HOUSE FINANCE COMMITTEE APRIL 21, 1998 8:25 A.M. TAPE HFC 98 - 119, Side 1 TAPE HFC 98 - 119, Side 2 TAPE HFC 98 - 120, Side 1 CALL TO ORDER Co-Chair Gene Therriault called the House Finance Committee meeting to order at 8:25 a.m. PRESENT Co-Chair Hanley Co-Chair Therriault Representative Kelly Representative Davies Representative Martin Representative Davis Representative Moses Representative Foster Representative Mulder Representative Grussendorf Representative Kohring was absent from the meeting. ALSO PRESENT Tom Williams, Staff, Senator Sharp; Bob Bartholomew, Deputy Director, Income and Excise Audit Division, Department of Revenue; Ashley Reed, Lobbyist, Charitable Gaming Association; Tina Lindren, Alaska Visitors Association, Anchorage; Jeff Bush, Deputy Commissioner, Department of Community and Regional Affairs. The following testified via the teleconference network: Heather Dodson, Windsong Lodge, Anchorage; Marilyn Kasmar, Anchorage; Matt Atkinson, Chair, Visitor's Bureau, Fairbanks; Milton Wiltse, Director, Division of Geological and Geophysical Survey, Department of Natural Resources, Fairbanks; Julie Wild-Curry, Program Manager, Healthy Families Program, Fairbanks; Alan Lemaster, Business Owner, Gakona; Paul Smith, Business Owner, Tok; SUMMARY HB 369 "An Act relating to Medicaid coverage for certain eligible children and pregnant women; relating to primary care case management and managed care services as optional services and to premiums and cost-sharing contributions under the Medicaid program; establishing the Healthy Families Alaska program; and providing for an effective date." HB 369 was HELD in Committee for further consideration. HB 408 "An Act establishing the Alaska Seismic Hazards Safety Commission." HB 408 was HELD in Committee for further consideration. HB 478 "An Act relating to tourism; relating to grants for tourism marketing; eliminating the division of tourism and the Alaska Tourism Marketing Council; and providing for an effective date." HB 478 was HELD in Committee for further consideration. SB 273 "An Act requiring that gross receipts and ideal gross be used to account for charitable gaming activities; requiring municipalities to provide to the state records concerning sales taxes assessed for charitable gaming activities; requiring that a charitable share of charitable gaming receipts be dedicated to charitable uses; relating to reports required for charitable gaming activities; relating to payments to the state from gross receipts of charitable gaming; relating to contracts between operators or vendors and permittees; relating to licensing of multiple-beneficiary permittees and to the duties of a multiple-beneficiary permittee to each holder of the permit; requiring a person employed as a gaming manager to be certified by the state; limiting the expenditure of amounts of gross receipts and ideal gross required to be paid to permittees or retained by permittees; relating to the amount of gross receipts and prizes allowed under a permit or a multiple- beneficiary permit; allowing operators to pool gross receipts, prizes, and door prizes among permittees; and providing for an effective date." HCS CSSB 273 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the Department of Revenue, dated 2/27/98. SENATE BILL NO. 273 "An Act requiring that gross receipts and ideal gross be used to account for charitable gaming activities; requiring municipalities to provide to the state records concerning sales taxes assessed for charitable gaming activities; requiring that a charitable share of charitable gaming receipts be dedicated to charitable uses; relating to reports required for charitable gaming activities; relating to payments to the state from gross receipts of charitable gaming; relating to contracts between operators or vendors and permittees; relating to licensing of multiple-beneficiary permittees and to the duties of a multiple-beneficiary permittee to each holder of the permit; requiring a person employed as a gaming manager to be certified by the state; limiting the expenditure of amounts of gross receipts and ideal gross required to be paid to permittees or retained by permittees; relating to the amount of gross receipts and prizes allowed under a permit or a multiple- beneficiary permit; allowing operators to pool gross receipts, prizes, and door prizes among permittees; and providing for an effective date." TOM WILLIAMS, STAFF, SENATOR SHARP spoke in support of SB 273. He noted that the legislation revises the charitable gaming statutes to base the amount paid to charities on a gross percentage as opposed to net proceeds. In addition, it creates a multiple-beneficiary permit. Representative Mulder questioned why an ideal net was not used. Mr. Williams observed that the concept of a broad- based ideal net was considered. The sponsor does not support the concept because it does not assure that a certain percentage, of every dollar gained, goes to the charity. The sponsor did not want to make the amount that goes to the charity dependent on the prize pay out. He emphasized that the intent is to remove the State from the issue of determining what the appropriate prize level is or what is an allowable expense. The mix of prizes and expenses should be left to the business decision of the charity and the operator. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE spoke in support of the legislation. He noted that amendments have been drafted to address concerns. He maintained that the process and percentages contained in the legislation are workable and allow flexibility in prizes and expenses. He spoke against using an ideal net. He observed that the appropriate level of ideal net is not agreed on. Representative Grussendorf noted concerns that businesses that meet the 30 percent net requirement could not meet the requirement for 7 percent of the adjusted gross. Mr. Bartholomew noted that Amendment 1 would address those concerns (copy on file). The percentage would be reduced from 7 to 6.5 percent for an additional year. The amendment would phase in the increase. Co-Chair Hanley MOVED to ADOPT Amendment 1. Mr. Williams explained that the legislation would go into effect January 1999. For 1999, the percentage for pull-tabs would be 6.5 percent. It would go to 7 percent in January 2000. Amendment 1 would also change the charitable share on bingo from 1.5 to 2 percent. Co-Chair Hanley expressed support for the phase in proposal, but expressed concern that operations not be put out of business by the increase. Mr. Bartholomew stressed that 7 percent was picked based on data available to the Department. The majority of operators would achieve 7 percent of gross. The Department worked with operators that were not in compliance with current law to look at ways of adjusting expenses and prizes to fit into the proposed level. He felt confident that 7 percent of gross in the second year would not adversely affect charitable gaming. He observed that charity run operations pay themselves more than 6.5 percent. He did not think there would be a significant change in the number of non-profit permits. It is not the intention to reduce the number of permits. Co-Chair Hanley questioned the effect of shifting the net pay out by a half percent. Mr. Bartholomew replied that a reduction in a half a percent pay out on prizes would result in an increase in gross. Prize pay-outs would have to be managed to average between 77 and 78 percent to achieve the percentage of gross. Representative Mulder disclosed that he is a board member of a charity that would be affected by the legislation. In response to a question by Representative Mulder, Mr. Bartholomew stated that, based on the 1997 reports, almost 100 percent of the operators are in compliance. There being NO OBJECTION, Amendment 1 was adopted. SB 273 was HELD in Committee for further consideration during the meeting. HOUSE BILL NO. 369 "An Act relating to Medicaid coverage for certain eligible children and pregnant women; relating to primary care case management and managed care services as optional services and to premiums and cost-sharing contributions under the Medicaid program; establishing the Healthy Families Alaska program; and providing for an effective date." JULIE WILD-CURRY, PROGRAM MANAGER, HEALTHY FAMILIES PROGRAM, FAIRBANKS spoke in support of the Healthy Families Program. She acknowledged the benefit of a control group, but stressed that resources would be better spent to provide services. She noted that the states of Hawaii and Arizona have conducted studies with control groups. Research showed that their programs resulted in a more nurturing home and environment and more positive parent child interaction. There were no cases of child abuse or neglect in those studied during a 10-year period. She summarized that the program can reduce the cost to society. HB 369 was HELD for further consideration during the meeting. HOUSE BILL NO. 478 "An Act relating to tourism; relating to grants for tourism marketing; eliminating the division of tourism and the Alaska Tourism Marketing Council; and providing for an effective date." MATT ATKINSON, CHAIR, VISITOR'S BUREAU, FAIRBANKS spoke in support of HB 478. He observed that the goal of the legislation is to shift tourism marketing to the private sector. He maintained that a new method of tourism marketing is needed. State support for tourism marketing has been reduced from $15 million dollars in FY 90 to $6.7 million dollars in FY 98. The Alaska Visitor's Association has worked to create a new plan. He maintained that the plan would combine the marketing activities of the Alaska Tourism Marketing Council (ATMC), Alaska Visitors