HB 21 - APPROP: TOBACCO SETTLEMENT HB 37 - SMOKING CESSATION AND EDUCATION PROGRAMS CO-CHAIRMAN DYSON announced the Committee would hear two bills concurrently: House Bill No. 21, "An Act making a special appropriation for the medical assistance for needy persons program and for certain programs relating to tobacco smoking; and providing for an effective date," and House Bill No. 37, "An Act relating to smoking education and cessation programs administered by the Department of Health and Social Services." Before the Committee, but not yet adopted, was a proposed committee substitute (CS) for HB 21, version 1-LS0185\H, Cook, 2/17/99 and a proposed CS for HB 37, version 1-LS0247\D, Ford, 2/22/99. Number 0106 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, sponsor of HB 21 and HB 37, said he is here to represent the 110,000 smokers in the state of Alaska on the issue of allocation of tobacco settlement monies. The amount of settlement money is $669 million over 25 years. The proposed CS for HB 21 is the allocation bill and HB 37 is the program authority bill for Department of Health and Social Services to undertake smoking control and cessation programs. REPRESENTATIVE ROKEBERG reported that in December of this year the five tobacco companies that participated in this multi-billion dollar settlement assessed a surcharge of 45 cents per pack of cigarettes to smokers throughout the United States. As of December 1998, Alaskan smokers have paid approximately $18.5 million in addition to the approximately $47.1 million from the $1-per pack tobacco tax which was instituted in the last legislative session. Additional taxes and surcharges amounting to approximately $65 million a year are being paid by the tobacco users of the state, but only $200,000 is in the current budget for smoking programs. The committee needs to put the money to equitable uses for the people who pay this money, who suffer and who have the addictions. Number 0402 REPRESENTATIVE ROKEBERG said today they will hear some numbers that will make their decision easier. He said 80 percent of the smokers in the state want to quit smoking. The lives of Alaska's smokers depend on decisions made on this bill. He hopes the committee will be the state's conscience and make a firm commitment to responsibly appropriate in a way that in the long run is fair and will benefit all Alaskans. REPRESENTATIVE ROKEBERG mentioned there are a number of support letters in the packets. Some of them refer to an $8.2 million appropriation which represents approximately 30 percent of the settlement. The proposed CS for HB 21 has a 50-50 allocation between Medicaid and smoking programs. The 30 percent figure is an approximation of the cost recommended by the Center for Disease Control (CDC) for smoking control and cessation programs in Alaska. Number 0584 CO-CHAIRMAN DYSON asked whether there were any objections to the adoption of the proposed committee substitutes for HB 21 and HB 37 as work drafts. There being no objection, it was so ordered. REPRESENTATIVE ROKEBERG clarified that the proposed CS for HB 21 has minor language changes. The proposed CS for HB 37 adds one different section that was requested in the settlement, which prohibits the sale of single cigarettes, and also lays out language that gives the authority to the department to implement smoking control and cessation programs. DOUGLAS GARDNER, Assistant Attorney General, Oil, Gas and Mining Section, Civil Division (Juneau), Department of Law, came forward to testify. He gave an overview of the tobacco settlement where Alaska and other states initiated litigation against the tobacco industry based on expenses the state incurred treating smoking-related illnesses. The claims were based on antitrust, consumer protection and other common law negligence theories. They filed the lawsuit in April 1997, and it was settled in November 1998. The settlement will result in $669 million paid out over 25 years. The first payment will be received by the state no later than June 30, 2000. He said there are a number of issues still to be dealt with. One of those issues is in SB 84, which is a model statute which will protect the state's settlement from any reductions as a result of smaller companies that did not participate in the settlement; who might want to try and sell cigarettes here taking a cost advantage of the fact they are not part of the settlement. REPRESENTATIVE GREEN asked if there would be any inflation due on the subsequent payments. MR. GARDNER answered it is a straight payment and averages about $25 million per year. He will check and get back to the committee to see if there is an inflation adjustment. He thinks there are certain provisions of the settlement that do have inflation provisions in them. MR. GARDNER continued that the settlement contemplates that states will enact a model statute. He wanted the members to be aware that SB 84 will have the effect of protecting the state against any adjustments as the result of the industries' losing market share. The bill also serves a public health purpose of preventing smaller companies from taking a cost advantage and dumping cheap cigarettes on the Alaska market. MR. GARDNER said there is currently vigorous discussion going on in Washington, D.C., regarding the federal