Legislature(1999 - 2000)
03/01/2000 01:40 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
March 1, 2000
1:40 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Joe Green
Representative Norman Rokeberg
Representative Jeannette James
Representative Lisa Murkowski
Representative Eric Croft
MEMBERS ABSENT
Representative Beth Kerttula
OTHER HOUSE MEMBERS PRESENT
Representative Eldon Mulder
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 52
Proposing an amendment to the Constitution of the State of Alaska
relating to certain public corporations.
- MOVED CSHJR 52(JUD) OUT OF COMMITTEE
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 42
"An Act relating to civil liability for certain false or improper
allegations in a civil pleading or for certain improper acts
relating to a civil action; amending Rule 82(b), Alaska Rules of
Civil Procedure; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 385
"An Act relating to search warrants."
- MOVED HB 385 OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 47
Proposing amendments to the Constitution of the State of Alaska
relating to the permanent fund and to payments to certain state
residents from the permanent fund.
- HEARD AND HELD
HOUSE JOINT RESOLUTION NO. 18
Proposing an amendment to the Constitution of the State of Alaska
relating to an office of administrative hearings.
- SCHEDULED BUT NOT HEARD
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."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HJR 52
SHORT TITLE: CONFIRM PUBLIC CORP BD MANAGING ASSETS
Jrn-Date Jrn-Page Action
2/02/00 2059 (H) READ THE FIRST TIME - REFERRALS
2/02/00 2060 (H) STA, JUD, FIN
2/17/00 (H) STA AT 8:00 AM CAPITOL 102
2/17/00 (H) Moved Out of Committee
2/17/00 (H) MINUTE(STA)
2/18/00 2234 (H) STA RPT 3DP 3NR
2/18/00 2234 (H) DP: JAMES, WHITAKER, OGAN;
2/18/00 2234 (H) NR: SMALLEY, KERTTULA, GREEN
2/18/00 2234 (H) FISCAL NOTE (GOV)
2/28/00 (H) JUD AT 1:00 PM CAPITOL 120
2/28/00 (H) Heard & Held
2/28/00 (H) MINUTE(JUD)
3/01/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 42
SHORT TITLE: CIVIL LIABILITY FOR IMPROPER LITIGATION
Jrn-Date Jrn-Page Action
1/19/99 29 (H) PREFILE RELEASED 1/15/99
1/19/99 29 (H) READ THE FIRST TIME - REFERRAL(S)
1/19/99 29 (H) JUD, FIN
2/16/00 2206 (H) SPONSOR SUBSTITUTE INTRODUCED
2/16/00 2206 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2206 (H) JUD, FIN
2/16/00 2206 (H) REFERRED TO JUDICIARY
2/28/00 (H) JUD AT 1:00 PM CAPITOL 120
2/28/00 (H) Heard & Held
2/28/00 (H) MINUTE(JUD)
3/01/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 385
SHORT TITLE: ISSUANCE OF SEARCH WARRANTS
Jrn-Date Jrn-Page Action
2/16/00 2215 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2215 (H) JUD
2/28/00 (H) JUD AT 1:00 PM CAPITOL 120
2/28/00 (H) Heard & Held
3/01/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HJR 47
SHORT TITLE: CONST AM: PERMANENT FUND
Jrn-Date Jrn-Page Action
1/24/00 1986 (H) READ THE FIRST TIME - REFERRALS
1/24/00 1986 (H) JUD, FIN
1/24/00 1986 (H) REFERRED TO JUDICIARY
3/01/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
SUSAN COX, Assistant Attorney General
Special Litigation Section
Civil Division (Juneau)
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Testified on fiscal impacts of SSHB 42 and
the department's concerns with substantive issues.
ROBERT A. MINTZ, Attorney at Law
550 West 7th Avenue, Suite 1540
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on SSHB 42.
DAVID HUDSON, Lieutenant
Division of Alaska State Troopers
Department of Public Safety
5700 East Tudor Road
Anchorage, Alaska 99507-1225
POSITION STATEMENT: Testified in support of HB 385, citing the
change from "crime" to "offense" as a primary reason.
ANNE CARPENETI, Assistant Attorney General
Legal Services Section-Juneau
Criminal Division
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Testified in support of HB 385; believes
that listing all possible offenses would be impractical and that
the bill would not open a Pandora's box.
REPRESENTATIVE ANDREW HALCRO
Alaska State Legislature
Capitol Building, Room 418
Juneau, Alaska 99801
POSITION STATEMENT: As sponsor of HB 385, provided closing
remarks and answered questions.
REPRESENTATIVE GARY DAVIS
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of HJR 47.
SENATOR JERRY MACKIE
Alaska State Legislature
Capitol Building, Room 427
Juneau, Alaska 99801
POSITION STATEMENT: As sponsor of SJR 33, companion resolution,
testified on HJR 47 and answered questions.
KATHLEEN BALLENGER
P.O. Box 126
Kodiak, Alaska 99615-0186
POSITION STATEMENT: Testified in support of HJR 47.
ACTION NARRATIVE
TAPE 00-24, SIDE A
Number 0001
CHAIRMAN PETE KOTT called the House Judiciary Standing Committee
meeting [which was recessed on 2/28/00] back to order at 1:40
p.m. in order to make an announcement to listeners on
teleconference; no other members were present at the time. He
called an at-ease, then brought the meeting back to order again
at 2:12 p.m., at which time taping of the meeting began. Members
present at 2:12 p.m. were Representatives Kott, Green, Rokeberg,
James and Murkowski; Representative Croft arrived as the meeting
was in progress.
HJR 52 - CONFIRM PUBLIC CORP BD MANAGING ASSETS
CHAIRMAN KOTT announced that the first order of business would be
HOUSE JOINT RESOLUTION NO. 52, proposing an amendment to the
Constitution of the State of Alaska relating to certain public
corporations. He indicated a new proposed committee substitute
(CS) had been provided to Representative James, the sponsor, and
to the other members.
Number 0089
REPRESENTATIVE ROKEBERG made a motion to adopt the proposed CS,
Version D [1-LS1387\D]. There being no objection, it was so
ordered.
CHAIRMAN KOTT specified that he believes that Version D, page 1,
lines 6-8 and 12-13, gets to the committee's intent as discussed
at the previous hearing. He asked whether there was further
debate on the resolution; none was offered.
Number 0183
REPRESENTATIVE GREEN made a motion to move the proposed CS for
HJR 52, Version D, out of committee with individual
recommendations and the attached fiscal note. There being no
objection, CSHJR 52(JUD) was moved from the House Judiciary
Standing Committee.
HB 42 - CIVIL LIABILITY FOR IMPROPER LITIGATION
Number 0257
CHAIRMAN KOTT announced that the next order of business would be
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 42, "An Act relating to
civil liability for certain false or improper allegations in a
civil pleading or for certain improper acts relating to a civil
action; amending Rule 82(b), Alaska Rules of Civil Procedure; and
providing for an effective date."
CHAIRMAN KOTT informed members that the public testimony begun at
the previous hearing would continue. He asked whether anyone on
teleconference wished to testify, but there was no response. He
called an at-ease at 2:17 p.m. and called the meeting back to
order at 2:19 p.m., noting that Representative Mulder, the
sponsor of SSHB 42, was present. He called on Susan Cox to
testify.
Number 0517
SUSAN COX, Assistant Attorney General, Special Litigation
Section, Civil Division (Juneau), Department of Law (DOL), came
forward to testify. She informed members that the Special
Litigation Section does personal injury defense for the State of
Alaska if state employees are sued regarding events in the course
and scope of their employment. The state deals with a high
volume of pro se litigation, which is litigation brought by
people who are unrepresented by counsel. In many cases, the lack
of counsel may indicate a lack of merit to the claims.
Therefore, the DOL frequently faces marginal cases where a person
is unable to retain counsel and where the cases should not have
been brought because those being sued have immunity or the
substance of the claim has no merit; the DOL finds itself
defending against those. Furthermore, pro se cases are often
costly to defend because the opponents don't know what they are
doing in a court of law.
MS. COX told members that while appreciating the goals of this
legislation, unfortunately the department believes this bill
would likely encourage people to file additional claims where
those people think they can recover something that they were
unable to get in their original lawsuits with the state, but
perhaps with different targets in the follow-up litigation. Ms.
