Legislature(2005 - 2006)CAPITOL 120

04/29/2005 04:00 PM JUDICIARY


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04:12:58 PM Start
04:13:06 PM SB104
04:44:44 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 104 PERMANENT FUND DIVIDEND FRAUD TELECONFERENCED
Heard & Held
+= Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE JUDICIARY STANDING COMMITTEE                                                                             
                         April 29, 2005                                                                                         
                           4:12 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Lesil McGuire, Chair                                                                                             
Representative Tom Anderson                                                                                                     
Representative John Coghill                                                                                                     
Representative Pete Kott                                                                                                        
Representative Les Gara                                                                                                         
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Nancy Dahlstrom                                                                                                  
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CS FOR SENATE BILL NO. 104(JUD)                                                                                                 
"An Act  relating to the  crimes of unsworn falsification  in the                                                               
first  and  second  degrees  and  false  information  or  report;                                                               
requiring the  establishment of a  permanent fund  dividend fraud                                                               
investigation unit  in the Department  of Revenue;  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 104                                                                                                                  
SHORT TITLE: PERMANENT FUND DIVIDEND FRAUD                                                                                      
SPONSOR(S): SENATOR(S) SEEKINS                                                                                                  
                                                                                                                                
02/14/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/14/05       (S)       STA, JUD                                                                                               
02/22/05       (S)       STA AT 3:30 PM BELTZ 211                                                                               
02/22/05       (S)       Heard & Held                                                                                           
02/22/05       (S)       MINUTE(STA)                                                                                            
02/24/05       (S)       STA AT 3:30 PM BELTZ 211                                                                               
02/24/05       (S)       Moved CSSB 104(STA) Out of Committee                                                                   
02/24/05       (S)       MINUTE(STA)                                                                                            
02/28/05       (S)       STA RPT CS  4DP  SAME TITLE                                                                            
02/28/05       (S)       DP: THERRIAULT, ELTON, HUGGINS, DAVIS                                                                  
03/01/05       (S)       JUD AT 8:30 AM BUTROVICH 205                                                                           
03/01/05       (S)       Heard & Held                                                                                           
03/01/05       (S)       MINUTE(JUD)                                                                                            
03/02/05       (S)       JUD AT 8:30 AM BUTROVICH 205                                                                           
03/02/05       (S)       Moved CSSB 104(JUD) Out of Committee                                                                   
03/02/05       (S)       MINUTE(JUD)                                                                                            
03/02/05       (S)       JUD RPT CS  3DP 2NR  NEW TITLE                                                                         
03/02/05       (S)       DP: SEEKINS, THERRIAULT, HUGGINS                                                                       
03/02/05       (S)       NR: FRENCH, GUESS                                                                                      
03/07/05       (S)       TRANSMITTED TO (H)                                                                                     
03/07/05       (S)       VERSION: CSSB 104(JUD)                                                                                 
03/09/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/09/05       (H)       STA, JUD                                                                                               
04/05/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/05/05       (H)       Moved Out of Committee                                                                                 
04/05/05       (H)       MINUTE(STA)                                                                                            
04/06/05       (H)       STA RPT 4DP 1NR                                                                                        
04/06/05       (H)       DP: LYNN, ELKINS, GRUENBERG, SEATON;                                                                   
04/06/05       (H)       NR: GARDNER                                                                                            
04/29/05       (H)       JUD AT 4:00 PM CAPITOL 120                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SENATOR RALPH SEEKINS                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Sponsor of SB 104.                                                                                         
                                                                                                                                
CHRISTOPHER C. POAG, Assistant Attorney General                                                                                 
Commercial/Fair Business Section                                                                                                
Civil Division (Juneau)                                                                                                         
Department of Law (DOL)                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Responded to questions during discussion of                                                                
SB 104.                                                                                                                         
                                                                                                                                
SHARON BARTON, Director                                                                                                         
Central Office                                                                                                                  
Permanent Fund Dividend Division                                                                                                
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Provided comments and responded to                                                                         
questions during discussion of SB 104.                                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  LESIL   McGUIRE  called   the  House   Judiciary  Standing                                                             
Committee  meeting  to  order at  4:12:58  PM.    Representatives                                                             
McGuire, Anderson,  Coghill, Gruenberg, and Gara  were present at                                                               
the call  to order.   Representative Kott arrived as  the meeting                                                               
was in progress.                                                                                                                
                                                                                                                                
