Legislature(2003 - 2004)
05/07/2004 08:44 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 494(FIN) am
"An Act relating to the methods of disbursement of money by
the state, including employment compensation, unemployment
payments, and permanent fund dividends, and to bank
investments and deposits by the state; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken noted that this bill, CS HB 494 (FIN) am, Version
23-LS1754\U.A, sponsored by Representative Pete Kott, would mandate
"that monetary disbursements can only be made through an electronic
funds transfer or through an electronic payment card unless doing
so would cause hardship to the recipient." He noted that several
amendments would be forthcoming.
SUE STANCLIFF, Staff to Representative Pete Kott, noted that this
bill would alter the method through which the State disburses funds
in order to reduce associated costs to State agencies and to
"improve service delivery to the public." She informed that the
proposed electronic payment delivery that would utilize such things
as direct deposits would benefits the State, as it would reduce the
high cost of issuing paper checks. She informed, however, that such
electronic payment delivery would not be a viable payment method
for "so-called cash customers" who are those who do not have a bank
account or those who might live in Bush areas of the State and not
have access to a bank or choose not to receive direct deposits.
Ms. Stancliff stated that, in addition to reducing the cost of
issuing paper checks, "considerable" savings would result from: not
having to deal with check fraud; not having to re-issue lost or
stolen checks or address stale dated checks; reduced postage and
bank service fees; and reduced labor costs. Furthermore, she stated
that the proposed process would benefit those who receive
electronic payments because it would eliminate check-cashing fees,
the payment would be made in a timely, reliable manner, and the
check fraud liability would be reduced.
Ms. Stancliff pointed out that while 89-percent of the State's
payroll is direct deposited, only 1.5 percent of the 50,000 vendors
the State does business with currently utilize the electronic
payment transfer method. She pointed out that this is the area to
which the maximum focus would be directed. She noted that the
State's child support and public assistance programs are
increasingly using electronic disbursements.
Co-Chair Wilken understood that the legislation would allow the
State to utilize electronic funds transfers. He asked whether there
is a "compliant" component associated with the legislation.
Ms. Stancliff stated that rather than "compliant" being the
appropriate word, the hope is that incorporation of this
legislation would encourage its use. She stated that the State
would not require someone to choose this method of payment, as that
would impede on their right not to choose it. However, she noted
that an agreement within the Western States Alliance does have a
compliant component in regards to electronic benefit transfers.
Co-Chair Wilken voiced being "shocked" that the State issues 96,000
checks a month. He asked how this legislation would alter current
payment regulations.
Ms. Stancliff responded that it would insert a new section into
State's statutes that identify the methods of disbursements that
the State shall use. She noted that, included in the new language,
is language specifying that a person would not be required to
utilize electronic payment. Therefore, she concluded, that while a
person could opt out of this payment method, the legislation would
specify that this be the "primary method" utilized by State
departments.
Co-Chair Wilken surmised therefore that the legislation would
establish the method for disbursement, which is currently "quiet"
in statute.
Ms. Stancliff concurred. She noted that the legislation also
updates the statute to "the electronic age" by replacing the word
"warrant" with "disbursement" throughout.
DEBBIE BUMP, Division of Finance, Department of Administration,
noted that she was available to answer questions.
Senator Olson asked for further information regarding how the
legislation would apply to people without a bank account.
Ms. Stancliff responded that this legislation would not require a
person living in a remote community with limited banking options or
who elect not to receive electronic payments to do so. She stated
however, that the State could alternately save money were these
people to receive payment via an electronic or cash card, which is
similar to a debit or credit card that could be used at their local
grocery store or post office.
Senator Olson asked for clarification regarding the fact that no
more warrants would be issued.
Ms. Stancliff clarified that the legislation would allow warrants
to be issued to people "if they have no other means available to
them."
Senator Olson asked for further information regarding the
electronic card.
Ms. Stancliff explained that in lieu of receiving a check in the
mail, funds in the form of cash cards could be utilized were
electronic technology available at an area's post office or grocery
store.
Amendment #1: This amendment inserts a new section into the bill on
page two, line 23, after Section 3, as follows.
Sec. 4. AS 14.40.841 is amended to read:
Sec. 14.40.841 Alaska Aerospace Development Corporation
[REVOLVING] fund. (a) the Alaska Aerospace Development
Corporation {REVOLVING} fund is established in the
corporation. The [REVOLVING] fund consists of appropriations
made to the [REVOLVING] fund by the legislature, and rents,
fees, or other money or assets transferred to the [REVOLVING]
fund by the corporation. Amounts deposited in the [REVOLVING]
fund may be pledged to the payment of bonds of the corporation
or expended for the purpose of the corporation under AS
14.40.821 - 14.40.990.
(b) The corporation shall have custody of the fund, and
shall be responsible for its management. The corporation is
the fiduciary of the fund under AS 37.10.071 and may invest
amounts in the fund in accordance with an investment policy
adopted by the corporation. Notwithstanding AS 37.10.010 -
37.10.050, the corporation may make disbursements from the
fund in accordance with AS 37.25.050. Notwithstanding AS
37.05.130 - 37.05.140, the corporation shall report
disbursements from the fund annually in accordance with AS
14.40.866(b)(1). An appropriation made to the fund by the
legislature shall be transferred from the state treasury to
the corporation for deposit in the fund.
