HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 31, 2000 3:24 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative Andrew Halcro, Vice Chairman Representative Lisa Murkowski Representative John Harris Representative Tom Brice Representative Sharon Cissna MEMBERS ABSENT Representative Jerry Sanders COMMITTEE CALENDAR SENATE BILL NO. 78 "An Act relating to the use and prescription of pharmaceutical agents in the practice of optometry." - MOVED SB 78 OUT OF COMMITTEE HOUSE BILL NO. 339 "An Act authorizing the Alaska Commercial Fishing and Agriculture Bank to make loans relating to tourism and development or exploitation of natural resources." - MOVED CSHB 339(L&C) OUT OF COMMITTEE HOUSE BILL NO. 386 "An Act relating to brewpub licenses." - HEARD AND HELD PREVIOUS ACTION BILL: SB 78 SHORT TITLE: USE OF DRUGS BY OPTOMETRISTS Jrn-Date Jrn-Page Action 2/18/99 287 (S) READ THE FIRST TIME - REFERRAL(S) 2/18/99 287 (S) L&C 4/15/99 (S) L&C AT 1:30 PM BELTZ 211 4/15/99 (S) MOVED OUT OF COMMITTEE 4/15/99 (S) MINUTE(L&C) 4/16/99 948 (S) L&C RPT 2DP 3NR 4/16/99 948 (S) DP: MACKIE, LEMAN; NR: DONLEY, 4/16/99 948 (S) TIM KELLY, HOFFMAN 4/16/99 948 (S) ZERO FISCAL NOTE (DCED) 5/05/99 (S) RLS AT 12:50 PM FAHRENKAMP 203 5/05/99 (S) MINUTE(RLS) 3/07/00 2547 (S) RULES TO CALENDAR AND 1 OR 3/7/00 3/07/00 2547 (S) ZERO FISCAL NOTE (DCED) 3/07/00 2548 (S) READ THE SECOND TIME 3/07/00 2548 (S) ADVANCED TO THIRD READING UNAN CONSENT 3/07/00 2548 (S) READ THE THIRD TIME SB 78 3/07/00 2548 (S) PASSED Y18 N2 3/07/00 2551 (S) TRANSMITTED TO (H) 3/08/00 2442 (H) READ THE FIRST TIME - REFERRALS 3/08/00 2442 (H) L&C 3/08/00 2442 (H) REFERRED TO LABOR & COMMERCE 3/31/00 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 339 SHORT TITLE: CFAB LOANS FOR TOURISM & NAT RESOURCES Jrn-Date Jrn-Page Action 2/04/00 2098 (H) READ THE FIRST TIME - REFERRALS 2/04/00 2098 (H) L&C, FIN 2/04/00 2098 (H) REFERRED TO LABOR & COMMERCE 2/25/00 (H) L&C AT 3:15 PM CAPITOL 17 2/25/00 (H) Heard & Held 2/25/00 (H) MINUTE(L&C) 3/29/00 (H) L&C AT 3:15 PM CAPITOL 17 3/29/00 (H) Scheduled But Not Heard 3/31/00 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 386 SHORT TITLE: BREWPUB LICENSES Jrn-Date Jrn-Page Action 2/16/00 2215 (H) READ THE FIRST TIME - REFERRALS 2/16/00 2215 (H) L&C 2/16/00 2215 (H) REFERRED TO LABOR & COMMERCE 3/31/00 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER SENATOR JERRY MACKIE Alaska State Legislature Capitol Building, Room 427 Juneau, Alaska 99801 POSITION STATEMENT: Testified as the sponsor of SB 78. DR. JEFF GONNASON, Licensed Alaskan Optometrist (OD) Alaska Optometry Association 2211 E. Northern Lights Boulevard Anchorage, Alaska 99508 POSITION STATEMENT: Testified on SB 78. DR. ROBERT FORD, Ophthalmologist 1600 A Street, Suite 200 Anchorage, Alaska 99501-5146 POSITION STATEMENT: Testified on SB 78. CATHERINE REARDON, Director Division of Occupational Licensing Department of Community & Economic Development PO Box 110806 Juneau, Alaska 99811-0806 POSITION STATEMENT: Testified on SB 78. SUSAN SPRINGER, Proprietor Herring Bay Mercantile PO Box 257 Seldovia, Alaska 99663 POSITION STATEMENT: Testified on HB 339. JERRY WEAVER, Senior Vice President and Manager of Commercial Loans National Bank of Alaska; Secretary/Treasurer Alaska Bankers Association PO Box 100600 Anchorage, Alaska 99510 POSITION STATEMENT: Testified on HB 339. CHRIS ANDERSON, Co-Owner Glacier Brew House 737 W 5th Avenue Anchorage, Alaska 99501 POSITION STATEMENT: Testified in support of HB 386 and remarked that he didn't see the need for any limits on the amount of beer that [a brewpub] can manufacture. DOUG GRIFFIN, Director Alcoholic Beverage Control Board 550 W 7th, Number 540 Anchorage, Alaska 99501 POSITION STATEMENT: Answered questions regarding HB 386. LISA PELTOLA, Beer Sales and Office Manager Midnight Sun Brewing Company 7329 Arctic Boulevard Anchorage, Alaska 99518 POSITION STATEMENT: Read a letter from Mr. Staples, President/Owner of Midnight Sun Brewing Company, in opposition to HB 386. LARRY HACKENMILLER, Club Manchu 518 Farmers Loop Road Fairbanks, Alaska 99712 POSITION STATEMENT: Opposed HB 386 and suggested its referral to the Judiciary Committee. MATT JONES, Co-Owner Moose's Tooth Pub & Pizzeria, Brewing Company PO Box 202549 Anchorage, Alaska 99520 POSITION STATEMENT: Testified in support of HB 386. KAREN BERGER, Owner Homer Brewing Company 1562 Homer Spit Road, Number A Homer, Alaska 99603 POSITION STATEMENT: Testified in opposition to HB 386. MARCY LARSON Alaskan Brewing Company 5429 Shaune Drive Juneau, Alaska 99801 POSITION STATEMENT: Testified in opposition to HB 386. ROD HANCOCK, Co-Owner Moose's Tooth Pub & Pizzeria, Brewing Company PO Box 202549 Anchorage, Alaska 99520 POSITION STATEMENT: Testified in support of HB 386. GLENN BRADY, President/Owner Silver Gulch Brewing and Bottling Company PO Box 82125 Fairbanks, Alaska 99708 POSITION STATEMENT: Testified in opposition to HB 386 as currently written; however, he favored his amendment as a compromise. S.J. KLEIN, President and Head Brewer The Borealis Brewery 349 E. Ship Creek Avenue Anchorage, Alaska 99501 POSITION STATEMENT: Testified on HB 386. ACTION NARRATIVE TAPE 00-40, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:24 p.m. Members present at the call to order were Representatives Rokeberg, Halcro, Murkowski and Harris. Representatives Brice and Cissna arrived as the meeting was in progress. SB 78-USE OF DRUGS BY OPTOMETRISTS CHAIRMAN ROKEBERG announced the first order of business is SENATE BILL NO. 78, "An Act relating to the use and prescription of pharmaceutical agents in the practice of optometry." Number 0090 SENATOR MACKIE, Alaska State Legislature, testified as the sponsor of SB 78. He explained that SB 78 would authorize optometrists in Alaska to prescribe oral or systemic drugs as is the case in 37 other states. He noted that there was a bill that would have allowed for laser surgery and other types of practices, but that was not included in SB 78 as it includes much controversy and opposition. Therefore, SB 78 allows [qualified] optometrists the ability to prescribe oral medications for problems with the eye rather than necessitating a visit to another physician for this. Senator Mackie specified that SB 78 would not allow an optometrist to do things in which he/she is not trained, qualified and certified to do. He noted his understanding that the groups who have traditionally opposed this in the past, have backed off on this issue. In closing, Senator Mackie said that he would appreciate the committee's support of SB 78. CHAIRMAN ROKEBERG asked if Senator Mackie was aware that the Alaska State Medical Association (ASMA) opposed SB 78. He further asked if ASMA came before the [Senate Labor & Commerce Committee]. SENATOR MACKIE replied no. He remarked, "I'd be surprised actually if they even appeared here." CHAIRMAN ROKEBERG noted that ASMA has representation in the room. SENATOR MACKIE recalled that he had spoken, in regard to the letter, with a representative of ASMA and with Dr. Gonnason. He noted that the vote on the Senate floor was 18-2 and thus he believes there is sufficient support for SB 78. Number 0403 DR. JEFF GONNASON, Licensed Alaskan Optometrist (OD), Alaska Optometry Association, provided the committee with his one page statement. Dr. Gonnason stated, "Optometry is a primary health care profession that examines, diagnoses, and treats disorders of the human eye and we use therapeutic medications, methods and procedures in accordance with professional training and competency." He explained that historically medical doctors have enjoyed unlimited legislative trust in their scope of practice as have other health care professions that are commonly referred to as a limited license such as dentists, podiatrists and nurse practitioners. The scope of practice for dentists, podiatrists and nurse practitioners is determined in regulation by the state boards. Therefore, when something new is invented, their state board can review that invention and does not have to come before the legislature. However, every time something new is invented optometry, it has to come before the legislature for authorization because of the opposition in the past from medical [groups]. Dr. Gonnason pointed out that optometric training began including therapeutic treatment of diseases about 30 years ago. In 1976 North Carolina passed legislation allowing qualified optometrists to prescribe therapeutic medications. Now 37 states allow qualified optometrists to prescribe therapeutic medications, including oral and systemic agents. Therefore, SB 78 would bring Alaska up-to-speed with where North Carolina started. He noted that currently one state, Oklahoma, allows optometrists to use lasers in the treatment of eye diseases. DR. GONNASON pointed out that last session there was a bill that would have allowed optometrists to change such that a optometrist's scope of practice would be determined by the State Board of Examiners, which would be an ideal situation. This would be the same situation that exists for dentists and podiatrists. However, that bill met with opposition. Therefore, SB 78 is a compromise bill that would only allow [optometrists to prescribe] these additional medications. Dr. Gonnason informed the committee that the bill packet should include a letter from the malpractice insurance carriers reporting that there is no difference in premiums or claims between states with or without oral pharmaceutical authority. Furthermore, the Alaska State [Legislative] Budget & Audit Committee performed a study in 1995 in which the committee reported that eye care was improved in Alaska by allowing ODs to prescribe; this also saved money on travel and double visits. This legislation would allow Alaskan optometrists to practice at the currently accepted standard of care and provide access to quality, cost-effective eye care. DR. GONNASON mentioned that last year he wrote a letter to Speaker Porter in which he basically refuted the allegations in the ASMA letter. In conclusion, Dr. Gonnason pointed out that optometrists receive the kind of training necessary to safely prescribe these medications just as do dentists and podiatrists. Number 0760 REPRESENTATIVE MURKOWSKI asked if SB 78 merely allows for oral medication prescriptive authority. DR. GONNASON specified that SB 78 would allow optometrists to prescribe or use any medications at all, by any means, necessary to treat conditions of the eye. He stressed [that these medications could only be used by optometrists] in the treatment of conditions of the eye. He clarified that it would include oral medications as well as suppositories and injectibles. REPRESENTATIVE MURKOWSKI asked if [SB 78] would include intravenous (I.V.) [medications]. DR. GONNASON replied yes, but noted that only very rarely are intravenous drugs required for eye conditions; only one such condition came to mind. REPRESENTATIVE MURKOWSKI surmised, then, that