HB 37-SMOKING CESSATION AND EDUCATION PROGRAMS REPRESENTATIVE ROKEBERG said HB 37 is a small but important piece of legislation. The bill adds a comprehensive smoking education prevention and tobacco control program to a list of programs that are authorized by the Department of Health & Social Services (DHSS) to operate. HB 37 briefly outlines Center for Disease Control (CDC) guidelines regarding program components that work to reduce the number of smokers in the State. Smoking is the leading cause of death in the State of Alaska; approximately 500 Alaskans die from tobacco use each year. An estimated 110,000 Alaskans smoke and poll results show that over 80 percent of those smokers want to quit. The bill allocates funds from the Attorney General's settlement with the major tobacco companies. The settlement amount was estimated to be $669 million however, with adjustments, the total projected income for next year could exceed $800 million. REPRESENTATIVE ROKEBERG referred to a chart and said that in December of 1998, a 45 cent surcharge was applied to every pack of cigarettes sold. That surcharge is paid by the consumer. Sales decreased from $70 million to $54 million in one month. The Legislature appropriated $1.4 million of those funds collected last year for smoking control programs. The balance of the money was deposited into the general fund. This year, the Governor has suggested that those funds be used for amortization of bond indebtedness for schools. The funds from Alaska's tobacco tax are currently allocated to schools. REPRESENTATIVE ROKEBERG stated that HB 37 would use a small portion of the money that comes out of smokers' pockets for prevention and for a smoking control program for those people who want to quit. HB 37 stipulates that a private contractor be used to run those programs. REPRESENTATIVE ROKEBERG referred to the $1.6 million fiscal note from DHSS and said DHSS would like to see that allocation increased to $3 million. Although Representative Rokeberg said he supports a larger amount, he is concerned that a fiscal note of that size could cause the death of the bill. He added that one section of the bill prohibits the sale of loose cigarettes below 20; the other section prohibits the sale of gray market cigarettes for export. He prepared an amendment that exempts duty free shoppers from the provisions of the bill. CHAIRMAN MILLER informed committee members that two amendments have been proposed, one by Representative Rokeberg and one by the Department of Law (DOL). REPRESENTATIVE ROKEBERG stated that the amendment by DOL is technical and that he does not oppose it. He asked that Doug Gardner of DOL speak to that amendment. Number 492 SENATOR WILKEN asked if the 45 cent surcharge is a federal surcharge. REPRESENTATIVE ROKEBERG said no, it is a surcharge imposed by the tobacco companies' to pay for the settlement. He noted that surcharge is in addition to the 71 cent increase imposed by the legislature through the enactment of an Alaska tax the year before. SENATOR WILKEN asked if the amount of taxes collected dropped $16 million in one month after the new surcharge was applied but, after six months, sales returned to the level they were at before the surcharge was applied. REPRESENTATIVE ROKEBERG said that is correct, and that there is a lot of concern about leakage and contraband. He pointed out that he bought a package of gray market cigarettes in a liquor store in Juneau in September. Number 1084 MS. CHRISTY MCINTIRE, Executive Director of the American Lung Association of Alaska (ALAA), introduced Eric Meyers, the Director of Tobacco Control Programs with the ALAA. MS. MCINTIRE said that the ALAA supports HB 37 in its current format, and in particular the provisions of the bill that call for a comprehensive tobacco control program in Alaska. MS. MCINTIRE highlighted the reasons this legislation is needed. California and Massachusetts have had remarkable results with the programs they have implemented. Alaska has the technology to implement a comprehensive tobacco control cessation program. California has been providing its citizens a tobacco control program funded from dedicated tobacco tax dollars. California's program has saved lives in and has saved money for the state. More than 1.3 million Californians have quit smoking and smoking rates among teens in California have remained at 12 to 14 percent while other states' rates have increased. That program has also helped pregnant women quit smoking, and study results show a cost savings due to the delivery of healthier babies. MS. MCINTIRE explained in Massachusetts, tobacco tax dollars also went to a tobacco control program. Between 1995 and 1999 the smoking rate among high school students decreased by 15 percent and, since 