HOUSE JUDICIARY STANDING COMMITTEE March 15, 1999 1:32 p.m. MEMBERS PRESENT Representative Pete Kott, Chairman Representative Joe Green Representative Norman Rokeberg Representative Jeannette James Representative Lisa Murkowski Representative Eric Croft Representative Beth Kerttula MEMBERS ABSENT All members present COMMITTEE CALENDAR OVERVIEW: CARRS/SAFEWAY MERGER - HEARD AND HELD; EXECUTIVE SESSION * 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." - MOVED HB 102 OUT OF COMMITTEE HOUSE BILL NO. 57 "An Act relating to immunity for certain claims against the state, a municipality, or agents, officers, or employees of either, arising out of or in connection with the year 2000 date change; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 102 SHORT TITLE: CIGARETTE SALES: AGREEMENT/ESCROW SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 2/19/99 258 (H) READ THE FIRST TIME - REFERRAL(S) 2/19/99 258 (H) JUDICIARY, FINANCE 2/19/99 258 (H) 2 ZERO FNS (REV, LAW) 2/19/99 259 (H) GOVERNOR'S TRANSMITTAL LETTER 3/15/99 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 57 SHORT TITLE: STATE & MUNI IMMUNITY FOR Y2K SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 1/22/99 64 (H) READ THE FIRST TIME - REFERRAL(S) 1/22/99 64 (H) CRA, JUDICIARY 1/22/99 64 (H) ZERO FISCAL NOTE (ADM) 1/22/99 64 (H) GOVERNOR'S TRANSMITTAL LETTER 2/04/99 (H) CRA AT 8:00 AM CAPITOL 124 2/04/99 (H) MOVED OUT OF COMMITTEE 2/04/99 (H) MINUTE(CRA) 2/05/99 142 (H) CRA RPT 5DP 1NR 2/05/99 142 (H) DP: DYSON, MORGAN, HARRIS, MURKOWSKI, 2/05/99 142 (H) HALCRO; NR: KOOKESH 2/05/99 142 (H) ZERO FISCAL NOTE (ADM) 1/22/99 2/05/99 142 (H) REFERRED TO JUDICIARY 3/15/99 (H) JUD AT 1:00 PM CAPITOL 120 WITNESS REGISTER BRUCE M. BOTELHO, Attorney General Department of Law P.O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-2133 POSITION STATEMENT: Testified on HB 102. GAIL VOIGTLANDER, Assistant Attorney General Special Litigation Section Civil Division Department of Law 1031 West 4th Avenue, Suite 200 Anchorage, Alaska 99501-1994 Telephone: (907) 269-5100 POSITION STATEMENT: Testified on HB 57. BOB POE, Commissioner-designee Department of Administration P.O. Box 110200 Juneau, Alaska 99811-0200 Telephone: (907) 465-2200 POSITION STATEMENT: Testified on HB 57. BRAD THOMPSON, Director Division of Risk Management Department of Administration P.O. Box 110218 Juneau, Alaska 99811-0218 Telephone: (907) 465-5723 POSITION STATEMENT: Testified on HB 57. ACTION NARRATIVE TAPE 99-12, SIDE A Number 0001 CHAIRMAN PETE KOTT called the House Judiciary Standing Committee meeting to order at 1:32 p.m. All members were present at the call to order. Number 0068 CHAIRMAN KOTT called for a brief at-ease at 1:33 p.m. and called the meeting back to order at 1:38 p.m. OVERVIEW: CARRS/SAFEWAY MERGER Number 0120 CHAIRMAN KOTT announced the first order of business is an overview on the Carrs/Safeway merger. CHAIRMAN KOTT invoked Rule 22, "Open and Executive Sessions", of the Uniform Rules due to the sensitivity of the nature of the merger arrangement. He noted it requires a majority vote and called for a motion. Number 0143 REPRESENTATIVE CROFT made a motion to invoke the rule of executive session. Number 0160 REPRESENTATIVE ROKEBERG objected and asked Chairman Kott whether this has been discussed with the attorney general. CHAIRMAN KOTT replied yes. The attorney general has indicated a cautious approach due to the nature of some of the questions that might come up. REPRESENTATIVE ROKEBERG withdrew his objection. The House Judiciary Standing Committee went into executive session at 1:40 p.m. and came out of executive session at 2:42 p.m. HB 102 - CIGARETTE SALES: AGREEMENT/ESCROW CHAIRMAN KOTT announced the next order of business is 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." CHAIRMAN KOTT called on Bruce M. Botelho from the Department of Law to discuss the bill. Number 0230 BRUCE M. BOTELHO, Attorney General, Department of Law, stated the purpose of the bill is simply to accomplish one aspect of the settlement reached last November between the attorneys general and the tobacco industry. It calls for the enactment of a model statute whose purpose is to deal with the non-participating manufacturers. The purpose is to make sure that those companies do not take advantage of the ability to undersell their products and gain market share in any state in the union. The state is not required, under the terms of the Master Settlement