SB 151-EXTEND ALCOHOLIC BEVERAGE CONTROL BOARD  2:24:07 PM ACTING CHAIR STEVENS reconvened the meeting and announced the consideration of SENATE BILL NO. 151 "An Act extending the termination date of the Alcoholic Beverage Control Board; and providing for an effective date." He stated the intention to hear from the sponsor, take invited and public testimony, and asked the will of the committee. 2:24:43 PM SENATOR PETER MICCICHE, sponsor of SB 151, stated that his staff would introduce the bill and go through the sectional analysis. 2:25:10 PM MADISON GOVIN, Staff, Senator Peter Micciche, Alaska State Legislature, Juneau, Alaska, introduced SB 151 on behalf of the sponsor with an abbreviated summary of the following sponsor statement. [Original punctuation provided.] Senate Bill 151 extends the sunset date for the Alcoholic Beverage Control (ABC) Board to June 30, 2026, in agreement with the September 2021 Legislative Audit sunset review recommendation. The ABC Board is made up of five members, two industry, one public safety, one public, and one rural public. 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. The audit concluded the board should improve procedures for licensing efficiencies and issuing renewals such as, improving the completeness and accuracy of initial applications, reducing delays associated with compliance information, issuing licenses in a timely manner, automating the application process and filling AMCO staff vacancies. Additionally, operational improvements are needed in enforcement, monitoring board-related local law enforcement activity, and processing refunds to municipalities. Given the important role in safeguarding the health and safety of Alaskans and the economic importance of the industry, the continuation of this board is critical to the regulation of the alcohol industry in Alaska. I urge your support of this bill to extend the sunset date of the Alcoholic Beverage Control Board. MS. GOVIN noted that Kris Curtis would present the audit in more detail. 2:26:44 PM KRIS CURTIS, Legislative Auditor, Legislative Audit Division, Legislative Affairs Agency, Alaska State Legislature, Juneau, Alaska, stated that the Legislative Audit Division conducted an audit of this board, the purpose of which was to determine whether the board should be extended and whether it was serving the public interest. She noted that a copy of the September 2021 audit was in the bill packet. She advised that this audit was unique because it not only included the sunset audit but also a special audit of the board's license process that the Legislative Budget and Audit Committee requested. The report summarizes both audits. MS. CURTIS advised that the Report Conclusions begin on page 9 of the audit. She paraphrased the second paragraph on page 9: [Original punctuation provided.] 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 (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. MS. CURTIS stated that the audit recommends that the legislature extend the board four years, which is half the extension allowed in statute. This is to assure that the legislature has the ability to more timely review the board's progress in addressing these licensing deficiencies. MS. CURTIS directed attention to Exhibit 2 on page 14 of the audit that reflects the 1,867 active licenses as of February 28, 2021. Additionally, the audit notes the board issued [1,177] catering and special event permits from FY2020 through February 2021. The audit notes a backlog of applications that were due December 2020. To allow the applicants to continue to operate while the review was pending, the board issued over 300 temporary licenses. The division was informed that the backlog was due to vacancies. The division investigated this further and the results of that review are on page 15. MS. CURTIS advised that Exhibit 3 summarizes the AMCO staff positions that were vacant at least two months during the audit period. In total, 7 staff positions were vacant for a cumulative 92 months from FY2018 through February 28, 2021. The reasons management gave for the vacancies were: the uncertainty related to an earlier proposal to merge AMCO into DCCED's Division of Corporations, Business and Professional Licensing, and the unknown effect of the COVID-19 pandemic on the alcoholic beverage and marijuana industries. Additionally, one position was not filled because the agency could not find workspace for a position that was transferred from Fairbanks to MatSu. She reported that the audit found that the extended vacancies negatively affected AMCO's ability to support either board. 2:30:08 PM MS. CURTIS stated that pages 16-18 summarize the detailed review of the license process. The audit found that overall, 76 percent of new applications and 85 percent of transfer applications were approved within six months. On average, it took 153 days to approve and issue a new license and 131 days for a transfer license. The audit found that the complex license requirements made the application process complicated and inherently subject to error. Because the applications are submitted manually, they are not subject to online edits that might help limit errors. 2:30:56 PM MS. CURTIS described three main aspects of the audit process that caused delays. (1 The applications were incomplete or inaccurate 96 percent of the time for new applications and 97 percent for transfer applications. Applications that are determined deficient are returned for correction, which causes delays. 2) Confirming compliance with statutory and regulatory requirements causes significant delays. Waiting for the compliance information adds an average of 88 days to the license process and 35 days for transfer applications. 3) Once all the requirements are met, issuing the license takes 23 days for a new license and 28 for a transfer license. The audit determined that automating this process could reduce the timeline. 2:32:10 PM MS. CURTIS summarized the five recommendations of the audit that start on page 27. [Original punctuation provided with some formatting changes.] 