SENATE BILL NO.151 "An Act extending the termination date of the Alcoholic Beverage Control Board; and providing for an effective date." 9:03:26 AM Co-Chair Bishop relayed that this was the first hearing of SB 151, and the intention of the committee was to hear the bill, take public and invited testimony, and set the bill aside. 9:03:56 AM SENATOR PETER MICCICHE, SPONSOR, stated that SB 151 proposed a relatively simple board extension for the Alcoholic Beverage Control (ABC) Board. He asserted that the board was doing a good job although was faced with some problems. 9:05:26 AM MADISON GOVIN, STAFF TO SENATOR MICCICHE, explained that the legislation would extend the termination date of the board, which was set to sunset in 2022. She read from the sponsor statement: In accordance with the provisions of Title 24 and Title 44, Legislative Audit reviewed the activities of the ABC Board and determined the board is effectively serving the public interest by controlling the manufacture, barter, possession, and sale of alcoholic beverages in the state. Findings also included that board meetings were conducted effectively, regulations were adopted to implement statutory changes, and investigations were conducted in a timely manner. She urged committee support of the legislation and introduced Kris Curtis. 9:06:57 AM KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF LEGISLATIVE AUDIT, relayed that the Division of Legislative Audit had completed an audit of the ABC Board (copy on file). She detailed that the division had also conducted a special audit of the boards licensing process. She directed committee attention to the conclusions of the report located on Page 9 of the audit: Overall, the audit found that board meetings were conducted effectively, regulations were adopted to implement statutory changes, and investigations were conducted in a timely manner. The audit also concluded that the Alcohol and Marijuana Control Office's (AMCO) operations were impeded by the lack of an automated application process and significant vacancies. Further, deficiencies in controls over processing licensee fee refunds were identified. In accordance with AS 44.66.010(a)(1), the board is scheduled to terminate on June 30, 2022. We recommend the legislature extend the board's termination date to June 30, 2026, which is four years less than the maximum allowed in statute. The reduced extension reflects the need for more timely oversight to evaluate the board's progress in addressing licensing inefficiencies and filling vacancies. Ms. Curtis pointed to Pages 14 and 15 of the audit, which showed a schedule of licenses: Based on data provided by Department of Commerce, Community, and Economic Development (DCCED) staff, the board issued 1,177 catering and special event permits from July 1, 2019, through February 28, 2021. Testing of a sample of 25 permits found all were issued according to statutes. As shown in Exhibit 2, there were 1,867 active licenses as of February 28, 2021. In February 2021, AMCO staff issued approximately 300 temporary licenses for the license period ending December 31, 2020, due to an application backlog that was the result of limited staff resources. The temporary licenses allowed licensees to continue operating pending review of the renewal applications. Auditors reviewed AMCO's staffing during the audit period and found extensive vacancies. Exhibit 3 displays staffing vacancies that exceeded two months during the audit period. Ms. Curtis stated that AMCO reported 7 staff positions vacant for a total of 92 months from FY 18 through February 29, 2021. She shared that the reasons for the vacancies included, not hiring due to uncertainty surrounding a proposal to merge AMCO with the Division of Corporations, Business, and Professional Licensing, not hiring due to the unknown impact of the pandemic on the industry, and not hiring for one position that was transferred form Fairbanks to the Mat-Sue due to the inability to find workspace. She said that the extended vacancies negatively impacted AMCOs ability to support the ABC board, as well as the AMCO. Ms. Curtis turned to Page 16 of the audit. She highlighted 3 of the 5 troublesome aspects of the application process: Five main aspects of the application process were found to delay or potentially delay license review, approval, and/or issuance. 1. Application completeness and accuracy: License requirements are complex, making the application process complicated and inherently subject to error. Further, the applications must be submitted manually. As such, the applications are not subject to online edits designed to help limit errors. Analysis of the 505 applications received during the audit period found applications were incomplete and/ or inaccurate at a rate of 96 percent for new applications and 97 percent for transfer applications. Once determined deficient, the applications are sent back to the applicants for correction. Returning applications added, on average, 20 days to AMCO's review process. 