House Labor & Commerce Committee

I call this meeting of the House Labor and Commerce Committee to order. The time is 3:26 PM. Members present are Representative Carrick, Representative Freer, Representative Sadler, and myself. Co-chair Hall. We have a quorum.

Please silence your cell phones. We're asking that staff and members of the audience to not approach the table. If you need to pass a note, please get the attention of our committee aide Evan Anderson and they will take care of it. I'd like to thank Andrew Gianotti, the Labor and Commerce Committee Secretary, and Renzo Moises from the Juneau LIO for tech and teleconferencing support. We have 4 bills on the agenda today: SB 35, Transportation and Delivery Network Companies, by Senator Bjorkman; HB 389, Retainage and Construction by the House Labor and Commerce Committee, SB 258 Contract Licensing Software Applications by Senator Keel, and HB 386 Gaming and Electronic Pull Tabs by the House Labor and Commerce Committee.

We are going to adjust our schedule a little bit, so we are going to be starting today with, with SB 258 Contract and Licensing Software Applications by Senator Keel. So Senator Keel, if you would please come up to the table, introduce introduce yourself to the record, introduce your staff, please, and please give us a brief recap of what SB 258 does.

Thank you very much, Madam Chair and members of the House Labor and Commerce Committee. I appreciate the committee taking time to hear the bill again today. For your records, my name is Jesse Keele, uh, and I am fortunate to be, uh, trusted by the voters temporarily to represent Senate District B. Senate Bill 258. Hey, Justin, can you hear the committee? Excuse me, let's take a brief at ease.

You hear them too? Every day. Okay, okay, we do. All right. We are back on record.

We have fixed our minor technical glitch, and I'd like the record to reflect that we were joined by Representative David Nelson at 3:28 PM. Senator Keele, please proceed. Thank you, Madam Chair. Um, so again, Jesse Keele, Senate District B. Uh, Senate Bill 258 deals with fair software licensing.

The goal is to make sure that the decisions about where generally available software, or rather software that is designed to run on generally available systems, uh, the decision about where to run that, whether in server racks of your own on-premises or whether to run that in the software company's cloud or their competitor's cloud, is up to any public procurer buying that software or a license to that software on behalf of Alaskans— the state, municipalities, school districts. They should make those decisions based on price, quality, security, speed, and any other relevant considerations to IT and the software in question, but not based on a decision, uh, by the software company. The goal of the bill is not to give anybody anything they haven't paid for, and certainly never to restrict a public procurer from getting a discount from bundling if that's what the market allows them to take. The goal is to leave the decision in the hands of that government entity so that they can make the best decision for the Alaskans they serve. That's the bill, Madam Chair, and I commend it to the committee.

Happy to take questions. I understand you are looking for public testimony. I know that Mr. Drexel, one of the testifiers, is leaving a doctor's appointment, so we'll see if he gets here in time. Okay. Do members of the committee have any questions for Senator Keel or for Ms. Miller-Austin?

Seeing none, with that we will turn to public testimony. And I'm going to open public testimony. Is anybody in the room here for public testimony on SB 258? Seeing and hearing none, I am turning online. I see no one online for public testimony.

That, I will close public testimony. Public testimony is now closed. Are there any— is there any committee discussion? Representative Carrick. Thank you, Madam Co-Chair.

So does this legislation align generally with what large consumers in the private sector have as a policy? Is it, in other words, in a, say, a large-scale private consumer, would it be typical to have similar flexibility on chosen software for different departments?

Madam Chair, in answer to Representative Carrick's question, the, the bill does not get into questions of the private market. There are a lot of vagaries and frankly differences from public procurement. Public procurement requires competitive processes, requires notices. It's done very differently. I I know that the software marketplace is very, very competitive, and there are a lot of issues at hand there.

And so this bill focuses on what happens with public procurement, because this is sort of— it was described to me once as a place where free market principles and good government meet. I guess I have a follow-up to that. Representative Carrick. Thank you, through the co-chair. So does, uh, does our state not have a competitive RFP process then for choosing software applications?

I, and I, I actually don't know the answer to that question. Like, I don't know how the state comes to use, say, Teams as its software of choice, for example, or, or Microsoft or you know, how that decision gets made. Sure. Madam Chair, in answer to Representative Carrick, the procurement code for the state of Alaska is in Title 36, and it is fairly extensive. By and large, the baseline is a requirement for competitive procurements.

There are a number of alternate procurement models for professional services and, and the like. The goal of Senate Bill 258 is is to apply regardless of how the procurement is done, to ensure that no software license locks the state, or in the case of a municipality or school district, the other public entity, into terms they can't get out of, a vendor they can't get away from without paying substantial penalties, or without being— well, I think that's— That's the summary. Thank you.

Further questions from the committee for Senator Keehl? Representative Sadler. A comment, not a question really, to the sponsor. I understand that the bill would preserve the state's option to maintain its information applications on its own servers instead of migrating to the cloud. The Borg seems to want us to migrate everything to the cloud.

Resistance may be futile, but it's necessary. I see this bill kind of as part of that. I've got a bill to make sure that people can get their bills in the mail mail by paper as opposed to going to digital, because it's on the cloud. And I wish you the best of luck, Godspeed, as you advance this protection of the state's legislation. Thank you, Madam Chair.

I will note that in the private sector, some very large corporations are choosing selectively, case by case, to demigrate certain functions. Certainly no one is coming wholesale out of the cloud. That doesn't make economic sense to the vast majority. But function by function, some Some large entities are making the targeted and tactical decision to move some things on-premises to racks of servers as was done before the cloud was handy. Thank you for that.

Okay. We were joined by Representative Calom at 3:34. Welcome. Okay. Further questions or comments from the committee for Senator Kiel or Ms. Austin-Miller?

Okay. Seeing and hearing none, do you have any closing comments, Senator Kuehl? No, thank you, Madam Chair. I look forward to working with the committee, uh, further on the bill. Okay, great.

Thank you very much for being here. We appreciate it. With that, uh, we're going to set an amendment deadline for this bill for Tuesday, May 12th at 5 PM. With that, we will set this bill aside and we will next move on to HB 389, Retainage in Construction Projects, by the House Labor and Commerce Committee. The bill is being carried by my office, so would Keith Bruce please join us at the table, begin your presentation, put yourself on the record, do all the fun things.

Thank you for being here.

Good afternoon, Co-chair Hall and the members of the House Labor and Commerce Committee. For the record, my name is Keith Bruce, staffed representative of Hall. Thank you for hearing House Bill 389, an act relating to retainage on public and private construction contracts. Retainage is a common practice in the construction industry in which project owners withhold a portion of a contractor's progress, progress payments until the contractor completes the project in a timely and satisfactory manner. The general principle of retainage is good, and if set at a reasonable rate, can benefit all parties in a construction contract.

In practice, however, retainage is often contractually set at levels which place undue burden on contractors and subcontractors. Over the past several decades, it has been customary for retainage to be withheld at a rate of 10% of each progress payment. For contractors operating a profit margin of less than 10%, withheld payments can cut into on-the-job expenses, forcing them to seek additional lines of credit to complete work. This burden falls especially hard on smaller businesses that have limited access to capital. HB 389 addresses issues with retainage practices by capping retainage in private and public construction contracts to no more than 5% of the progress payments.

And total contract price. In addition to this fix, the bill also modifies timelines and treatment of retainage payments, adding increased penalties for delinquent retainage payments. HB 389 follows legislation passed in 15 other states that cap private retainage rates. Most of these states have similarly adopted the 5% cap put forth in this bill. Doing so in Alaska would support job growth, promote financial stability, and foster a fair and sustainable business environment for Alaska's construction industry.

If it's the will of the chair, I can also read the sectional analysis. Please do.

Talking to the mic. Oh, I'm missing some of your stuff. Speaking to Representative Sadler. I think— thank you, Chair. I'm hearing some dropping out from the mic.

I'm asking to speak directly to the microphone. Thank you, Representative Sadler. Mr. Bruce, please proceed. Understood. Section 1, AS 3690.210A and B. Modifying the timeline on which payments must be made in accordance with AS 45.45.940(c) and provides for a penalty on withheld retainage as specified in AS 45.45.940(e).

Section 2 amends AS 36.990.240 with a conforming change to specify that a notice under AS 36.890.240 90.230(a)(1) must meet the requirements laid out in AS 3690.240. Section 3 amends Alaska statutes on retainage to require that a state or political subdivision of the state must also pay a penalty on withheld retainage. Section 4 adds a new subsection to the application to political subdivisions ensuring that these subdivisions are included under the bill. Section 5, Waivers of Provisions Prohibited, amends AS 36.90.270, which prohibits contractual waiver of rights and requirements, to include the new section added, Section 45.940. Section 6 creates Alaska statute— or creates a new section in Alaska Statute 45 titled Retainage on Contract for Private Construction.

