HB 299-EXTEND: ALCOHOLIC BEVERAGE CONTROL BOARD  4:01:08 PM CHAIR KITO announced that the next order of business would be HOUSE BILL NO. 299, "An Act extending the termination date of the Alcoholic Beverage Control Board; and providing for an effective date." 4:01:23 PM LAURA STIDOLPH, Staff, Representative Adam Wool, Alaska State Legislature, introduced HB 299 on behalf of Representative Wool, prime sponsor. She explained that the proposed bill would extend the Alcoholic Beverage Control (ABC) Board by four years to June 30, 2022. She paraphrased the Legislative Budget and Audit (LB&A) conclusions, which read as follows: The Alcoholic Beverage Control Board (board) is a regulatory and quasi-judicial board consisting of five members appointed by the governor, created for the purpose of controlling the manufacture, barter, possession, and sale of alcoholic beverages in the state. The board consists of one member actively engaged in the public safety sector, one from the general public, one who has resided in a rural area within the last five years, and two actively engaged in the alcoholic beverage industry. The audit concluded the board should improve its procedures for issuing renewals, recreational site licenses, and beverage dispensary licenses that encourage tourism. Testing found these licenses were not consistently issued in accordance with statutes. Additionally, operational improvements are needed in enforcing laws, monitoring board-related local law enforcement activity, and processing refunds to municipalities. 4:02:52 PM KRIS CURTIS, Legislative Auditor, Legislative Audit and Budget, Legislative Agencies and Offices, presented the sunset audit findings for the ABC Board. The audit found the board had operated in the public interest in all areas except licensing. There was a need to improve the board's procedures for issuing renewals, recreational site licenses, and beverage dispensary licenses for the purposes of encouraging tourism. Additionally, operational improvements are needed in enforcement of laws, monitoring local law enforcement activity, and processing refunds to municipalities. She read from the November 2017 audit [included in committee packets] as follows: AMCO [Alcohol and Marijuana Control Board} investigators have stopped conducting compliance checks as of April 2015. The board, through AMCO investigators, has historically conducted compliance checks where investigators employ underage individuals who attempt to purchase alcoholic beverages. Licensees who fail a compliance check receive criminal summons or citations. According to management, the federal grant funding for this program was terminated at the end of 2012, and the board received supplemental funds to keep the program going through June 2014. AMCO's enforcement section continued to conduct compliance checks funded by program receipts until April 2015. Although there is no statutory or regulatory requirement to conduct compliance checks, AMCO management reported it is an integral part of the enforcement of alcoholic beverage laws and is evaluating alternative means for providing the enforcement through shared services with other agencies. The audit noted the board and AMCO management have not established a written enforcement plan to direct its limited enforcement resources. For example, the board has not formally established how often licensed premises should be inspected. Furthermore, the control office does not monitor and track all complaints to ensure complaints are assessed for follow up action and investigated in a timely manner. 4:05:26 PM MS. CURTIS added that the board and AMCO staff had not maintained a list of restricted purchasers within the statewide database in accordance with statute, potentially allowing individuals who have been convicted of illegally selling alcohol to continue to purchase alcohol via written order. MS. CURTIS listed the eight recommendations in the audit. The audit recommended the authority to renew licenses be limited to the board to comply with statutes. The audit again recommended that the board issue recreational site licenses in accordance with statutory requirements. This was the second such recommendation and had been given in the prior sunset audit. Ten of the 29 recreational site licenses had been tested, and it was found that all 10 did not meet the definition of a recreational site. She gave the list of recreational sites, including baseball games, car races, hockey games, dog sled racing events and curling matches held during the season. The non-compliant licensees the audit had found included travel companies, bowling alleys, an arts council, a pool hall, a movie theater, and a spa. Board members were aware that they were issuing those licenses not in accordance with statute, but believed it was in the public's best interest to continue to do so. The board thought the issue would be addressed in a future re-write of the statute. MS. CURTIS spoke to the recommendation that the board issue beverage dispensary licenses in accordance with statutory requirements. The audit sampled 16 of the 126 beverage dispensary licenses that encourage tourism and found that 5 were transferred and 6 were renewed despite not meeting the statutory requirements. She explained statutes give the board authority to issue a beverage dispensary license without regard to population limits if it appears that the issuance will encourage tourism. She added that statutes also provide for a minimum rental room rate, and, in the areas examined, the entities did not meet the minimum rate. The board believed it was appropriate to continue to issue those licenses as the original licenses had been issued prior to 1985. However, there is no statutory provision to grandfather licenses. 