SB 127-VEHICLE TRANSACTION AGENTS  8:08:51 AM CHAIR LYNN announced that the first order of business was SENATE BILL NO. 127, "An Act authorizing the commissioner of administration to enter into agreements with agents to perform for compensation certain transactions related to vehicles; relating to the duties of those agents; and providing for an effective date." 8:09:46 AM FORREST WOOLFE, Staff, Senator Cathy Giessel, Alaska State Legislature, stated that the proposed House Committee Substitute (HCS) for SB 127, Version 28-LS1263\C, Strasbaugh, 3/26/14, would "clean up some of the language" in SB 127 by changing some uses of the word "may" to "shall". He said it would allow the Division of Motor Vehicles (DMV) "to honor the current agreements while the department promulgates and adopts regulations" and "to begin providing the 15 percent retained commissions on the effective date of the bill, without waiting for enabling ... regulations." 8:10:21 AM SENATOR CATHY GIESSEL, Alaska State Legislature, as prime sponsor, presented SB 127. She said the proposed legislation would continue the support of a strong private/public partnership in the DMV. She related that ten years ago, the concept of making the division more available, convenient, and responsive was made a reality. She explained that at that time, Advanced Business Partnerships (ABPs) were formed to handle the following for the DMV under contract: vehicle titles and renewals; registration renewals; duplicate registrations; lost license plates; lost tabs; transfers of plates; and driving record transactions for truck drivers, among other functions. She stated that the ABPs are run by car dealerships and private companies located across the state; the locations and hours are convenient, and the service is prompt. SENATOR GIESSEL said the process is also used by the Alaska Department of Fish & Game (ADF&G), which uses ABPs to issue fishing licenses in convenient locations. The difference is that ADF&G allows the stores that sell fishing licenses to retain a small fee from the cost of each license, in order to cover the cost of the personnel selling the licenses. She said the DMV does not allow its business partners to do that; all of the costs of conducting business for the DMV is incurred by the APBs. A few of the private businesses charge the consumer a separate fee in order to cover their costs. 8:12:47 AM SENATOR GIESSEL said the concept of having ABPs sell services for the DMV has resulted in a huge shift in the number of customers who go to the DMV. She directed attention to a graph included in the committee packet, labeled, "DMV Revenue Sources FY97-FY07," which she said indicates a rise in the number of people using ABPs and a subsequent decline in the number of people seeking the same services from the DMV. She said consumers prefer the more convenient hours and locations available through the ABPs. Currently, the ABPs are doing more than 25 percent of the DMV's work. She stated that the goal of SB 127 would be to allow the ABPs to retain some of the fee to cover their costs, because they have to provide the facilities and pay for utilities, printers, office supplies, credit card systems, computers, and personnel. She said the transactions performed for the DMV are more complex than those performed by vendors selling fishing licenses for ADF&G, which means it costs more. 8:14:11 AM SENATOR GIESSEL said under SB 127, the ABPs providing DMV services would be allowed to keep 15 percent of the fee, and the rest of the fees would be passed on to the DMV. She pointed out that there are 16 communities that charge a local motor vehicle tax, and the ABPs collect that tax for the local governments. She said all that tax money is sent to the DMV, which retains 8 percent of it and sends the rest on to the local governments. She said calculations show that ABPs are doing over 336,000 transactions per year for the DMV. She said if the DMV covered the 336,000 transactions, it would have to hire 32 new state employees, which means the local businesses are doing the work of 32 employees. Senator Giessel pointed to the fiscal note, and she explained that it reflects a cost just under $2 million, which is zeroed out by the just under $2 million it would cost to hire the 32 employees, without the cost of hiring the three supervisors for the 32 employees included. She said it is virtually a zero fiscal note. 8:16:19 AM SENATOR GIESSEL said SB 127 would support the continuation of convenient services, hours, and locations for the public to access DMV services outside of the DMV. She stated, "It's a small step toward reducing the size of state government." 8:16:42 AM SENATOR GIESSEL, in response to Chair Lynn, stated that there are a total of 48 ABPs: 11 are stand-alone private businesses, and 37 are automobile dealers. CHAIR LYNN recollected that the last time he purchased a vehicle, he was given a choice of going to the DMV for registration or having the dealer take care of it for him. CHAIR LYNN opened public testimony. 