HOUSE FINANCE COMMITTEE March 26, 1999 1:38 P.M. TAPE HFC 99 - 54, Side 1 TAPE HFC 99 - 54, Side 2 CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:38 p.m. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Vice-Chair Bunde Representative Kohring Representative J. Davies Representative Moses Representatives Austerman, Williams and G. Davis were absent from the meeting. ALSO PRESENT Doug Gardner, Assistant Attorney General, Department of Law; Mike Krieber, Staff, Representative Kohring; Annalee McConnell, Director, Office of Management and Budget, Office of the Governor. SUMMARY HB 40 "An Act combining parts of the Department of Commerce and Economic Development and parts of the Department of Community and Regional Affairs by transferring some of their duties to a new Department of Commerce and Rural Development; transferring some of the duties of the Department of Commerce and Economic Development and the Department of Community and Regional Affairs to other existing agencies; eliminating the Department of Commerce and Economic Development and the Department of Community and Regional Affairs; relating to the Department of Commerce and Rural Development and the commissioner of commerce and rural development; adjusting the membership of certain multi- member bodies to reflect the transfer of duties among departments and the elimination of departments; creating the office of international trade and relating to its duties; and providing for an effective date." HB 40 was placed in a subcommittee chaired by Representative Therriault, and consisting of Representative Austerman, Representative Kohring and Representative J. Davies. HB 102 "An Act imposing certain requirements relating to cigarette sales in this state by tobacco product manufacturers, including requirements for escrow, payment, and reporting of money from cigarette sales in this state; providing penalties for noncompliance with those requirements; and providing for an effective date." HB 102 was REPORTED out of Committee with a "do pass" recommendation and two zero fiscal notes, one by the Department of Law and one by the Department of Revenue. HOUSE BILL NO. 102 "An Act imposing certain requirements relating to cigarette sales in this state by tobacco product manufacturers, including requirements for escrow, payment, and reporting of money from cigarette sales in this state; providing penalties for noncompliance with those requirements; and providing for an effective date." Co-Chair Therriault observed that Mr. Gardner, Department of Law responded to questions by the Committee in a letter dated 3/24/99 (copy on file). DOUG GARDNER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW reviewed his letter to Co-Chair Therriault. He observed that the Committee questioned if the word "generally" could be deleted on page 3, line 11. He conferred with counsel for Phillip Morris. Phillip Morris takes the position that it would not be a qualifying statute with the deletion of "generally". He stated that the state of Alaska would not necessarily agree with Phillip Morris, but acknowledged that the change would open the state to litigation. He recommended that "generally" not be deleted. He emphasized that any benefit for clarification purposes would be outweighed by the risks of litigation. Mr. Gardner discussed the second question that was posed by the Committee: What is the meaning of the phrase "generally perform its financial obligations under the Master Settlement Agreement." He observed that counsel for Phillip Morris would take the position that the change would render the statute a non-qualifying statute. The Department of Law takes the position that the term "generally perform its financial obligations" is a catch all phrase used to describe the myriad of financial obligations in the Master Settlement Agreement and in and of itself does not alter the obligations that are individually enforceable throughout the rest of the agreement. He recommended that the proposed change not be made. Mr. Gardner discussed the third question: Can the committee amend HB 102 by deleting page 3, lines 10 - 12. He concluded that the need for the section still exists. He explained that a company could still become a Subsequent Participating Manufacturer (SPM). Mr. Gardner discussed the fourth questioned: Does the bill have the affect of limiting a Non-Participating Manufacturer's liability to the amount a manufacturer would be required to place in escrow under Sec. 45.53.020? He concluded that it would not. He noted that if a Non- Participating Manufacturer put a million dollars into an escrow account and was found to be liable to a plaintiff in Alaska for $2 million dollars, than the plaintiff could recover a million dollars from the escrow fund and continue to collect the judgement as allowed by Alaska law against the company. The fund is a vehicle for providing for compensation but not the only available source. Co-Chair Therriault clarified that the finding language is part of the model legislation. Representative J. Davies asked what obligations and advantages would exist under the Subsequent Participating Manufacturer status. Mr. Gardner explained that a small manufacturing company could sign the agreement and take themselves out of the situation of possible liability. They would not have the ability to increase market share without any financial repercussions as they would have if they had signed as a SPM earlier. If they do not become a SPM they would have to deal with the escrow issue. Representative J. Davies questioned if they would be subject to advertising sanctions. Mr. Gardner replied that they would have to comply with SPM restrictions on advertising. Representative Grussendorf maintained that "generally" is vague. He stressed that without "generally" the original agreement would be clear. Representative J. Davies MOVED to ADOPT Amendment 1 (copy on file). Page 3, line 27 Delete "Such money itself:" Insert "Money placed into escrow and interest earned on money in escrow" Representative J. Davies expressed the concern that the phase "Such money itself" could be