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. The audit found several inefficiencies associated with the receipt, review, and issuance of license applications. Recommendation No. 3: The board and AMCO director should strengthen procedures for entering restricted purchasers in the statewide database of written orders. MS. CURTIS noted that the prior sunset audit also included the above recommendation. Testing found that due to insufficient procedures, 27 individuals convicted of relevant violations were not entered into the statewide database of written orders that regulates the amount of alcohol that can be sold or purchased in areas that have voluntary restrictions on alcohol. 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. She noted that the prior sunset audit found that municipalities were automatically receiving these refunds even though they were not submitting the required quarterly reports. The current audit found that municipalities were submitting the quarterly reports but nobody looked at them. Recommendation No. 5: The AMCO director should improve procedures and fill vacancies in a timely manner to ensure refunds to municipalities are appropriately reviewed. MS. CURTIS noted that similar to the prior sunset audit, just one position in the AMCO office is responsible for calculating and approving the refund, and there is no review. The significant vacancies contributed to this deficiency. 2:34:36 PM MS. CURTIS directed attention to the responses to the audit, beginning with Commissioner Julie Anderson's response that begins on page 47. Regarding Recommendations 1 and 5, she maintained that all the vacancies had been filled. Regarding Recommendation 2, she reported the department was developing a needs assessment for an automated online database and online license renewals. Regarding Recommendation 3, the commissioner stated that the AMCO Enforcement Unit had entered all the individuals into the database and had implemented new procedures. Regarding Recommendation 4, the commissioner stated that improved procedures would be implemented in the future. 2:35:38 PM MS. CURTIS stated that the response from the Chair of the ABC Board is on page 49. He strongly disagreed with the recommendation to extend the board four years, maintaining that an early sunset would jeopardize the public's trust and undermine confidence in the public process. The Chair agreed with the recommendations but believes the findings were not materially sufficient to warrant a short extension. She highlighted that over the last 20 years, this board has received a three or four year extension in previous audits. She did not recall any extension in the last 20 years that was longer than four years. ACTING CHAIR STEVENS summarized his understanding that an extension for the ABC Board would normally be eight years and this audit recommends a four-year extension. MS. CURTIS clarified that eight years is the maximum extension if the audit determines the entity is operating without any concerns. If the division determines an entity should be reviewed more frequently because of things such as major changes to the alcohol laws, that would be a reason to review the board earlier than eight years. ACTING CHAIR STEVENS asked when the last audit was conducted. MS. CURTIS replied it was four years ago. ACTING CHAIR STEVENS asked if she believes all the recommendations could be achieved in the next four years. MS. CURTIS offered her belief that it would be possible to implement a new database in that timeframe but the board has some concern about whether that is possible. She suggested the board and the division explain why it might take longer. 2:37:56 PM ACTING CHAIR STEVENS turned to invited testimony. 2:38:02 PM DANA WALUKIEWICZ, Chair, Alcoholic Beverage Control Board, Anchorage, Alaska, stated that the ABC Board asked him to speak to the sunset provisions in SB 151. In particular, the board is requesting a six or eight year extension as opposed to the four year extension that the Legislative Audit Division recommended. Speaking as a CPA with more than 20 years of experience, he said he agrees with the individual findings but not the overall conclusion that the board should be extended just four years. MR. WALUKIEWICZ discussed the audit findings relating to 1) the lack of staffing; and 2) the lack of an automated system to process and track new and renewal applications. He acknowledged that the AMCO office had vacancies during the period the audit reviewed, but maintained that it had nothing to do with the board or executive director. Rather, it was a result of the Department of Commerce, Community and Economic Development (DCCED) delaying job vacancy announcements. He pointed out that the AMCO office currently is fully staffed. Speaking to the second finding, he emphasized that the board fully supports procuring and implementing an automated system to process and track new and renewal applications. He highlighted that the board asked the executive director to scope the system requirements and investigate potential vendors and acknowledged that DCCED was assisting. However, neither the board not AMCO has the resources to procure such a system. SB 9 has funds earmarked for this project and the hope is that it will pass both chambers this session and the funds will become available to automate the application process. The board agrees that the paper-based process is both time consuming and error prone. 2:41:22 PM MR. WALUKIEWICZ restated his belief that the recommendation to extend the board for just four years was a mistake, particularly given that it has served the public interest for over 40 years. He stressed that the board would have a lot of work when SB 9 becomes law and a six- to eight-year extension would send a strong message of support for the board that has upheld the public process and met the public need. 2:42:24 PM ACTING CHAIR STEVENS noted who was available to answer questions. 2:42:50 PM ACTING CHAIR STEVENS opened public testimony on SB 151; finding none, he closed public testimony. He solicited the will of the committee. 2:43:10 PM SENATOR GRAY-JACKSON moved to report SB 151, work order 32- LS1280\A, from committee with individual recommendations and attached fiscal note(s). 2:43:28 PM ACTING CHAIR STEVENS found no objection and SB 151 was reported from the Senate Labor and Commerce Standing Committee.