Legislature(1995 - 1996)
03/13/1996 03:16 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 510 - ENFORCEMNT COST SURCHARGE ON OCC LICENSES CHAIRMAN PETE KOTT announced the first order of business the committee would address would be HB 510, "An Act relating to occupational licensing fees and regulatory costs for occupational licensing functions; and providing for an effective date," sponsored by Representative Davies. Number 084 SHANNON MCCARTHY, Administrative Assistant to Representative John Davies, Alaska State Legislature, explained Representative Davies introduced the bill after hearing testimony from the Department of Commerce and Economic Development in their budget overview. She explained the Division of Occupational Licensing is required to charge each occupation with the actual cost of regulating that profession. The difficulty comes when there are legal and enforcement costs when a professional operates outside of professional standards. That becomes a problem and then the next year, when those legal costs are then charged to the professionals, it can cause wild fluctuations of licensing fees. Ms. McCarthy said there is a particular concern with midwives. There are only 18 midwives and if they have to discipline a member of their own, they are charged those fees the next year. In some cases it is pricing people out of business. MS. MCCARTHY explained each occupation has these fluctuations. It is not just that one consistently has legal costs. They fluctuate up and down. Another concern Representative Davies has is that professionals may be reluctant to turn in another professional because of the increase in fees the next year. She explained the bill prorates all enforcement costs over all licenses with the exception of business licenses. It will stabilize fees from year to year so professionals can rely on what they will have to pay each year. CATHERINE REARDON, Director, Central Office, Division of Occupational Licensing, Department of Commerce and Economic Development, testified in support of HB 510. She said there are difficulties with the way the cost allocations are currently working. The entire division operates off of license fees - general fund program receipts. The statute requires the division to charge each occupation so that it will cover all of its regulatory costs and those regulatory costs include investigations, legal fees, hearing fees and court costs as well as the regulator licensing activities. She explained they have been having trouble as enforcement costs are unpredictable, particularly in the smaller board areas. If there under 300 licensees, one year there will be a very expensive disciplinary case that can cost $20,000 to $50,000, and then it will be five years before you'll have another one. It puts the division in a situation of having to raise the fees to a level that the board area will generate $50,000 extra every year but only need it one out of five years, or else put their license fees at a level where they never budget for that expensive disciplinary case in which they under-collect. She handed out information that gave the committee an example in relation to Psychologists. The amount of money the division was spending on psychology ran around $40,000 for three of the fiscal years and then in fiscal year 94, it was $82,000. That increase was the result of one very expensive case. Ms. Reardon said HB 510 would allow her to spread enforcement costs, per capita, amongst all 33,000 licensees. Therefore, it would be predictable as to how much should be included in the fee. She said fees from profession to profession would be more similar. MS. REARDON referred to the larger licensing areas where they have 3,000 or 4,000 licensees, you don't see the fluctuations so much because there is a big enough group that you get 20 or 30 complaints every year. It averages out. In the smaller areas, it has been causing problems. Ms. Reardon said another thing she has seen is the reluctance to discipline. In the case of the Psychology Board, there was a license denial of someone who had serious problems in another state. The division investigated this person and then denied the license. The person challenged it and it went to a hearing. The person continued to repeatedly challenge the denial of the license. Ms. Reardon said she was told by the Psychology Board when she increased their fees to $700 for two years that if they had known it would have cost as much as it did, they wouldn't have denied the license. She said that is a realistic thing for them to be thinking about, but it is not necessarily a good thing for people to be thinking about as decisions are made about whether they should protect public health and safety. Number 560 CHAIRMAN KOTT questioned how many licenses are currently issued by the department. MS. REARDON said there are approximately 34,000. She noted half of them renew each year. The licenses are all two year licenses. CHAIRMAN KOTT asked Ms. Reardon if she has numbers regarding one end of the spectrum to the other as far as what is currently being paid. MS. REARDON gave the committee members a booklet which lists every fee the division charges. She said there are 34 licensing areas which are either boards like the medical board or groupings of licensees where there isn't a board. She continued to discuss the information she gave the committee in relation to architects, engineers and land surveyors to midwives. Number 705 CHAIRMAN KOTT inquired if the bill would have been in law, what the average board fee would have been. MS. REARDON referred