Legislature(2009 - 2010)BARNES 124

02/16/2010 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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08:03:41 AM Start
08:03:53 AM Overview: Alaska Manufacturing Extension Partnership
08:57:57 AM HB208
10:02:18 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
+ Overview: Alaska Manufacturing Extension TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                       February 16, 2010                                                                                        
                           8:03 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Bob Herron, Co-Chair                                                                                             
Representative Cathy Engstrom Munoz, Co-Chair                                                                                   
Representative John Harris                                                                                                      
Representative Wes Keller                                                                                                       
Representative Charisse Millett                                                                                                 
Representative Sharon Cissna                                                                                                    
Representative Berta Gardner                                                                                                    
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
OVERVIEW:  ALASKA MANUFACTURING EXTENSION PARTNERSHIP                                                                           
     - HEARD                                                                                                                    
HOUSE BILL NO. 208                                                                                                              
"An Act relating to taxes for certain activities on large                                                                       
passenger ships; and providing for an effective date."                                                                          
     - HEARD & HELD                                                                                                             
HOUSE BILL NO. 281                                                                                                              
"An Act relating to the duties of the commissioner of fish and                                                                  
game and to the interest of the Board of Game in public safety                                                                  
as it relates to game."                                                                                                         
     - BILL HEARING CANCELED                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 208                                                                                                                  
SHORT TITLE: CRUISE SHIP TAX                                                                                                    
SPONSOR(s): REPRESENTATIVE(s) CRAWFORD                                                                                          
03/27/09       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/27/09       (H)       CRA, L&C, FIN                                                                                          
04/07/09       (H)       CRA AT 8:00 AM BARNES 124                                                                              
04/07/09       (H)       Heard & Held                                                                                           
04/07/09       (H)       MINUTE(CRA)                                                                                            
02/16/10       (H)       CRA AT 8:00 AM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
TOM MYERS, Deputy Director                                                                                                      
Alaska Manufacturing Extension Partnership, Inc. (AMEP)                                                                         
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Provided  an  overview   of  the  Alaska                                                             
Manufacturing Extension Partnership (AMEP).                                                                                     
REPRESENTATIVE HARRY CRAWFORD                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke as the prime sponsor of HB 208.                                                                    
KEN ALPERS, Staff                                                                                                               
Representative Harry Crawford                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Speaking  on  behalf   of  the  sponsor,                                                             
Representative Crawford, answered questions regarding HB 208.                                                                   
JOHANNA BALES, Deputy Director                                                                                                  
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   During the  hearing of HB 208,  opined that                                                             
taxing an activity doesn't make it legal.                                                                                       
JOE GELDHOF, Legal Counsel                                                                                                      
Responsible Cruising in Alaska                                                                                                  
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     During  hearing  of   HB  208,  provided                                                             
information on  the cruise ship initiative,  specifically the tax                                                               
on gaming.                                                                                                                      
ACTION NARRATIVE                                                                                                              
8:03:41 AM                                                                                                                    
CO-CHAIR  CATHY ENGSTROM  MUNOZ  called the  House Community  and                                                             
Regional  Affairs Standing  Committee  meeting to  order at  8:03                                                               
a.m.  Representatives Munoz, Herron,  Harris, Keller, and Gardner                                                               
were present  at the call  to order.  Representatives  Millet and                                                               
Cissna arrived as the meeting was in progress.                                                                                  
^Overview:  Alaska Manufacturing Extension Partnership                                                                          
     Overview:  Alaska Manufacturing Extension Partnership                                                                  
8:03:53 AM                                                                                                                    
CO-CHAIR MUNOZ  announced that the  only order of  business would                                                               
be a  presentation regarding  the Alaska  Manufacturing Extension                                                               
8:04:46 AM                                                                                                                    
TOM  MYERS,  Deputy   Director,  Alaska  Manufacturing  Extension                                                               
Partnership,  Inc.  (AMEP), informed  the  committee  that as  of                                                               
December 2009,  Alaska was  ranked last  in terms  of investments                                                               
into the  business community, even  on a  per capita basis.   The                                                               
goal with today's briefing is  to make [the legislature] aware of                                                               
the  aforementioned  and to  propose  a  program to  address  the                                                               
aforementioned.  He relayed that  when creating a capital venture                                                               
program states  have faced a  problem when the program  is hosted                                                               
inside an  educational institution  that doesn't have  a business                                                               
focus.  The aforementioned often  causes problems with priorities                                                               
such that  more funds are  targeted for research than  the actual                                                               
investment for  start-up businesses  or expansion  of businesses.                                                               
Capital  venture  programs  in   other  states  have  also  faced                                                               
problems  when the  funds have  been passed  on to  local venture                                                               
capital groups  who then follow  basic venture  capital practices                                                               
in the  process of  disseminating funds to  businesses.   Often a                                                               
predatory  element  evolves  inside  a  venture  capital  and  it                                                               
doesn't allow  for the best  placement of the funds.   Therefore,                                                               
the  proposed  program  is a  completely  non  predatory  venture                                                               
capital practice.  He explained  that when venture capital groups                                                               
invest in 10 businesses they expect  1 to succeed, 5 to have some                                                               
intellectual  property that  can be  torn from  the business  and                                                               
sold,  and  4 to  be  a  loss.   There  are  ways to  ensure  the                                                               
aforementioned doesn't happen.                                                                                                  
MR.  MYERS  related  that   [the  Alaska  Manufacturing  Business                                                               
Industry &  Technology (AMBIT) Venture Capital  Program] seeks to                                                               
provide several  types of funding  opportunities to a  wide range                                                               
of Alaskan  businesses; provide  project support,  knowledge, and                                                               
management  to strengthen  businesses  and promote  success.   He                                                               
emphasized  that the  goal is  to work  with these  businesses as                                                               
they enter  the venture  capital setting  and set  milestones for                                                               
their success and receive funds as  they meet the milestones.  He                                                               
further related that  [AVCF] seeks to provide  an in-depth market                                                               
analysis  and leverage  opportunities within  and outside  of the                                                               
state;  properly  manage  previously  underutilized  dollars  and                                                               
reinvest  in  Alaska's  entrepreneurs;  promote  economic  growth                                                               
throughout rural  and urban Alaska with  "prolonged residency" as                                                               
a focus.  One of the terms of  the program is that for each piece                                                               
of  capital  a  business  receives,  it  must  sign  a  five-year                                                               
commitment to keep that business in Alaska.                                                                                     
8:09:10 AM                                                                                                                    
REPRESENTATIVE  GARDNER   inquired  as   to  the   definition  of                                                               
predatory  practices  since  one individual's  predatory  lending                                                               
practice is another individual's good business.                                                                                 
MR.  MYER explained  that investors  in  venture capital  realize                                                               
that  many  of  the  businesses   in  which  they  invest  aren't                                                               
businesses  they seek  to take  all the  way to  success.   These                                                               
businesses  are ones  in  which  the investors  hope  to own  the                                                               
intellectual capital  at the end  of the failed investment.   The                                                               
aforementioned  occurs  frequently,  particularly  in  high  tech                                                               
industries  such  as  software   companies.    For  example,  the                                                               
originator  of the  YouTube program  received venture  capital to                                                               
create it, but  it wasn't successful.   However, the intellectual                                                               
property was sold  and the company that purchased  it became what                                                               
is now YouTube, which then  partnered with even larger companies.                                                               
In  further   response  to   Representative  Gardner,   Mr.  Myer                                                               
specified that  it's a predatory practice  to specifically target                                                               
a company and  place it, in terms of the  amount of financing and                                                               
restrictions,  in a  position  in which  it's  difficult for  the                                                               
company to proceed.                                                                                                             
8:11:50 AM                                                                                                                    
REPRESENTATIVE HARRIS asked  from where one obtains  the funds to                                                               
loan people funds for venture capital purposes.                                                                                 
MR.  MYERS  pointed out  that  the  venture capital  he  proposes                                                               
targets an existing statute connected  to the permanent fund such                                                               
that permanent fund monies are invested  inside of the state.  In                                                               
further response  to Representative  Harris, Mr.  Myers clarified                                                               
that he hasn't  worked through the Permanent  Fund Dividend (PFD)                                                               
Board.  He explained that the  program he is proposing become the                                                               
entity working with the PFD Board  in order to target those funds                                                               
