Legislature(1999 - 2000)
02/22/2000 08:06 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 337-CLAIMS AGAINST PERM FUND DIVIDENDS Number 0550 CHAIR JAMES announced the next order of business is 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." Number 0620 REPRESENTATIVE SMALLEY made a motion to adopt the proposed committee substitute (CS), version 1-GH2060\G, Cook, 2/17/00, as a work draft. There being no objection, Version G was before the committee. RON HULL, Deputy Director, Division of Employment Security, Department of Labor & Workforce Development (DOLWD), said currently the only method the DOLWD has to attach a permanent fund dividend is by voluntary assignment, judgment through a small-claims action, or through a criminal prosecution judgment. The proposed CS would speed recovery. He explained that federal law prohibits the offset of unemployed insurance (UI) benefits to collect money, which, if recovered, is deposited into the general fund. Estimated recovery of penalties in the first year is approximately $750,000, and $400,000 each year thereafter. MR. HULL pointed out that Section 2 amends AS 43.23 by adding a new section .072, in which subsection (a) adds procedures allowing DOLWD to make a claim against the permanent fund dividend for money owed to the state agency and establishes procedure for execution of the same. Subsection (b), he indicated, establishes procedures for notification of the individual, and subsection (c) makes an exception to notification when an individual requests a hearing. Furthermore, if DOLWD has a notification or hearing procedure established in statute, the department may use that procedure. Subsection (e) allows DOLWD to adopt regulations to implement or interpret this section by the same procedure under which it adopts regulations to a program. Subsection (f) allows DOLWD to include fines, fees, penalties, overpayments, attorney fees, costs and other amounts owed the department under state law. Section 3 is a transitional provision that allows DOLWD to adopt regulations to interpret Sections 1 and 2 of this proposed CS. Section 4 specifies that Section 3 takes place immediately, and Section 5 says Sections 1 and 2 take effect on January 1, 2001. Number 0882 CHAIR JAMES directed Mr. Hull's attention to page 3, line 29, where it reads "fines, fees, penalties, overpayments, attorney fees, costs, and other amounts owed the department." With the exception of overpayment, she asked, what due process does an individual have to determine if the fines, fees and so forth are factual? And how does the department determine that an individual owes money? MR. HULL answered that page 3, line 29, refers to cases that have already gone to court, such as a small claims action. Small claims actions carry a 10.5 percent interest penalty on overdue benefits, and such a penalty is awarded to DOLWD by small claims court. The criminal court awards fines and penalties to DOLWD, but DOLWD itself does not levy fines except for benefit overpayments. Number 0991 CHAIR JAMES asked if the proposed CS only allows the collection of fines, fees, penalties, attorney fees and costs as deductions from the permanent fund dividend, providing that due process has already been experienced in the court. MR. HULL answered in the affirmative. CHAIR JAMES asked if DOLWD can collect on overpayments without going to court. MR. HULL answered that DOLWD can collect by means of an administrative hearing, which he considers to be due process. CHAIR JAMES replied that an administrative hearing is not the same as going outside DOLWD to court. She reiterated that she does not want to skip due process for the individual while making it simple and less expensive for DOLWD to collect money. Number 1064 REPRESENTATIVE OGAN said he is concerned about due process. He cited Governor Knowles' letter [of February 2, 2000] to Speaker Porter, which says "most state agencies still need to use a time consuming and costly court action to attach an individual's permanent fund dividend." In his opinion, that phrase refers to due process. He explained that the proposed CS appears to bypass the court process. CHAIR JAMES commented that Governor Knowles' letter is written to the original HB 337 draft, and therefore does not apply to this proposed CS. However, she is concerned that the due process problem still exists in the proposed CS. Number 1131 REPRESENTATIVE OGAN indicated the proposed CS turns due process into an administrative hearing process. Further, he added, an administrative hearing process simply amounts to an in-house administrative hearing officer who works for the commissioner and is accountable to the commissioner for the amount of collections he/she accomplishes, so there is concern that an individual will not get an unbiased hearing. He emphasized that he sees a constant erosion of people's rights in the name of government expediency. CHAIR JAMES acknowledged that every citizen should have the right to due process. She also agreed with Representative Ogan regarding the possible bias of administrative hearings. However, she said overpayments seem to be quite clear: either there is an overpayment or there is not. She also recognized that it is not easy for people to pay back an overpayment. She stated that she is definitely concerned about the proposed CS apparently circumventing due process by adding the words "fines, fees, penalties, overpayments, attorney