Cox mentioned examples where attorneys in her office are
defending cases in which they have won summary judgment and yet,
if given the chance, the judgment-proof opponent who has nothing
to lose would be more than happy to file a claim against the
attorney who had prevailed on the merits in the case. Therefore,
the DOL has submitted a fiscal note; they expect that this will
be an attraction, and certainly, by its own terms, the bill does
create causes of action that don't currently exist.
Number 0728
MS. COX addressed substantive issues in the bill. She noted that
subsection (f) states that a person may not bring a civil action
to recover damages under subsections (c) or (d) unless a final
judgment has been entered. Pointing out that this bill has been
through two version this legislative session and was introduced
in a different form in past years, Ms. Cox suggested some of the
internal references are confusing and perhaps are holdovers from
previous versions.
MS. COX specified that in subsection (f), the reference to
bringing an action to recover damages under subsection (c) is
misleading or perhaps not intended; subsection (c) does not
create a cause of action but merely prohibits certain conduct,
whereas subsection (d) actually makes a cause of action for the
various violations of those prohibitions in subsections (a) and
(c). Ms. Cox said she is thinking that the reference to
subsection (c) in line 30 [page 2] is not necessarily intended.
Furthermore, page 3, line 1, again refers to a civil action to
recover damages under subsection (c); Ms. Cox said she is
assuming that reference is meant to be subsection (d), or at
least it is ambiguous.
MS. COX brought attention to the prohibitions in subsection (c)
[page 2], which read:
(c) A person may not, on the person's own behalf
or as a representative of a party, take part in the
initiation, defense, continuation or procurement of a
civil action against another person if the person acts
(1) without probable cause on a claim or
defense; or
(2) primarily for a purpose other than that
of securing the proper adjudication of a claim or
defense involved in the civil action.
MS. COX suggested the person referenced here could possibly be a
target in a second lawsuit if that person lacked probable cause
for a claim or defense or had an improper purpose for involvement
in that. She said the phrase beginning with "take part in the
initiation" is somewhat ambiguous, and it may be difficult to
determine the parameters. For example, in her own office people
are directly involved in litigation of a case, and there may be
superiors who are aware of and who may actually approve certain
decisions made in a case; there would be a variety of levels of
people called to account for how a case was defended and/or
brought, and the reasons for that.
Number 0898
MS. COX said she may have misunderstood Mr. Mintz the other day
when he testified that subsection (c) is a codification of the
standard for a malicious prosecution action under current common
law. If that is what he said, Ms. Cox told the committee, she
would have to disagree. The standard for a malicious prosecution
action in this state would require that the party bringing it,
first and foremost, has prevailed on the merits in the underlying
case; then that party would have to establish the elements that
are there in subsection (c) - both of them, not one or the other.
Number 0940
REPRESENTATIVE GREEN referred to Ms. Cox's testimony regarding a
judgment-proof litigant who could come back with a second
frivolous lawsuit. He asked whether she believes this [bill] is
meritorious in concept but could actually result in that
happening.
MS. COX answered that she is concerned about that when it comes
to people who are unrepresented by counsel. This provision says
actual reasonable fees can be awarded against a person who fails
in a subsequent action brought under this bill; however, a
judgment-proof person who lacks assets won't necessarily be
deterred. From her perspective, the DOL has more trouble dealing
with frivolous cases brought by people who aren't represented by
lawyers than those brought by people who are represented.
MS. COX noted that she had reviewed the canons of professional
responsibility before the hearing that day; she pointed out that
some of what is in this bill is already, of course, required of
people who practice law in Alaska. She said she sees this as
opening a possibility for what may seem to the department like
never-ending frivolous litigation.
MS. COX informed the committee about a current situation in which
[the state] has a $34,000 judgment for attorney fees in a case it
won, but the person involved is writing letters complaining about
the conduct of the DOL attorney; if that person had the
opportunity, Ms. Cox has no doubt he would file suit under this,
and then another attorney in her office would be representing
that first attorney. She concluded that they would be
relitigating that case except where collateral estoppel might bar
relitigation of the claims already determined.
Number 1067
REPRESENTATIVE JAMES voiced her understanding that the
legislation eliminates false claims from being part of the issue.
She asked whether Ms. Cox was saying that a person who had lost
[a case] would come back and claim that it wasn't fair, and would
do so without an attorney.
MS. COX explained that it is conceivable that someone who lost in
the original case could come back and sue, claiming that one
reason for losing was that the other side had made a false
statement or was somehow engaged in an improperly motivated
litigation. Ms. Cox said she isn't conceding in any way that the
follow-up litigation would be meritorious, but she foresees cases
in which people that [the department] has litigated against and
won against could try again. She believes that this is more
likely to happen with people who are unrepresented throughout.
REPRESENTATIVE JAMES said she certainly understands the problems
relating to lack of legal representation, and the law protects
people for being able to do that. Her concern, however, is that
if someone who loses a case has evidence that there was some
untruth presented, that door isn't necessarily open, which this
bill would do. She suggested that [with the bill] more care may
be taken by people to ensure that those statements are true. She
added:
I don't necessarily mean that they did it on purpose.
But if there is some untruth or some piece of the
evidence that has been depended upon for the outcoming
of the case that wasn't true, and that the person who
was the subject of the challenge wasn't able to present
their case because of that untrue statement in any way,
I don't think you would want to deny them this
opportunity, would you, of presenting it again?
Number 1227
MS. COX replied:
There are several answers to your question. One is, of
course, you're assuming that the person who lost
actually has a meritorious claim that someone actually
lied or presented a falsehood in the original action.
In that circumstance, they do have a couple of things
available to them. One would be to file a bar
complaint, ... if it involved the unethical conduct of
an attorney. The other would be if it ... materially
affected the outcome of their case, of course, they can
... file a motion to ... have the judgment vacated and
submit their new evidence revealing that, in fact,
something material had been misstated in the earlier
case.
They wouldn't, ... as you recognize, have at this point
a separate cause of action for civil liability against
their opposing lawyer and the opposing party
necessarily. What I'm speaking to, however, and in
terms of the fiscal impact, is the situation in which
we expect unmeritorious claims to be brought under this
litigation to further litigate what were unmeritorious
claims to begin with. And we will have a cost in
dealing with those.
Number 1306
REPRESENTATIVE CROFT referred to malicious lawsuits and the way
subsection (c) of the bill works versus the current law. He
agreed with Ms. Cox that this [subsection (c)] is an "either/or":
one can sue saying that somebody either didn't have probable
cause or did it for another purpose. Under the current malicious
lawsuit law, however, one would have to show both of those.
MS. COX clarified that the person who would be bringing a
malicious prosecution claim would have had to have won in the
original lawsuit.
REPRESENTATIVE CROFT suggested under the old law, then, a person
couldn't sue another for malicious prosecution if that other
person had won the case; that isn't a requirement in this bill,
however.
MS. COX affirmed that.
REPRESENTATIVE CROFT said it opens it up for people who have lost
a lawsuit to claim some motivation in the lawsuit and to sue on
that basis. He asked whether, if he could prove that another's
motivation were primarily for a purpose other than that of
securing the proper adjudication, he could get full attorney fees
and costs or compensatory damages. He clarified that he was
referring to paragraph (c)(2).
MS. COX specified that paragraph (d)(3) speaks to that and says
compensatory and punitive damages.
REPRESENTATIVE CROFT indicated the law had developed to be "and"
in order to make these tough to do. He suggested it was really a
"three-step deal": lack of probable cause, some ulterior motive,
and the requirement of having prevailed in the litigation. If
those three were met, the law said it was worth it to have an
entirely new lawsuit. But under this bill, one gets a new
lawsuit every time, just based on people guessing what the real
purpose of the original lawsuit was, even if the case was lost on
the merits.
REPRESENTATIVE CROFT said the above is subsection (c), the main
part that troubles him. However, it also had troubled him when
the representation was made that this is about the same as the
current malicious lawsuit [common law]. "It just isn't, and
there are important distinctions why widening that up hurts," he
added.