1992, overall cigarette consumption declined by 30 percent. Nationally, the rate decreased eight percent. Smoking among pregnant women in Massachusetts has declined from 25 percent to 13 percent. These programs have three key elements in common: they are comprehensive, meaning multi-faceted with a lot of different components; they are sustained over time; and they are fully funded or well funded. MR. ERIC MEYERS referred to a packet given to the committee and noted the CDC has studied the state programs, reviewed existing literature, and published state-specific guidelines for comprehensive tobacco control programs. According to the CDC's published guidelines for Alaska, the state should be spending $8.1 million to $16.5 million dollars per year on its program. The Alaska Tobacco Control Alliance (ATCA) produced a plan for Alaska based on the CDC guidelines. Alaska will receive $816 million over 25 years from the tobacco industry settlement. That amount will be adjusted for a couple of variables, including volume reductions that result from declines in smoking. It will also be adjusted upward as the result of an inflation adjustment factor. Exactly what the revenue curve will consist of remains to be seen but it will be a large amount. MR. MEYER continued. The ATCA met after the legislative session to decide how to use the $1.4 million, relative to the comprehensive program that is outlined in the packet. It recognized that this money was a first step toward creating a substantial program. ATCA has been focusing on cessation, an aggressive public education- counter marketing campaign, and improved data collection, particularly among youth in Anchorage. Number 1034 MS. MCINTIRE said that the ALAA issued an RFP in November of 1999 and received proposals from 22 organizations across the State to provide cessation services to people in their areas. The proposals equaled $1.1 million. The ALAA used a panel of experts to review the proposals; four were funded. The Yukon-Kuskokwim Health Care Corporation in Bethel was funded to put into place a significant effort on cessation throughout its health care system. It will offer both a counseling and pharmaceutical support system and check for level of readiness among clients. A proposal from the Anchorage Neighborhood Health Center was also funded. That program serves uninsured and underinsured clients in Anchorage. The program will focus on smoking cessation for pregnant women and mothers with young children. MR. MEYERS said a core feature of all successful state programs is an aggressive counter marketing campaign. The average 14 year old has seen about $20 billion worth of advertising before he or she reaches the critical age when teenagers make the decision of whether or not to smoke. The average age of new smokers is 14.5. MR. MEYERS showed committee members a video containing some of the television advertisements it has been using. The advertisements are from California and Massachusetts and were obtained at a very low cost. Number 1514 MR. DOUG GARDNER, Assistant Attorney General, made the following comments on the gray market portion of the bill. A number of states have enacted legislation to prevent gray market cigarettes from being sold in those particular states. Without such legislation, Alaska will become a dumping ground for gray market cigarettes. The gray market provision in HB 37 falls under AS 43.70.075, which is the statute that the Department of Commerce uses to regulate business licenses and tobacco endorsements. The bill would allow the Department of Commerce to regulate gray market sales by those licensees but it would not regulate the importation of gray market cigarettes by individuals. To close that loophole, he drafted an amendment that picks up AS 43.50.010, the licensing requirement that the Department of Revenue uses to regulate individual sales. In addition, the amendment contains a reference to subsection (I) which refers to the Commissioner of Revenue to make the bill internally consistent. ASSISTANT ATTORNEY GENERAL GARDNER said Representative Rokeberg's amendment is not problematic to DOL from an enforcement standpoint but, from a jurisdictional viewpoint, DOL does not view cigarettes that are sold in a duty free enterprise as subject to Alaska law. Those cigarettes are not imported into Alaska, they are brought in by a bonded distributor and placed in a warehouse until they are exported to other countries. Number 1687 CHAIRMAN MILLER asked Mr. Gardner to define "gray market" cigarettes. ASSISTANT ATTORNEY GENERAL GARDNER explained that gray market cigarettes are manufactured by American companies for sale in other countries, such as Thailand. They may have a different formulation and they lack any health warnings on the