Subsection A in this new section limits retainage to no more than 5% of a progress payment and total contract price. Subsection B prevents contractors or subcontractors from withholding retainage at a higher percentage than specified in the prime contract. Subsection C establishes deadlines for payments of retainage to contractors and subcontractors following project completion or receipt of payment. Subsection D requires retainage to be held in an interest-bearing escrow account with interest distributed proportionally. Subsection E imposes a 2% penalty and interest for late retainage payments.

Subsection F establishes mandatory attorney fee awards in civil actions to recover retainage. Subsection G provides definitions for key terms including contractor, entity, project owner, retainage, and subcontractor. Subsection 7 repeals AS 36.90.222, which allows contractors to— 222, which allows contractors to negotiate retainage rates in public construction, and AS 36.90.250(b), which exempts interest payments from political subsidies. Divisions with a population of less than 500. And then Section 8 adds an uncodified.

Section specifying the Act will apply— applies to construction contracts, public construction contracts, and public works contracts.

Thank you. Thank you very much, Mr. Bruce. With that, we will turn to invited testimony, and then we will go to committee member questions. So if Mr. Jesse Hale is here, the board president for the National Electrical Contractors Association, or NECA, is here, would you please come up? To the table, put yourself on the record, and begin your invited testimony.

Thank you for being here.

Hello, my name is Jesse Hale.

Co-chair Hall and members of the committee, thank you for the opportunity to speak today.

I am one of three owners of Alkan Electrical and Engineering. I'm also the National Electrical Contractors Association Alaska Chapter Governor. Alcan Electric proudly services both public and private customers throughout our great state, and my role as governor charges me with giving a voice to NECA's Alaska Chapter membership. I'm here today in support of House Bill 389. Your effort to bring consistency and structure to how retention is handled is welcomed by the contracting community.

I want to emphasize the importance of making sure retention is workable and not overly burdensome on contractors who are already carrying meaningful, meaningful financial risk. From a contractor's perspective, retention is one of the biggest avoidable pressure points in construction. It directly impacts cash flow, bonding capacity, and the ability to keep projects moving efficiently. There are a few things I'd like to highlight. First, consistency and predictability.

Right now, retention practices can vary from 2.5% to 15% depending on the owner, the contract, and even the project manager. Having clear rules like the bill's cap on retention at 5% and defined timelines for release creates a standardization that helps contractors plan, price work more accurately, and reduce disputes. The second is the timing of retention and release is critical. The bill sets expectations for payments timelines, for example, requiring retainage to be paid within a defined window after completion of the contract funds that were held for. This is important because delays in retention can tie up large amounts of capital for months or longer after the work is complete.

For contractors and subcontractors, especially smaller Alaskan businesses, that can mean taking on debt just to stay operational. Picture an electrical contractor completing their final punch list in November and then being asked to wait for the earned retention until next summer when the landscaping is complete to close out the contract. I would like to describe a real-world retention scenario. Picture a small to mid-sized electrical contractor local to Kodiak Island who always keeps a crew of 10 electricians busy. She bids much needed— a much-needed project on the Coast Guard base that will keep her local team working for the next 2 years.

The general contractor who's awarded the project informs our friend she is the low bidder and asks her to sign a contract including a 10% retention provision. Being that she wants to keep her crew working and this is the most meaningful project on island, she accepts those terms. These terms ensure that every pay app she submits for the next 2 years will be paid less 10%. A small contractor likely does not have the funds to weather this storm without borrowing money at interest. If the contractor had not had that money withheld, she could have used that money to save or grow after paying her obligations.

Keep in mind, in this current scenario, the entity holding the retention is incentivized to hold these funds as long as possible to reap the benefit of any earned monthly interest that they may receive. I'd like to offer a few talking points about retention in its current form. The implementation of retention has become a much widely— you— much more widely used over the last 5 years. When my business partners and I bought Alcan January 1st, 2020, we had 89 employees. Today we are proud to say we've grown to 210 exceptional employees and have widened our footprint across the state.

I'm confident when I say that the rate of our growth could not have been possible if the usage of retention were at today's levels and the purchase in general would have been at risk. Maintaining alignment between public and private project rules so contractors aren't navigating completely different systems is also important. In closing, I support HB 389 because it promotes fairness, transparency, and consistency in Alaska's construction industry while helping contractors and subcontractors better manage financial risk. I appreciate the committee's consideration of this legislation. Thank you for your time, and I'm happy to answer any questions.

Thank you very much for being here, Mr. Hale. I'd also like to let the committee know that we have Mr. Andy Mills here with DOT in the audience and available for questions. And online we have Mr. Michael Lund, who's the Northern Region Construction Engineer for DOT. Looks like we will start questions with Representative Sadler. Thank you, Madam Chair.

Mr. Hale, thanks for your presentation and your documentation. Question, um, Money being fungible and the invisible hand of economic price versus supply operate, do contractors in your organization at least raise their rates to compensate for the carrying cost of retainage?

Not— that's not currently a plan because it's not generally something published during bid time, meaning this is something that's often selected after bid. After the project has been won by the GCs. Representative Sadler. And certainly there is a— well, does your organization keep notes on what the standard retainage rates are? Has an informal database of what different—.

I could speak to what I generally see and what I— sorry to cut you off. No, it's good. What we generally see is 5%. Alcan has the ability to— because we're kind of a gorilla in the space a little bit, we have the ability to say no to a project, and we don't need to chase bad work. So there have been very few times when we've signed a 10% retention contract.

We have done it, but it is much more rare. The smaller contractors out there that are regional in nature don't necessarily have that ability because they need— to take the work in their area. Representative Sadler. Thank you. I appreciate it.

And I don't want to cast dispersion on anybody. I'm sure we all are nice people and work well. But is it fair to say that customers leverage this and will kind of just not pay that money and enjoy the use of product as long as they can? If you can retain money in your own pocket, you can make money on it instead of you. Is that kind of a standard practice?

Are people getting leaner and meaner and more abusive of that? Opportunity? [Speaker:JOHN KUTCHEY] I don't want to say it's a standard practice. I think bad actors do bad things, and that would be the way that I would put it. I think having a guideline in place where it avoided that at all costs would be the best case.

I believe there are times when entities hold that money because there's a benefit to them. Even if it's 30 days, that's that can be meaningful. 5 Bucks is 5 bucks. Okay. Thank you, Mr. Hale.

Representative Carrick. Thank you. I think I have a question first for the invited testifier and then possibly for DOT. So the existing statute says within 8 days after final payment is received from the state or political subdivision. And just in I know there's probably many different circumstances and timelines, but this bill provides for a significantly different timeline, and I'm just wondering how significant.

In other words, how far are we from— how far does this push us? How many— how do I say this? How many fewer days on average, very roundly, would contractors and subcontractors likely have to wait for payment compared to current practice? I'm, I'm going to, uh, say what I believe here, which is the— what, what is pushed forward is the completion of the scope, the contract with that had— where that had been withheld for. Meaning if the electrical contract is completed in October, you would have the set duration to pay that electrical contractor their retention, even if the larger contract remained open for landscaping, or you name it.

Another good one would be steel erection in a building, right? You build the steel long and are completed with it long before you ever complete the contract because all the other trades have to follow. So the timeline is escalated for that specific person. As far as the 8 days versus, I believe, 30 that are in the, in the bill now, I think that's the difference of when the project would be complete. So I really can't speak to when the 8 days would come into play.

Follow-up. Follow-up. Representative Kerri, would you like DOT to weigh in on this at all? Yes, I have a separate question for them too, if that's okay. Of course.

Thank you through the co-chair. So we're looking at probably, depending on the project, weeks to months delays on— payment of retainage because of— looks like we're, as you go trade by trade through a project, potentially recognizing.

Some of those trades are overlapping simultaneously, but right now the standard is that folks are waiting till completed projects are done before they're receiving their subcontracted retainage. Is that—. That's correct—. Fair summary? Okay.

And I have a question for Andy Mills too, if that's okay. Mr. Mills, would you please come to the table? Thank you for being here.

[FOREIGN LANGUAGE] So, um, thank you. Through the co-chair, it's good to see Mr. Mills again. We just wrapped up Transportation Committee yesterday, so, um, glad we can have you in the hot seat very next day. Um, I'm just curious, I see the fiscal note is from DOT is more or less saying that it's indeterminate because DOT is looking at retainage as the same as withholding.

And I know in this bill we're providing for a specific definition of retainage. And would you say it's DOT's perspective that that definition of retainage in this bill aligns with what the department sees as withholding?

For the record, Andy Mills, legislative liaison and special assistant to the commissioner at the Alaska Department of Transportation and Public Facilities. Madam Co-Chair, thank you for calling me up through the chair to Representative Carrick. So no, in fact, kind of the opposite, we would say. In our fiscal note, what we attempt to articulate, and I will just affirm for purposes of the baseline here, that DOT in talking with our 3 different regions and the contracting staff and construction staff, which again, Mr. Mike Lunn is Northern Region Construction Chief and would have detailed insights, but we typically do not utilize retainage, especially at the level you're attempting to work at. So from a DOT standpoint, we don't necessarily have a position in relation or a concern with the way that this is currently drafted on that particular piece.