Number 1558
REPRESENTATIVE CROFT noted that he was having an amendment drawn
up [1-LS0264\D.2, Ford, 3/1/00, which had not yet arrived via
fax]. He pointed out that there are two ways to lie: to assert
something that isn't true or to say something is not true when it
is; these are opposite sides of the same coin. He said
plaintiffs make factual allegations because they have the burden
of proof, whereas defendants make denials. He asked Ms. Cox her
opinion as to whether this bill adequately addresses both sides
of the equation [allegations and denials] in paragraphs [(a)](1)
and (2) and subsection (b).
MS. COX responded that she hadn't really thought of that. Her
feeling is that there is a distinction here, of course, between
the first section in subsection (a), especially paragraph (a)(1),
because it says a person may not sign a complaint, answer or
other civil pleading; she said the definition of "pleading"
includes affidavits, so that coverage is not limited to lawyers,
and of course it includes pro se litigants who sign their own
complaints and answers, as well as witnesses who may sign
affidavits. She added, "And so in that section we're talking
about false allegations material to claims that may arise --
could be answers to interrogatories."
REPRESENTATIVE CROFT specified that he wanted to add the word
"denial" there, so it would say "claim, defense, denial or
allegation." He then said he didn't know whether it would be
"and" or "or." He explained that he wanted to make it more clear
that it is both a factual positive allegation and a denial.
MS. COX answered that certainly an argument could be made that,
as drafted, that covers a denial. For example, when she files an
answer to a complaint, which is contemplated in that first
section, she is making a positive statement that what is being
said is not true, and she assumes that if that is a false
statement, she could be held responsible under this. She agreed
that adding "denial" would make that clear. She emphasized that
there is a difference between paragraph (a)(1) and subsection
(b); paragraph (a)(1) on page 1, line 10, says "with the
intention of asserting allegations that are false," whereas
subsection (b) at the top of page 2 refers to "knowingly [made] a
false statement." She said she doesn't know whether that is
intentional or is the result of this bill being changed, with
parts of it coming from different sources.
REPRESENTATIVE CROFT responded that he thought that was
intentional. He said paragraph (a)(1) is the one that he has the
least problem with, if "denial" is added; that is a pretty high,
almost criminal standard, the intention of asserting facts that
are false. In contrast, subsection (b) is just "knowingly."
Furthermore, the punishments are different: for (a)(1),
compensatory and punitive [damages], whereas for subsection (b),
"you just sort of freeze the lawsuit and have a mini-trial on the
issue of who lied."
MS. COX replied, "Or ... , as I believe Mr. Lessmeier testified
the other day, give the jury a jury instruction about it, ... and
it would probably be the first instruction they'd have to
consider: 'If you find that either one of these parties made a
knowing false statement, you stop there, you enter judgment for
the other side.'"
Number 1801
REPRESENTATIVE CROFT commented that sometimes in trials,
particularly where there have been discovery violations, the
judge rules on certain issues. He indicated this [provision]
goes three or four steps further than that, however, because that
judgment will be entered regardless of what else remains in the
case. He asked Ms. Cox whether that is the way she reads it.
MS. COX replied that it is hard to know exactly how this would be
applied. It does say the court will enter judgment against the
party who makes the false statement on the issue to which the
false statement relates; the breadth or scope of that judgment
would certainly be a disputed issue, especially if both parties
disagreed about a seminal issue in the case such as whether one
or the other had run a red light. Both parties could be firm in
their convictions that they are right, and yet, in the end, the
jury has to decide that they believe one more than the other.
However, here the jury may be asked first to decide which side is
telling the truth and to evaluate credibility before even looking
at the elements of the cause of action.
REPRESENTATIVE CROFT said that is a good point about [the
judgment] applying only to the claims. However, the bill says
"enter judgment" instead of "establish the issue," for example.
As he reads it, it is a full judgment regardless of defenses or
causation or other issues.
Number 1911
REPRESENTATIVE GREEN posed a situation involving a misdemeanor
and lying in court.
MS. COX clarified that this only applies to civil liability.
REPRESENTATIVE GREEN asked whether lying in court isn't a felony,
however.
MS. COX agreed that perjury is definitely a crime.
REPRESENTATIVE GREEN expressed concern that if both parties
accuse each other of lying, one is probably correct.
REPRESENTATIVE CROFT pointed out that trials are made of factual
disagreements. It could be that one side is lying and one side
is telling the truth. However, it could be that both sides just
disagree and one is mistaken. What one really wants is for the
jury to decide who was at fault. He suggested that the bill,
however, would result in overlaid allegations and "must finds."
He expressed concern about changing the focus into a search for
perjury.
Number 2096
REPRESENTATIVE GREEN asked, in essence, what happens if someone
has made a statement but then becomes uncertain as to its
veracity.
MS. COX deferred to Representative Croft.
REPRESENTATIVE CROFT said paragraph (a)(2) essentially [replaces]
Rule 11, which is used to sanction an attorney. Noting that Mr.
Lessmeier had said [at the previous hearing] that he didn't
recall having seen Rule 11 used in 20 years, Representative Croft
pointed out that he himself, in two years in practice, had seen
two potential issues regarding it; therefore, in his limited
experience, there are some teeth to it.
REPRESENTATIVE CROFT posed a situation where an attorney drafts a
complaint without checking out all the facts, and it turns out
that the allegations made without reasonable inquiry were
correct. As it is now, the attorney could be sanctioned. Under
this bill, however, there could be a whole new lawsuit, even
though the allegations turned out to be correct. Representative
Croft suggested this would at least double the amount of
litigation and perhaps the person who was factually in the wrong
would get the benefit.
Number 2240
ROBERT A. MINTZ, Attorney at Law, testified via teleconference
from Anchorage. He responded to Representative Croft's last
scenario by saying the action could not be brought under
subsection (a) for failure to make a reasonable inquiry unless,
after the carelessly drafted complaint were filed, the offended
party wrote a letter saying that the allegations weren't correct.
If those allegations were not well founded, there would be an
opportunity to change them; if they were checked and found to be
true, the attorney would be insulated from liability.
REPRESENTATIVE CROFT asked, "Where?" He pointed out that on page
1, line 11, it says "sign a civil pleading before making
reasonable inquiry"; he would have violated (a)(2), even though
the allegations turned out to be true. This doesn't say anything
about the ultimate disposition of the case that he could find.
MR. MINTZ referred to paragraph (f)(2) and said one cannot bring
an action under subsection (a) unless a notice of the specific
conduct alleged to violate (a) is served under the rules of civil
procedure. Using Representative Croft's example, if he didn't
receive a notice under (f), he would be okay; however, if he got
a letter in the mail under (f) that says the allegations are
untrue and there wasn't reasonable inquiry, then he would be at
risk.
REPRESENTATIVE CROFT said that in the first instance, the
challenged conduct wouldn't be corrected because there is no
correction to be made.
MR. MINTZ said the point is well taken. The intent of (a)(2) is
to require attorneys to actually do up-front research and to
determine whether there is a basis for bringing people to court.
REPRESENTATIVE CROFT suggested under his scenario, however, a new
lawsuit could develop, even if he proceeded and won.
MR. MINTZ agreed, but said that would only be if the failure to
do so were brought to his attention and ignored. He restated his
belief that if the allegations were checked out and the attorney
decided to go forward, under (f) the attorney would be insulated.
REPRESENTATIVE CROFT disagreed that it accurately says that,
however, and mentioned sanctions.
TAPE 00-24, SIDE B
Number 0001
REPRESENTATIVE CROFT suggested that remedies under Rule 11 and
the bill are similar except that they are in two different legal
contexts.
MR. MINTZ agreed, saying that in one legal context, the judge had
discretion, whereas in the other, the person is entitled to be
made whole through compensatory and appropriate punitive damages.
He emphasized that this only applies in civil suits. He also
pointed out that in order for this to be triggered, it requires
more than a simple disagreement or a mistake. Rather, it
requires an intentional act, an intentional lie, or a knowing
misstatement of fac;, or it requires somebody to not correct a
mistake after it has been brought to that person's attention. It
is not something that happens easily or by mistake.