toward Alaska businesses.                                                                                                       
8:13:04 AM                                                                                                                    
REPRESENTATIVE HARRIS inquired as to Mr. Myers background.                                                                      
MR. MYERS  related that he has  been with the AMEP  for over four                                                               
years.   The Alaska Manufacturing  Extension Partnership  is part                                                               
of  the  nationwide  [manufacturing  extension  partnership]  MEP                                                               
program, which  is part  of National  Institute of  Standards and                                                               
Technologies  (NIST).   He  explained  that  AMEP seeks  to  help                                                               
businesses  acquire  funding,  get  started,  and  improve  their                                                               
8:13:41 AM                                                                                                                    
REPRESENTATIVE HARRIS  inquired as to  why one would talk  to Mr.                                                               
Myers rather  than a  standard lending  institution.   He further                                                               
inquired as to whether Mr.  Myers is proposing that entities such                                                               
as AMEP  are more willing to  take more risk.   He then requested                                                               
that Mr. Meyers explain how AMEP  could loan funds at such a high                                                               
risk whereas banks can barely loan funds at all.                                                                                
MR. MYERS mentioned  that access to venture capital  in Alaska is                                                               
severely  limited.   Furthermore, for  many Alaskans  obtaining a                                                               
bank loan  is not option,  regardless of their credit  and assets                                                               
the applicant  may have.  This  proposed program seeks to  be the                                                               
intermediary  in  the  market  that  is  bridge  money  to  allow                                                               
applicants to have some success.                                                                                                
8:16:36 AM                                                                                                                    
REPRESENTATIVE  CISSNA recalled  her brother's  similar situation                                                               
to what  Mr. Myers  described.   She then asked  if Mr.  Myers is                                                               
proposing that this  project is one in which the  state should do                                                               
and then he would bid on it.                                                                                                    
MR.  MYERS explained  that  he's proposing  that  many other  MEP                                                               
centers  have set  up venture  capital programs.   The  funds, in                                                               
these  situations,  must come  from  the  state not  the  federal                                                               
government.   In 2008 members  in Congress proposed that  the MEP                                                               
system  have access  to about  $13 billion  that would  allow for                                                               
matching funds  to each state.   The aforementioned  was supposed                                                               
to become part  of the American Recovery and  Reinvestment Act of                                                               
2009 (ARRA)  funding.   The funds  would be  given to  the states                                                               
with  a 1:1  match requirement  through  the MEP  system and  the                                                               
State  Science  and  Technology  Institute  (SSTI),  which  is  a                                                               
partner with  NIST.  Five  other states, New  York, Pennsylvania,                                                               
Florida, Texas,  and Utah have  programs with  investment capital                                                               
in  excess  of $600  million  per  state.    With regard  to  the                                                               
scenario in  which smaller  businesses are  scooped up  by larger                                                               
organizations,  such a  scenario  doesn't work  for  Alaska.   He                                                               
explained that  in Alaska the smaller  business/technology that's                                                               
incorporated into  a larger  company is taken  out of  the state,                                                               
and therefore Alaska  doesn't receive any benefits.   The program                                                               
is  being proposed  to stop  the outflow  of good  businesses and                                                               
intellectual capital.                                                                                                           
8:19:49 AM                                                                                                                    
MR. MYERS, returning to his  presentation, reminded the committee                                                               
of the  1980s when  many investors  in Alaska  lost a  lot, which                                                               
resulted  in  the  view  that  Alaska  was  the  "Wild  West"  of                                                               
business.   At that time,  even the in-state investors  all moved                                                               
their  capital  to  the  Lower  48.    Furthermore,  most  Native                                                               
corporations  have purchased  manufacturing firms  throughout the                                                               
Southeast U.S.  Mr. Myers emphasized  that the longer a dollar is                                                               
kept in the state, the greater impact  it has for the state.  The                                                               
more turns that  dollar does in the state's  economy, the greater                                                               
amount of the  increase in that dollar's value  through the year.                                                               
Alaska, he  related, has about  a 4-7 turn  per year on  a dollar                                                               
coming into  the state  whereas most Lower  48 states  have 10-12                                                               
turns of a dollar per year.                                                                                                     
8:21:14 AM                                                                                                                    
REPRESENTATIVE  GARDNER pointed  out  that the  fact that  Native                                                               
corporations are purchasing manufacturing  companies in the Lower                                                               
48  isn't   relevant  to  this  discussion   because  the  Native                                                               
corporations aren't acting as venture capitalists.                                                                              
MR. MYERS replied yes, but  [it illustrates] a net capital escape                                                               
because  they aren't  investing  in building  business inside  of                                                               
Alaska.     The   location   of   the  manufacturing   operations                                                               
experiences the benefit of the investment dollars.                                                                              
REPRESENTATIVE  GARDNER  asked whether  there  is  any reason  to                                                               
believe that those who would invest  out of state would prefer to                                                               
be venture capitalists  within the state as  opposed to investing                                                               
MR. MYERS said  his presentation will address that.   In response                                                               
to Representative  Harris, Mr. Myers  assured the  committee that                                                               
he would get to  the root cause of why Alaska  isn't able to turn                                                               
over the dollars as much as elsewhere.                                                                                          
8:23:04 AM                                                                                                                    
MR.  MYERS, returning  to his  presentation, related  that Alaska                                                               
has a lot  of grants from the federal government  as well as bank                                                               
loans.   He  informed  the  committee that  AMEP  is a  Community                                                               
Development  Financial  Institutions   (CDFI)  guarantor  through                                                               
which  a number  of grant  opportunities  and a  small amount  of                                                               
investment  capital  are  brought  in.    He  also  informed  the                                                               
committee  that AMEP  works with  the Small  Business Association                                                               
(SBA) and helps folks find  co-signers for businesses to bring in                                                               
capital.  The difficulty is that  if the amount of capital needed                                                               
is  above the  value of  the borrower's  existing assets,  no one                                                               
will  lend to  that borrower.    He then  moved on  to the  slide                                                               
entitled  "How  the  AVCF  will   Help  Alaskan  Businesses"  and                                                               
explained that AVCF  will help Alaskan businesses  get ready for,                                                               
acquire, and properly  manage the funds.   Money, management, and                                                               
marketing are the three factors for  success in Alaska.  In order                                                               
to  help  businesses succeed  AMEP  has  been working  on  those,                                                               
specifically  AMEP ensures  that  the businesses  have a  proper,                                                               
fungible business  plan so  that the  milestones for  success are                                                               
established.   He then directed  attention to the  slide entitled                                                               
"The Creation of the AMBIT  Venture Capital Program".  He related                                                               
that  through  CDFI  AMEP  will eventually  have  access  to  $10                                                               
million  worth of  capital.    He further  related  that AMEP  is                                                               
working as  a throughput  partner with the  USDA, such  that AMEP                                                               
helps  clients put  together their  business plan,  identify USDA                                                               
funds, and help  the client apply for and manage  USDA funds.  He                                                               
then reviewed the SBA's guaranteed  loan program, which has to go                                                               
through  a bank.    Although up  to  85 percent  of  the bank  is                                                               
guaranteed by the  SBA, there have been clients  that were unable                                                               
to obtain  capital using the  SBA grants because the  banks won't                                                               
make the  loans.  He told  the committee that AMEP  is seeking to                                                               
create a $25-$50 million private  capital pool by partnering with                                                               
many  of the  Native corporations  across  the state  as well  as                                                               
other private investors.                                                                                                        
8:26:54 AM                                                                                                                    
MR.  MYERS,  in  reference   to  Representative  Harris'  earlier                                                               
question regarding  from where the  funds will come,  pointed out                                                               
that the  permanent fund statute  specifies that up to  5 percent                                                               
of  the  fund should  be  [reviewed]  for investment  in  Alaska.                                                               
However, no  organization was ever established  to accomplish the                                                               
aforementioned.    Therefore,  Mr.  Myers explained  that  he  is                                                               
proposing one  half of 1 percent  to 1 percent be  made available                                                               
over  a three-year  time period  in order  to slowly  inject that                                                               
capital  into businesses  in  Alaska.   As  those businesses  are                                                               
successful,  those businesses  would eventually  return funds  to                                                               
the permanent fund.                                                                                                             
8:27:32 AM                                                                                                                    
REPRESENTATIVE HARRIS  asked if the permanent  fund [corporation]                                                               
invests in Alaska.                                                                                                              
MR. MYERS  answered that in the  past it has invested  in Alaska,                                                               
but  mainly  in natural  resource  extraction.   He  related  his                                                               
understanding  that the  investment has  never been  more than  1                                                               
percent.    In further  response  to  Representative Harris,  Mr.                                                               
Myers  confirmed   that  the  natural  resource   in  which  [the                                                               
Permanent  Fund  Corporation]  invested  in Alaska  was  the  oil                                                               
