there was a 2.5 year Title 4 stakeholder process that began in May 2012 which resulted in a Title 4 revision package that was currently in the hands of the legislature but not introduced in the session in progress. In the course of the stakeholder's (stakeholders included Department of Public Safety, Department of Health and Social Services, and members of the public sector) review the board's licensing fees were found to be too low and had not been raised for several decades. She reported that most of the fees were returned to the municipalities. She elaborated that the idea behind the rewrite was to raise fees and to include in legislation an outline of where the fees were distributed including dispersal to the ABC Board for licensing and enforcement. The draft bill had not yet been introduced but hoped that it would be in the current session. Co-Chair Thompson asked if the bill would have additional fiscal impacts. Ms. Franklin responded affirmatively. She indicated that the rewrite was extensive and increased licensing fees. She opined that the question as to whether it added money was difficult to answer because there was nothing in the language that was submitted that would direct the money anywhere. The legislation did increase licensing fees. The fiscal note before the committee reflected the fees currently in statute under Title 4. There was no specific funding mechanism that related the licensing fees to the cost of the agency. Co-Chair Thompson recognized Representative Pruitt at the table. 1:40:31 PM Representative Wilson wanted to better understand the fees that were currently in place. She was unclear why certain board funds were placed in the general fund versus other accounts. She wanted to be able to better assess fee increase amounts. She suggested the legislature would be asking for increases high enough to cover expenses in order for each board to become self-sufficient. She requested a copy of a stakeholder report if there was one. Co-Chair Thompson noted that his staff would try to find a copy of the report and provide it to committee members. Representative Gattis asked about the three-year extension and the fiscal note. She noticed that the out-year estimates were predicted at a flat rate. She wondered about raises and inflation rates. Ms. Franklin asked if Representative Gattis was referring to the out-year estimates. Representative Gattis responded that she was referring to the three years including the out-years. Ms. Franklin stressed that the out-years were very difficult to predict due to the new substance assigned to the agency by AS 17.38. She did not have any idea how regulating a new substance was going to affect the agency financially and whether tax revenues would be directed to the agency to offset costs. She added that in other states where marijuana was legal costs of regulating the substance had been offset by taxes received. She was not aware of any place in statute that offset costs with licensing fees having to do with the regulation of alcohol. It was her understanding that offsets did not occur because of refunds to municipalities. She pointed out that the first refund check to the municipalities for a six month period totaled $660 thousand. The entire budget of the agency prior to adding marijuana was $1.75 million. She continued that when discussing $1.2 million per year in refunds to municipalities it came close to equaling the ABC Board's entire budget. There was a large sum of money going back to the municipalities. She suggested that in the future years until certain questions were answered concerning tax revenue and how many positions would be needed at the ABC Board to safely regulate the new substance the out-years would be difficult to predict. 1:44:58 PM Representative Gattis clarified that she was only looking at FY 16, FY 17, and FY 18. All three years appeared relatively flat according to the fiscal note in terms of raises or increases. She wanted to know if an awareness of the state's fiscal crunch was reflected in the fiscal note. Ms. Franklin responded affirmatively. She elaborated that the agency's decision was a reflection of not knowing what the requirements might be to safely regulate the new substance. She did not have a financial estimate anticipating future staff needs. However, the board, with all other things being equal, anticipated trimming costs along with all state agencies. Co-Chair Neuman referred to the fiscal note. He opined that the fiscal note should be more detailed. He commented that the fiscal notes for the marijuana policy board were much more detailed. He asked Co-Chair Thompson for a revised fiscal note. Co-Chair Thompson responded that there would be some major questions regarding present legislation. 