Legislature(2003 - 2004)
04/06/2004 08:01 AM House STA
| 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
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 6, 2004
8:01 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Jim Holm, Vice Chair
Representative John Coghill
Representative Bob Lynn
Representative Paul Seaton
Representative Max Gruenberg
MEMBERS ABSENT
Representative Ethan Berkowitz
COMMITTEE CALENDAR
HOUSE BILL NO. 547
"An Act relating to the dividends of individuals claiming
allowable absences; and providing for an effective date."
- MOVED HB 547 OUT OF COMMITTEE
HOUSE BILL NO. 476
"An Act establishing the Alaska Statehood Celebration
Commission; and providing for an effective date."
- MOVED CSHB 476(STA) OUT OF COMMITTEE
HOUSE BILL NO. 527
"An Act relating to the Alaska Securities Act, including
reports, proxies, consents, authorizations, proxy statements,
and other materials, civil penalties, refunds of proceeds from
violations, restitution, and investment adviser representatives;
and providing for an effective date."
- MOVED CSHB 527(STA) OUT OF COMMITTEE
HOUSE BILL NO. 331
"An Act relating to federal requirements for governmental plan
and other qualifications for the teachers' retirement system,
the public employees' retirement system, and the judicial
retirement system; and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 547
SHORT TITLE:PFD: DELAY PAYMENT FOR ALLOWABLE ABSENCES
SPONSOR(S): STATE AFFAIRS
Jrn-Date Jrn-Page Action
03/29/04 3110 (H) READ THE FIRST TIME -
REFERRALS
03/29/04 3110 (H) STA, FIN
03/30/04 (H) STA AT 8:00 AM CAPITOL 102
03/30/04 (H) Heard & Held
MINUTE(STA)
04/06/04 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 476
SHORT TITLE:AK STATEHOOD CELEBRATION COMMISSION
SPONSOR(S): REPRESENTATIVE(S) ANDERSON
Jrn-Date Jrn-Page Action
02/16/04 2600 (H) READ THE FIRST TIME -
REFERRALS
02/16/04 2600 (H) STA, FIN
04/01/04 (H) STA AT 8:00 AM CAPITOL 102
04/01/04 (H) Heard & Held
MINUTE(STA)
04/06/04 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 527
SHORT TITLE:ALASKA SECURITIES ACT
SPONSOR(S): STATE AFFAIRS
Jrn-Date Jrn-Page Action
03/01/04 2790 (H) READ THE FIRST TIME -
REFERRALS
03/01/04 2790 (H) STA, JUD, FIN
03/09/04 (H) STA AT 8:00 AM CAPITOL 102
03/09/04 (H) Heard & Held
03/09/04 (H) MINUTE(STA)
03/26/04 (H) STA AT 8:00 AM CAPITOL 102
03/26/04 (H) Scheduled But Not Heard
04/01/04 (H) STA AT 8:00 AM CAPITOL 102
04/01/04 (H) Heard & Held
04/01/04 (H) MINUTE(STA)
04/06/04 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 331
SHORT TITLE:RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
05/21/03 2070 (H) READ THE FIRST TIME -
REFERRALS
05/21/03 2070 (H) STA, L&C, FIN
05/21/03 2070 (H) FN1: ZERO(ADM)
05/21/03 2070 (H) GOVERNOR'S TRANSMITTAL LETTER
03/30/04 (H) STA AT 8:00 AM CAPITOL 102
03/30/04 (H) <Bill Hearing Postponed to
Thurs. 4/1/04>
04/01/04 (H) STA AT 8:00 AM CAPITOL 102
04/01/04 (H) Scheduled But Not Heard
04/06/04 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
SHARON BARTON, Director
Central Office
Permanent Fund Dividend Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions on behalf of the
division during the hearing on HB 547.
JIM SHINE, Staff
to Representative Tom Anderson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed committee substitute (CS) to HB
476, Version LS-1744\D, Utermohle, 4/2/04, on behalf of
Representative Anderson, sponsor.
VINCE USERA, Senior Securities Manager
Division of Banking, Securities & Corporations
Department of Community & Economic Development (DCED)
Juneau, Alaska
POSITION STATEMENT: Answered questions on behalf of the
division during the hearing on HB 527.
TERRY ELDER, Alaska Representative
Investment Company Institute (ICI)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
hearing on HB 527.
ANSELM STAACK, Chief Financial Officer
Division of Retirement & Benefits
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on behalf
of the division during the hearing on HB 331.