industry.   He  further  confirmed that  the  investment was  via                                                               
purchasing stocks in the oil industry, not actual projects.                                                                     
8:28:14 AM                                                                                                                    
REPRESENTATIVE HARRIS  asked if Mr.  Myers is sure  the Permanent                                                               
Fund  Corporation is  allowed under  state  law to  do what  he's                                                               
proposing.   He  reminded  everyone that  the  corporation has  a                                                               
fiduciary responsibility to the citizens  of the state to produce                                                               
the  highest  rate of  return  possible  under a  safe  scenario.                                                               
Venture capital, he pointed out, is very risky.                                                                                 
MR. MYERS  noted his  agreement that  venture capital  is riskier                                                               
than many  other investments,  but the  potential impacts  to the                                                               
state  can  be   very  significant.    In   further  response  to                                                               
Representative Harris,  Mr. Myers  stated his agreement  that the                                                               
belief is  that the higher the  risk the higher the  reward, when                                                               
8:29:05 AM                                                                                                                    
MR. MYERS, returning  to the slide entitled "The  Creation of the                                                               
AMBIT  Venture Capital  Program," pointed  out that  on the  left                                                               
side there  is a list  of the economic development  entities that                                                               
would be  able to bring projects  that would be vetted  to ensure                                                               
that there  is a proper  business plan, management is  trained, a                                                               
supply chain  is established, and customers  are identified prior                                                               
to receiving any capital.   The next level would be discretionary                                                               
funding and  then first through  third round of  venture capital.                                                               
He highlighted that the venture  capital never exceeds 49 percent                                                               
ownership in the business in  order to avoid predatory practices.                                                               
He then moved  on to the slide  entitled "Why the AVCF  will be a                                                               
Successful Solution," which relates the following:                                                                              
   · AVCF is Non-Predatory.                                                                                                     
   · The AVCF will provide an unparalleled level of                                                                             
     expertise and support for participating businesses.                                                                        
   · The AVCF will provide several capital-acquisition                                                                          
    outlets   for    a   more    individualized   financing                                                                     
   · The AVCF is based on mentoring, not financing and then                                                                     
     leaving businesses to fend for themselves.                                                                                 
   · The AVCF will educate businesses on how to succeed and                                                                     
     the process of business development.                                                                                       
   · The AVCF will connect business partners in an active                                                                       
       way to form synergistic relationships so that all                                                                        
     stakeholders are truly invested in a business.                                                                             
   · The AVCF's network of expertise and scrutiny along                                                                         
     with the use of guarantors will increase opportunities                                                                     
     for bank loans.                                                                                                            
MR. MYERS  characterized AVCF as  the bridge  between traditional                                                               
financing and  the leveraging of  personal assets.   He continued                                                               
on to  the slide entitled "Languished  Projects as a Result  of a                                                               
Lack  of  Funding in  Alaska,"  which  lists projects  that  were                                                               
unable to acquire  funding.  He directed attention  to the Arctic                                                               
Steel  project for  which he  set up  a partnership  with Defense                                                               
Metals,  which  performs  all  the  metals  acquisition  for  the                                                               
Department of  Defense.  There is  a law that stipulates  that at                                                               
least  50 percent  of metals,  specifically titanium,  steel, and                                                               
other  metals, which  are available  inside of  the U.S.  must be                                                               
acquired from those U.S. sources.   However, currently 97 percent                                                               
of all  the titanium  used by the  federal government  comes from                                                               
foreign sources.   There is a huge market, he  stressed.  He then                                                               
informed the committee that titanium  ore is often a byproduct of                                                               
the other  mining industries  in Alaska.   However,  there hasn't                                                               
been any  way to turn  it into a  product.  Mr.  Myers emphasized                                                               
that he isn't referring to just  mining the titanium, but is also                                                               
referring to  smelting it and  turning it into products  that are                                                               
shipped  directly  to the  U.S.  Department  of Defense  for  the                                                               
armoring of various military vehicles.   Mr. Myers explained that                                                               
he setup  Arctic Steel  with a titanium  smelter in  Indiana, but                                                               
the individual behind  Arctic Steel was unable  to obtain funding                                                               
even with personal assets, credibility,  and a high credit score.                                                               
The individual  behind Arctic  Steel only  needed $15  million to                                                               
move forward  with the  project.   Arctic Steel  would've created                                                               
150  high-end jobs  in Alaska  and  the financial  impact of  the                                                               
business to  Alaska over a  three-year period is projected  to be                                                               
$750 million.   Mr. Myers  pointed out  that the oil  industry is                                                               
moving more  towards titanium every  day.  For instance,  the oil                                                               
industry located in the Gulf  of Mexico is converting to titanium                                                               
as  fast as  possible  due  to rust  concerns.    Mr. Myers  then                                                               
highlighted the  Tetrajack project, which only  needed $3 million                                                               
in capital.  However, the  university researcher who developed it                                                               
couldn't obtain funding.  The  Tetrajack project was an aggregate                                                               
that goes inside  of concrete with a specialized  shape such that                                                               
half  of   the  amount   of  steel   inside  concrete   is  used.                                                               
Furthermore, using a  70 percent stack aggregate  in the concrete                                                               
makes  the  concrete  float.    The  Tetrajack  project  would've                                                               
created 25-plus jobs and would've  had a financial impact of $185                                                               
million.  The  State of Florida is trying to  get this university                                                               
researcher to  Florida.  The  process utilized in  Tetrajack uses                                                               
mining tailings that go through a  process which seals in the bad                                                               
things so  that they don't  leach out into  the soil.   Mr. Myers                                                               
said that  he wouldn't  go through the  entire list  of projects,                                                               
but did  highlight that  the list  he provided  would've required                                                               
$110  million in  venture capital  funding, but  could've created                                                               
more  than  500 jobs  with  a  total  potential return  of  $3.25                                                               
billion to the state.                                                                                                           
8:35:47 AM                                                                                                                    
MR.  MYERS referred  to the  slide  entitled "AMEP's  Performance                                                               
Metric," which  utilizes graphs to illustrate  various aspects of                                                               
the projects  AMEP has done in  Alaska over the last  four years.                                                               
In  fact,  AMEP has  garnered  over  $40 million  in  investment,                                                               
served  over  160  clients,  accrued over  $30  million  in  cost                                                               
savings, and created over 110 jobs,  most of which are located in                                                               
rural Alaska.  He stressed that  folks in rural Alaska are unable                                                               
to  obtain financing  at all  because they  don't have  assets or                                                               
homes  against  which  they  can  borrow  to  start  a  business.                                                               
However,  there are  entrepreneurs in  rural Alaska  who want  to                                                               
start  businesses,  enhance  local   communities,  and  stop  the                                                               
outflow of populations from rural Alaska.                                                                                       
8:37:13 AM                                                                                                                    
REPRESENTATIVE  HARRIS   asked  if  any  of   the  Alaska  Native                                                               
Corporations have  been approached regarding investment,  as well                                                               
as shareholder hire possibility.                                                                                                
MR. MYERS  said that Alaska  Native corporations have  been asked                                                               
to be involved  in the private equity piece.   A couple of Alaska                                                               
Native corporations are interested,  but they're leery because of                                                               
the fall out  of the 1980s and 1990s.   Furthermore, these Alaska                                                               
Native  corporations   have  made   such  large   and  successful                                                               
investments  in the  Lower 48  that  it's difficult  for them  to                                                               
consider investing in some of  these small businesses.  Moreover,                                                               
these  Alaska Native  corporations  don't have  the expertise  to                                                               
work with small businesses in order to ensure their success.                                                                    
8:39:03 AM                                                                                                                    
MR. MYERS turned the committee's  attention to the slide entitled                                                               
"AK Preference  Statute is Still  Ineffective".  He  informed the                                                               
committee  that a  couple of  years ago  Department of  Commerce,                                                               
Community, &  Economic Development  (DCCED) asked him  to rewrite                                                               
the Alaska  preference statute.   He said  he didn't know  if the                                                               
changes  he proposed,  which  were based  on  industry and  DCCED                                                               
input, ever went  anywhere.  He reviewed the  proposed changes to                                                               
AS 36.30.170(a) and  (b).  One of the changes  specifies that the                                                               
bid must include  the cost of shipping  for out-of-state bidders.                                                               
The  aforementioned has  never been  included in  the preference.                                                               
He explained that  the change attempts to avoid  the situation in                                                               
which an  out-of-state bidder  on a cost  plus contract  beats an                                                               
Alaskan bidder  and then  adds the  cost of  shipping afterwards.                                                               
Another proposed  change specifies  that the  procurement officer                                                               
must demonstrate that multiple Alaska  bidders were contacted and                                                               
