Legislature(1995 - 1996)

03/13/1996 03:16 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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            
 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            
 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                    
 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             
 Number 1063                                                                   
 REPRESENTATIVE KIM ELTON asked Ms. Reardon how she will determine             
 the base from which she will do the increment for the different               
 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                
 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              
 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                     

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