ACTION NARRATIVE
TAPE 04-54, SIDE A
Number 0001
CHAIR BRUCE WEYHRAUCH called the House State Affairs Standing
Committee meeting to order at 8:01 a.m. Representatives Holm,
Seaton, Coghill, and Weyhrauch were present at the call to
order. Representatives Lynn and Gruenberg arrived as the
meeting was in progress.
HB 547-PFD: DELAY PAYMENT FOR ALLOWABLE ABSENCES
Number 0147
CHAIR WEYHRAUCH announced that the first order of business would
be HOUSE BILL NO. 547, "An Act relating to the dividends of
individuals claiming allowable absences; and providing for an
effective date."
Number 0160
REPRESENTATIVE SEATON referred to a [two-page chart] listing
allowable absences from the years 1999 to 2003 [included in the
committee packet]. He noted some of the amounts of absences on
the chart, for categories such as "accompanied," "enrolled
college," "active duty," and "medical." In response to a
question from Chair Weyhrauch, he confirmed that the chart was
prepared by the [Permanent Fund Dividend] Division.
Number 0245
REPRESENTATIVE SEATON moved to adopt HB 547 as a work draft.
CHAIR WEYHRAUCH objected for discussion purposes.
Number 0265
SHARON BARTON, Director, Central Office, Permanent Fund Dividend
Division, Department of Revenue (DOR), offered a brief overview
of the previously mentioned chart. She noted that the chart is
an initial response to a request from the committee to see a
breakdown in the numbers involved in the allowable absences.
She reminded the committee that it had requested information
regarding "behavior patterns beyond that," including how long
people are staying out [of Alaska] and whether or not they are
returning. She explained that the division has that information
stored, but because of the age of its computers, it would be
labor intensive to retrieve the information. Notwithstanding
that, she said the division would carry out the committee's
request "if it ends up being pivotal ... to decision-making
here."
Number 0388
REPRESENTATIVE SEATON offered his understanding that the request
had been for the division to take the applications at "six years
and ten years," and follow those applications to see if the
allowable absences ended with a permanent fund granted without
allowable absences or [if they were] terminated.
MS. BARTON confirmed that was true, but clarified that is what
would be "terribly labor intensive for us to dig out for you."
She illustrated that it would mean taking staff away from
important work in order to complete this request.
REPRESENTATIVE SEATON asked if following a single year instead
of two years would cut the work in half.
MS. BARTON answered that it wouldn't matter. She specified that
it's a matter of asking the computer to track each individual
applicant through some 12 million records, using an inefficient
system. Manual effort would be used to program each individual
[search]. She clarified, "So, it doesn't really matter how far
back we go; once we get into each individual record, [we] can go
back as far as that record goes."
Number 0505
REPRESENTATIVE HOLM noted [on the chart] that in 1999, only two
people were listed under the category of "secondary education,"
and since then there have been close to 1,000. He asked what
caused the change.
MS. BARTON answered that she suspects that's an error in the
data.
Number 0569
CHAIR WEYHRAUCH closed public testimony on HB 547.
REPRESENTATIVE SEATON asked Ms. Barton if the fiscal note is
accurate, or if the division would be filing a more detailed
one.
MS. BARTON confirmed that more work needs to be done on the
fiscal note because the one before the committee was done
quickly for the last hearing.
Number 0608
REPRESENTATIVE HOLM said it bothered him that approximately $7
million is being given away and Ms. Barton had said that the
division has an inefficient computer system with which to work.
MS. BARTON said she thinks the inefficiency is a result of
different pieces of [the computer system] being built at various
times and not working well together. She indicated that the
division has submitted a request for funds to change the system
to a more cohesive one. She offered details.
REPRESENTATIVE HOLM asked how the processing of permanent fund
dividend (PFD) checks is paid for.
MS. BARTON replied that the division's operations are fully
funded out of the PFD fund. In response to another question,
she relayed that updating the division's computer system is now
the department's number one priority, as well as her own.
Number 0860
CHAIR WEYHRAUCH offered his understanding that "this assumes a
$50,000 expenditure ... in 2005." He noted that the fiscal note
does not clarify "what that would be going for."
MS. BARTON confirmed that is the assumption and explained that
it was the staff's quick estimate at the programming costs if
the research was handled as a special project - a one-time
event. She explained that the division is working on what the
cost would be "if we weave it in to this upgrade we're doing
right now." She added, "We believe we can hone it down from the
$50,000."