fees, costs, and other amounts owed." She asked Mr. Hull if the proposed CS circumvents due process. Number 1270 MR. HULL replied in the negative. He acknowledged that a DOLWD administrative hearing is not the last resource for an individual who is in contention for alleged money owed. He reiterated that a claimant could choose to file a lawsuit in an outside court; thus due process continues. Fines and penalties mentioned in the proposed CS are part of due process because those are determined by a court of law. CHAIR JAMES said she understood, then, that fines, penalties, attorney fees and costs all must be court-approved. MR. HULL answered in the affirmative. CHAIR JAMES noted that the proposed CS, then, makes it unnecessary to go to an outside court to authorize a deduction from an individual's permanent fund dividend. She commented that she understood DOLWD had made an assessment through court procedure and at that point would use the proposed CS to make a collection. Number 1380 MR. HULL replied in the affirmative. He reminded the committee that there is a two-level, in-house appeal process available to an individual: (1) a lower-level appeal and (2) an appeal to the commissioner. If DOLWD prevails at both levels, then the debt is established. CHAIR JAMES asked if there is a difference between overpayments and the other charges that the proposed CS addresses in that overpayments do not have to be determined by a court. MR. HULL replied in the affirmative. CHAIR JAMES asked what "fees" are referred to in the proposed CS. Number 1414 MR. HULL answered that he did not know what the fees were for or why they were in the proposed CS. Number 1421 REPRESENTATIVE OGAN asked if the fees are established by regulation. MR. HULL replied in the affirmative. CHAIR JAMES said she is not happy with the word "fees" in the proposed CS unless someone can tell her what they are for. DWIGHT PERKINS, Deputy Commissioner, Department of Labor & Workforce Development, said the word "fees" will be removed from the proposed CS. REPRESENTATIVE WHITAKER noted that he is concerned with the notion of overpayment. He asked if overpayment is the result of (indisc.) claim or of a mistake by the agency. He requested a percentage breakdown of mistakes. Number 1483 MR. HULL answered that an overpayment could be a result of both reasons, as stated by Representative Whitaker. He reiterated that DOLWD breaks collection into two categories: fraudulent claims and error. For the latter, there could be error on the part of both DOLWD and the claimant. REPRESENTATIVE WHITAKER asked if DOLWD could show a percentage of errors as opposed to fraudulent claims. MR. HULL replied that he was not prepared to answer that question but that DOLWD does produce a monthly report with those figures and he will provide it to the committee. CHAIR JAMES offered to help answer Representative Whitaker's question. Every month, she said, DOLWD sends a request to employers asking for information and verification as to when employees were working. Then, when an employee files for unemployment insurance, the dates between what an employee claims and what an employer reports may not agree because of a time lapse in the method of reporting. Another problem with unemployment insurance dates occurs because work is counted when an employee gets paid, not when the employee actually worked. She acknowledged that generally when someone receives an overpayment, that person is aware of the overpayment but in her long career as a payroll person, she has not seen anyone deliberately cause an overpayment. Number 1615 MR. HULL recognized that a time-lapse problem as Chair James had just described happens quite often in DOLWD, but the department does not consider that to be fraud, especially if the employee reports the overpayment. REPRESENTATIVE WHITAKER stated that even though DOLWD would not label an overpayment as fraudulent, the overpayment is still classified as an overpayment, and the employee's permanent fund dividend would be subject to garnishment according to the proposed CS. CHAIR JAMES said she understood that money collected from both fraud and overpayment judgments would be deposited in the [UI] trust fund. Number 1667 MR. HULL specified that by statutory authority DOLWD assesses a 50 percent penalty on all fraud cases; the money collected is deposited in the general fund. Money collected for overpayment is deposited in the UI trust fund. CHAIR JAMES asked if DOLWD had a dollar figure of what is currently owed to the department in overpayments. MR. HULL answered that $4.5 million is owed for fraud, $3.5 million in statutory penalties and $1.5 million for overpayments. REPRESENTATIVE WHITAKER asked how many cases are involved in the stated figures. Number 1736 MR. HULL surmised that several thousand cases are involved. CHAIR JAMES offered her belief, from her experience, that people on unemployment are not financially secure; when a check arrives in the mail, they cash it, whether it is right or wrong to receive it, just because they need the money. Therefore, it is not easy for people on unemployment to pay back an overpayment, and she sees the proposed CS as an involuntary way for people to return overpayments. Number 1772 REPRESENTATIVE GREEN said the DOLWD fiscal note states that in the first year of collection DOLWD would recover $1.5 million, most of which would be fraud overpayments. In the second year, collection by DOLWD drops