1:48:46 PM Representative Gara noted that the legislative audit summarized the duties of the ABC Board which included protecting the public's health and safety. He was concerned about two neighborhoods within his district. He wanted to know more about what was being done. He discussed a particular assault in Anchorage. He asked if the board had the power to take proactive steps to work with bars on public safety matters or did the ABC Board wait until after an incident or at the time of relicensing. Ms. Franklin asked if Representative Gara's question was directed towards her. Representative Gara responded affirmatively. He restated the question. He wondered if the board had the power and took proactive steps to protect public safety. He wondered if the board waited until after a violation to respond. Ms. Franklin answered that the board did both. She explained that the board had some proactive education-type activities that it engaged in including attending the Anchorage Downtown Partnership meetings. The board did not have the power to proactively take a license without some other occurrence. She furthered that a municipality in which a licensed premise was located had the option to protest the issuance, transference, or renewal of a license and could, mid-renewal period, protest the continued operation of a license. The board worked in cooperation with the municipalities and local governing bodies to identify problem operators and licensees. There could be some reliance on municipal governments to identify the operators by their protest tool. She reported the board was aware of the current problems in downtown Anchorage and was in communications with individual liquor licensees and with the Anchorage Downtown Partnership. However, the statutes did not permit the board to revoke a license in response to a violation of Title 4. Representative Gara wanted to make sure that the ABC Board was taking proactive safety steps in working with bars before incidents occurred. He wanted to reconfirm that she was responding affirmatively to his question. Ms. Franklin responded in the affirmative. She furthered that the board identified a bouncer safety course and had started recommending that licensees engage in the educational course. She relayed that all of the board's Anchorage enforcement officers attended the course, which was originally offered by CHARR [Alaska Cabaret, Hotel, Restaurant and Retailers Association]. She added that the course information was also listed on the ABC Board's website. 1:52:59 PM Representative Gara asked about another neighborhood at 13th and Gamble in Anchorage. He explained that there were two liquor stores across the street from each other and had one of the highest concentrations of publicly intoxicated people in Anchorage. He wondered if the board had the power to grant two liquor stores in such a close distance from one another. He wondered if it was beyond the board's power to avoid issuing two licenses in the same area. Ms. Franklin explained Title 4 was structured such that local governing bodies were responsible for informing the board about community issues concerning the location or zoning of a licensee. She reported that the board was aware of the stores Representative Gara was referring to. As the Anchorage municipal prosecutor she had visited the area several times. The board was aware that there had been controversy regarding the licenses. She informed the committee that Title 4 allowed protests of renewals, transfers, initial applications for licensees or potential licensees. At any time a governing body could protest a licensee's continued operation even at a mid-renewal period. Once a protest was issued the ABC Board would uphold the protest according to AS 4.11.480 unless the board found that the protest was arbitrary, capricious, and unreasonable. She relayed that it was up to the Anchorage Assembly to file a protest against the particular stores. 1:56:27 PM Co-Chair Thompson suggested that Representative Gara approach his municipality. He reported a problem in Fairbanks where three liquor stores had similar issues with public intoxication. The municipality told each of the stores that it was going to protest their license renewals unless they did something. He reported that they were all working on reducing their hours of operations at the times in which problems were occurring. Representative Gara indicated that the local municipality was currently working on the issue. He had just wanted to hear from the ABC Board. Vice-Chair Saddler asked about licenses for clubs, particularly patriotic clubs. He mentioned a previous bill that passed allowing spouses of service members and certain under aged service members to attend functions at patriotic clubs without drinking. He wanted to know about any problems to do with alcohol control enforcement resulting from the legislation. Ms. Franklin responded in the negative. She relayed that clubs had been very orderly, quiet, and respectful of the rules. 1:58:13 PM Vice-Chair Saddler indicated that some ABC enforcement agents wanted to obtain access cards to certain patriotic clubs. He wondered if the effort was still underway. Ms. Franklin believed the issue had been resolved. She had not had the issue come up in the prior six months. Vice-Chair Saddler said that the administrative home of the board had changed from Department of Public Safety to Department of Commerce, Community and Economic Development. He wanted to know if the change had diminished the ABC Board's ability to achieve either its commerce supporting role or its public safety enforcement role. Ms. Franklin relayed that she had only been a part of the agency since it had been under the umbrella of commerce. She opined that the board was functioning well following the change. She believed that licensees were satisfied with the board's performance in meeting its public safety mission and making sure licensees understood specific rules. The tone of the agency and its relationship with DPS, DHSS, and with licensees was excellent. She suggested the