the chart in the bill packet referring to the states that allow oral medication may not necessarily include all the other ways in which a systemic problem can be treated. She expressed concern with the I.V. concept. DR. GONNASON clarified that the list in the bill packet includes states that allow some form of systemic medication. Some of those states, such as Tennessee and North Carolina, allow all forms of systemic medication, which would be the case under SB 78. In some states, the legislation specifies which drugs can be used by an optometrist. Texas just passed legislation that would include oral and injectible medication. Dr. Gonnason remarked, "The main thing for injectibles is essentially allergic reactions where you do the 'epi' gun, adrenaline in the arm for someone that can't breath because they're having an anaphylaxis shock reaction; just not done very often. But we all keep those in our offices, legal or not, because you need to save the person's life, especially out in the Bush." He said that each state is different in regard to the amount of authority of drug use, but almost all states exempt and do not allow schedule I and II drugs as they are not necessary for eye practice. Schedule I and II drugs are not included in SB 78. REPRESENTATIVE HARRIS asked if there are any documented problems in the other states that use this system. DR. GONNASON replied no. He commented that if anything had been before any boards, the committee would have been flooded with it by the opposition. He noted that optometrists have been prescribing therapeutic drugs in Alaska since 1992; although orals were included, [the bill] was limited to topicals at that time. As of last month there have been no complaints to the state board in those eight years. Dr. Gonnason remarked that it is very difficult to convince lay people of an optometrist's education, when very credentialed surgeons are saying otherwise. Number 1058 REPRESENTATIVE HARRIS inquired as to what level of education or competency does one have to show in order to obtain an optometrist license. He assumed that optometrists in Alaska have to have the same level of education as those in other states [that allow this]. DR. GONNASON informed the committee that a doctor of optometry degree is awarded after four years of graduate school; it is a professional program that is identical to dental school. He commented that it is similar to medical school in that everyone uses the medical model and the same textbooks, instructors and lectures are used [as those used by the medical students]. Therefore, it requires eight years of college to obtain an optometry degree as with dentistry and medicine. He noted that most of the opposition is from ophthalmologists, which are specialized physicians who receive extra training in diseases and the surgery of the eye. Ophthalmologists "are definitely the top dog on the food chain in eye care.... We're [Optometrists] not trying to say that we want to do the advanced things the ophthalmologists do, we want to do what we are trained to do." He referred to material in the bill packet which illustrates that the years of education for optometry, dentistry, podiatry and medication are essentially the same. Furthermore, most optometrists now receive a year of residency as well. The graph in the bill packet also illustrates that in regard to the number of hours spent in pharmacology training, the hours were identical in the University of Houston's Optometry College and Baylor College of Medicine. He noted that he has a copy of a college catalog. DR. GONNASON, in response to Representative Harris, said that the training [for optometrists in this area] is there. He pointed out that in Alaska, as is the case in most states, an optometrist must pass the National Board of Examiners in Optometry of which there are three parts. All three parts must be passed in order to apply to Alaska. Within those national boards there is an examination referred to as "treatment and management of ocular disease", which is what is required to prescribe drugs in Alaska. For example, some of the older practitioners without this training would not be allowed to use this; one must have an endorsement to his/her license from the Division of Occupational Licensing. That endorsement is based upon the additional training and the passage of the treatment and management of ocular disease test that is administered by the International Association of Boards of Examiners in Optometry, which is the worldwide standard exam for optometry therapeutic practice. He believed that Catherine Reardon, Division of Occupational Licensing, could attest that the qualifications, certification and the regulation is very stringent. REPRESENTATIVE HARRIS pointed out that the letter in the bill packet from the ASMA says, "Optometrists do not have the education and training that a licensed physician and surgeon have." The letter from the ASMA also says, "We feel that if an individual wishes to practice medicine, he/she should be trained as a physician." He inquired as to Dr. Gonnason's comment on those statements by the ASMA. DR. GONNASON informed the committee that in medical school a physician or a medical doctor receives about one or two days on the eye. Therefore, he was confident that an O.D. graduating from optometry school has far more training in the diagnosis, treatment and management of diseases of the eye than would a M.D. He acknowledged that optometrists [receive less training] than ophthalmologists. Dr. Gonnason related a situation in Nome in which the local O.D. is called in for any eye emergency not the M.D. because [the M.D.] does not know how to handle these cases. If the O.D. has to prescribe a systemic medication, then the physician's assistant has to prescribe the medication. He noted that nurse practitioners can prescribe any medication while their training is at the Master's degree level, which is slightly below the Doctorate level of optometry. He returned to the dentist example and asked, "If the M.D.s wrote you a letter and said, 'We don't think dentists should be prescribing pain medication or antibiotic pills because they're not physicians.' What would you say? You would say, 'Well, they're dentists.'" Optometrists receive the same training [in pharmacology] as dentists. Number 1400 REPRESENTATIVE HALCRO pointed out that the ASMA is further concerned that optometrists would be prescribing therapeutics, "which often have an impact not only on eye [issues] by interact with many body systems." In regard to the chart comparing the education, it illustrates that the general practitioner [in comparison to an optometrist] has almost twice as many hours required in human anatomy, physiology and neurophysiology. He asked if this is an area of concern due to an optometrist receiving far less instruction in this area. DR. GONNASON remarked that it [the education for general practitioners and optometrists] is of equal construction. He noted that the chart in the packet is from 1987. Dr. Gonnason explained that part of the training in pharmacology is the interaction of different drugs, which results in a detailed history of a patient. Part of the training deals with the interaction of drugs as systemic drugs do affect the entire body. Dr. Gonnason informed the committee that optometrists are not trained in the prescribing of cardiac medications. Optometrists would only prescribe related to the eye. However, he noted that although he is familiar with cardiac drugs, he is not familiar with the extra hours of detail. Similarly, the dentist is not trained in that area either, although a dentist is trained in the emergency treatment of interactions and allergies with the drugs. REPRESENTATIVE HALCRO asked whether the difference in the training in physiology and the neurophysiology is the basis for the ASMA's contention that optometrists may be prescribing drugs for which there are other complications that the optometrist would not be aware of. DR. GONNASON stated that [ASMA] is not aware of the training of optometrists. He provided a copy of a more current four year optometric degree program. Basically, in the third and fourth year of the optometrist degree program there is a lot of clinic involved just as in medicine. Number 1641 CHAIRMAN ROKEBERG asked if the licensure regulations in Alaska require that optometrists have any mandatory errors and omissions (E&O) insurance. DR. GONNASON answered that optometrists all have malpractice insurance, although he did not believe it is required by statute. He informed the committee that an optometrist's malpractice insurance costs about $400 per year. Dr. Gonnason pointed out that the [Maginnis & Associates Correspondence] says that the claims rates and the insurance premiums are basically the same regardless of whether the state allows optometrists to prescribe systemic and oral drugs or not. He also pointed out that California passed legislation allowing optometrists to prescribe all topical and some systemic medications. During that process in California, the California Optometry and Ophthalmology Association agreed to commission an independent evaluation assessing the competency and cost effectiveness of optometrists treating diseases. He had the highlights from that independent evaluation which was performed by Price Waterhouse Coopers in 1999. Dr. Gonnason read the conclusion of that independent evaluation as follows: Optometrists practice therapeutics with at least the same level of competence as ophthalmologists and primary care providers managing the same problems. This conclusion is based on the study result. Optometric charts show no significant difference from ophthalmology charts in compliance with the eye care standards and optometrists were significantly better compliance than the charts of general physicians and mid-level practitioners. DR. GONNASON clarified that he is not knocking general M.D.s, but in general people go to a general M.D. who prescribes an eye drop that does not work. In such a case, the person ends up in an optometrist's office where the drop that does work is administered. He said, "It's not that the M.D. didn't know, but he's not as focused in on the details of eye disease as we are." DR. GONNASON pointed out that this independent study found, in regard to cost effectiveness, "The magnitude of savings is substantial and optometrists provide a significant economic benefit to their patients." He directed the committee's attention to the chart that details the average cost to a patient with pink eye. A person with pink eye who sees a general physician, an ophthalmologist and optometrist faces an average charge of $76, $83 and $41 respectively. Although ophthalmologists are necessary, one does not need to fly from Nome to Anchorage in order to receive treatment for pink eye from an ophthalmologist. He noted that optometrists could not [even] treat pink eye until a few years ago. CHAIRMAN ROKEBERG noted that the bill