to about half of that amount. He asked if the proposed CS was designed to scare people with the threat of losing their permanent fund dividends. MR. HULL answered that the motive is the huge uncollected balance of fraud money owed to DOLWD, which assesses two or three million dollars per year for fraud but is successful in collecting only 50 to 55 percent of money owed. However, DOLWD does collect 90 percent of overpayments assessed. Collection of $1.5 million in the first year and the subsequent drop to half that collection in following years is because of the five- or six-year accumulation of old debt. He commented that $1.5 million of money owed does not accrue in one year. Number 1844 CHAIR JAMES asked if DOLWD had matched debtors with their permanent fund dividends, and if it was likely that those people had left the state. MR. HULL replied in the affirmative to both parts of the question. He mentioned that DOLWD sends a letter to debtors, many of whom voluntarily assign their permanent fund dividends to DOLWD. Debtors who have left the state are another problem. REPRESENTATIVE GREEN expressed concern about the fraud. He asked whether the drop in collections after the first year indicates a collection decrease each year, and whether there would be about $2 million or $3 million that DOLWD would never recover. Number 1871 MR. HULL answered, "Probably." REPRESENTATIVE GREEN asked if collection of the non-fraud overpays would also decrease since Mr. Hull had said $1.5 million is owed, yet DOLWD only expects to collect $400,000. MR. HULL answered that DOLWD does much better with collection of non-fraud money than with fraud collection, collecting as much as 90 percent of that. However, DOLWD does poorly on collecting penalties because the department cannot use UI trust fund dollars to offset it. If a person claims benefits at a later date, after paying off the overpayments but not the statutory penalties, the department cannot collect that penalty [from UI trust fund money]. REPRESENTATIVE GREEN noted that the ratios, however, indicate the same sort of trend. He asked whether that is because it is a ballpark guess. MR. HULL answered that it is based not on what the department is doing on a yearly basis, but on the fact that there is a large balance out there. Number 1937 CHAIR JAMES asked whether anyone else wanted to testify; there was no response. CHAIR JAMES then requested a motion for Amendment 1, to remove the word "fees" from page 3, line 30, of the proposed CS. REPRESENTATIVE HUDSON made a motion to adopt the foregoing as Amendment 1. There being no objection, Amendment 1 was adopted. REPRESENTATIVE OGAN noted that the entirety of Section 1 talks about fees for processing claims and assignments. CHAIR JAMES proposed having the drafter remove "fees" wherever that wording exists in Section 1. Number 2062 REPRESENTATIVE OGAN answered that he would feel more comfortable if it dealt strictly with fraudulent claims and was not so heavy- handed with people after the department had made a mistake. He felt that people should not pay for DOLWD's mistakes. REPRESENTATIVE WHITAKER echoed Representative Ogan's concern, saying he is very concerned about the appearance or perception that individual rights are being subjugated to state agency expediency. He specified that he could support the proposed CS if it related only to fraudulent claims. Number 2188 CHAIR JAMES explained that in the proposed legislation, fraudulent claims must go through a court process. Whereas a small number of overpayments are due to departmental error, it seems the majority would be either an employee's or an employer's error. She asked Mr. Hull to respond. MR. HULL said Chair James is correct because DOLWD tracks overpayment errors and assigns a code for each source of error; one code designates departmental error, which is a fairly rare cause. Many times when the department makes the error, the department tends to treat it differently. Number 2273 CHAIR JAMES commented that she believes most overpayments are not fraudulent; therefore, they should be put in a different category. She added that fraudulent claims are already authorized to levy fees and fines through a court process. MR. HULL agreed fees and fines are assessed by the court, not by the department. REPRESENTATIVE OGAN asked Mr. Hull to clarify his statement that most of the money owed is due to benefit overpayments but the Governor's letter states that $4.5 million is due to fraud. Representative Ogan emphasized that the numbers in the sponsor statement and the letter do not match. Number 2373 MR. HULL replied that the fraudulent collection amount [owed] is so large is because of difficulty in collection. The DOLWD has been trying to collect this money for five or six years, and as each year goes by, the amount to be collected increases. REPRESENTATIVE GREEN asked why DOLWD is reluctant to act on the concern expressed by Representatives Ogan and Whitaker regarding overpayments if the bulk of outstanding money owed is for fraud. He suggested that perhaps the committee would be doing a service to DOLWD by limiting the proposed CS to fraudulent claims only. Number 2438 MR. HULL answered that if passage of the proposed CS depended upon separation of fraud from overpayments, then he would accept the proposed CS for fraud only. He agreed that DOLWD is successful on collection of overpays. CHAIR JAMES asked how much money DOLWD is supposed