Legislature(2003 - 2004)

03/25/2003 08:04 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 109-TREASURY WARRANTS                                                                                                      
CHAIR WEYHRAUCH  announced that  the next  order of  business was                                                               
HOUSE  BILL  NO. 109,  "An  Act  relating  to the  limitation  on                                                               
payment  of  state  treasury  warrants;   and  providing  for  an                                                               
effective date."                                                                                                                
Number 1790                                                                                                                     
REPRESENTATIVE  HOLM  moved  to   adopt  the  proposed  committee                                                               
substitute (CS),  Version 23-LS0581\D, Kurtz, 3/24/03,  as a work                                                               
draft.   There  being  no  objection, Version  D  was before  the                                                               
Number 1843                                                                                                                     
LINDA SYLVESTER, Staff to  Representative Bruce Weyhrauch, Alaska                                                               
State Legislature, presented HB 109  on behalf of the House State                                                               
Affairs  Standing   Committee,  sponsor,   noting  that   it  was                                                               
introduced at the  request of the Murkowski  Administration.  She                                                               
said it is an efficiency bill  with a zero fiscal note, and seeks                                                               
to  address inconsistencies  in statute.   The  first relates  to                                                               
state warrants, which  is how the state makes  payments to itself                                                               
and for contracts, for example.   The other statute that the bill                                                               
addresses is the unclaimed property Act.                                                                                        
MS.  SYLVESTER  explained  that   [Version  D]  has  "one  slight                                                               
change."  Currently, state warrants  can be presented for payment                                                               
for up  to two years,  after which time  they are turned  over to                                                               
the general fund.  She explained,  "If the books have closed, ...                                                               
the departments have to do  a separate appropriation."  Referring                                                               
to a copy  of the supplemental budget [HB 110]  in packets and to                                                               
a tagged item on  [page 9], she stated, "That item  on the top is                                                               
how the ... Department of Administration presents these stale-                                                                  
dated warrants for payment."                                                                                                    
MS.  SYLVESTER referred  to a  handout ["Stale  Date Warrant  Re-                                                               
Appropriation Request FY 2003-1"] that  shows a list of payments,                                                               
some small.   She remarked, "This is the cumbersome  way that the                                                               
departments have to  get these payments processed  because of our                                                               
budgeting system."  She explained  that originally the intent was                                                               
to change  the deadline to one  year; however, at the  request of                                                               
Representative Gruenberg,  the limit  was dropped to  six months,                                                               
which makes it conform with the Uniform Commercial Code (UCC).                                                                  
Number 1943                                                                                                                     
KIM  GARNERO,  Director,  Division   of  Finance,  Department  of                                                               
Administration (DOA), testified as follows:                                                                                     
     We in  the Division  of Finance pay  vendors, grantees,                                                                    
     and  employees  for the  State  of  Alaska.   When  our                                                                    
     warrants  are  not cashed  within  two  years, the  law                                                                    
     currently  requires  that  the  amount  revert  to  the                                                                    
     general fund in  a process know as  stale-dating.  When                                                                    
     those individuals  whose checks  were not  cashed later                                                                    
     come forward and make their  claim on uncashed warrants                                                                    
     known, a  new appropriation  is required before  we can                                                                    
     pay them.  Claims can be  required to wait up to a year                                                                    
     before the  appropriation is in  place and  payment can                                                                    
     be made.   This  is frustrating  for both  the claimant                                                                    
     and the state agency, which must track this process.                                                                       
MS.  GARNERO  noted  that this  year's  stale-date  appropriation                                                               
totaled $44,917.00  for 20 warrants,  "and you're looking  at the                                                               
list."  She continued as follows:                                                                                               
     That  ...  fast-track  supplemental that  the  governor                                                                    
     signed last week, ... those  warrants have now gone out                                                                    
     the door.   Already  I've heard  of another  $24,000 in                                                                    
     stale-dated  warrants  we need  to  get  into the  next                                                                    
     appropriation cycle.   The stale-date  law has  been in                                                                    
     place since  the 1960s.   In  1986, Alaska  adopted the                                                                    
     unclaimed  properties  statutes  in   Title  34.    The                                                                    
     legislative proposal before you  today will shorten the                                                                    
     timeframe,  as [Ms.  Sylvester]  said,  and change  the                                                                    
     handling  of   uncashed  warrants  to  treat   them  as                                                                    
     unclaimed property.                                                                                                        
     The unclaimed  property program is administered  by the                                                                    
     Department  of  Revenue  and actively  seeks  to  match                                                                    
     rightful owners  to their property.   Treating uncashed                                                                    