But we're trying to distinguish in our fiscal note is that we do not want there to be confusion between retainage and withholding, which are— they're, again, our standard specifications are very different, and we just want to be sure we're articulating that difference as you all have a legislative intent conversation about this and any other associated provisions. Okay, I think just as a comment, Madam Co-Chair, Representative Carrick, if there's a way we could make that more clear in this bill, what we're discussing, that would— I'd be happy to consider that, um, because I agree retainage and withholding are not the same. But just looking at the fiscal note, it's, you know, I'm not sure where I see the need for a fiscal note. So I wonder if there's some clarity we could provide that would prevent that concern from accumulating. Mr. Mills, did you have anything to share?

Again, through the Chair to Representative Carrick, we can certainly look at that again. We wanted to— I think every bill gets a fiscal note and we're the lucky ones on this one. And so we wanted to be sure we articulated where there could be ambiguity. We would want to just be sure it was cared for in the conversation. So thank you, Mr. Mills.

Representative Kahlum. Thank you, Chair. Through the Chair to the invited testimony— I'm sorry, I didn't get your name. Jesse Hale. Hale.

Yeah, Mr. Hale. So, um, I'm, you know, I'm familiar with retainage. I'm by no means an expert, but it sounds like the origin of retainage is to make sure the job was done and then you get the rest of your money, correct? Correct. Yeah, you don't want to pay for a product that isn't complete.

Right, right. So if you reduce that, if there's not that much of a pinch to make sure the job was done well, are you worried that maybe people would just walk away with, you know, and not do the 5— like walk away from the 5% that they put? 10% Has a little bit more teeth to it, I guess, is what I'm saying. I would say there are so many obligations when you sign the contract that are already binding in relation— in conjunction with the retention. I think you're bound to complete that project regardless.

I think the practice of retention and/or bonds are just another safety net that I— in my statement of response that's in your packet, I did acknowledge that retention is a good way to encourage investment. It just needs to be standardized so that you can plan on it. I do not think that the contracting community would consider walking away from 5% of a project that would not be something that I would see consistent at any level. Okay. Follow-up?

Representative Kolumb. So is there— I don't know if this is the way it is now, but it seems like a really large project should probably have a lower retainage because it represents a lower— you don't want 10% on a project that's $1,000 and one that's $1 million, right? Well, you're absolutely right, and that's why we wanted the cap at 5%.

We've seen 5 on some pretty large projects, and, and those are meaningful dollars for sure. But at that point, you're, you know, when you step into a large project like that, there's, you know, you, you have to be a contractor of a certain size to be able to make sure that you accomplish that goal, right? Right. Um, and, and, and we generally do. So I would say that the scale of capping it at 5 gives it, you know, a smaller project and a smaller contractor the ability to give the developer some level of comfort as well as the larger ones.

And we've seen, you know, large projects, you know, like the Sitka Hospital at 5%, and that's perfectly fine and reasonable approach. One more follow-up. Representative Kulum. Is it— is there any standard practice— probably not because there's a bill, but— or any discussions Would you be open to a tiered approach? You know, as projects are under this, it's a higher percentage.

As it gets bigger, it's a lower percentage, or—? What's interesting is there are some— sometimes people have tried tiered approaches now, right, because it's— I don't want to say the Wild West, but it's really arbitrary and just somebody's good idea. Again, I think that the tiered approach— would be tough on bid day. And what I mean by that is to plan for it and say, because you don't— you aren't necessarily going to know where you would be at, what you would be expecting for retention. I would say that I've always liked the simplicity of having just a known— if there's going to be a retention, either it's a 5% or, um, or frankly, and it's not in the bill as it stands, but I know AGC would like to see an option for a bond with in place of retention, which I think is a great idea.

It does the same thing. It provides that protection to the investment investors while easing the burden on the contracting community. Okay. Thank you. Okay.

Thank you. Representative Sadler. Thank you, Madam Chair. You know, I confess that until just before I saw this bill, I had never seen the word retainage. I thought it was something your orthodontist provided you.

So if you could, for the record, define the difference between withholding What is withholding and retainage? Me? So withholding would be if the customer decided something was done incorrectly and they are not willing to pay the bill that you've provided until that item gets corrected. Perfectly normal, standard. It's written in contracts.

The customer has that right. Retention is— we would, to kind of boil it down, every month on a large construction project you bill, you send in an invoice for the work you'd completed that month. If there's a 10% retention held, I bill $100,000 for the work that I did and I get paid $90,000. And I get paid $90,000 for the entire length of that project. There's an acknowledgment that I completed the work because that monthly pay application was paid.

It's just held at less than 10%, and that becomes meaningful as it snowballs down the hill. Representative Sadler. Thank you, Mr. Hall. That clarifies it. So again, sounds like the retainage is just a systematic formula.

We're going to hold some back on the general theory that there might be work, but withholding is specifically for work done incorrectly or not satisfactorily or does not meet the bid. Precisely. And the other question I was going to— is the documentation says that retainage is increasing. What's— is that because the economy is squeezing customers? Why is it increasing?

Well, I actually— I would say I think it's a tool that somebody started to think was a really great idea, meaning investment groups, and I think they started to recognize the ability to reap some benefit from those withholdings. Again, it has been around for a long time. It was not commonplace until about 4 to 5 years ago. In Alaska, it's been commonplace in, you know, lower 48. If I may?

Representative Sadler. Thank you. And kind of a new line. How is this conflict managed out right now? Do bad actors, as you say, get a bad reputation and have a more difficult time finding professionals?

Do they have to pay a higher rate? In the street right now, on the the job site. How is the conflict being managed at this point? Well, you nailed it.

If there's a bad actor out there that becomes a known bad actor, either A, contractors will amend their bid accordingly to that entity, or B, they just won't sign that contract and will move on, right? The problem is somebody is going to, and you know, that contract, that electrical contractor that signs it could get put in a really bad spot. Thank you, thank you, Metro. Okay, further questions from the committee? Okay, seeing and hearing none, uh, this concludes our work on the bill today.

We're now going to set the bill aside. Thank you very much for being here, Mr. Hale. Thank you for your time. Okay, and we are going to take a brief at ease as we transition to the next item on our agenda.

Okay, the House Labor and Commerce Committee is back on record. It is 4:19 PM. Thank you for everybody's patience while we were waiting for some committee work to wrap up in the Senate. So now we have in front of us HB 386, Gaming and Electronic Pull Tabs, by the House Labor and Commerce Committee, and we are grateful to have Mr. Conrad Jackson here again before us Will you please put yourself on the record, Mr. Jackson, and give us a very brief recap of what, what is in the bill? Thank you, Co-Chair Hall.

For the record, Conrad Jackson, staff to Senator Bjorkman. The bill before the committee, HB 386, really brings a tradition of charitable gaming, rippies, into the current century. It's electronic pull tabs. The goal, one of the main goals of the bill being to protect nonprofits, the charities, the permit holders. Well, moving this forward, we're not talking about inserting gambling into the state of Alaska.

We're just simply moving charitable gaming forward with electronic pull tabs in the tablet form. Great. Thank you, Mr. Jackson, and thank you, Senator Bjorkman, for joining us. Is there anything that you would like to share for the committee, Senator Bjorkman?

Sounds like Senator, or Mr. Jackson, hit the nail on the head. For the record, my name.

My name is Senator Jesse Bjorkman, and I could not do like a fifth of what I do without my excellent staff. So we're all a team here, so it's pretty great actually. I'm happy to be with you. This bill is going to be really great for charities and nonprofits. We've worked for years now to make sure that this bill protects charities, nonprofits, and makes them the number one beneficiary of the changes made.

And we're happy to talk about that to anyone who will listen. Great, thank you very much, Senator Bjorkman. Our intent for today is to take invited testimony on the bill. Invited testifiers will be capped at 3 minutes per person. We have quite a few invited testifiers today, and we will— for the committee's awareness, we will be taking questions after every invited testifier.

Excuse me. Our first invited testifier— our invited testifiers are pull-tab operators, and up first we have John and Sandy Powers with Truter Bingo and Big Valley Bingo. Ms. Sandy Powers, would you please put yourself on the record and begin your 3 minutes of testimony?

Yes, thank you for my invitation today. For the record, my name is Sandy Powers, and I'm the owner-operator of Big Valley Bingo in Wasilla. We renovated the old 3-plex theater into Big Valley Bingo and opened in October of 2017. I also have a pull-tab store in Anchorage. I have 30 employees and approximately 35 charities located throughout the Mat-Su Borough.

HB 386 does have a lot of really great changes in it that modernizes charitable gaming, such as being able to pay our charities with ACH payments instead of checks. Upping the payout limit so that all types of charitable gaming are competing on a level playing field and we're able to give more proceeds to our charities. I want to just kind of do a little deep dive in the cost. And I've talked quite a bit about the cost. So I'm going to talk about how we do things with paper pull tabs now and then how we would do things with electronic pull tabs.