government's position and claim related to the tobacco settlement. The Clinton Administration has taken the position that a portion, perhaps as much as 50 percent, is the federal government's share. Nationwide, the attorneys general have rejected that position, and it is their position that they sued for state dollars, not federal dollars. They sued under state law theories, and the settlement dollars are theirs. Currently there is legislation in Congress that may correct that problem, and the Clinton Administration has agreed not to make a claim on the first annual payment, so there is time for the legislative process to fix that problem. CO-CHAIRMAN DYSON asked what the small state settlement was. MR. GARDNER replied that 13 small states took the position that they should get more money than the allocation formula would yield because tobacco reduction programs have fixed costs, and smaller states are less able to bear those fixed costs than a state like California that is getting a large chunk of money every year. That view prevailed, and the state of Alaska received more money than it would have under the allocation formula as a result of those negotiations. REPRESENTATIVE ROKEBERG asked if the small state supplement was for the startup of the smoking control and cessation programs. MR. GARDNER answered that there is no limitation in the settlement that earmarks that money for that purpose; it is up to the legislature to decide how to spend the money. Smoking cessation was just one of the issues that the attorneys general were trying to deal with in that whole argument on the small state settlement. It was an argument about children's health care. One of the premises of the litigation was that the industry for years has targeted children in their advertising, and that children's health care has suffered. The objective was to bring that money to the small states in enough quantities to deal with all of those problems. REPRESENTATIVE ROKEBERG asked Mr. Gardner to explain the legal theories. MR. GARDNER explained that the legal theories advanced by his office were primarily antitrust. The antitrust act prevents companies from reaching an agreement to suppress safer products and suppress health information from being made available to the public so that they can make informed choices about what they are consuming. MR. GARDNER went on to say the state's case was also based on consumer protection violations; it is a violation of the consumer protection act for products to be marketed to persons underage and without the appropriate information for them to know what they are consuming. They also had negligence and negligence per se causes of action based on contributing to the delinquency of a minor. It is against the law in the state of Alaska to encourage a minor to break the law, and they believe that the advertising that the industry put together over the years encouraged a demand for tobacco products in persons under 19 years of age. MR. GARDNER said many states passed laws that specifically authorized the attorneys general to make a Medicaid recoupment claim, but the state of Alaska made no such claim. REPRESENTATIVE GREEN asked if Alaska is in much better shape than other states because Alaska did not have part of the settlement attached by the federal government on Medicaid repayments. MR. GARDNER said it was the Department of Law's position that it does strengthen their argument, but obviously those arguments might ultimately be tested. REPRESENTATIVE GREEN said he thought Alaska was a part of a class action against the tobacco industry, but this indicates that Alaska stood alone; he wanted to know how Alaska can be part of a class action as well as stand alone. MR. GARDNER said the term "class action" is not the best way to describe it. The small states negotiated for a settlement as a group and settled the individual lawsuits in similar ways, but they had individual lawsuits. REPRESENTATIVE ROKEBERG refreshed Mr. Gardner's recollection of the pleadings. He read a section on page 8 of the complaint which says: subsection (d) The defendants' conduct has wrongfully shifted these increased costs of the State of Alaska in the form of charges directly attributable to tobacco usage and exposure that should have been borne by the defendants, including but not limited to increased Medicaid payments. REPRESENTATIVE ROKEBERG continued reading on page 118 which says: a. Medical payments. Pursuant to AS 47.07.010 et seq., Alaska makes payments for medical care services provided to recipients of public assistance. The amount paid for Medicaid is higher than it would be due to overpayment for tobacco- related illnesses: REPRESENTATIVE ROKEBERG continued reading on page 119 which says: the present value of Alaska's Medicaid expenses attributable to smoking for the period of 1980 to 1993 exceeds $150 million. REPRESENTATIVE ROKEBERG said it seems to him that the use of the group theory of reimbursement for Medicaid expenses was also used by the state of Alaska. He asked Mr. Gardner for clarification. MR. GARDNER explained that as a result of the tobacco industry's conduct, there were some costs that the state of Alaska bore as a result of participating in the Medicaid program, but the damages sued for were not based on the Medicaid