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." 6:06:46 PM SENATOR CATHY GIESSEL, introduced the bill. She stated that the bill was simple. She explained that the bill was modeled after a business partnership in Alaska. She mentioned the business arrangement involved in selling hunting and fishing licenses in retail stores through the Department of Fish and Game, which she compared to the proposal in SB 127. The businesses retained 15 percent of the fee paid for the license. The business partners sold a vast majority of licenses saving the state in personnel costs. She stated that SB 127 applied the same business model to the Division of Motor Vehicles. Senator Hoffman believed that the Department of Fish and Game agents received a 5 percent fee. Senator Giessel appreciated the correction. Senator Hoffman asked why the Department of Fish and Game and the Division of Motor Vehicles (DMV) would receive different percentages of the fees. Senator Giessel replied that she would have her staff provide the legislation's details. 6:10:31 PM FORREST WOLFE, STAFF, SENATOR GIESSEL, stressed that visits to the DMV were often unpalatable as they required a sacrifice of time from a person's work day. In the interest of reducing public cost in lost time and wages, the bill was introduced. Advanced Business Partnerships (ABP) were created and contracted to perform certain transactions statutorily mandated to DMV, outsourcing certain services to the private sector. The business offered citizens more locations to receive DMV services and expanded business hours so that citizens would not be required to sacrifice their work day for a visit to the DMV. He stated that businesses offering the services received no compensation from the state, while incurring costs associated with the transactions, including credit card fees and purchasing of equipment and supplies. Mr. Wolfe explained that SB 127 allowed businesses to retain 15 percent of the fees to cover administrative costs for the transactions conducted. The concept was used by the Department of Fish and Game to allow private businesses to sell and issue hunting and fishing licenses while retaining a percentage of the proceeds. In 2013, the private sector sold approximately five times the number of hunting and fishing licenses as the Department of Fish and Game. The bill would result in a reduction in the size of state government. The 15 percent retained by the business partners was actually reinvested in the economy and the private sector that brought in 26 percent of DMV's current revenue. Mr. Wolfe informed the committee that allowing businesses to retain the percentage to offset costs provided an incentive for businesses to offer additional services. In the interest of reducing the size of government and increasing efficiency, strategies like SB 127 would provide an effective way to reduce government through an innovative use of the private sector. The Department of Fish and Game found the process of working with the private sector effective for the sales of licenses and tags. He responded to Senator Hoffman's question by stating that 15 percent was more appropriate than 5 due to the higher cost of equipment and supplies required for provision of the DMV services. 6:14:18 PM Co-Chair Meyer stated that the he had used the satellite offices discussed in the testimony and found them to increase convenience. He noted that the cost would increase by 25 percent for the department without the option of the satellite offices. Mr. Wolfe replied that the transactions in the private sector represented the work of approximately 32 DMV employees. He stated that more incentive allowed by a greater retention of fees could increase the amount of business conducted in the private sector. 6:15:53 PM Vice-Chair Fairclough asked if the bill allowed a fee in addition to what the state would pay for the individual organization. Senator Giessel replied no, the bill had no mandate or comment related to a fee. She stated that the public would be more inclined to choose the service if a fee was not incurred. A fee for administrative costs was currently charged. She was unsure about the charge of the additional fee; the question would be answered by the private sector. She imagined that fees would decrease if the private sector was able to retain 15 percent to cover overhead. 6:17:00 PM Vice-Chair Fairclough wished to ensure that the consumers benefited from the credit offered by the state. She supported the bill and its concept. She asked about the fees collected from municipalities for administrative overhead. Mr. Wolfe replied 8 percent was collected as a municipal tax. Senator Giessel clarified that DMV collected municipal taxes and retained 8 percent. A similar situation was proposed in the legislation via the business partners and DMV. Vice-Chair Fairclough wondered about the 15 percent cost recovery plus the fee to consumers. She mentioned the fiscal note and the cost of approximately $2 million. She wished to understand the investment in the private sector. She pointed out that the businesses received additional benefit from providing the service in the convenience offered to their customers. Senator Giessel discussed that private business partners utilized the license tag, collected the municipal tax and presented the money to DMV. The division then retained 8 percent of the municipal tax forwarded on. She stated that DMV did not sell the tag, yet retained the 8 percent as a middle-man. 6:20:07 PM AMY ERICKSON, DIRECTOR, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF ADMINISTRATION (via teleconference), discussed the business partnerships