4:08:54 PM MS. CURTIS continued to list the LB&A recommendations. The audit recommended the board, the AMCO director, and the enforcement supervisor work together to formally establish an enforcement plan to direct AMCO's limited enforcement resources. The audit further recommended the board and AMCO director implement a process to monitor and track complaints to ensure they are assessed for follow-up action and investigated in a timely manner. The sixth recommendation was that the board and the AMCO director develop written procedures for updating the statewide database with restricted purchasers. Procedures should include working with the court system to receive reports of violations in a timely manner. The audit recommended the board and AMCO director improve procedures to ensure municipalities report violations of alcoholic beverage laws. Finally, the audit recommended the AMCO director develop and implement procedures to ensure refunds to municipalities are appropriately reviewed. 4:11:33 PM MS. CURTIS stated LB&A was recommending a 4-year extension for the board. The department concurred with all recommendations except recommendation 1 regarding the authority to renew licenses. The board believed there is an alternative interpretation of statute. The board chair concurred with all but recommendation 3 concerning beverage dispensary licenses which encourage tourism. The board maintained it is appropriate to continue to grandfather those licenses. Ms. Curtis explained that when an auditee does not agree with any recommendation, she responds in the audit findings. In this instance, the board chair was unable to provide more information for her to consider. She therefore reaffirmed the findings. 4:12:50 PM REPRESENTATIVE JOSEPHSON asked whether the boards ever report to the state about the lack of resources. MS. CURTIS replied that the ABC Board was different from other boards in not being an occupational licensing board. The board's response acknowledges the need for an enforcement plan and some sort of prioritization due to limited resources. REPRESENTATIVE JOSEPHSON asked what the board needed to do to fix the information gap with the court system. MS. CURTIS answered she thought that it was as simple as asking the court system to send in the information. 4:15:21 PM REPRESENTATIVE BIRCH asked about efforts to receive feedback from licensees regarding the board's operations. MS. CURTIS answered that at times surveys were sent out to ABC stakeholders. The audit also examined board meeting minutes to determine whether the public was commenting and how those comments were considered by the board. She deferred to the board chair for more information. 4:17:37 PM REPRESENTATIVE KNOPP remarked the audit had triggered a lot of discussion, including the proposals of HB 301 and HB 265. He asked whether it was not more appropriate to decide that the statute "doesn't fit," and he said he thought that it made sense to return to pre-1985. MS. CURTIS replied it was outside of her role as auditor to comment on the appropriate nature of statute. CHAIR KITO added that he thought it made sense for the legislators to examine legislation that may no longer "fit." REPRESENTATIVE KNOPP spoke to the population base and said he thought there were different distinctions for incorporated areas of the boroughs. He asked why the population base was not taken out of the incorporated areas. MS. CURTIS said she did not know which areas were examined. She specified that the analysis was applied to a sample group of the 126 licenses. REPRESENTATIVE KNOPP asked whether, with separate sections for incorporated areas, it made sense to exclude the population base. MS. CURTIS said she did not know if she could address that issue. She stated the auditors had not had trouble interpreting the criteria and asked whether he was questioning why the statute was written the way it was. REPRESENTATIVE KNOPP said, "if it was meant to be all inclusive incorporated cities inside an organized borough, we would never have put the exclusions for the incorporated cities in there, so we should only be counting the unorganized areas of the borough." He said he thought that was not what was done in the audit. 4:23:03 PM MS. CURTIS deferred to the auditor who carried out the testing. 4:23:19 PM CHRISTINE LUMBA, Legislative Auditor, Legislative Audit and Budget, stated she was not sure she has an answer for that. 4:23:47 PM CHAIR KITO asked whether she was able to describe how the audit was tested. 4:23:57 PM MS. LUMBA answered that the division had generated random samples and found that certain licenses were issued without regard to population limits to encourage tourism. When the renewal came up, they were evaluated under AS 04.11.400(d). 4:24:31 PM REPRESENTATIVE KNOPP responded that he would contact the division in person later. 4:24:48 PM MS. CURTIS remarked that LB&A had vetted the findings with the ABC and AMCO Boards and they had no issue with the criteria or methodology. 4:24:59 PM REPRESENTATIVE WOOL commented on an inconsistency in the number of rooms required for licenses in different areas. He went on to ask about qualifications for enforcement officers. MS. CURTIS deferred to AMCO. 4:26:44 PM ERIKA MCCONNELL, Director, Alcohol and Marijuana Control Office, Department of Commerce, Community, and Economic Development (DCCED), answered that the board's enforcement officers were classified as special investigator I, requiring four years of advanced level investigative work or four years of full-time law enforcement experience. She specified that all the board's current officers were previously law enforcement officers. REPRESENTATIVE WOOL said he felt that the ABC board and AMCO office staff were overworked. He disclosed that he is a license holder and has had trouble reaching the office via telephone. He asked whether the addition of marijuana [control enforcement] to the workload was something "they could do comfortably." MS. MCCONNELL answered that there had been an adjustment period as the office had taken on the marijuana program. It had grown incrementally to accommodate the marijuana board and had also seen a great deal of staff turnover. She remarked that the office had heard other people complain that it can be difficult to reach staff, and the office had developed policies to ensure it was more responsive. 