to collect from overpayment cases. MR. HULL replied that around $1.6 million is owed for overpayments. A good bit of that is money that DOLWD cannot collect. When asked to provide an example of why DOLWD could not collect that money, Mr. Hull answered that partly it because of the cost of going to small claims court. On a non-fraud case, if a person who has been overpaid reapplies for benefits, the DOLWD can offset the money. Otherwise, it is a matter of collection; the department gets a judgment in small claims court, and if it is a large enough amount of make it worthwhile, the department uses that judgment to go back and get the person's permanent fund dividend. REPRESENTATIVE WHITAKER said he was having difficultly aligning the 2 percent mentioned earlier with the $1.6 million. MR. HULL noted that the 2 percent may be wrong "by a percent or two." He then said the percentage refers to the percentage of overpayments that might be caused by departmental error. Number 2526 REPRESENTATIVE OGAN asked if DOLWD had thought about reporting it to a credit bureau or hiring a collection agency. He noted that most reasonable people do not want their credit records put in jeopardy, which a collection agency threatens to do. MR. HULL answered that the department had looked at that. However, there were problems regarding how to pay for it because there is a fee attached to it. However, the biggest problem is that collection agencies do not want to deal with old debt; they prefer 30-90 day debt. The department can collect new debt easily itself; the problem is in collecting old debt. Number 2576 REPRESENTATIVE OGAN asked if DOLWD had looked at statistics of people who owe old debt in order to ascertain if they are still receiving permanent fund dividends. MR. HULL answered in the affirmative but said he cannot provide percentages. He estimated that about 50 percent of [people who owe] fraud debt are located out of state. CHAIR JAMES asked where DOLWD would stand in the hierarchy of permanent fund dividend lien authority if the proposed CS passed. Number 2626 MR. HULL replied that he thinks DOLWD is number five. NANCI JONES, Director, Permanent Fund Dividend Division, Department of Revenue, said the proposed CS is a request for administrative levy powers. If the proposed CS separates fraud collection from overpayment collection, then DOLWD's [place in the] payment hierarchy changes; one levy has a higher priority than the other. If the proposed CS authorized levy power to DOLWD for both types of collections, that would give DOLWD a higher priority in permanent fund dividend levies. She emphasized that it is an administrative nightmare for the Permanent Fund Dividend Division to impose the levy if the areas to be levied are cut up into little pieces. Number 2705 REPRESENTATIVE HUDSON inquired of Ms. Jones as to the hierarchical position of DOLWD if the proposed CS were to pass as it stands now. He also asked who the other agencies are that have authority to garnish permanent fund dividends. MS. JONES replied that if the committee kept the proposed CS intact, then DOLWD would have the same standing as other state agencies except for the Alaska Commission on Postsecondary Education, the Child Support Enforcement Division in the Department of Revenue (DOR), and the Division of Public Assistance in the Department of Health and Social Services. She agreed that DOLWD's standing is about in fifth place. Number 2750 CHAIR JAMES referred to Section 1 and asked whether the "fees for processing claims and assignments" are the same as the fees under discussion on page 3, line 30. MR. HULL answered that fees addressed in Section 1 are DOR charges for processing permanent fund dividend levies. MS. JONES acknowledged that DOR charges a $2 fee against a permanent fund dividend account each time a dividend is levied; for example, if a dividend account has six agency levies against it, DOR charges $12 to the account before giving the levy to the corresponding agency. Number 2797 CHAIR JAMES said she understood, then, that the DOR administrative fee deduction against a permanent fund dividend account is paid by the permanent fund dividend recipient in addition to what the recipient may owe DOLWD. MS. JONES concurred. REPRESENTATIVE HUDSON noted that Section 1 is existing [statutory] language regarding fees; therefore, when considering the new section .072, page 3, line 30, those fees are essentially the same as the fees in Section 1. Number 2832 REPRESENTATIVE SMALLEY mentioned that page 3, line 31, and page 4, line 1, say "and other amounts owed the department under other provisions of state law under which the claim for payment is being made." He asked if that includes Section 1 fees. Number 2851 MR. HULL offered his belief that paragraph (f) of the proposed CS means DOLWD fees. CHAIR JAMES agreed. She said although she does not want DOLWD to collect any fees, she does agree that DOR should collect their administrative fee. She does not see any difference between collecting overpayment for welfare or collecting overpayment for unemployment insurance, she said, since she believes unemployment insurance is a benefit, as is welfare. Nevertheless, it distresses her to see agencies make mistakes that cause repayment problems for people. She emphasized that based on Amendment 1, she feels comfortable with the proposed CS. TAPE 00-8, SIDE B Number 2963 REPRESENTATIVE WHITAKER expressed concern about