provided  ample  chance  to  submit bids  before  a  contract  is                                                               
awarded  to   out-of-state  bidders.     The   proposed  language                                                               
specifies, "If the procurement officer  is unable to identify any                                                               
viable Alaska bidders, they must  document their search procedure                                                               
with  names of  contacted  entities.   Any  single contract  over                                                               
$5,000 to be  awarded to an out-of-state bidder  must be reviewed                                                               
and  signed  by  the  office of  the  Commissioner  of  Commerce,                                                               
Community, and Economic  Development or by the  State of Alaska's                                                               
Chief Procurement  Officer."  The  proposed changes  also include                                                               
increasing the Alaska  bidder preference to 10  percent "and only                                                               
after the  procurement officer has ensured  that the solicitation                                                               
was  not written  in a  manner  that may  exclude Alaska  bidders                                                               
...."   He  informed the  committee that  recently the  Insulfoam                                                               
company lost a multi-million dollar  contract with the Department                                                               
of Defense for base housing  because the state's contract officer                                                               
wrote  the  bid  for  a brand  name.    Furthermore,  Sequestered                                                               
Solutions, the state's only data  center, has lost multiple state                                                               
contracts.   He  told  the  committee that  the  state houses  80                                                               
percent of  its data out  of state.  Another  company, Continuous                                                               
Printing, lost  a bid with the  state; the bid was  awarded to an                                                               
out-of-state company  that does  the exact forms  that Continuous                                                               
Printing does in Alaska.                                                                                                        
MR.  MYERS,  referring  to  the  slide  entitled  "AMEP  Research                                                               
Projects,"  informed the  committee  that AMEP  has  a number  of                                                               
research projects  that are  coming to fruition  that tie  to the                                                               
venture capital  proposal.   One such  project is  the E-Commerce                                                               
project  such  that any  business  in  Alaska  can obtain  an  E-                                                               
Commerce web site  and AMEP pays for the hosting  of the web site                                                               
for the  first year, after  which the  cost to the  individual is                                                               
$9.95 per year.  He noted  that he has a research paper detailing                                                               
the  impacts of  such  to rural  Alaska.   He  said that  another                                                               
research paper  regarding the economic impacts  of connecting the                                                               
Alaska and  Canada railways  is forthcoming.   He  explained that                                                               
Alaska has three deep water ports  and ships can get from Asia to                                                               
Alaska  seven  days sooner  than  they  can  get to  Long  Beach.                                                               
Products that come in on boats  to Alaska can be shipped via rail                                                               
to Detroit  and other points East  10 days faster, at  a minimum,                                                               
than going  to Seattle  or Long Beach,  California.   He recalled                                                               
that  two  years  ago  General  Motors (GM)  wanted  to  place  a                                                               
transshipment  warehouse  in  Alaska for  electronics  and  other                                                               
products it  was bringing  in from  Asia.  At  the time  GM heard                                                               
rumors  that  the  aforementioned rail  connection  would  occur.                                                               
When GM  heard that the rail  connection was on hold,  GM decided                                                               
to wait  on the  transshipment warehouse in  Alaska.   "There are                                                               
projects out  there waiting to happen,  if that rail link  can be                                                               
made,"  he emphasized.    Another research  project  is the  high                                                               
latitude  agriculture  project,  which  would use  Finland  as  a                                                               
model.    Alaska  imports 95-plus  percent  of  all  agricultural                                                               
products that  are consumed in the  state and rural Alaska  has a                                                               
40 percent spoilage  rate before the food even  reaches the area.                                                               
He characterized  this as  a food security  issue for  the state.                                                               
Other research projects include  enhancing rural participation in                                                               
the   Alaska  business   environment;   creating  an   investment                                                               
structure for  venture capital  in Alaska that  is based  on best                                                               
practices;  beyond  oil,  gas,  mining,  and  fishing  [creating]                                                               
strategic  business opportunities  that  make  sense for  Alaska;                                                               
creating economic  incentives to  attract companies to  Alaska as                                                               
well as encouraging local entrepreneurs  to start new businesses;                                                               
and creating an  economic development plan for the  state for the                                                               
next five  years with projections  for the next five  more years.                                                               
He related  that the State of  Florida has a program  in which it                                                               
will pay for  the land on which [an entrepreneur]  will place its                                                               
building, provide  a loan  for the  building, and  provide $6,000                                                               
for each  Floridian that is  hired and trained for  the business.                                                               
Therefore,  Florida often  steals businesses  from other  states,                                                               
including Alaska.   He noted  that Utah, Montana, and  Texas also                                                               
have  great  programs  [attracting  businesses to  Alaska].    In                                                               
conclusion, Mr. Myers referred to  the slide entitled "Summary of                                                               
Key Points," which relates the following:                                                                                       
   · The AVCF is essential to change the course of economic                                                                     
     development in the state of Alaska.                                                                                        
   · It is imperative for Alaska's economic success to                                                                          
     provide  businesses  the  opportunity to  acquire  bank                                                                    
     loans,   venture   capital/angel   investment,   proper                                                                    
     management  and  technical  training in  order  not  to                                                                    
   · Alaska has missed out on billions of potential dollars                                                                     
     due to poor economic  governance and capital flight out                                                                    
     of AK.                                                                                                                     
   · The Alaska state legislature must realize the                                                                              
     importance of actively  pursuing Alaskan businesses and                                                                    
     change procurement statute AS 36.30.170.                                                                                   
   · Together, with the research accomplished by the Alaska                                                                     
     Manufacturing Extension  Partnership and  the promotion                                                                    
     of  fiscally conscious  projects by  the state,  Alaska                                                                    
     can and will be an economically powerful marketplace.                                                                      
8:47:10 AM                                                                                                                    
MR. MYERS, in  response to Representative Gardner,  said that the                                                               
completed  research papers  can be  made available  upon request.                                                               
The  papers aren't  available on  AMEP's  web site,  but that  is                                                               
being requested of AMEP's technical staff.                                                                                      
8:47:31 AM                                                                                                                    
REPRESENTATIVE CISSNA pointed out that  a large problem in Alaska                                                               
is  to accurately  access and  follow, which  she referred  to as                                                               
"the fidelity  to model."   Therefore, she opined that  there are                                                               
pieces  necessary  to  make the  aforementioned  possible.    For                                                               
instance, there  should be a  university connection to  train and                                                               
verify the process.   She then expressed  interest in researching                                                               
Mr. Myers.                                                                                                                      
MR.  MYERS offered  to provide  the committee  with his  business                                                               
cards as well as packets that  relate what AMEP has done over the                                                               
last five years.   He noted that  he has only been  with AMEP for                                                               
last four  years, prior to that  time he was with  the University                                                               
of  Alaska  Anchorage (UAA)  in  the  College  of Business.    He                                                               
related that Dr. Baker, Dean of  the College of Business, UAA, is                                                               
in agreement that  the university needs to be  more involved with                                                               
business in  Alaska and that the  training programs, particularly                                                               
online programs,  are important.   He mentioned that AMEP  has an                                                               
online learning platform that allows  the training programs to be                                                               
accessed by folks across the state.                                                                                             
8:50:08 AM                                                                                                                    
REPRESENTATIVE  KELLER  commended  the co-chairs  for  scheduling                                                               
this presentation.   He thanked  Mr. Myers for  the presentation,                                                               
which  he characterized  as identifying  something that  is of  a                                                               
major concern  for him.   He then  said he would  be open  to the                                                               
introduction  of  committee  legislation  [that  would  encourage                                                               
small   business  development]   as   well   as  any   individual                                                               
8:50:35 AM                                                                                                                    
REPRESENTATIVE  HARRIS  remarked  that   there  have  been  mixed                                                               
reviews on  investments in  the state.   In  fact, the  state has                                                               
invested in projects,  through AIDEA, that haven't  worked.  "The                                                               
state is just  riddled with all kinds of  government money that's                                                               
gone  into  so-called  projects  that fell  on  their  face,"  he                                                               
pointed out.   He noted his agreement  with Representative Cissna                                                               
that [potential  businesses] have  to have a  track record  and a                                                               
way to ensure that a business proposal isn't a boondoggle.                                                                      
MR.  MYERS acknowledged  that throughout  the state  there are  a                                                               
number  of [failed  projects], including  the grain  silos.   The                                                               
grain silo  project wasn't a  bad project,  it was just  a poorly                                                               
planned  project.   Furthermore,  the  tannery  in Shishmaref  is                                                               
operating at 10 percent capacity  because it never connected with                                                               
its supply  chain or customers.   He emphasized that his  goal is                                                               