Currently, we do not— we buy our paper pull tabs from distributors. There's only 3 distributors in Alaska to buy gaming products from. And some of the rural areas are only served by 1 or 2 distributors. We pay for our paper pull tab games up front. Then we have our sales minus the payouts that are the prizes that go to customers.

And that paper payout averages 78% to 83%. Then we pay the state our 3% wage or excise tax, and we end up with the net. Our charities receive at least 30% of our net profits. Our costs for paper pull tabs range from 15% to 23% of the net profits. The rural areas are paying 20% to 25% for paper pull tabs because of increased shipping costs and lower sales volume.

HB 386 has the manufacturers receiving a maximum of 35%. Net profits. John and I have bigger businesses and can possibly negotiate that 35% down to a lower percentage. The rural areas do not have the volumes and they have very little bargaining power and they're going to end up paying the higher percentages and receiving lower gaming proceeds. After the initial cost of tablet hardware, it's simply an electronic download with little to no cost to the manufacturer.

The expense of electronic pull tabs is nearly double the current cost of paper.

With electronic pull tabs, we do not pay up front. We pay for the electronic pull tabs sold in a given period. The eTab distributors get varying percentages based off the cost, depending on the level of service that they provide to the manufacturer. All of this is negotiated. We have more bargaining power in the municipalities because we have larger bingo halls and pull-tab establishments.

That puts the rural areas at risk because they don't do the volume that we do in the municipalities. The rural areas will be paying higher costs and receiving lower percentage of proceeds. I've submitted the chart as testimony to show how much less the charities in the state of Alaska will receive and, and that, and, and the state of Alaska will receive in taxes at the higher cost and the higher payouts. Mrs. Powers, I believe that, uh, Mrs.

Powers, could you please wrap up your testimony? You're beyond the 3 minutes. Um, what's that? Could you please wrap up your testimony? You're beyond the 3 minutes.

Yep. Yes. Okay, real quick, I just think that, um, there needs to be some amendments to the cost to 20 to 25%. The payout needs to be limited at 85%. In any establishment that serves alcohol needs to be limited to 6 tablets so they stay in the bar business and don't become mini casinos.

I'm happy to answer any questions, and thank you for your time. Thank you, Mrs. Powers. Do committee members have any questions for Mrs. Powers?

Okay, I am seeing none. Thank you very much for your time, Mrs. Powers. Next, we will turn to John Powers. Mr.

Powers, if you could please put yourself on the record and begin your 3 minutes of testimony. Thank you for being here.

Thank you.

Thank you, Representatives of Labor and Commerce Committee. Excuse me. For the record, my name is John Powers. I'm the owner-operator of Tutor Bingo Center in Anchorage. My brother Jack Powers started Tutor Bingo in 1993.

I partnered with him in 2006. I've been the owner-operator since January 2012, but since Jack's passing I employ 45 to 50 people and support more than 50 charities. Currently, paper pull tabs run on average, as my wife said, you know, 78 to— 73 to 83 payout statewide of the sales to the customers. HB 386 has a payout maximum of 90%. HB 386 also allows for an auto-close feature.

That automatically closes the game when all the big winners are gone and leaves unsold tickets in the game. Then it automatically loads a new game. Those unsold tickets should be profit that go to the charities. This auto-close feature benefits the manufacturers, not the charities. The auto-close feature raises the payout to 92%, pretty much the same as slot machines in Las Vegas or the illegal casino that's going on in Eklutna right now out in Birchwood.

It makes, makes it very hard for paper pull tabs to be competitive with e-tabs. The 92% payout dramatically reduces the amount of proceeds to charities. The electronic pull tab sales would have to at least double and a half to almost triple for the charities to receive the current amount of proceeds that they're currently receiving. The same statistic is true for the amount of taxes that would be going to the state of Alaska. As my wife said, a chart's been submitted for testimony, and you all can review that chart.

HB 386 says— was written based on the Minnesota electronic pull tabs legislation model. Minnesota previously had manufacturers' costs at 28% of the net profits. For a couple of years to allow for startup expenses. They recently reduced it, the manufacturer's cost, to 25% of net proceeds, and they're quite happy with that. Minnesota has also capped the payout percentage to 85%.

This lower payout percentage has allowed paper pull tabs to remain strong, adding additional dollars to charitable gaming sales and increased proceeds to charities. Instead of swapping paper pull tabs for electronic pull tab sales. And in closing, HB 386 needs to have 6 to 8 amendments to work for all types of charitable gaming across the state. We realize that there's a lot of pressure on all types of charitable gaming in Alaska—rising paper pull tab costs, competing with expanding— it could be expanding including the casino in Birchwood and running businesses and retaining staff. 16 Charitable gaming operators in the state generate 50% of all gaming proceeds to charities in the state of Alaska, which is approximately $45 million.

This bill would have to work for charitable gaming operators, or it is going to greatly harm many charities and employees in Alaska. I thank you very much for your time and your attention to this bill, and, uh, be happy to answer any questions should there be some. Thank you very much, Mr. Powers. Do committee members— Representative Colon.

Uh, thank you. Yeah, I just want to say hi to John and Sandy. They're my constituents. Thank you for taking the time to testify. I appreciate it.

Representative Sadler. My pleasure. Thank you for—.

Oh, go ahead, Mr. Powers.

Thank you very much, Mr. Powers. Do you—. All right, we'll skip on ahead. I'm sorry, did someone have a question?

Mr. Powers, did you hear Representative Kahlom's comments?

No, I think she just thanked us for testifying. She did, Mr. Powers, yes. It almost sounded like you had a response to that, and I wanted to make sure you had ample opportunity if you wanted to. No, I just wanted to say thanks.

Thanks to Representative Colombe and the committee for, you know, your attention to this, to this bill, and we appreciate you letting— inviting us to testify. Thank you very much. Thank you, Mr. Powers. We do not have a question from Representative Sadler anymore, so, and not seeing further questions from the committee, we will move on to the next person in the queue, and that is Mr. Dave Lambert with Lotto Alaska.

Mr. Lambert, I believe you may be calling from the Fairbanks LIO. Would you please put yourself on the record and begin your 3 minutes of invited testimony? This is Dave Lambert. I'm the chair of Old Gaming Operator from Fairbanks, and I'm going to try to abbreviate things because of the 3-minute limit. I have raised over $25 million for nonprofits over the years, so I'm the longest-running operator in the state.

I have a few recommendations for changes. In Section 1, it establishes a $100,000 fee for the Marine Highway System to start taking over charitable gaming. We strongly oppose taking away from the nonprofits and creating another tax for the, for the state. The nonprofits are the ones that need to benefit from charitable gaming. In Section 4, it also references the Marine Highway System.

You could leave it in there because the system is not workable. The people that propose it do not understand charitable gaming. With the amount of 10% tax and a 3% tax to revenue and 35% to the manufacturer, 30% to the nonprofit, you're upside down before you pay any expenses. So it's not workable. In Section 33, it limits tablets only.

Tablets only is not to the benefit of the nonprofits. If it has to be tablets only to pass, then so be it, but tablets only won't compete against the tribal casinos that are popping up. There's one that broke ground around Juneau, and there's one in Anchorage, and they're talking about one in Fairbanks.

In Section 33, it refers to the 90% maximum payout.

I personally would oppose it being any lower than that. Um, I would oppose any limit at all. There's no limit on paper pull tabs what you pay out. You pay out what's workable. If the tribal casinos are paying out at higher than 90% and they have cabinets and we're trying to compete with tablets, why put handcuffs on the nonprofits?

Let them use what works. In Section 36, We need to remove the word paper. The requirements need to abide by both paper and electronics.

Also in Section 36, one of the biggest complaints I hear from the retail sellers is they do not want to increase the signers assigners of signed prize receipt from $50 to $100. They want it to remain at $50, and it should apply to the electronics also. In, in Vegas, when you have a winner, there's a signer, the machine shuts down, and it gives a player a break in, in play. You have to pay out in cash. It gives them the option to keep playing, reinvest it, or to walk away.

In Section 36, it talks about a signer for electronic poll tax. Well, we need to have it consistent with the paper because the language here, it says a prize of over $500 or 500 times the purchase price. That's meaningless. Because the requirement by state law is you can't pay out over $500. So this would never come into effect.

You'd never have a signer. Mr. Lambert, will you please wrap up your invited testimony? You are well beyond the 3 minutes. Okay, well, all right. I guess I'll just send in some written information.

Thank you, Mr. Lambert. The email address that you or anybody who's online or listening to send testimony to is [email protected]. Do committee members have questions for Mr. Lambert? Looks like we see one from Representative— uh, thank you. I just want to thank Mr. Lambert for testifying and, uh, for your knowledge on this issue and We will continue to follow up with you.

Thank you. Thank you, Representative. Thank you. Thank you, Mr. Lambert. Seeing no further questions from the committee, we will move on to the next in the queue, and that is Jerry Lewis and Mac Miners with Rippy World and Northern Lights Bingo.

We have Mr. Miners here in person. Mr. Miners, welcome to House Labor and Commerce. Please join us at the table and begin your 3 minutes of testimony. Thank you for being here.