to fiscal year 95 and said they believe it would be between $35 and $40 per licensee, per year. It would cost $80 for a biannual license. She noted all of the licenses already include some enforcement costs. It wouldn't be an addition $80 on all of them. Some of the costs would go down and some would go up. She indicated the fees that would go up would be the ones in the large board areas like engineers where there are 5,000 licensees. She said she would expect them to go up in minor amounts, yet per capita. The ones that would go down, in general, would be in the areas where there fewer than 250 licensees. CHAIRMAN KOTT noted Representatives Porter, Sanders and Kubina were in attendance. Number 797 REPRESENTATIVE GENE KUBINA questioned why there is a two year time period. MS. REARDON explained that in their statute they currently have biannual licenses. That was a move from one year licenses. It was motivated to try and hold down administrative costs. She said it would take a change in the law and two isn't necessarily a magic number. She said you wouldn't want to have it too high because renewal where they prove continuing education. Ms. Reardon said maybe increasing the length of some of the licenses would be a good way to go. Number 915 REPRESENTATIVE NORMAN ROKEBERG asked Ms. Reardon if she has discussed the concept of the bill with any of the licensee registrants. MS. REARDON said she spoke with three boards, but have not notified all of the boards. She said she believes she would get a slightly mixed response because there will be some people whose fees will be going up a little bit. MS. REARDON clarified between $35 and $40 per licensee per year would be spent on enforcement activities. So a two year license would be approximately $70 or $80. CHAIRMAN KOTT questioned if the maximum increase would be $70. MS. REARDON said if it were possible that there was an area where no investigative or legal resources were being expended, then they would see that entire increase. However, in every board area there are some legal and enforcement costs are already built into their budget. Number 1063 REPRESENTATIVE KIM ELTON asked Ms. Reardon how she will determine the base from which she will do the increment for the different licensees. MS. REARDON explained that enforcement costs are directly tracked costs. She said they can actually tell how much money was spent on legal fees within the contractual services line item for psychologists in fiscal year 95. She indicated when she came to project what their costs will be for the next two years, she would back out all those costs and say it's going to $80 per person. REPRESENTATIVE ELTON referred to midwives and said for fiscal year 93 the fee was $350 and in fiscal year 95 it was $850. He asked Ms. Reardon how she determines the base for midwives. MS. REARDON said she really wouldn't determine a base. She said what she would do is every two years before they renew, she would go through the process of projecting what their costs are going to be for the next two years. She would look at the two most recent fiscal years, fiscal years 95-96, and then back out the investigative costs and that would be the base. REPRESENTATIVE ELTON referred to determining the enforcement costs of the pool, the pool is all the licensees, and said they would periodically assess the costs, then prorate those costs to each of the different licensees. MS. REARDON indicated she would say $1.2 million a year. She said she would divide it out by the $33,000 or $34,000 per person. Number 1223 REPRESENTATIVE ROKEBERG said there are 22,088 nurse aids paying $55 biennium and there is 90 marine pilots paying $3,200. He questioned what the math is. MS. REARDON explained two things are going on with the marine pilots. One is there are 80 marine pilots and some agents. There are under 100 of them. She explained they have a marine pilot coordinator, a range 20 position, because you're basically regulating an industry. It has been determined through the budget and statute that they need a coordinator. They have higher personal services costs. Most of the other boards run off a range 12 licensing examiner and that is part of the difference. Ms. Reardon explained the other is that marine pilots have extremely high legal costs because every time a boat hits the rocks, the hearing, court and the appeal goes on because of the millions of dollars that are at stake over the result. REPRESENTATIVE ROKEBERG asked what the difference in cost be for the marine pilots and nurse aids. MS. REARDON explained the marine pilot's fees would go down to around $900. She indicated the last time the division looked at marine pilot license fees two years ago, $800 of their $3,200 for their staff and licensing functions. She noted those figures were off the top of her head. Ms. Reardon said it is possible that the marine pilots being such an unusual situation, it might need to be dealt with. They are a very unusual case within the division because of the very large legal costs they incur. MS. REARDON referred to nurse aids and said most of their money comes in a RSA from HESS. It is a federal program. REPRESENTATIVE ROKEBERG reiterated the same question only with nurses. MS. REARDON indicated she doesn't know the answer because she isn't sure how much of that is currently enforcement. She noted she is currently reviewing their fees and is proposing to reduce them. Number 1510 REPRESENTATIVE KUBINA referred to barbers or hairdressers and said their fee would probably go up because it is currently low. By their fee