to ensure  that any project is  fully vetted and planned  so that                                                               
the aforementioned problems don't occur.   He noted that many [of                                                               
the state's failed economic development  projects] were funded by                                                               
the Economic Development  Authority and other such  entities.  He                                                               
told the  committee he  has talked  with the  authority regarding                                                               
when AMEP  can help make  them successful by say,  connecting the                                                               
business with  a supply chain  or a  customer base.   However, it                                                               
hasn't been done yet.                                                                                                           
8:53:24 AM                                                                                                                    
REPRESENTATIVE  HARRIS  recalled  that  the  Alaska  Science  and                                                               
Technology Fund (ASTF), which ultimately  lost funding, was based                                                               
upon a similar notion to that which AMEP is proposing.                                                                          
MR. MYERS  said that ASTF  wasn't managed fiscally,  the projects                                                               
weren't vetted  or planned properly prior  to making investments.                                                               
He informed the committee that  he has attended training programs                                                               
with   the  Coffman   Foundation.     Upon   completion  of   the                                                               
aforementioned training  program, he related  that he would  be a                                                               
certified venture  fund manager.   Mr.  Myers specified  that his                                                               
goal is  to ensure  that if  created, the  projects and  money is                                                               
properly managed.                                                                                                               
8:54:30 AM                                                                                                                    
REPRESENTATIVE KELLER  interjected that ASTF also  had successes,                                                               
including  a  business   that  has  a  contract   with  the  U.S.                                                               
Department of Defense and employs about 12 employees.                                                                           
8:54:53 AM                                                                                                                    
CO-CHAIR  MUNOZ  thanked  Mr.  Myers  for  his  presentation  and                                                               
requested that he keep the committee abreast of his work.                                                                       
8:55:15 AM                                                                                                                    
The committee took an at-ease from 8:55 a.m. to 8:57 a.m.                                                                       
8:57:53 AM                                                                                                                    
                     HB 208-CRUISE SHIP TAX                                                                                 
8:57:57 AM                                                                                                                    
CO-CHAIR MUNOZ announced  that the final order  of business would                                                               
be HOUSE  BILL NO.  208, "An  Act relating  to taxes  for certain                                                               
activities  on  large  passenger  ships;  and  providing  for  an                                                               
effective date."                                                                                                                
8:58:03 AM                                                                                                                    
REPRESENTATIVE   HARRY   CRAWFORD,  Alaska   State   Legislature,                                                               
speaking  as the  prime  sponsor  of HB  208,  explained that  he                                                               
doesn't  want to  open the  door for  for-profit gambling  in the                                                               
state.    He expressed  concern  that  the cruise  ship  taxation                                                               
initiative that  started taxing the  cruise ship industry  on its                                                               
gambling  within  state  waters  opens  the  door  to  for-profit                                                               
gambling.     The   aforementioned,  as   illustrated  in   court                                                               
decisions, has happened in the Lower  48.  The desire to not open                                                               
the door  to for-profit gambling  in Alaska is why  Alaska banned                                                               
Monte Carlo nights  in the state in the 1990s.   He then referred                                                               
to  a  June  30,  1997,  Anchorage  Daily  News  article  in  the                                                             
committee packet entitled  "Tribal gambling in Alaska?   Not yet,                                                               
but it's one  step closer".  From the following  article, he read                                                               
[original punctuation provided]:                                                                                                
     As  in  other  areas,   Congress  sets  the  rules  for                                                                    
     gambling in  Indian country.   Under the  Indian Gaming                                                                    
     Regulatory Act  of 1988,  Native Americans  can operate                                                                    
     casino-type   gambling  only   in  states   where  such                                                                    
     activity is legal.                                                                                                         
     In  1994,  the  Southeast  Alaska  village  of  Klawock                                                                    
     proposed a  casino on a  fragment of village  land held                                                                    
     in trust by  the federal government.   In response, the                                                                    
     Legislature  passed a  law revoking  the authority  for                                                                    
     nonprofit  groups  to  hold  Monte  Carlo  nights  with                                                                    
     roulette, cards  and other casino  games.   That closed                                                                    
     the door to Klawock.                                                                                                       
     The  Venetie ruling  makes it  possible  for any  tribe                                                                    
     that  can establish  Indian country  to  qualify for  a                                                                    
     casino operation, but only if  the Legislature votes to                                                                    
     make such  gambling legal in  Alaska.   The Legislature                                                                    
     did not  eliminate lotteries when  it banned  the other                                                                    
     games,  however.    The state  and  Klawock  are  still                                                                    
     negotiating  over  a  tribal  lottery,  said  assistant                                                                    
     attorney general Vince Usera.                                                                                              
REPRESENTATIVE  CRAWFORD  opined  that since  the  aforementioned                                                               
article, the cruise  ship initiative was passed.   The initiative                                                               
taxes the  cruise ship  industry on  its gambling  profits, which                                                               
could be  viewed as  an implicit acceptance  of Class  3 gambling                                                               
inside the state.  Therefore, he introduced HB 208.                                                                             
9:02:36 AM                                                                                                                    
REPRESENTATIVE  HARRIS  asked if  HB  208  would prohibit  Native                                                               
villages from having casinos on tribal properties.                                                                              
REPRESENTATIVE CRAWFORD  clarified that HB 208  isn't an absolute                                                               
prohibition; rather it's  just not opening the  door [to gambling                                                               
in  Alaska].   He  explained  that the  U.S.  only allows  tribal                                                               
gaming in  states where the same  type of gaming is  available to                                                               
other  entities.     Alaska   hasn't  done   the  aforementioned.                                                               
However, Alaska has passed the  cruise ship initiative that taxed                                                               
the   Class  3   gambling  onboard   the  cruise   ships.     The                                                               
aforementioned,  he reiterated,  could open  the door  to casino-                                                               
type gambling  in Alaska.   He noted that  Alaska is one  of only                                                               
two states that don't allow for-profit gambling.                                                                                
9:04:04 AM                                                                                                                    
REPRESENTATIVE HARRIS  surmised then that HB  208 would eliminate                                                               
the ability  of Alaska Native tribes/corporations  to participate                                                               
in a business opportunity such as gaming.                                                                                       
REPRESENTATIVE CRAWFORD replied yes.                                                                                            
9:04:31 AM                                                                                                                    
REPRESENTATIVE  MILLETT  asked  if   the  sponsor  is  trying  to                                                               
establish a mechanism to stop Indian gaming.                                                                                    
REPRESENTATIVE CRAWFORD  related that  the casino  businesses use                                                               
Indian  gaming   operations  as   a  door   to  gambling.     The                                                               
aforementioned happened in Louisiana.                                                                                           
9:05:50 AM                                                                                                                    
KEN ALPERS,  Staff, Representative  Harry Crawford,  Alaska State                                                               
Legislature, speaking  on behalf  of the  sponsor, Representative                                                               
Crawford,  explained  that  the legislature  banned  Monte  Carlo                                                               
nights and  associated activities  in 1995 primarily  to disallow                                                               
Indian gaming.  The provision  in the cruise ship initiative that                                                               
taxes gaming opens a loophole  the legislature consciously closed                                                               
15  years ago.   This  legislation  merely tries  to ensure  that                                                               
loophole remains closed.                                                                                                        
9:06:28 AM                                                                                                                    
REPRESENTATIVE MILLETT commented that  the cruise ship initiative                                                               
included many  things to  which many people  weren't aware.   She                                                               
then  asked if  the sponsor  could walk  her through  the current                                                               
process of a tribe opening a casino in Alaska.                                                                                  
REPRESENTATIVE CRAWFORD  answered that  there is no  such process                                                               
because heretofore it hasn't been allowed.                                                                                      
9:07:09 AM                                                                                                                    
REPRESENTATIVE MILLETT inquired  as to the federal  process for a                                                               
tribe to work with the state to open a casino.                                                                                  
MR. ALPERS  explained that under  the Indian Gaming Act  of 1988,                                                               
states are  allowed to  enter into  agreements and  compacts with                                                               
tribes  to regulate  Class 3  gaming.   The federal  law requires                                                               
that the  state has  to allow  the activity to  take place.   The                                                               
[law says] "If  the state permits such gaming for  any purpose by                                                               
any  person,  organization,  or  entity."   The  first  step,  he                                                               
further  explained, is  for the  state to  enter into  a compact.                                                               
The state  hasn't done  so because the  state doesn't  permit any                                                               
such gaming for any purpose, organization, or entity.                                                                           
9:07:56 AM                                                                                                                    
REPRESENTATIVE  MILLETT requested  an  explanation  of the  exact                                                               
loophole that HB 208 addresses.                                                                                                 
MR. ALPERS explained that that  the courts could construe that by                                                               