Ready, set, go. Mac Minors, 1120 Menonau Peninsula Road. I've been involved in charitable gaming for over 27 years, mostly pull tabs. Bingo is not my expertise, but pull tabs is. I want to say one thing: electronic gaming is not good.

I don't trust anybody from Minnesota because the amount of fraud. I was in Las Vegas many years ago going to a pull tab seminar, and I met with the men from New Jersey. I did not trust them either. Now let's move on to sec— another section. First, I want to talk about the death thing.

My son was the one that died. That's when we had to close the shop. Probate takes longer than 120 days. What happens is the bank account closes. So that means the money is locked up.

Unless you're sitting there with deep pockets to pay your payroll and move on, you are in trouble because you have employees, you have taxes for your, uh, payroll tax and all that other stuff. So okay, now let's go to the ferries. Ferries is not a good play. It's too expensive. You can't— the ferry can't even have a bar.

They can't even— I don't know how many ferries you guys have ridden. I ride them all the time. It's not conducive to play. Uh, let's go on to, uh, the third one is that the charities are the most important part of this whole thing. And when you knock the charities out, you knock the game out.

I think it's very important to protect the charities, and I really don't see why you want to change anything at all because it works. And the other one is, is that yes, sometimes there's a little graft going on. I've seen all kinds of— I've seen every kind of cheating that goes on and have caught them all. I've played a nice clean game for years, and your reputation is what makes your game play. I've represented as many— 25 priorities in one year.

I had a friend in the Yukon that had a herd of elk. He had 40 of them. They didn't make any money. He cut them down to 14 and he made money. Now, when I— when COVID came, I had to completely cut 3 stores out of it and lay off the employees.

Ethan Berkowitz closed town, so that means we had to send everybody home and we didn't get to open the doors for almost a year. That hurt because in gaming you cannot own your building, you must lease. There are— is no empire building. So basically you spread the wealth out and you make sure your charities are paid and you watch the money. So that's one of the things I do is I watch the money and made sure that my designated members in charge always did their paperwork.

That's the deal. I can't take anything from them but a thank you. And so we watch that, and when we see the money— because you see some of the charities.

I got like the Nick Swim Club. When they send me a picture of the kids in their hats and their goggles and their swim trunks, brings a tear to my eye, you know what I mean? Because then the money goes out in the right place. The hockey teams, the fishermen, the pioneers of Alaska— those are the people that I represent, and I'd hate to see the money go away from these people, even though At an operator scale, you can only give them 30% of their $500,000. And that's the other thing, is some of these charitable games like raffles are out of control.

Is a raffle a ticket thing, or is it the lotto? Is it a pull-tab game? That's a big question. So when you see all these big monies, and raffles has become the biggest pay, and charitable gaming. Mr. Minors, could you please wrap up your comments?

That's it. I don't think I can add any more and go any quicker. Thank you very much. Thank you very much. Do committee members have any questions for Mr. Minors?

Okay, seeing none, thank you very much for being here in person. Thank you. Okay, next up is Jerry Lewis, and we believe he may be on Teams via a phone number that is unidentifiable. So, Mr. Lewis, if that is you on Teams, would you please put yourself on the record and begin your 3 minutes of testimony? [FOREIGN LANGUAGE] My name is Jerry Lewis.

First of all, I'll try to be brief. I'm an operator in Anchorage. About a year and a half ago, the sponsor asked us to assemble a group of industry experts to review the bill. We spent hundreds of hours working together, carefully going through it. Developing a substitute version that reflects industry standards and was something we could all support.

Unfortunately, when the bill was submitted, many of those recommendations were not included. The first issue concerns what manufacturers are allowed to charge for a game. We reviewed policies in other states, took testimonies from manufacturers, and with one exception, there was a clear consensus that 20% cost was appropriate. This aligns with what other states and is consistent with what we are currently paying on paper tabs. However, when the bill came out, they set the cost at 35%, nearly doubling the cost.

The second overlooked recommendation involves vendor locations. The committee proposed reducing the vendor profit share for e-tabs from 30% to 15% while leaving the paper tabs the same. We gathered feedback again from other states and even visited several vendor locations in other states to hear directly from them. 100% Of the vendor locations we spoke with were satisfied with the 15% margin. It's reasonable because the locations no longer have to pay for the games upfront or for tabs.

They don't have to bear the accounting costs because the tablets don't make errors. In short, the downside of the location is greatly reduced while the charity isn't adversely affected. The third issue is the number of tablets allowed in the establishment that serve alcohol. The committee recommended 6 tablets, which is again consistent with other states. The bill, however, increased the limit to a minimum of 10.

We don't want to see bars and fraternal organizations have dozens of tablets and turn into mini-casinos. Fourth concern is that the maximum payout on e-tabs— the committee recommended a maximum payout of 85%. The bill came out with a 90%, and it includes an auto-close feature. Which brings it closer to 92%.

What this does is result in more games being played, which again benefits the manufacturers but reduces the return to the charities.

One unforeseen thing that was in the bill that I like, but the bill also gives the Division of Gaming the authority to pursue illegal gaming activities. Ironically, they never had that authority before. By doing this, It will require that additional staff and potentially sworn officers— that's what it was in Colorado when I did it there. This raises an important question: where will the funding come from? And the only answer is the state.

Although the bill was intended to mirror systems in other states, Alaska's charitable gaming model is unique and in many ways more effective. Alaska is the only state that has dedicated pull-tab stores and professional operators. This efficient system has provided charities with over $40 million a year in funding. In most other states, gaming is run by volunteers limited to bars and fraternal organizations. If the bill passes in its current form, many charities will suffer.

While some will benefit, many will not. If pull-tab stores decline, as I believe they will, hundreds of permit holders will be forced to find new ways to replace their lost revenue. I'm available for any questions. I want to thank you for the time, and I tried to be quick. Thank you very much, Mr. Lewis.

Your timing was very good. Do any committee members have any questions for Mr. Lewis? Okay, I am seeing none. Thank you very much for your invited testimony. Next up, we have Matt Fisher with Alaska Wholesale LLC.

Mr. Fisher, will you please put yourself on the record and begin your testimony?

Yes. Yes, my name is Matt Fisher. I'm a distributor here in Soldotna, Alaska. My dad started this business 30 years or so ago. I had a nice fancy script, but I'm going to go away from that because some of those things I just need to address here.

I'm also a parent. I'm on the nonprofit receiving side too. My kids are in sports. They benefit from that. Some of the things that you hear, it's— you guys are used to this.

It's easy to give other people's money away. Things that you're hearing, so-and-so should make less, so-and-so should make less. Nobody knows the cost to manufacture electronic games. We have made a partnership with Pilot Games out of Minnesota. They spend over $300,000 each week on game development.

Alaska, we are unique payouts. That's a lot of money that's being spent every single week to develop games. And when they say they're cheaper than paper, it's not. We can manipulate numbers. One of my best-selling games is Junkyard Dog.

It's a 92% payout game. Bars love it. Paternals love it. I can say that the ticket cost is almost 50% on that game because it's a higher payout game. I could take a 70% payout game and make it like that number is really low.

We can manipulate the math. The fact is ETABS have worked out extremely well. I'm scared. I am scared because I know what's coming. My prices for shipping have nearly doubled in the last couple of months.

I know Diamond or Pollard has already announced a price increase. This is before the Iran issue, paper prices are going to go up. This system with just paper is not sustainable. What we can do is offer the tablets as an alternative. Nobody's required to take them.

The percentages that they're talking about, Pilot and us have announced the next 5 years, we've already gone on the record, we will be at 31% revenue share. The only way that we can make money is if the nonprofit makes money. When they say the manufacturer makes out, that can't be because the only way we make money is if the nonprofit does. Senator Bjorkman has done a fantastic job of listening to all the different sides, weighing it, and trying to make sure all flips are— all ships are raising together. And I appreciate what he's done.

I appreciate what you guys are doing. And just keep in mind, the ultimate goal here is to make sure that the nonprofits are successful.

And that's, that's what we're all here for. I know there's a lot of testimony, and I've done a lot of written testimony. I have so much passion for it that I will let you guys read it, and I will let others testify on this today. Great, thank you very much, Mr. Fisher. We appreciate that very much.

Do committee members have any questions for Mr. Fisher? Okay, seeing and hearing none, thank you again, Mr. Fisher. Next up, we have someone who's representing the vendor side of pull tabs, and that person is Tony Ciesak, the executive director of the Minnesota Licensed Beverage Association. Mr. Ciesak, hopefully I'm pronouncing your last name right. Would you please put yourself on the record and begin your invited testimony?

Thank you so much. My name is Tony Ciesak with the Minnesota Licensed Beverage Association. I've been the executive director here for about 14 years, been with the MLBA here for about 25 years. I was here during the 2009-2010 to 2011 era when electronic pull tabs were introduced in Minnesota. My association was very integral in crafting that bill.

