ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 9, 2010
2:03 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Chair
Senator Joe Thomas, Vice Chair
Senator Bettye Davis
Senator Kevin Meyer
MEMBERS ABSENT
Senator Con Bunde
COMMITTEE CALENDAR
SENATE BILL NO. 247
"An Act extending the termination date of the Board of Pharmacy;
and providing for an effective date."
- HEARD AND HELD
SENATE BILL NO. 248
"An Act extending the termination date of the Board of Marital
and Family Therapy; and providing for an effective date."
- HEARD AND HELD
SENATE BILL NO. 117
"An Act requiring the Department of Revenue to set the minimum
price for cigarettes for sale by wholesalers and retailers; and
prohibiting a wholesaler or retailer from selling at wholesale
or retail cigarettes at a lower price than the price set by the
Department of Revenue."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 247
SHORT TITLE: EXTENDING BOARD OF PHARMACY
SPONSOR(s): SENATOR(s) OLSON
01/29/10 (S) READ THE FIRST TIME - REFERRALS
01/29/10 (S) L&C, FIN
02/09/10 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: SB 248
SHORT TITLE: EXTEND BD OF MARITAL & FAMILY THERAPY
SPONSOR(s): SENATOR(s) OLSON
01/29/10 (S) READ THE FIRST TIME - REFERRALS
01/29/10 (S) L&C, FIN
02/09/10 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
BILL: SB 117
SHORT TITLE: PRICE OF CIGARETTES
SPONSOR(s): SENATOR(s) MCGUIRE
02/20/09 (S) READ THE FIRST TIME - REFERRALS
02/20/09 (S) L&C, FIN
02/09/10 (S) L&C AT 2:00 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
JIM COLVER
Staff to Senator Olson
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 247 for the sponsor.
PAT DAVIDSON, Auditor
Division of Legislative Audit
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Answered questions about SB 247 and SB 248.
JENNIFER STRICKLER, Operations Manager
Division of Corporations, Business and Professional Licensing
Department of Commerce, Community and Economic Development
(DCCED)
POSITION STATEMENT: Answered questions about SB 247 and SB 248.
TIM BENINTENDI
Staff to Senator Olson
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 248 for the sponsor.
PATRICIA WHITE, Chair
Board of Marriage and Family Therapists
POSITION STATEMENT: Answered questions about SB 248.
ESTHER CHA
Aide to Senator McGuire
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 117 for the sponsor.
CLIFF CRAEMER, Vice President
Sales and Marketing
Northern Sales Company
POSITION STATEMENT: Strongly supported the CS for SB 117.
JOHN MAKAY, Sr. Vice President
Northwest Region
Costco Wholesale Corporation
POSITION STATEMENT: Supported SB 117.
ROGER HAMES, President
Hames Corporation
Sitka, AK
POSITION STATEMENT: Supported the CS for SB 117.
ACTION NARRATIVE
2:03:56 PM
CHAIR JOE PASKVAN called the Senate Labor and Commerce Standing
Committee meeting to order at 2:03 p.m. Present at the call to
order were Senators Meyer, Davis and Paskvan.
SB 247-EXTENDING BOARD OF PHARMACY
2:05:54 PM
CHAIR PASKVAN announced SB 247 to be up for consideration.
JIM COLVER, staff to Senator Olson, sponsor of SB 247, said this
bill extends the Board of Pharmacy that will sunset on June 30,
2010. The fiscal note of $130,300 is to pay staff, board per
diem and transportation for three board meetings a year. The
Legislative Budget and Audit Division recently completed an
audit of the board and concluded that the termination date for
the Board of Pharmacy should be extended until June 30, 2018. He
noted that the termination date in SB 247 says June 30, 2015,
and he said the sponsor wanted the committee to amend that date
to align it with the audit recommendation of June 30, 2018.
2:08:17 PM
MR. COLVER said the audit also recommended that the department
should improve administrative support (for various small
accounting and staffing issues) and the department has responded
that it is dealing with those issues. Additionally, it
recommended that the board and staff need to work with the
Office of the Governor to improve recruitment of qualified board
applicants to ensure a full board.
He said SB 247 is supported by the Alaska Pharmacists
Association.
2:08:49 PM
SENATOR THOMAS joined the committee.