taxing this  gaming activity, the state  is indirectly permitting                                                               
REPRESENTATIVE MILLETT  surmised then that the  legislation is in                                                               
response to fear of court action.                                                                                               
9:09:38 AM                                                                                                                    
REPRESENTATIVE CRAWFORD  directed the committee's attention  to a                                                               
document entitled  "Why We Need  HB 208; A Brief  Legal History,"                                                               
from which he paraphrased from the following paragraph:                                                                         
     In response  to the  Cabazon case, Congress  passed the                                                                    
     Indian  Gaming Regulatory  Act of  1998  (IGRA).   This                                                                    
     established the  three "classes" of gaming  that we use                                                                    
     today.    It also  explicitly  recognized  the role  of                                                                    
     tribal gaming  for local economic development  and self                                                                    
     sufficiency.  The Act created  a National Indian Gaming                                                                    
     Commission,  which directly  regulated  Class 2  gaming                                                                    
     (bingo),   and   required  state-tribal   compacts   to                                                                    
     regulate Class  3 gaming (slots, casinos,  etc).  Since                                                                    
     this act,  tribal gambling revenue increased  from $100                                                                    
     million in 1998 to $17.7 billion in 2006.                                                                                  
REPRESENTATIVE  CRAWFORD informed  the  committee  that prior  to                                                               
IGRA few  states allowed  large casinos, but  now casinos  in the                                                               
Lower  48  have  proliferated.     Alaska  has  expressly  denied                                                               
expansion into gaming, which he said he wants to continue to do.                                                                
9:11:04 AM                                                                                                                    
REPRESENTATIVE  MILLETT asked  which states  with Class  3 gaming                                                               
have formed compacts  and which haven't, but have  been forced to                                                               
allow gaming  due to court  action.   She further asked  that the                                                               
delineation  between those  states  that  have willingly  entered                                                               
into  compacts and  which  have  been forced  into  a compact  be                                                               
REPRESENTATIVE  CRAWFORD  said  he couldn't  provide  the  actual                                                               
number of states  or specific states.  However, he  said he could                                                               
provide some examples of states that  have been forced to open up                                                               
to for-profit gambling.                                                                                                         
9:12:03 AM                                                                                                                    
REPRESENTATIVE  CRAWFORD, in  response to  Co-Chair Herron,  said                                                               
that he  didn't know how  the vessels regulate the  tax collected                                                               
for the onboard gaming.  However, he surmised that it is self-                                                                  
MR.  ALPERS  explained  that  the  initiative  statute  specifies                                                               
adjusted gross earnings:   revenue less payouts  and expenses and                                                               
so  forth.   He said  that to  the extent  there is  a regulatory                                                               
process, he said he wasn't aware of the details.                                                                                
9:13:07 AM                                                                                                                    
CO-CHAIR  HERRON   related  his  understanding  that   for  other                                                               
bingo/pull tabs a  municipality has the ability  to negotiate the                                                               
local tax on gaming.  However,  the local operator has no ability                                                               
to negotiate with the state.   Therefore, he surmised that the 33                                                               
percent tax was arbitrary and voted  on by the people rather than                                                               
negotiated  between  the operators  and  the  legislature or  the                                                               
REPRESENTATIVE CRAWFORD confirmed that the  33 percent tax was in                                                               
the cruise ship initiative.                                                                                                     
9:14:07 AM                                                                                                                    
CO-CHAIR  HERRON  said that  the  sponsor,  in reference  to  the                                                               
loophole the  legislation is trying  to close, has  used examples                                                               
of land-based  loopholes in  other states, but  this is  a water-                                                               
based loophole.   He asked if this water-based  loophole has been                                                               
used in other states.                                                                                                           
REPRESENTATIVE CRAWFORD informed the  committee that in Louisiana                                                               
river  boats were  used for  gambling.   Those  river boats  with                                                               
gambling  couldn't be  parked, but  once those  river boats  were                                                               
anchored in state waters gambling onshore began.                                                                                
9:15:19 AM                                                                                                                    
CO-CHAIR  HERRON  asked  if the  water-based  example  in  Alaska                                                               
exists  elsewhere.   He  pointed  out that  the  cruise ships  in                                                               
Alaska move in and out of international waters.                                                                                 
REPRESENTATIVE  CRAWFORD  acknowledged   that  the  situation  in                                                               
Alaska may be a different  animal than [the Louisiana situation].                                                               
However,  he reminded  the committee  that  [taxing the  gambling                                                               
onboard cruise  ships] will result  in the state relying  on some                                                               
judge to determine whether the state  allows gambling or not.  He                                                               
reiterated  his  belief that  the  initiative  offers a  loophole                                                               
through which gambling in Alaska could take a foothold.                                                                         
9:16:31 AM                                                                                                                    
CO-CHAIR  HERRON  said  that  he   needs  more  information,  and                                                               
inquired as to what the loophole is.                                                                                            
MR. ALPERS  related that  the foundation  lawsuit arose  when the                                                               
Mashantucket   Pequot  Tribe   of   Connecticut   with  a   small                                                               
reservation sued the State of  Connecticut, which didn't have any                                                               
interest in being  in the casino business.  Because  the State of                                                               
Connecticut  allowed church  Monte  Carlo nights,  the tribe  was                                                               
able to convert  its small bingo hall into what's  now one of the                                                               
largest casinos  in the world.   Although it's impossible  to say                                                               
what a  judge would do,  the loophole  is that the  state allowed                                                               
[Monte Carlo  night gambling]  so it  had to  be allowed  for the                                                               
tribal  entity.     Therefore,  the  sponsor   believes  that  by                                                               
acknowledging  and  collecting  taxes  on gaming,  the  state  is                                                               
allowing gaming.                                                                                                                
REPRESENTATIVE  CRAWFORD  then  related   a  case  in  which  the                                                               
Coushatta  Indians   in  Louisiana  had  no   traditional  lands.                                                               
However, they bought several acres  in an urban area and referred                                                               
to those  lands as Indian lands.   The Coushatta Indians  went to                                                               
court and now a casino is  on the lands they designated as Indian                                                               
lands,  although there  was no  traditional use  on those  lands.                                                               
Therefore, Representative  Crawford opined  that if  the loophole                                                               
in Alaska  isn't closed,  it will be  successfully used  to bring                                                               
casino gambling  in Alaska.   He  referred to it  as a  back door                                                               
attempt to allow  gambling.  Whether the  state allows for-profit                                                               
gambling is something that should require a vote of the people.                                                                 
9:19:57 AM                                                                                                                    
REPRESENTATIVE MILLETT asked if the  sponsor is suggesting that a                                                               
tribe could sue Alaska and force the state into a compact.                                                                      
REPRESENTATIVE CRAWFORD  responded yes.  In  further response, he                                                               
opined  that  the  courts  could  require  the  governor  or  the                                                               
legislature  to  sign a  contract.    The aforementioned  is  the                                                               
reason  why  when  Klawock  wanted  to  construct  a  casino  the                                                               
legislature banned  Monte Carlo nights  in the state in  order to                                                               
eliminate the basis of a lawsuit.                                                                                               
9:21:03 AM                                                                                                                    
REPRESENTATIVE  MILLETT  said   that  she  has  a   copy  of  the                                                               
Connecticut  State  Compact that  allows  gaming  and can't  find                                                               
where  it says  a court  action caused  gaming to  be allowed  in                                                               
REPRESENTATIVE CRAWFORD  interjected that it's the  Indian Gaming                                                               
Regulatory  Act  of  1988  that actually  caused  [gaming  to  be                                                               
allowed in Connecticut].                                                                                                        
REPRESENTATIVE  MILLETT pointed  out that  IGRA is  voluntary and                                                               
only requires that a state compact  be signed.  She then asked if                                                               
all the state compacts are in  reaction to a lawsuit or do states                                                               
enter   into  the   compacts  voluntarily.     She   related  her                                                               
understanding that  states enter  into the  compacts voluntarily.                                                               
She  further  asked if  the  courts  can  force  a state  into  a                                                               
REPRESENTATIVE CRAWFORD replied yes, a  court can force the state                                                               
into a compact allowing gambling.                                                                                               
REPRESENTATIVE  MILLETT requested  examples in  which the  courts                                                               
have required the governor and the legislature to do something.                                                                 
REPRESENTATIVE  CRAWFORD  offered  to provide  specific  examples                                                               
MR.  ALPERS  related  his   understanding  that  the  Connecticut                                                               
Compact was  the result of a  lawsuit.  The State  of Connecticut                                                               
didn't want  to enter into such  a compact, but was  forced to by                                                               
the  courts.   The  aforementioned  doesn't  necessarily need  to                                                               
specify  such in  the  compact as  it only  makes  the rules  for                                                               
gaming.   The legal  history leading to  the compact  is separate                                                               
from the compact itself.                                                                                                        
REPRESENTATIVE  CRAWFORD interjected  that in  the case  with the                                                               
Coushatta  Indians,  the  state  [of Louisiana]  didn't  want  to                                                               
