Legislature(2015 - 2016)BARNES 124
02/27/2015 03:15 PM House LABOR & COMMERCE
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HB 116-EXTEND ALCOHOLIC BEVERAGE CONTROL BOARD 4:16:37 PM CHAIR OLSON announced that final order of business would be HOUSE BILL NO. 116, "An Act extending the termination date of the Alcoholic Beverage Control Board; and providing for an effective date." 4:17:00 PM LAURA STIDOLPH, Staff, Representative Kurt Olson, Alaska State Legislature, on behalf of the House Labor & Commerce Standing Committee, Representative Kurt Olson, Chair, presented HB 116. This bill would extend the sunset date for the Alcoholic Beverage Control (ABC Board) to June 30, 2018. Each year the Division of Legislative Audit reviews state boards and commissions to determine whether they should be reestablished per AS 24.44. The Division of Legislative Audit reviewed the activities of the Alcoholic Beverage Control Board ("ABC Board"). The purpose of the legislative audit was to determine whether there is a demonstrated public need for the ABC Board's continued existence and whether it has been serving the public's interest effectively. MS. STIDOLPH reported that the board has resolved all issues found in prior audits with two being resolved and one being partially resolved. She directed attention to the five findings and recommendations in the most recent audit. First, the legislative auditors recommended including having the board's director ensure that all board meetings are properly published on the state's online public notice system. Second, the legislative auditors recommended that the board should notify local governing bodies of applications for new and transfer licenses within 10 days of receipt. Third, the legislative auditors recommended that the board should issue catering permits in accordance with statutory requirements. Fourth, the legislative auditors recommended that the board should issue recreational site licenses in accordance with statutes; and finally, the legislative auditors recommended that the board should implement a process to monitor and track all complaints to ensure they are resolved in a timely manner. MS. STIDOLPH reported that the Division of Legislative Audit recommended that the ABC Board be extended three years to June 30, 2018. The legislative auditors serve public's interest by effectively licensing and regulating the manufacture, barter, possession and sale of alcoholic beverages in Alaska. In closing, she related the auditors found that the ABC Board serves an important role in guarding the health and safety of Alaskans by protecting the general public through the issuance, renewal, revocation, and suspension of alcoholic beverage licenses. The continuation of this board is very important, she relayed. 4:19:54 PM KRIS CURTIS, Legislative Auditor, Legislative Audit Division, Legislative Agencies and Offices, reported that the division conducted a sunset review of the ABC Board and concluded it was serving the public interests; however, the division noted several operational improvements were needed in the licensing and general administration of the board. She said that the board is set to sunset in June 2015 and the legislative audit recommended a conditional five-year extension. At the time the audit was completed in May 2014, the outcome of the marijuana initiative was not yet known, so the audit suggested a three- year extension, just in case the marijuana initiative passed, since the initiative will significantly expand the board's duties. 4:20:45 PM MS. CURTIS referring to page 9 of the legislative audit, reviewed the recommendations. She directed attention to Recommendation 1, which recommended that the board's director ensure that all board meetings are properly published on the state's online public notice system. Three of the 25 meetings held were not publically noticed, she said. Second, referring to page 10 of the audit, she said that the division's auditors recommended [Recommendation 2] that the board should notify any local governing bodies of applications for new and transfer licenses within 10 days of receipt as required by statutes. The auditors found the board did not notify local governing bodies within the required timeframe for two of the ten licenses tested. She advised that these errors were caused by board staff not adhering to their policies and procedures. 4:21:21 PM MS. CURTIS directed attention to audit Recommendation 3, that the board should issue catering permits in accordance with statutory requirements. The auditors reviewed four licensees who had received more than six consecutive catering permits. Of those, three of the four were non-compliant, which each represent a statutory violation since the permits were issued with the intention of serving alcohol on a licensed premises during the regular operation of the business rather than for a short-term social gathering or similar event. The board issued the permits to ensure that the businesses could continue to operate. 