     as unclaimed  property will expedite payments  to these                                                                    
     valid property owners.                                                                                                     
MS.  GARNERO  noted  that Rachel  Lewis,  administrator  for  the                                                               
unclaimed properties program in  the Department of Revenue, could                                                               
answer  questions  on that  program,  whereas  she herself  could                                                               
address the current stale-dating process.                                                                                       
Number 2043                                                                                                                     
REPRESENTATIVE  BERKOWITZ  asked  how  many  warrants  the  state                                                               
issues, what percentage are stale-dated  "with two years, ... one                                                               
year,  ... six  months," and  how that  translates to  "increased                                                               
money to the general fund."                                                                                                     
MS.  GARNERO  replied  that  she  doesn't  know  regarding  total                                                               
warrants; however,  in fiscal  year 2002  (FY 02)  4,000 warrants                                                               
were stale-dated.   In  further response  regarding the  total of                                                               
money, she answered that she doesn't know, but will find out.                                                                   
REPRESENTATIVE  BERKOWITZ  said,  "And  of  that  amount,  44,000                                                               
awards requested to be ..."                                                                                                     
MS. GARNERO said, "Claimants came forward."                                                                                     
REPRESENTATIVE BERKOWITZ said he wants  to know how much money is                                                               
being discussed  and what happens  when the date  is accelerated.                                                               
He said he  also wants to know how the  six-month period compares                                                               
with  what private  individuals  or entities  would have  "before                                                               
they can write things off."                                                                                                     
MS. GARNERO responded, "I believe,  through my discussions on the                                                               
UCC  with Representative  Gruenberg, that  private enterprise  is                                                               
six months on checks".                                                                                                          
Number 2128                                                                                                                     
REPRESENTATIVE  GRUENBERG said  he has  had an  interest in  this                                                               
issue  since  1986, when  he  introduced  a  bill to  make  state                                                               
warrants checks come  under the UCC.  He offered  his belief that                                                               
the state should  be up to date in this  regard, since "everybody                                                               
in the world is under the  Uniform Commercial Code."  He referred                                                               
to AS  45.04.404 as the part  of statute that specifies  the time                                                               
period of six months.                                                                                                           
REPRESENTATIVE  GRUENBERG  said  this  problem  was  precipitated                                                               
because banks were  having a lot of problems as  a result of what                                                               
turned out to  be an erroneous legal opinion  from the Department                                                               
of Law.   It was the  state's position that its  warrants weren't                                                               
negotiable instruments, which meant  they could be dishonored and                                                               
not cashed, for a number of reasons.   He said this issue went to                                                               
the Alaska Supreme  Court.  He mentioned National  Bank of Alaska                                                             
v. Univentures and said that  ultimately the supreme court agreed                                                             
that  state  warrants,  under  the  Uniform  Commercial  Code  in                                                               
AS 45.03.104(a),  met the  statutory definition  of a  negotiable                                                               
instrument  and  so   would  fall  under  the   definition  of  a                                                               
negotiable instrument in the UCC.  He continued:                                                                                
     As  a result,  the  state was  no  longer permitted  to                                                                    
     dishonor these  checks.   This had  cause the  banks of                                                                    
     this  state horrendous  problems,  and  they'd been  in                                                                    
     dispute with the state for many, many years on this.                                                                       
     The exact  contour of that  decision have not  yet been                                                                    
     determined; the state now  recognizes these warrants as                                                                    
     negotiable instruments.   And we  - Ms. Garnero  and I,                                                                    
     and  the officials  from the  Department  of Revenue  -                                                                    
     over  the weekend  were trying  to  determine what  the                                                                    
     legal implication  would be  to simply  redefine checks                                                                    
     to  include state  warrants within  the definition  and                                                                    
     thereby bring these instruments  totally under the UCC.                                                                    
     And that would have taken some time to do it.                                                                              
Number 2260                                                                                                                     
REPRESENTATIVE  GRUENBERG  said  he  was  prepared  to  offer  an                                                               
amendment; however,  he mentioned discussions with  Ms. Sylvester                                                               
and Ms. Garnero  and the efforts they will make  over the interim                                                               
to check  on how other states  do it, for example,  and come back                                                               
to report  to the legislature.   [At  that time], if  language is                                                               
supported that would bring state  warrants under the UCC, he said                                                               
he thinks that would be a good idea.   He added, "But at the very                                                               
least,  number one,  this  bill brings  it  within the  six-month                                                               