related to license and title registration transactions since the early 2000s. The partnerships were comprised of DMV services storefronts, car and snow machine dealerships, credit unions and banks; all of which were eligible to collect up to 15 percent of DMV proceeds if the legislation was enacted. She stated that DMV provided the supplies needed to conduct title and registration transactions including license plates, month and year tabs, forms, commercial, noncommercial, motorcycle driver manuals and handicap placards, all free of charge. Ms. Erickson mentioned that the DMV also provided free training and free access to its database. The business partners charged fees for services that were not regulated or disclosed to the division. She stated that the business partners comprised approximately 26 percent of DMV's revenues; the businesses did not function autonomously. Each DMV had three separate components for completion prior to close-out. The initial transaction included the collection of fees; the second included an audit to verify receipt of all required information. The third transaction included the reconciliation process, which verified that all monies were received and placed into fee codes. Ms. Erickson explained that DMV had a seven-person staff dedicated to supporting the everyday operations of the business partners. The staff spent hours reviewing, approving and correcting documents. When errors were found, the division used its resources to resolve them. The business partners were paid regardless of the accuracy of their transactions. Ms. Ericson pointed to the fiscal note. She stated that the division presented a less expensive note in the Senate State Affairs Committee. Initially it was believed that the bill applied to the eleven business partners serving as storefronts for the services, but the legislation indeed extended to the auto dealerships and financial institutions leading to the revenue loss shown in the fiscal note. She mentioned the idea of modeling the fish and game fees who was prohibited from adding a service fee. The fees obtained by the Department of Fish and Game were from the state alone, which was 5 percent for the fee or 25 cents for the license, whichever were greater. The department also received compensation of $50 per year or $1 per license, whichever was greater. 6:22:55 PM Co-Chair Meyer asked if the division supported the bill. Ms. Erickson replied that the administration had no position on the bill. She expressed her availability to answer questions. Co-Chair Meyer asked if the satellite offices were an asset or a hindrance. Ms. Erickson replied the satellite offices were mostly an asset. She highlighted the convenience provided to Alaskans related to location and volume. She noted that lines at the DMV offices would be longer without the satellite operations. Co-Chair Meyer clarified that the satellite offices saved the division money, time and staff while providing a convenience to Alaskans. Ms. Erickson agreed. Co-Chair Meyer appreciated that one DMV office remained open until six o'clock in Anchorage. Ms. Erickson stated that two additional DMV offices in the Anchorage area were also open until six o'clock. 6:24:38 PM Vice-Chair Fairclough understood that no incentive existed for accuracy on the part of the businesses. Ms. Erickson replied that more frequent errors were made by the businesses partners than by the DMV employees. Vice-Chair Fairclough asked if the partners were cooperative with the division. Ms. Erickson replied that the division had the obligation to fix the errors. She mentioned one problematic error made by a satellite business that landed in the Alaska Supreme Court. 6:25:42 PM Senator Bishop requested a written copy of her testimony. He asked if any of the satellite providers were located in rural Alaska. Ms. Erickson replied that Kenai and North Pole were the most rural locations. Senator Bishop pointed out that the Tok DMV office remained open until 9:00 pm in the summer. 6:26:30 PM Co-Chair Meyer asked if Ms. Erickson would provide written testimony to Senator Bishop. Ms. Erickson agreed. 6:26:50 PM TIM TOTH, VICE PRESIDENT, ALASKA AUTO DEALERS ASSOCIATION, ANCHORAGE (via teleconference) testified about the auto industry's part in the proposed legislation. He discussed the expense of the bill. He noted that the larger dealerships required additional employees for full-time efforts related to DMV services. He was unaware of a franchised dealer charging extra fees to the customer. The dealer absorbed all labor costs associated with the service. He noted that DMV provided one week of free training for the dealerships. He noted the difficulty filling the positions in his office. Some dealers were unable to handle the volume in their offices and were forced to hire storefront DMV units for an additional charge. Some dealerships processed 3000 to 6000 DMV transactions per year at an annual cost of approximately $75,000. 6:30:29 PM Vice-Chair Fairclough asked if Mr. Toth had access to DMV records. Mr. Toth replied that he logged into the DMV website to access their records. He stated that the employee training was offered at a DMV office. 6:31:06 PM TROY JARVIS, ALASKA AUTO DEALERS ASSOCIATION, ANCHORAGE (via teleconference) testified that the service at DMV offices was poor 12 years ago when the division proposed the idea of partnerships with the dealers. He stated that his business agreed to partner with the division to increase customer service for both the dealer customers and the retail customers. He stated that the process worked well for 10 years at no expense to the state. Dealer expenses had risen while margins decreased over the last five years. He suggested that the state had responsibility to help the businesses offset expenses. He provided an example of a business's payroll expenses related to DMV services. 