packet includes a letter from Dr. Hart Hodges, Ph.D. from Northern Economics, who disputed the notion that there is no cost difference in the eye exam conducted by an ophthalmologist and an optometrist. Chairman Rokeberg found that interesting as his own personal experience seemed to illustrate that an eye exam from an ophthalmologist cost more than one performed by an optometrist. Chairman Rokeberg commented that he was surprised that, given the rural nature of the state, [the rural areas] have not been present requesting this earlier. DR. GONNASON said, "Well, they have." He explained that most of it has been done under the auspices of public health. Optometrists in the Bush have been prescribing drugs for 30 years under federal authority. However, now Native corporations are hiring private optometrists and their hands are tied. He noted that he had requested that Dr. Ford, an Ophthalmologist and Surgeon from Pacific Cataract and Laser, testify on this legislation. Dr. Ford is one of the world's highly respected eye surgeons. Number 1901 CHAIRMAN ROKEBERG pointed out that according to Dr. Hodges, Dr. Ford contracts with optometrists for follow-up care for his laser surgery patients in the Anchorage area. Chairman Rokeberg asked if that is true. DR. GONNASON specified that Dr. Ford co-manages [with optometrists for follow-up care]. He said, "All of them do." He explained that if he has a patient that wants laser surgery, he examines the patient and does all the mathematical numbers for the patient's surgery. The patient is then sent, with the numbers, to one of the ophthalmologists in Anchorage. Dr. Gonnason indicated that the ophthalmologists really do not have a problem with optometrists using drugs, but rather are concerned with optometrists moving into the laser end where the money is made. After the surgery, the patient would return to the optometrist who would perform follow-up care. The optometrist charges a fee for his part and the surgeon charges a fee for his part and those fees are totally independent. DR. GONNASON answered, in response to Chairman Rokeberg, that anaphylaxis is a technical term. He explained that optometrists can only prescribe in treatments of the eye; however, this would allow the treatment of a person in an emergency allergic shock situation. He commented that it is very rare and that he has never seen such a case in his 24 years of practice, although he noted that he is trained to take care of such a situation. Dr. Gonnason emphasized that anything that is done would only be done in the standard of care and anything performed outside of that would be a violation of the law. CHAIRMAN ROKEBERG recognized that optometrists, under SB 78, would be excluded from the use of schedule IA and IIA drugs. He inquired as to what other schedules of prescriptive pharmaceuticals an optometrist would give. He further inquired as to the percentage of those that would be administered intravenously. DR. GONNASON estimated that if he were to write 500 systemic prescriptions, probably only one or two would possibly be injectible or administered intravenously. Very few of the prescriptions optometrists would write in the treatment of the eye would involve an I.V. In regard to oral prescriptions, he informed the committee that the main ones would be medication in the treatment of glaucoma, antibiotics for infection and then pain. The schedule IA and IIA drugs are excluded as they are the most dangerous levels of drugs, and furthermore there is almost no incidence in which an optometrist would need those. Therefore, that restriction does not really need to included, but it illustrates that optometrists are not interested in expanding beyond what is necessary. Number 2131 REPRESENTATIVE MURKOWSKI referred to the map in the bill packet which specifies the states that allow the use of oral pharmaceutical agents by optometrists in the treatment of eye disease. She asked if SB 78 is more expansive than what the other states allow with the use of oral medication [by optometrists]. DR. GONNASON answered that SB 78 is more expansive than some [states] and less expansive than others. Of the 37 states that allow the use of oral pharmaceutical agents by optometrists, he estimated that about five states allow a little more than SB 78 as those states do not restrict the schedule IIA drugs. He estimated that SB 78 is similarly aligned with about half of the states, with the remaining states having a more restricted authority. Of those states with the more restricted authority, Dr. Gonnason said that those states passed those laws early on and are now seeking amplification of those laws. Dr. Gonnason estimated that "we" [Alaska, with SB 78,] would be in the top third of those states in regard to prescriptive authority. REPRESENTATIVE MURKOWSKI asked if the treatment of anaphylaxis treatment would always be an emergency response situation. DR. GONNASON replied yes. He explained that anaphylaxis is a Type I allergic reaction and, systemically, it is an emergency. However, a person can receive a anaphylactic reaction locally such as when a person receives a mosquito bite to the eyelid, which instantly puffs up. Such anaphylaxis is not treated with the "epi gun." He noted that this language is similar to that in almost all other states. Number 2248 SENATOR MACKIE requested that Dr. Gonnason speak to the concern regarding how pharmacists would know who is qualified to issue prescriptions and who is not. Senator Mackie understood that there are 80 optometrist in Alaska, of which about 75 are qualified to issue prescriptions. He further understood that the state would have to issue an endorsement/certification in order to do this. He requested that Dr. Gonnason describe how this would all work. DR. GONNASON explained that basically, the state gives optometrists their licenses which note a pharmaceutical agent and prescription use endorsement. Once this law first went into effect, he had to go to all the pharmacists he knew and provide them with a copy of his license. Furthermore, the Division of Occupational Licensing has a copy of all those [optometrists] that are certified. Basically, the optometrist would make that information available to the pharmacist. In regard to the endorsement, Dr. Gonnason stressed that this [SB 78] does not grandfather in anyone. REPRESENTATIVE MURKOWSKI asked if there is any ongoing [education]. DR. GONNASON interjected, "Yes, 18 hours per year." If the optometrist does not have the drug authority, then he/she would only need 12 hours [of continuing education]. In further response to Representative Murkowski, he pointed out that the board requires an extra six hours of education in disease management and pharmacology. With the passage of SB 78, the board may or may not require additional requirements. REPRESENTATIVE MURKOWSKI said that she would like to think that there would be a different set of standards on top of those [already in place]. DR. GONNASON informed the committee that almost all of the optometrists in the state took a 100-hour drug training course in 1982. This training course covered the treatment of diseases because it was thought that optometrists would have drug authority in 1982. However, it took 10 years before such passed in 1992. He emphasized that everyone was required to take that [drug training course] again, which had been updated and included the training for systemic drugs. Therefore, everyone who currently has a pharmaceutical agent and prescription use endorsement has the systemic training, although that portion of the 1992 legislation was given up in a compromise. This bill, SB 78, would simply restore that which was compromised eight years ago. He acknowledged that the board could require, through regulation, that optometrists need to receive further training. Dr. Gonnason said, "I can assure you that none of my colleagues would not be prescribing anything that they weren't completely comfortable with. Why would they? There's no financial remuneration in it and we're very conservative." He pointed out that optometrists are primary care practitioners that handle routine cases. He informed the committee that he is in a building with family doctors, who send him all the eye cases. However, if it is a case in which he is uncomfortable, he refers the patient to a ophthalmologist; that is how the system works. He attributed that system to be the impetus for the better relationship that the optometrists and ophthalmologists have in Anchorage. Therefore, he did not believe that ophthalmologists have any serious opposition to SB 78. TAPE 00-40, SIDE B CHAIRMAN ROKEBERG referred to Mr. Hodges letter, which says that ophthalmologists "are under some pressure to remain quiet. If any single ophthalmologist speaks out against the bill, then that person runs the risk of loosing referral business from optometrists ...." Chairman Rokeberg turned to Dr. Ford's testimony. Number 0025 DR. ROBERT FORD, Ophthalmologist, testified via teleconference from Las Vegas. He informed the committee that he has had a practice in Anchorage for about the last three years. He also informed the committee that he is the owner and founder of Pacific Cataract and Laser Institute, which employees six other ophthalmologists and about 15 optometrists. As mentioned earlier, he noted that he has worked closely with optometry in co-management for the last 15 years. Dr. Ford completely agreed with everything Dr. Gonnason said. DR. FORD stated that he believes that the State of Alaska needs this bill to be passed. There are so many patients who could have an episode of acute glaucoma or something requiring a systemic medication. It is simply not practical for [some of] these people to see an ophthalmologist soon enough to handle it. He pointed out that it does not help to see a general M.D. as a general M.D. would not have the knowledge, although he/she would have the prescriptive authority. Dr. Ford said that he knew this to be the case as his father was an excellent family doctor, but not an eye doctor and thus did not understand the eye as well as optometrists do. DR. FORD turned to the issue of whether this would be safe and whether there is adequate training. He pointed out that as an ophthalmologist, he is legally qualified to prescribe any kind of medication, including cancer chemotherapy. However, he said that he does not prescribe such [medications] because he does not understand them. Dr. Ford said, "Basically, it becomes a matter of my integrity to only prescribe things I understand." He noted that most of the drugs he prescribes now are new drugs, new since his training. Therefore, any drug he chooses to use he must read up on it and obtain education on the drug before using it. Basically, that is the same system that the optometrists will use. Even if SB 78 passes, optometrists will have the legal ability to prescribe medication they do not understand and thus everyone will have to depend on their