interpreted as relating only to the principle. Mr. Gardner concluded that the phrase applies to both the interest and the principle amount. He emphasized that the language is clarified with the addition of page 4, lines 12 - 15. Representative J. Davies Withdrew Amendment 1. Co-Chair Therriault questioned if the language on page 4 line 12 should read "subsection". Mr. Gardner stated that he thought the language should be "subsection". Co-Chair Therriault noted that there are two zero fiscal notes. Vice-Chair Bunde MOVED to report HB 102 out of Committee with the accompanying fiscal notes. HB 102 was REPORTED out of Committee with a "do pass" recommendation and two zero fiscal notes, one by the Department of Law and one by the Department of Revenue. HOUSE BILL NO. 40 "An Act combining parts of the Department of Commerce and Economic Development and parts of the Department of Community and Regional Affairs by transferring some of their duties to a new Department of Commerce and Rural Development; transferring some of the duties of the Department of Commerce and Economic Development and the Department of Community and Regional Affairs to other existing agencies; eliminating the Department of Commerce and Economic Development and the Department of Community and Regional Affairs; relating to the Department of Commerce and Rural Development and the commissioner of commerce and rural development; adjusting the membership of certain multi- member bodies to reflect the transfer of duties among departments and the elimination of departments; creating the office of international trade and relating to its duties; and providing for an effective date." Co-Chair Therriault observed that the legislation would be placed into a subcommittee. REPRESENTATIVE KOHRING, SPONSOR, spoke in support of HB 40. He gave a brief history of the legislation. He observed that the bill was introduced in the previous legislative session as HB 400. HB 40 was based on earlier legislation sponsored by Representative Kelly. He maintained that HB 40 would save the state money by merging the Department of Community and Regional Affairs with the Department of Commerce and Economic Development. He stressed that the budget deficient cannot be addressed just by cutting out programs. He emphasized that programs and services must be delivered more efficiently. He maintained that the legislation would deliver programs with greater efficiency and fewer dollars. Upper management would be reduced. The legislation would save approximately $900 thousand dollars. The existing program structure would be retained. He maintained that the integrity of programs in rural Alaska would remain. Representative Kohring observed that there are nine programs that are being administered by both the Department of Environmental Conservation and Department of Community and Regional Affairs. He observed that one of the two commissioner's offices would be eliminated. He maintained that the legislation would shield programs that are important for the development of Alaska's economy. He explained that childcare programs would be transferred to the Department of Health and Social Services. Job related programs would be transferred to the Department of Labor. He stressed that without these two components the department can focus strictly on economic development. Representative Kohring estimated that the cost of the merger would be approximately $200 thousand dollars. He acknowledged that the Administration estimates the cost at approximately $750 thousand dollars. He emphasized that there would be minimal staff disruption. He stated that staff associated with Headstart and job training would be the only ones that would need to move. He pointed out that the initial cost of the merger would not be repeated in subsequent years. Representative Kohring observed that the Department would be named the Department of Commerce and Rural Development. He stressed that the programs and intent of the Department of Community and Regional Affairs would be retained. He reviewed support for the legislation. Representative Kohring discussed the one-stop shopping concept. He discussed changes to the legislation made by the House Community and Regional Affairs Committee. He noted that in response to concerns by Representative Joule the word "may" was changed to "shall" in section 77. A rural affairs advocate was also added in section 65. He reiterated that the legislation would benefit rural Alaska. He stressed that there would be a greater focus on economic development and commerce in rural Alaska. He stressed that infrastructure and construction would be maximized. He asserted that urban Alaska would benefit from enhanced economic activity in rural Alaska. Representative Kohring pointed out that the merger would create an agency that would still be the fourth smallest in the state. There would be additional management oversight, but not additional duties or responsibility. Representative Kohring thanked the Administration for their cooperation on the legislation. Representative Kohring referred to a letter of support by Don Tanner, former Deputy Commissioner, Department of Community and Regional Affairs (copy on file). Mr. Tanner stated that: "Having one department responsible for improving our economy will help all communities and businesses." He also referred to a letter by former commissioner of the Department of Commerce and Economic Development, Paul Fuhs, dated March 17, 1998 (copy on file). Former Commissioner Fuhs stated that there would be many advantages to combining the state's economic development programs. He maintained that combined programs would be more effective. Representative Kohring concluded that the legislation would allow economic growth to be enhanced while preserving and protecting the integrity of programs. Vice-Chair Bunde asked if there were other states with similar agencies. MIKE KRIEBER, STAFF, REPRESENTATIVE KOHRING responded that there are similar programs in at least two other states, Pennsylvania and Florida. Representative J. Davies questioned if the commissioner of the Department of Community