payments. The damages they were seeking were under the consumer protection and antitrust acts. He has some handouts he will make available to the committee. Number 1696 KAREN PERDUE, Commissioner, Department of Health and Social Services, came forward to testify. She reflected that it is positive to discuss doing something meaningful with these funds and commented that it is an historic settlement. She has noticed that other states are beginning to at least discuss using the funds for public health, tobacco control and cessation areas, and children's issues. COMMISSIONER PERDUE agreed that it is disturbing and shocking that the state has invested so little of the money they have already received in taxation from tobacco in the smoking control programs. $200,000 in state support is pretty low considering it is the leading cause of preventable death in Alaska. She thanked Attorney General Bruce Botelho and Doug Gardner for the amazing amount of work they put into this settlement. Number 1848 COMMISSIONER PERDUE shared the process the department went through in proposing how they would make an historic contribution with the money that is coming to the state from the settlement this year, roughly $21 million; it does increase slightly over the next few years, so there is room for additional dialogue. She referred to a chart titled, "House Bill 21 Worksheet," in the packet that shows the difference between this legislation and the Governor's current budget proposal. The department has proposed a tobacco prevention and control program of $3 million, which is a "partial way" towards a comprehensive program; nonetheless, there is a plan for the $3 million that does hit on each of the areas of school based programs, enforcement and smoking cessation. The other area that will use some of the funds in is in the health area; these funds will go mostly to the Medicaid program and other health-related costs necessary for working in the areas of protecting children and helping families in the child abuse and neglect areas. The other major area of difference is that they would invest around $5.7 million into continuation of the child protection agenda; mostly in the area of foster care, residential care and some new workers. Finally, $1.7 million would finish the work "annualizing their workers' salaries, new workers they received and some adoption funds." COMMISSIONER PERDUE said they have a more detailed approach to the $3 million that they would spend, and it would be consistent with the $8 million approach, which is the ideal approach, in that most of the money would go out to community organizations, to schools, local law enforcement and so on. There would be some funds used for evaluation and so on, but the intent is to get the money out into the communities to continue with tobacco control work; that is where kids are making their decisions about whether they want to start using tobacco. CO-CHAIRMAN DYSON said he understood that the CDC had recommended that they spend somewhere between $8.5 million and $17 million; he wondered why they had chosen not to do that. COMMISSIONER PERDUE replied that the Governor wanted to do something special with the funds but understood that there is a budget condition. It almost can be looked at as bad timing because of the demands on the money and every fiscal decision having to be reviewed. The Governor wanted to continue with the child abuse and fetal alcohol syndrome (FAS) agendas and felt that $3 million was an adequate start. He also felt that there would be a way to build on that program in the future. It was a tough choice because there were so many uses for the $20 million. REPRESENTATIVE GREEN asked if the programs covered by the tobacco settlement are add-ons to the Governor's budget. COMMISSIONER PERDUE affirmed that. REPRESENTATIVE MORGAN asked what would be the impact on rural Alaska if the other programs that were funded by the tobacco funds were not funded with general funds. COMMISSIONER PERDUE said they are all concerned how they are going to balance their budget this year and still make some progress in some of these difficult areas. She thinks that if they do not use these funds for the highest priorities, then they will see enormous pressure on parts of the budget that were not increased or were reduced. CO-CHAIRMAN DYSON said he thought Representative Morgan might be assuming that the money was coming from only this source; however, they will have funding from other sources. COMMISSIONER PERDUE agreed that these are the only increases that most of these programs would receive. REPRESENTATIVE ROKEBERG asked if the grant applications to the CDC and Federal Drug Administration (FDA) are over and above the general fund component. COMMISSIONER PERDUE answered that is correct. REPRESENTATIVE ROKEBERG asked whether those grants have been made or whether there have been applications for those grants. COMMISSIONER PERDUE said they do have some ongoing federal sources, foundation and federal dollars, and they are hoping to continue that and increase some. They wanted to show the whole program, which includes the federal dollars. REPRESENTATIVE ROKEBERG said he was concerned about the creation of more government positions funded by monies which could be used more efficiently by contracting