We've got a different makeup in Minnesota, some of you may or may not know, where we have a lot of tribal casinos in Minnesota. And they've got a lot of influence regarding how charitable gambling is dictated in the state of Minnesota. When e-tabs were introduced in 2011, 2012, the technology wasn't really the best, and so the revenue didn't come in as projected. And so when other players entered the market space in 2011, 2014 range, the revenue started to increase. Minnesota, we designated— our legislature designated the revenue for the electronic pull tabs, a significant portion, to pay for the U.S. Bank Stadium where the Minnesota Vikings play.

Play football right now. And since then, when I first came on board at the MLB in 2001, I'll probably get this number a little bit wrong, but the end number I'll get correct. We're around $700 to $800 million in charitable gaming revenue generated, gross revenue sales. They project by the end of 2026, a little over $5 billion of charitable gaming revenue will be generated. And when electronic pull tabs were introduced in 2011, 2012, The paper industry was— they pushed back and they were a bit afraid of what could possibly happen to the paper industry.

I'm here to tell you that paper pull-tab sales in Minnesota have doubled in that time frame. Now, charities are making money, the bars are making money, and in Minnesota we've got a unique makeup where the state of Minnesota is the largest benefactor of charitable gambling. And most of the states don't have compacts like we do in the state of Minnesota. But in Minnesota, the legislature had dictated the pace in 1991 that they would make the lion's share of the money that was paid out. So, paper sales in Minnesota did not go down.

The dealers or the servers of electronic pull tabs and paper pull tabs are primarily the people that sell those devices and sell the tabs at bars and restaurants that participate. The bartenders and the servers are making good money off of the tips that they receive off of the winning pull tab sales. And so I just wanted to reiterate the fact that in Minnesota we've got a really bolstered regulatory system with the Gambling Control Board, they call themselves. And it's an arm of the government, but it's a nonpartisan group of non-elected individuals that run the organization, run the oversight of charitable gambling extremely professionally. They've got a small staff, but they've got a large task given the fact of how much revenue Minnesota generates from the charitable gambling.

Charities are making a lot of money, more than they've ever made. Bars are making money, more than they've ever made. And the state of Minnesota is making more money than they've ever made. And a lot of it's due to the fact of the introduction of electronic pull tabs in the industry. So I just want to let folks that are hearing know that paper pull tab sales initially, the fear was they would go down in sales, but I'm here to tell you that that did not happen.

And paper pull tab manufacturers and distributors have benefited from the introduction and the modernization of electronic poll tabs here in Minnesota. I'll stand to take any questions that you folks may or may not have, but I really appreciate your time letting me speak to the committee today. Thank you very much, Mr. Ciesak. Do committee members have questions for Mr. Ciesak? I am seeing none.

Thank you very much for your time and sharing your experiences in Minnesota. Next up— thank you. Next up in the queue is Barb Bradley with the Minnesota VFW. Ms. Bradley, please put yourself on the record and begin your 3 minutes of testimony. Thank you for being here.

Oh, she hung up. Oh, okay. It sounds like Ms. Bradley, uh, was disconnected or hung up. I will keep an eye out for her to come back. Next up, we have invited— these invited testifiers are pull-tab manufacturers.

And first is Bill Breslow with Diamond Games. Mr. Breslow, would you please put yourself on the record and begin your 3 minutes of testimony? Yes, Madam Chair and members of the committee. Thank you for inviting me today. My name is Bill Breslow.

I'm the president of Diamond Game Enterprises. We're a charity game manufacturer providing electronic pull tabs and similar products across North America, and I'm testifying in support of House Bill 386. Based on our years of experience, we've been in business for 32 years. I've been with the company for almost 25 years. We find House Bill 386 to be a, a well-crafted bill.

It addresses the significant issues around electronic pull tabs, and it does so in an even-handed manner. Cherry gaming is a very important source of funding for nonprofits, and it's a way to generate revenue through the private sector, not relying solely on the public sector and also just the straight donations. We see this bill as enhancing what the charities can do currently. It helps them remain relevant with an electronic product in today's video age. And I think most importantly, what we've seen is that it will generate incremental revenue and be complementary to the current forms of charity gaming, primarily the paper pull tabs.

We do business in Minnesota, so that's the largest charity gaming market in the country. And it's the largest for this type of product, the electronic pull tabs on a tablet. And what we've seen there, which, which has been spoken to a bit so far, and I think, you know, is really probably the most pertinent in terms of answering some of the concerns that have been voiced today, is that it really has been proven to be incremental in Minnesota. Minnesota is a pretty similar state to Alaska in terms of charity gaming. It's a big pull-tab state, and similar in that, in that 2012 timeframe, they looked to electronics to update product and enhance charity gaming, and they went with a product that's being considered in Alaska, the tablet form of electronic pull-tabs.

As Mr. Cizek said, my numbers were about $1 billion in gross sales for pull tabs in 2013, which doubled to over $2 billion by 2024. That was the period of time that electronics were being rolled out, and of course electronics went from zero revenue to over $2.6 billion during that, during that period. So it has proven to be a complementary product. Going to the bill itself, you know, we feel that the bill drafters have done a great job listening to stakeholders of all types, listening to, you know, many opposing views. And while from our perspective it's not necessarily a perfect bill, there are a few things we wouldn't mind seeing changed in it.

But it's a very good bill and I think, you know, probably no bill is going to make everybody happy, including us, but I'm here supporting the bill as written. Thank you very much. Thank you, Mr. Breslow. Do committee members have any questions for Mr. Breslow? I have one question.

Representative Carrick. Thank you, Madam Co-chair. I'm not sure if this is for this testifier or the testifier we had just previous to Mr. Breslow, but We heard that charitable gaming in Minnesota paper pull tabs increased in sales after the introduction of e-pull tabs. And I'm just trying to wrap my brain around that because that would suggest maybe just an overall increase in the number of people participating or the amount of money spent in charitable gaming generally.

So can you or possibly the prior testifier speak to why do we see an increase in paper pull tab sales with the introduction of e-pull tabs?

I can, through the chair, Representative Carrick, I can take a stab at it. I think what the reason that we've seen an increase in this particular, with this particular product and tablets primarily is because the the means of cashing in, if you will, being able to play on the tablets is, is the same place that you would go to buy your paper pull tabs. So we find them complementary because as you're going up, just like you might at a convenience store where you see, you know, all the different items that are right at eye level there, they can be impulse, they complement each other. There is that interaction in terms of cashing in to give $20 over, either to buy pull tabs or to play the electronic pull tabs. And when it's time to cash out, that player is going to take their tablet and go back to the same place again where there's pull tabs that can be seen.

So I think it's both complementary in terms of what they're seeing and also bringing in a bit of a new player that might be more interested in the electronics than they were on the traditional pull tab side. And through that, I think paper pull tabs are introduced then to these players that might not have been exposed to them prior. Thank you. And for the record, that was Mr. Bill Breslow, who was commenting. Representative Carrick.

Thank you, Madam Co-Chair. Just as a follow-up, so does Minnesota have the cabinet style of e-poll tabs, or do they have the tablets? Because what's envisioned in this bill is a tablet, and my imagining is in a, say, a bar setting, you're not going to physically see the tablets up front. I'm sure they will have advertising for the tablet availability,.

But I'm just— when you say the traffic towards e-pull tabs helps create additional traffic towards paper pull tabs, I think that requires a level of visibility for the e-pull tabs. So what does Minnesota's e-pull tab market look like?

Through the Chair, Representative Carrick, and for the record, Bill Breslow, Danningate. Yes, they have tablet games in Minnesota, not cabinet-style games. And your question's a good one because, you know, the cabinet games do advertise themselves well in a sense and are typically self-service. And what we have seen in other markets is because of that, you know, you'll see players being able to engage with the device directly and do not need to interact in the same way that players would with the tablet game and therefore potentially hurting pull-tab sales, traditional pull-tab sales. So that's why I think there is that element of complementariness to the products because there's that interaction.

And exposure is important and it is one of the things that can hurt sales for the tablet because we do want to make sure that customers can see the product. One final follow-up. Representative Carrick. Thank you. I appreciate the indulgence, Madam Co-chair.

So the other question is, when did Minnesota implement— first implement e-poll tabs? Because what you're describing also suggests that there's some novelty which has increased traffic and therefore sales. And I'm just wondering, how long has the e-poll tab structure been in place in Minnesota? And do you have any anticipation that this sort of novelty effect that might be helping generate additional revenue could wear off at some point? And would we then need to expand charitable gaming further to create the same effect in the future?

Through the Chair, Representative Bill Breslow. Again, good question. The— it was approved, I believe, in 2012 with the beginning of the rollout primarily starting in 2013. So it has It has been quite a while, and I would say really it's been growing ever since. So I don't think that a— to answer directly your question on it, what will new forms need to be approved to keep that form of entertainment or novelty?

What is important on the novelty side is what we do as a, as a manufacturer is continue to develop new and unique game themes and bring them out and present to the players so they don't get bored with the exact same game theme over and over. It is an ongoing process. Okay, thank you very much. Okay, thank you very much, Mr. Breslow. Seeing no further questions from committee members, next we will move on to Mary Magnuson with Arrow International.