4:21:56 PM MS. CURTIS referred to page 11 to audit Recommendation 4, which recommended that the board issue recreational site licenses in accordance with statutory requirements. She reported that 15 of 32 recreational site licenses active during the audit period, or 40 percent of the businesses, did not meet the criteria for a recreational site license. She explained that the ineligible businesses included a sports center and pub, an exercise gym, gift shop, bowling alleys, theatres, and pool halls. These business types did not meet the definition of a recreational site nor were the operations limited to a season. The issuance of these licenses expanded the number of establishments licensed to sell alcohol over the number allowed for in statute. She stated that inquiries with board members revealed that improper issuance of these recreational site licenses was caused by an historic misunderstanding of what qualifies as a recreational event. 4:22:55 PM MS. CURTIS referred to page 12 to the final audit recommendation, Recommendation 5, that the board implement a process to monitor and track all complaints and to ensure that they are resolved in a timely manner. Although the board had a process in place3 to receive complaints, complaints were only tracked if they resulted in an inspection or investigation. If the complaint was deemed invalid, it was not documented; furthermore, the basis for a decision not to investigate was not documented or maintained. She stated that the board director did not consider tracking all complaints as necessary since there was not any statutory mandate to do so. She concluded that the department and the board agreed with all of the audit recommendations and submitted a corrective action plan. 4:23:35 PM REPRESENTATIVE JOSEPHSON, in terms of the misunderstanding on Recommendation 4, asked whether the board currently agrees on the foregoing interpretation of the statute. MS. CURTIS answered that the division believes so. The board and department's response to the audit indicated that the board had operated under guidance from the assistant attorney general, but the board has since reconsidered its process, including taking public testimony, and the board has gone back to a stricter interpretation of statute. 4:24:34 PM REPRESENTATIVE JOSEPHSON referred to a proposed rewrite of Title  and to the stakeholders who are working on it. He asked whether this should give the committee some pause and if it will lead to a shorter extension given the ABC Board's shared staff with the proposed marijuana board. MS. CURTIS answered that the recommendation for extension took into consideration the results of the audit, including the findings and recommendations. When the sunset audit was completed for the ABC Board, the division did not have any idea if the marijuana initiative would pass. She acknowledged that the proposed marijuana board envisioned sharing staff with the ABC Board; however, she did not see a sunset provision for proposed marijuana board. She suggested that if the two separate boards plan on sharing staff, it is possible the extension date could put the sunset dates of each board out of synch with one another, which could result in inefficient use of audit resources. CHAIR OLSON commented that as the bill establishing a marijuana board continues to move forward through the legislative process, that he will work to ensure that it shares the same sunset date as the ABC Board. He also noted that some of the Department of Commerce, Community & Economic Development's occupational licensing staff was often shared by boards. MS. CURTIS agreed. 4:26:55 PM REPRESENTATIVE HUGHES had questions on some of the proposed changes to the Title 4 [alcoholic beverage] revisions. She suggested that three years still works for a proposed sunset. She asked whether Ms. Curtis had any comments. MS. CURTIS answered that at the time the field work was done, which was in late spring, the division was aware of the stakeholders group, but could not predict any outcome at that point. 4:27:34 PM REPRESENTATIVE KITO referred to audit Recommendation 2, in which two meetings did not have the appropriate notice. He asked whether there is any cause for the state to find out if decisions were made without adequate local involvement. MS. CURTIS answered that the division did not find any complaints made by the local governing body or any outcome resulting from the lack of timely noticing. 4:28:36 PM REPRESENTATIVE KITO related her understanding that the several violations occurred with Recommendations 3 and 4. He asked whether the violations were corrected and if the permits been removed, where appropriate. MS. CURTIS answered that the audit team does not know that; however, it will be a good question for the department. 4:29:00 PM CYNTHIA FRANKLIN, Executive Director, Alcoholic Beverage Control Board ("ABC Board"), Department of Commerce, Community & Economic Development (DCCED) introduced herself. 