period of the UCC and will  make it much simpler and, number two,                                                               
instead of holding  the money in the general fund,  will bring it                                                               
under the uniform unclaimed property Act."                                                                                      
Number 2330                                                                                                                     
REPRESENTATIVE BERKOWITZ  asked the difference between  a warrant                                                               
and a  check.   He also asked  if there is  a procedure  by which                                                               
someone who  is unable to  "cash" for six months  subsequently is                                                               
able to do so.                                                                                                                  
REPRESENTATIVE GRUENBERG  answered yes [to the  second question].                                                               
He noted  that another Act  passed in  the 1980s was  the uniform                                                               
unclaimed  property  Act,  which  establishes an  office  in  the                                                               
Department of Revenue  and a regular procedure "for  all kinds of                                                               
things."    For  example,  if  someone  loses  money  and  it  is                                                               
transferred  to the  police department,  that unclaimed  property                                                               
goes to  the Department of Revenue.   He said, "It  supplants the                                                               
old legal concept of escheat.   We no longer have escheat in this                                                               
state  and  the  other  states that  have  adopted  [the  uniform                                                               
unclaimed  property  Act].    And you  can  literally  come  back                                                               
forever  and get  your money.   And  the state  just holds  it in                                                               
trust  in   the  meantime."     In  response   to  Representative                                                               
Berkowitz's first  question, he  said, "That's what  we're trying                                                               
to find  out."  He  said that under  the National Bank  of Alaska                                                               
case, [warrants] are legally negotiable instruments.                                                                            
Number 2422                                                                                                                     
REPRESENTATIVE BERKOWITZ surmised, "It's a synonymous term."                                                                    
REPRESENTATIVE  GRUENBERG  said  yes, but  opined  that  probably                                                               
there will  be no difference.   He  offered his feeling  that for                                                               
clarity, the  legislature should  enact a  statute that  says the                                                               
term "check" includes  a warrant.  He added,  "But legally, under                                                               
this opinion  anyway, they are  negotiable instruments  and would                                                               
then fall under the UCC."                                                                                                       
CHAIR WEYHRAUCH remarked, "And that's  what we're still trying to                                                               
work through."                                                                                                                  
REPRESENTATIVE GRUENBERG  concurred.   He said there  just wasn't                                                               
enough time and [the administration]  wants this bill on the fast                                                               
track.  He added that he thinks [the bill] is a good idea.                                                                      
Number 2451                                                                                                                     
MS. GARNERO said the UCC has  many provisions.  She said deciding                                                               
whether or  not the state  may be relinquishing rights  under the                                                               
way it  currently does  business, by  subjecting its  warrants or                                                               
checks  to the  UCC,  will take  some analysis.    She said  that                                                               
analysis will  be made  as part of  an overall  business practice                                                               
analysis to replace statewide systems over the next few years.                                                                  
REPRESENTATIVE  GRUENBERG suggested  having  some mechanism  over                                                               
the interim  to, if  necessary, have some  hearing and  work with                                                               
the department on the issue,  which will modernize the department                                                               
and provide the legislative framework that is needed.                                                                           
CHAIR  WEYHRAUCH  recommended  putting  that in  the  form  of  a                                                               
request.  He said he is open to that.                                                                                           
Number 2516                                                                                                                     
MS. GARNERO  reiterated that  she intends to  find out  the legal                                                               
difference between  a warrant  and a  check.   She said  she does                                                               
know  that  the  way  banks  are compensated  for  a  warrant  is                                                               
different from  a checking  account.  She  remarked, "We  pay for                                                               
the  warrants  upon  presentation  to  us;  we  do  not  maintain                                                               
balances  in  the  bank  like  we do  in  our  personal  checking                                                               
accounts."   She said  this is  what she always  has been  led to                                                               
believe is the difference between them.                                                                                         
MS. GARNERO, regarding  Representative Berkowitz's question about                                                               
the general  fund, said when  "warrant stale-date" money  does go                                                               
back to the general fund, it  sits there until claimants come for                                                               
it and "we" give it an  appropriation.  When property goes to the                                                               
unclaimed property  account, it  sits in  the general  fund, too,                                                               
waiting  for claimants  to come  forward.   She said  she doesn't                                                               
know if there will be more  or fewer claimants.  Ms. Garnero said                                                               
she thinks there will be fewer  warrants that ever go through the                                                               
process  because  it's  part of  implementing  the  efficiencies,                                                               
which this  legislation allows.   She mentioned  periodic reports                                                               