Miss Magnuson, thank you very much for being here. It's good to see you again. Please identify yourself for the record and begin your testimony. Good afternoon, Co-chair Hall, members of the committee. For the record, my name is Mary Magnuson.

I'm here today on behalf of Arrow International, a manufacturer of charity gaming supplies that's been licensed and doing business in Alaska for over 30 years. Thank you for the opportunity to testify on House Bill 386, and I really want to also thank the committee and in particular Senator Bjorkman for bringing this issue forward. As Senator Bjorkman said, this has been a multi-year effort, and he has done a remarkable job producing a bill that brings together a lot of competing and disparate interests, and we, we really thank him for that. I've been involved in charity gaming for over 35 years all across the country, and in my experience, House Bill 386 is a good bill. It's a balance between strong and effective regulatory provisions and the ability for charities to raise additional funds through electronic pull tabs.

In fact, in many ways, House Bill 386 is modeled after some of the best legislation that's been adopted in the 13 other states that have allowed electronic pull tabs to operate within their states. This bill is important because electronic pull tabs are good for charity, good for the permittees of Alaska. In states with electronic pull tabs, charities raise more money. It is a fact. In every single state, charities raise between 40 and 70% more in revenue when electronic pull tabs are introduced.

And those funds are used to support a multitude of programs and, and within these various communities, be it veterans programs or gas and heating assistance or a variety of other programs that help community members every day to just meet their basic needs. Now, ARO generally supports House Bill 386, and while we think it's a good bill, we have one very important exception. 3 Years ago, an affiliated company of Arrow bought the assets of a company called the Whaler Casino Supply, which is a licensed charity gaming distributor that had been operating in Alaska since 1987.

House Bill 386 would effectively prohibit Arrow and the Whaler from participating in the electronic pull-tab business in Alaska. This is because there is language in the bill that prohibits ownership interests between manufacturer or an affiliate or subsidiary or owner, employee, or person within 2 degrees of consanguinity from having an ownership interest in a distributor.

But the result of this is really, um, to shut Arrow and the Whaler out from participation. And that's because of the reality of the way, um, contractual arrangements work in this business. A lot of times distributors and manufacturers enter into or partner with each other on an exclusive basis. And as Mr. Fisher alluded to earlier, uh, his company, a distributor, has chosen to partner with Pilot Games. Um, Alaska Indoor Sports, which is another distributor in Alaska, has indicated its intent to partner with Mr. Breslow's company at Diamond Games.

Well, that means that Arrow and the Whaler have no one to partner with. Arrow has no one to sell its product to, and the Whaler has no one to buy its product from. Now, the intent of this, we believe, is laudable. And it's really to protect the permittees by preserving competition. But in reality, and the way it works in the market, uh, because of these contractual relationships, which are not prohibited, um, and shouldn't be, um, it, it has effectively worked the opposite way.

And so rather than protecting competition, it's reduced competition by really shutting out a company and leaving only 2 companies effectively operating in the market rather than 3. Ms. Magnuson, you are beyond your 3 minutes. Could you please wrap up? Thank you. And we believe we have a solution to this problem, one that is workable and that will continue to preserve competitive interests within the market.

We've been working with Senator Bjorkman, and we'd be happy to work with the committee in order to come to a reasonable resolution. Thank you. Thank you very much, Miss Magnuson. Do committee members have any questions for Miss Magnuson? Okay, I am seeing none.

Thank you very much again, Miss Magnuson. With that, we were joined by Co-Chair Fields at 5:06 PM, and I'm going to hand the gavel over to him. Uh, thank you, and sorry to be in a concurrent committee hearing earlier. I believe Justin Mills is up in public testimony. Mr. Mills, thank you for being here and sharing your perspective.

Invited testimony. Good afternoon, Co-Chair Fields and Co-Chair Hall, members of the committee. My name is Justin Mills and I currently serve as the commander of American Legion Jack Henry Post 1 here in Anchorage, Alaska. Our post has been serving veterans, military families, and the Anchorage community for nearly 107 years. I'm also a post-9/11 Army veteran and appreciate the opportunity to testify today in support of Alaska House Bill 386.

And the continued evolution of charitable gaming in our state. From my perspective, there are several important reasons why modernizing charitable gaming matters. First, accountability and transparency. Our current paper pull-tab systems rely heavily on manual handling of cash, reconsolidation by bartenders and staff who are often simultaneously serving customers, handling conversations, and managing multiple responsibilities at once. Even with good employees and strong internal controls, manual systems naturally create opportunities for accounting inconsistencies errors and inefficiencies.

Electronic charitable gaming creates a more accountable system. Transactions are digitally tracked, reporting is cleaner, oversight is improved, and organizations can spend less time dealing with reconsolidation issues and more time focused.

Mission delivery and someone responsible for helping oversee a large veteran organization, I view modernization not as avoiding accountability, but as strengthening it. Second, demographic shifts within veteran organizations. As a younger post-9/11 veteran, I have watched the demographics of organizations like the American Legion begin to change. If we want these organizations to survive and thrive for another century, we must recognize that younger generations interact with technology differently than prior generations. Electronic charitable gaming aligns more closely with the expectations and habits of younger veterans and younger patrons.

That does not mean abandoning tradition. It means evolving responsibilities to organizations like ours remain relevant and financially sustainable for future generations. Third, sustainability of veterans serving organizations. Veteran organizations across Alaska are consistently balancing rising building maintenance costs, operational expenses, community programs, and veteran support services. At Post 1, we are not just maintaining a bar or building.

We are maintaining a community institution that provides support, connection, patriotism, mentorship, scholarship programs, emergency assistance, and civic engagement. Allowing charitable gaming— charitable organizations to diversify and modernize gaming revenue gives us a stronger opportunity to reinvest directly back into our community and veterans programs. Increased charitable gaming revenue can help us fund veterans emergency assistance programs, youth scholarship programs, Boys State, Girls State, community events, suicide prevention initiatives, veteran outreach, building preservation, and operational sustainability while supporting military families and other local nonprofits. We have seen organizations in other states successfully utilize electronic tabs and modern charitable gaming systems to significantly increase charitable proceeds while improving accountability and operational efficiency. Alaska should not ignore those lessons.

I would also note that Alaska has one of the highest veteran populations per capita in the United States. Veterans and veteran organizations play an outsized role in our community. Particularly in rural areas and places where veteran organizations often function as community anchors. Providing these organizations with modern tools to remain financially healthy directly impacts and benefits Alaska communities as a whole. At the end of the day, this issue is not about replacing tradition.

It is about ensuring organizations like the American Legion remain strong enough to continue serving veterans and communities for the next 100 years. Thank you so much for your time, and I respectfully ask you support House Bill 386. Mr. Mills, I know it's late, but I hope you could briefly address how tablet electronic pull tabs, but not cabinets, are conducive both to revenue for the post but also the social environment that you are attempting to create there for veterans. Yes, through the chair, Justin Mills. Uh, basically, I think when you look at fraternal organizations, specifically the American Legion, It's a very sacred place.

And so there's been a lot of talk between all the different fraternals, between the VFW and vets, about what is the perfect answer. How do you modernize and compete with other potential competition but also not have slot machines in the fraternal space? So based on that, they've decided, or we as a group have decided, that having slot machines, or cabinets as a lot of people have referred to them, would not be conducive. So they've gone with the tablets. And basically what the belief system from our organization was that individuals have the option of choice.

They basically come in and if they want to play paper pull tabs, they still will. But if they want to, you know, a younger person that's used to a tablet, they could pick that as well. So it kind of creates that sacred boundary. Thank you. Representative Settler has a question.

Thank you for opening questions, Mr. Mills. I do have a question for you through the chair. I'm not a gambler and I'm not quite sure. Help me understand, are the different methods of pull tabs— paper, tablet, cabinet— more attractive to different demographics or age, or am I just missing something? Are the cabinets more attractive, more engaging, and more fun, more payout?

I simply don't have any personal basis for understanding the distinctions, please. Yes, through the Chair, Justin Mills, American Legion Post 1. So I think the cabinet's most represent what you would see as a slot machine in a traditional area. I know there's a lot of discussion on not having gambling, and I think a lot of people on the fraternal side view that that might cross the line. And I—.

Pardon me, I forgot the rest of your question. If I may, following up to— just describe which demographics might find those 3 different levels or kinds of gaming more attractive and why. So I find that a lot of, just for to talk era-wise, Vietnam veterans, you know, they're very used to playing paper pull tabs. I think that generation is very used to it. They like the tactile aspect of it.

They like being able to kind of see what options are there and try to turn it into more of a game of skill than a game of chance. Where I believe younger veterans who are more used to playing technology would be more apt to just want something that they can hold in the hand and push the button as opposed to having to pull each piece of paper. And the cabinets then? Those are like generally, are they the most attractive?

So the issue that I found talking to a lot of them, other American Legion posts, a lot of the other American Legion posts throughout the state, because this has been a big topic, won't have the space probably for the cabinets. So my post in, on Fireweed in Arctic, we would have the space. And so, I mean, I personally would love cabinets, but I think as a whole, tablets definitely makes the most sense at this time. Thank you, sir.