and Regional Affairs or the commissioner of the Department of Commerce and Economic Development would be eliminated. Mr. Krieber explained that the legislation eliminates the department of Community and Regional Affairs. Representative Kohring stressed that either department could be eliminated. Representative J. Davies questioned if rural Alaskans would be comfortable with the deletion of the Department of Community and Regional Affairs. Co-Chair Therriault observed that the new agency would take over the functions of the Department of Community and Regional Affairs. He stated that he would look at the issue in subcommittee. Representative J. Davies noted that a commissioner would be eliminated. He questioned which of the duties that the commissioners are doing would be eliminated. Representative Kohring stated that the intent was not to eliminate the Department of Community and Regional Affairs' commissioner in particular. He stated that only upper management and oversight personnel would be eliminated. He did not think that there would be a negative impact on programs. Representative Kohring stressed that there was no alternative motive, as far as focusing on the commissioner of the Department of Community and Regional Affairs' position. He stated that either commissioner position could be eliminated. He reiterated that only upper management would be affected. He asserted that there would be no negative impact to programs and pointed out that the rural advocate would be a cabinet level position. He reiterated his sincerity in maintaining the integrity of rural programs. Mr. Krieber explained that the rural advocate position would observe other departments and their rural activities in order to look at state government as a whole. Representative J. Davies pointed out that commissioners do real work. He questioned which of their duties would not be done with the elimination of one commissioner. Representative Kohring stated that the current duties of the Department of Community and Regional Affairs' commissioner would not be eliminated. He stressed that the Division director and the rural advocate would continue the duties. Representative J. Davies asked how the duties could be combined without something being lost. Representative Kohring stated that the rural advocate position would assume the commissioner's responsibilities. Co-Chair Mulder stated that they would be asking fewer people to do more work. Representative J. Davies stated that the approach assumes that people can do more work and that they are not already working long hours. Representative Kohring reiterated that there would not necessarily be more work. He stressed that upper management would have more oversight. Representative Kohring reviewed the organization of the new Department of Commerce and Rural Development. There would be four Divisions: Rural Affairs Division, Statewide Economic Development Division, Division of Administration, and Independent Agencies (Tape Change, HFC 99 - 54, Side 2) Representative Kohring stated his intent for a strong bipartisan effort with a strong level of trust. Representative J. Davies expressed concern that the constitutional provision for local government be met. He asked where the general community emphasis for local government would fall. Mr. Krieber maintained that the new department would continue to be an advocate for communities. Representative Kohring stated that the structure would allow the department to focus on the needs of both urban and rural Alaska. Representative J. Davies stressed that their needs are broader than commerce. Representative Kohring stated that the intent is to give a focus and attention of economic development in addition to reducing the budget and streamlining government. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR explained that in an attempt to outline reductions the Governor identified areas that can be consolidated. The Administration concluded that job training and childcare programs would benefit from consolidation. She noted that job training programs have been placed in different departments, in part, due to federal mandates. She observed that recent changes at the federal level allow consolidation of some of the services. She suggested that there could be a realigning of services in the Department of Labor, Department of Community and Regional Affairs, and Department of Commerce and Economic Development. She observed that some components could be transferred to other agencies. Childcare programs could be transferred to the Department of Health and Social Services. She emphasized that consolidation would accomplish a number of key goals in addition to budget savings. The Governor's goals include improving access in rural areas and maintaining a clear focus on rural Alaska. She noted that Power Cost Equalization is one of the most important functions of the Department of Community and Regional Affairs. It is the Governor's goal to find a solution to the delivery of Power Cost Equalization (PCE) funding in the process. She stressed that none of the functions currently being provided by the three departments can be eliminated without significant impacts. Representative Foster asked if other departments would be reviewed for consolidation. Ms. McConnell stated that they did not have plans to consolidate other departments. Co-Chair Therriault noted that this consolidation has been under review for a number of years. He spoke in support of the consolidations and identified areas that can be improved by the consolidation. He observed that the legislation would impact the operating budget. He explained that the FY00 operating budget would be based on the current structure. If the consolidation occurs the conference committee can adopt fiscal notes to make the structural changes in the operating budget. Co-Chair Therriault stated that the subcommittee would consist of Co-Chair Therriault as chair, Representative Austerman, Representative Kohring, and Representative J. Davies. HB 40 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 2:45 p.m. House Finance Committee 9 3/26/99