package. The cigarettes go to San Diego, for example, sit in an export zone, and are re- imported "around the fence" into the United States. They are very cheap compared to other cigarettes that have health warnings and other formulations. They should never have been re-imported to the United States but they are for a variety of reasons, among them a lack of ATF enforcement and loopholes in federal law. Number 1749 CHAIRMAN MILLER asked if Amendment 1 allows DOL to seize gray market cigarettes from individuals who purchase them for private use. ASSISTANT ATTORNEY GENERAL GARDNER replied neither the Department of Revenue nor the Department of Commerce will be able to monitor individuals for gray market cigarette purchases. Both Departments would like to monitor Internet sales for individuals who buy large quantities and then take the appropriate action. The amendment will allow the Department of Revenue to collect taxes on the sale of these cigarettes. Number 1813 SENATOR ELTON clarified that the bill will apply to the new Department of Community and Economic Development and he noted he will make a technical amendment to the amendment to reflect that correction. REPRESENTATIVE ROKEBERG pointed out that he talked to the owner of the duty free shop in Anchorage. That business holds a business license endorsement therefore it would be subject to Section 1 of CSHB 37(FIN). After speaking to counsel, he agreed duty free shops should be exempted because the U.S. Bureau of Customs will confiscate any cigarettes that a person brings into the country. MR. GARDNER repeated that the State does not have jurisdiction over duty-free cigarettes but he does not have any objection to the amendment. Number 1910 REPRESENTATIVE ROKEBERG explained that because of the business license endorsement and the fact that the business sold export-only cigarettes, the "black letter" law would be applicable. He said that although it is a technical matter, he proposed the amendment to make sure there is no question about it. The businesses keep the endorsement because they can sell single packs of cigarettes to an inbound passenger. MR. GARDNER said that those cigarettes are being sold into Alaska, the others are being sold out. Number 1961 SENATOR PEARCE asked why the cost to cover one full-time position in the DHSS fiscal note, dated 1/25/00, is $168,000. MS. SUSAN MASON-BOUTERSE, Division of Public Health, DHSS, said that line item covers partial funding for two positions that equals one FTE. Partial funding is included for a chronic disease epidemiologist. SENATOR PEARCE asked what portion of the fiscal note funds the chronic disease epidemiologist. MS. MASON-BOUTERSE was not sure. SENATOR PEARCE asked why DHSS will have to fund an epidemiologist if DHSS's role in HB 37 is to watch over grants. She expressed concern that $168,000 is a lot of money to partially fund two positions and that DHSS is trying to pick up the cost of employees from the settlement money. REPRESENTATIVE ROKEBERG commented that he appreciates DHSS's desire to have a greater smoking control program but he prefers a zero fiscal note because of the fiscal realities facing the State. SENATOR WILKEN asked whether a government program is necessary if the money comes to the State and then goes directly to the American Lung Association. REPRESENTATIVE ROKEBERG said DHSS already has $200,000 in the budget for positions. He believes that amount is more than sufficient for contract oversight. Number 2131 SENATOR WILKEN asked whether the ALAA could take on such a project. MS. MCINTIRE commented that the ALAA took this project on knowing it was a large project and the time frame was short. The ALAA worked with DHSS to organize and negotiate a workable contract to enable ALAA to "ramp up" quickly. She thought the ALAA board would like the opportunity to operate this program for the State of Alaska. MR. MEYERS said this comprehensive program has multi-faceted elements. Some of those elements are uniquely suited to government, for example, enforcement. Some of the $200,000 is being "RSA'd" to the Departments of Law and Community and Economic Development because they have enforcement responsibilities for sales violations by vendors. Other aspects of the Tobacco Control Program administered by the State compliment the efforts of the ALAA. He believes the government should, and must, continue to participate in some elements of the program. SENATOR WILKEN suggested discussing that issue in detail in the next committee of referral. SENATOR WILKEN moved to adopt Amendment #1. Hearing no objection, CHAIRMAN MILLER announced Amendment #1 was adopted. SENATOR ELTON moved to adopt Amendment #2 with a name change from the Department of Commerce to the Department of Community & Economic