Association (AVA) and the Division of Tourism. It would decrease confusion, duplication of effort and increase private sector contributions. PAUL SMITH, BUSINESS OWNER, TOK spoke in support of the legislation. He stressed the need to protect small highway businesses. ALAN LEMASTER, BUSINESS OWNER, GAKONA spoke in support of the legislation. He observed that the state of Alaska spends $4 million dollars to market tourism while the state of Queensland in New Zealand spends $40 million dollars in tax money. He stressed that there has been a decline in tourism. He maintained that small and large business must carry the ball. HB 478 was HELD in Committee for further consideration during the meeting. HOUSE BILL NO. 408 "An Act establishing the Alaska Seismic Hazards Safety Commission." MILTON WILTSE, DIRECTOR, DIVISION OF GEOLOGICAL AND GEOPHYSICAL SURVEY, DEPARTMENT OF NATURAL RESOURCES, FAIRBANKS spoke in support of HB 408. The legislation creates a seismic hazards safety commission. The state of Alaska has had an effective disaster emergency response group that has worked out responses to seismic events. He stated that less has been done to avoid the adverse impacts of earthquakes. Other states have established similar commissions as a result of Alaska's 1964 earthquake. Policies implemented in California have reduced the loss of life and property. Because of disasters in the lower 48 states, federal disaster relief is being reviewed. Draft federal legislation has contained a requirement for state mitigation measures to be in place for federal eligibility. There are approximately 20 seismic hazards commissions in the United States, including the state of Vermont. He stressed that the legislation could result in a decrease in loss of life, property and cost of recovery. It could also help coordinate post activity events. He noted that seismic research activity continues. Representative Foster expressed his support for the legislation. HB 408 was HELD in Committee for further consideration. HOUSE BILL NO. 478 "An Act relating to tourism; relating to grants for tourism marketing; eliminating the division of tourism and the Alaska Tourism Marketing Council; and providing for an effective date." TINA LINDREN, ALASKA VISITORS ASSOCIATION, ANCHORAGE stressed that the legislation is a response to indications by the Legislature that industry should increase its contribution to marketing. She maintained that reductions in state support has put Alaska at a competitive disadvantage. The legislation would consolidate statewide marketing into one nonprofit organization. The state of Alaska would grant to the nonprofit organization. There would be a reduction in state general funds and an increase in private sector funds. Communities would be able to leverage their own marketing plans in conjunction with the overall program. She observed that bylaws would be needed for the new organization. The state of Alaska would be able to impose conditions on the funds through the grant contract. (Tape Change, HFC 98 - 119, Side 2) Ms. Lindren observed that the legislation would eliminate the Division of Tourism. She emphasized that there is a continued role for the state in tourism. The state would continue planning and coordination functions. She reviewed the legislation. She noted that the purpose of the ATMC and the Division of Tourism are identical. The legislation deletes reference to both entities and leaves their responsibilities in the Department of Commerce and Economic Development. Section 4 creates a new grant program. Section (b) provides that materials produced and marketing information and tourism related data generated under a grant are the sole property of the qualified trade association. Revenues raised would be retained as part of the funding mechanism. Materials would be provided Department of Commerce and Economic Development on request. Materials would not be part of the public record. This retains current law. She observed that names from mailing lists would have no value if they were under public records. A qualified trade association may not use money granted to lobby a municipality or an agency of a municipality or to lobby the state or state agency. Section (e) defines a qualified trade association: "qualified trade association" means a private, nonprofit organization whose primary purposes are the promotion of tourism within the state encouraging tourists to visit the state and that has a statewide membership consisting of representatives of all major sectors of the visitor industry, including hotels, airlines cruise lines, wholesale and retail travel agencies, visitor attractions, and convention and visitors bureaus. Ms. Lindren observed that statutes that currently deal with the Division of Tourism and the ATMC are repealed. Section 6 contains an effective date. She spoke in support