success of the board was due to the move between departments as well as the legislative audit. She discussed the stakeholders' workgroup in which members were forced to talk through some very difficult issues. She reported that the three board meetings she attended had focused significantly on public safety. The ABC Board took its job seriously and had a fresh perspective with the change to DCCED. Vice-Chair Saddler commented that the results of the ABC Board's survey on page 23 of the audit indicated participants thought there would be a need for new laws or regulations. He wondered what type of new laws would be needed. Ms. Franklin shared that some of the details were decided in the stakeholders group. She did not know what laws were indicated in the survey. Department of Public Safety was at the table in the stakeholders group when discussing large issues regarding Title 4. She relayed that one of the public safety issues that came up had to do with dry villages and bootlegging penalties. The perception from law enforcement was that the penalties were not effective. The way in which the group addressed the problem was to rewrite the penalties so that the amount of alcohol that was brought into a dry village resulted in increased penalties. In other words, a fine structure was tied to the amount of alcohol imported into a dry village. This was an example of the issues addressed with the stakeholders' workgroup. 2:02:24 PM Representative Wilson asked that the revised fiscal note include a list of categories, a breakdown of license fees collected within each category, and the amount of fees given to municipalities. She felt the information would help in determining a revised fee structure aiming for self-sufficiency. Co-Chair Thompson directed Ms. Franklin to provide the information to his staff to distribute to members. Ms. Franklin would provide the information. Representative Edgmon asked about new areas of regulation. He wondered about powdered alcohol and whether it would be included in the rewrite of the bill that was coming forward. He wanted to know if powdered alcohol was under the current jurisdiction of the ABC Board. Ms. Franklin reported powdered alcohol was already illegal in Alaska. She referred to AS 04.16.110 and conveyed that a person may not sell alcoholic beverages in powdered form if intended for human consumption. The law was enacted in 1995 and was a Class "A" misdemeanor. The board was very satisfied with the powdered alcohol prohibition and had no intention of revisiting its corresponding law. She was aware of its recent publicity but felt that the issue was already addressed in statute. 2:04:02 PM Representative Guttenberg asked about the authorities being extended. He relayed that her position had moved over from public safety. He suggested that the board would have more to do with the agricultural community with the growing, sale, and distribution of marijuana. He wanted her perception of how the board was handling the marijuana initiative. Ms. Franklin reported that the ABC Board was working very diligently in regards to the marijuana initiative. The board's management team met with state regulators of Colorado. State regulators from Oregon and Colorado meet with the Alaska team to discuss in detail the challenges they faced. She reported that marijuana was a very different substance from alcohol and that cultivation and growing were new areas to the ABC Board. She detailed that she and her enforcement officer spent time with the owner of Bells Nursery in Anchorage to better understanding about growing plants indoors in Alaska and what type of issues and challenges that might arise. She also reported spending time with Department of Environmental Conservation discussing testing facilities, labs, and standards for a plant and how to write them into regulations. She maintained that the agency's experienced licensing and enforcement staff could be counted on to deal with the new challenge. 2:07:07 PM Representative Guttenberg noted the federal banking restrictions that made it illegal for marijuana businesses to do their banking in the United States. He wondered how the ABC Board was addressing a change in banking regulations the marijuana community. Ms. Franklin mentioned that the ABC Board was working with Ms. Kevin Anselm, Director, Division of Banking and Securities, Department of Commerce, Community and Economic Development, regarding associated issues. She pointed out that Ms. Anselm attended a conference in the fall of 2014 with other banking regulators from legalized marijuana states and would have an answer for Representative Guttenberg's questions. She assured the committee that the banking experts at state agencies were involved, interested, and engaged in figuring how to bank the marijuana industry. Representative Wilson made some calculations from the information on the fiscal note and pointed out that the operation cost of the ABC Board totaled $279,208 per month. She wondered if it would be more cost effective to subcontract the board's duties more affordably. She thought the figure was high. Ms. Franklin asked if Representative Wilson was referring to the fiscal note that included marijuana. Representative Wilson responded affirmatively. She added that she was unable to tell how much of the amount applied to marijuana and how much applied to the ABC Board. Ms. Franklin informed the committee that