CHAIR WEYHRAUCH asked if one possible impact of passage of HB
527 would be a decline in the applications and payments, and if
that would be reflected in the fiscal note.
MS. BARTON surmised that there would be an indeterminate amount
of people who, because of the bill, would be discouraged from
filling out an application for a PFD because they know that they
will not be coming back to Alaska. Out of the 625,000
applications received every year, she said, the division
probably won't notice a change in workload.
CHAIR WEYHRAUCH asked what kind of authorization the division
would need to print on the checks the total amount of PFD checks
that are mailed to out-of-state addresses.
MS. BARTON responded that the division could do that as a matter
of procedural policy; it does not need statutory authority to do
so. The [lack of] room on the check would be a limiting factor,
although the division could find room.
Number 1006
REPRESENTATIVE SEATON noted that there is a discrepancy between
the number of checks mailed and the amount of money sent [out of
state], and asked why.
MS. BARTON answered that some of the people who would have
applied for the allowable absence PFD check would have returned
to Alaska and received the check at their home address. She
confirmed that another reason could be that they are students
and the check was mailed to their parents' Alaska address.
Number 1061
REPRESENTATIVE COGHILL, regarding checks that are mailed out [of
state], asked how the division is presently set up to discover
fraudulent applications.
MS. BARTON answered that the division has just reorganized its
"fraud unit" and has reestablished working relationships with
fraud enforcement people across the state, as well as with the
federal government. She revealed that the division is probably
most successful discovering fraud through tips from the public.
She stated that the division gets hundreds of tips from the
public and investigates each one. Additionally, the division
performs focused audits. For example, all applications with an
out-of-state postmark are audited, as well as those applications
submitted by people who have refused jury duty because they
claimed not to be residents of the state. Ms. Barton reported
the findings of the fraud investigator for the past year. She
noted that the office of the inspector general in Seattle,
Washington, has agreed to take all of the division's identity
theft cases, of which there are presently three.
Number 1217
REPRESENTATIVE COGHILL said he is trying to decide: "Is this
huge policy call worth the effort of those very, very few?"
Number 1250
CHAIR WEYHRAUCH asked if the identity theft arose from
electronically generated applications, or paper [applications].
MS. BARTON answered she doesn't have that information.
Number 1330
CHAIR WEYHRAUCH turned attention to [Section 1, subsection (a)]
of the bill, which read as follows:
*Section 1. AS 43.23 is amended by adding a new
section to read:
Sec. 43.23.009. Dividends of individuals with
allowable absences. (a) Notwithstanding other
provisions regarding payment of dividends, the
dividend of an individual who was absent from the
state during the qualifying year as allowed in AS
43.23.008(a)(1)-(8) or (10)-(13) shall be paid to that
individual on the first subsequent year that the
individual is eligible for a dividend without claiming
an allowable absence under AS 43.23.008(a)(1)-(8) or
(10)-(13). A dividend that has not become payable
under this subsection may not be paid under AS
43.23.005(h).
CHAIR WEYHRAUCH - noting that currently, [paragraph (9)] of AS
43.23.008(a) pertains to members of the United States Congress -
brought attention to a possible Amendment 1, to insert [existing
paragraph (9) of statute] in Section 1, thus having the bill
apply to paragraphs (1)-(13) of the current statute. Chair
Weyhrauch explained that he thinks it would be unfair to treat
members of the U.S. Congress differently.
REPRESENTATIVE GRUENBERG stated opposition to Amendment 1. He
indicated that he had been on a naval ship and he considers that
part of the United States. He said he thinks an Alaskan
congressman's turf in Washington, D.C., is part of the state of
Alaska.
REPRESENTATIVE SEATON noted that he has received 17 e-mails that
have raised concerns about the bill, and 15 e-mails that were in
favor of it. One of the e-mails in support expressed the point
of view that everyone should be treated equally.
Number 1448
CHAIR WEYHRAUCH stated he understands Representative Gruenberg's
point, but thinks of this issue as a policy statement and thus
looks at the definition of what would be considered part of the
state a little more tightly. He said, "It looks fair, to me, to
treat them like everybody else, including those who have to care
for a dying family member or going to school or the military;
once they come back, they'll receive a large payment of
dividends that indicate their leave out of the state."
REPRESENTATIVE GRUENBERG responded that [members of the U.S.