SB 104 - PERMANENT FUND DIVIDEND FRAUD                                                                                        
                                                                                                                                
4:13:06 PM                                                                                                                    
                                                                                                                                
[Contains discussion of  HB 127 and HB 273 and  the adoption of a                                                               
committee substitute  (CS) that incorporates those  bills into SB                                                               
104.]                                                                                                                           
                                                                                                                                
CHAIR McGUIRE announced that the  only order of business would be                                                               
CS FOR SENATE  BILL NO. 104(JUD), "An Act relating  to the crimes                                                               
of  unsworn falsification  in the  first and  second degrees  and                                                               
false  information or  report; requiring  the establishment  of a                                                               
permanent  fund   dividend  fraud   investigation  unit   in  the                                                               
Department of Revenue; and providing for an effective date."                                                                    
                                                                                                                                
SENATOR  RALPH   SEEKINS,  Alaska  State   Legislature,  sponsor,                                                               
relayed  that  SB  104  seeks to  strengthen  the  Department  of                                                               
Revenue's ability  to investigate fraud associated  with making a                                                               
false application for a permanent  fund dividend (PFD), and would                                                               
make  the crime  of  submitting a  fraudulent  PFD application  a                                                               
class  C  felony.    In  2004 the  Department  of  Revenue  (DOR)                                                               
examined  over  1,600  fraud  tips and  audited  over  1,700  PFD                                                               
applications  suspected of  being fraudulent.   This  resulted in                                                               
$1.4  million  in denied  or  assessed  dividends, three  federal                                                               
indictments, and one conviction for crimes involving PFD fraud.                                                                 
                                                                                                                                
SENATOR SEEKINS  offered his understanding  that the  most common                                                               
PFD fraud  offense involves  persons who  forge the  signature of                                                               
another  on  the  application, or  related  documents,  with  the                                                               
intent of  receiving a dividend  to which they are  not entitled.                                                               
It's important to note that the  bill is not intended to apply to                                                               
situations  where   husbands  or  wives  sign   for  each  other.                                                               
However, the provisions of this  legislation would apply in cases                                                               
where the individual  is attempting to steal  from another person                                                               
or from the state.   Current law describes three separate degrees                                                               
of  forgery; the  two  most serious  offenses  are punishable  as                                                               
class  B and  C  felonies,  but are  limited  to cases  involving                                                               
various  types   of  financial  instruments  such   as  currency,                                                               
securities, deeds of trust, et cetera.                                                                                          
                                                                                                                                
SENATOR  SEEKINS noted  that the  crime of  forgery in  the third                                                               
degree  covers instances  where  a person  intentionally makes  a                                                               
false  statement   on  a  written   instrument  such  as   a  PFD                                                               
application, but  this offense  is punishable only  as a  class A                                                               
misdemeanor.   The bill's  proposal to elevate  PFD fraud  from a                                                               
simple misdemeanor to  a class C felony is expected  to provide a                                                               
more effective  deterrent for this  type of theft.   Furthermore,                                                               
SB 104 will aid in  identifying and curing instances of permanent                                                               
fund   dividend   fraud  by   codifying   in   statute  a   fraud                                                               
investigation unit  within the  DOR.  This  unit will  assist the                                                               
Department of Law (DOL) in  detecting and investigating instances                                                               
of PFD fraud.                                                                                                                   
                                                                                                                                
SENATOR  SEEKINS offered  his understanding  that once  the fraud                                                               
investigation  unit  is  established,  it  will  have  access  to                                                               
national  databases for  the purpose  of locating  those who  are                                                               
committing PFD fraud.  He  posited that everyone knows someone of                                                               
whom they  suspect PFD fraud,  and opined that such  fraud should                                                               
be considered  a serious offense,  and characterized it  as fraud                                                               
committed against  both the state and  the people of Alaska.   He                                                               
concluded by urging support for the bill.                                                                                       
                                                                                                                                
4:17:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARA  said he  supports the  effort of  making the                                                               
crime  of   PFD  fraud  a   class  C   felony  for  all   of  the                                                               
aforementioned reasons.  However, he  added, it seems like such a                                                               
crime should already be a class  C felony because PFD's have been                                                               
above  the amount  of  $500  and because  the  same elements  are                                                               
present as for the crime of  theft in the second degree, which is                                                               
a class  C felony.  He  asked what is it  that is not in  the law                                                               
now but which will be gained by the adoption of SB 104.                                                                         
                                                                                                                                