Development. CHAIRMAN MILLER objected to Amendment #2 for the following reason. The right to privacy is strong in Alaska, and whether he favors the use of tobacco or not, tobacco is a legal drug. He opposes allowing DOL to go after individuals who buy illegal cigarettes but do not re-sell them. Because Amendment 2 conflicts with Alaska's privacy right, he is opposed to it. Number 2280 SENATOR ELTON said the amendment does not add any new functions to any State agency in dealing with gray market products. The amendment does add conforming language that cites the appropriate statute to acknowledge that the Department of Revenue has a role. CHAIRMAN MILLER indicated he believes Amendment #2 allows the DOL to confiscate gray market cigarettes from a third party who purchased them for private use. MR. GARDNER clarified that the purpose of the amendment is to make the law consistent, not to make anything new. Gray market cigarettes are considerably different than cigarettes made for the United States' market and they could be far more hazardous. If it is the intention of the Legislature to prevent the importation of gray market cigarettes into Alaska, the law should prohibit distributors and individuals from being able to import them. DOL's sole intent in proposing the amendment was to close the loophole in statute and require consistent treatment of both the individual licensee who is importing the illegal cigarettes and distributors. The amendment does not create any additional police enforcement but it will provide a deterrent. TAPE 00-02, SIDE B Number 000 CHAIRMAN MILLER agreed that DOL should go after the sellers, but he expressed concern that the amendment steps into a gray area regarding the individual's right to privacy in Alaska's constitution. MR. GARDNER said that if the amendment was in effect, DOL would have more of an ability to persuade Internet sellers to not direct those kinds of sales to Alaska. The amendment would give the state another tool with which to deter sellers. CHAIRMAN MILLER remarked he appreciates what Mr. Gardner is trying to do but he believes the amendment goes too far. Number 2328 SENATOR WILKEN asked if the amendment will only affect a person who orders gray market cigarettes over the Internet and then gives or sells them to another. REPRESENTATIVE ROKEBERG said the bill only applies to gray market cigarettes. SENATOR WILKEN asked whether he would be considered a wholesaler or dealer only if he sold or gave the cigarettes away. MR. GARDNER explained that anyone who imports anything must have a license and should report the taxes to the Department of Revenue. If a person imports 50 cartons of gray market cigarettes for personal use, the Department of Revenue would be suspect of that kind of volume. If that person sold the cigarettes to friends, under the current draft of the bill, that person would be considered a distributor of the product who should be licensed. Without the amendment, the person could use the gray market cigarettes for personal use but taxes would have to be paid on those cigarettes. CHAIRMAN MILLER said with this amendment, DOL could technically confiscate those cigarettes. REPRESENTATIVE ROKEBERG commented that the amendment adds the Department of Revenue to the confiscation and seizure provision on page 2 of the bill and it only applies to gray market cigarettes. The people taking advantage of the Internet gray market cigarettes are evading federal taxes and there has to be some enforcement provision. Number 2147 CHAIRMAN MILLER said that he has no problem doing that to a seller, but he repeated it oversteps the bounds of Alaska's privacy right for individuals. SENATOR ELTON indicated that Chairman Miller's concern is not with the amendment, but with the bill itself. REPRESENTATIVE ROKEBERG asked Mr. Gardner about the amendment. CHAIRMAN MILLER asked if a consumer buys gray market cigarettes over the Internet and pays taxes to the State of Alaska, whether the bill or the amendment will give the department the ability to seize those cigarettes from the person who purchased them for personal use. MR. GARDNER said no, not as the bill is now. It is the re-seller with a business license that the bill targets. DOL wants to prevent the shuffle of gray market cigarettes from retail to individuals who might buy them over the Internet. Number 2035 CHAIRMAN MILLER removed his objection to Amendment #2. He expressed concern that the issue of privacy raised in the amendment remains, but he noted the next committee of referral will look at that issue extensively. CHAIRMAN MILLER announced that hearing no objection to Amendment SENATOR WILKEN moved SCSHB 37(HES) with individual recommendations and attached fiscal notes. Without objection, it was so ordered.