Legislature(2001 - 2002)
03/14/2002 03:40 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 318-O.K. TO ASSIGN PFD TO NONPROFIT CORP
RUSS KELLY, Intern to Senator Leman, said SB 318 allows Alaskans
to assign the right to receive their Alaska Permanent Fund
Dividend (PFD) to a non-profit organization that falls under
501(c)(3) of the Internal Revenue code. Currently PFDs can only
be assigned to a federal, state or municipal government or to a
court.
The intent of the bill is to provide more options for those
Alaskans who wish to have their PFD donated directly. They also
hope it will promote the spirit of giving.
They have been working with the permanent fund division to work
out a system whereby the responsibility will be spread among the
non-profits and those making the donations.
CHAIRMAN THERRIAULT noted Ted and Françoise Gianoutsos had
testimony to give and their written testimony would be included
in the record. He asked for an explanation of how this would spur
any additional charitable giving. He didn't think the mechanism
actually provided an incentive to give because there was no
additional federal tax benefit. He asked why you couldn't simply
write a check to the charity of your choice once you've received
your dividend.
MR. KELLY replied that some individuals want to have their
dividend transferred directly to the charity of their choice.
CHAIRMAN THERRIAULT noted the Department of Revenue analysis said
that, passage of the bill would not require the dividend division
to publish a list in the annual application booklet. Since the
non-profits would have to be 501(C)(3)s and a list would not be
provided, the dividend division would have to find out whether
particular organizations were actually qualified to receive the
money. He asked whether that explained the fiscal note.
MR. KELLY said they were hoping that the onus would be on the
non-profit to make sure that the permanent fund division had
their current information. Also, there could be an automated
system where the non-profits are listed and the individual who
wanted to make the donation would assume the responsibility to
check that list to ensure that the recipient was qualified.
CHAIRMAN THERRIAULT asked whether Senator Leman had thought about
the groups that would qualify under the 501(c)(3) designation
because he believes that Congress should address this type of
non-profit. He is personally concerned because they generate
money through the tax benefit that they are able to give to
individuals and although they aren't supposed to be involved in
politics, they have found loopholes to get around that. He asked
Mr. Kelly whether he had discussed this with Senator Leman.
MR. KELLY said that has been one of Senator Leman's concerns from
the beginning. Mr. Kelly discussed that subject with the IRS and
confirmed that there are many opportunities for this type of non-
profit to skirt the rules. Although they are aware of the
problem, they have no solution at this time.
SENATOR PHILLIPS asked whether this has to be so broad based to
make it constitutional.
CHAIRMAN THERRIAULT said the Legislature certainly has the
ability to put together a list but he isn't sure what criteria
upon which the list would be based. If an organization were not
on the list, the individual would still have the option of
writing a personal check to that organization.
SENATOR PHILLIPS asked what generated the interest that resulted
in this bill.
MR. KELLY replied it was a constituent concern.
NANCY JONES, Director of the Permanent Fund Dividend Division,
explained the fiscal note they submitted is a low end or
beginning number of the impact that it would have on their
program. Presently, they have an assignment system whereby all or
part of a dividend can be assigned to government agencies.
Including charitable organizations would require the development
of a new category. The assignment is up to the applicant so they
would do no advertising and take no responsibility, they would
simply be a medium. If this bill is worded so that the onus is on
the applicant to ensure the recipient is in fact a 501(c)(3) and
they fill out a form with the correct federally designated number
and dollar amount, then the division is just the medium to get
the funds to a designation. If 20 percent of the adult population
participated, the division would need an additional full time
person to handle the data entry, but if the idea didn't generate
much interest then the cost would be correspondingly less. The
other alternative is for the division to maintain a list, which
would bring a variety of costs. They would incur publishing costs
and would have to work with the IRS to maintain the list. The
tracking and maintenance would cause a steep increase in cost
because it would become part of the PFD program.
CHAIRMAN THERRIAULT commented that anytime something is added to
the application to request information, there is increased
opportunity for errors which results in increased workload and
cost for the division. He wasn't sure the fiscal note fully
captured the upside cost potential.
SENATOR PHILLIPS asked whether the division had taken a position
on the bill.
MS. JONES replied they would accommodate the Legislature's
decision.
SENATOR STEVENS asked Ms. Jones to speak to Mr. Gianoutsos'
written testimony charging that the four pages in the PFD
application for the college savings plan amounts to free
advertisement for T. Rowe Price Brokerage.