SENATOR  SEEKINS  suggested  that  the Department  of  Law  could                                                               
better answer that question.                                                                                                    
                                                                                                                                
4:18:55 PM                                                                                                                    
                                                                                                                                
CHRISTOPHER C. POAG,  Assistant Attorney General, Commercial/Fair                                                               
Business  Section, Civil  Division  (Juneau),  Department of  Law                                                               
(DOL),  said that  it is  correct  that PFD  fraud is  a class  C                                                               
felony, but  only if the person  actually receives the PFD.   The                                                               
goal of SB 104  is to catch the person and  charge him/her with a                                                               
class C  felony before  the PFD is  received; such  charges would                                                               
ensue  as   a  result  of  investigations   conducted  after  PFD                                                               
applications  are  received  and  before  PFDs  are  distributed.                                                               
Currently,  if  a  PFD  from  a  fraudulent  application  is  not                                                               
received, then  the crime is merely  attempted theft - a  class A                                                               
misdemeanor.   In response to  a question, he explained  that the                                                               
attempt of a crime lowers the offense one grade.                                                                                
                                                                                                                                
REPRESENTATIVE  GARA  surmised, then,  that  the  bill will  only                                                               
result in a higher penalty and not in an easier prosecution.                                                                    
                                                                                                                                
MR. POAG clarified  that the bill will actually do  both of those                                                               
things.  He elaborated by  saying that the current most effective                                                               
statute to  use to  prosecute the  aforementioned offense  is not                                                               
that pertaining to  theft, but rather that  pertaining to unsworn                                                               
falsification because  such covers the  main elements of  what is                                                               
occurring.   By raising the offense  to a class C  felony it will                                                               
become  easier  to  prosecute  because  it  will  get  additional                                                               
attention and will  be treated as a higher class  of offense with                                                               
similar  connotations  to crimes  such  as  forgery and  perjury.                                                               
Currently,  though,  the  crime  of  fraudulently  filing  a  PFD                                                               
application doesn't fit  into either of those offenses.   For the                                                               
most part, he added, crimes  involving PFDs are discovered before                                                               
the PFD is received and so the theft [statute] isn't applicable.                                                                
                                                                                                                                
REPRESENTATIVE GARA acknowledged Mr. Poag's points.                                                                             
                                                                                                                                
4:22:00 PM                                                                                                                    
                                                                                                                                
SHARON BARTON, Director, Central  Office, Permanent Fund Dividend                                                               
Division, Department  of Revenue  (DOR), thanked the  sponsor for                                                               
bringing SB 104  forward, and opined that both  components of the                                                               
bill are  important to the  division, both the  penalty provision                                                               
and the  statutory designation of  a fraud unit, which  will give                                                               
the  division  access  to  federal   databases  and  enhance  the                                                               
division's ability to track down  those outside the state who are                                                               
committing PFD fraud.                                                                                                           
                                                                                                                                
4:23:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ANDERSON   moved  to  adopt   24-LS0519\X,  Cook,                                                               
4/28/05, as the work draft.   There being no objection, Version X                                                               
was before the committee.                                                                                                       
                                                                                                                                
CHAIR McGUIRE  explained that  Version X  incorporates provisions                                                               
from  both her  bill -  HB 127  - and  Representative Weyhrauch's                                                               
bill -  HB 273.   Version X includes  from HB 127  the provisions                                                               
regarding providing  peace corps  volunteers and members  of U.S.                                                               
Olympic  Teams with  allowable absences,  and provides  for civil                                                               
penalties,  and  includes from  HB  273  the provision  regarding                                                               
holding the  PFDs of  those absent  from the  state in  trust for                                                               
them upon their return to the state.                                                                                            
                                                                                                                                
MS. BARTON  said that the  division has looked at  the statistics                                                               
pertaining to  those that  leave the state  and then  return, and                                                               
does   not  begrudge   distributing  PFDs   to  those   that  are                                                               
legitimately residents of the state but  are out of the state for                                                               
more  than 180  days on  allowable absences.   However,  what the                                                               
division has  learned from the aforementioned  statistics - which                                                               
would   not  be   considered  to   have  been   derived  from   a                                                               
statistically  valid study  -  is  that no  group,  based on  the                                                               
different allowable  absence categories, returns even  50 percent                                                               
of the  time to  the state,  and that the  dollar amount  of PFDs                                                               
paid  to  such  individuals  over  the  years  is  substantial  -                                                               
approximately  $86.1 million.   [This  provision of  Version X  -                                                               
from HB  273 -] proposes  a substantial change [in  procedure] as                                                               
well constitutes  a big  policy change that  perhaps has  not yet                                                               
been fully  discussed or explored.   In concept, though,  it does                                                               
address  a problem  that has  been observed  by the  division for                                                               
some time.                                                                                                                      
                                                                                                                                