Number 0096
REPRESENTATIVE MURKOWSKI referred to the 21 days after a person
has been served notice. She recalled that if she had been served
a notice by another attorney or a pro se litigant saying that she
hadn't "done her homework," she would be obligated to notify her
own malpractice carrier; it isn't just whether there is a claim
out there, but it is the probability of the claim that the
carrier must be notified about. She asked how this would affect
an attorney's malpractice coverage and whether there have been
any discussions with ELPS [Educational Leadership and Policy
Studies] about what this legislation would do regarding
malpractice carriers in the state.
MR. MINTZ answered that there has been no discussion with the
malpractice insurers that he is aware of.
REPRESENTATIVE MURKOWSKI asked Mr. Mintz whether he agrees that
it might be problematic.
MR. MINTZ said he didn't know how they would respond to it.
Number 0172
REPRESENTATIVE GREEN referred to his own concept of filing a
felony [for perjury] in a civil action and to the indication by
Mr. Mintz that that wouldn't be appropriate. He asked whether
there is immunity in a civil action against criminal prosecution
if some fact comes out during the former.
MR. MINTZ clarified that all he was saying is that SSHB 42
doesn't impose any consequences or provide the basis for any
claims in the context of a criminal case. Whatever the law is,
with regard to the criminal law implications of something said in
the context of a civil trial, isn't changed by this bill.
REPRESENTATIVE GREEN restated concern that something could come
out of the "he said/she said" among attorneys which wouldn't
otherwise come out in the normal course of things; the way things
are now, that dialogue back and forth probably wouldn't occur.
He said this [bill] doesn't address that, but it doesn't prevent
it.
MR. MINTZ said he doesn't think it affects it.
Number 0282
REPRESENTATIVE ROKEBERG asked Mr. Mintz whether he had seen the
fiscal note from the Department [of Law].
MR. MINTZ said he hadn't had a chance to look at it. His feeling
is that there are a couple of ways to look at it.
Philosophically, the standard of truth ought to apply to
everybody. Practically, however, the largest evil that he had
contemplated when he first became involved in being an advocate
of this type of legislation is from cases where civil litigants
bulk up complaints with specious charges in order to give them
more settlement value. Where to draw the line, in terms of
having it apply to cases, is really a judgment call, he added.
REPRESENTATIVE ROKEBERG requested that Mr. Mintz be provided a
copy of the fiscal note so that he could make recommendations.
Number 0354
REPRESENTATIVE CROFT asked Mr. Mintz why subsection (g) exempts
divorce and issues involving children - child custody, support
and visitation.
MR. MINTZ replied that it was a compromise reached with the
Department of Law in the version of this bill that was introduced
about three years ago.
Number 0380
CHAIRMAN KOTT asked whether there were additional testifiers. He
closed the public testimony, then announced that SSHB 42 would be
held over.
HB 385 - ISSUANCE OF SEARCH WARRANTS
CHAIRMAN KOTT announced that the next item of business would be
HOUSE BILL NO. 385, "An Act relating to search warrants." [At
the previous hearing, the sponsor's representative had explained
the bill and answered questions.] Chairman Kott called an at-
ease at 3:10 p.m., then called the meeting back to order at 3:16
p.m.
Number 0432
DAVID HUDSON, Lieutenant, Division of Alaska State Troopers,
Department of Public Safety (DPS), came forward. He informed
members that the DPS supports HB 385 primarily because the change
from "crime" to "offense" allows the opportunity to seek search
warrants from the court for various violations. Some primary
issues that the DPS is looking at are in Title 16, regarding
certain commercial fishing penalties. In addition, some
regulatory crimes are violations; this will allow search warrants
for those, whether they involve the Department of Labor and
Workforce Development, the Department of Environment Conservation
(DEC) or other entities.
Number 0477
REPRESENTATIVE CROFT requested an explanation of the situations
regarding fishing violations that compel a search warrant.
LIEUTENANT HUDSON explained that the commercial fishing
violations have a very high standard of dollar amounts. The
state may seize thousands of dollars' worth of fish or crab. The
DPS already gets search warrants for those, as it has in the past
and will continue to do. The bill, however, guarantees that
continuity.
REPRESENTATIVE CROFT asked, "You're afraid, if you didn't do it
with a search warrant, that it'd be thrown out?"
LIEUTENANT HUDSON agreed that is a potential issue. He pointed
out, however, that the nice thing about a search warrant, in
terms of law enforcement, is the ability to have oversight by a
magistrate or a judge. Police officers try to do their best
under the circumstances at the scene, but stepping back and
allowing overview by an uninterested third party allows them to
make sure they are doing the right thing. It also gives them
credibility in court later, in case it is needed.
Number 0539
REPRESENTATIVE MURKOWSKI referred to testimony at the previous
hearing indicating law enforcement personnel seeking a search
warrant for underage drinking, for example, may indicate they are
looking for other things that would elevate it from "violation"
status. She asked whether the DPS has to do that regarding
fishing, for instance.
LIEUTENANT HUDSON acknowledged that he had never actually applied
for a search warrant under the fish and wildlife procedure
statutes. However, to his understanding, those been successfully
obtained in the past; they involve a potential jail term and
fines that range from a maximum of $3,000 on a first offense to
$9,000 on a third offense. Without clarification under HB 385,
this issue might be raised in the future, he added, although it
never has been raised in the past.
Number 0590
REPRESENTATIVE GREEN mentioned concern, expressed by himself and
others at the previous hearing, that going to "offense" rather
than "crime" may open up other areas where search warrants could
be issued, far beyond what is desired. Noting that the sponsor's
representative had been asked to provide the committee a list of
offenses, he asked Lieutenant Hudson whether he sees any
possibility of DPS "going in" on the myriad of offenses that
might fall within the purview of some sort of warrant.
LIEUTENANT HUDSON replied that he doesn't see that as an issue
because, first, there isn't a tremendous change that will occur
here. When reviewing this, he indicated, the DPS had tried to
determine what offenses might be affected, but he cannot provide
an exhaustive list and isn't sure anyone could. He suggested
these will be rare. The idea behind this, and what benefits the
DPS, is the opportunity if they need it. He believes Alaskans
are still protected, maybe even more so because of the third-
party oversight and determination of whether there is enough
probable cause to move forward. Returning to the inability to
provide a list, he noted that there are regulations that other
agencies might use, need or try to get information on;
furthermore, those often change, and it would require legislative
time to try to add to, or delete from, the list.
Number 0688
REPRESENTATIVE GREEN asked what would happen if a warrant were
obtained, for example, after a young person below smoking age
were seen going into a house with a carton of cigarettes, and
then the law enforcement officer saw, in the house, "grow lights"
and marijuana plants. He asked whether this opens such a door
that sight is lost of the real reason for search warrants.
LIEUTENANT HUDSON characterized that as a "fishing expedition,"
where one method is utilized while expecting to possibly find
something else. He would be remiss to say that there have never
been abuses of the system, he said. However, he believes that
common sense would dictate that it wouldn't be taken that far.
Furthermore, with the opportunity to look at an offense, he
indicated his belief that the overall good for the community
would override the remote chance of that happening.
Number 0795
ANNE CARPENETI, Assistant Attorney General, Legal Services
Section-Juneau, Criminal Division, Department of Law, came
forward to express support for HB 385. She advised members that
one concern after listening to testimony at the previous hearing
was the possibility of listing violations for which one could
request a search warrant. She believes that would be impractical
for a number of reasons. Also expressing concern with the
characterization that this may be opening a Pandora's box, she
explained:
We have been applying for search warrants to neutral
judges for a long time for violations, and that's why
we do it, so we can have a neutral third party review
it, make sure it's reasonable. And this decision by
the magistrate in Juneau we think was mistaken, and we
are appealing it - actually, we're petitioning the
Court of Appeals, and we think we have a pretty good
chance of prevailing at that point. But in the
meantime, it would be nice to have this clarification
in legislation. So we are in support of the bill.
CHAIRMAN KOTT asked whether anyone else wished to testify; there
was no response. Noting the arrival of Representative Halcro, he
invited him to make closing remarks.
Number 0857
REPRESENTATIVE ANDREW HALCRO, Alaska State Legislature, sponsor
of HB 385, said he would offer anecdotal observations. He told
members that unless law enforcement and the Department of Law are
given the ability to go after these types of offenses or crimes,
society will pay a heavy price. He emphasized that the bill
doesn't give additional power to anybody but simply clarifies the
law; there was no question about it until the magistrate threw
out the "underage drinking." He suggested this legislation is
needed in the interest of fulfilling promises to constituents
about being tough on crime. The fear is that without the bill,
other magistrates may interpret the law in the same way, and the
state won't have the needed system of enforcement.