out to existing nonprofit groups, but he wondered if the CDC has a special design for such a small state as Alaska. COMMISSIONER PERDUE answered that she thinks the CDC is interested in making sure that there is enough capacity in the state to evaluate what they are doing. There is a science to prevention, and it works. The CDC is willing to pay for some of that for Alaska. REPRESENTATIVE ROKEBERG asked how the Governor and the Office of Management and Budget are using this money. It appears to be what is referred to as off-budget because the fiscal note is a zero fiscal note. He wondered whether it is not being considered general fund revenues because it is an outside source of funds, and therefore doesn't create programmatic numbers. COMMISSIONER PERDUE said she didn't know. She guessed that it was in the budget as a tobacco settlement fund, so it wouldn't be on the fiscal note. REPRESENTATIVE ROKEBERG said the problem is the fact that they have this outside money that raises the budget at a time when they need to cut it. Number 2284 ELMER LINDSTROM, Special Assistant, Office of the Commissioner, Department of Health and Social Services, came forward to answer questions. He said this is an unusual situation for an item to be included in the Governor's budget. There is $3 million sitting in the finance committee in the budget bill for exactly this purpose, and there is a bill on this topic. The department believes that $3 million is the appropriate funding level, and in the fiscal note they simply want to reference that it is in the Governor's budget. Obviously it is in the power of the finance committee to suggest that it should be on a fiscal note on the bill, as opposed to being handled as a budget matter. His experience over the years is that the finance committee won't be bashful about choosing which way to go. Number 2238 ANNE MARIE HOLEN, Alaska Native Health Board, came forward to testify. She also represents the American Cancer Society, the American Lung Association and the Heart Association. She has been managing a small-scale tobacco control program at the Alaska Native Health Board for four and a half years. She urged the committee to support a fully funded comprehensive tobacco control program that would build on the success they are seeing with the tobacco tax, to ultimately push smoking rates below 15 percent, which is the state goal. Now the prevalence rate is 27 percent among adults, so getting from 27 percent to 15 percent represents quite a challenge. If they fail to meet that challenge, it is estimated that 4,000 young Alaskans will become daily smokers every year. That represents about two to three classrooms of children each week. Once addicted, most smokers remain addicted for years. MS. HOLEN said half of all long-term smokers will die as a result of smoking-caused disease, and half of those deaths occur in middle age. The people who started as kids typically rack up thousands or tens of thousands of dollars in medical bills for treatment of respiratory illness, heart disease and cancer attributable to smoking. Nonsmokers suffer as well. It is estimated that 7 percent of deaths among babies under a year old in this state are due to passive smoking - maternal smoking during pregnancy and smoking in the home after the baby is born. A portion of that is sudden infant death syndrome and problems related to low-infant birth weight. It does not include fetal deaths caused by maternal smoking. MS. HOLEN reported that she heard the director of the Massachusetts control program say that he believes their program has paid for itself in the cost savings just from the reduction of smoking and low-birth weight babies since their program was implemented. Smoking has been the leading cause of death in Alaska for some time, yet it is only within the past year that the state has appropriated any money toward tobacco control, and that was only $200,000 last year. Meanwhile, the state is now bringing in around $48 million a year from tobacco taxes and will soon be getting another $25 million or more a year from the tobacco settlement. MS. HOLEN mentioned that a statewide public opinion survey conducted in October found that 77 percent of likely voters feel that at least half of the settlement money should be spent on programs to reduce tobacco use. Likewise, the CDC has issued program and funding guidelines for each state and has recommended that Alaska spend between $8.7 million and $17.7 million annually for a comprehensive tobacco control program. That is a range from about one-third to two-thirds of the tobacco settlement, so the allocation of HB 21 is right in line with the CDC recommendations and the wishes of the Alaskan public. MS. HOLEN directed attention to a document called "The Alaska Tobacco Control Program, A Plan for the Future" by The Alaska Tobacco Alliance. Their plan identifies seven central components that would be coordinated to work together for maximum effectiveness. They tried to be realistic in the proposed funding levels in light of the difficult fiscal challenge now. They are proposing a program funded at $8.2 million as the minimum necessary for an effective comprehensive program. Increasing this amount to $12 or $13 million, as Representative Rokeberg has proposed, will definitely provide