8:18:07 AM TIM TOTH, Vice President, Alaska Auto Dealers Association, offered a background on the current sales environment of dealerships. He indicated that auto dealers were involved in a class action lawsuit - regarding wage and overtime - that they lost, because the judge followed the letter of the law rather than the spirit of the law. He relayed that the dealers in Alaska are paid in the same manner in which the dealers in the Lower 48 are paid. He said another class action lawsuit has begun, which will cost the dealerships in expenses. MR. TOTH said dealerships incur many expenses, including those for property taxes, utilities, health care, and in responding to the demands from manufacturers to maintain a standard in facilities. He said more dealerships have been entering the market, which "splits the pie a little bit thinner." He said it is getting increasingly difficult to absorb all the costs of doing business. He said he does not know who initiated the dealerships' involvement with collecting fees for the DMV. He stated that the 15 percent, which auto dealerships that offer DMV services would stand to get under SB 127, would not cover all the extra costs, but would "help some." He opined that the best option for the dealers would be to give the burden back to the state; however, they have decided they will take on "some of that burden" because it provides a convenience to their customers. He emphasized the importance of the proposed 15 percent, because some of the dealers have said they are not willing to continue the program anymore without it. 8:22:00 AM MR. TOTH, in response to Representative Isaacson, said if auto dealers decided not to participate in the program any longer, then the burden would be shifted back to the state as it was in the past. In response to a follow-up question, he reviewed that years ago, the application for title and registration would be printed out at the dealership, and at the end of business, a courier would bring those applications to the DMV, which had a special section that would accept them. REPRESENTATIVE ISAACSON observed that the DMV-related service offered by the car dealerships was convenient for the customer, and the proposed legislation would allow the continuation of that benefit, to which consumers have become accustomed. MR. TOTH confirmed that Representative Isaacson was correct. He reiterated that the proposed 15 percent would not cover all the costs the dealers incur for offering these services, but dealers are willing to make up for the rest of it to provide the convenience to their customers. 8:24:36 AM REPRESENTATIVE GATTIS asked if the dealers have the option to say they do not want to offer the DMV services. 8:25:04 AM MR. TOTH said he does not know. He said most dealers he knows have DMV clerks; however, he does not know whether that resulted from a state mandate. REPRESENTATIVE GATTIS asked the prime sponsor if she knew the answer. She said she is pro-private business and is willing to pay extra to have a service available that will allow her not to have to stand in line for a service; however, she would not want a car dealership to be forced to offer the service. 8:26:23 AM SENATOR GIESSEL ventured that offering the service is optional for car dealers, based on the information that there are 37 auto dealers that provide the service currently, and there are more than 37 dealers in state. 8:26:49 AM MR. TOTH clarified that the auto dealers do not charge extra to the customer for the DMV services they provide. In response to Representative Gattis, he surmised that the dealers could charge an extra fee; however, he would be fearful that doing so may result in litigation. 8:28:08 AM TROY JARVIS, Alaska Auto Dealers Association; Lithia Auto Dealers, stated that he was born and raised in Alaska and has been in the auto business for over 35 years; therefore, he knows what it was like before the dealers offered the DMV services and the effects of doing so now. He said the [participating] dealerships have been offering the services for free for 10 years, and during that time, their expenses have risen and margins have shrunk. He echoed Mr. Toth's statement that the 15 percent that would be offered the dealers under SB 127 would only cover a portion of those expenses. He indicated that the dealerships are still willing to bear the remaining expense, because they feel "it's a good value for the state" and is part of good customer service both for car dealership customers and DMV customers. MR. JARVIS asked if anyone recollected the hours of waiting in line at the DMV ten or more years ago. He opined that it was a nightmare to go to the DMV back then. He said the dealerships need the support of the state, and without it would consider giving the burden back to the state. He echoed the joint sponsor's remarks about the 32 people that the DMV would have to hire and the associated expense of doing so, and he added that that expense would only increase in the future. Further, he