REPRESENTATIVE CROFT asked whether there is any crime so petty
that police shouldn't be allowed to search a home because of it,
and for which a search warrant would be denied if it had been
proven that the offense was occurring.
Number 1064
REPRESENTATIVE HALCRO said he believes that is a call for the
judge. There has never been a problem in the past, and this
clarification was never necessary until a couple of months ago.
He doesn't believe it opens up any opportunities for abuse that
don't already exist. Far more would be lost by not clarifying
the intent of the statute.
REPRESENTATIVE MURKOWSKI alluded to page 1, line 4. She pointed
out that it says a search warrant "may" be issued if the judicial
officer reasonably believes the following .... It doesn't appear
that there is an obligation. It is discretionary to a judge, who
hopefully will use reasonable discretion in issuing these.
CHAIRMAN KOTT remarked that he isn't sure how it is done now and
whether that discretion currently exists for issuing a search
warrant under the probable cause standard. He asked whether
there was further testimony, then closed public testimony on HB
385. He also asked whether there was further committee
discussion; none was offered.
Number 1186
REPRESENTATIVE CROFT made a motion to move HB 385 from the
committee with individual recommendations and the attached zero
fiscal note. There being no objection, HB 385 was moved from the
House Judiciary Standing Committee.
HJR 47 - CONST AM: PERMANENT FUND
[Discussion also relates to SJR 33, the companion resolution in
the Senate.]
CHAIRMAN KOTT announced that the final order of business would be
HOUSE JOINT RESOLUTION NO. 47, proposing amendments to the
Constitution of the State of Alaska relating to the permanent
fund and to payments to certain state residents from the
permanent fund. He indicated testimony via teleconference would
be taken following opening remarks.
Number 1260
REPRESENTATIVE GARY DAVIS, Alaska State Legislature, sponsor of
HJR 47, came forward to explain the resolution, accompanied by
Senator Jerry Mackie, sponsor of companion resolution SJR 33.
Representative Davis told members he had submitted this
resolution because of the need for discussion on the status of
the permanent fund dividend (PFD) and what should be done with
that, if anything.
REPRESENTATIVE DAVIS noted that in 1976 a constitutional
amendment created the permanent fund itself; his research shows
that eight current legislators were [in the legislature] at that
time. Also interesting to him is that four current legislators
were not in the state when the dividend program was established,
and he believes that number will grow in future elections. He
indicated legislators all have their own understandings about
the fund, and current legislators are the ones making the
decisions, with day-to-day involvement dealing with the budget
situation regarding the services that the state is providing.
Therefore, it is an issue that the current legislature must deal
with.
Number 1427
REPRESENTATIVE DAVIS advised members that since the fund began,
its earnings have averaged about 10 percent. Deposits required
through the constitutional amendment from the oil royalties have
amounted to $6,328,000,000; additional appropriations that the
legislature has made into the corpus total $6,750,000,000;
inflation-proofing added to the corpus amounts to $5,837,000,000;
and the earnings total $21,201,000,000. The total paid in
dividends has been $8,626,000,000. That is what has been done
with the royalties, Representative Davis asked whether that is
what was intended from the constitutional amendment, and he said
that is every individual's determination.
REPRESENTATIVE DAVIS noted the evolution in people's attitudes
over the years regarding the PFD, from "That's nice" at the
beginning to "This is my right, and I want my check, and when is
it gonna be here, and how much is it?" Representative Davis
suggested there is something wrong with that scenario and asked
what the future will bring. This legislation certainly offers an
option regarding how to handle the dividend. Referring to the
September 14 [advisory] vote, he indicated he firmly supported
that proposition, which he believes was a great long-range plan,
but it had failed for a number of reasons.
REPRESENTATIVE DAVIS surmised that there won't be $200-300
million in cuts in the next couple of years, nor will there be
taxes passed to the $200-300 million level to reduce the budget
gap. He also doubts that there will be spending from the
earnings reserve account. The legislature is going to be forced,
in about ten years, to either cut the budget a billion dollars in
one year or use the dividends. Restating that this needs to be
addressed now, he suggested that people didn't see the rush about
the balanced budget plan put out the previous year, and that $500
million more would be spent this year because that proposal
wasn't enacted.
REPRESENTATIVE DAVIS restated that the people had voted "no" on
September 14 on a long-range financial plan. He concluded, "If
they didn't want a long-range plan, do they want a short-range
plan? This is a short-range plan. Let's put it to the voters
and see if this is what they want."
CHAIRMAN KOTT thanked Representative Davis and invited Senator
Mackie to speak.
Number 1871
SENATOR JERRY MACKIE, Alaska State Legislature, noted that he and
Representative Davis would work together throughout hearings in
either body on this proposal. He highlighted what the plan does
and some of the feedback from the public. First, this
constitutional amendment would allow for a one-time final payment
of $25,000 to each Alaska resident who would be eligible as of
January 1, 2000 for a dividend. Because a person not already in
Alaska by January 1 of this last year wouldn't be eligible, the
plan won't attract more people to Alaska.
SENATOR MACKIE noted that he would use round numbers. Assuming
590,000 eligible recipients of the PFD next year, which is what
the Alaska Permanent Fund Corporation (APFC) has estimated, he
said roughly $14 billion would be required to pay a $25,000
distribution to everyone who is eligible. That equates to about
13.8 dividends averaging about $1,800 apiece, in advance.
Assuming there is $26-27 billion at the time - depending on
realized value, as that fluctuates daily - that would leave about
$12 billion, which would continue to be managed by the APFC and
would be constitutionally protected from the legislature's being
able to spend it. The PFD program would go away after the one-
time payment. Only the earnings from the remaining $12 billion
would be used for two things: as a first priority, to inflation-
proof the fund as has always been done, and second, the remaining
revenues would go directly to the general fund to be used for
paying for essential state services.
Number 2071
SENATOR MACKIE drew attention to a memorandum from Jim Kelly,
Director of Communications of the APFC, dated January 18, 2000,
in response to Senator Mackie's request for a projection based on
$12 billion in terms of what it would earn, how much it would
cost to inflation-proof the fund and what would be left for
general fund expenditures as new revenues. The body of the
memorandum read:
You have asked the Alaska Permanent Fund Corporation
(APFC) to do a financial projection using certain
assumptions which you provided.
You asked us to draw down all Fund income and as much
principal as necessary in order to pay each Alaskan a
$25,000 dividend in 2001. You have also asked us to
assume that all Fund income in subsequent years would
be used first to inflation-proof Fund principal, and
then balance then would be transferred to the General
Fund. You asked us to assume that the Fund earned a
rate of return of 8%, 10% and 12%. Based on these
assumptions, the table below indicates the amount of
income in millions of dollars that would be transferred
to the General Fund each year beginning in 2002:
Year 8% 10% 12%
2002 588 884 1,200
2003 615 923 1,252
2004 642 962 1,304
2005 671 1,004 1,360
2006 699 1,046 1,416
2007 729 1,090 1,474
2008 759 1,132 1,530
2009 788 1,176 1,580
2010 817 1,219 1,646
TOTALS 6,308 9,436 12,762
You have also asked our estimate of per capita
dividends for the protection period, based on the
status quo. These numbers appear in the following
table:
2000 1,888.77
2001 1,900.53
2002 1,877.56
2003 1,772.58
2004 1,695.11
2005 1,768.48
2006 1,828.57
2007 1,894.01
2008 1,962.86
2009 2,034.48
2010 2,108.06
TOTALS 20,731.00
Senator, I should point out that the rates of return
you have asked us to assume - 8%, 10% and 12% - are in
excess of what the APFC expects to earn given Fund
asset allocation and capital market assumptions. In
addition, these projections represent only our best
estimate of the median case; actual performance will
vary with market volatility.
PLEASE NOTE THAT THE CORPORATION NEITHER SUPPORTS NOR
OPPOSES ANY PROPOSED CHANGES TO THE CURRENT USE OF FUND
EARNINGS, EXCEPT AS THEY MAY RELATE TO THE PROPER
EXERCISE OF THE TRUSTEES' FIDUCIARY RESPONSIBILITIES AS
REQUIRED UNDER THE PRUDENT INVESTOR RULE.