more impact, and it is something they wholeheartedly support. MS. HOLEN noted the three main goals of this program: to reduce initiation among youth, to help and encourage youths and adults to quit smoking and to protect nonsmokers from second-hand smoke. MS. HOLEN said community programs to reduce tobacco use illustrate the decentralized approach that characterizes the entire program. It is important to have capacity for centralized coordination and leadership, but beyond that, the idea is to get the money out of state government and into communities and organizations that can work on the front lines. MS. HOLEN reported that tobacco use in California has declined by more than 40 percent since they enacted a 25-cent tobacco tax increase and implemented a comprehensive program ten years ago. Efforts to educate community members about youth access to tobacco, second-hand smoke, the benefits of quitting and the tobacco industry are greatly enhanced by a high-profile, well-funded, ongoing, counter-marketing campaign that uses sophisticated television and radio spots or other forms of media that make people sit up and take notice. She showed videos of a few ads shown in other states and one from Alaska. MS. HOLEN said that the proposed $1 million budget for counter-marketing sounds like a lot, but they can't win without paid media. This statewide campaign is statewide, not just in a particular house district. Counter-marketing is one of the simplest and most effective things they can do within the overall program, and it greatly enhances the effectiveness of all the other activities because those messages are out there all the time. MS. HOLEN went on to say that another central component to the program is cessation services. Advice from health care providers will help, and those providers are targeted within this program. One characteristic of the cessation program is a statewide toll-free "quit line" that smokers can call to get individualized counseling and also be linked to support in the form of products: the nicotine replacement therapy, the patch, the gum, the inhaler and/or Zyban, which has been found to be highly effective. Research has shown that these products, coupled with behavioral counseling, can dramatically increase success in quitting. One- year success rates range from 30 to 60 percent, as opposed to the cold turkey method, which produces success rates of 3 to 6 percent. The help is out there, but lack of knowledge about the different options and the cost of the products are barriers to many people. This program would remove those barriers by making sure every quitter gets help and the products, regardless of the ability to pay. MS. HOLEN mentioned the other things important in the proposal: school-based programs; tobacco-free partnerships that allow some research; some innovative programs as well as core networking functions; and enforcement of state laws regarding sales, vending machines and collecting the tobacco tax. She pointed out that currently sales to minors are only being enforced in four communities. The CDC recommends that states commit 15 percent of the overall budget to management and evaluation. This proposal calls for less than 8 percent, so it is pretty lean in terms of state bureaucracy. They feel it would be a mistake to cut it any more. MS. HOLEN concluded that they know that money spent on comprehensive tobacco control programs is not wasted. It would be wonderful ten years from now to be able to produce a report on the Alaska tobacco control program that would include a graph showing a dramatic decline in tobacco use in Alaska, with statistics about lives and dollars saved in this state. She added that HB 21 and HB 37 can get there with the committee's support. REPRESENTATIVE GREEN asked Ms. Holen if three times the money spent on tobacco prevention and control would result in three times the benefits. MS. HOLEN said she was sure they would get more benefits by spending more money because the more that is spent, the more reduction will be seen. REPRESENTATIVE WHITAKER asked if the 40 percent decrease in use in California was for existing smokers who quit or new smokers. MS. HOLEN said it includes all categories: smokers who quit, fewer kids starting and people cutting back. Number 1387 CHRISTIE McINTIRE, Executive Director, American Lung Association of Alaska, testified via teleconference from Anchorage. The mission of the American Lung Association is to prevent lung disease and promote lung health. Although the tobacco settlement is weak in the public health provision, they are excited at this historic opportunity to invest in the future of Alaska. They feel the returns will be many if they support HB 21 and have a comprehensive tobacco control program funded at an adequate level. MS. McINTIRE commented that it is amazing how everyone is affected by tobacco smoke. She went on to say her mother smoked during pregnancy, and she herself was a low birth weight baby. She grew up in a home with two smokers and breathed second-hand smoke. While growing up, she was an adamant nonsmoker but became a smoker; she is now smoke-free but has asthma. MS. McINTIRE said she thinks it should be kept in mind that $200 million was given to the small states in consideration of the costs associated with