Legislature(1999 - 2000)
03/03/2000 01:20 PM House JUD
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* first hearing in first committee of referral
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HB 337 - CLAIMS AGAINST PERM FUND DIVIDENDS CHAIRMAN KOTT announced that the next order of business would be HOUSE BILL NO. 337, "An Act relating to claims against permanent fund dividends to pay certain amounts owed to state agencies and to fees for processing claims against and assignments of permanent fund dividends; and providing for an effective date." [Before the committee was CSHB 337(STA).] Number 0736 KEVIN SHORES, Assistant Attorney General, Human Services Division, Department of Law, informed the committee that the amendments before the committee are technical amendments. These amendments are offered to the committee because the first bill offered to the House State Affairs Committee was intended to address all state agencies. In the House State Affairs Committee the bill was changed and limited to the Department of Labor and Workforce Development (DOLWD) and thus the committee has CSHB 337(STA) before it today. [The amendments are subsequently treated as one amendment, labeled Amendment 1.] Amendment 1 read as follows: Page 2, line 5, following "payment": Delete "for" Insert "of" Page 2, line 14: Delete "for payment" Insert "under AS 23.20" Page 2, line 18: Delete "for payment" Insert "under AS 23.20" Page 2, line 19, following "hearing": Insert "under AS 23.20" Page 2, line 20 following "and": Insert "the Department of Labor and Workforce Development has" Page 2, line 20 following "allowed": Insert "the individual" Page 2, line 21: Delete "the Department of Labor and Workforce Development to" Page 2, line 22: Delete "hold" Page 2, line 23: Delete "for payment" Insert "under AS 23.20" Page 2, line 26: Delete "for payment" Insert "under AS 23.20" Page 2, line 30, following "(b)": Delete all material and insert "The" Page 2, line 31 through page 3, line 1: Delete ", before submitting a claim for payment under this section," Page 3, line 1, following "the individual": Insert ", if a dividend is claimed under (a) of this section" Page 3, line 4: Delete "for payment" Insert "under AS 23.20" Page 3, line 6: Delete "for payment" Insert "under AS 23.20" Page 3, line 16: Delete "for payment" Insert "under AS 23.20" Page 3, line 30, following "may": Insert "only" Page 3, line 31 through page 4, line 1: Delete all material and insert: "costs and other amounts that (1) are owed the department under other provisions of state law under which the claim under AS 23.20 is being made; and (2) have been established by court judgment or administrative order." [End of Amendment 1] MR. SHORES pointed out that limiting the bill to the Department of Labor and Workforce Development results in three main areas of amendment in the bill. He explained, "The first main areas of amendments are on the first page of the amendments. They repeat themselves. Where it says 'for payment' we would be inserting, 'under AS 23.20'." He further explained that the claim for payment in the old version of the statute was going to be a generic term for what happened in the agency. However, under the amendment it refers specifically back to the statute under which DOLWD is allowed to pursue fraudulently obtained unemployment or overpayment of unemployment. He noted that Mr. Hull, DOLWD, can answer questions the committee may have concerning DOLWD's specific hearing procedures under those statutes. Therefore, that amendment clarifies in statute that the first hearing is on the merits of the claim. That [hearing] is before DOLWD or the court. MR. SHORES turned to the second main area of amendments, on page 2, line 30; that changes the language to an active voice in order to mirror existing language in other statutes in this area. He noted that the meaning is not changed. He continued with the last area that is amended, which falls near the end of the statute. He referred to page 3, line 30, where the word "only" is inserted following the word "may". The word "only" was inserted in order to clarify that DOLWD will pursue only those statutory claims specified in AS 23.20. Two sentences are added by that amendment. He explained, "Specifically, the aim of that amendment is to make sure that its required that before the claim is given to PFD [the Permanent Fund Dividend Corporation] for attachment, that its been reduced to judgment by an administrative agency in a hearing process or by a court." In the House State Affairs Committee, some committee members expressed the need to make sure it was clear that there is a due process and a full due process for an underlying claim before moving to the fast-track procedure to collect on a claim. Number 1103 REPRESENTATIVE KERTTULA inquired as to the reasoning behind taking the other agencies out of HB 337. MR. SHORES informed the committee that some concerns had been raised by Representatives Ogan and James, who were more comfortable and familiar with the due process hearings and procedures that DOLWD has. REPRESENTATIVE KERTTULA asked what would happen if a person who has consistently made his/her payments misses one or two