the previous year's budget for the board was $1.75 million. She believed the work of the board's relatively small staff could not be contracted out more economically. There were 10 statewide employees and herself, the director. She clarified in the fiscal note the board had to include marijuana with the passing of legislation. The budget in the fiscal note reflected six additional employees to handle marijuana issues for the period of FY 15 and FY 16. She reviewed there were 16 employees statewide to enforce marijuana and alcohol regulations in statute. In comparing Alaska's 16 employees to the number of regulators in other states such as Colorado and Washington and adjusting for population, she concluded that the state was getting the best bang for its buck with the current employees in the division. She did not think a private company could carry out duties more efficiently. She pointed out that ABC Board shared many resources with the rest of DCCED and across agencies. She did not believe it was possible to scrape any closer to the bone in the agency's budget. 2:10:48 PM Representative Wilson clarified that her question was not intended to imply that agency employees were not working diligently. She believed that $279 thousand was a significant amount of money per month. She surmised that perhaps the costs reflected what the legislature had asked the agency to do based on statute. She asked Co-Chair Thompson about whether it was appropriate to have the fiscal note detail the costs for both marijuana and alcohol. She was wondering if the information would be provided in lieu of or additionally in another piece of legislation. She highlighted that the cost to the state was $136 thousand per month to regulate and monitor alcohol. She was unclear about potential duplication. Co-Chair Thompson relayed that the bill would not be passed out of committee because of so many unanswered questions. He relayed that his office would try to get a breakdown of costs associated with alcohol and with marijuana. He reiterated that the new bills could influence the policies around marijuana. 2:12:15 PM Co-Chair Thompson asked about the five recommendations from the legislative audit report. He wondered about the status of addressing each of the issues. Ms. Franklin indicated that all five issues had been addressed. A couple of them had been address prior to her recent tenure in September. The first addressed notifications to municipalities. There was a staff change and with the changeover corrected the notification procedure so that the 10-day deadline was currently being met. All of the recommendations were accepted by the agency and had been corrected. She addressed the issue of multiple fiscal notes and multiple marijuana bills, it was her understanding that it was required that the agency had a fiscal note attached to each bill because it was unknown whether any individual bill would pass. She explained that it might be that in other bills regarding marijuana a fiscal note for the staffing and board to effectively regulate the substance. A fiscal note was in each bill. Representative Gara commented that the board was roughly $1.5 million short of the fees the agency took in and expenditures. He asked Ms. Franklin if he was accurate. Ms. Franklin responded positively. Representative Gara asked if all of the fees that the agency took in were from liquor license sales or from other fees. Ms. Franklin answered the fees that were taking in were from liquor license fees. The reason the amount fell short was because the agency did have a fee structure for marijuana at present. She indicated that the agency would not be able to determine the quantity of licenses that would be issued or for what dollar amount prior to the industry start-up. The fiscal note that was before the committee reflected financial outlays for the regulation of marijuana without any revenue currently. She spoke of the City of Denver with 650 thousand people, 100 less people than in Alaska, had issued approximately 900 marijuana licenses. In 2014 Denver took in $15.9 million in taxes and added 37.5 fulltime employees solely for the regulation of marijuana. The employees' costs were fully covered by the tax revenues collected. Representative Gara asked if the ABC Board would be breaking even without the marijuana component. Ms. Franklin responded approximately. Representative Gara asked if there was any way for the state to benefit from the sales of liquor licenses rather than any windfall going to a bar owner. He purported that what happened was that there was a limited number of licenses that people sold them for a significant amount of money. Was there any way to restructure the transferring of a license and if so, would it have to be changed in statute. Ms. Franklin agreed that the secondary market value of liquor licenses came from a combination of the population limits on licenses creating a limited availability. She was unaware of any other way to correct the issue of transferability for alcohol licenses except to rewrite the statute. She was advocating for non-transferable licenses without population limits for marijuana. Co-Chair Thompson invited Ms. Franklin to make any closing comments. Ms. Franklin thanked committee members for their time. 2:17:50 PM Co-Chair Thompson reiterated that the bill would be set aside. HB 116 was HEARD and HELD in committee for further consideration.