[allow gaming], but it was forced to do so by the court.                                                                        
9:23:22 AM                                                                                                                    
CO-CHAIR HERRON referred to the  sponsor's document entitled "Why                                                               
We  Need HB  208;  A Brief  Legal History,"  which  says "that  a                                                               
state-tribal contract  must allow  a particular sort  of gambling                                                               
if the state 'permits such gaming  for any purpose by any person,                                                             
organization, or  entity.'"  Since  Alaska prohibits  Monte Carlo                                                             
nights [and IGRA] includes  the aforementioned language, Co-Chair                                                               
Herron inquired as to what he is missing.                                                                                       
REPRESENTATIVE  CRAWFORD specified  that the  cruise ships  allow                                                               
slot machines,  roulette wheels, and other  gambling games, which                                                               
is  the loophole  he  wants  to close.    This legislation  isn't                                                               
addressing  the   onshore  Monte  Carlo  nights   as  those  were                                                               
addressed in the 1990s.                                                                                                         
9:24:56 AM                                                                                                                    
CO-CHAIR  HERRON  pointed  out  that Alaska  doesn't  permit  the                                                               
cruise ship gambling, the state merely taxes it.                                                                                
REPRESENTATIVE CRAWFORD  reiterated that  the problem is  that by                                                               
taxing   and   acknowledging   the  gambling,   it's   implicitly                                                               
permitting it.                                                                                                                  
9:25:24 AM                                                                                                                    
REPRESENTATIVE HARRIS  asked if the  initiative was written  in a                                                               
manner to allow gaming in the state.                                                                                            
REPRESENTATIVE CRAWFORD replied no.                                                                                             
REPRESENTATIVE  HARRIS inquired  then  as to  why the  initiative                                                               
includes taxing gaming.                                                                                                         
REPRESENTATIVE CRAWFORD  said that he  didn't want to  assume the                                                               
motive  of the  initiative sponsors,  but opined  that they  felt                                                               
that the cruise  ship industry was taking advantage  of the state                                                               
and not  contributing to the extent  they should be.   He further                                                               
opined  that  the initiative  sponsors  felt  that there  were  a                                                               
number of areas within the  cruise industry that the state should                                                               
9:26:57 AM                                                                                                                    
REPRESENTATIVE  HARRIS  asked  if  the  law  was  in  place  that                                                               
prohibited for-profit  gambling when  the cruise  ship initiative                                                               
REPRESENTATIVE  CRAWFORD  answered  that the  law  banning  Monte                                                               
Carlo nights  was in  place when the  cruise ship  initiative was                                                               
passed.     In   further  response   to  Representative   Harris,                                                               
Representative Crawford  said he  didn't believe the  cruise ship                                                               
initiative  specifically  says  that   it  would  tax  for-profit                                                               
gambling   on  cruise   ships  in   Alaska  waters,   but  rather                                                               
characterized it as an inadvertent loophole.                                                                                    
9:28:20 AM                                                                                                                    
REPRESENTATIVE HARRIS surmised  then that Representative Crawford                                                               
was conceding that  the cruise ship initiative  included at least                                                               
one unintended consequence.                                                                                                     
REPRESENTATIVE CRAWFORD replied yes, that's a possibility.                                                                      
9:28:59 AM                                                                                                                    
REPRESENTATIVE  MILLETT  requested that  Representative  Crawford                                                               
provide to  her the  specifics of  the loophole  as she  is still                                                               
having difficulty understanding what the loophole is.                                                                           
REPRESENTATIVE CRAWFORD agreed to do  so.  He then reiterated his                                                               
belief  that it's  not in  Alaska's  best interest  to have  for-                                                               
profit gambling in the state.                                                                                                   
9:30:23 AM                                                                                                                    
CO-CHAIR  MUNOZ requested  additional  information regarding  the                                                               
Connecticut example be provided to the committee.                                                                               
9:30:32 AM                                                                                                                    
REPRESENTATIVE HARRIS  related his  understanding that  in Alaska                                                               
there are  many opportunities for  people to  participate legally                                                               
in not-for-profit  gambling so long  as there's no profit  to the                                                               
sponsor of the games.                                                                                                           
REPRESENTATIVE CRAWFORD  agreed that  such exists, and  said that                                                               
he isn't trying  to outlaw that as those are  situations in which                                                               
a consenting adult participates in gambling.                                                                                    
REPRESENTATIVE  HARRIS  surmised then  that  Alaska  has said  it                                                               
won't allow organized for-profit  gambling, but hasn't prohibited                                                               
gambling in  situations in which  folks get together for  a poker                                                               
game that they  don't advertise and for which the  sponsor of the                                                               
game doesn't take a cut.                                                                                                        
REPRESENTATIVE  CRAWFORD  responded   that  he  isn't  advocating                                                               
anything in law to prohibit  non-organized gambling for which the                                                               
sponsor doesn't take a cut.                                                                                                     
MR. ALPERS clarified the differences  between Class 2 and Class 3                                                               
gaming, as  follows.   All of the  regulated nonprofit  gaming in                                                               
Alaska  falls under  Class 2  gaming, such  as bingo,  pull tabs,                                                               
etcetera.  No  Class 3 gaming, such as video  games, table games,                                                               
or  slot machines,  is  allowed  in the  state  except on  cruise                                                               
ships.   He said that  he wasn't sure  of the specific  status of                                                               
poker, and thus  wouldn't address it.  He pointed  out that there                                                               
are  no  black  jack  tables  or slot  machines  in  the  allowed                                                               
nonprofit gaming in the state.                                                                                                  
REPRESENTATIVE  CRAWFORD  interjected  that roulette  wheels  and                                                               
video poker machines are outlawed in Alaska.                                                                                    
9:34:51 AM                                                                                                                    
CO-CHAIR  MUNOZ  asked  if  the implementation  of  the  tax  has                                                               
impacted the location of the  gambling activity and the amount of                                                               
gambling activity that occurs in state waters.                                                                                  
REPRESENTATIVE CRAWFORD deferred to the cruise ship industry.                                                                   
MR. ALPERS  informed the committee  that the cruise  ship casinos                                                               
aren't open while  in port, but are able to  open once the vessel                                                               
breaks from  the port.  He  reminded the committee that  the $6.8                                                               
million last year, including the  $50 head tax, is deposited into                                                               
the subaccount to  the general fund (GF).  He  specified that the                                                               
funds fund cruise-related impact projects.                                                                                      
9:36:12 AM                                                                                                                    
CO-CHAIR  MUNOZ  thanked  the sponsor  for  bringing  this  issue                                                               
before the committee as it's an important issue.                                                                                
9:36:41 AM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue, informed  the committee  that the Department  of Revenue                                                               
(DOR) doesn't believe  that taxing this activity  makes this type                                                               
of gambling  legal in the state.   She related DOR  has conferred                                                               
with DOL as  well.  Ms. Bales confirmed that  Class 3 gambling is                                                               
illegal in  Alaska.   The only  type of  gambling allowed  in the                                                               
state  is  gambling that's  for  charitable  purposes.   However,                                                               
federal law  prohibits Alaska from  making it illegal  for cruise                                                               
ships  [to allow  gaming].    She pointed  out  that  there is  a                                                               
definition of  the type  of vessel that  can conduct  gambling in                                                               
Alaska waters.   Basically, the only vessels that  are allowed to                                                               
conduct gaming  in Alaska's waters  are those with a  voyage that                                                               
includes a stop in Canada and  or another state other than Alaska                                                               
and stops  at two  different ports in  Alaska during  its voyage.                                                               
Still,  such a  vessel is  not  allowed to  conduct within  three                                                               
nautical miles of any port  within Alaska.  The aforementioned is                                                               
specified in  the federal  law.  Ms.  Bales clarified,  "The only                                                               
reason  that these  cruise ships  are allowed  to conduct  gaming                                                               
activities  is because  the federal  law prohibits  the State  of                                                               
Alaska  from making  that illegal  in Alaska  waters."   However,                                                               
gambling in  Alaska and in  Alaska state waters is  illegal, save                                                               
the aforementioned prohibition under federal law.                                                                               
MS.  BALES  then  pointed  out that  there  are  various  illegal                                                               
activities conducted in the state  and nation.  For example, it's                                                               
illegal to  be a  drug dealer  in the U.S.,  but the  income made                                                               
from that activity is taxable under  federal income tax law.  The                                                               
activity isn't made legal by virtue of it being taxed.                                                                          
9:39:42 AM                                                                                                                    
REPRESENTATIVE HARRIS inquired as how  far out do Alaska's waters                                                               
reach for taxation purposes.                                                                                                    
MS. BALES  answered Alaska  waters are  those waters  three miles                                                               
from shore.   In further  response to Representative  Harris, Ms.                                                               
Bales  confirmed that  the legislation  refers to  three nautical                                                               
miles from the port, which could extend any direction.                                                                          
9:40:19 AM                                                                                                                    