2:09:37 PM
PAT DAVIDSON, Division of Legislative Audit, Legislative Affairs
Agency, Alaska State Legislature, said she conducted an audit of
the Board of Pharmacy and recommended extending it to June 30,
2018, an eight-year extension as provided by law. The audit also
found that administrative support by the department was
insufficient for the board to get its work done; so this needs
some correction. She remarked that her audits have found this
issue as well as others exist with most of the other boards.
Another issue, Ms. Davidson said, is that the Office of the
Governor did not make timely appointments to the boards. These
boards are voluntary and take peoples' time, and if a board
doesn't have a full slate of members, that makes the other
members work harder, which, in turn, decreases their willingness
to be reappointed and makes it harder to get new members.
2:11:17 PM
The last was a technical issue, she said, that had to do with
collaborative protocols. She explained that typically one
doesn't go to a pharmacist to get an injection, but in certain
circumstances a pharmacist in association with a physician will
go through a collaborative protocol that allows the pharmacist
to dispense a flu shot, for instance. She explained that
regulations require that an written agreement between the
physician and the pharmacist and it has to be submitted to the
board. She found that those protocols were for one length of
time - one year, but the board allowed that protocol to exist
for two years. She recommended that the board limit itself to
approving those protocols for a time limited to what is reached
between the pharmacist and the physician.
CHAIR PASKVAN said he understands that the two requirements are
that the doctors review the decisions made by the pharmacists at
least once every three months and that the doctors would get the
patient records. He asked if those protocols were the ones
addressed in the audit.
MS. DAVIDSON answered yes. Regulations identify those things,
but the board wasn't necessarily following all those regulations
in approving the protocols.
CHAIR PASKVAN asked if some of the agreements were written for
periods of time longer than the doctor had committed to and if
that would result in the pharmacist dispensing flu shots beyond
the period of time the doctor had agreed to.
MS. DAVIDSON replied that she didn't see any evidence of the
protocols actually being enforced beyond the written agreement
between the pharmacist and the physician. However, in reviewing
those protocols the board should make sure that everything that
is required by regulation be written into the protocols and that
the board limits itself to adopting it for the timeframe that is
in the written agreement.
CHAIR PASKVAN asked her to more fully explain the cooperative
practice agreements.
MS. DAVIDSON responded that those agreements were required so
that the physician could review the decisions made by the
pharmacist at least once every three months and so patient
records could be provided to the physician. She found those were
not always specifically spelled out in the written agreement. In
regard to the timeframe, either the practitioner or the
pharmacist could be confused as to how long they would be
allowed; so to avoid those sorts of confusion, it is important
that the board go through the written cooperative agreement
process. And then limit their approval of that for the time
frame indicated in the written agreement.
2:15:58 PM
CHAIR PASKVAN asked if a template is followed for the protocols,
whether it's for flu shots or something else, that is board
approved and that regulations could be compared to.
MS. DAVIDSON replied there is no template established for those.
CHAIR PASKVAN asked if there is any reason they couldn't have a
template to make it easier to compare protocols with the
regulations.
MS. DAVIDSON said because the written agreements could cover a
wide range of what the practitioners and pharmacists are
comfortable in delegating, she didn't know if creating a
template would necessarily be beneficial. Practitioners would
probably change things to fit their individual circumstances.
2:18:13 PM
CHAIR PASKVAN found no questions on recommendation 1.
SENATOR MEYER commented that he had already heard SB 247 in the
Legislative Budget and Audit Committee and he was very familiar
with it.
CHAIR PASKVAN said recommendation 2 identified deficiencies and
the first one was errors in license statistics; he asked her to
more fully explain that.
MS. DAVIDSON responded that an annual report is prepared for
each of the boards to give an idea of its activities. It
identifies how many new licenses were issued, how many renewals
there were; some boards that have license by credentials versus
examination will break those out. They will also talk about non
licensing statistics like investigations and actions taken as a
result of investigations, for instance. She said that she would
talk about this recommendation a lot because she has found
different types of licensing statistics errors in different
boards. This is one of the things she saw when verifying
statistics that were included in annual reports.
CHAIR PASKVAN said a paragraph on page 8 addressed a key
administrative staff member that was both unqualified and
untrained. He asked how a key person could get that position.