Congress] represent the state; they don't just represent one
person, as in the case of someone caring for a relative. He
offered more examples. He said, "Frankly, I don't think any of
us do as much for the state as our congressional delegation
does, and I think it's just as symbolic to give them the
dividend, even if you don't give it to anybody else."
Number 1533
REPRESENTATIVE SEATON pointed out that, currently, the bill does
not include congressional "staffers" for exemptions.
REPRESENTATIVE GRUENBERG said the only people exempted in the
bill are the three members of U.S. Congress, and "they're the
people who push the button on the floor (indisc. - voice faded
out)."
Number 1579
REPRESENTATIVE COGHILL commented that given the longevity of
Alaska's congressional delegation, its members may never get
[the PFD].
REPRESENTATIVE HOLM remarked that "you could argue this on both
sides."
Number 1600
CHAIR WEYHRAUCH withdrew Amendment 1.
REPRESENTATIVE SEATON emphasized that the proposed legislation
is not so much concentrated on fraud as it is on offering an
incentive for people to return from outside the state. He
indicated that the system is the creation of the state and there
is nothing inherently right or wrong about it; the state just
needs to figure out how it wants to run the system. He
indicated that most of the comments sent in opposition to the
bill were [from those in] the military or college students. He
said the comments from the military seemed to be a
misinterpretation that the dividends would be cut off.
Representative Seaton emphasized that's not the intent of the
bill. Conversely, the bill just states that if a person who is
out of the state qualifies for the dividend, he/she will get the
dividends upon his/her return to the state. He pointed out that
several [e-mails] from people in the military state support of
that concept.
Number 1729
REPRESENTATIVE HOLM noted that in Fairbanks, military people
don't have to get a state license plate, but they receive a PFD.
He stated that he finds it bizarre that "we would allow that to
happen." He characterized the bill as "an interesting
differential," and applauded Representative Seaton for taking it
on; however, he stated that he is not convinced that it's the
right program to have for Alaska. He said he thinks it [sends]
a bad message that people somehow deserve a "welfare check" just
for being citizens of Alaska."
REPRESENTATIVE SEATON referred to a memorandum from Legislative
Legal and Research Services [included in the committee packet],
and said Legislative Legal and Research Services was asked to
address the issues regarding due process and equal protection.
He focused attention on the end of the first paragraph on the
second page of the memorandum showing examples of cases in which
a regulation permitting absences from Alaska - if the absence
was no longer than the time physically present in the state -
was upheld. He added, "But apparently that's no longer in
effect."
Number 1856
REPRESENTATIVE GRUENBERG offered his understanding that that
referred to the 180-day provision - that a person cannot be out
of the state for over half of the year - but added that he is
not certain of that.
MS. BARTON, regarding the length of time for an allowable
absence not exceeding the time a person is a resident in the
state, said she doesn't know if that was ever a regulation, but
it is not one now. She continued as follows:
I know in looking at these extended absences at the
five-year point where we do review them more
carefully, we certainly look at that as one factor.
... If they were only a resident of the state for 18
months and have been gone for five years, they need to
have done many of the other due-diligent kinds of
things to establish residency and their intent to
return.
Number 1926
REPRESENTATIVE HOLM said he would be interested in finding out
what the results would be of getting a second fraud
investigator. He noted that the provisions on the PFD are
rather specific as to what the penalties are "if some things
happen." He asked whether any of the checks sent to fraudulent
applicants were recovered.
MS. BARTON replied that the division goes after the money,
though, in some cases, it doesn't press criminal charges if the
money is paid back, but the person loses the next five
dividends. She indicated that it is a little more difficult to
retrieve money from those who are out-of-state. She added,
"And, of course, to penalize them for five subsequent dividends
doesn't mean a thing."
Number 1991
REPRESENTATIVE GRUENBERG read the numbers, from 1999 to 2003, in
the active duty category of the chart. He asked if the increase
was also consistent prior to 1999.
MS. BARTON answered that she doesn't know, but offered to
research it.
REPRESENTATIVE GRUENBERG stated his assumption that, with the
exception of 2001 to 2002, the accompanied category has "pretty
steadily increased, as well." He stated his assumption that
"that reflects those folks who are accompanying military folks."
MS. BARTON stated that category is mainly made up of military
spouses and families, although it also includes spouses and
families of students and of someone out of the state for medical
treatment. In response to a follow-up question from
Representative Gruenberg, she stated that she doesn't know how
many active duty military people are in Alaska at any given
time.
