CS FOR SENATE BILL NO. 124(L&C) "An Act relating to requirements to obtain and maintain a fisheries business license; relating to security required of fish processors and primary fish buyers; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. 10:38:03 AM CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of Revenue, stated that this bill would "increase the process of accountability for repayment of obligations that support the industry" and improve the protection of employees and fishermen who work for or sell to processors. Mr. Harlamert stated that current law requires a processor to be current on their taxes under Title 43 in that Section 1 of the bill would modify current law to require a processor to be current on their Employment Security Contributions (ESC), current on any Occupational Safety and Health Act (OSHA) fines, current on their Seafood Marketing Assessment, and current on local fish taxes. Co-Chair Green noted that Members' packets contain a Department of Revenue overview [copy on file]. Mr. Harlamert expressed that the Department's overview is very detailed. 10:41:22 AM Co-Chair Green also noted that Members' packets also include a six- page Fisheries License and Bond Bill Sectional Analysis from the Office of the Attorney General [copy on file]. Mr. Harlamert affirmed. Mr. Harlamert continued that Section 2 of the bill would modify the process through which the Department of Labor and Workforce Development could collect any unpaid ESC from a processor's labor bond in that it could allow a processor to secure payment of the estimated tax for the year using security that had been provided to the Department for the prior year. Mr. Harlamert noted that Section 3 of the bill is the most complicated section of the bill. It would change bonding requirements and the conditions through which employees could gain satisfaction from the bond. Such efforts would assist in aligning processors' bond levels with the risks. It would ease the bond rules involved when a processor fails to pay employees or fishermen. [NOTE: Due to poor recording quality, the testifier's comments were difficult to discern.] Co-Chair Green understood that the primary objective of the legislation is located in Section 3 of the bill. Mr. Harlamert affirmed. Section 3 would make "the bond levels more responsive to processors behavior". A processor who fails to compensate fishermen or employees "would be more likely under this bill to have their bond level go up." In addition, they would be unable to utilize real property in lieu of bonds. Co-Chair Green ascertained that a processor's bond level requirement could be increased. She asked the point at which a processor's obligation would create a warning that could prohibit them from obtaining and maintaining their fisheries business license or might subject them to prosecution. Mr. Harlamert stated that a processor would be prohibited from getting their license were they delinquent on their Title 43 taxes, ESC, OSHA fines, or the Seafood Marketing Assessment. This would be a very effective tool in getting those payments. Co-Chair Green understood that the bond requirement component of the bill is a separate issue from the licensing requirements. Mr. Harlamert stated that the bill has two major components: one being the requirements for licensure and the other being the bonding component. 10:43:58 AM Senator Stedman stated that, upon reviewing the accompanying fiscal notes, it appears that this bill might generate revenue by furthering the collection of the Seafood Marketing Assessment. In addition, he wondered if the State's imposition of a cash bond on a processor who got in trouble for lack of payment, might jeopardize that processor ability to operate. It could be assumed that a processor who had not paid their obligations might be having a cash flow problem. 10:44:58 AM Mr. Harlamert communicated that the State would have "better luck collecting the Seafood Marketing Assessment", as presently keeping current on that is not a requirement; however, only a "relatively few" do not currently pay that tax. Mr. Harlamert stated that the elements that would affect a processor's bond would be whether one's employees, fishermen, or unemployment security contributions had been paid. Currently the bond level would be unaffected were a processor to satisfy a judgment with another asset such as cash. This bill would "change that in that the mere existence of a judgment in excess of $10,000 would trigger" increasing the bond level from $10,000 to $50,000. 10:47:09 AM Co-Chair Green asked whether the Committee's questions thus far could be more appropriately answered by the Department of Revenue or the Department of Labor and Workforce Development. PATRICK SHIER, Acting Deputy Director, Employment Security Tax, and Chief, Division of Employment Security, Department of Labor and Workforce Development, stated that Mr. Harlamert has handled the questions quite well. This legislation would allow the Department of Labor and Workforce Development to move against a bond more quickly than it could currently; the quicker the Department could act, the quicker that problems could be resolved before either the fish, cash, or processor left the State. Co-Chair Green appreciated that information. Mr. Harlamert stated that under current law, any processor who could demonstrate a piece of real property located in the State equal to the required bond level would be excused from the bond requirement. This would be acceptable were no trouble to arise; however, the process of foreclosing against that real property to satisfy a judgment could be problematic. This bill would restrict the use of real property in a case where a processor had a record of failure to pay, and a cash bond would be required. Mr. Harlamert stated that the changes in the bond requirements would make the process more responsive and easy to access. Senator Stedman ascertained that the real concern being addressed by the proposed bond changes would be a floating processor who might be in the State today but gone tomorrow as opposed to a fixed shore-side processor who might get into a liquidity bind due to market conditions or mismanagement. 10:49:59 AM Mr. Harlamert stated that established longtime corporate citizens of Alaska tend to have real property and they are allowed to use that property in lieu of the bond. Floating or itinerant processors did not have similar connections to the State and therefore a cash bond was required from them to protect fishermen and employees. There has been no change in the basic bond level or the right to use real property in lieu of cash requirements. The only change would be in the case of a processor who displayed a history of non- payment. The consequences would be more immediate and "more realistic". Co-Chair Wilken understood therefore that were he a small processor, he would be required to get a bond. To that point, he asked whether his house could be recognized as collateral in lieu of cash provided he had no prior judgment history. Mr. Harlamert responded that Co-Chair Wilken would be required to purchase a bond were he to buy fish in the State unless he had real property he could use in lieu of the cash bond. Co-Chair Wilken understood therefore that a portion of his house could be used unless a judgment had been levied against him. 10:52:33 AM Mr. Harlamert affirmed. He communicated that the judgment issue could be revisited after a few years. Mr. Shier stated that the Department of Labor and Workforce Development supports this bill because it would require that all taxes, assessments, and judgment must be current. Thus, it would allow "the slate to be clean" going into the coming year. It should be noted that processors are provided "ample opportunities" to address the situation through options such as deferred payment contracts and negotiated settlements. The Department "recognizes the fact the employers provide jobs. That is very important" and no effort is made "to hobble the folks that want to do the right thing or ?. might fall on hard times in a particular year." Mr. Shier stated that the bill would also provide an incentive for a processor to contact the Department and rectify a situation. Sec. 3 would specify the length of time that would be available in which to secure a bond. The bond is important, as sometimes "that is the only thing that is left after the fish is gone, the cash is gone and the employer is gone". Many things could contribute to the need for a higher bond amount. The Department supports the language to that point. Co-Chair Wilken moved to report the bill from Committee with individual recommendations and accompanying fiscal notes. There being no objection, CS SB 124(L&C) was REPORTED from Committee with zero fiscal note #2, dated February 4, 2005 from Department of Commerce, Community and Economic Development; zero fiscal note #3, dated December 16, 2004 from Department of Fish and Game; zero fiscal note #4, dated February 24, 2005 from the Employment Security Division, Department of Labor and Workforce Development; zero fiscal note #5, dated February 24, 2005 from the Division of Labor Standards and Safety, Department of Labor and Workforce Development, and new zero fiscal note, dated April 1, 2005 from the Department of Revenue.