Agreement, to pass this type of legislation nor is it a condition precept for the state to receive monies from the settlement. However, there is a major penalty in the sense that if there is an increase in a market share that increase is shared disproportionately with those states that have not enacted the model legislation. The material that has been provided shows a hypothetical example of this kind of adverse fiscal impact on the state. At this stage, more than 99 percent of the total are participating. The legislation provides the option of signing on or establishing an escrow account reflecting a manufacturer's percentage of its share of the market and cost that it would otherwise bear under the terms of the agreement. Number 0448 CHAIRMAN KOTT asked Attorney General Botelho whether the bill applies only to cigarettes or is there a broader application to cover cigars or smokeless tobacco products. ATTORNEY GENERAL BOTELHO replied it is targeted at all cigarettes. There is a separate settlement regarding chewing or smokeless tobacco. Number 0490 REPRESENTATIVE GREEN asked Attorney General Botelho whether there are any sales of tobacco products that are not made in the U.S. ATTORNEY GENERAL BOTELHO replied he doesn't know. Number 0520 REPRESENTATIVE GREEN asked Attorney General Botelho whether the bill would have any affect on alien tobacco manufacturers. ATTORNEY GENERAL BOTELHO replied it would require any company or person attempting to sell in the state of Alaska to sign on to the agreement or pay money into an escrow account. The incidence is really the sale of tobacco in the state. Number 0549 REPRESENTATIVE MURKOWSKI asked Attorney General Botelho whether there have been any legal challenges to the model legislation. ATTORNEY GENERAL BOTELHO replied, to his knowledge, there hasn't been any challenge to the model legislation. There have been challenges in several states to the underlying settlement itself. Most notably are California, New York, New Jersey and Pennsylvania. In each instance, except for New York, they have challenged the overall efficacy of the settlement. New York's battle has been over the allocation of monies between the local government and the state. In addition, a separate class action has been filed in Oklahoma for the overall settlement to be declared unconstitutional. Number 0632 REPRESENTATIVE MURKOWSKI asked Attorney General Botelho whether this legislation would be thrown out, if everything is thrown out. ATTORNEY GENERAL BOTELHO replied correct. Number 0650 REPRESENTATIVE GREEN referred to Section 45.53.020 of the bill and stated the schedule of increase is an unusual mill. He wondered whether it is an estimate of a cost of living increase, for example. ATTORNEY GENERAL BOTELHO replied the numbers were negotiated at great length between the industry and the leading states in the settlement. He cannot answer why they are at the 1/10,000 point. Number 0711 CHAIRMAN KOTT stated this doesn't prevent any new revenue to the state. It prevents cherry picking. ATTORNEY GENERAL BOTELHO said correct. The bill is not a revenue source. It is simply an escrow account by which the public may draw on monies in the event that the non-participating manufacturer chooses to sell. Number 0736 REPRESENTATIVE ROKEBERG asked Attorney General Botelho to comment on the steps it would take to sell cigarettes in the state. ATTORNEY GENERAL BOTELHO replied any company that wishes to sell in the state is required through its wholesaler to register and pay a tax right now. The bill would require a non-signatory manufacturer of the settlement to establish a separate escrow account. Number 0784 REPRESENTATIVE ROKEBERG asked Attorney General Botelho how much would it deposit. ATTORNEY GENERAL BOTELHO replied it would be based on estimated sales according to a schedule. REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether there is a stipulated schedule in the settlement. ATTORNEY GENERAL BOTELHO replied there is a schedule in terms of a per pack. Each manufacturer has given a different estimate of the cost of the settlement to that manufacturer. He reiterated this would be primarily based on a representation of estimated sales; it would be trued for actual sales. Number 0835 REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the bill gives any guidance to a manufacturer. ATTORNEY GENERAL BOTELHO replied it is triggered in Section 45.53.020(a)(2) of the bill. The bill also provides