MS. DAVIDSON deferred that answer to the department.
CHAIR PASKVAN asked if this board had more turnover than others.
MS. DAVIDSON replied that her experience with boards in general
is that they have a higher turnover rate because they are
relatively entry level positions and better opportunities are
available elsewhere.
CHAIR PASKVAN said language on page 8 says "may provide policy
makers with misleading information" and he wanted to know what
types of information that would be.
MS. DAVIDSON explained that goes back to the annual reports;
various boards have issues come up that may rise to a very high
level or may be dealt with at a board level. As an example, if
insufficient pharmacists were a concern, and if their statistics
were understated by 100 or 200 percent, a situation would be
created where someone who is relying on that information would
come to a bad conclusion. Or if someone was using the annual
reports to monitor numbers of physician assistants or EMTs for
the Medical Board, for instance, or to correlate the
relationship between the number of licensees and what the
university is doing, when you have bad statistics, you will get
bad policy information. What she was trying to express is that
these data get published and people will use it. She asserted
also, "It comes from a state agency; it should be good data."
CHAIR PASKVAN asked if misleading information extends to
budgeting issues and if turnover of key administrative staff
members was one of her concerns.
2:24:23 PM
MS. DAVIDSON replied that she didn't look at staffing in
particular; boards and commissions are financially self
supporting. Their conclusion with regards to the Board of
Pharmacy is that it has no financial deficits, because the
licensees themselves pay for those things.
2:25:18 PM
CHAIR PASKVAN asked if the fee that is being assessed isn't high
enough, would that indirectly affect being able to hire enough
people to do the work.
MS. DAVIDSON replied that she hadn't looked at staffing enough
to make any recommendations about it and maybe the department
would want to address it.
2:25:48 PM
CHAIR PASKVAN found no questions on recommendation 2 on page 8
and went to the last recommendation on page 9 and said the
number of vacancies that are identified goes to the core issue
of consumer protection and asked if she could add anything.
MS. DAVIDSON replied that it goes back to maintaining good
membership on the boards so that work can get done. You don't
want the occupational boards to be so focused on what is good
for the occupation. If the state is going to be involved in
regulating an occupation, there has to be a good public need for
it and that is where the public members, particularly, bring a
valuable perspective. So when it's a public member vacancy, not
only does everybody else have a bigger work load, but a
different point of view is missing from deliberations.
CHAIR PASKVAN asked if she has come across an "unwillingness or
uneasiness" with either the public or professional members of a
board about sitting on it because of APOC reporting
requirements.
MS. DAVIDSON answered that the members of the board that she
talks to are already appointed and they would already be over
that hurdle. But that might come up from people who decided not
to apply to serve on a board. That might be a good question for
the Governor's Office in terms of what sort of barriers they are
having in getting board members.
CHAIR PASKVAN asked if she has come across instances where there
just wasn't an applicant for a board position or where a
qualified applicant was just not being appointed.
MS. DAVIDSON replied that the audit just looked at how many
vacancies there were.
2:29:27 PM
SENATOR MEYER remarked that one member resigned because of a
direct financial interest in the health care industry. How big
of an issue is that? He said you would want people who have
knowledge of the pharmaceutical industry on the board. He then
asked how they determine whether or not a conflict of interest
is too great; is it a subjective call?
MS. DAVIDSON answered that the generic law for public members is
that they can't have a financial interest in that occupation.
However, this board in particular has a requirement in statute
that the public member cannot have direct financial interest in
the health care industry.
SENATOR MEYER asked how direct financial interest is defined. Is
owning stock in a hospital a health care interest?
MS. DAVIDSON answered that she didn't know the specific details
on this one. However, what happened to this public member is he
passed through when he was appointed, but then he changed jobs
once he was a board member and that created a conflict with the
statute. She explained that during the audit they ask public
members to certify that they meet the requirements and this
member was unwilling to do that.
2:31:45 PM
JENNIFER STRICKLER, Operations Manager, Division of
Corporations, Business and Professional Licensing, Department of
Commerce, Community and Economic Development (DCCED), said they
would probably hear recommendation 2 repeated for every sunset
audit report. She said unfortunately the division went through a
couple of "rough years" with an administrative officer who was
not "very accounting savvy" and he didn't educate himself. Since
he moved on, someone with an accounting background was hired.