SENATOR MACKIE used the 10 percent rate in the middle column as
reasonable, surmising that the $884 million returned to the
general fund in the first year, after inflation-proofing, would
balance the budget. That the amount would continue to go up
because left in place is the provision that 25 percent of all the
oil revenues would continue to be deposited into the corpus of
this fund; in addition, the state would continue to inflation-
proof the fund. He believes the growth of the fund and the
earnings will give the state the opportunity to keep pace with
inflationary costs. He suggested that APFC personnel could speak
to the rationale for the PFD projections listed for the status
quo [in the second table of the memorandum].
Number 2240
SENATOR MACKIE told members the plan balances the budget and
requires a vote of the people to make that decision, and there
are no new taxes. He highlighted concerns heard from the public,
noting that many like it, many don't, and even more people
haven't really understood it and have had questions. The
intention was to introduce the plan early, he said, to listen to
people and to do research to discover whether concerns are well-
founded.
SENATOR MACKIE told members that one of the first things heard
from the public was a concern about taxes. He said he cannot, at
this point, give people a lot of confidence that they won't have
to pay taxes like everyone else does when receiving more income,
and he personally doesn't have a problem with that. The Alaska
Society of Certified Public Accountants has agreed, as a group,
to analyze income levels, tax brackets, what types of things
people may be able to get tax credits for, and so forth. Senator
Mackie indicated that when he and Representative Davis receive
that report, they will share it with the legislature.
SENATOR MACKIE turned attention to the effects on income-related
eligibility for recipients of welfare, Medicaid or low-income
housing programs. He reported that in response to a request to
the Department of Health and Social Services, Commissioner Perdue
and her staff had answered questions and had helped to educate
the sponsors about the programs they administer and the possible
effects, although the department isn't in a position of advocacy
or opposition at this point. He said he would ask the department
members present that day to answer any follow-up questions. He
noted that he had assumed that a payout like this would have a
tremendous effect on a lot of these programs.
TAPE 00-25, SIDE A
Number 0001
SENATOR MACKIE told members there would be no effect on welfare -
the Alaska Temporary Assistance Program (ATAP) - which doesn't
use a PFD as criteria to determine eligibility. Nor would there
be effects for the most part on family Medicaid or Denali
KidCare, with some exceptions dealing with institutional
categories, some 19- and 20-year-olds, "and other things which I
don't really want to speculate about." Nor would there be any
effect on the adult public assistance program, which is generally
for elderly and disabled people, because the PFD is not used as a
criteria to determine eligibility.
SENATOR MACKIE pointed out that there would be effects on two
programs: food stamps and supplemental security income (SSI); the
PFD is calculated for eligibility requirements for those
programs. However, the statutes and a federal waiver allow for
the current hold-harmless period of up to four months. He
stated, "After four months, I guess, if they've spent their money
and they don't have the income, they would continue to qualify
for the program. If they've invested it and they have that
asset, then they probably wouldn't be eligible for that program."
Senator Mackie indicated people don't want to be poor or to be on
these programs. He believes that most would like to move on with
their lives, and this [$25,000] could create a significant
opportunity for them to do so.
Number 0182
SENATOR MACKIE reported that current tenants of low-income
housing would not be affected by the $25,000 distribution because
federal requirements allow for exempting a one-time payment of
cash. However, there would be future low-income people who may
not qualify if they still had this money. As for education and
child care programs, the $25,000 distribution does not affect the
following low-income programs: day care assistance, the USDA
(United States Department of Agriculture) child and adult care
food program, school meals or the Headstart Program.
SENATOR MACKIE said Commissioner Perdue has suggested that the
number one reason why people are on welfare is because of being
owed back child support. Currently, there are 11,000 cases
involving back child support; PFDs are garnished for that
purpose. It is estimated that garnishing $25,000 PFDs from so-
called dead-beat dads, for the most part, would collect $103
million in back child support for children in this state. It
would eliminate 7,500 of the 11,000 cases involving $25,000 are
less, and it would make a serious dent in the 3,500 cases
involving more than $25,000.
SENATOR MACKIE told members that similarly, currently there are
10,100 defaulted student loans totaling about $80.9 million owed
to the State of Alaska; 8,600 of those are for less than $10,000.
It is estimated that garnishment of PFDs would close 9,000
accounts and return $67 million to the state, making the student
loan program fairly healthy. Furthermore, right now 3,500 felons
will not receive a PFD according to the statutes; garnishing
those would collect about $87.5 million, and those funds, by
statute, are allocated to domestic violence and sexual abuse
programs, Violent Crimes Compensation Board programs, and the
Department of Corrections for prisoner rehabilitation programs
and the costs of incarceration.
Number 0485
SENATOR MACKIE returned to the issue of taxes, saying he doesn't
believe they will come up with something magic so that people can
avoid paying taxes. However, he isn't afraid to pay income taxes
on the $25,000 because if he "front loads" that into a mutual
fund and it earns compounded interest over 15 years, it will be
worth a lot more than PFDs received over a 15-year period,
"providing you can trust that the legislature's even going to
give it to you."
SENATOR MACKIE said when the permanent fund was created, less
than half the people now in the state were here, and there was no
mention of a dividend program. It was only six or seven years
later that the legislature decided, at the height of oil
revenues, to share some of that with the public. Although it has
been a great program for people, however, he suggests that the
intent of the permanent fund was to provide revenues to the state
when oil production and revenues declined. "And we have been ...
in that situation for many years now, but we have not had the
political will to do anything with the permanent fund about it,"
he stated, emphasizing that there is now a billion-dollar
problem.
SENATOR MACKIE referred to Representative Davis's conjecture that
there wouldn't be any more PFDs in ten years and suggested that
it would be more like four years. He told members that when [the
legislature] has spent the constitutional budget reserve fund and
is faced with a constitutional mandate to balance the budget, the
only pot of money available will be the earnings from the
permanent fund, which pay for the dividend program. Legislators
will have to spend those permanent fund earnings to balance the
budget.
SENATOR MACKIE said that even a full-blown income tax, which he
doesn't support, would only generates about $300 million, for a
"$700 million program." A 5 percent statewide sales tax would
generate another $300 million, but he doesn't like that idea
because all it does is "suck money out of the communities at a
time we're trying to put money back into those communities." He
said that should be a local option for the communities to raise
funds at a local level, with their own residents, and keep it in
their communities for services to their citizens.
Number 0688
SENATOR MACKIE suggested the public needs to recognize that it is
better to have 15 years' worth of dividends, in advance, than to
trust the legislature to provide future PFDs after cutting the
budget by a billion dollars. He stated, "It's in people's best
interest to take the money now and then receive the benefits of
us being able to, as a state, provide decent essential services
to our public, and educate our kids, and fix our buildings and
our deferred maintenance problems with the university and other
kinds of things that we are never [going to] get to do."
SENATOR MACKIE again turned attention to the September 14 vote,
saying he had supported that proposal and would do so again. He
believes the public didn't understand it because what it did
wasn't clearly articulated. As a consequence of the "no" vote on
that, Senator Mackie told members, he had said, "Okay,
complicated is not good. Simple is good. You get $25,000. You
don't get another dividend. We balance our budget. We get rid
of the politics of the permanent fund around here. And we move
on with our state, and we don't have to tax everybody to do it."
SENATOR MACKIE noted that polls two days after he introduced the
plan were taken before he was able to respond to people and
explain things. He surmised that people who have unaddressed
concerns will say "no" when asked in a survey, "Yes or no, do you
support the plan?" However, he believes that if people were to
go to a ballot box and have an opportunity for $25,000 - and if
they don't trust that the legislature will allow PFDs to continue
- the people would take the money. He also suggested that
polling [results] now would be different, and he stated the
desire to try to continue to educate the public and to let them
decide.
Number 0885
CHAIRMAN KOTT referred to Section 1 of HJR 47, which says at
least 25 percent of the royalties, rentals and other proceeds
from minerals would be placed into a permanent fund. He asked
whether continuing to use the name "permanent fund" opens a
Pandora's box like when the existing fund was created in the mid-
'70s. He asked what the rationale is.