professional integrity as is the case with all other professionals. CHAIRMAN ROKEBERG asked if Dr. Ford agreed with the ASMA's statement that this is not a turf issue, but rather a quality of care issue. DR. FORD specified that it is not that simple. There are important questions in regard to safety, which is a quality of care issue. However, most of the strong feelings that exist are based on turf issues. Number 0173 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Community & Economic Development, specified that her division staffs both the [State] Medical Board and the Board of Optometry. The Optometry Board is on the record as strongly supporting SB 78 and the Medical Board has not taken a position on this issue. CHAIRMAN ROKEBERG requested that Ms. Reardon explain the requirements and regulations for optometrists in regard to their continuing education and anything that relates to medications or drug dispensing. MS. REARDON explained that AS 08.72.175 allows the board to issue endorsements authorizing a license holder, an optometrist, to prescribe and use the pharmaceutical agents described in the statute being amended [under SB 78]. Therefore, the board has that authority and has adopted regulations doing that. When the board adopted regulations, the board decided to do two different sets. One set of regulations is geared towards optomotrists who can use the topical drugs and the other set of regulations is geared towards optomotrists who can prescribe and use. She believes that two track system was established because perhaps, there were some optometrists whose training was not as recent or as comprehensive. Ms. Reardon pointed out that the regulation 12 AAC 48.025 for the prescription and use endorsement says, "An applicant for that endorsement must submit documentation of an average of 12 contact hours of approved continuing education in ocular pharmacology or pathology for each complete calendar year since the date of the exam that they had to pass initially on treatment and management of ocular disease." She noted that this would be the case unless the exam was passed within two years of the application for the endorsement. She noted that the regular optometry license [requires] some continuing education. Number 0305 REPRESENTATIVE HALCRO related his understanding, from Ms. Reardon, that optometrists are not currently required to have E&O insurance. MS. REARDON stated that almost none of the professions licensed through the division are required to have malpractice liability insurance. REPRESENTATIVE HALCRO said, then, there is not a difference between levels of the profession in which one level would be required to have malpractice insurance and the other does not. MS. REARDON replied no. REPRESENTATIVE MURKOWSKI turned to the issue of notifying people, pharmacists, whether one is on the prescribe and use list. She inquired as to how problematic this could be. For example, what if a pharmacy receives a call, on a Saturday night, from an optometrist prescribing a medication that would be allowed under SB 78. If the division's offices are not open for confirmation, would the pharmacy fill the prescription even if there is nothing on record saying that the optometrist could prescribe the medication. Or would the pharmacy err on the side of caution? MS. REARDON pointed out that pharmacists do bear some professional responsibility for making those decisions and thus some may always decide to err on the side of caution. She noted that Alaska receives many visiting doctors, and therefore there are potentially a lot of new faces that a pharmacists would see. Currently, the pharmacist may be requesting a copy of the optometrist's license, which shows the endorsement. Perhaps, some pharmacists will refuse to allow the prescription until [he/she can verify the endorsement of the optometrist when] the division office opens. Ms. Reardon informed the committee that [the division] has an Internet site where people can look up who is licensed, which she indicated would ultimately reach the point where people would probably feel comfortable using the site. She suspected that many late night pharmacy calls would be an emergency situation. CHAIRMAN ROKEBERG asked if anyone else wished to testify on SB 78. There being no one, Chairman Rokeberg closed the public testimony on SB 78. He then inquired as to the will of the committee. Number 0491 REPRESENTATIVE MURKOWSKI recalled Dr. Gonnason's comments that the ophthalmologists are okay with SB 78. However, upon the advice of Dr. Hodges, she called two ophthalmologists both of which were opposed to it [SB 78]. Therefore, she commented that she did not believe the turf wars are over. She acknowledged the concern in Alaska that there are many areas where there is not an ophthalmologist. REPRESENTATIVE HALCRO recalled that last year there was a similar situation with the psychologists and the psychiatrists. He asked if that bill is still in the committee. CHAIRMAN ROKEBERG indicated that to be true. REPRESENTATIVE HARRIS spoke in favor of SB 78 as 37 other states are doing similar things without serious problems. Number 0610 REPRESENTATIVE HARRIS moved to report SB 78 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, it was so ordered and SB 78 was reported from the House Labor & Commerce Standing Committee. The committee took a brief at-ease from 4:27 p.m. to 4:32 p.m. HB 339-CFAB LOANS FOR TOURISM & NAT RESOURCES CHAIRMAN ROKEBERG announced the next order of business is HOUSE BILL NO. 339, "An Act authorizing the Alaska Commercial Fishing and Agriculture Bank to make loans relating to tourism and development or exploitation of natural resources." Number 0707 SUSAN SPRINGER, Proprietor, Herring Bay Mercantile, testified via teleconference from Soldotna. She stated she has owned small businesses in Seldovia since 1989. For the past six years, she has owned a retail gift shop. In the summer of 1994, she and her husband purchased a lot from the city, constructed a building and opened Herring Bay Mercantile less than a year later. Because of their income and expense ratio at the time, they did not seek conventional bank financing and, instead, relied on family financing. She feels fortunate to have had that available, otherwise they could not have undertaken the building and opening of their business. Herring Bay Mercantile made a profit its very first season and has been profitable each year since then. She said their business contributes sales tax, property tax, revenues to the community, provides a service for residents and a draw for tourists. It employs people in areas ranging from snow plowing to computer consulting. She said it "donates to absolutely everybody." She commented that since their business has been successful the Homer branches of the National Bank of Alaska and the First National Bank of Anchorage have made field trips to Seldovia urging them to borrow money because they are a very low credit risk. She pointed out that six years ago, when their balance sheet was not as appealing, their business possessed the same qualities that it does now. These qualities are vision, talent and tremendous drive which helped make their business a success. She said she feels strongly that there are more potential entrepreneurs like herself out in rural Alaska and many communities stand to benefit from new business. However, how many of those potential entrepreneurs do not qualify for conventional bank loans, but still have the skills to be successful. MS. SPRINGER further commented that she and her husband purchased a commercial fishing vessel through CFAB [Alaska Commercial Fishing and Agriculture Bank]. They found CFAB to be thorough, helpful and easy to deal with. In 1996 and 1997, she served on a statewide task force that evaluated the effectiveness of small business assistance programs. The task force found that CFAB was well respected for its support of small fisheries business development through the fisheries business assistance program which was operated by the Alaska Business Development Center. The task force hired Dr. Julia Melkar (ph) of the University of Georgia's Department of Public Administration and Urban Studies. Dr. Melkar (ph) developed and mailed out approximately 4,000 surveys to small Alaskan businesses. Nearly 1,500 of those surveys were filled out and returned, which is a 42 percent response rate. Of the 1,500 who responded, around 40 percent were from urban Alaska and 60 percent were from rural Alaska. One of the questions the survey asked was: In your opinion, what is the single most important thing that the State of Alaska can do to assist small businesses? Although there was a wide range of responses, the most frequent response was that there is a need for state assistance in access to capital, marketing and financial management. The respondents were very specific about the need for access to low-interest loans for business start-up. The respondents also felt the state should make loans readily available over the long-term. They felt that existing loan processes should be streamlined by limiting the amount of paperwork and redundancy. Assistance with loans was viewed as a way for small businesses owner to finance start-up costs and have ready access to capital which then could be utilized for equipment, renovations, marketing, advertising and other things. MS. SPRINGER commented: If the conventional banking establishment in Alaska is doing an adequate job of reaching out to and serving small business people and potential small business people, then why did our survey find that access to capital is one of primary challenges to small, Alaskan entrepreneurs trying to establish themselves in business? Last month, the First National Bank of Anchorage reported 1999 reduced net earnings of about $28 million. CFAB's 1999 gross earnings were in the neighborhood of $3 million, yet the First National Bank of Anchorage and the Alaska Banking Association apparently opposed this bill. The earning statements alone should tell you that CFAB serves a niche clientele and I don't believe it poses a significant threat to the prosperity of the conventional banking establishments. In conclusion, I serve on the boards of the Alaska Tourism Marketing Council, the Alaska Travel Industry Association and I'm also in my second term on the Seldovia City Council. And if these three bodies share one common niche and one common scene, it is the need to support small businesses and enhance economic development in Alaska. I think that you have before you, with HB 339, the opportunity to give Alaskan entrepreneurs a tremendous shot in the arm, and the lovely part of this is that you don't have to scrape together any scarce state dollars in order to do so. Number 0985 CHAIRMAN ROKEBERG asked why CFAB would have any different lending standards than a commercial bank. MS. SPRINGER replied that she does not think it is the lending standards, but rather the lending climate. The