payments. She noted that under the request for hearing it seems that something such as that does not have a right to be taken into consideration. Therefore, she asked, what actually is taken into consideration during a hearing? And can a scenario similar the one described be taken into consideration? MR. SHORES answered that there is latitude to consider that. He clarified that HB 337 creates another hearing process on top of the hearing process that would happen in DOLWD or the court. For example, if a person's judgment was reduced and the person paid part of those judgments, DOLWD would have to notify that person that it was contemplating taking the permanent fund dividend. Then the person would have the right to have another hearing on whether the person had part of the judgment and whether the amount was correct. Therefore, there are two levels of due process in HB 337. Mr. Shores clarified that the second hearing would be limited to whether or not there was a mistake. The second hearing is not intended to allow litigation of what was already litigated in court or the agency. He pointed out that on page 3, subsection (c)(1) that is fleshed out more. REPRESENTATIVE KERTTULA posed a situation in which someone has not made a payment by the first hearing. She asked if there is an opportunity for that person to show that he/she has made past payments and thus request leniency. MR. SHORES clarified that the first hearing addresses whether the individual owes money or not. That [hearing] would be held in DOLWD's administrative process. If the individual went through the department's layers of administrative appeal and went to superior court, that would revolve around whether that individual owes the money or not. With regard to whether an individual making a payment agreement and whether or not the department would continue to accept the payments or proceed [with garnishment of] the PFD, Mr. Shores deferred to Mr. Hull. Number 1315 REPRESENTATIVE MURKOWSKI turned to the notice process, which indicates that the individual must have a statement that DOLWD has notified the individual. Where is it defined what is adequate notice? Would a certified letter be adequate notice? Does [the department] have to establish that the individual has received notice? Is it sufficient that a letter just goes out? MR. SHORES specified that the first notice [on the hearing] would be in regard to the underlying claim. He pointed out that Chapter 23 has specific notice requirements of certified mail and how notice of a claim is given. The second notice on the hearing would be in regard to whether the individual's permanent fund may be forfeited. In this statute there is no specific means of notice, whether it is certified mail or a personal process server. Mr. Shores imagined that DOLWD would probably [promulgate] its own regulations with regard to notice; however, he deferred to Mr. Hull. REPRESENTATIVE MURKOWSKI commented that she believes the notification would probably be something that [the committee] would want to ensure proof of service versus just sending out a letter. Number 1437 RON HULL, Deputy Director, Employment Security Division (ESD), Department of Labor & Workforce Development, informed the committee that one of ESD's major responsibilities is to administer the Unemployment Insurance Program. Administering the Unemployment Insurance Program involves the collection of taxes from Alaska's employers and paying out benefits to Alaskans who are temporarily out of work. Inherent in that responsibility is the protection of the trust fund, which means the detection, prevention and/or collection of improperly paid benefits. MR. HULL informed members that the primary method of collection of overpaid benefits is withholding payment for subsequent eligible weeks in order to offset the overpayment. When one reapplies for benefits, those benefits are taken in order to offset the claim. If that option is not available, the claimant is contacted by mail or phone in order to negotiate a payment schedule. The claimant is allowed to repay the debt without the department asking for more than the claimant can afford. If the claimant is making the payment, the division will not exercise [garnishment] of the PFD. He noted that often, the claimant will voluntarily assign the PFD in order to eliminate the bill. Generally, no collections actions are taken if the claimant meets his/her repayment agreements, which can run for 90 days before a series of letters are sent out saying that the PFD can be taken and inquiring as to the problem. If the claimant has reasons such as the need to pay bills, the division will hold it. MR. HULL turned to those individuals who refuse to pay anything. For those individuals, their PFD is attached by obtaining a judgment through small claims action or through a criminal prosecution judgment. That is costly in both time and resources. This legislation would speed the recovery of overpaid unemployment insurance (UI) benefits that are a debt to the state. For the most part, overpaid unemployment insurance benefits are owed by individuals who have exhibited some reluctance to repay that debt. Mr. Hull pointed out that there is a