of a one-year transition to setup a new organization. In response to a question by Representative Davies, Ms. Lindren provided members with a copy of the proposed budget for the "New Millenium Plan" by the Alaska Visitors Association (copy on file). She compared budget numbers provided by the Department of Commerce and Economic Development (copy on file) with those contained in the Plan. She discussed funding levels of Pay to Play programs. She noted that the AVA budget is currently $805 thousand dollars. HEATHER DODSON, PRESIDENT, ALASKA VISITORS ASSOCIATION ANCHORAGE CHAPTER, WINDSONG LODGE, ANCHORAGE spoke in support of the legislation. She maintained that it is time for a change. Ms. Lindren observed that the Plan would reduce the general fund contribution over a three year period from $5.3 to $4.0 million dollars. Industry contribution would be increased from $1.4 to $6 million dollars. The total combined budgets of the ATMC and Division of Tourism is $6.7 million dollars. Part of this is not for marketing activities. Approximately $650 thousand dollars is spent by the AVA to produce the vacation planner. The AVA contributes approximately $1.4 million dollars to the state of Alaska. Representative Davies expressed support for the legislation. He questioned how confident is the private sector that the money would be collected. He asked how smaller business would be affected. Ms. Lindren noted that there are no guarantees. She emphasized that it is in the industry's interest to promote the entire state of Alaska. Small communities and businesses need the Plan more than large ones since they have no means of their own to generate tourist to Alaska. Smaller businesses would be charged less under the Plan then they are currently paying. More money would come from larger companies. Larger communities would participate more than they currently do. She observed that state marketing has been reduced to printing and distributing the vacation planner. Ms. Lindren discussed funding sources. There is a cruise formula based on the number of passenger days in Alaska. There is an amount for businesses based on employee numbers. Larger businesses would pay more than smaller businesses. A number of Pay to Play programs, such as the vacation planner would raise revenues. Businesses can pick and chose among Pay to Play programs to pick ones that will benefit their businesses. There is no hammer to make sure that everyone participates. The budget estimate is conservative. Representative Davies expressed concerns regarding the Pay to Play portion of the Plan. Ms. Lindren envisioned that participation would be charged for in a number of things such as trade shows. A new marketing plan would have to be created. JEFF BUSH, DEPUTY COMMISSIONER, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS clarified that the Department does not oppose the privatization of tourism marketing in Alaska or the elimination of the ATMC. He expressed concerns with portions of the Plan. He observed that the nonprofit organization would be greatly dependent on contributions from the cruise industry. He expressed concern that there would be bias in favor of industry sectors that give large contributions. He observed that the Division of Tourism has focused on a highway tourism program in the last year. Significant funds have been received from the Alaska Marine Highway System. He expressed concern that this kind of promotion would not exist under the plan. The Alaska Marine Highway System competes with the cruise industry and the cruise system would have control over the program. He proposed multiple contracts for tourism marketing. He acknowledged that a large portion of the funding might go to a single contract. Some money should be retained for programs that might not be a priority of the private organization that receives the grant. Winter tourism is very important to the Fairbanks area. He observed that an aurora borealis program has been successfully marketed to Japanese tourist to come to Fairbanks. He stressed that this kind of a grant should be allowed. Representative Mulder asked if Mr. Bush's concerns could be addressed under the proposed program. Mr. Bush noted that the legislation would fund a single grant, which would run a marketing program. He questioned how much control the State could place on the operation of the grant. He noted that the program would not be competitive. The state of Alaska would have to choose between awarding the AVA the grant or not having a tourism program. The State's ability to negotiate terms of the agreement would be limited. He added that there is no guarantee for a private match. He maintained that there should be a required match and a competitive award. He stated that unless formal proposals are required in a competitive situation there is a loss of accountability. Mr. Bush