REPRESENTATIVE DAVIS indicated having it in the constitution is
as permanent as it can be because it takes a vote of the people
to change that.
CHAIRMAN KOTT asked why not call it a "rainy day fund," for
example. He suggested that people in other states hearing about
the $25,000 could still recognize that there is a permanent fund
and misconstrue it.
Number 0991
SENATOR MACKIE explained that having 25 percent of the oil
revenues going into the permanent fund is the way it is currently
done, which wouldn't change. He said he didn't want to change
anything in terms of statutes. Except that the dividend division
would go away, he didn't want to change the APFC, which would
continue to exist with a board a trustees and would be managed
the same; however, the APFC would have $12 billion to manage
instead of $26 billion, and there wouldn't be a dividend program
any longer. It would still be the permanent fund, and the 25
percent royalties, as well as the inflation-proofing money, would
allow that to grow. Senator Mackie pointed out that the last
time the permanent fund contained $12 billion was in 1992, not
that long ago.
REPRESENTATIVE DAVIS added that he doesn't think anybody is
cemented to the term "permanent fund." It could be
"constitutional fund," for example.
CHAIRMAN KOTT said he understands now that the rationale has been
explained. He indicated there is no need to uproot what has
already been done and to have the APFC change its stationery and
business cards and whatever else it would require. He also
indicated a change may present a problem for "our true
investors."
SENATOR MACKIE specified that this plan doesn't require any
statutory changes or name changes, just putting it on the ballot
and letting people vote. Part of the thinking was to not have it
make statutory changes or be complicated, he indicated.
Number 1094
REPRESENTATIVE GREEN mentioned conjecture that a lot of people
will grab the $25,000 and head south, which he thinks is great.
He also referred to concern that some who stay may blow the money
somehow and then complain that there are no more PFDs. He said
one big question, however, is whether this will have a tremendous
tendency to overheat the economy unless people spend it outside
of Alaska or use it wisely, which probably half of the people
won't do.
SENATOR MACKIE said that is a good question, and he doesn't have
a crystal ball nor will claim to be an expert on the economy. He
stated, "There's been a lot of discussion about how other people
might spend their money, and very little about the fact that this
is the only plan that balances our budget without taxes." He has
received hundreds of e-mails, telephone calls, faxes and letters,
he said, some good, some bad, and some with questions. He has
heard from people with three children who rent their home and
work from paycheck to paycheck, for example, who say they would
pool their money for a first family home. It also may be an
opportunity to put money for three children into an education
account, because by the time the children are 18 years old, the
money would have grown to $100,000.
SENATOR MACKIE said he doesn't see how anything is going to get
overheated. Although certainly there will be people who others
don't believe spent their money wisely, this is a free country,
and he trusts that people will do with their money what they
believe is in the best interests of themselves and their
families. However, it would be incredibly naive to assume that
there will be no negative effects, although it is hard to put a
finger on those. He concluded that many people will invest their
money, and there are great opportunities out there with mutual
funds, for example. He restated the desire to leave it up to the
people and whatever happens, happens.
REPRESENTATIVE DAVIS commented that there may be some overheated
mutual funds around the country.
Number 1303
REPRESENTATIVE GREEN asked whether there would be, in the plan, a
way to try to educate the people who have never invested before.
Surmising that there would be scam artists coming up and trying
to "bleed" people, he asked whether there would be some way to
enlighten residents.
REPRESENTATIVE DAVIS answered that he had thought about that a
lot, and had wanted to establish an Alaska trust fund, into which
the money automatically would go, and then let people draw it out
if they wanted to; however, that is unconstitutional, to his
understanding. He had also thought about the possibility of
putting out a request for proposals (RFP) for investment firms to
be "the investment firm as the prime consultant to Alaskans when
this distribution happened." He concluded, however:
How much babysitting do you want to do to the citizens?
If they want to invest it, they can invest it. If they
want to invest it ... with a shyster, who are we to say
that the guy's even a shyster? So ... I think it's
just best left up to the individual .... If they piddle
it away, they piddle it away.
SENATOR MACKIE added, "We don't tell people how to spend their
dividends right now." He then stated:
We're trying to keep it real simple and let the people
vote on this and decide, and also let the people do
what they're going to do with the money. And other
than that, I think we start treading into a whole bunch
of areas that perhaps we don't have any business being
in. But, you know, you pointed out ... some real
concerns that ... I guess people are going to have to
deal with individually. And I don't know how to
respond to some of those, ... on how they might spend
their money or shysters or anything else.
Number 1442
CHAIRMAN KOTT returned to a point mentioned by Representative
Davis, that he had looked into establishing some kind of Alaskan
trust fund but had found it to be unconstitutional. He asked
whether that is from a state standpoint or a federal standpoint.
And if it were unconstitutional from a state standpoint, why
couldn't that language be included in this constitutional
amendment, to be part of the program?
REPRESENTATIVE DAVIS responded that it is from a federal
standpoint, as he interprets what he was told. He said perhaps
even in the discussion over the dividend itself, there was debate
on that. A federal law had opened an opportunity for a short
period of time to do that, but that window is closed because that
federal law has "sunsetted." He agreed it is a good avenue to
discuss if there is an opportunity, but his understanding is that
federal law disallows it.
SENATOR MACKIE pointed out that the estimated 193,000 Alaskan
residents under 18 years of age are probably who they are talking
about. A number of people have suggested to him, because they
are concerned about children who may never see their money
because their parents squander it, for example, that the state
establish a trust and hold [the money] in trust for the children.
That is something he is willing to consider, depending on the
feeling of other legislators and if that is what it takes,
through this process, for everyone to come together. However,
his reason for not putting it in the plan goes back to his
earlier statements about trying to tell families how to manage
their affairs or finances or how to raise their children or
invest; he has a hard time with that. That area needs some
discussion, and they need to involve the public and get their
response to some of that.
SENATOR MACKIE said furthermore, from a purely economic
standpoint, he would rather take his young son's money and invest
it for him in an educational mutual fund, because it will be
worth so much more when he is 18 years old, than to leave it in a
state trust at 3 or 4 or 5 percent interest. There are so many
safe, conservative investment mutual fund opportunities out there
that yield far greater returns that he would hate to take away
that option from parents who will be responsible with their
children's money. "That's a tough one," he commented, adding he
wants the public to think about what is important and to let
legislators know.
Number 1604
REPRESENTATIVE GREEN asked about the possibility of having an
optional trust for children, even for payouts over a period of
years; he suggested perhaps that wouldn't be considered
unconstitutional. Noting that the 5 percent [interest] mentioned
by Senator Mackie is very modest, he said that if it were 7.2
percent under current economics, a child could almost quadruple
the money within ten years on a very conservative investment.
REPRESENTATIVE DAVIS pointed out even if it is established in a
trust, if this passes, as soon as the state is contractually
obligated to distribute $25,000 to a person it would be taxable,
to his understanding.
SENATOR MACKIE added that it is called constructive receipt of
income. Once a person has the benefit of [the money] and could
take it all out if so desired, the person has to pay the taxes
up-front. That is what the certified public accountants (CPAs)
group will provide information on, which is why he hadn't gone
into details about the tax consequences.
REPRESENTATIVE DAVIS suggested other laws and tax codes might
tell a different story, but the foregoing was the initial
response they had received.
Number 1734
REPRESENTATIVE CROFT suggested the state trust idea is the one
that was unconstitutional; he mentioned efforts ten years ago or
so to close the pool of PFD recipients. However, nothing
prohibits what Representative Green had mentioned, where the form
just asks whether a person wants the money in cash or held in
trust at bank, for example, or says that for a minor the money
can - or will - be held in trust, and asks where.
SENATOR MACKIE surmised that there may not be a problem regarding
constructive receipt of income if the wording is that the money
for all minors would be held in trust. He said those are some of
the questions about which information is to be provided.
REPRESENTATIVE CROFT said he wouldn't want the state keep the
money, however, but suggested a choice of its being disbursed
either in trust for a person somewhere or in the form of a check.
He agreed that the state wouldn't provide as good an income. He
said there might be ways to do tax planning on that election.
SENATOR MACKIE said he would be happy to look at that.