statutory penalty, 50 percent of the amount illegally obtained, on the overpayment of benefits as it pertains to fraudulent acts. Those monies cannot be obtained through the offset of unemployment insurance benefits. MR. HULL explained that furthermore, the collection rate in this area is dismal. Some states do not make any disbursements such as state tax refunds or lottery winnings without first deducting debt to the state. Mr. Hull pointed out that the fraud penalty money is not returned to the trust fund, but goes directly to the general fund. As of December 1999 the uncollected penalty balance was over $3 million. The fraud balance is about $5 million and the non-fraud balance amounts to about $1.5 million. In addition to restoring improperly paid benefits to the trust fund, the division anticipates recovery of approximately $750,000 of the balance in the first year after the passage of the bill. The $750,000 will be deposited in the general fund as will probably $400,000 each year thereafter. Number 1630 MR. HULL stated, in response to Representative Murkowski's question regarding notification, that when the issue is first detected fact finding is performed. He explained that initially, an employer will send the division a prima facie document, which documents the rate of pay of an employee and the number of weeks an employee has worked. That would evidence whether the division should continue the investigation. When that is returned and there seems to be some improperly paid benefits, the division writes a letter to the claimant asking if there is something the division does not understand or if the employer has made a mistake. The division waits 30 days for a response to that letter and depending upon the response, there are a number of tracks that occur depending upon whether it was a mistake or fraud. MR. HULL noted that if the amount is over a certain amount, then, based on workload, that is taken to criminal court. When the division feels there is enough evidence to proceed, a notice or determination is performed which includes the appeal rights; that is forwarded to the individual. When the overpay amount is set, a separate determination of liability is sent and again the appeal rights are explained on that document. In each case, the claimant has 30 days to respond. He pointed out that if the case is non-fraud and the claimant disagrees with the division's findings, there is an administrative appeal hearing. Mr. Hull noted that when he was a chief investigator, he lost more cases at [the division's] appeal tribunal than in court. REPRESENTATIVE MURKOWSKI asked whether the notification for the hearing process within the division is by certified mail. MR. HULL answered that in the past, certified mail has been used, which he believed amounted to $1.30 per letter. He noted that currently there are over 8,000 claimants. He informed the committee that the court has ruled that the division, through its permanent fund dividend and/or unemployment insurance files, has such a current mailing address that if there is no response, that is proof [that the claimant received the notice]. Therefore, the division has stopped using the return receipt requested. If the letter is not returned from the post office showing an address unknown, the courts have ruled that [the claimant] received the letter and the division has performed due process. REPRESENTATIVE MURKOWSKI related her understanding, then, that at the division level nothing confirms receipt of notice of the claim. If the individual fails to respond and the division decides to attach the PFD, a second notice could go out to the individual. Again, there would be no confirmation that the individual received the letter and the PFD could be seized. MR. HULL agreed that could happen; generally, however, if an individual has received his/her PFD, the address is good. Therefore, the division would only take special efforts if the envelope comes back from the post office saying it was not delivered. In which case, the division takes steps to try to find that individual. CHAIRMAN KOTT referred to the top of page 3 and related his understanding that the division is using the address provided in an individual's PFD application. Furthermore, if there is no return response, the division considers that the individual has received the letter and basically agrees with the terms of the notice. He further understood that there is no follow-up phone call, although the individual's telephone number is also on the PFD application. MR. HULL agreed that the division uses the address provided in an individual's PFD application and if there is no return response, the division considers that the individual has received the letter. He said that the division does call these individuals; however, each type of case is somewhat different. Mr. Hull informed the committee, "This really is fairly rare. ... The world comes to us for addresses because our addresses are so current." Number 1885 CHAIRMAN KOTT inquired as to the time an individual has to request a hearing per the notice received by the individual. MR. HULL answered that per the statute the individual has 30 days to respond to each document that