implementing a comprehensive tobacco control program. Currently there is a program for $200,000, but it is not a new program. The program has been inadequately funded, and they feel that the tobacco settlement dollars coming to this state should be used for tobacco control, prevention and cessation services. The American Lung Association supports HB 21 and feels it will be a great investment in the future; these programs work. Number 1238 MICHAEL LIVINGSTON, Detective, Anchorage Police Department (APD), testified via teleconference from Anchorage. He told the committee that in 1997 the APD began sting operations by sending 18-year-old minors into stores. The APD checked 50 stores and wrote 35 tickets for sale of tobacco to minors. The clerks were fined $300, and many tobacco licenses were suspended. A check in 1998 indicated that about 4 percent of the stores were selling tobacco to minors. However, checks conducted in Anchorage in 1999 indicated that there are still many stores in Anchorage selling tobacco to minors as young as 16 years old. Even stores that were ticketed in 1997, whose tobacco licenses were suspended for 45 days, continue to sell tobacco to minors. MR. LIVINGSTON said enforcement must continue or tobacco vendors will revert to their old habits. Furthermore, funding must be provided for enforcement of tobacco laws for the police departments throughout Alaska, especially in northern Alaska, where almost 75 percent of the stores sell tobacco to kids with impunity. MR. LIVINGSTON stressed that in 1999 teen smoking has become a complex problem that is not going to be solved by one ticket written by one police officer. It demands a strong community response. He has reviewed the proposal for tobacco control, including community programs, cessation programs and enforcement, and he agrees that this multi-level approach makes excellent sense. Today the leaders in Alaska have an opportunity to dramatically impact the health, safety and education of future generations of Alaskans. He urged members to support HB 21 and HB 37. He told the committee that they have the opportunity to make Alaska the healthiest place in the world. He would like to see it supported at the $8.2 million level (30 percent level) for a comprehensive tobacco prevention and cessation program. Number 1135 REPRESENTATIVE ROKEBERG asked if there were any federal funds for the enforcement done by the APD. MR. LIVINGSTON said the stings in 1997 were done with assistance from the attorney general's office with no additional funding provided. Basically, they found the time in their busy schedules to conduct those checks. The checks conducted in Anchorage now are funded by the Food and Drug Administration (FDA). Number 1077 CHAD MORROW testified via teleconference from Anchorage. He is 18 years old and started smoking when he was 12. He quit smoking about ten weeks ago through a program offered by the Alaska Native Health Board. He said it feels great to be a nonsmoker and to breathe. He supports HB 21 and HB 37. He wanted to quit smoking before it got too hard to quit later on, and it was one of the most difficult things he has ever done. In the five week program he met people who had had laryngectomies or who have emphysema or cancer. The group of eight had to take lie detector tests to see who had smoked or not. Four of them went thirty days without a cigarette. If there were more smoking cessation programs, they might reach more teens who really want to quit smoking but don't know how. MR. MORROW stressed that people do need support in order to quit. Instead of telling people they should have never started smoking, it is better to give them support. At the time, he hadn't realized the program offered as much support as it did. He didn't notice how much he wanted a cigarette until the program was over. MR. MORROW stated that someone needs to help young people quit smoking and encourage younger ones not to start. This money from the tobacco companies could be distributed to the people who need the help. In the program, he learned the American Lung Association motto, "If you can't breathe, nothing else matters," which made him think that people just take their health for granted. He urged the committee to please fund these programs; they can help people realize that there is hope, and it is never too late to quit. Number 0936 MARY ROZENZWEIG, Executive Director, Substance Abuse Directors Association, said it is the wish of the substance abuse directors that the final bill reflect the purpose of the settlement and allocate money to tobacco-related programs and services most needed in Alaska. Tobacco is a "gateway drug," and the substance abuse directors are in support of seeing that a large portion of the dollars goes towards prevention. A successful prevention program now will reduce future expenses in both substance abuse treatments and health care. Anecdotal evidence points out that 80 to 90 percent of persons in drug treatment programs are also tobacco users. Earmarking some of the cessation dollars for programs that deal with dually addicted persons will allow targeting dollars for a population highly in need of intervention. MS. ROZENZWEIG stated that there are a number of settlement allocations that have been proposed which Commissioner Perdue has