Legislature(2003 - 2004)
03/25/2003 08:04 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 committee. 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- dated. 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 stated]. 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 checks. 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.