Number 2068
REPRESENTATIVE SEATON referred to e-mails in the committee
packet. He indicated that some of the e-mails expressed
opposition to the fact that college students and others who's
PFDs were being held would not be earning interest on those
dividends. He shared that another e-mail was in support of the
bill because many high school students choose to turn down free
tuition [to Alaska's University system] in order to attend
colleges out-of-state and so they should also wait for their PFD
checks until they return; however, the students should receive a
reasonable amount of interest on those checks. Representative
Seaton explained that he just wanted it on the record that those
comments had been received by e-mail.
REPRESENTATIVE SEATON noted that some people had expressed that
college students often don't receive a lot of income, and those
people suggested a shorter time period, for example, a "four-
year grace."
Number 2154
CHAIR WEYHRAUCH removed his objection [to the previous motion to
adopt HB 547 as a work draft].
REPRESENTATIVE LYNN objected. He stated that he thinks the
intent of the bill is good, but doesn't think the military needs
"this kind of hassle." He noted that [those in the military] go
where they are ordered, and "they take Alaska with them when
they go somewhere else." He commented that there are many
students who are not born with a silver spoon in their mouths
and can use every dollar they can get. He stated that although
he knows it is not the intent of the sponsor, "we're inferring
that the military and students tend to be cheats, more than the
rest of the population." He said he thinks these kinds of
things need to be investigated on a case-by-case basis. He
concluded, "We need to protect the PFD - it's our obligation to
do so - but I'm afraid that this bill throws the baby out with
the bathwater, and I cannot support it."
Number 2246
REPRESENTATIVE SEATON responded, "This is a system that the
legislature designed to allow extraordinary absences," noting
that the conditions that are placed on those extraordinary
absences are for the legislature to decide. He continued as
follows:
It doesn't mean that anybody is cheating; it just
means that we are designing a system that pays people
to be outside. And if that is our intention, to pay
people to be gone from the state, that is sometimes
the outcome of what the system has crept to. And that
is the entire purpose of the bill, to give people a
reason to become and remain ... physical residents at
the end of their extended allowable absence. ... And
so there is no intent and there is no action saying
that the people that are receiving extended absences
that we allow are in any way cheats. So, I want that
really clear. Fraud is something that is totally
different than a system that we create that allows
people to be paid to be gone from the state.
REPRESENTATIVE LYNN said he understands, but stated that the
gist of his previous remarks remains.
Number 2314
REPRESENTATIVE GRUENBERG directed the committee's attention to
page 3, lines 2-5, which read as follows:
(c) Notwithstanding other provisions, a dividend
that has not become payable to an individual under (a)
of this section is not subject to levy, execution,
garnishment, attachment, or any other remedy for the
collection of debt until that dividend becomes payable
or is paid to the individual.
REPRESENTATIVE GRUENBERG said if he were a bankruptcy-planning
attorney, he might want to use that language to protect somebody
who doesn't have a lot of assets but has a fair amount tied up
in dividends.
TAPE 04-54, SIDE B
Number 2343
REPRESENTATIVE GRUENBERG continued as follows:
That can be utilized to sequester funds from
creditors, in a (indisc.) planning situation, like I
would be if I were a JAG [Judge Advocate General]
lawyer advising military who have some debts and are
about to be transferred from the state. It could
sequester a fair amount of money from Alaska
creditors. And I haven't really thought about how to
deal with that. But if somebody could be gone for 5,
10, [or] 15 years, that could be $15,000, ultimately,
that's sequestered from creditors.
REPRESENTATIVE SEATON clarified that it wouldn't be somebody
leaving the state, because he/she doesn't have any future credit
for dividends; therefore, it would only be somebody who has left
the state and has had allowable absences, and was not in Alaska
for an extended period of time, but then declared bankruptcy or
something else outside of the state.
REPRESENTATIVE GRUENBERG concurred.
Number 2292
REPRESENTATIVE COGHILL noted that what first appealed to him
regarding the bill was "the draw to bring people back into
Alaska to receive their benefit"; however, the more he thought
about the practical "outplay" of the bill, the more problems he
had with it. He said he appreciates Representative Lynn's
comments. He stated that the check distribution would almost
become "a banking of sorts," where money has to be held in
account for people. He indicated that he is not certain whether
he wants that [additional work] given to the [division]. He
suggested that the intended consequences may be getting
outweighed by the unintended consequences. He also mentioned
that there might be an inherent unfairness. He noted that less
than 5 percent of [Alaska's] overall population has been outside
of the state with allowable absences. He estimated that about
1-2 percent may be military. He stated that he knows there is
fraud, but said he doesn't know that it would be worth "having a
big bureaucratic system and delayed recipients for all that."