additional authority to adopt regulations to implement the terms of the agreement. Number 0878 REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the "units sold" is an individual cigarette. ATTORNEY GENERAL BOTELHO replied yes. REPRESENTATIVE ROKEBERG asked Attorney General Botelho whether the formula is suppose to be close to the 45 cent tax surcharge put in place in December of 1998. ATTORNEY GENERAL BOTELHO replied yes, in general. The 45 cents is an estimate that varies from company to company. Some companies have chosen to overstate their overall fiscal impact per pack. REPRESENTATIVE ROKEBERG called the 45 cents an imprecise variable. ATTORNEY GENERAL BOTELHO stated correct. Number 0925 REPRESENTATIVE CROFT asked Attorney General Botelho what other states have adopted something like this. ATTORNEY GENERAL BOTELHO replied he doesn't have the current list, but will provide one as quickly as possible. All states this year are considering it during their legislative session. He is not aware of any state that has already enacted it. CHAIRMAN KOTT indicated Alaska could be the first. Number 0958 REPRESENTATIVE CROFT asked Attorney General Botelho whether there are other bills to cover cigars and chewing tobacco. ATTORNEY GENERAL BOTELHO replied cigars are not covered in this bill. He reiterated there is a separate agreement with smokeless tobacco, but there isn't separate legislation. Number 1014 REPRESENTATIVE CROFT asked Attorney General Botelho whether the attorneys general negotiated with the companies covered by the settlement, not the companies that opted out. ATTORNEY GENERAL BOTELHO replied the states negotiated with the five largest manufacturers in the United States. The terms of the settlement itself provides an opportunity for other companies to opt in, and for the most part they have. He reiterated, at this stage, those who are not included constitute less than .5 percent of the overall market. There really are only 5 major players in the country, 20 minor players, and a slew of mom and pops that Alaska will probably never see. Number 1084 REPRESENTATIVE CROFT stated his question was directed at drafting HB 102 and negotiating the numbers to the one-ten thousandth of a cent. ATTORNEY GENERAL BOTELHO stated the numbers in the bill were the result of negotiations specifically with the big five companies. Number 1106 REPRESENTATIVE MURKOWSKI asked Attorney General Botelho, for clarification, whether the bill would not apply to cigars. ATTORNEY GENERAL BOTELHO replied that is his understanding. REPRESENTATIVE MURKOWSKI referred to the "Definitions" section of the bill and asked what a cigar is rolled in. REPRESENTATIVE CROFT read, "(i) any roll of tobacco wrapped in paper or in any substance not containing tobacco;", and stated tobacco wrapped in tobacco wouldn't be covered. REPRESENTATIVE GREEN noted a cigar is wrapped in a leaf. Number 1158 REPRESENTATIVE ROKEBERG complimented Attorney General Botelho for placing the financial burden of cigarette smoking on the manufacturers and not the state of Alaska. CHAIRMAN KOTT closed the meeting to public testimony and called for a motion to move the bill out of committee. Number 1199 REPRESENTATIVE JAMES made a motion to move HB 102 from the committee with individual recommendations and the attached zero fiscal note(s). There being no objection, HB 102 was so moved from the House Judiciary Standing Committee. HB 57 - STATE & MUNI IMMUNITY FOR Y2K Number 1260 CHAIRMAN KOTT announced the next order of business is HB 57, "An Act relating to immunity for certain claims against the state, a municipality, or agents, officers, or employees of either, arising out of or in connection with the year 2000 date change; and providing for an effective date." CHAIRMAN KOTT opened the meeting up to the teleconference network. Number 1285 GAIL VOIGTLANDER, Assistant Attorney General, Special Litigation Section, Civil Division, Department of Law, testified via teleconference from Anchorage. She stated the department is proposing an amendment to clarify the definition of "state" in the bill. There is some concern because the organizations that fall within the state are not automatically thought of as the "state". The amendment flushes that out and ensures that public authorities such as the Alaska Industrial Development and Export Authority (AIDEA) are clearly within the ambit of the bill. The amendment reads as follows: Page 3, following line 19: Insert