did not see that there would be much more money going to tourism under the Plan than under the current system. He observed that state funding would be reduced by approximately 25 percent over three years. Local communities would pick up a significant percentage of this decrease. He maintained that state funding would be transferred to local municipal funding. Municipalities have contacted the Divisions with concerns regarding contribution levels. Representative Davis noted that tourism marketing in the State has merged into one large group. Mr. Bush explained that the Department is not advocating that state funds be split into small pieces. He clarified that the Department is concerned about the small amount that the Division of Tourism uses to do things like run the Tok visitor center or specialized programs for highway traffic and winter tourism. There needs to be attention to the little pieces. Representative Davis noted that section 3 establishes tourism promotion in the Department of Commerce and Economic Development. Mr. Bush stressed that the Department would not be provided any funding for promotion. The Department would retain one or two positions for general tourism land use planning activities to assist the Department of Natural Resources. All marketing and promotional activities would be given to the nonprofit. Representative Davis stressed that the legislation states that the Department of Commerce and Economic Development would "promote" tourism. Mr. Bush stressed that it is a funding issue. If the Legislature gives the Department money, the Department would find a way to promote tourism under the legislation. HB 478 was HELD in Committee for further consideration. HOUSE BILL NO. 369 "An Act relating to Medicaid coverage for certain eligible children and pregnant women; relating to primary care case management and managed care services as optional services and to premiums and cost-sharing contributions under the Medicaid program; establishing the Healthy Families Alaska program; and providing for an effective date." MARILYN KASMAR, ANCHORAGE spoke in support of HB 369. She maintained that it makes good sense to increase eligibility levels for Medicaid to 200 percent of the federal poverty level. There are 23,900 children and 800 pregnant women in Alaska that do not have insurance coverage. The expansion would offer coverage to 11,600 of the uninsured children and all 800 of the pregnant women. Uninsured children are more likely to have greater medical expense later in life. She noted that 41 states provide better care for pregnant women and children than Alaska. She asserted that the expansion could be paid through the $31 million dollar savings in the federal F/MAP rate (the federal match in Medicaid payments). She stressed that congressional leaders have indicated that reauthorization of the money will be difficult if it is not used for health care. For every .28 cents spent on health care for children Alaska will receive .72 cents from the federal government. HB 369 was HELD in Committee for further consideration. SENATE BILL NO. 273 "An Act requiring that gross receipts and ideal gross be used to account for charitable gaming activities; requiring municipalities to provide to the state records concerning sales taxes assessed for charitable gaming activities; requiring that a charitable share of charitable gaming receipts be dedicated to charitable uses; relating to reports required for charitable gaming activities; relating to payments to the state from gross receipts of charitable gaming; relating to contracts between operators or vendors and permittees; relating to licensing of multiple-beneficiary permittees and to the duties of a multiple-beneficiary permittee to each holder of the permit; requiring a person employed as a gaming manager to be certified by the state; limiting the expenditure of amounts of gross receipts and ideal gross required to be paid to permittees or retained by permittees; relating to the amount of gross receipts and prizes allowed under a permit or a multiple- beneficiary permit; allowing operators to pool gross receipts, prizes, and door prizes among permittees; and providing for an effective date." Co-Chair Therriault MOVED to ADOPT Amendment 2, on behalf of Senator Sharp (copy on file). Representative Mulder MOVED to amend Amendment 1, change 17 to 18. He explained that the amendment would raise the charitable share for pull-tabs to 18 percent of the gross. He spoke in support of the amendment to Amendment 2. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE stressed that the average amount needed to hold harmless charities is 16 to 17 percent of the gross. He asserted that 17 percent would hold the greatest amount harmless. In response to a question by Co-Chair Therriault, Mr. Bartholomew observed that a 77 percent prize pay-out would provide 16 percent of gross. For non-profits to receive 18 percent of gross, prize pay-outs would have to be approximately 73 - 74 percent. Representative Davis noted that there are variations in prize pay-outs. Mr. Bartholomew observed that prize pay-outs run from approximately 72 to 85 percent. (Tape Change, HFC 98 -120, Side 1) Mr. Bartholomew observed that prize pay-outs are driven by what has been previously paid. Pay-outs can be higher or lower, but they must average to the amount needed to meet the percentage of gross. He acknowledged that charities can negotiate for a higher share, but stressed that it is difficult. Representative Davies expressed concern that the level of share is at a level that would force some people out of business. Mr. Bartholomew agreed that the industry has raised the issue. He stressed that the Department has attempted to find the level that would hold operations harmless. TOM WILLIAMS, STAFF, SENATOR SHARP stated that the sponsor recommended 17 percent, but does not object to 18 percent. There being NO OBJECTION, the amendment to the amendment was adopted. There being NO OBJECTION, Amendment 2 was adopted as amended. Representative Martin MOVED to ADOPT Amendment 3 (copy on file). Mr. Bartholomew explained that Amendment 3 would strengthen controls over how money received by non-profits from gaming is spent. The amendment prohibits commingling of charitable gaming proceeds with other funds. He noted that it is hard to ascertain if money is spent appropriately when it is commingled with funds for other purposes. The proceeds would have to be spent directly out of the gaming account. Representative Foster expressed concerns that the amendment would be difficult for small rural operations. He asked what the penalty would be for noncompliance. Mr. Bartholomew explained that the worst penalty would be for them to lose their license. He observed that the charity would already have a gaming account. The amendment does not require a new account. Some non-profits transfer funding into their operating account. Under the amendment funds could not be transferred to the operating account. There would not be a criminal penalty. Co-Chair Therriault summarized that the Department would approach the organization to get them to follow the rules. Mr. Bartholomew stressed that the Department offers a chance to come into compliance. Representative Foster questioned if there was a problem in rural areas. Mr. Bartholomew emphasized that the chance of having sanctions would be small. It would make it easier to follow the flow of money. Representative Martin spoke in support of the amendment. He emphasized that the amendment would not hurt charities. The intent is to require large non-profits to keep the funds separate from operating expenses. Mr. Williams stated that the sponsor does not object to the amendment. He did not think that the amendment would be onerous. A roll call vote was taken on the motion. IN FAVOR: Mulder, Davis, Martin, Therriault OPPOSED: Davies, Foster, Kelly Co-Chair Hanley and Representatives Grussendorf, Kohring and Moses were absent from the vote. The MOTION FAILED (4-3). Representative Martin MOVED to ADOPT Amendment 4 (copy on file). Amendment 4 would raise levels paid to charities from 7 to 8.5 percent. Mr. Bartholomew stated that an increase of 1.5 percent would significantly change the financial pie. More money would go to non-profits, but the unintended consequences of that large of an increase are unknown. The intent of the legislation was to keep the financial pie fixed. Representative Davis spoke against the amendment. He maintained that the amendment would force operators out of business, which would hurt charities. Representative Martin spoke in support of the amendment. He asserted that not enough money is going to charity. A roll call vote was taken on the motion. IN FAVOR: Martin, Therriault OPPOSED: Davies, Davis, Foster, Kelly, Mulder Co-Chair Hanley and Representatives Grussendorf and Moses were absent from the vote. The MOTION FAILED (2-5). Amendment 5 was withdrawn. ASHLEY REED, LOBBYIST, CHARITABLE GAMING ASSOCIATION spoke against the legislation. He observed that the industry maintains concerns regarding the legislation. He stressed that there is no guarantee that the legislation will be revenue neutral. He stressed that small operations have higher costs than large operations. He maintained that charities would suffer from the legislation. Co-Chair Therriault MOVED to report HCS SB 273 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. Representative Martin maintained that true charities do not have to worry. HCS CSSB 273 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the Department of Revenue dated 2/27/98. ADJOURNMENT The meeting adjourned at 10:30 a.m. House Finance Committee 13 4/21/98 a.m.