CHAIR McGUIRE asked  Ms. Barton to comment  on possible technical                                                               
changes.                                                                                                                        
                                                                                                                                
4:26:58 PM                                                                                                                    
                                                                                                                                
MS.  BARTON  relayed   that  the  division  has   looked  at  two                                                               
particular aspects, one  of them being what  she characterized as                                                               
a  programmatic  problem.    For example,  she  explained,  in  a                                                               
situation  where the  applicant is  out of  state for  five years                                                               
while serving in the military  and is killed after being deployed                                                               
to Iraq, he/she would not be able  to return to the state for the                                                               
required period  and so his/her  estate would not be  entitled to                                                               
the  PFDs that  he  did  qualify for.    She  suggested that  the                                                               
legislature might  want to consider  whether or not to  include a                                                               
provision  that addresses  the situation  of  an applicant  dying                                                               
while on an allowable absence.                                                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG asked Ms. Barton  if she has a technical                                                               
amendment to suggest that would address such situations.                                                                        
                                                                                                                                
MS. BARTON  offered her understanding that  Legislative Legal and                                                               
Research Services is working on one.                                                                                            
                                                                                                                                
4:30:41 PM                                                                                                                    
                                                                                                                                
MR. POAG said that in reviewing  HB 273, he became concerned that                                                               
for all practical  purposes, the division would  be deciding that                                                               
those who are on allowable absences  are not in fact eligible for                                                               
a PFD until they are able to  prove that they intend to return to                                                               
Alaska and remain  indefinitely, that the state  would hold their                                                               
checks until  they came back to  the state and proved  that fact.                                                               
He  said  he determined  that  this  is  in  effect a  change  in                                                               
eligibility criteria.   He relayed  that he is  not a big  fan of                                                               
telling  a person  that he/she  is eligible  for a  PFD but  then                                                               
refusing to give it to him/her.                                                                                                 
                                                                                                                                
MR. POAG went on to list  the current criteria for qualifying for                                                               
a PFD - found in AS 43.23.005 -  and explained that to say that a                                                               
person  is  eligible  under  those criteria  but  then  not  give                                                               
him/her a  PFD would probably  provide that person with  a decent                                                               
argument  that he/she  has a  vested  interest in  the PFDs  that                                                               
he/she has  been determined  to be  eligible for.   So to  try to                                                               
avoid  those  issues,  he  said,  he  would  recommend  that  the                                                               
eligibility criteria  be modified  such that  a person  who meets                                                               
all of  the current requirements  but is on an  allowable absence                                                               
be conditionally  found eligible conditioned upon  his/her return                                                               
to Alaska and demonstration of  an intent to remain indefinitely.                                                               
This  will  avoid the  issue  of  determining  that a  person  is                                                               
eligible but  holding the PFD  hostage and essentially  taking it                                                               
away after saying that the person is eligible.                                                                                  
                                                                                                                                
MR. POAG relayed that he  has reviewed state cases regarding this                                                               
issue, and noted  that in those cases a  constitutional issue was                                                               
triggered by a person's constitutional  rights to travel.  In one                                                               
case  the  court  addressed  this   issue  by  finding  that  the                                                               
impingement  on the  right to  travel was  minor and  the state's                                                               
purpose -  that being to ensure  that the PFD goes  only to those                                                               
that are  permanent residents  - was  sufficient to  justify that                                                               
impingement.    However, in  that  case  and  in one  other,  the                                                               
persons were  found to not  be eligible  for PFDs.   He predicted                                                               
that an amendment  would be important if the court  were to apply                                                               
the precedents  established in  those two cases.   He  noted that                                                               
the state constitutional right to  travel is more protective than                                                               
the federal constitutional  right to travel, and  posited that if                                                               
[the  provisions of  HB  273] are  found  to pass  constitutional                                                               
muster under the Alaska State  constitution, they will also do so                                                               
under the U.S. Constitution.                                                                                                    
                                                                                                                                