task force found that the conventional banking climate was not user friendly to small entrepreneurs. Many people did not know how to write a business plan in order to satisfy the requirements of the conventional banking community. There are all kinds of state programs that walk some of these people through writing a business plan because of that. The focus of CFAB has been oriented towards more small loans and more user friendly [loans]. It is her assumption and her expectation that CFAB would serve this niche market better than the conventional banking establishment presently does. Number 1057 JERRY WEAVER, Senior Vice President and Manager of Commercial Loans, National Bank of Alaska; and Secretary/Treasurer, Alaska Bankers Association, testified via teleconference from Anchorage. With respect to the proposed committee substitute (CS) for HB 339, he stated that the Alaska Bankers Association finds it significantly improved. However, the bill still has one flaw that would cause opposition to it. The proposed bill would effectively permit CFAB to make loans to all Alaskan business enterprises while preserving a very important niche monopoly for CFAB; this has been one of their concerns with CFAB since the first day. He pointed out that CFAB is an exclusive, private lender and the only one which can legally finance the purchase of state limited entry permits, which are now viewed by the market place as collateral. Therefore, the ability to finance those permits should be permitted to all lenders. He noted that CFAB began giving this exclusive, private lending niche 19 years ago when the marketplace was vastly different than it is today with IFQs [Individual Fishing Quotas], CDQs [Community Development Quotas] and other intangible fishing rights that are associated in the industry. The banking industry actively finances those now. He stated, "Mr. Chairman, if this small amendment is added to HB 339, the Alaska Bankers Association will become an active supporter of this legislation." CHAIRMAN ROKEBERG asked Mr. Weaver if he is aware that the fishing community and the state wish to maintain a limited entry permit not as personal property for the purpose of making it "not attachable by the IRS as chattel and, additionally, so as to not allow for the sale of limited entry permits to non-Alaska residents." MR. WEAVER replied that the IFQ would certainly be almost identical and it would be argued that it is not personal property. He said he thinks it's time to recognize that there should not be one exclusive lender. Mr. Weaver related his belief that if more loans were permitted against these permits, the value would rise and the cost of borrowing against them would be less for the commercial fishing industry. Number 1241 REPRESENTATIVE HALCRO made a motion for the adoption of the proposed committee substitute for HB 339 [LS1285\G, Utermohle, 3/9/00]. There being no objection, CSHB 339 (L&C), Version G, was adopted by the House Labor and Commerce Standing Committee. Number 1294 REPRESENTATIVE HARRIS made a motion to move CSHB 339(L&C) out of committee with individual recommendations and the attached fiscal notes. REPRESENTATIVE MURKOWSKI objected for the purpose of discussion. She appreciates what the sponsor of the bill has done in an attempt to accommodate her concerns. She said: This is wide open. If we're going to open it to tourism and natural resources and oil drilling and gas drilling and coal and everything else under the sun, CFAB shouldn't be called CFAB anymore. It's a fishing and agriculture and it seems like we've strayed a long way from the purpose. Some side bars have been put in here, but I'm still uncomfortable. As I read, we can make these loans up to $5.5 million and as long as you use just a majority of it in tourism -- and the definition of tourism is very broad [and] very expansive. And the definition of natural resources are very expansive and I'm just not comfortable with it. REPRESENTATIVE HALCRO explained that, at a previous hearing on HB 339, the committee debated the financial footing of CFAB. He agrees with Representative Murkowski. He stated: This brings to mind another piece of legislation that's floating around out there where you've got the Joint Insurance Association [JIA] wants to act as an insurance company...like CFAB, set up for a very specific reason when the market needed and the small guys needed help, and now that they have solid footing in going forward, they want to act like a bank. And I say, if they want to act like a bank, or, in the other case, act like an insurance company, more power to them, but they need to play by the rules. I know we're all sensitive on this committee to government competing with private enterprise, but this is one of those things where I think you have to step back and say, "Okay. Yeah, it might be good for the small guys, but, in the end, should they be playing under the same rules as everybody else in the same competitive market place." CHAIRMAN ROKEBERG commented that the bill is also troubling for him, specifically with respect to underwriting. He stated: I seem to sense the implication from testimony that a vote against this bill is like a vote against small business. I just want to go on the record saying that I've been a small business person for over 30 years in the State of Alaska and I've never needed a state subsidy. REPRESENTATIVE MURKOWSKI removed her objection. CHAIRMAN ROKEBERG stated that CSHB 339(L&C) moved out of the House Labor and Commerce Standing Committee with no objection. HB 386-BREWPUB LICENSES CHAIRMAN ROKEBERG announced the next order of business is HOUSE BILL NO. 386, "An Act relating to brewpub licenses." Chairman Rokeberg informed the committee that he intended to take all the testimony on HB 386 and depending upon the testimony, he doubted that the bill would move out of the committee. Number 1615 REPRESENTATIVE HALCRO, Alaska State Legislature, testified as the sponsor of HB 386. He explained that HB 386 was introduced after one of his constituents [brought this problem to his attention]. This constituent has one of the few brewpub licenses in the state and thus they own a brewery and a restaurant. The problem, the limit of 75,000 gallons of beer [manufactured] per year [under a brewpub license], surfaced when they attempted to open a second restaurant in Anchorage. With a second restaurant, they will reach the aforementioned limit in September or October and won't be able to sell their own beer in their own restaurant. Representative Halcro acknowledged the concerns from some of the small brewers and stated that he was open to ideas such as limiting [the manufacture of] anything over the 75,000 gallons per year to be strictly sold within the [restaurant]. He specified that it is not his intent to create a "super brewery" as some of his opponents have charged. The intent was simply to allow this company that was opening a second location the ability to sell its own beer in its own restaurant. Representative Halcro noted that there is a proposed committee substitute (CS), which merely tightens the language in the title. Number 1756 REPRESENTATIVE MURKOWSKI moved that the committee adopt the proposed CSHB 386, version LS1469\G, Ford, 3/31/00, as the working document. There being no objections, it was so ordered. CHRIS ANDERSON, Co-Owner, Glacier Brew House, testified via teleconference from Anchorage. He stated that he didn't have a problem with increasing [the amount of beer manufactured under the brewpub license] from 75,000 to 150,000 gallons. Although the Glacier Brew House will not be affected by this legislation in the short term, he anticipated being in the same situation as the Moose's Tooth by this time next year [because] the Glacier Brew House is in the process of opening its second restaurant in May. Mr. Anderson informed the committee that the local production is only about 7 percent of the total beer served in the state. Therefore, the target is not the local breweries. In fact, he expressed the need to expand beer production throughout the state through brewpubs or breweries. Personally, Mr. Anderson didn't see any reason to have a limit at all. However, if the [limit in the manufacture of beer under a brewpub license] is to be 150,000 this year, he fully supported that [amount]. Number 1897 DOUG GRIFFIN, Director, Alcoholic Beverage Control (ABC) Board, testified via teleconference from Anchorage. He informed the committee that he was present in order to answer questions and observe as the board does not have a formal position on this. However, the ABC Board has talked with many of those involved in this matter. He noted that the ABC Board also shares some of the concerns of Representative Halcro in regard to competition and what can been done to maintain the health of the industry as a whole. REPRESENTATIVE HALCRO pointed out that last year HB 69 made folks such as Mr. Anderson purchase a beverage dispensary license, which cost about $125,000 to $150,000, in order to be able to open another restaurant. He asked if Mr. Griffin saw the need for, what Representative Halcro considered, fairness. Two restaurants have had to [purchase a beverage dispensary license] simply because competitors have raised a fuss and now these [two restaurants] are in a spot with the opening of additional locations that only serve beer. He asked if the ABC Board has discussed that matter. MR. GRIFFIN answered that the board itself has not had discussions on that matter; however, he has had discussions with the Chairman of the ABC Board, Mr. Robert Klein, who is probably a good indicator of how the board would view this. Mr. Griffin related his belief that the ABC Board and Mr. Robert Klein would not have a problem raising the limit on the amount of beer manufactured for sale within [the brewpub's] own restaurant. He believes the big concern was in regard to competing with breweries in the marketplace as a whole and competing with other tap lines in other bars. Although [the brewpubs] did have to purchase a beverage dispensary license, these [brewpubs] have the benefit of the income generated by the operation of the restaurant and the bar to subsidize the marketing of their beer in competition with the brewers, who only have one means of support [income]. The brewers only have the sale of their beer as a means of support. Therefore, Mr. Griffin didn't believe that the ABC Board would find it problematic to raise the limit of the manufacture of beer in order to have enough beer to sell in the restaurant. However, if the desire is to raise the limit [for these brewpubs] so they can market their beer in competition with other beers that are in the marketplace, then that creates the problem. Number 2163 REPRESENTATIVE HALCRO reminded everyone that last year part of the opposition from some of the brewpubs was directed at the $125,000 to $150,000 beverage dispensary license [that the brewpubs had to purchase in order to expand] even