4. Submittal of compliance information by applicable entities: Approval of 48 percent of new applications and 55 percent of transfer applications was delayed due to protest by a local governing body or due to waiting for receipt of compliance information (i.e., state fire marshal approval; building, zoning, or food safety permits; or notice from creditors). Delays associated with waiting for receipt of required information added an average of 88 days for new licenses and 35 days for transfer licenses. 5. Issuance of licenses by AMCO staff: The audit found that AMCO staff issued new and transfer licenses an average of 23 days and 28 days, respectively, after all outstanding requirements were met. 9:10:14 AM Ms. Curtis referenced five recommendations starting on page 27: Recommendation No. 1:  The Department of Commerce, Community, and Economic Development (DCCED) commissioner should ensure AMCO staff vacancies are filled in a timely manner and the AMCO director should implement written licensing procedures. Recommendation No. 2:  The board should significantly enhance or replace its licensing database and automate the application process where possible. Recommendation No. 3:  The board and AMCO director should strengthen procedures for entering restricted purchasers in the statewide database of written orders. Recommendation No. 4:  The board and AMCO director should implement procedures to ensure municipalities receiving refunds of biennial license fees are actively enforcing alcoholic beverage laws. Recommendation No. 5:  The AMCO director should improve procedures and fill vacancies in a timely manner to ensure refunds to municipalities are appropriately reviewed. 9:12:58 AM Ms. Curtis relayed that the responses to the audit were found on page 47. Ms. Curtis summarized. The ABC Board's response was found on page 49. She related that the chair of the board strongly disagreed with the 4-year extension and claimed that an early sunset would jeopardize the publics trust and undermine confidence in the public process. He believed that the finding s were not material enough to warrant a reduced extension. 9:14:06 AM Senator Hoffman asked whether the chairman of the board had addressed Recommendation 3. Ms. Curtis relayed that the chair had agreed with the recommendations. Senator Hoffman thought the finding was serious in nature. Ms. Curtis stated that similar to the prior sunset audit, it had been found that procedures were not strong. There had been miscommunication between the court system and the AMCO Office. Senator Hoffman had the viewpoint that if the board did not recognize the seriousness of the issue there would be a need for corrective action, such as withholding per diem. He thought that not addressing non-compliant individuals was ignoring the problem. Ms. Curtis noted that the commissioner reported that all 27 have now been entered into the database. 9:16:32 AM Senator Olson asked the reason for vacancies not being filled. Ms. Curtis reiterated the reasons offered by the board. She commented that there was an extreme number of vacancies, and it was "fairly shocking." Senator Olson asked whether there had been another time in which there were as great a number of vacancies, or a time when the board chair had so strongly disagreed with audit recommendations. Ms. Curtis relayed that over the previous 20 years the board had received a 3 to 4-year extension multiple times. She thought it was not surprising given the addition of the Marijuana Control Board. She could not recall a time when a board chair had so strongly disagreed with the recommendations. 9:18:33 AM Co-Chair Bishop recalled that Ms. Curtis had mentioned that a position had been moved from Fairbanks to the Mat-Su. He asked her to repeat the reference. Ms. Curtis stated that one of the positions that was vacant was because the position had been moved and they were having trouble finding workspace in Mat-Su. Co-Chair Bishop opened INVITED testimony. 9:19:22 AM DANA WALUKIEWICZ, ALCOHOL BEVERAGE BOARD, ANCHORAGE (via teleconference), spoke in favor of the bill and encouraged the committee to consider extending the termination date for 6 years. He stressed that the board did not dispute the nature of the audit findings, but the overall recommendation of a shortened term. He mentioned Recommendation 3, and admitted it was an important step to include offenders in the database. He drew attention to page 30: Additionally, due to miscommunication and turnover of key agency staff, reports of convictions of AS 04.11.010 violations were not consistently provided by the court system. Mr. Walukiewicz explained that the issue stemmed from several years prior when the previous director had not had great communication with other agencies. He asserted that and communication had improved dramatically under the new director. He shared that all of the restricted purchasers were now in the consistently updated database. Mr. Walukiewicz mentioned the vacancy issue and the reference to a possible merge of functions of the AMCO office and the DCCED licensing division. He noted that the matter was an administrative directive that was not necessarily supported by the board. He related that the job postings were being prepared, but not posted by the appropriate parties in DCCED. He said that the issue was resolved, and the positions were filled. Mr. Walukiewicz explained that the communication and cooperating with the department had improved. He pointed out to the committee that subsequent to the audit period, all staffing positions had been filled. 