suggested that the hiring of that many people would take time, during which the wait time at the DMV would return to how it was in the past. He characterized [the 15 percent offered under SB 127] as a "fair compromise for everybody." MR. JARVIS, in response to the previous comments about charging customers at the dealerships extra to provide the DMV services, said he would not want to do that, because the public already has the perception of car dealers as making profits, so charging for the service would not be good for customer relations. He indicated that the dealerships would most likely choose to hand the service back to the state before it would consider charging its customers for it. CHAIR LYNN remarked that it is okay to make a profit, because that is what businesses are supposed to do. 8:32:17 AM MELISSA CUCULLU, General Manager, Alaska Tags and Titles, echoed the prime sponsor's testimony that the private sector provides the staff, facilities, technology, and office supplies to process transactions for the DMV. She said the transactions create millions of dollars for the State of Alaska. She said the proposed legislation would allow the businesses to hire additional employees, open new facilities, operate extended hours, and create more options for Alaska residents, while helping the businesses offset the incurred credit card fees. She said SB 127 is about fairness and is a winning answer for the state, the private businesses, and the public. 8:33:21 AM AVES THOMPSON, Executive Director, Alaska Trucking Association (ATA), said ATA is a statewide association representing the interest of its nearly 200 member companies from across the state. The association is also a business partner with the DMV. He stated support of SB 127. He relayed that ATA was approached [by the DMV] in late December, 2006, to find out if ATA was interested in becoming a business partner. He said ATA thought that the partnership could benefit its trucking members to facilitate the handling of its members' DMV transactions. He said not only ATA members, but also the general public that walks into its offices has benefited. Mr. Thompson said about half of ATA's customers are commercial vehicle operators, while the other half are walk-in personal vehicle operators. He stated that the association member companies enjoy prompt service, and "members pay a lower fee for our DMV services." He said ATA's walk-in customers are a cross section of the Anchorage population, and they receive service from ATA that is "generally prompt, friendly, supportive, and helpful." He said ATA's customers appreciate the extra effort the association puts into the transactions "to make the DMV experience a little more user friendly." MR. THOMPSON said ATA feels that asking the DMV to pay a modest 15 percent commission is a value for the work for which business partners [currently] receive no compensation. He clarified, "Every workday since 2006, we've processed transactions for the State of Alaska with no compensation, other than the nominal service fee that we charge our customers." He said the DMV provides some supplies, including title and registration forms, tags for the license plates, and the license plates themselves; however, it has been the business responsibility of the ATA to provide and pay for the following: personnel, reception space, secure office space, dedicated computer systems, technical support, copiers, paper, postage, and credit card fees. MR. THOMPSON said ATA's business has grown over the years, and compensation became an issue when the association realized that more income was needed to finance its growth. He said ATA has had to borrow money to make the payment schedules to the DMV, and he offered his understanding that ATA has not missed a settlement deadline since 2006. He reported that in 2013, ATA processed more than 11,000 transactions for the DMV and generated revenue of more than $1.6 million in fees and local taxes, which means that ATA is not only a revenue generator for the State of Alaska, but is also a tax collector for local governments. He said, "Our calculations indicate that of the $1.6 million, we generated a total of more than $1.1 million in fee revenue for DMV." 8:36:37 AM MR. THOMPSON paraphrased the page in the committee packet from the prime sponsor labeled, "SB 127 Vehicle Transaction Agents Explanation of Changes," which read as follows [original punctuation provided]: The change between version C and version A of SB 127 is simply to allow the DMV to honor the current agreements during the time it takes for the department to promulgate and adopt regulations covering the agreement prerequisites and provisions set out in this statute. It will allow the department to begin providing the 15% retained commissions to the Business Partners on the effective date of the bill without waiting for enabling regulations. This language is clear in that all proceeds, with the exception of municipal taxes or other fees, are eligible for the 15% retained commissions. MR. THOMPSON added that the changes would also provide a 15 percent retained commission rather than a sliding scale. He indicated that ATA believes the business partners are providing valuable service, without increasing operating costs. Further, he said ATA believes that the DMV's business partners should be compensated for the service they provide for the state. He said, "It boils down to sharing the revenue with the partner that generates the revenue." He urged the committee to support SB 127. 