already outlined, and they support the dollars to the fetal alcohol syndrome prevention grant, the substance abuse treatment for women and children in villages, and village mental health substance abuse services. They believe these programs are in keeping with the intent of the settlement. This is just the beginning of a discussion for use of tobacco settlement dollars, and the substance abuse directors offer any assistance needed in determining the most appropriate use of the dollars. REPRESENTATIVE WHITAKER asked Representative Rokeberg about funding beyond July 1, 2000. REPRESENTATIVE ROKEBERG answered that they cannot bind future legislatures. The proposed CS for HB 21 is an allocation bill for 2000 and HB 37 gives authority which will remain in statute. Number 0734 CO-CHAIRMAN DYSON closed the public testimony and called Doug Gardner forward to present some amendments to the proposed CS for HB 37. DOUG GARDNER reported there has been a problem in the country as a whole, called the gray market problem, which is when cigarettes come back into the United States that are marked "for export only." The cigarettes do not have the same formulation of tobacco, they may have different nicotine levels and different chemicals, and they don't have the FDA health warnings on them. In Representative Rokeberg's bill, the attorney general's office saw an opportunity to address the gray market issue within the context of the tobacco endorsement and licensing statute. Amendment 1 would prohibit somebody that holds a tobacco endorsement from selling a product that is labeled "For Export Only" or "U.S. Tax Exempt" or that is destined for a market outside the United States. Amendment 1 would read: Page 1, line 4: Delete "a new subsection" Insert "new subsections" Page 1, following line 8: Insert new subsections to read: "(h) A person who is required to hold a business license endorsement issued under this section, or an agent or employee of the person, may not sell cigarettes, as that term is defined in AS 43.50.170, if the cigarette package (1) does not comply with all of the requirements of 15 U.S.C. 1331 - 1341 (Cigarette labeling and Advertising Act), as amended, for the placement of warnings or of any other information upon a package of cigarettes that is sold within the United States; (2) is labeled "For Export Only," "U.S. Tax Exempt," "For Use Outside U.S.," or with similar wording indicating that the manufacturer did not intend that the product be sold in the United States; (3) has been altered by masking or deleting wording described in (2) of this subsection. (i) A violation of provisions of (g) or (h) of this section is an unfair or deceptive act or practice under AS 45.50.471." Number 512 CO-CHAIRMAN DYSON asked if Mr. Gardner wanted state law to cover this since, it is already covered under federal law. MR. GARDNER said it is covered to some degree under federal law. The Federal Trade Commission (FTC) is charged with the enforcement of the cigarette warning label issue, and technically cigarettes coming back into the United States without that warning are not supposed to be sold here. The FTC has never been challenged on such a broad scale before in an enforcement effort, and it has asked for help to buttress the efforts. REPRESENTATIVE ROKEBERG said if he can accommodate the administration and have more oars pulling on this bill, he has no objections. CO-CHAIRMAN COGHILL asked if there is any problem between federal and state jurisdiction in enforcing this. Number 0371 MR. GARDNER said he doesn't believe there would be any problem there. The objectives are the same; they go about it in a slightly different way, but their efforts should dovetail without any conflict. REPRESENTATIVE GREEN asked what happens when someone is selling cigarettes in violation of federal and state laws. Number 0222 MR. GARDNER said all the mechanisms for enforcement are civil remedies. The Division of Occupational Licensing could take a licensing action. In addition, the consumer protection act there are penalties for violations which could potentially result in a $5,000 fine for each violation. He would say that if they had a consumer protection violation filing against the violator in superior court, it would have their attention quickly, and they would be able to stop the problem. TAPE 99-19, SIDE A Number 0001 CO-CHAIRMAN DYSON asked whether there were any objections to Amendment 1. There being none, Amendment 1 was adopted. Number 0027 MR. GARDNER went on to amend Amendment 1. The Department of Revenue had suggested that subsection (h) be amended by adding the words "or possesses" between "sell" and "cigarettes", so that the subsection (h) would read: Page 1, line 6 "(h) A person who is required to hold a business license endorsement issued under this section or an agent or employee of the person, may not sell or possess cigarettes, as that term is defined in AS 43.50.170, if the package" MR. GARDNER also proposed adding a new subsection (j), which would read: Page 1, line 20: "(j) The commissioner, or commissioner's designee may seize, destroy or sell to a manufacturer, for export only, cigarettes with packages that don't comply with (g) and (h) above." Number 0152 CO-CHAIRMAN DYSON labeled that Amendment 2. He asked if there were any objections