All right, um, I believe our— thank you again, Mr. Mills. Our final invited testifier today is Jack Heesch. Mr. Heesch, thank you for being here, and please proceed with your testimony.

And please do not use speakerphone. It just sounds more clear if you're not on speakerphone. [FOREIGN LANGUAGE] Mr. Heesch, can you try to proceed with your testimony and we'll see if we can hear you?

Okay.

Yes, Mr. Chairman, thank you, and members of the committee, thank you for inviting me. My name is Jack Heesch, and I am the president and primary member in charge of the nonprofit Anchorage Youth and Recreation. Anchorage Youth and Recreation is part of an informal coalition focused on young women ages 8 to 18 who want to play softball, fastpitch softball. We believe this is a great action as in any given year we can find 25 to 30 young women accessing a college education via a softball scholarship. While I'm here to represent my organization, I also ask the legislature to keep in mind the many other charities likely to be impacted by this bill.

And we're talking about the spread from Bean's Cafe all the way to the Anchorage Opera. I'm just going to briefly mention a number of others just to give everybody on the committee an idea of the spread. Special Olympics is continuing Senator Ted Stevens' legacy.

The First Alaskans Institute is preserving their heritage and culture. The Alaska Mountain Rescue Group is providing ground search, avalanche response, and public awareness for backcountry preparedness. Natsu Youth Housing providing safe shelter, food, clothing, and job skills for the youth in the community. The Alaska Police and Fire Chaplains, They are there to offer comfort at times of distress and sorrow. The entire point of charitable gaming is helping Alaskans help their Alaska communities.

Please keep in the forefront of your minds while dealing with HB 386 the many varied charities and the good work they do. And I am very pleased to say that listening to the testimony coming from the folks on the ground where the, uh, other gambling things happen, um, are really seem to be very sensitive to the needs of, of the nonprofits and are very supportive of us. And I'm happy for that, and I thank them, and I thank you for having me. Thank you, Mr. Heesch. Um, not seeing questions, I believe that concludes our invited testimony.

I wanted to invite Senator Bjorkman to give closing comments on this hearing for the bill today. And then we just have one short final item.

Thank you very much, Co-Chair Fields, Co-Chair Hall, and members of the committee. We appreciate your endurance again learning more about this topic and how it's worked in a state like Minnesota. And, and some other examples too are in the literature about how electronic pull tabs have been a very significant benefit to charities and nonprofits where they have been implemented. I'm happy to go through and talk to members offline about some concerns raised in the testimony. We'll have conversations, I think, about some of these issues later on.

I wanted to clarify one issue that I think.

Was brought up that has not been, been brought up by some others, and that is when we talk about folks having these payouts to charities and nonprofits, that 30% mandate, that's a minimum. That is a minimum that is mandated for operators and other folks to give the charities and nonprofits that they make from games. Many folks, including some you heard of today, as they do pull tabs as well as raffles, they give over and above the minimum because they're successful and they're generous for charities and nonprofits and they give extra. And I think that's notable. And I think that is something to talk about and celebrate.

And so that's good. I'm happy to talk about other technical issues of the bill. We've had some discussions about how this would implicate ferries and how that could be executed. We've had some discussions or specific language in the bill dealing with what happens if a person dies and how they can name a beneficiary so that that transfer happens immediately. Other things in there, happy to chat about offline, and we appreciate the committee's perseverance.

Again, thank you. Thank you, Senator Bjorkman. Not seeing additional questions at this time, the last item on the calendar is SB 35, also by Senator Bjorkman. We have heard a lot of input on this bill and have a CS to adopt that members can consider for potential subsequent amendment. Representative Hall, would you like to make a motion?

Mr. Chair, I move to adopt the proposed committee substitute for SB 35, work draft 34-LS0330/s as a working document. And I'll object for purposes of discussion and ask that Evan Anderson describe the CS.

Thanks, Commissioner Fields. For the record, Evan Anderson, staff— staff director at Fields. I'll be describing the summary of changes from version T —A to version S for SB 35. Just for everyone's awareness, version T.A. Was the version that passed on the Senate floor.

So starting with Section 5, that's a new section that amends AS 21.96.020, disallowing an insured from waiving certain uninsured and underinsured motorist coverage. Section 6 has a new section number. Section 7 is a new section amending AS 28.20.440 requiring an operator of a vehicle used for transportation of persons for hire to maintain primary auto liability insurance for at least $1 million and uninsured, underinsured motorist coverage for at least $500,000 each. The operator may not waive the coverage. Section—.

Does the staffer have a summary changes in hard copy version by chance? We could follow along. I sure do, through the chair. Um, it sounds like yes. Representative Sadler and Perhaps we'll just take a brief at ease.

How many, how many Back on the record, uh, please proceed with a summary, Evan Anderson. Thank you. Sure, through the chair, Evan Anderson for the record. Um, moving on to Sections 8 and 9. These sections are new.

They amend AS 28.20.445 and 28.22.201, disallowing an insured from waiving certain uninsured/underinsured motorist coverage. Section 10 is renumbered and it amends AS 28.23.050A to clarify that a delivery network company driver is covered by the company's liability insurance while they are providing delivery services or otherwise available to receive an offer. Section 11 amends that same section of statute, but subsection B, to clarify the same, the same as Section 10, essentially. The changes in these sections are intentional to, to cover couriers, delivery network company drivers while, while they're available to receive an offer. Section 12 is renumbered and amends AS 28.23.050 subsection C, requiring transportation network companies maintain primary auto liability insurance for $1 million and uninsured/underinsured motorist coverage for $500,000 each.

The company may not waive the coverage. Section 13 is renumbered. Section 14 amends AS 28.23.050H, making conforming changes. Section 15 is renumbered. Section 16 amends AS 28.23.060, making conforming changes.

Section 7 amends AS 28.23, making conforming changes. Section 18 is renumbered. Section 18— 19 amends AS 28.23.080A, making conforming changes. Section 20 should be familiar to the members of the committee. This adds a new section, AS 28.23.150, setting baseline payment rules for how TNC, Transportation Network Companies, and Delivery Network Companies must compensate drivers for prearranged rides and related travel.

Subsection A requires a transportation network company pay a driver at least 120% of the state minimum wage established in AS 23.10.065. This section also provides for a 37-cent per mile credit. So folks should recognize this from House Bill 305. The difference between this language and the version, um, the CS for House Bill 305 that this committee most recently adopted, is it brings that percentage down from 150% in that other— in that other bill's CS to, in this, in this language, 120% of the state minimum wage. Subsection B differs from that other bill, uh, in— this subsection requires the same compensation rate and per mile credit for delivery network company driver couriers as well.

Subsection C, on January 1st of each year, the per mile credit will be adjusted for inflation based on the Consumer Price Index. And subsection D states that a company may not count any gratuity paid by a rider towards the compensation the company is required to pay under this section. Subsection 20— excuse me, Section 21 is renumbered. Section 22 is renumbered as well.

The changes to this— this subsection— this section modifies the definition of delivery services to clarify that delivery services end when the courier completes the delivery or the delivery is canceled. This is a conforming change with the changes to Sections 10, 11. These changes go together and shouldn't be viewed separately. And just to conclude, Section 23 is renumbered. Okay.

The purpose of introducing this is to give members time to review it and consider potential amendments. So we can have extended discussion at this time if members would like, or defer that to a subsequent committee. What is the preference of members? Representative Sadler. Mr. Co-chair, we have been here for quite some time and done some bills.

There's, uh, there's 20 new changes in sections. So I think at this time of day, and given what we've done today, it might be good to allow a little bit of time to review what this actually is. Evan read it through and I don't understand a damn word of what he said until I get the bill in front of me and see what the changes are. Okay, um, other input? Well, I'm just curious, are we going to consider this edit At a next hearing before— and there's an amendment deadline, or are you setting—.

That's what I was planning, yes. Yeah, so are you not setting an amendment deadline at this time? Unless there's a preference to set an amendment deadline at this time, I think it probably makes more sense to talk about more and then set it. Okay, perfect, thank you. Okay, I just— is that what you support?

Through the chair, I would just like to have more time. Absolutely. Thank you. Okay, so with that, I'm going to remove my objection to adoption of CS. Is there further objection?

Seeing none, the CS is adopted, and we will return to this bill at a subsequent hearing for more in-depth discussion. I'm also happy to talk to any members— I know Co-Chair Hall and Senator Bjorkman are as well— about where all these changes came from very briefly.

The UMUI was reduced by half in response to stakeholder feedback. The covered— and the covered period for DNCs was clarified per stakeholder feedback. And we can talk more at a later date. Representative Sadler. Thank you.

You used acronyms, sir. UNUI? Uninsured Motorist. Yeah. Uninsured Motorist.

Very good. Thank you. TMI, too many acronyms. That was lowered per stakeholder feedback, but we can talk more when it's not 5:30. So with that, we will return to this bill at a later date.

At 5:30, Labor and Commerce is adjourned.