though they didn't want to serve hard liquor. Therefore, the notion that these brewpubs would make up that cost through bar sales is off-the-mark as the desire was to merely open a new location. Representative Halcro asked if Mr. Griffin felt that the ABC Board would be amenable to inserting language to the effect that any beer manufactured over 75,000 gallons would have to be sold in the [brewpub's] restaurant. MR. GRIFFIN indicated that the ABC Board would probably [be amenable] to [language] such as that. However, he didn't know how that would be regulated, specifically what gallons are sold at which establishment and thus there may be some technical aspects that require consideration. Mr. Griffin noted that he provided committee staff with a provision that was in the ABC Board's bill [SB 138] from the last legislature. The provision refers to a "soft cap," which means that if a brewpub believes that it will exceed the 75,000 limit in September or October, the brewpub [would need] to petition the board and request a waiver in order to produce more [beer]. At that time, the board could query the brewpub as to why they need to exceed the limit, where [the beer] would be sold and how many tap lines [that particular brewpub] has in other parts of the state. Based on the responses from the brewpub, the board could determine whether or not to grant the waiver. He also noted that regulations could provide a framework in regard to how [such a decision] would be applied. He viewed this as a way for the legislature to delegate this matter to the wisdom of the board that regulates the industry. CHAIRMAN ROKEBERG pointed out that the economic interest provision of the existing statute prohibits a brewery from owning a restaurant. He asked if that is the root cause of the problems and the legislation that occurred last year. MR. GRIFFIN agreed that [the economic interest provision] is part of the problem. TAPE 00-41, SIDE A Number 0018 MR. GRIFFIN reviewed the situation with the Glacier Brew House and the Moose's Tooth, their desire to expand, which resulted in last year's discussion and the conversion of these breweries to brewpubs. Due to the conversion from the brewery to the brewpub model, they were given additional flexibility - that brewpubs didn't have [before] - to be able to sell their product off-premise. He believes that is the point at which the breweries became concerned because the 75,000-gallon limit was a safeguard [in regard to the brewpub's ability to market their beer beyond their own restaurants]. He reiterated that this [problem] began with the original model which was "cut out from under them," which left them scrambling. He commented that he has sympathy for all parties involved in this matter. Therefore, he indicated the need to arrive at some balance for everyone, which may be placing this matter in the hands of the board in order to come to a resolution in an open meeting with all involved parties. CHAIRMAN ROKEBERG informed everyone of his position that if the Alaska State Senate would agree to the elimination of the economic [interest] provision, that would allow any brewery to own its own restaurant and vice versa. However, he believes that last year's legislation [illustrated] that the cap is present for a reason, [in order] to differentiate between the brewpubs and the breweries. Number 0251 LISA PELTOLA, Beer Sales and Office Manager, Midnight Sun Brewing Company, testified via teleconference from Anchorage. She informed the committee that she would read the letter in the committee packet from Mark Staples, President/Owner of Midnight Sun Brewing Company. She read the letter as follows: This letter is to voice my opposition to HB 386. HB 386 is designed to help two brewpubs, which currently hold "super licenses". The super license, passed under last year's HB 69, allows owners of dispensary licenses to sell up to 75,000 gallons of beer. The 75,000-gallon cap was designed to allow these license holders to produce as much beer as they need to satisfy the demands of their own bars. Both of these license holders have essentially reached or are close to reaching maximum beer sales based on square footage and seating capacity. At their maximum, the demand from their own bars is far under the 75,000-gallon cap. It is not feasible that demand from either of these bars will exceed 75,000 gallons. The true reason for HB 386 is that both of these brewpubs are selling significant amounts of beer to other bars and restaurants. The current super license puts breweries at an extremely competitive disadvantage as it allows these businesses to sell to other bars, restaurants and events at lower prices as a way to promote their own establishments. By undercutting the pricing of other Alaskan breweries and at times offering free beer, these super license holders are undermining the Alaska "free enterprise" beer market. By promoting their beers and pubs with near-cost beer prices to other bars and restaurants, they increasing [increased] their own brewpub business where highly profitable sales are made. A recent example is that Glacier Brew House gave free beer and bar service to the Anchorage Nordic Ski Association's annual ski train event. Midnight Sun has sold beer to this event in 1997, 98 and was scheduled to in 99 before it was canceled. While Midnight Sun certainly cannot afford to donate beer free to such events, ... these events still remain our bread and butter and Glacier Brew House merely uses it as a promotional vehicle to draw customers to its establishment. I'd like to have that every event, big or large, every draft account for Midnight Sun is our bread and butter; it's what keeps us alive. The spirit intended in last year's HB 69 was clearly designed to allow the brewpubs to make enough beer to satisfy the demands of their onsite customers. This new bill goes beyond these intentions, increasing the 75,000-gallon limit would create full production and distribution breweries fronting as brewpubs. Super license holders are selling or have sold beer to the following establishments: Humpy's, Harry's, Simon's and Seifert's, Snow City Cafe, Southside Bistro, Piper's at West Coast Int'l Inn, Outback, Cattle Company, Sitxmar, Chair 5, Upper One in the Anchorage airport and many others. By passing HB 386, you're sabotaging Alaska's brewing industry. Breweries work very hard to play by the rules and please don't let a couple of brewpubs destroy fair business in Alaska. If you look at the profits made by brewpubs versus breweries, its clear to see this bill could easily jeopardize some of the current breweries operating. It takes away our bread and butter. Thank you for taking time to understand Midnight Sun's position. Number 0510 LARRY HACKENMILLER, Club Manchu, testified via teleconference from Fairbanks. He noted that he agreed with the statements in regard to why HB 69 was passed last year and why the 75,000-gallon limit was established. Mr. Hackenmiller thanked Mr. Anderson for basically making his point; he reminded the committee of Mr. Anderson's testimony that indicated he didn't know why there is a limit, but if the limit is 150,000 gallons this year, then that is what he would "go for." Mr. Hackenmiller said, "The intent here is special interest, if you will, would be to just have whatever they want to have." He informed the committee that his point of view is not as a brewer, but [as a] full beverage license holder as he has a tavern. He further informed the committee that there are certain restrictions [with taverns]. For instance, if alcohol is sold by the drink, [the establishment] is not allowed to give away free alcohol. If a brewpub is allowed to [provide free alcohol] under the full beverage license, then the brewpub has an exception to the rule. He didn't view that as very competitive. Furthermore, if one has a package store license, consumption is not allowed on the premise while consumption can occur on the premise of a brewpub. MR. HACKENMILLER stated that one of the reasons an ABC Board exists with regulations as well as a distinction in licenses is in order to ensure that one doesn't cross the lines. For example, if one has a package store in the same building as a full beverage license, these have to have separate doors. These strict guidelines exist for a purpose, although those have been set aside for brewpubs. In essence, any restrictions imposed on a package store license or a full beverage license [don't apply] to a brewpub and now the desire is to increase the cap to 150,000 gallons. He remarked that [the brewpubs] will probably come back next year [to raise the cap]. He inquired as to the purpose behind this and refuted the notion that the purpose is for consumption on their own premises. Therefore, Mr. Hackenmiller emphasized his opposition to HB 386 and raising the cap to the 150,000-gallon limit. He further emphasized that he is tired of returning year after year to deal with brewpub rights, exceptions and grandfather rights. He indicated that brewpubs seem to be moving towards eliminating Title IV. In conclusion, Mr. Hackenmiller also suggested that HB 386 should be referred to the Judiciary Committee as there are unfair conflicts between what brewpubs are allowed versus full beverage licenses. CHAIRMAN ROKEBERG agreed with Mr. Hackenmiller; however, he wasn't sure HB 386 needs to have a referral to the Judiciary Committee. REPRESENTATIVE HALCRO asked if Mr. Hackenmiller brews his own beer. MR. HACKENMILLER replied no and specified that he is basically a tavern as he does not have a brewery or brewpub. REPRESENTATIVE HALCRO asked if Mr. Hackenmiller would support a provision specifying that any beer produced over the 75,000 gallons would have to be sold in that brewpub's own restaurant. He asked if Mr. Hackenmiller would support giving the ABC Board the ability to make special determinations when situations arise. MR. HACKENMILLER replied no because it would be too ambiguous. Furthermore, it would allow the ABC Board to make decisions based on political pressure. He felt that the ABC Board's job should be as easy as possible with clear [lines]. Number 0761 MATT JONES, Co-Owner, Moose's Tooth Pub & Pizzeria, testifying via teleconference from Anchorage, noted his support of HB 386. He informed the committee that the Moose's Tooth is about to open a second location and within a couple of months of operation, "we'll" be out of beer. Mr. Jones turned to the prior suggestion that any amount over the 75,000-gallon limit be sold only in [the brewpub's] own establishment. In regard to how that would be tracked, he said that it would be easy to track that as brewpubs already have to indicate, on a monthly basis, where their beer went on the Department of Revenue tax forms. He then turned to the suggestion of providing the ABC Board the ability to make special determinations when situations arise. He felt that a regulatory/discretionary process with the ABC Board would be an unknown