to the amendment to the amendment which inserts the words "or possesses" in line 7 between "sell" and "cigarettes". and adds a new subsection (j) on line 20 of HB 37. He said he himself would object to the words "or sell" in there and asked what the will of the committee is. REPRESENTATIVE GREEN asked Mr. Gardner why the words "or sell" are in the bill. Number 0287 MR. GARDNER indicated that the intention is to get the gray market cigarettes out of the country by getting them back into the hands of the companies who will do that. If, for example, they find some Marlboro "for export only" cigarettes, Phillip Morris would be more than happy to get rid of those cigarettes and get them back into an export stream of commerce. They don't want the cigarettes to remain in the state or be transferred to another state; they want a mechanism to get rid of them. MR. GARDNER expressed his understanding that Co-Chairman Dyson doesn't like the idea that the state might sell the cigarettes to generate revenue to offset the enforcement costs, but those are the ways that the attorney general's office thought they could get them back into the stream of commerce. CO-CHAIRMAN COGHILL said he also would be in favor of taking the "or sell" out for that particular reason. REPRESENTATIVE WHITAKER asked whether it is correct that if the "or sell" provision is taken out, then the cigarettes would be destroyed. CO-CHAIRMAN DYSON answered yes. Number 0525 MR. GARDNER proposed changing the amendment to subsection (j) so that it would read: "(j) The Commissioner or commissioner's designee may seize and destroy cigarette packages that don't comply with (g) and (h) above." Number 0552 CO-CHAIRMAN DYSON asked whether there were any objections to Amendment 2 [relating to subsection (h) and (j)]. There being none, Amendment 2 was adopted. Number 0641 MR. GARDNER offered a third amendment for Section 1 of the proposed CS for HB 37. He proposed the addition of the words "or is required to" on page 1, line 5, so that it would read: (g) A person who is required to hold a business license endorsement under this section, or an agent or employee of the person, may not sell or possess cigarettes to another person unless the cigarettes are sold in groups of at least 20 and the cigarettes are in the manufacturer's original cigarette pack or contained in a cigarette carton or box. Number 0699 CO-CHAIRMAN DYSON asked whether there were any objections to Amendment 3. There being none, Amendment 3 was adopted. CO-CHAIRMAN DYSON called an at-ease at 4:48 p.m. and called the meeting back to order at 4:55 p.m. Number 0775 REPRESENTATIVE ROKEBERG referred to a proposed a conceptual amendment requested by the Department of Commerce and Economic Development. He said it makes two changes in AS 43.70.075, License endorsement. In the first line of the subsection (a) it would remove the word "has" and insert "who is required to hold". This is consistent with what the attorney general indicated, and it is in the same section of the law. It indicates that a person is supposed to have a business license, not just the fact that they had a business license. Additionally, under subsection (d), after the word "endorsement", it would add "and the right to sell tobacco products". Number 0861 CO-CHAIRMAN DYSON asked whether there were any objections to Amendment 4. There being none, Amendment 4 was adopted. Number 0999 REPRESENTATIVE ROKEBERG offered a fifth amendment requested by Commissioner Perdue. On page 2, line 14 it would add the words "grant or" after the word "by"; and on line 15, it would add "or other" after "nonprofit". Subparagraph (15) would read: (15) a comprehensive smoking education, tobacco use prevention, and tobacco control program; to the maximum extent possible, the department shall conduct the program required under this paragraph by grant or contract with nonprofit or other organizations in the state; REPRESENTATIVE ROKEBERG explained that this would allow the department to expand beyond a contract into a grant of monies and include other organizations besides nonprofit organizations. Number 1057 REPRESENTATIVE GREEN made a motion to adopt Amendment 5. CO-CHAIRMAN DYSON asked whether there were any objections to Amendment 5. There being none, Amendment 5 was adopted. Number 1072 REPRESENTATIVE ROKEBERG commented that all these amendments before the committee were not at the request of the bill sponsor but by the Administration. Number 1109 REPRESENTATIVE GREEN made a motion to move CSHB 37, version 1-LS0247\D, Ford, 2/22/99, as amended, out of committee with individual recommendations and zero fiscal note(s). There being no objection, CSHB 37(HES) moved out of the House Health, Education and Social Services Committee. Number 1113 CO-CHAIRMAN DYSON noted that the proposed CS for HB 21 is the appropriations bill and is under the purview of the finance committee. The Department of Health, Education and Social Services had deferred debate to the finance committee. Number 1158 REPRESENTATIVE GREEN made a motion to moved CSHB 21 version 1-LS0185\H, Cook, 2/17/99 out of committee with individual recommendations and zero fiscal note. There being no objection, CSHB 21(HES) moved out of the House Health, Education and Social Services Committee. [CSHB 37(HES) moved out earlier.]