MS. BALES, in response to  Representative Gardner, clarified that                                                               
under the  federal law  the state is  allowed to  prohibit gaming                                                               
three miles from a port.   Therefore, [the vessel] could still be                                                               
within the  three miles in Alaska  waters but three miles  from a                                                               
port.  She further clarified that  so long as the vessel is three                                                               
miles away  from a port along  the coast, the vessel  can conduct                                                               
gambling activities.                                                                                                            
9:41:49 AM                                                                                                                    
JOE  GELDHOF,  Legal  Counsel, Responsible  Cruising  in  Alaska,                                                               
began by  noting that he  was one of  the primary authors  of the                                                               
cruise ship  initiative.   He explained that  the portion  of the                                                               
cruise  ship  initiative  related  to taxing  [gambling]  can  be                                                               
traced  back to  the 1980s.    At that  time, the  Office of  the                                                               
Attorney General  in loose cooperation  with the  U.S. Department                                                               
of  Justice   began  reviewing  gambling  operations   in  Alaska                                                               
territorial  waters.    Although   there  was  never  any  formal                                                               
enforcement,  when  the  Federal Bureau  of  Investigation  (FBI)                                                               
became  interested  in  the  emerging  cruise  ship  market  that                                                               
included gambling it was apparent  that there were more questions                                                               
than answers.  He opined  that the cruise industry understood the                                                               
heightened   interest   in   the   gambling   activities   within                                                               
territorial  waters,  and  used   the  appropriate  influence  to                                                               
achieve the law referenced by  Ms. Bales.  The aforementioned law                                                               
basically prohibited Alaska  from stopping [gambling activities].                                                               
The  aforementioned  was  an   unusual  prohibition  that  raised                                                               
concerns with  lawyers regarding  whether the  federal government                                                               
could prohibit  the state from acting.   He noted that  the basic                                                               
doctrine   is   within  the   Tenth   Amendment.     During   the                                                               
aforementioned discussion, former  legislator Hugh Malone pointed                                                               
out that  the cruise  industry had created  a loophole  that says                                                               
the state  can't prohibit  [gambling on the  cruise ships].   Mr.                                                               
Malone  suggested that  rather than  continuing with  litigation,                                                               
the  state should  tax the  activity.   Mr. Geldhof  recalled the                                                               
discussion at the time was  that [gambling on cruise ships] would                                                               
be taxed and the activity wouldn't be sanctioned.                                                                               
MR. GELDHOF  then turned to  the 33.3 percent taxation  on cruise                                                               
ship  gaming  was  taken from  existing  statute  for  charitable                                                               
gaming.   He  noted  that  it wasn't  anticipated  that the  33.3                                                               
percent "takes the  oxygen out of any profit."   According to the                                                               
initiative,  the taxation  of cruise  ship gambling  has returned                                                               
about $6.8 million a year.   Although the cruise industry may not                                                               
like the law, it does like  the opportunity for its passengers to                                                               
gamble.    Mr.  Geldhof  characterized  the  law  as  a  peculiar                                                               
response to a unique set  of circumstances.  Furthermore, the law                                                               
highlights  that geography  still matters  and takes  the state's                                                               
fair  share according  to  the charitable  gaming  statute.   Mr.                                                               
Geldhof explained that the taxes  collected on gambling goes into                                                               
the  large passenger  account, but  those funds  are unrestricted                                                               
and  can  be  spent  without  regard  to  the  federal  law  that                                                               
specifies the funds have to be  spent on safety and efficiency of                                                               
the  passengers and  the vessel.    Mr. Geldhof  opined that  the                                                               
concern  should arise  when one  wants the  cruise ship  deal and                                                               
requests a compact.                                                                                                             
9:48:45 AM                                                                                                                    
REPRESENTATIVE HARRIS  thanked Mr. Geldhof, who  he characterized                                                               
as a  voice of  reason, for  being present today.   He  asked Mr.                                                               
Geldhof if  it would  be fair to  say that he  opposes HB  208 as                                                               
it's a dramatic departure from the  intent of the sponsors of the                                                               
MR. GELDHOF stated that in the  larger concept of the cruise ship                                                               
initiative,  the  gambling  tax  was a  small  piece  of  cleanup                                                               
legislation to address  something that had been  around since the                                                               
1980s.   The initiative  seemed to bring  some resolution  to the                                                               
gambling  issue,  and   he  opined  that  the   drafters  of  the                                                               
initiative "got it more right than wrong."                                                                                      
9:50:34 AM                                                                                                                    
REPRESENTATIVE MILLETT  inquired as to  why the gambling  tax was                                                               
included  in the  cruise vessel  passenger tax  initiative.   She                                                               
further inquired  as to what  the authors of the  initiative were                                                               
trying to gain by including the gambling tax in the initiative.                                                                 
MR. GELDHOF  restated the history  of the issue with  gambling in                                                               
state waters in which the  cruise industry ultimately trumped the                                                               
state's law that  gambling in Alaska is not legal  with a federal                                                               
statute that prevented Alaska from  saying that gambling in state                                                               
waters is illegal.  In  response to the aforementioned and rather                                                               
than going through litigation, it  was determined to be necessary                                                               
to  tax what  the state  still believes  to be  illegal activity.                                                               
The  levy rate  was set  at 33.3  percent, the  charitable gaming                                                               
provision.  The  thought, he opined, was that if  gaming is going                                                               
on in  Alaska [waters] and the  state can't prevent it,  then the                                                               
state  should  receive  the  same percentage  as  it  would  from                                                               
charitable gaming.                                                                                                              
9:52:52 AM                                                                                                                    
REPRESENTATIVE  MILLETT  asked  if   Mr.  Geldhof  believes  this                                                               
taxation of cruise  ship gambling is grounds to open  up to Class                                                               
3 gaming in Alaska.                                                                                                             
MR. GELDHOF  said that upon  reviewing the federal and  the state                                                               
law, there's no  easy deal to get because at  best one would have                                                               
to operate a large passenger  vessel in foreign carriage that has                                                               
a port  outside.  Mr.  Geldhof opined  that in Alaska  there's no                                                               
opportunity  to do  what is  done  in Louisiana  or Indiana  with                                                               
near-shore gambling.   Furthermore, Mr. Geldhof  pointed out that                                                               
the gambling revenue for the  cruise industry is incidental and a                                                               
full-blown seasonal business can't be built on such revenue.                                                                    
9:55:18 AM                                                                                                                    
REPRESENTATIVE  GARDNER recalled  Mr.  Geldhof saying  that if  a                                                               
lawsuit is  brought on  the grounds that  the sponsor  fears, the                                                               
state could address  it by removing the gambling tax.   She asked                                                               
if it would be too late at that point.                                                                                          
MR. GELDHOF  answered that he didn't  believe so.  At  the point,                                                               
someone  comes forward  to leverage  the state  and the  governor                                                               
desires a compact, that's when  a working group would likely come                                                               
together and  one of the  options would  likely be to  remove the                                                               
9:57:45 AM                                                                                                                    
MR.   GELDHOF,   in    response   to   Representative   Crawford,                                                               
acknowledged that there is a  scenario in which someone wants the                                                               
gambling deal and  a compact is signed.   He further acknowledged                                                               
that in the  course of the compact, the party  could agree to the                                                               
terms.   However, the likelihood  of the aforementioned  seems to                                                               
be very remote.   He opined that his experience  is that whatever                                                               
the scenario, it will require deliberation and will move slowly.                                                                
10:00:11 AM                                                                                                                   
CO-CHAIR MUNOZ announced that HB 208 would be held over.                                                                        
10:00:38 AM                                                                                                                   
CO-CHAIR HERRON surmised that basically  Alaska's law, due to the                                                               
initiative,  is a  fairly high  hurdle, particularly  for someone                                                               
who is  in business to make  a profit.  Therefore,  he questioned                                                               
whether the tax is appropriate to keep on the books.                                                                            
MR. GELDHOF  opined that  the real issue  for the  legislature is                                                               
obtaining funds from taxing gambling  while not allowing gambling                                                               
besides in a  very peculiar fashion.  "The  real challenge here,"                                                               
he opined, "is spending the  $6.8 [million] or whatever the yield                                                               
is for the benefit of our state in a thoughtful way."                                                                           
[HB 208 was held over.]                                                                                                         
10:02:18 AM                                                                                                                   
There being no further business before the committee, the House                                                                 
Community and Regional Affairs Standing Committee meeting was                                                                   
adjourned at 10:02 a.m.                                                                                                         

Document Name Date/Time Subjects
HB 208 Sponsor Statement & Sectional on Repealers.doc HCRA 4/7/2009 8:00:00 AM
HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 - Cruise initiative language 2006.docx HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 cruise initiative changes.doc HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 cruise gaming legal history.doc HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 - Kizzia article ADN june 1997.docx HCRA 2/16/2010 8:00:00 AM
HB 208
HB208-DOR-TAX-02-18-10 Cruise Ship Gambling Tax.pdf HCRA 2/16/2010 8:00:00 AM
HB 208