result. For example, the ABC Board granted the brewpubs an exception to have live entertainment beyond 11:00 p.m. one night a month. After receiving complaint(s), that [exception] was decreased to nine times per year. MR. JONES turned to the charge that this would create a super brewery. He agreed that there hasn't been a level playing field between the breweries and the brewpubs. Perhaps, the only time it ever was a level playing field between those two, was prior to 1996 when one could open a restaurant and a brewery or have a brewpub. He said that he would like to have a level playing field, which he indicated would require parity between the instate breweries and brewpubs as well as parity between Alaska and the Lower 48. There are breweries in the Lower 48 that have their own pub and are allowed to brew as much beer as they can sell. Some of the large micro breweries in the Northwest distribute a good portion of their beer into Alaska and thus companies in Southcentral Alaska have to compete with companies [from the Lower 48] that run a brewpub and a production brewery. Therefore, Mr. Jones reiterated the need to review parity within the state as well as with the Lower 48. He remarked that the reason some [brewpubs] are successful is because "we" made a better product for cheaper not because someone had an advantage. In response to the charge that the [the brewpubs] sell a lot of beer off-premises, Mr. Jones informed the committee that last year [the Moose's Tooth produced] about 1,500 barrels of which about 200 went to taps, which amounts to about 13 percent. He expressed the desire for that number to grow; however, he didn't view the Moose's Tooth as a ruthless brewery [taking control] of tap handles left and right. CHAIRMAN ROKEBERG inquired as to Mr. Jones' current production level. MR. JONES answered that currently, [the Moose's Tooth] produces 1,500 barrels. He explained that the federal system is based on barrels while the state system is based on gallons. Therefore, 1,500 barrels amounts to approximately 49,600 gallons. In further response to Chairman Rokeberg, he said that his new establishment is not open yet. Number 1101 KAREN BERGER, Owner, Homer Brewing Company, testified via teleconference from Homer. Ms. Berger announced that she opposed HB 386. If the brewpubs intend to produce and serve their product in a licensed establishment for which they are covered, it appears that the 75,000-gallon limit per year would be sufficient. She informed the committee that 75,000 gallons [of beer] equates to 600,000 pints [of beer]; pints are a standard measure of beer. She further informed the committee that Mr. Anderson [as reported] by the Anchorage Press on September 30, 1999, stated that the Glacier Brew House had served roughly a total of 200,000 customers in their four years of business, which would amount to an average of 50,000 customers per year. Therefore, Ms. Berger felt that the current 600,000 pints per year limit would be plenty of product for a family restaurant that serves responsibly. However, last year's change allowed these brewpubs to sell [their beer] in the wholesale market as well. Breweries such as the Homer Brewing Company are allowed to exist in the wholesale market and thus the change has allowed brewpubs to unfairly compete with breweries in Alaska by offering incentives to other retail, eating, drinking establishments and package stores that cannot be afforded by those whose primary business is the wholesale market. She pointed out that the proposed increase to the brewing cap to 150,000 [gallons] is desired so that [the brewpubs] can serve this wholesale market. She further pointed out that this new limit would equate to 1,200,000 pints of beer or more than two pints per person per year for the population of the entire state. Therefore, Ms. Berger felt that this becomes an infringement on the three-tier system, which protects against the brewer controlling both the wholesale and retail markets. MS. BERGER said that Homer Brewing Company and the other breweries of the state have established their business based on the laws in place and not by overbuilding and hoping to change the laws in order to best suit their personal business plans. She pointed out, "The combination licenses that were granted in such a nebulous way in 1996, have been changed and provided for by last year's HB 69 and the current HB 386 to the detriment of those holding licenses that run their businesses with the intent of the laws as they are stated." She suggested that the change encompassed in HB 386 will curtail future small endeavors such as the Homer Brewing Company. Furthermore, [HB 386] will likely create a monopoly by the state's only regional brewery, which she believes "they" don't want to happen. Ms. Berger asked that the committee not pass HB 386 as currently written. Number 1307 MARCY LARSON, Alaskan Brewing Company, stated her opposition to HB 386. She informed the committee that [the Alaskan Brewing Company] has held a brewery license since 1986 and since that time there have been many changes in the laws. When the Alaskan Brewing Company began no brewpubs were allowed nor was home brewing and thus everything was fairly clear; she agreed with some of the brewers that that situation was not the best. She informed the committee that she enjoyed having a lot of brewers, but the problem becomes the balance. Currently, there is a brewpub license and a brewery license. She explained that the brewpub license is meant to rely upon the on-premise retail sales, while the brewery license is meant to rely on the wholesale sales to distributors and outside markets. She acknowledged that there have been bumps along the way with the simultaneous openings of restaurants and breweries. Furthermore, the balance includes the other liquor license holders as well. Although it seems simple to raise the limit, it is complicated. Ms. Larson informed the committee that 75,000 gallons of beer is approximately 5,000 kegs per year, which would amount to 100 kegs a week. Therefore, it would be a fairly large bar that puts through that quantity and thus she indicated concern in regard to doubling that amount. In regard to the idea of capping [the amount over 75,000 gallons] sold to wholesale venues, that business could sell the entire 75,000 to the outside markets. Perhaps, one suggestion would be to eliminate the wholesale aspect of the brewpubs and focus them on their establishments [where they could sell whatever amount they wanted]. Ms. Larson expressed frustration with this brewpub law that has had five amendments since its inception and every time the slope gets [more slippery]. Therefore, she expressed the need to develop something stable that everyone can agree upon. REPRESENTATIVE HALCRO asked if Ms. Larson would support eliminating all of the restrictions, which would allow a brewer to open a restaurant. MS. LARSON answered that there would be many things to take into consideration. She identified a problem in that [the brewer] can be a wholesaler, a retailer and a supplier; the brewing industry would be the only ones having that kind of total freedom. She didn't know if that would fly. CHAIRMAN ROKEBERG returned to his earlier comment that the economic interest clause has caused many of these problems. He mentioned that he would like to see that go away. If breweries were taken out of [the economic interest clause], then breweries could do what they wish with the proper license. MS. LARSON interjected that the small breweries have entered thinking that all they can do is wholesale and thus such a shift would require utilizing retail as well in order to stay competitive. Therefore, there could be a down side to that. Number 1573 REPRESENTATIVE HALCRO pointed out that other states have fairly liberal laws that allow one to brew beer and open up restaurants. He expressed concern with the situation at hand in which a company wants to open a second location and employee an additional 100 people; however, they are being handicapped with HB 69. He feels that [HB 69] is unfair protectionism and he didn't feel that competition should be held back. However, he didn't want to create an unfair playing field and thus agreed that perhaps eliminating all the barriers would level the playing field. MS. LARSON informed the committee that in Oregon the McMenamins brewpub situation was tackled by allowing every brewery the ability to support two on-premise establishments. That situation seems to be working. She commented that there is a different situation in California and Gordan (ph) Beer Restaurants were brewpubs, but just had to sale all of their restaurants and go strictly into the brewery business due to a similar situation. Number 1720 ROD HANCOCK, Co-Owner, Moose's Tooth Pub & Pizzeria and Brewing Company, testified via teleconference from Anchorage. Mr. Hancock first commented on the need to maintain free competition and noted two failures in [this industry in the Anchorage] area: Bird Creek, a brewery; and Railway, [a brewpub]. He pointed out that the restaurant business is a difficult business, which has the highest rate of failure of any business type. Therefore, he didn't view [a restaurant] as an unfair advantage. MR. HANCOCK informed the committee that [the Moose's Tooth's] business plan is based on a Northwest model. In regard to McMenamins, that brewpub is allowed to self-distribute to two brewpubs and brew as much beer as desired to be [sold] to whomever, although they must use a distributor [for that beer]. He then turned to the Deschutes (ph) Brewing Company, which is not considered a micro brewery. Mr. Hancock explained that he came here with the [Northwest] model that was legal in 1996; the laws changed [after] we started and the [Moose's Tooth] could not use its brewery. Therefore, a compromise was struck with the creation of the beverage dispensary license that would allow them to supply multiple locations; however, now there isn't enough beer to do that as the brewery can't be used to its potential. Mr. Hancock reiterated that "we" are trying to fix our model that was legal to begin with. MR. HANCOCK acknowledged the probable frustration of the committee in regard to the divergent views of [the breweries and the brewpubs]. He noted his own frustration. However, he felt it natural that one would want to restrict one's competition if there isn't much consequence. Still, he indicated that everyone feels that it is about beer and brewing. In conclusion, Mr. Hancock explained that without raising the [75,000-gallon] cap, he will be forced to contract brew in the Lower 48 where the beer would be made and then returned to the state. Therefore, jobs would be created in the Lower 48 and they will keep the profits. Under that model, [brewpubs] still can't distribute their beer. Although [the brewpubs] can aggressively promote their beer, it would be from the Lower 48 not from the brewery that was built in