SENATE BILL NO. 151 "An Act extending the termination date of the Alcoholic Beverage Control Board; and providing for an effective date." 1:38:57 PM Co-Chair Merrick indicated that Representative Josephson and Representative Wool had joined the meeting. MADISON GOVIN, STAFF, SENATOR PETER MICCICHE, introduced the bill with prepared remarks. She relayed that SB 151 extended the board's termination date to June 30, 2027. She furthered that the Legislative Audit Division reviewed the activities of the ABC Board and determined the board was effectively serving the public interest by controlling the manufacture, barter, possession, and sale of alcoholic beverages in the state. Findings also included that board meetings were conducted effectively, regulations were adopted to implement statutory changes, and investigations were conducted in a timely manner. Co-Chair Merrick asked to hear from the Division of Legislative Audit. 1:40:23 PM KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF LEGISLATIVE AUDIT, indicated that the audit was unique because the Alcoholic Beverage Control Board (ABC) audit report contained findings from both a Sunset Review Audit and a Special Review Audit of the boards licensing process requested by the Legislative Budget and Audit Committee (LBA). She read from the reports conclusions as follows: Overall, the audit found that board meetings were conducted effectively, regulations were adopted to implement statutory changes, and investigations were conducted in a timely manner. The audit also concluded that the Alcohol and Marijuana Control Office (AMCO) operations were impeded by the lack of an automated application process and significant vacancies. Further, deficiencies in controls over processing licensee fee refunds were identified. We recommend the legislature extend the board's termination date to June 30, 2026, which is four years less than the maximum allowed in statute. The reduced extension reflects the need for more timely oversight to evaluate the board's progress in addressing licensing inefficiencies and filling vacancies. Ms. Curtis pointed to Page 14 of the audit report that contained a chart titled "Exhibit 2" that displayed ABC's license count by type as of February 28, 2021. She reported that 1,867 licenses were active. A backlog of applications due December 2020, caused by extensive vacancies resulted in the issuance of approximately 300 temporary licenses. She elaborated that Auditors reviewed AMCO's staffing during the audit period and found extensive vacancies. Exhibit 3 on page 15 displayed the staff vacancies from FY 2018 through February 28, 2021 and showed staffing vacancies that exceeded two months during the audit period. In total, 7 staff positions were vacant over 92 months. The department offered that the hiring of the two positions was not approved due to "the substantial uncertainty surrounding an earlier proposal to merge AMCO into DCCED's Division of Corporations, Business and Professional Licensing. The impact of the COVID-19 pandemic to the alcoholic beverage and marijuana industries was also unknown, and these two positions were not materially involved in licensing functions. In addition, one position was not filled due to difficulty with finding workspace for the special investigator position, which was moved from Fairbanks to the Matanuska-Susitna Borough. The extended vacancies negatively impacted AMCOs ability to support the ABC board as well as the Marijuana Control Board (MCB). She referred to Pages 10 through 18 that summarized the auditors detailed review of the boards licensing process. The auditors found that 76 percent of new licenses and 85 percent of transfer applications were issued or finalized within six months of receipt. She added that on average it took 153 days to issue a new license and 131 days to issue a transfer license. The audit reported that license requirements were complex, making the application process complicated and inherently subject to error. Further, the applications must be submitted manually. As such, the applications were not subject to online edits designed to help limit errors. The audit identified the following three opportunities for gaining licensing efficiencies: 1:43:53 PM Analysis of the 505 applications received during the audit period found applications were incomplete and/or inaccurate at a rate of 96 percent for new applications and 97 percent for transfer applications. Once determined deficient, the applications are sent back to the applicants for correction. Returning applications added, on average, 20 days to AMCO's review process. Ms. Curtis relayed that the second opportunity confirming an applicants compliance with the regulations and statutory requirements caused significant delays. Delays due to protest by a local governing body or due to waiting for receipt of compliance information added an average of 88 days for new licenses and 35 days for transfer licenses. Thirdly, the audit found that AMCO staff issued new and transfer licenses an average of 23 days and 28 days, respectively, after all outstanding requirements were met. She added that automation of the process would significantly shorten the timeline. She highlighted the five recommendations contained in the report found on Pages 27 through 31: Recommendation No. 1: The Department of Commerce, Community, and Economic Development (DCCED) commissioner should ensure AMCO staff vacancies are filled in a timely manner and the AMCO director should implement written licensing procedures. Recommendation No. 2: The board should significantly enhance or replace its licensing database and automate the application process where possible. Recommendation No. 3: The board and AMCO director should strengthen procedures for entering restricted purchasers in the statewide database of written orders. Ms. Curtis elaborated that the board failed to address the finding in its prior audit. Twenty-seven individuals convicted of relevant violations during the audit period were either not entered in the statewide database or entered, but not marked as restricted purchasers due to insufficient procedures. She continued to the fourth recommendation: Recommendation No. 4: The board and AMCO director should implement procedures to ensure municipalities receiving refunds of biennial license fees are actively enforcing alcoholic beverage laws. 1:47:16 PM Alaska Statute 04.11.610 requires biennial licensing fees to be refunded to municipalities, and states that if the officers of a municipality fail to actively enforce laws related to the manufacture and sale of alcoholic beverages in the state, the DCCED commissioner may deny the refund. The audit found the reports were not reviewed by the board or AMCO staff. Ms. Curtis disclosed that the refunds were being automatically issued. She moved to the fifth recommendation: Recommendation No. 5: The AMCO director should improve procedures and fill vacancies in a timely manner to ensure refunds to municipalities are appropriately