In addition, Sec. 31 on page 11, line 12 is replaced with the
following language.
Sec. 32. Section 4 of this Act takes effect July 1, 2004.
Sections 1-3 and 5-31 of this Act take effect January 1, 2006.
Co-Chair Wilken offered Amendment #1 and objected for explanation.
Co-Chair Wilken shared that the Alaska Aerospace Development
Corporation (AADC), of which he is a Board member, has "struggled
with how to bring their accounting system which is somewhat unique
because of its launch customers" into the State's accounting
system.
PAT LADNER, Executive Director, Alaska Aerospace Development
Corporation, testified via teleconference from an offnet site and
explained that the twelve year-old corporation, after struggling
"in the beginning against long odds," has recently signed a five-
year missile defense contract. He noted that in FY 03, the
Corporation: earned $3.7 million in revenue; is expected to
generate $11 million in FY 04; and, "provided all scheduled
launches occur," would be expected to generate $22.1 million in FY
05. He stressed that this "is money brought into the State." This
amendment, he explained, would allow the Corporation to be
responsive to its customer the federal government, and be
competitive with Vandenberg Air Force Base. He recounted that the
missile defense contract requires an accounting system that is
approved by the federal Defense Audit Agency (DAA), and he noted
that the Corporation's Axis Accounting System does not meet the
established criteria as it was initially designed to be a funds
tracking system for the Legislature. Furthermore, he explained that
the current system segregates disbursements into five categories:
labor; travel; contractual; supplies; and equipment. However, he
continued, the national missile contracts require a work breakdown
structure that consists of approximately 15 categories with sub-
category requirements. He disclosed that because the current system
does not provide that ability, a "shadow mode accounting system"
has been developed, which as subsequently been approved by the DAA.
The continuation of the Axis System and the development of the
shadow system, he disclosed, has resulted in a double accounting
system, which has increased labor costs that could not be recouped
under the contracts. Therefore, he stated that because the
Corporation receives no funding from the State, this scenario is
placing the Corporation in a non-competitive situation as these
overhead rates escalate.
Mr. Ladner stated that this amendment would serve to make the
Corporation more efficient and competitive by allowing the
incorporation of the separate accounting system. He attested that
no other component of the operation such as annual audits and
reports would be affected. He further assured the Committee that
each contract would continue to require an annual DAA audit, a
legislative audit, and a separate federal audit. He urged the
Committee to support the amendment.
Co-Chair Wilken noted that further information is attached to the
amendment.
Ms. Stancliff stated that the sponsor has no objection to the
amendment.
Co-Chair Wilken removed his objection.
Senator Bunde asked whether this amendment would exclude the
Corporation from a Legislative Budget & Audit review.
Mr. Ladner responded that it would not.
There being no further objection, Amendment #1 was ADOPTED.
Conceptual Amendment #2: This amendment replaces the word "person"
with the words "vendor or grantee" in Section 18, subsection (b)(4)
on page six, line 18. The new language would read as follows.
(4) a vendor or grantee elects not to be paid by the
disbursement methods;
Co-Chair Wilken moved to adopt Conceptual Amendment #2.
Ms. Stancliff explained that this language is being proposed as
most accounts are established with a vendor or a grantee rather
than with a person.
There being no objection, Amendment #2 was ADOPTED.
Conceptual Amendment #3: This amendment deletes Sections 25 and 26
of the bill beginning on page nine, line 20 through line 31, which
read as follows.
Sec. 25. AS 44.99.205(a) is amended to read:
(a) A state agency may not place a picture of an elected
state official on an application form [, A WARRANT,] or a
direct deposit notice provided by the agency.
Sec. 26. AS 44.99.205(b) is amended to read:
(b) A state agency may not place a message on or with an
application form [, A WARRANT,] or a direct deposit notice
provided by the agency unless the message is
(1) from a state agency employee who is not an
elected state official; and
(2) required by law, necessary for the operation of
the document, related to seasonal health issues included in
flu shot reminders, or related to a program or activity of the
state agency.
Co-Chair Wilken moved to adopt Conceptual Amendment #3.
Ms. Stancliff explained that because this legislation incorporates
the disbursement requirement into State statutes and because people
could opt out of the electronic payment method and continue to
receive a paper check or warrant, this language is no longer
required.
There being no objection, Conceptual Amendment #3 was ADOPTED.
Senator Dyson moved to report the bill, as amended, from Committee
with individual recommendations and accompanying fiscal note.
There being no objection, SCS CS HB 494(FIN) was REPORTED from
Committee with seven zero fiscal notes as follows: fiscal note #1,
dated March 19, 2004 from the Public Assistance Field Services,
Department of Health and Social Services; fiscal note #2, dated
March 19, 2004 from the Information Technology Services, Department
of Health and Social Services; fiscal note #3, dated March 19, 2004
from the Administrative Supports Services Division, Department of
Health and Social Services; fiscal note #4, dated March 16, 2004,
from the Unemployment Insurance Division, Department of Labor and
Workforce Development; fiscal note #5, dated March 16, 2004, from
the Employment Services, Department of Labor and Workforce
Development; fiscal note #6, dated March 19, 2004, from the
Department of Revenue; and fiscal note #7, dated March 16, 2004,
from the Department of Administration.
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