the practicality of the proposed CS. He said he understands the expediency benefit for DOLWD and that $1.6 million is at stake, half of that perhaps being collectible. However, he is very concerned for the citizen who receives a mailed notice from DOLWD that funds are owed. At that point, the citizen has to work his/her way through the bureaucracy and try to figure out what happened, who garnished his/her permanent fund dividend, for what reason, and then defend himself/herself against the alleged claim. He reiterated that the legislature is putting agency governmental expediency above the rights of the individual, and he will oppose the proposed CS. CHAIR JAMES commented that she did not believe Representative Whitaker's picture was accurate. First of all, there is an administrative hearing, so to say that the person does not know that he/she owes DOLWD is not true. Second, the person will have received several overpayment notices before an administrative hearing is scheduled. She observed that in her experience someone who does not receive a permanent fund dividend knows why, and sometimes a garnished permanent fund dividend is the easy way out of a required payment situation. She does recognize individual rights, she said, but also has a legislative responsibility to manage state funds in a correct manner. Under the proposed CS, she sees a huge amount of money that can be collected at less cost to the state. She feels comfortable with the proposed CS, she concluded, because DOLWD will not collect fees, fines, and so forth without a court decision, and overpayments will result in an opportunity for administrative hearing. She said she will not sacrifice $1.6 million for a few people who know very well that they have been overpaid. Number 2783 REPRESENTATIVE WHITAKER said he disagrees with Chair James on this issue. REPRESENTATIVE OGAN agreed with Representative Whitaker. He said the issue reminds him of the Internal Revenue Service (IRS) philosophy that one is guilty until proven innocent: the IRS will take a citizen's money first and then the court case begins. Under what the justice system is supposed to be, however, a person has the right to due process and is supposed to be innocent until proven guilty. He emphasized that he is going to support the side of the people on the proposed CS. However, he is willing to support the proposed CS if it is modified to include fraudulent claims only. He reminded the committee that Mr. Hull had said that DOLWD was willing to make that modification to gain passage of the proposed CS. Number 2709 REPRESENTATIVE SMALLEY agreed with Chair James in that the money is owed to the state and he is confident that DOLWD will make the collection in a correct manner. He reiterated that he will support the proposed CS along with Amendment 1. REPRESENTATIVE OGAN noted that the state constitution says "privacy and security must be safeguarded against arbitrary invasions like governmental officials." He concluded that this statement supports due process. Number 2645 CHAIR JAMES indicated she understood that Representatives Ogan and Whitaker believe that [having the] court adjudicate issues regarding overpayments is sufficient, but if DOLWD has not gone to court, then overpayment collection is not acceptable. She, however, believes overpayment is prima facie evidence. Therefore, neither the individual nor DOLWD should be obliged to go to court to collect money owed. She emphasized that she does not believe it is a good financial decision to go to court in any case. Her summary is, she added, either drop the proposed CS entirely or spend general fund money to collect monies owed as DOLWD is currently doing. She reminded members that the individual has been notified of overpayment, an administrative hearing has taken place, and the overpayment is prima facie evidence that the person owes money. She reiterated that she understands Representative Ogan's and Whitaker's argument but she does not agree. Number 2556 REPRESENTATIVE WHITAKER reminded Chair James that prima facie evidence is determined by a court of law, not by the committee or by the legislature. He said the committee is talking about small claims actions that do not ordinarily incur costs associated with a full-blown trial. Again, in his opinion, this is a question of individual rights as opposed to states' rights. If the legislature does nothing else but stand on the line between individual rights and states' rights and say "you may not cross the line," he feels the legislature has done its job. REPRESENTATIVE OGAN made a motion to table the proposed CS. A roll call vote was taken. Representatives Green, Ogan, and Whitaker voted for it. Representatives Hudson, Smalley and James voted against it. Representative Kerttula was absent. Therefore, the motion to table the proposed CS failed by a vote of 3-3. Number 2369 REPRESENTATIVE HUDSON made a motion to move version 1-GH2060\G, Cook, 2/17/00, as amended, out of committee with individual recommendations and attached fiscal notes; he asked unanimous consent. REPRESENTATIVE OGAN objected. A roll call vote was taken. Representatives Green, Hudson, Smalley and James voted in favor of moving the bill. Representatives Ogan and Whitaker voted against it. Representative Kerttula was absent. Therefore, CSHB 337(STA) moved from the House State Affairs Standing Committee by a vote of 4-2.
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