8:37:58 AM AMY ERICKSON, Director, Division of Motor Vehicles, Department of Administration, confirmed that the DMV has been partnering with businesses to conduct title and registration transactions since "the 2000s." She said the partnerships comprise DMV services storefronts, car and snow machine dealerships, credit unions, and banks. She said the DMV provides its business partners with all the necessary supplies to conduct title and registration transactions, including license plates, month and year tabs, forms, commercial, non-commercial, and motorcycle driver manuals, as well as handicap placards - all free of charge. The DMV further provides free training to process transactions, as well as free access to the DMV database. She said the business partners charge fees for their services that are not regulated by the DMV. MS. ERICKSON relayed that while the business partners make up approximately 26 percent of the DMV's revenues, the businesses do not function autonomously; the DMV still touches each transaction conducted by a business partner. In fact, she noted, each DMV transaction has three separate components, which must be completed before it's closed out: The first component is the initial transaction where fees are collected; the second is the auditing to verify the receipts of all information and that the forms have been filled out correctly; and the third is the reconciliation to verify that all [fees] were received and put into the correct fee code. She said business partners conduct about 30 percent of the transaction, whereas the DMV conducts about the other 70 percent. She said the DMV has a staff of seven people dedicated to support the everyday operations of the business partners; it serves as the "de facto help desk," spending hours proofing and correcting documents. When errors have been made, the DMV uses its resources to resolve them. She stated that the DMV is shifting into using more on-line transactions. Currently, approximately 48 percent of all its vehicle transactions are conducted on line, and the DMV is working on legislation to provide even more services on line. 8:40:09 AM DUANE BANNOCK stated that he was a champion of the business partnership program in his former career as a state bureaucrat, and remains so in his current "financial affiliation with a small used car operation." He said, "We use a business partnership exclusively to perform our customers' title and registration work - not putting that on the burden of the local DMV office." He indicated that the major purpose behind the ABP expansion was to offer, as a courtesy, time-saving convenience to Alaska residents who must go to a DMV office; it was designed as a time-saving effect, not a cost-saving effect. He referred to the past testimony relating the long wait times at the DMV in the past, and submitted that ABPs are the number one reason those wait times have decreased. 8:42:00 AM MR. BANNOCK cited the first part of AS 28.10.421(2), which read as follows: (2) an additional fee of $10 shall be added to the registration fee set out in this section for registration not conducted by mail or not conducted at an emissions inspection station or contract office offering vehicle registration services; MR. BANNOCK concluded, "For the State of Alaska or for any legislator to somehow criticize the surcharge, in my humble opinion, sir, is the proverbial pot calling the kettle black." CHAIR LYNN recognized Mr. Bannock's service [as former director] of the DMV. 8:43:01 AM CHAIR LYNN closed public testimony. 8:43:08 AM SENATOR GIESSEL summarized that SB 127 was not just about convenience, but was also about fairness, because the ABPs have been doing work for the state for free. She mentioned a press release from another committee, and she read as follows: "The Division of Motor Vehicles director testified that they brought in $48 million surplus ..., from DMV, in fiscal year 2013, from registration fees." She opined that $2 of that actually belongs to the ABPs. 8:44:02 AM REPRESENTATIVE KELLER moved to adopt the proposed House Committee Substitute (HCS) for SB 127, Version 28-LS1263\C, Strasbaugh, 3/26/14, as a work draft. There being no objection, Version C was before the committee. 8:44:15 AM REPRESENTATIVE KELLER moved to report the proposed House committee substitute (HCS) for SB 127, Version 28-LS1263\C, Strasbaugh, 3/26/14, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HCS SB 127(STA) was reported out of the House State Affairs Standing Committee.