Mistakes were corrected to such a degree that some of the boards
are now pleased with the budget reports they are getting.
MS. STRICKLER explained that the Board of Pharmacy, for example,
gets direct support from the licensing unit, but an
administrative unit handles all of the budgetary and accounting
information. The enforcement unit does enforcement. The problems
they ran into were in the administrative unit in the
Professional Licensing area. She recalled that Ms. Davidson
mentioned the entry level licensing examiners are range 13 and
while they had tried to get them reclassed higher, they hadn't
been successful. That is not where the issues lie, however; she
said it was with the group that provides the licensing
statistics to the administrative group. The problem came with
the former administrative officer she had just mentioned who
didn't educate himself about their accounting system. For
several years, although the writing on the wall, this person was
her peer and he was allowed to stay. She said it is a shame that
this problem had to get such a level before he moved on. The
report said that "known procedures were in place" and they were,
but they had been "thrown out" by this individual, which made
the problem worse. She has taken great strides to recreate the
procedures and to correct a lot of the mistakes.
CHAIR PASKVAN asked if some of the high turnover was a product
of the unqualified and untrained person.
MS. STRICKLER answered yes; she said there was great turnover in
the administrative and licensing staff; but turnover in the
licensing areas of all of the programs is because of the pay
level of that job class.
CHAIR PASKVAN asked if the fees being charged the professionals
are sufficient for members of the board to operate in a
responsible manner.
MS. STRICKLER answered yes; in fact, the fees will be lowered by
$100 across all categories that pay more than $200.
2:36:45 PM
CHAIR PASKVAN asked how the fee can be lowered and services can
still be adequately provided - focusing on the consumer
protection aspect.
MS. STRICKLER replied that because of posting errors in the cost
accounting system (direct and indirect costs of expenditures)
caused by the former employee she went back and compared that to
what is in the state's accounting system. She found a big
disparity; so everything was corrected and now matches the state
accounting system to date. Fortunately, this board had
accumulated a surplus which allows the fee to be lowered now.
CHAIR PASKVAN found no questions regarding recommendation 2.
2:37:54 PM
SENATOR THOMAS asked if this area is in good shape now.
MS. STRICKLER replied "yes."
2:38:21 PM
CHAIR PASKVAN went to the issue of policy makers receiving
misleading information and he wanted to know if he was asking
the right question.
MS. STRICKLER responded that any information he sees from the
boards to date will be accurate. The possible misleading
information would be incorrect licensing statistics - not from
the licensing staff that had accurate information - but from the
financial person it was submitted to in the division that
prepares the annual reports.
2:39:48 PM
CHAIR PASKVAN found no further questions on SB 247 and concluded
public testimony for the day. So SB 247 was held for further
work.
SB 248-EXTEND BD OF MARITAL & FAMILY THERAPY
2:41:44 PM
CHAIR PASKVAN announced SB 248 to be up for consideration.
2:41:49 PM
TIM BENINTENDI, staff to Senator Olson, sponsor of SB 248, said
the extension of the Board of Marriage and Family Therapy shows
June 30, 2015 in the bill, but the recommendation was for 2014.
He ordered up copies of the bill before doing the homework and
when he read the audit he found the recommendation was for 2014.
The sponsor supports the audit and has asked them to amend SB
248 to reflect its recommendation.
He said the board is composed of three therapists and two public
members; the cost of a license is currently at $775 and in FY09
had 84 licensees. According to the audit that figure may be
declining. Also according to the audit, the board's deficit has
gone down fairly dramatically from $75,400 in FY05 to $29,200 in
FY09. The deficit has existed for over 10 years.
MR. BENINTENDI said the board needs to make regulatory changes,
however preparations and processing for such are charged to it
and members want to eliminate its deficit before they move to
make significant regulatory changes. He said the legislative
audit recognizes this and further observed that the board
support from the department could be more substantial and that
the governor could be making appointments in a more timely
fashion.
CHAIR PASKVAN asked about the APOC issue if there is a concern
that either the applicant pool is extremely small or that the
appointments haven't been completed from the available
applicants.