Alaska. REPRESENTATIVE HALCRO requested that Mr. Hancock provide the committee with a brief outline in regard to competition and how [the Moose's Tooth] markets its beer to retail establishments. He informed Mr. Hancock that one of the opponents of HB 386, in a letter in the committee packet, lists the establishments in which [the Moose's Tooth] is selling beer. Representative Halcro imagined that [the Moose's Tooth], when going into any establishment, would have to compete for their sales just as anyone else would. MR. HANCOCK pointed out that he has to compete with the local breweries as well as those from the Lower 48. Mr. Hancock informed the committee, in regard to indications that [the Moose's Tooth] is undercutting the market, that he lost his tap handle at the Outback Steakhouse, where he sold a keg for $110. That is about [the standard keg price] on the market. However, Pete's Wicked Ale came in and sold a keg for $80. Number 2025 GLENN BRADY, President/Owner, Silver Gulch Brewing and Bottling Company, testified via teleconference from Fairbanks. He informed the committee that Silver Gulch Brewing is a micro brewery licensed by the state. He noted that the [committee packet] should include a copy of his letter [, and an amendment,] to the committee. Mr. Brady stated his opposition to HB 386 as currently written. In regard to Mr. Griffin's earlier testimony, Mr. Brady generally agreed with Mr. Griffin's ideas as well as those ideas from the breweries. However, Mr. Brady believes that removing the barriers to competition would open a can of worms with the holders of the dispensary licenses and the existing three-tier system. He indicated that the existing three-tier system is possibly too difficult to deal with legislatively [and thus] more clear boundaries would create a level playing field for everyone. Mr. Brady turned to his proposed amendment, which would say that it wouldn't matter how much [beer] was produced as long as it was sold on the premises. Therefore, it would relieve the competition that Alaskan breweries face in the open marketplace in that small breweries compete, as mentioned by Mr. Hancock, with breweries in the Lower 48 as well as with brewpubs that can subsidize the overhead of beer production with high margin restaurant retail sales. In regard to Mr. Hancock's comment that [brewpubs] could possibly face turning to breweries in the Lower 48 to produce their beer, Mr. Brady noted that [the brewpubs] could come to the [Alaskan breweries] and thus keep the dollars in the state. In conclusion, Mr. Brady reiterated his opposition to HB 386 as currently written; however, he favored his amendment as a compromise. REPRESENTATIVE HALCRO inquired as to how many brewpubs Mr. Brady competes against in the Fairbanks market. MR. BRADY answered that he currently competes against two brewpubs: the Moose's Tooth and Glacier Brew House. He specified that he is referring to tap handle draft placements in bars in Fairbanks. REPRESENTATIVE HALCRO clarified that he classifies a brewpub as an eating establishment that sells its own beer. MR. BRADY responded, then, that there are no brewpubs in Fairbanks. CHAIRMAN ROKEBERG interjected that the product from the brewpubs is being exported through a wholesaler to the Fairbanks' market. Number 2192 S.J. KLEIN, President and Head Brewer, The Borealis Brewery, testified via teleconference from Anchorage. He first noted his appreciation of the committee's full understanding of this [industry and this] issue. He then informed the committee that The Borealis Brewery is a production brewery under Alaska law. He identified the problem as the state's designation that there are two different types of operations that make beer in the state. The difference between the production brewery and the brewpub designation is that the brewpub has the ability to sell beer to itself, while the production brewery has the ability to sell beer to anyone else. The [75,000-gallon] cap was the mechanism by which the difference between the two was established. He explained that the idea behind [this differentiation was that] if someone builds a brewery [and then] wants to make it a brewpub, [the brewpub] can only sell an amount that makes sense for what a brewery can sell to itself. The cap was established in order that [brewpubs] could build to a certain capacity, but [brewpubs] were given the legal ability to sell excess capacity to a distributor to sell on the open market. As a brewer, Mr. Klein has the specific goal of seeing local beer produced and sold for local consumption. Ideally, he would like to see any brewery follow the example of the Alaskan Brewery. However, it is going to take more than raising the cap for a specific and special interest group. Barring returning to the level playing field, a framework exists. If the [law/framework] is going to be changed every time the brewpub expands or changes its business, the same problem will exist in that production breweries will [still] be prohibited from owning a bar or a restaurant while [brewpubs] can subsidize their breweries with the restaurant. Number 2355 MR. KLEIN turned to the question of where to go from here. He suggested that first, the committee should ask itself: "What are the goals of legislation governing the brewing industry?" He didn't foresee anyone arguing that a goal of brewery legislation should encourage the beer that is consumed in Alaska to be produced in Alaska. However, a system has been created such that it is an incredibly unfair playing field. Mr. Klein informed the committee that, in view of this cap, he is seriously considering purchasing a liquor license, although he is not [particularly interested] in selling liquor. Mr. Klein said that he doesn't really want to become a brewpub; however, he expressed the desire to have the ability to do so if he decided he wanted to have a tap room once he is selling beer nationwide. In conclusion, Mr. Klein reiterated that an unfair playing field exists and this exemption makes it more so. He said that Alaska has a good set of laws governing the on-premise sale of liquor in the state. With the exception of the four to six brewpubs, every bar, store and restaurant complies with those laws. Therefore, the other license holders are opposed to freeing the production of beer. He echoed earlier comments that the current brewpub legislation allows brewpubs to do everything. REPRESENTATIVE HALCRO asked if Mr. Klein sells kegs to retail outlets or restaurants. MR. KLEIN replied yes. He informed the committee that he has a total of 180 accounts from Talkeetna down to Homer. REPRESENTATIVE HALCRO inquired as to the average cost of a keg. TAPE 00-41, SIDE B [A portion of the exchange between Mr. Klein and Representative Halcro was not recorded as the tape reversed to Side B.] CHAIRMAN ROKEBERG interjected that Mr. Klein didn't have to answer [Representative Halcro's] question. MR. KLEIN answered that he is the most expensive beer, beer that is made in the Anchorage area, on the market. REPRESENTATIVE HALCRO referred to Mr. Hancock's testimony that he is competing for the same accounts that Mr. Klein is, but Mr. Hancock is sometimes having to walk away from accounts due to lower beer prices from the Lower 48. The example from Mr. Hancock's testimony was approximately $30 cheaper than what Mr. Hancock was willing to charge. Therefore, Mr. Hancock illustrates that he needs to make money on the beer sold to restaurants and they are not in a position "to take a hit." MR. KLEIN seemed to question the logic of [raising the cap] for this situation in which [these brewpubs claim they] are going to run out of beer in their own two establishments while selling beer to other establishments. To Representative Halcro's point, Mr. Klein agreed that it is a very competitive marketplace. He pointed out that part of the pricing is tied to the amount of beer that one makes. Although he agreed that Mr. Hancock may not have reduced his prices, Mr. Klein felt that the way the industry is set up, a brewpub has the ability to subsidize its beer sales through the profits of its restaurant. Mr. Klein offered to provide examples in which he has been bumped by other brewpubs giving away beer or selling it at half the cost of what they sell their beer in other markets. Mr. Klein remarked that Mr. Jones and Mr. Hancock are very responsible restauranteurs and do an admirable job of marketing their beer. However, the ways these laws are being manipulated doesn't correlate with the intent of the original law. Number 0128 REPRESENTATIVE HALCRO referred to another portion of Mr. Klein's letter, the portion referring to special legislation. He noted that he wasn't in the legislature in 1995 when the brewpub legislation was passed. However, Representative Halcro viewed it as a window of opportunity under which these folks built restaurants and breweries because they assumed that they would be able to grow their business under the terms of the brewpub law. CHAIRMAN ROKEBERG clarified that wasn't the brewpub law, it was the tavern law. The brewpubs were before that. REPRESENTATIVE HALCRO maintained his point that brewpubs were established as allowed by state law. MR. KLEIN interjected that his opposition to the current state of law began when that gap was closed; from that point forward, everything has been thrown into a conundrum and there became an unfair situation for businesses to compete. Therefore, he saw the solution as returning to the freedom to brew beer as it should be a goal of legislation to encourage local production of beer. Mr. Klein related his belief that the brewpub designation should be eliminated as well as the Tidehouse (ph) rule for local breweries. Therefore, if Ms. Larson wanted to start a restaurant, she would have to obtain a restaurant license and run that operation as a restaurant by the rules governing restaurants. He didn't believe too many people would argue against such a model and if they did, he believed it would be argued out of self-interest. Number 0252 MR. ANDERSON informed the committee that in 1999 450,000 barrels of beer or 900,000 kegs were sold in Alaska. He stated that the "super license" allowed him to sell 874 kegs of that 900,000. Therefore, less than three-tenths of one percent of total beer and keg sales was from the Glacier Brew House. He emphasized that this is such a minor issue. CHAIRMAN ROKEBERG noted that he has been independently involved in this issue for a number of years. He said that he agreed with everything everyone has said with the exception of dismantling the three-tier system. Chairman Rokeberg reiterated his belief that the solution to this is to eliminate the word "brewery" from the economic interest clause, which he announced would be one of his major goals. Chairman Rokeberg announced that HB 386 would held at this time. ADJOURNMENT There being no further business before the committee, the House Labor & Commerce Standing Committee was adjourned at 6:00 p.m.