REPRESENTATIVE DAVIS clarified his earlier statement. He said
"illegal under federal law" would probably be more correct than
"unconstitutional," from what he was told.
REPRESENTATIVE CROFT said he would like to see what
Representative Davis had on that.
SENATOR MACKIE commented that that is one reason for trying to
keep it really simple. "Give everybody a check and let them deal
with their own business," he restated.
Number 1848
SENATOR MACKIE advised the committee:
There's a serious tax question right now, Mr. Chairman,
that we didn't talk about, with the IRS [Internal
Revenue Service], because the reason we haven't been
taxed with the permanent fund is because we've said
it's going to be used for a public purpose, not just
for personal dividends. So the IRS is waiting and
waiting till we're actually going to use it for a
public purpose. And I think they are poised to come
and nail us big time, right now, because we're not
using it for a public purpose. We've never spent a
dollar of it. ...
I had two choices. One is try to do a plan that gets
us out of that situation, along with some of the other
things, or participate in the 25 percent bonus for
turning in tax [defrauders]. And a 25 percent bonus on
$5 billion is substantial, but I decided to go this
route instead.
Number 1888
CHAIRMAN KOTT thanked the sponsors and announced that he would
turn to testifiers on teleconference. He called upon Mr. Noah
Bagwill but was told that the Delta Junction Legislative
Information Office (LIO) was no longer online. The then called
upon Ms. Kathleen Ballenger.
Number 1091
KATHLEEN BALLENGER testified via teleconference from Kodiak in
support of HJR 47. As a Kodiak resident for more than 32 years,
she has seen the state in prosperous times and lean ones; the
latter appears to be the case now. She said it is ludicrous that
the state has an account with billions of dollars and yet there
are problems balancing the state budget. She believes it is time
to take a long, hard look at what would be best for the State of
Alaska, not just for the individuals who call Alaska home. She
said she feels that the proposal made by Senator Mackie, now
echoed by Representative Davis, makes total sense. Ms. Ballenger
stated:
By passing this resolution, we would once again have
the opportunity to seriously look at the dilemma we are
in and ask the voters to make a choice. I think we
need to really concentrate on the state's deficit and
not some of the lame concerns I have heard expressed.
The comments I have heard from people who are against
this proposal range from "I would take the money if the
state would pay the income taxes for me" to "It would
glut the economy" to "It would shortchange future
generations." There is also the notion that some would
take the money and leave Alaska.
I just don't accept any of these arguments. The first
one, about wanting the state to pay the federal income
tax, just rings with the title of one of the new TV
shows entitled "Greed," and the shortchanging of those
unborn assumes that everyone who gets the current PFD
for a child holds it for that child. The state, thank
goodness, cannot and should not be able to mandate what
we do or do not do with our PFD.
So whether one wants to take the money and run or use
it to pay bills, or for a down payment on part of the
American dream, or save it, that would be the
individual's choice. The big payout could help many
with major purchases, to pay off debts and/or send
their child to college. The options are endless.
... If we were to pull ourselves out of this economic
mess and inflation-proof the funding of state services,
then we could really hold our elected officials to task
from this day forward. Many of the financial quagmires
we are in now are because of the ups and downs we have
had with the state's prosperity and lack thereof.
I don't want to see us continue the hassle over funding
for the schools and local communities. With this plan,
the state could even make a permanent resolution for
the PCE [power cost equalization] program, so that
everyone in Alaska can be assured they will have
affordable electric rates.
It is my belief that even those who say they are
against the $25,000 distribution and ultimate
elimination of the fund might, in fact, vote
differently behind a closed curtain. I'm urging that
you pass this resolution and give all Alaskan residents
that opportunity. Thank you, Representative Davis and
Senator Mackie, for introducing this proposal to the
legislature. At least everyone is now openly talking
about the financial problems that exist. I certainly
hope a "resolve" can be found.
CHAIRMAN KOTT thanked Ms. Ballenger and called upon Mr. Wayne
Weihing in Ketchikan; however, he was informed that all of the
LIOs had ended the teleconference. [The people listed above are
the only ones who had signed up to actually testify.]
Number 2121
REPRESENTATIVE GREEN asked whether an incarcerated person getting
out this year might have grounds to litigate because the cutoff
date was arbitrary.
SENATOR MACKIE requested that Representative Green write that out
as a question so he could request a legal opinion. He said he
would hate to speculate. However, his understanding is that a
lot of those people won't even file for a PFD because they cannot
receive one anyway; it goes to the state. "So we file them for
them and garnish it and pay off some of the things that I was
talking about," he added. He restated that he would find out.
REPRESENTATIVE GREEN suggested the amount may be immaterial.
REPRESENTATIVE DAVIS voiced his understanding that currently the
state takes 100 percent of a PFD for a garnishment.
SENATOR MACKIE agreed, saying there is a pecking order.
REPRESENTATIVE DAVIS asked who pays the taxes on it if the state
takes 100 percent of $25,000. He suggested that should be looked
at, surmising that the departments would have the answers.
SENATOR MACKIE offered to follow up on that too.
REPRESENTATIVE GREEN and CHAIRMAN KOTT said the state doesn't pay
federal taxes.
REPRESENTATIVE DAVIS replied that they are taking the
individual's money, though.
REPRESENTATIVE GREEN pointed out that it comes back to the state,
however.
SENATOR MACKIE suggested that someone who is delinquent on child
support payments is probably not paying federal taxes either.
Number 2237
REPRESENTATIVE GREEN, alluding to stock market gains over the
past few years, asked, in essence, whether severing the fund
poses any risk of its not being able to earn what it has
previously, if that positive trend doesn't continue.
SENATOR MACKIE agreed it is possible that if the market went down
over the next five years, the permanent fund wouldn't be worth
$26 billion anymore. He said there is always a time to buy and a
time to sell, and maybe right now is a good time to cash it out.
Number 2315
CHAIRMAN KOTT asked when the payouts would occur [under the plan]
and what types of conditions there would be to cash out some of
the investments of the fund. He further asked what effect that
would have on the state's bond rating, if any.
SENATOR MACKIE answered that he doesn't know about the bond
rating but would discuss the intention with the plan. First,
nothing would be known until the voters of Alaska approve or
disapprove it in November of this year. From that point, the
APFC would have almost a year because the dividends come out in
October. Meantime, the normal process wouldn't be changed,
including the PFD application process. The $25,000 would take
the place of the normal PFD that a person would have received in
October of next year anyway. In terms of what is done
legislatively or statutorily or regarding the public's
application criteria for eligibility for a PFD, none of that
would change.
SENATOR MACKIE agreed that the APFC, however, would need a plan.
Should this pass the legislature, that would put the APFC on
notice that the issue is going on the ballot. Senator Mackie
explained that the earnings for that year would be used first,
towards the $25,000, then the earnings reserve would be used; he
isn't sure how much is in the earnings reserve now but it is
"pretty huge." Then whatever principal was required would be
used, thus requiring a constitutional amendment to be able to
satisfy the $25,000 payouts. That would leave whatever balance
of principal and value of the fund remained, which the sponsors
estimate at $12 billion, although it could be higher or lower. A
new management plan on how to manage that money would take place.
Number 2411
REPRESENTATIVE GREEN said there is a restriction on the [APFC]
board regarding how they can mix the portfolio. Assuming this
gets through the legislature, he suggested there may be a need to
look at that and to get expert advice regarding whether to
maintain that kind of portfolio mix or modify it. "It could have
an effect on how they divest ... enough to make out the $25,000
each," he added.
SENATOR MACKIE responded that the asset allocation mix has always
been subject to discussion by the legislature. He doesn't want
to change anything because [the APFC] has done a good job with
the permanent fund; he expects that would continue unless there
were an overriding reason why they asked for, and were granted
from the legislature, a change to that mix. That is a separate
issue from this plan. Senator Mackie closed by saying this is
only plan on the table that balances the budget, it gives the
people an opportunity to make the decision, and it offers some
predictable future for the state and the services it provides.
He reiterated the risk that, in four or five years when savings
are gone, the state will have to spend the people's PFDs to pay
for essential services. [HJR 47 was held over.]
TAPE 00-25, SIDE B
Number 0001
CHAIRMAN KOTT announced that the House Judiciary Standing
Committee was recessed at 4:40 p.m.
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