reviewed. The audit found one AMCO employee was responsible for calculating the amounts to be refunded to municipalities and the calculation was not reviewed prior to processing the refund. Ms. Curtis recommended that the duties should be segregated for better internal control and the extended vacancies contributed to the deficiency. She addressed the response by the Department of Commerce, Community and Economic Development (DCCED) commissioner found on Page 47. She related that the commissioner agreed with all the recommendations. The commissioner stated that all the vacancies had been filled. In addition, DCCED was developing a needs assessment for an automated database and license renewal system. The violators had been entered into the statewide database of written orders and procedures had been adopted to ensure the data was entered going forward. Finally, the commissioner ensured that procedures for recommendation 4 would be implemented in the future. She turned to Page 49 and reviewed the ABC board chairs response. She indicated that the chair disagreed strongly with the four-year early extension recommendation and believed that the finding would jeopardize the publics trust and undermine confidence in the public process. The chair agreed with all the recommendations but did not agree that the issues warranted a reduced extension recommendation. She added that the board had routinely received a 4 to 5 year extension over the last 20 years. Representative Josephson referenced the chair's comments about undermining integrity and it struck him as hyperbolic. Co-Chair Merrick indicated that Representative Carpenter had joined the meeting. 1:49:02 PM DANA WALUKIEWICZ, ALCOHOL BEVERAGE BOARD, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), testified in support of the bill with the current five-year extension. He relayed that AMCO agreed with the audits findings but disagreed with the recommendation for a four-year extension. The board was thankful for the five-year extension in the current version of the bill. He elaborated that if the Title 4 rewrite (SB 9 - Alcoholic Beverage Control; Alcohol Reg) were to pass, the board would take on a lengthy and large project to update the regulations consistent with the bill. He addressed the audit findings. He shared that many of the recommendations made were corrected. The only outstanding issue was the lack of an IT system to support the licensing process. He reported that the board was in support of revamping and updating the system to create a fully automated system. It was outside the board's authority to independently develop the system as it would take capital funds. He informed the committee that funds were included in SB 9 to support the automation effort. The system would be similar to the myAlaska state log-in system. He concluded that he was happy the board was extended to 5- years instead of four years in the current version of SB 151. 1:52:18 PM Representative Josephson thought it sounded like the board was relatively satisfied. He asked if the statement was fair. Mr. Walukiewicz replied that the extra year extension was warranted to implement SB 9 and obtain the funds necessary and deploy a new IT system to address licensing delays and inefficiencies. He restated the board was pretty happy overall. Representative Josephson perceived that the board would always receive criticism and deal with competing tensions. He apologized if his prior comment seemed out of hand. He referenced the chairs comments, jeopardizing the publics trust and undermining their confidence. He asked if the chair still held the same view. Mr. Walukiewicz responded in the negative. He explained that his concern was over the four year period being insufficient to accomplish the boards work and shared the industrys and the publics concern over an early sunset. He offered that issues brought before the board could be very political in nature. The public and the industry wanted certainty that the board would be in existence to address issues when needed. He had been with the board for just over two years, and he was pleased to see the amount of public process during board meetings. He believed that the board's commitment to hear the publics and industrys concerns and take the opportunity to address them was important. He deduced that shortening the board's term would potentially jeopardize the public's trust. He assured the committee that he would work to improve ABCs process over 5 years hopefully, resulting in a consensus to extend the board for an even longer period of time. 1:56:04 PM Representative Carpenter referenced Ms. Curtis's comment that one of the recommendations was also a previous recommendation. He asked which recommendation she had been referring to. Ms. Curtis answered that there were two recommendations that were repeated dealing with the statewide database of written orders and the refund process for biannual license fees. The two were continuing recommendations from the prior audit. She maintained that her reduced extension recommendation was not associated with the five recommendations. She felt that there was a need to monitor the boards progress in addressing its licensing deficiencies and was what drove the four-year recommendation. Representative Carpenter cited the report on page 5 and read the following: Alaska Statute 04.11.370(a) requires a license to be suspended or revoked if the board finds a licensee violated an alcoholic beverage statute or regulation, a condition or restriction imposed by the board, or a municipal ordinance. Statutes also state that a license should be suspended or revoked if the board finds the licensee failed to correct a defect that constitutes a violation after receipt of notice issued by the board or its enforcement agents. Representative Carpenter noted that there were two audits in a row with the same recommendation, yet the board received an extension from four to five years. He was concerned that even an audit every four years had not resulted in fixing recommendations. He did not understand why the sunset was extended to five years. 1:58:49 PM Ms. Curtis responded that on page 21, the report acknowledged that the boards enforcement activity had increased during the audit period. She added that when the audit had been conducted, SB 9 had not passed and whether or not the bill passed she still would recommend a 4-year extension to allow auditors time to determine the boards progress in implementing SB 9. She believed that legislative oversight was important when a board was tasked with extensive changes. Co-Chair Merrick asked the department to review the fiscal note. GLENN HOSKINSON, DIVISION OF CORPORATIONS, BUSINESSES AND PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), deferred to AMCO to review the fiscal note. CARRIE CRAIG, ACTING DIRECTOR, ALCOHOL AND MARIJUANA CONTROL OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), did not have the fiscal note on hand. SB 151 was HEARD and HELD in committee for further consideration.