[of uncashed  warrants] and canceling  those warrants.   She said                                                               
she knows  they go back  to the general  fund if they  are stale-                                                               
Number 2579                                                                                                                     
REPRESENTATIVE  BERKOWITZ said,  "It seems  to me  that if  we're                                                               
getting the $45,000 ... or $50,000, roughly, per year, on a two-                                                                
year deal,  I'd like to know  ... how much really  reverts and no                                                               
one ever claims a claim subsequently."                                                                                          
MS. GARNERO said she'd find out.                                                                                                
REPRESENTATIVE  BERKOWITZ requested  that she  find out  what the                                                               
numbers  are  for  [the  various   time  periods,  as  previously                                                               
Number 2604                                                                                                                     
REPRESENTATIVE  DAHLSTROM noted  that  half of  the ["Stale  Date                                                               
Warrant Re-Appropriation  Request FY  2003-1"] list is  under the                                                               
same name.                                                                                                                      
MS.  GARNERO explained  that those  are longevity  bonus [items].                                                               
In response  to a follow-up  question, she said she  doesn't know                                                               
why [the person listed had not cashed the warrants].                                                                            
Number 2625                                                                                                                     
RACHEL  LEWIS,  Unclaimed  Property Section,  Treasury  Division,                                                               
Department  of  Revenue,   addressed  Representative  Berkowitz's                                                               
question  regarding shortening  the stale-dating  to six  months.                                                               
She  pointed out  that the  shorter  the period,  the better  the                                                               
chances  are  of locating  people  at  their last-known  address,                                                               
which results  in fewer stale dates.   She said she  doesn't know                                                               
what  [Ms.   Garnero's]  numbers  will  be,   but,  historically,                                                               
"through unclaimed property in all  50 states, almost all of them                                                               
are  lessening the  dormancy  period of  all  kinds of  unclaimed                                                               
property,"   including  state   warrants  and   government-issued                                                               
Number 2689                                                                                                                     
REPRESENTATIVE GRUENBERG asked what the  normal period of time is                                                               
under  the  unclaimed  property  Act   for  "the  turning  in  of                                                               
unclaimed property."                                                                                                            
MS. LEWIS answered that the  statutory average is five years, but                                                               
there are  items that are  specifically addressed.   For example,                                                               
bank  accounts  are  seven years,  while  traveler's  checks  are                                                               
fifteen.   Regarding  government checks,  Ms. Lewis  mentioned at                                                               
least  one  year  for  abandonment.     She  also  mentioned  due                                                               
diligence and [a  period of] between six months and  one year for                                                               
unclaimed-property reporting.                                                                                                   
Number 2735                                                                                                                     
REPRESENTATIVE GRUENBERG  highlighted a  change from one  year in                                                               
the original bill to six months in  the proposed CS.  He asked if                                                               
that would mesh with the  unclaimed property Act or whether there                                                               
would be conflict.                                                                                                              
MS. LEWIS replied that she  doesn't see any conflict because "the                                                               
one year they would turn ...  over to us."  The six-month period,                                                               
she noted, is the working  period "to streamline the paperwork to                                                               
come into unclaimed properties."                                                                                                
MS. GARNER added, "And that's to do the due diligence."                                                                         
REPRESENTATIVE   GRUENBERG   asked,   "Would   you   start   your                                                               
advertising after  six months, so  you'd put these people  on the                                                               
list when you publish it?"                                                                                                      
MS. LEWIS  said yes.  She  added that [those people  on the list]                                                               
would also  "go on  the Internet."   Responding  to a  comment by                                                               
Representative  Gruenberg, she  stated, "You'd  be surprised  ...                                                               
what  kind  of  agencies  end up  with  unclaimed  property.  ...                                                               
Sometimes the  checks just never make  it to them, and  they have                                                               
no idea they ... never got a check."                                                                                            
REPRESENTATIVE GRUENBERG  offered his  assumption that  under the                                                               
unclaimed  property Act  [or  another Act  perhaps],  there is  a                                                               
method of immediately getting that money to [the owner].                                                                        
MS. LEWIS responded, "We've tried  to address some of the better-                                                               
known agencies and banks and federal governments, you bet."                                                                     
Number 2819                                                                                                                     
REPRESENTATIVE BERKOWITZ moved to report CSHB 109, Version 23-                                                                  
LS0581\D,  Kurtz,  3/24/03,  out  of  committee  with  individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no objection,  CSHB 109(STA)  was reported  from the  House State                                                               
Affairs Standing Committee.                                                                                                     

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