MR. BENINTENDI answered that he didn't have any thoughts beyond
what has been stated in the audit. Frankly, he said, department
personnel may have more current figures, but a decline in
numbers seems to have been the trend for the last several years,
and it is a small pool of people from which to draw fees.
2:44:46 PM
CHAIR PASKVAN remarked that he has a draft committee substitute
(CS) that reflects the recommended-2014 sunset date that would
be brought up in the next meeting.
2:45:11 PM
PAT DAVIDSON, Division of Legislative Audit, Alaska State
Legislature, said the audit recommended extending the Board of
Marital and Family Therapy to June 30, 2014. She explained that
a four-year extension is half of what is allowed by statute, and
the reason for the four-year recommendation is because she found
the board is holding off on regulation projects because of the
estimated associated costs along with the fact that the board is
currently trying to work off its deficit.
She said that a main advantage to having professional boards is
they keep regulations up to date instead of the legislature or
an administrative body having to do it. However, if the board is
holding off on doing the regulatory changes that are necessary
to keep that professional occupation to its professional
standards, it isn't really aren't serving its licensing purpose.
This is why the audit recommended a limited extension. They also
found the same administrative difficulties with the board - lack
of timely appointments by the governor for new board members.
CHAIR PASKVAN said page 7, findings and recommendations,
references that chairs of both the boards objected to her
recommendation of combining them into one single board. What was
the basis for the objection?
2:48:06 PM
MS. DAVIDSON replied that the last time mental health
professionals were looked at - the Boards of Social Workers,
Marital and Family Therapists, Professional Counselors,
Psychologists, Psychological Associates, and one other group -
they were all up for sunset in the same year (by design). One of
the things she looked at is if they should be combined and her
recommendation is that they could be combined. But when it comes
down to it, the boards are financially self supporting and so is
each occupation. So there was no overriding budgetary need for
the combination; and probably the best way to create failure is
to try to "stick people together who do not want to be there."
Her office thought a combined board would be larger than any one
of the individual boards, but in total would be a little bit
smaller. Again, they had a real concern that if the boards
didn't want to join or there was more than an initial reluctance
to it, they would end up with a couple of very dysfunctional
boards. About four or five years ago the legislature decided to
individually license the boards.
MS. DAVIDSON said the Board of Marital and Family Therapists
thought combining would be okay, but it was in financial
difficulty and continuing to be challenged; and it has pretty
high fees. The only other board that has a small group with high
fees is the Board of Direct Entry Midwives. Their group is
relatively small; the fees go up and down and they never hear
complaints from the practitioners about getting rid of their
board.
CHAIR PASKVAN asked if given the objection to joining together,
would it be appropriate to do a two-year sunset to see how
successful their financial efforts are. Or are they forever
separated and not going to try to achieve those efficiencies?
MS. DAVIDSON said the legislature could designate whatever
extension it would like. Since the statute requires each
occupation to be self sufficient, combining the boards would
make any economies of financial scale. Choosing to make a two-
year extension to drive the point home is up to the legislature.
CHAIR PASKVAN found no further questions on recommendation 1 and
went on to recommendation 2, the issue of unqualified staff and
lack of documented procedures.
SENATOR THOMAS interrupted to say he had trouble understanding
how delaying regulations has an impact on revenue.
MS. DAVIDSON answered that regulation projects involve the
Department of Law (DOL) and it bills the board for its services.
If they start to incur legal and regulation specialist costs,
then the costs would go up and then the fees have to go up. This
board is already seeing a decline in the number of people who
are seeking licensure. She reminded them that this is one of the
boards that has a title restriction. You cannot call yourself a
licensed marital and family therapist unless you are licensed by
the state, but it doesn't really prohibit one from offering
those services in a different name. So, while practitioners find
value in licensing, by being able to bill insurance companies
for instance, it's a title restriction, not a practice
restriction. If the fees get to be too much to bear, people
could decide to just not be licensed.
2:55:01 PM
CHAIR PASKVAN asked if the state has a minimum qualification
standard for someone calling himself a counselor or a therapist.
MS. DAVIDSON replied yes; there are Boards of Professional
Counselors, Social Work Examiners, and Psychologist and
Psychological Associates. Each of those boards are going to have
educational requirements associated with them - possibly a
certain level of experience requirements and clinical or non
clinical settings to meet licensure.