a new paragraph to read: "(3) "state" includes a department, institution, board, commission, division authority, public corporation, council, committee, or other instrumentality of the state including the University of Alaska;" Page 3, line 20: Delete "(3)" Insert "(4)" Number 1385 REPRESENTATIVE GREEN made a motion to adopt Amendment 1. There being no objection, it was so adopted. Number 1478 BOB POE, Commissioner-designee, Department of Administration, stated HB 57 intends to address a big problem of potential litigation related to the year 2000 (Y2K). There are three alarming statistics involved: the national cost to clean up Y2K is expected to be about $300 billion to $400 billion, the cost of litigation is expected to be about $1 trillion, and 300 national law firms have already opened up Y2K practices. In addition, the state doesn't have a cap on what it can be sued for. He further stated that the bill intends to try to mitigate the liability issues. There are lawsuits now in the courts where somebody has tried to do the right thing, but were sued because they were a deep pocket. The state is a likely candidate for those types of suits. He deferred to Brad Thompson from the department. Number 1585 BRAD THOMPSON, Director, Division of Risk Management, Department of Administration, stated the division offers the state's property casualty insurance protection. The division anticipates a significant cost to be realized should the state not be provided the protection afforded in HB 57 as proposed. Twenty states, at the moment, are actively considering similar legislation to protect both the state and local municipal governments. Five state have already enacted a law. Thirty-two states have already limited the type or value of claim that can be brought against them and/or the local municipalities. The state of Alaska has no such protection. He reiterated the bill provides for limited protection just for the Y2K exposure. It does nothing to remove or vacate the state's responsibility for people to provide a benefit or perform a duty to the public. Number 1668 REPRESENTATIVE CROFT asked whether the bill requires due diligence from the state in protecting people from the effects of the Y2K change. MR. THOMPSON replied the state is performing exhaustive efforts with the available funding, personnel and time. He doesn't believe that there is a condition preceding the protection provided by this. Number 1714 MS. VOIGTLANDER stated the bill does not have due diligence as a requirement for immunity. The state has been undertaking quite an effort on Y2K remediations. Each agency has had to access mission critical programs and come up with remediation and contingency plans. The bill really accompanies the efforts that Commissioner-designee Poe has been leading. Number 1759 REPRESENTATIVE CROFT asked Ms. Voigtlander whether there is anything in the bill that requires an effort to get this immunity. In other words, if one state agency does absolutely nothing and another state agency makes substantial efforts, are both immune? MS. VOIGTLANDER replied yes. The bill in its present form does not have a standard of performance attached for immunity. It does address the efforts being made for remediation. Number 1821 REPRESENTATIVE ROKEBERG stated that he is concerned about the definition of "year 2000 date change" in the bill. Does it mean January 1, 2000 or does it mean January 1, 2001? It is debatable. He announced he has an amendment to specify the years. Number 1860 COMMISSIONER-DESIGNEE POE stated the definition in the bill is a similar definition that has been used in lots of other things that describe Y2K. He understands Representative Rokeberg's point, that being when does the actual millennium occur - 2000 or 2001. In testing systems, there is a range of dates that fall under the Y2K moniker, such as a date projected four months in advance. Number 1895 REPRESENTATIVE ROKEBERG announced he has an amendment that provides for an 18-month window at which time the millennium bug will have come out of its cocoon. Number 1922 REPRESENTATIVE GREEN asked whether there would be any other immunity drawn into this alleviating the obligation of the state. MS. VOIGTLANDER stated the bill intends to cover only acts or omissions for damages caused directly or indirectly by the failure of an electronic computing device. She said, "If I understand the question which I presume is in the nature of what if there's just some very tangential link to a year 2K issue, would this--is this intended to immunize for that? I don't see the bill as doing that because what it--the act or omission is immunized through this bill for damages that are caused by a failure of an electronic computing device. So I think that if--it would have to circle back to that for it to fall within the gambit of (indisc.