4:29:26 PM REPRESENTATIVE KITO asked for further clarification on the sunset audit Recommendations 3 and 4, and if the changes have been implemented and improper permits have been withdrawn. MS. FRANKLIN answered that with respect to Recommendation 3, the catering permits were for individual events that had been held prior to the audit, that catering events are held for specific events, and represent short-term permission in which sellers serve alcohol. She elaborated that what happened with the catering permits predated her tenure with the board as of last September. She related her understanding that there was a practice during the liquor license transfers such that the new licensees had the expectation of approval. During this timeframe catering permits were issued that allowed the establishment to continue to sell or serve alcohol. In particular, this occurred with respect to stock transfers, in which ownership of the organization changed but the day-to-day operations were not changing. She said the agency was issuing catering permit to allow for "non-interruption" of service in the license; however, it was determined to violate the permit statute. She reported that the practice had already been discontinued by September 2014, and the ABC Board does have safeguards in place to check all catering permits to ensure that the activity is not happening. She said that involves some coordination between the licensing and enforcement sections, which was not previously occurring. She stated that this practice has ceased. 4:31:43 PM MS. FRANKLIN said it is a little more complicated in terms of the recreational site licenses. She explained that liquor licenses were issued to businesses that did not technically qualify for recreational site licenses. For example, a recreational site license was issued to the Alaska Club South location. However, the facility is a gym that operates every day and does not qualify for an event. Since they have a liquor license, the ABC Board will not be able to review the license until renewal. However, the board is very aware it overstepped its bounds in issuing that and several other recreational site licenses. She anticipated that the issue will be addressed when these licenses come up for renewal. 4:32:46 PM REPRESENTATIVE KITO asked whether provisions allow for transition of facilities. He related his understanding that gaps could exist when transferring ownership and there is a gap; however, he asked whether another method for issuing transitional licenses exists. MS. FRANKLIN answered not really. She characterized this as being "chicken and egg" problem in terms of stock transfers, depending on the individual transfer. For example, in Anchorage, a beverage license dispensary license was sold by the Sourdough Mining Company to the Texas Roadhouse with the intention that Sourdough Mining Company would come in and acquire a restaurant eating place license that would allow it to continue selling beer and wine with meals. However, this effort requires engaging in careful planning, and had he applied ahead of time, nothing would have prevented approval or a smooth transition when he sold his beverage dispensary license. Due to the way the business transition occurred, the beverage dispensary license was sold, followed by an application being submitted for a restaurant eating place license. It led to an interruption in alcohol service at Sourdough Mining Company, she said; however, if the person seeking transfers could have planned better. 4:35:02 PM MS. FRANKLIN stated that the ABC Board works to accommodate its licensees. In this instance the statutes did not authorize the board to issue catering permits to Sourdough Mining Company so it could continue to serve alcohol to its customers while the business obtained its other license. Although the board works to assist its licensees, in some instances it is out of the board's control if licensees wait too long to apply. 4:35:44 PM REPRESENTATIVE KITO, referencing audit Recommendation 4, expressed concern that some facilities may be operating illegally if they received their permits in error. He expressed further concern that some operators should have sought an alcoholic beverage license, but now have recreational site licenses, especially since these establishments may not have been granted a license. MS. FRANKLIN responded that she did not believe these facilities are operating in violation of the law since the operators legally obtained their licenses from the ABC Board. She agreed with the audit finding that the definition of recreational site license had been stretched beyond its original intent. However, those decisions were apparently made upon advice of legal counsel. She did not think anyone could argue that those licensed establishments were operating in violation of the state law, in particular, since they obtained their licenses lawfully with local approval and other approval that must occur before the licenses are issued. Further, after the licenses were issued, the ABC Board received an opinion from the auditing agency that the licenses "stretched the boundaries" of the statutory definition of what would have been allowed, but she did not believe that statement would invalidate the licenses. 