CHAIR PASKVAN asked if that included the Board of Marital and
Family Therapy.
MS. DAVIDSON replied "yes."
2:56:18 PM
CHAIR PASKVAN went on to recommendation 2 on the unqualified
staff and lack of documented procedures.
MS. DAVIDSON said those are the same issues as with the previous
bill.
CHAIR PASKVAN went to recommendation 3.
MS. DAVIDSON said that is the same as the previous bill.
CHAIR PASKVAN found no further questions on any of the
recommendations.
2:57:00 PM
JENNIFER STRICKLER, Operations Manager, Division of
Corporations, Business and Professional Licensing, Department of
Commerce, Community and Economic Development (DCCED), reported
that the Board of Marital and Family Therapy is about $2000 shy
of making up its deficit. The division's fee analysis is based
on a two-year period and as with the other board, they had gone
back and corrected its figures.
CHAIR PASKVAN asked her "gut feeling" about combining this board
with other boards once their monetary deficiency is brought up
to date.
MS. STRICKLER answered that her gut feeling is that the
potential would be there if they were all operating in the
positive, but she didn't necessarily see any huge benefits. For
example, the Board of Architects, Engineers, Surveyors, and
Landscape Architects has 11 or 12 members. Central licensing has
a law that says for whatever reason, they all pay the same
amount of fees. The same thing could happen here, but if the
Board of Marital and Family Therapy currently has 84 licensees
and if they are added to a larger group, like the Board of
Psychologists and Psychological Associates, even if they all pay
the same fees, a majority of the revenue would be coming from
the psychology area. The boards might not consider that "equal."
2:59:56 PM
PATRICIA WHITE, Chair, Board of Marriage and Family Therapists,
introduced herself.
CHAIR PASKVAN asked her thoughts regarding the audit's findings
and recommendations and sunset extension.
MS. WHITE said she wrote a letter in response to the audit and
it said that the responsibility spread over three sections was
fair and not just all the board's fault. The deficit has been a
problem, but it happened earlier on in the board's creation
around 1992. The board has made changes in the way
investigations are carried out before passing them on to the
DOL, which eliminates the problem that happened many years ago.
The investigation centered on actions on the part of a licensed
marriage and family therapist who is no longer in the
profession. It was a good thing, but procedures have been
changes so that these kinds of costs won't happen to the board
again.
MS. WHITE stated that the audit said their main function is
protecting the public interest and that their inability to look
at changing regulations was challenging in that light. While
that is true in theory, after the audit came out the board
decided to review all of its minutes to see if it should have
gone ahead with regulations but were thwarted because of
associated costs. She didn't think they would find that any
public interest had been challenged, but they were going to make
sure.
3:03:18 PM
CHAIR PASKVAN asked if she found the APOC reporting requirements
of board members was unduly limiting the field of potential
applicants.
MS. WHITE answered that she didn't realize there was an APOC
reporting requirement.
CHAIR PASKVAN asked if anyone else wanted to comment on the APOC
issue. Finding no further questions, he said SB 248 would be
held for further work.
SB 117-PRICE OF CIGARETTES
3:06:01 PM
CHAIR PASKVAN announced SB 117 to be up for consideration.
ESTHER CHA, aide to Senator McGuire, sponsor of SB 117, said the
intent of SB 117 is to close a loophole in law, which allows
large high-volume cigarette sellers to price their cigarettes at
less than the minimum price set by law if it can be proved that
their cost of doing business is lower than the mandated minimum
price.
She explained that the original purpose of Article 7 in Title 43
was to prevent wholesalers and retails from using predatory
pricing practices to promote the sale of cheap cigarettes and
use them as a loss leader. However, AS 43.50.800(c) specifically
states that a wholesaler or retailer that wishes to advertise,
offer to sell, or sells cigarettes at less than the presumptive
actual cost to the wholesaler or retailer must first obtain
approval from the Department of Revenue (DOR). The department
may grant approval only if the wholesaler or retailer provides
proof satisfactory to the department that the wholesaler's or
retailer's actual cost is lower than presumed. Because of this
one clause, the statute didn't work the way it was supposed to.