lists the appeal rights. In further response to Chairman Kott, Mr. Hull said that the individual would have the opportunity to waive that right. He pointed out that if the individual can show that he/she did not receive the letter or could not respond because he/she was out of state, then the appeal can be reopened. REPRESENTATIVE MURKOWSKI surmised, then, that an individual does have an opportunity to prove that he/she did not receive the notice and there was a legitimate absence. However, the PFD would have been seized in the meantime and the individual would have to proceed with the process of getting the PFD back. MR. HULL said, "Given the worst-case scenario, if that occurred that we had taken it [the PFD] and then they could show that they had left the state for whatever reason and weren't there to receive that letter, then yes." REPRESENTATIVE MURKOWSKI expressed concern because the current language merely states that the individual has to be notified; there is no indication as to what constitutes adequate notice. She understood that under the [current] procedure [the division] considers it adequate notice if it is sent to the address on file and if nothing has been returned from the post office. Representative Murkowski said that she would like to see the notification requirements tightened up. If "we" are going to move towards allowing an expedited process for attachment of the PFD, "we" should ensure that all the due process notifications were performed. REPRESENTATIVE MURKOWSKI related her understanding that currently the division can attach the PFD, but only by going through the courts. She acknowledged that the current process is more costly and time-consuming. Furthermore, the current process probably "puts a lid on the number of garnishments that you [the division] actually goes forward with." She was glad to hear that the division encourages repayment agreements and that if someone is working with the division, the division will not move forward to attach or garnish [the PFD]. If the process is expedited, is it possible that there would be less incentive to enter into repayment agreements. Number 2060 MR. HULL commented that the division bends over backwards to be helpful. It wants its money back and is mandated by a federal statute [to recover the funds]. For individuals who are out of work, the division would stop collection. Mr. Hull said that the division does not want a reputation like the Internal Revenue Service (IRS). Frankly, without this [HB 337] the division collects 90 percent of its non-fraud overpayments. The division's biggest collection effort is with the fraudulent cases. CHAIRMAN KOTT reviewed the timeline. Individuals have until March 31 to submit PFD applications. From the applications, the division determines whether there is an opportunity to garnish part of the PFD. Chairman Kott said it seems that rather than wait until August or September to make that determination, which starts the 30 day process that could interfere with the individual receiving his/her PFD, the division would more than likely do that closer to the end of the application period. Therefore, the process would be taken care of before the garnishment would occur. MR. HULL pointed out that according the PFD statute, one cannot apply for the benefits before a certain date. He pointed out that a potential overpay is a six-month-old case when the division receives it. The division waits two quarters before the employers are even asked for data. He believes that the date that an agency can apply for benefits is probably after the closing period. Furthermore, there is a hierarchy in regard to who can take the benefit first, under which the division ranks number six [under HB 337]. REPRESENTATIVE KERTTULA commented that she hopes other agencies are paying attention to ESD's process, which she said seems fair. Number 2230 REPRESENTATIVE ROKEBERG inquired as to how the UI tax rates for the employer and employee are currently determined. MR. HULL responded that those are set by the trust fund balance. If the division did not collect anything, the tax rate would increase. He agreed that the rate is reset every year based on the balance. REPRESENTATIVE ROKEBERG surmised that if the division were able to collect more, rates to the employee and employer could be lowered. MR. HULL agreed. REPRESENTATIVE ROKEBERG asked how this would affect the aforementioned garnishment priority list. MR. HULL pointed out that the division is not on the garnishment priority list at all now. If this bill passes, the division would be sixth on the list. He referred to AS 43.23.065 and said: We are number six, "a debt owed by an eligible individual to an agency of the state." And ahead of us is child support, court-ordered restitution - and we do get some of those - defaulted scholarship loans, court- ordered fines, writs of execution, civil action, parent [or] legal guardian [of an unemancipated] minor, and then us - not us, but all state agencies. ... We can prosecute anything over -- with a judgment there, if they've got a PFD, then we can go after it; sometimes, they don't apply for it. REPRESENTATIVE ROKEBERG acknowledged that and commented that perhaps [the individual] has a larger amount. MR. HULL said that is possible. He noted that most often the larger amounts are the fraudulent claims. In further response, he informed the committee that there have been claims of $25,000- $30,000 when an individual has obtained the identification of a number of real individuals and then has applied for a number of checks at the same time. REPRESENTATIVE ROKEBERG noted that HB 337 did not receive a referral to the House Labor & Commerce Committee [which he chairs.] He commented that he was astounded by the high level and asked what the highest benefit is that is being paid out. MR. HULL specified that it would not be one individual going after one claim, although there have been cases when an individual has exhausted his/her claim. He identified part of the problem as the fact that the audit does not occur until two quarters have passed. He noted that $5,000 and $6,000 cases are common. In further response to Representative Rokeberg, Mr. Hull said the highest benefit is $248 per week and $24 per dependent, up to three dependents. In further response, he affirmed that the weekly amount can be for 26 weeks. Number 2391 REPRESENTATIVE ROKEBERG requested that Mr. Hull review the amendment and the criticism and lack of comfort held by the House State Affairs Committee. MR. HULL clarified that the debate in the House State Affairs Committee was regarding due process, which he'd mentioned earlier. In further response, he agreed that [the amendment] is merely drafting and not an attempt to correct what the House State Affairs Committee did. CHAIRMAN KOTT related his understanding that HB 337, as introduced, was broader. The bill was narrowed in the House State Affairs Committee and the aforementioned amendment [offers clarification] to the committee substitute (CS) that was reported out of that committee. Number 2436 DWIGHT PERKINS, Deputy Commissioner, Department of Labor & Workforce Development, informed the committee that originally HB 337 was going to be aimed at DOLWD. However, after further development it appeared that this may be something for all state agencies to use. As Representative James stated in the House State Affairs Committee, the department has a fair and equitable system with regard to the collection of the money due to the state. He further pointed out that Representative James said that at this point, she felt uncomfortable writing the legislation to apply to all departments. Therefore, the a House State Affairs Committee [committee substitute resulted]; these [Amendment 1] are technical amendments to ensure that the bill is limited to DOLWD only. Mr. Perkins also pointed out that this [HB 337] would be a revenue generator through the penalties that will go directly to the general fund; these [penalties] are in excess of $400,000 per year. REPRESENTATIVE ROKEBERG expressed hope that the excess money would not be siphoned off elsewhere. TAPE 00-26, SIDE B CHAIRMAN KOTT asked to how many cases would fall within the scope of this bill if it were to pass. MR. HULL said, "Certainly, less than the cases we have." He reiterated that this bill will not be used to "hammer" those individuals who are paying. This bill will be used to address those individuals who are not paying and who are not going to pay. CHAIRMAN KOTT asked if Mr. Hull could draw any conclusions with regard to the number of people this would address. MR. HULL replied that currently there is eight years' worth of data, which equates to about 8,200 individuals. He estimated that on a yearly basis there are probably around 2,000 claims, half of which will be fraud. Half of those fraudulent [individuals] will flee the state so quickly that the money cannot be obtained, and thus much of the debt leaves the state. He estimated that [the department] would consider using this bill for probably a quarter of the claimants identified as receiving improperly paid benefits, if those claimants are not making payments. He further estimated that [of those claimants receiving improperly paid benefits] 80 percent would be fraudulent claims. Mr. Hull said, "We collect fraud 40 to 45 percent of all the fraud that's established. And I said earlier, we're collecting about 90 percent of the non-fraud without this ability to attach the PFD." Number 0083 CHAIRMAN KOTT clarified that the point of his question was to gauge the cost to the department in both personnel time and actual money, if the department were required to send that notification via certified mail. He estimated that $1 per [claim] is added, as a minimum, plus whatever time is spent to evaluate and track that. MR. HULL pointed out that with certified mail whoever answers the door signs for the letter, which may not be the addressee, and then [the service of notice] would not be legal. There were problems with certified mail when it was used exclusively. REPRESENTATIVE MURKOWSKI returned to the issue of the garnishment priority list, which the division would be number six [under this bill]. She understood that currently state agencies are listed on that priority list. Therefore, she asked if unemployment insurance would have a higher priority over another state agencies if this