6:34:09 PM MELISSA CUCULLU, ALASKA TAGS AND TITLES, WASILLA (via teleconference), testified that 11 privately owned business partners in Alaska during the 2012-2013 fiscal year processed an excess of 193,000 transactions on behalf of the DMV. She stated that the private sector provided the staffing, facilities, required technology and office supplies to process the transactions that generated millions of dollars in revenue for the state. She stated that the legislation would allow Alaskan-owned businesses to hire additional employees and provide extended hours for the creation of greater options for Alaskan residents. She stressed that SB 127 addressed the issue of fairness for Alaskan residents, the private sector and state government. 6:35:33 PM AVES THOMPSON, ALASKA TRUCKING ASSOCIATION, ANCHORAGE (via teleconference), testified in support of the legislation. He stated that his association was a statewide organization representing the interests of approximately 200 member companies from Barrow to Ketchikan. The association operated as a DMV business partner issuing titles and registrations along with additional DMV services. He noted that his association provided the services to their members and to members of the general public. The association members benefitted from the partnership in time and savings and convenience. The general public shared similar benefits. He noted that the association charged a service fee for each transaction. He pointed out that the business partners were contractually obligated to post their service fees for customer awareness. He stated that the fees were also disclosed to DMV and had been requested recently by the division. Mr. Thompson discussed the expenses incurred when conducting DMV business including bank and credit card fees. Compensation for services became an issue for the association as business increased. He noted that the costs increased and the association processed more than 11,000 transactions in 2013 generating revenue of $1.6 million for the state. He noted that local taxes were passed through to DMV; the association therefore generated revenue for both the state and municipalities. He calculated that the association generated approximately $1.1 million in in fee revenue for DMV. He stated that Alaskans would benefit from the proposed legislation. He believed that the amount proposed in the fiscal note would not cover the cost of DMV operations in the absence of the business partnerships. 6:39:23 PM Co-Chair Meyer asked about the higher rate of errors in the satellite offices. Mr. Thompson replied that a few errors were committed by the association, but he felt that the error rate was within acceptable limits. He mentioned a couple of incidents of more serious errors, but the contractual obligation to cooperate with DMV regarding the errors allowed the association to take responsibility. Co-Chair Meyer CLOSED public testimony. 6:41:03 PM Senator Bishop referred to the sponsor statement. He noted personal use of a satellite office for DMV services, but he wondered if a driver's license could be obtained through the business partnership. Mr. Wolfe replied no. Senator Bishop asked if the statement referred to license plates. Mr. Wolfe answered in the affirmative. 6:42:06 PM Co-Chair Meyer understood that the satellite offices were an asset to the division. He asked if the error rate was within acceptable limits. Ms. Erickson responded that the division worked directly with those businesses operating outside of the acceptable error limit. She stated that the case of the Alaska Trucking Association led to a voluntary discontinuation of some of the services offered by the business for DMV. Those transactions were often prone to errors. She credited the association for making the wise decision. She noted that the quicker transactions involved vehicle renewals and straight title transactions. Complex transactions were best left to the experts at DMV offices. Co-Chair Meyer asked about the fiscal note. Ms. Erickson had no further comments related to the fiscal note. Co-Chair Meyer asked if the new amount was the $1.979 million. Ms. Erickson spoke to the motor vehicle registration tax collected by the division. She stated that the division allowed for the collection of the municipal tax. When the registration renewal notices were sent to Alaskans, they came in to renew registration and the collection was provided to the municipality. She did not agree with the proposal that the business partners would retain 8 percent because they would not distribute the tax, the division would. 6:44:39 PM Senator Giessel agreed that the 8 percent was collected and passed to the municipality; the business partners would not retain the money. She appreciated the gravity of the fiscal note. She stated that 32 employees would be necessary to replace the private business partnership efforts in the division, which was calculated at approximately $1.976 million annually. She mentioned that she interacted with a constituent in Cooper Landing related to a misspelled name. Co-Chair Meyer agreed that the bill could be classified as cost-neutral. Vice-Chair Fairclough MOVED to REPORT SB 127 out of committee with individual recommendations and the accompanying fiscal note. SB 127 was REPORTED out of committee with a "do pass" recommendation and with one new fiscal note from Department of Administration. SB 169 was SCHEDULED but not HEARD.