9:24:05 AM Mr. Walukiewicz explained that 4 of the 5 recommendations had been addressed before the report was published. He noted that the board and AMCO did not dispute the need for a new automated application processing system. The alcohol application process was preformed by 3 people and was paper based. He stressed that the board and the staff were in full support of an automated system but did not have the funds to implement such a system. He said there was funding available contingent on the passage of SB 9. He stated that a follow-up audit would be welcome and did not feel like the issues in the current audit should limit the time of the board. He felt that a shortened term would hamper the work of the board. 9:27:24 AM Senator Wilson identified the issue of application accuracy and completeness. He recalled an inaccuracy rate of 97 percent, which he believed was high. He asked what Mr. Walukiewicz how the issue of application accuracy could be resolved. Mr. Walukiewicz explained that the application process was paper-based and very detailed. Much of the information had to be cross-checked with various databases. He said that having an electronic submission process that was integrated with other state databases would streamline the process. Mr. Walukiewicz continued to address Senator Wilson's question. He said that one had to understand the statutes, regulations, and nuances associated with each license application. He summarized that the board was hopeful that the automated system would cut the error rate to a manageable level. 9:30:35 AM Senator Wilson did not see how an automated system would help the applicant. He wondered whether the board would provide technical assistance to applicants. Mr. Walukiewicz relayed that there was also a position that assisted with the roll-out of applications and regulations. He said that due to staffing issues, there was not as great of outreach to the industry to assist with forms. He added that now that the board was fully staffed, he anticipated there would be more outreach that would provide guidance. He was certain matters would be simplified with the passage of SB 9. 9:32:37 AM Co-Chair Stedman commented that the board should worry about the legislature eliminating the board in 2026. He relayed that it was helpful to have another review as proposed in four years. He thought that if the issues were resolved the next extension would be longer. 9:33:34 AM Senator Olson agreed with Co-Chair Stedman. He referenced the high cost of another audit. 9:34:31 AM Senator Wilson asked whether the board still practiced fairness in decision making or were appeals based on politics. Mr. Walukiewicz could not speak for the previous board chair. He asserted that while he had been on the board, he had been committed to strictly following statutes and regulations. He said that applications were examined solely on merit and license availability. He noted that the board was completely new as of the last 12 months. He stressed the professionalism of the board members. 9:38:09 AM Co-Chair Bishop asked about the position that had been moved from Fairbanks to Mat-Su. He asked whether the position was still vacant. Mr. Walukiewicz deferred to Glen Klinkhart. He shared that there were no enforcement related findings in the audit and all of the administrative staff was housed in Anchorage. 9:39:51 AM GLEN KLINKHART, INTERIM DIRECTOR, ALCOHOL AND MARIJUANA CONTROL OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), relayed that there had been a spot open in Fairbanks that was filled by an investigator but due to organizational issues the spot had to be moved to Wasilla. 9:41:43 AM Senator Wilson asked how Mr. Klinkhart felt about the board being able to make decisions regarding the applicability of statutes. Mr. Klinkhart stressed that the board followed statute and had a qualified Assistant Attorney general present at every meeting. He felt that there was confusion surrounding licensing and population numbers. He said that the board had established guidelines for signature gathering that simplified the process. 9:44:51 AM Co-Chair Bishop OPENED public testimony. 9:45:07 AM Co-Chair Bishop CLOSED public testimony. Co-Chair Bishop relayed that // SB 151 was HEARD and HELD in committee for further consideration.