MS. JONES replied that is incorrect. The university pays the
division $32,000 per year to buy the space in the booklet and
this is the first year that T. Rowe Price is involved under
contract.
CHAIRMAN THERRIAULT noted T. Rowe Price is under a ten year
contract.
SENATOR STEVENS reconfirmed that T. Rowe Price is managing the
money but it's the university that is encouraging participation
in the program.
MS. JONES replied that was correct.
SENATOR STEVENS expressed concern that if there is the ability to
designate to non-profits then those non-profits might very well
become competitive for the PFD and spend dedicated money to get
additional money. He asked Ms. Jones to comment.
MS. JONES thought it would be no different than the March of
Dimes sending address labels; they would just mention they would
like to get a portion of the dividend. Whoever advertises to
solicit funds will incur the cost.
SENATOR STEVENS responded it is such a massive amount of money
that the non-profits would enter the advertising field to get the
designation of the fund and he isn't sure that is what non-
profits should be doing.
There were no further questions.
CHAIRMAN THERRIAULT told Mr. and Mrs. Gianoutsos that their
written testimony would be entered into the record. He asked
whether they had any comments or response to the previous
testimony.
TED GIANOUTSOS said they were there "in the capacity of permanent
fund dividend assignment of rights philanthropists for the Alaska
common good" and were happy to answer any questions because this
legislation was their idea.
CHAIRMAN THERRIAULT asked whether they had an answer to the
question of how the mechanism would spur philanthropic giving.
MR. GIANOUTSOS used the college savings account as an example
saying that program encourages savings for college and this would
work in the same way. He thought non-profits would have to
advertise less if direct assignments could be made.
CHAIRMAN THERRIAULT pointed out there was a benefit to the
individual who participated in the college savings program. Not
only was there the benefit of buying a future college course at
today's price but also there was a federal tax benefit for
participating in the 529 Plans. There is a compelling reason to
participate because they can stretch their dollar or grow their
savings tax-deferred. He did not see that type of motivation
built into this proposed bill.
MR. GIANOUTSOS agreed their plan did not offer that kind of
motivation to participate. Their point is that, "This would be a
way to facilitate and encourage giving to non-profits of probably
substantially more than people would otherwise give if they were
to cut the check."
CHAIRMAN THERRIAULT asked him to comment on the 501(C)(3) non-
profits that generate money then launder it into politics. He
noted an article about the PETA organization (People for the
Ethical Treatment of Animals) describing their troubles caused by
collecting 501(C)(3) receipts and then making contributions to
ELF (Earth Liberation Front), which is a terrorist organization
that is listed with the FBI. This is an extreme, but there are
plenty of examples of 501(C)(3) money being generated then
laundered into politics. He asked Mr. Gianoutsos if he had
thought about that and whether he had an answer to how that could
be prevented.
MR. GIANOUTSOS admitted he had no answer but his understanding is
that the federal government designated what organization
qualifies as a 501(C)(3). He thought there were several thousand
of these non-profits in Alaska and they all have identifying
federal tax-exempt identification numbers and have certain
guidelines they must follow. The guidelines place a strict
limitation on the amount of money that can be used for political
purposes. He used Audubon as an example of a national
environmental organization with an Alaska division that has its
own rules as well as federal rules. Of course those rules could
be abused and he had no idea how that could be prevented, but was
sure there were more beneficial organizations for the Alaska
common good than the few that might be bad.
Following is the written testimony from Ted and Françoise
Gianoutsos:
BENEFITS OF THE GOOD NEIGHBOR ACT
Thank you so much, Mr. Chairman, for inviting us to testify
today, by teleconference from Anchorage, on SB318, "The Good
Neighbor Act," introduced by Senate Majority Leader Loren Leman.
The benefits of the "Good Neighbor Act" are many, but the
principal benefit is that it will facilitate and encourage PFD
gift assignment philanthropy for the Alaska common good. It will
motivate average Alaskans to become PFD gift assignment
philanthropists directly to the 501(c)(3) Alaskan non-profit of
their choice.
Of course Alaskans can already cash their PFD check and give all,
or a portion of it, to anyone or anything they wish - and many
Alaskans do. They can also use a portion or all of their PFD
checks to save for college expenses. Yet, the PFD "College
Savings Plan" check-off facilitates and encourages saving for
college to benefit Alaskans through higher education and thus
ultimately benefit the Alaska common good. Even if some Alaskans
choose to use the college savings plan to attend college Outside
and even if some graduates of our University of Alaska choose to
live and work Outside, the PFD "College Savings Plan" is
nonetheless a worthwhile program for the Alaska common good - so
too is the "Good Neighbor Act".