legislation were passed. MR. HULL replied no. This legislation would merely lump the division in with other state agencies at the number-six position on the garnishment priority list. REPRESENTATIVE MURKOWSKI asked if the division is already on the garnishment priority list as a state agency. MR. HULL replied no. He explained that AS 43.23.065(6) in part says "a debt owed by an eligible individual to an agency of the state". The division cannot collect this debt under paragraph (6) because this bill has not passed. However, the division can collect the debt under court-ordered fines, for example. REPRESENTATIVE MURKOWSKI asked: If the division would receive a higher priority with a court order than under HB 337, why wouldn't the division ensure receipt of the debt by obtaining a court order? MR. HULL clarified that a court order cannot be obtained unless there is a criminal case. He agreed with Representative Murkowski that a small claims judgment could be obtained, which would create a priority that is higher than the priority created under HB 337. He further agreed that the people that the division is attempting to collect from are people that others are attempting to collect from as well. Mr. Hull noted that such cases are very time-consuming and thus are only undertaken with high-dollar value cases. REPRESENTATIVE MURKOWSKI surmised that the division would review the individual's circumstances and determine how to proceed. MR. HULL said the division also reviews the individual's wages in order to determine if the money is present to go after. Number 0230 REPRESENTATIVE CROFT surmised that HB 337 would provide the division with another option. It would provide the division with a cheaper route, although the division would fall lower on the priority list versus the more expensive court route under which the division would have a higher priority. MR. HULL agreed. REPRESENTATIVE ROKEBERG recalled Mr. Hull's earlier testimony that approximately half of the recovered claims are fraudulent. He inquired as to the percentage of the claims paid out that are fraudulent. MR. HULL said, "Let me correct that. I shouldn't have said claims. Half of the established debt is fraud, not claims." REPRESENTATIVE ROKEBERG inquired as to the percentage that is owed annually because of fraudulent claims. MR. HULL said he was not sure he had that information. However, he informed the committee that about 7.5 percent of the claims paid out are improperly paid. REPRESENTATIVE ROKEBERG surmised that about half of that, 3-4 percent, [is owed annually because of fraudulent claims]. Number 0312 REPRESENTATIVE CROFT made a motion that the committee adopt Amendment 1 [text provided previously]. There being no objection, Amendment 1 was adopted. CHAIRMAN KOTT asked if anyone else wished to testify on HB 337. There being no one, the public testimony was closed. REPRESENTATIVE MURKOWSKI commented that she was not entirely comfortable with the notice requirement. She wondered what type of notice requirements the Child Support and Enforcement Division (CSED) has that allows that division to proceed with garnishments without a judgment. CHAIRMAN KOTT related his belief that CSED, the Alaska Commission on Post Secondary Education and the welfare [agencies] send notification via first-class mail. He believes that is the approach that all state agencies are now pursuing. MR. SHORES specified that this statute will fit into Title 43, which governs PFDs. The statute begins with the priorities discussed here [in HB 337]. There are three other agencies that currently use the option discussed for DOLWD under HB 337. The Department of Health & Human Services [uses this option] for the reimbursement of court-ordered treatment. The other two agencies that use this option are the Alaska Commission on Postsecondary Education and Public Assistance, which uses this for overpayments. Each statute, as is the case under HB 337, refers initially back to the statutory section under which they [the agency] claim the money and then provides for the secondary portion of the notice. Mr. Shores also pointed out that these agencies utilizing this option also provide notice at the last known address of the PFD. Therefore, requiring DOLWD to send notice via certified mail would be different and not required of the other agencies [utilizing this option]. REPRESENTATIVE CROFT asked whether those other agencies use first-class mail, not certified mail [for notification]. MR. SHORES clarified, "It doesn't require certified mail, it requires notice to the address provided in the individual's permanent fund dividend application. So, it requires first-class mail notice." He acknowledged that if the agencies wanted to use certified mail they could do so, although their statutes do not require use of certified mail. CHAIRMAN KOTT informed the committee that as a former member of the Alaska Commission on Postsecondary Education, he recalled that it used first-class mail. Number 0459 REPRESENTATIVE CROFT made a motion to report CSHB 337(STA), as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered and CSHB 337(JUD) was reported from committee.
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