For example, she said if the department determines that a pack
of cigarettes' minimum cost is $7 and someone comes in and says
they can show their cost of doing business allows them to price
cigarettes at $6.50; so they apply to the DOR that determines
whether that is true and allows them to sell cigarettes at that
price.
She said that SB 117 would repeal AS 43.50.800 and replace it
with section 6 in the bill which establishes AS 43.50.810. A
committee substitute (CS), version E, changes the multipliers.
In SB 117 (a) the current percentages are as described in AS
43.50.800(a)(b), but the change in percentage points reflects
the compromise among some of the smaller retailers as well as
the larger wholesalers. They have discussed this with the DOR
and found that the difference is the multipliers.
MS. CHA said that supporting documents indicate how increased
prices work to help deter people from smoking, especially youth.
The studies are accurate, she said, however the price changes
that may be in effect with this bill may not be as exaggerated
as needed to prevent a very large decrease in consumption. By
getting rid of the wholesaler's or retailer's ability to apply
for an exemption, SB 117 would also bring parity and balance to
competition. It would level the playing field by insuring that
all vendors regardless of size and volume or accounting
practices will have to price at or above the minimum price set
by law.
3:10:08 PM
SENATOR MEYER asked how much the price would go up per pack and
if it was set per pack or per carton. He also wanted to know how
they came up with the multiplier.
MS. CHA deferred those answers to Johanna Bales with the
department.
SENATOR MEYER assumed this applied to just cigarettes and not
small cigars. Ms. Cha indicated that was correct.
3:11:25 PM
CLIFF CRAEMER, Vice President, Sales and Marketing, Northern
Sales Company, said they are a diverse, full-service distributor
that does commodities like bread, candy, snacks, beverages and
tobacco. He strongly supported the CS for SB 117. He believed
that the proposed changes will simplify current law, reduce
administrative burden for both the state and licensee, and allow
a level playing field for both the wholesalers and the
retailers. They support the recommendation of removing the
exemption and the proposed changes in the multiplier. This is a
compromise between all the parties involved.
3:13:42 PM
JOHN MAKAY, Sr. Vice President, Northwest Region, Costco
Wholesale Corporation, said Costco doesn't view the existing law
as having a loophole. They always sell products above cost. He
explained that the provision was inserted in the past to allow
Costco to not have to artificially overcharge due to
"essentially a price fixing mechanism." It turned out, however,
that that provision was very burdensome for both Costco and the
DOR. He supported this change, but said it would increase the
price slightly.
3:15:41 PM
CHAIR PASKVAN asked if Costco factors labor into their cost.
MR. MAKAY answered yes; they factor in every cost. Costco and
the DOR spent a lot of time figuring out how to determine cost -
for example, how much of his salary or their overhead should get
applied to one little department in two buildings in a company
that has 550 locations. He said it is very subjective and he
appreciated the department working with them trying to determine
that, but it was an unwieldy process. Tobacco suppliers did not
allow deductions that Costco sometimes gets for its other
products; so the profit they made on tobacco, even with the
existing assumptions, was higher in Alaska than probably
anywhere in the country.
SENATOR MEYER asked if all the states he covers have minimum
pricing for cigarettes.
MR. MAKAY answered that none of them do; Alaska is the only one.
3:18:33 PM
SENATOR MEYER said he read that 23 other states do have this, so
it's not uncommon. Alaska is just the only one in his district.
MR. MAKAY said when this was instituted a number of years ago, a
fair amount of analysis was done on the states.
SENATOR MEYER asked if tobacco can be used as a loss leader in
states that don't have minimum pricing.
MR. MAKAY replied that he thought so, but Costco has an internal
policy of not selling things below cost. He said he wasn't an
expert in that area.
3:19:21 PM
SENATOR MEYER said he noticed the formula had a trade discount,
and asked what that is.
MR. MAKAY replied that a lot of discounts have been eliminated
by the tobacco companies, except for volume discounts and maybe
payment terms.
3:20:16 PM
ROGER HAMES, President, Hames Corporation, Sitka, Alaska,
supported SB 117 and the CS for all the reasons already stated.
He added that he understands that prices would go up
fractionally at the most.
3:21:48 PM
CHAIR PASKVAN held SB 117 for further work and adjourned the
meeting at 3:22 p.m.