increase, they would sort of be subsidizing the marine pilots. MS. REARDON said there is obviously a policy issue. She noted because marine pilots earn a lot of money, they are in the least sympathetic situation. She said maybe they should be dealt with separately from everyone else. The policy issue is everyone paying for themselves. That seems fair, but the downside of everyone paying their own costs is the fluctuations and professions boomeranging every two years, and some of them depending on how they're hit by a once every couple of years expensive case. She said the other argument is their fee would be covering the cost of having an investigative unit there for when they need it. It is an issue where there are two ways of looking at it and charging fees for services is never fun. REPRESENTATIVE ELTON said this isn't an unusual concept because that is how the division allocates the administrative costs that have to be paid to the commissioner of Administration. Everybody is kind of assessed the same amount to pay for administrative overhead that they get from the Division of Administration, Department of Commerce. MS. REARDON explained they have what is called administrative indirect costs. She referred to her salary and said she may be spending a whole lot more time on guide licensing this year, but she doesn't actually bill her salary hourly depending on which program she worked on. Ms. Reardon said she is a "per capita spread Admin indirect cost." She said the same is for the receptionists, the budget person, the bookkeepers, because there comes a point when it isn't worth the cost of people tracking on their time sheets that closely for some of those positions. She said they do have an addition of per capita spread of some costs and others they try to directly allocate such as licensing examiners and travel, etc. Number 1532 CHAIRMAN KOTT said in reviewing the information Ms. Reardon distributed, it seems some of the professions he would call wealthier professions could probably absorb a greater amount of the enforcement dollars whereas barbers, hairdressers and some of the professions on the other end which are what he wouldn't say "wealthy professions" would then be penalized and their enforcement dollars would be increased to cover the more wealthier professions. MS. REARDON said, "I think it actually breaks a little bit, less predictably than that. For example, engineers and architects - fairly highly compensated probably. They're a big board area, 5,000 licensees, they would probably see an increase as a result of this. So I think the effect would depend on how many licensees you have more than anything." Number 1590 REPRESENTATIVE KUBINA questioned whether it would be fair to go back and do a ten year average. That way they'd be hitting the people that are costing more. MS. REARDON said the difficulty is that the division needs to get money appropriated every year and they have to spend it every year. She said there would be a designated fund if they just kept all the money. Even though they could set the fee by averaging over ten years, that won't necessarily generate enough money to carry out her functions the next year unless all fees were going into a pot of money that always did go forward. Ms. Reardon also pointed out that accounting systems change. She said fiscal year 93 was when the division needed to be self sufficient. Before that they were receiving general funds for enforcement. That then increased the costs that needed to be spread. In fiscal year 94 and 95, they started accounting for things on time sheets. Before then they were just predicting what percentage of time you think you spend on what and the bigger board areas were subsidizing the little ones that way. They then went to time sheets. So, they've been getting more and more specific but it means that a cost in fiscal year 96 is not necessarily determined the same way that it would have been in fiscal year 91. Number 1702 WILLIAM MENDENHALL was next to testify via teleconference from Fairbanks. He noted he is a member of the Board of Architects, Engineers and Land Surveyors but isn't testifying on their behalf. He said that board is one of the larger boards with approximately 5,000 people. As indicated, their fees are going to go up again. He said it is awfully easy to say, "Oh, lets just divide everything by the number of people involved regardless of whether we have enforcement costs that goes to that board." Mr. Mendenhall said if the licenses go up $70 per biennium, this is one of the reasons why the board has asked for legislation to make this semi-autonomous. He said they would like to get out from the Division of Occupational Licensing. He said whoever suggested there be a ten year averaging to find out what the actual costs and assign those to the boards is a good idea. Mr. Mendenhall said if somebody hits a rock, why should everyone else pay. He said he is testify against HB 510 and would suggest some kind of ten year averaging to try to determine a reasonable cost for the enforcement process. He thanked the committee for listening to him. Number 1811 There being no further testimony on HB 510, CHAIRMAN KOTT closed public testimony. He said it is not his intent to move the bill. He referred to some of the ideas suggested such as carving out an exemption, removing some of the high-end cost occupations from the bill and looking at a longer average perspective and said some of those ideas may be in order. Chairman Kott said the bill would be held over in order to work with the department to reach a conclusion.