4:29:50 PM REPRESENTATIVE WOOL asked how many enforcement officers were currently employed by the board. MS. MCCONNELL replied there is one special investigator II in Anchorage and seven enforcement officers. REPRESENTATIVE WOOL remarked that there were 1,885 alcohol licenses requiring enforcement and a growing number of marijuana licenses. He spoke to one of the recommendations that the board carry out license renewals whereas currently the AMCO office was doing that. He asked for her thoughts. MS. MCCONNELL replied that as noted in the audit response, AMCO felt that statutes can be interpreted differently, but it had agreed to adjust its procedures based on the audit. She added that AMCO had taken 350 renewals to the board. However, they were not providing the board with all the paperwork. The renewals provided to the board were those which had met the requirements for renewal. 4:31:46 PM REPRESENTATIVE WOOL said he felt renewing 900 licenses was a lot of work for the board. He asked whether the director having a tie-breaking vote was something that existed in other boards. MS. CURTIS replied that she was not aware of the policy. REPRESENTATIVE WOOL directed his question to Ms. McConnell. MS. MCCONNELL answered that the Marijuana Board did not have that policy. REPRESENTATIVE WOOL mentioned that in discussions with staff in the licensing areas, it was disclosed that the vote was in statute which had been repealed but had remained in regulation. He asked for confirmation from LB&A. MS. CURTIS replied that it was not a topic in the audit. 4:34:05 PM CHAIR KITO stated he thought it may have been a decision that had come up post-audit. 4:34:49 PM ROBERT KLEIN, Chair, Alcohol and Beverage Control Board, Alcohol & Marijuana Control Office, Department of Commerce, Community, and Economic Development (DCCED), testified in the hearing on HB 299. He complimented the LB&A for the thorough job on the audit. He said he agreed with recommendations 4-8 and the board had already implemented a number of them. Regarding renewals, he stated the law said the board was the only group that could grant renewals, so at the January 23 board meeting they had staff bring around 300 renewals to them. He stated it was onerous, but that staff had done a lot of homework. MR. KLEIN spoke to recreational site licenses, specifying the board does not grant any recreational site licenses that do not follow the statute requirements very closely and only renews practicing businesses. He mentioned that the board was waiting for SB 76 to move through the legislature. If the proposed bill passed, the board would comply, otherwise it would address how to avoid renewing some of the licenses. He addressed the recommendation regarding tourism, indicating that in the application of Title 4, the board looked at licenses granted before 1985 and applied common sense. The board did not want to ask those holding tourism licenses to build more rooms because the population increases and had not taken that action. In closing, he stated that he supports the 4-year extension in the proposed legislation. 4:38:56 PM REPRESENTATIVE BIRCH extended his personal appreciation for the services and support the ABC Board had provided to Alaskans. He asked whether there was anything the legislature could do to ensure that common sense prevails. 4:39:44 PM MR. KLEIN remarked that the application of common sense was what had enabled Title 4 to exist for almost 40 years. 4:40:00 PM REPRESENTATIVE KNOPP spoke to the rejection of the reinstatement of an alcoholic beverage license to a well-established Elks Lodge. He said he felt the ABC Board had been following the intent of the law but asked whether the board could not have used discretion. 4:40:59 PM MR. KLEIN answered that the people responsible for renewing the license chose to ignore the requirements to apply for the renewal and had missed all the deadlines. He underlined the action taken by the board did not preclude the lodge from re- applying for the license. 4:41:51 PM REPRESENTATIVE STUTES asked how many members are on the ABC Board. MR. KLEIN replied there are five members on the board. 4:42:07 PM REPRESENTATIVE WOOL remarked that the five board members were selected for different roles. He asked whether the director had a tie-breaking vote and whether it was ever used. MR. KLEIN answered that he was against applying the tie-breaking vote of the director. He added that the board had dropped the legislative aspect of the director having the tie-breaking vote. He clarified that the board was quasi-judicial in nature and that at times the director was the prosecutor in the cases that come before the board. He said he thought the regulation was left in the statute inadvertently. REPRESENTATIVE WOOL asked whether the board can keep up with the 900 license renewals every year. 4:44:04 PM MR. KLEIN answered there was an efficient way for the staff to review renewals. There was a public process as well as a series of checks and balances in the system. He added that by the time the five members of the board review a renewal, the renewal has gone through those hurdles. 4:44:53 PM REPRESENTATIVE JOSEPHSON asked whether the director of AMCO cast a tie-breaking vote relying on a regulation that was previously connected to a statute. He added that the statute had been repealed, and he said he thought it was a standalone regulation. He asked whether people were questioning the legitimacy of the vote. MR. KLEIN answered that the tie-breaking vote has not been used in his experience and has not been used in many years. It was brought up in a meeting because the regulation had been found. He added the assistant attorney general who supports the board suggested it might be difficult to defend should any lawsuits be brought forward. 4:46:11 PM CHAIR KITO opened public testimony on HB 299. 4:46:29 PM WILLIAM HARRINGTON testified that he does not think the alcoholic beverage industry needs a control board. 4:48:15 PM CHAIR KITO announced he would leave public testimony on HB 299 open. CHAIR KITO held over HB 299.