4:37:52 PM MS. FRANKLIN understood his concern and said the board will take up those individually as they come up for renewal. In addition, this agency also changed departments during the audit period and the assistant attorney general changed, as well. Thus, the ABC Board has a fresh outlook on this statute. She said she has faith that the licenses in question will ultimately be strictly reviewed during the renewal process, which occurs every other year. 4:38:51 PM REPRESENTATIVE COLVER directed attention to the fiscal note. He said that the FY 16 budget is $3.35 million, with a fund source of $1.575 million in general fund monies and approximately $1.8 million in program receipts. He said he was interested in the program receipts from the industry and how much goes to the general treasury. He acknowledged that a number of alcohol taxes also generate revenue and he was also interested in the tax collections. MS. FRANKLIN answered that she doesn't have the tax receipts on hand. She agreed that the receipts for fees for alcohol licensing are reflected in the fiscal note, which includes money for agency as expanded. In November, with passage of ballot measure 2, the agency scope has expanded to include marijuana. What is not reflected in the fiscal note would be the receipts from the proposed licensees since the ABC Board is not sure how many licenses will be issued or the amount of the potential receipts. Thus more funds are reflected in the budget for the first year of marijuana licensing, but it isn't possible to project receipts until the licenses issued, which is a first year problem for the agency. 4:41:48 PM REPRESENTATIVE COLVER said he did not have access to last year's information so he cannot compare the board's budget. He surmised that the $1.575 million is being charged off to new regulations. He asked whether Ms. Franklin could provide the committee with how much of the funding is to regulate the new industry and the agency budget. MS. FRANKLIN answered that the ABC Board FY 15 budget was $1.75 million and the FY 16 budget for regulating the new substance includes a large one-time appropriation for a database to replace the current paper-based agency. Thus far she has received a substantial number of questions and demand for data. The fiscal note includes $500,000 for a database. She explained that the budget doesn't double since it does not double the agency, but proposes to add six employees through an FY 15 supplemental budget and FY 16 budget request. She stated that the agency budget would expand from 10 to 16 statewide positions to regulate the substances. She clarified that it appears to mirror the budget since it has a one-time expense for the database. 4:44:10 PM REPRESENTATIVE COLVER referred to the fiscal note for FY 17-FY 19 seems to show the same increment, which doesn't reflect a one-time database upgrade. He suggested that he may wish to tweak the out years. MS. FRANKLIN agreed. 4:44:44 PM REPRESENTATIVE HUGHES referred to the proposed Title 4 revisions and asked for further clarification on how the three-year extensions might impact the ABC Board. 4:45:21 PM MS. FRANKLIN offered her belief that the three-year extension is a good plan. She explained that the Title 4 revisions will be introduced by Senator Micciche [by the Senate Rules Committee]. She reported that the group has finished its work. In response to earlier questions, she stated that no work went beyond the auditor's findings regarding these specific issues, in particular, the permit issues. She suggested that the board needs to stick to the strict statutory interpretations. She emphasized the stakeholders' intention that the board strictly follow the statutes when issuing the two types of permits. She stated that the revisions to Title 4 are very expensive but since the two-board one agency set up is reflected in SB 60 [and HB 123], she thought a three-year timeline will be appropriate. 4:47:00 PM REPRESENTATIVE JOSEPHSON asked for further clarification on whether the stakeholders group was a balanced membership and for the groups that were represented. MS. FRANKLIN answered that the Title 4 stakeholder group was balanced with multiple representatives from public health sector, including that many of the subcommittee chairs were from the health sector. She reported that L. Diane Casto, [Behavioral Health], Department of Health & Social Services chaired the underage drinking subcommittee and Jess Jessee, Executive Director, Alaska Mental Health Trust, chaired the licensing subcommittee. Bob Klein, Chair, ABC Boar, and [Aleesha Towns-Bain] of the Rasmuson Foundation served on the steering committee. She said that the stakeholders consisted of representatives from every sector of liquor industry, including manufacturers, breweries, retail package stores, bar and restaurant eating places. In addition, the group consisted of numerous municipal members providing local government representation. She stated that the group issued a report ["entitled Alaska Title 4 Review for the Alaska Alcoholic Beverage Control Board dated November 2014]. She offered to share the report with the committee, which also lists the  participants, as well as a PowerPoint that shows the composition of each subcommittee. She stated that the Title 4 group has done substantial work since May 2012, noting that as some members dropped off, others joined. She characterized the entire process as being a fairly incredible process. 4:49:27 PM CHAIR OLSON, after first determining no one wished to testify, closed public testimony on HB 116. 4:49:48 PM REPRESENTATIVE JOSEPHSON remarked that it is evident that the Alcoholic Beverage Control Board (ABC Board) will exist. He said he has heard that Ms. Franklin is doing a great job. He recommended the committee move the bill out of committee. 4:50:14 PM REPRESENTATIVE HUGHES moved to report HB 116 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 116 was reported from the House Labor and Commerce Standing Committee.