--coughing)." Number 2038 REPRESENTATIVE MURKOWSKI referred to the definition of "physical apparatus that is not primarily used as a computer". She noted it includes medical equipment and asked whether the state would still have immunity if that equipment failed to work and killed somebody, especially if there hadn't been an upgrade and it was not Y2K compliant. COMMISSIONER-DESIGNEE POE stated medical devices are in mission critical areas. They have been checked out. In addition, they have to be covered with a contingency plan. It is covered under the state's due diligence effort. MR. THOMPSON stated he is not so sure that the state or its agencies are directly involved with that type of medical care. There may be some, but as Ms. Voigtlander said it would have to be directly or indirectly caused by the Y2K date change. He said, "But, I don't think there's a disincentive that members may be concerned about of the state's efforts to be prepared and to do what it can to prevent any fallout for Y2K. We are doing the best we can. I don't think this bill would have any effect to that effort." Number 2165 REPRESENTATIVE MURKOWSKI asked whether the Administration looked at a carve-out in the event of death caused by a medical malfunction. COMMISSIONER-DESIGNEE POE stated he didn't look at it specifically. MS. VOIGTLANDER stated she doesn't recall it as being an issue probably because that is not the type of medical care the state renders. She said, "Usually, if you're going to be rendering medical care with that type of equipment, then people have been moved out of the state system, so to speak, and are receiving medical care through private medical sources. Either they've been transferred to an emergency room or another hospital, or there are physicians that are not state employees who are brought in to see people and to use the particular equipment. But, I don't recall seeing something specifically other than some--I have a somewhat vague recollection that one of the Eastern states maybe had a bill that had to do with medical devices. Unfortunately, I can't put my hands right on that right away." Number 2252 REPRESENTATIVE MURKOWSKI explained she was referring to legislation from the state of Montana which says, "...the state's immunity does not apply to a health care facility if death or bodily injury results from failure or malfunction..." Number 2277 REPRESENTATIVE KERTTULA asked whether a situation like Juneau where the municipality owns the hospital is the concern. COMMISSIONER-DESIGNEE POE stated that sounds right. There is also the Alaska Psychiatric Institute (API) and the pioneers' homes. So far, it hasn't been found that biomedical devices are causing a problem. On the same token, Providence Alaska Medical Center in Anchorage and Fairbanks Memorial Hospital are finding devices that have Y2K problems. He referred to Senator Bob Bennet's Year 2000 report addressing health care issues and stated that a lot of the issues focus on doctor's offices. But, they aren't paying that much attention to this because they don't have that much in their offices that really affect life and death situations on a Y2K basis, whereas hospitals do. Number 2344 REPRESENTATIVE CROFT asked Commissioner-designee Poe how the state has been paying for the Y2K efforts. COMMISSIONER-DESIGNEE POE replied the state has been paying for it out of the Risk Management Fund. The state has used about $2.1 million to $2.2 million to date. REPRESENTATIVE CROFT asked Commissioner-designee Poe whether using money from the Risk Management Fund was appropriate because of the potential liability risk. COMMISSIONER-DESIGNEE POE replied right. The state would be exposed to more suits without taking a due diligent effort. The Risk Management Fund is used to settle suits and it also made sense to use it to avoid suits. CHAIRMAN KOTT stated it was a good business decision. CHAIRMAN KOTT indicated that the bill would be held over for further consideration. ADJOURNMENT Number 2400 CHAIRMAN KOTT adjourned the House Judiciary Standing Committee meeting at 3:25 p.m.