The "Good Neighbor Act" can lead to the creation of the "Alaska
Common Good Fund" at the Permanent Fund division. The name
"Alaska Common Good Fund" would identify the program just as the
"College Savings Plan" identifies that worthy effort. And just
as the administration of the "College Savings Plan" is
contracted-out by competitive bid - currently to T. Rowe Price, a
for-profit corporation in Baltimore, Maryland - so too could the
administration of the "Alaska Common Good Fund" be contracted-
out, by competitive bid, to hopefully Foraker, that was
established last year by the United way to help all Alaskan non-
profits, or to another Alaskan non-profit corporation such as the
Community Foundation, Catholic Foundation, Homer Foundation or
any other successful bidder.
The Permanent Fund division would then deduct a nominal $2.00
administration fee from the PFD assignment donor's gift - as it
already does for other assignments - and make only one bulk
electronic transfer to the "Alaska Common Good Fund"
administrator. The program administrator could then in turn
deduct a small administration fee from the donor's gift or
receive an administration reimbursement fee from the recipient
non-profit. Thus the program costs would be born by the donor,
or non-profits, and not by the taxpayer.
Of course PFD gift assignment philanthropists would choose the
Alaskan non-profits that would be the recipients of their gifts.
The philanthropists could also ask the recipient non-profits to
establish a U.S. Treasury Direct family endowment account with
their gift assignment as we ourselves did at the Alaskan SeaLife
Center last year with our first PFD gift assignments.
This would further enhance the beneficial effect of the program
as it gives the donor an "ownership" interest in the donor's
chosen non-profit. Obviously, such a family endowment account
has many advantages and benefits such as encouraging further
giving with leveraged gifts, security of investment, no-cost
investment of gifts up to $100,000 per account, encouragement of
a family tradition of philanthropy for the Alaska common good,
etc.
The federal income tax considerations of the "Good Neighbor Act"
can easily be worked out with cooperation from our Alaska
congressional delegation. Already for those who itemize their
deductions there is no problem as the increase in the taxpayers'
income is offset by the deduction of the charitable gift
contribution.
Also a list of eligible Alaskan non-profits can be posted on the
Permanent Fund division's web site with their name and federal
non-profit identification number. Alaskans can also be made
aware of the "Alaska Common Good Fund" on the PFD web site as
well as with a page in the PFD application booklet. Indeed the
"College Savings Plan" has 4 pages in the booklet, which also
amounts to free advertisement for T. Rowe Price's brokerage
business. Surely, if the PFD application booklet provides 4
pages of advertisement for an Outside brokerage house's business,
it can provide one page of publicity for an Alaska non-profit
administrator, whose sole function is to enhance our Alaska
common good.
Most importantly, the "Good Neighbor Act" will result in a very
significant increase in Alaskan philanthropy for the common good.
We firmly believe that with the enthusiastic promotion of the
"Alaska Common Good Fund" thousands of our fellow Alaskans will
choose to follow our PFD gift assignment example. These gift
assignments can be matched in several ways and the resulting
increased capital can be securely invested in U.S. Treasury
Direct family endowment accounts which will provide a solid long-
term source of funding for Alaskan non-profits to benefit our
Alaska common good - and that certainly can only be a good thing!
We hope that all five of you members of the Senate State Affairs
Committee will sign on as co-sponsors of SB318 at the conclusion
of today's hearings. As all of you know, we have personally
contacted every number of the Senate and House by letter and also
by telephone asking for their co-sponsorship of SB318 - HB493.
We believe that the "Good Neighbor Act" is quite simply good
legislation that obviously benefits the Alaska common good and
thus merits the co-sponsorship of all 60 members of our Alaska
legislature. Please add you names to the 10 who have already co-
sponsored both bills. Please encourage your colleagues to add
their names as well.
The best philanthropists have always been those average Americans
who have little, but give much. They are the backbone of
American philanthropy, giving far more than the rich. We are
doubly blessed as Americans and Alaskans, receiving a yearly
Permanent Fund Dividend from the "Great Land" of Alaska, which
enables each of us to become continuing PFD gift assignment
philanthropists for our Alaska common good. Let us do all we can
to facilitate and encourage this philanthropy to our Alaskan non-
profits of our choice to make Alaska an even better place to
live!
CHAIRMAN THERRIAULT announced it was his intention to discuss
this with Senator Leman.
SB 318 was held in committee.
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