4:34:27 PM                                                                                                                    
                                                                                                                                
CHAIR  McGUIRE  relayed that  she'd  already  discussed with  the                                                               
sponsor the concept  of incorporating into SB  104 the provisions                                                               
of HB  127 but  had only  just recently  considered incorporating                                                               
provisions of  HB 273.   However, should  concerns with  HB 273's                                                               
provisions  arise,  she  suggested, the  committee  could  simply                                                               
remove those provisions and then  report Version X from committee                                                               
along with an appropriate title change resolution.                                                                              
                                                                                                                                
CHAIR  McGUIRE, after  ascertaining that  no one  else wished  to                                                               
testify, closed public testimony on SB 104.                                                                                     
                                                                                                                                
4:36:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GARA  opined   that  they   should  insert   the                                                               
provisions  that are  likely to  meet constitutional  muster, and                                                               
indicated that he  is in favor of the provisions  from HB 273 but                                                               
noted that  he does have  a couple of reservations  [about them].                                                               
He offered his belief that those  who are not earning money while                                                               
they are  absent, or those  who are gone for  educational reasons                                                               
should not  have to wait  until they return  to the state  to get                                                               
their PFDs; he indicated that he  has an amendment to that effect                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     Page 10, line 6                                                                                                            
                                                                                                                                
          Delete "AS 43.23.008(a)(1)-(8) or (10)-(15)"                                                                          
                                                                                                                                
       Insert "AS 43.23.008(a)(3), (4), (10), (11), (14)                                                                        
     or (15)."                                                                                                                  
                                                                                                                                
CHAIR McGUIRE asked  whether there would be  any equal protection                                                               
issues arising from such an amendment.                                                                                          
                                                                                                                                
MR. POAG  noted that the  equal protection analysis is  a sliding                                                               
scale, and  that the  main focus  will be  on whether  the groups                                                               
that are  to be treated  differently are similarly situated.   If                                                               
such is  the case, and the  groups have the same  needs, the same                                                               
interests, and  the same  reasons for receiving  a PFD,  but they                                                               
are then  treated differently,  then the  state would  be opening                                                               
itself up to an equal protection  attack.  However, if the groups                                                               
have  different needs  and  are not  similarly  situated, and  if                                                               
legislative findings  could be provided  to illustrate  why those                                                               
groups are different,  then there is a pretty  good argument that                                                               
there  isn't an  equal  protection issue.    The current  statute                                                               
carves out a  whole host of allowable absences,  and the [Alaska]                                                               
Supreme  Court has  been very  approving of  those "bright  line"                                                               
rules, he concluded.                                                                                                            
                                                                                                                                
4:40:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARA   offered  his  belief  that   in  an  equal                                                               
protection analysis  regarding a PFD,  the court says it  is okay                                                               
to treat  people differently  as long as  there is  some rational                                                               
basis for  doing so.   He  stated that  the rational  reason that                                                               
would be  used in his  proposed amendment  is that the  person is                                                               
not  making  money.   He  remarked  that  carving out  a  similar                                                               
exception for congressmen would be a legislative policy call.                                                                   
                                                                                                                                
CHAIR McGUIRE  expressed a desire to  hold the bill over  for the                                                               
purpose of researching constitutional issues.                                                                                   
                                                                                                                                
MR.  POAG indicated  he could  easily draft  language that  would                                                               
address members'  concerns and further  their wishes  with regard                                                               
to the direction they want the bill to proceed in.                                                                              
                                                                                                                                
CHAIR  McGUIRE  offered her  understanding  that  the sponsor  is                                                               
amenable  to some  of the  changes being  proposed, and  said she                                                               
would have  committee staff work  with the DOL and  the sponsors'                                                               
staff on the other issues that have been raised.                                                                                
                                                                                                                                
REPRESENTATIVE  GRUENBERG  mentioned  the  issue  raised  by  Ms.                                                               
Barton.                                                                                                                         
                                                                                                                                
MS.  BARTON  remarked  that  if  Representative  Gara's  proposed                                                               
amendment regarding those  who don't earn money  is adopted, then                                                               
the   issue  of   eligibility  for   those  who   accompany  such                                                               
individuals should also be considered.                                                                                          
                                                                                                                                
REPRESENTATIVE GARA  offered his  understanding that  such people                                                               
are addressed in his suggested amendment.                                                                                       
                                                                                                                                
[SB 104, Version X, was held over.]                                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
4:44:44 PM                                                                                                                    
                                                                                                                                
The House Judiciary Standing Committee  was recessed at 4:44 p.m.                                                               
to a call of the chair.  [The meeting was never reconvened.]                                                                    

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