REPRESENTATIVE LYNN said Alaska has no problem attracting
military to the state with or without "this program."
REPRESENTATIVE SEATON offered his understanding that the
division already had an accounting system for holding checks.
MS. BARTON stated that the division currently has to account for
18-year-old filers [whose parents or guardians did not file for
their PFDs] and for estates [where someone has died]. She said
she doesn't think [HB 547] will create a huge accounting burden.
She explained that the applications will be processed and
pended, so in any given year, the division will know what the
possible liability is and those funds will be retained in the
fund until such time as they can be released.
MS. BARTON, responding to previous remarks regarding possible
interest on [the withheld dividend] monies, said the division
would have to think through the process she just described
differently if interest were a part of the equation.
Number 2053
REPRESENTATIVE GRUENBERG offered his understanding that as the
bill is currently written, the interest would remain with the
fund.
MS. BARTON said that's correct. In response to a follow-up
question from Representative Gruenberg, she said she did not
know how much that would be per year, but offered to research
that.
REPRESENTATIVE LYNN said, "It would seem to me that if we were
... paying interest on money being withheld, this interest would
belong to the person that this money would eventually belong to
when they return to the state, rather than to the state. You'd
be getting interest on somebody else's money - a pretty good
deal."
Number 2018
CHAIR WEYHRAUCH said, "All right, there's a motion on HB 547 and
an objection." [Although the motion pending was whether to
adopt HB 547 as a work draft, the committee treated the
following roll call vote as if it pertained to a motion to move
the bill from committee.]
A roll call vote was taken. Representatives Gruenberg, Holm,
Seaton, and Weyhrauch voted in favor of HB 547. Representatives
Coghill and Lynn voted against it. Therefore, HB 547 was
reported out of the House State Affairs Standing Committee by a
vote of 4-2.
HB 476-AK STATEHOOD CELEBRATION COMMISSION
CHAIR WEYHRAUCH announced that the next order of business would
be HOUSE BILL NO. 476, "An Act establishing the Alaska Statehood
Celebration Commission; and providing for an effective date."
Number 1953
CHAIR WEYHRAUCH moved to adopt the proposed committee substitute
(CS) for HB 476, Version 23-LS1744\D, Utermohle, 4/2/04, as a
work draft.
REPRESENTATIVE HOLM objected.
Number 1942
JIM SHINE, Staff to Representative Tom Anderson, Alaska State
Legislature, reviewed Version D on behalf of Representative
Anderson, sponsor. He noted that Version D would reduce the
number of members on the commission from 17 to 9, would reduce
the number of public members on the commission from 12 to 4,
would provide for one member from each judicial district, and
would eliminate the four "at-large" members.
MR. SHINE directed the committee's attention to page 2, lines
18-19, of Version D, which read in part: "or if a legislative
member of the commission is no longer a member of the
legislative body from which the member was appointed, the
officer responsible for appointing that member shall appoint a
replacement member as soon as possible."
CHAIR WEYHRAUCH closed public testimony.
Number 1886
REPRESENTATIVE HOLM asked Mr. Shine if going to 9 members would
affect the fiscal note.
MR. SHINE responded that although a new fiscal note has not been
received, he anticipates that there will be a reduction in the
fiscal note. He noted that the next committee of referral would
be the House Finance Committee.
REPRESENTATIVE HOLM removed his objection.
Number 1847
REPRESENTATIVE HOLM moved to report the proposed CS for HB 476,
Version 23-LS1744\D, Utermohle, 4/2/04, out of committee with
individual recommendations and the [forthcoming] fiscal note.
There being no objection, CSHB 476(STA) was reported out of the
House State Affairs Standing Committee.
HB 527-ALASKA SECURITIES ACT
CHAIR WEYHRAUCH announced that the next order of business would
be HOUSE BILL NO. 527, "An Act relating to the Alaska Securities
Act, including reports, proxies, consents, authorizations, proxy
statements, and other materials, civil penalties, refunds of
proceeds from violations, restitution, and investment adviser
representatives; and providing for an effective date."
Number 1793
REPRESENTATIVE LYNN moved [to adopt] the proposed committee
substitute (CS) for HB 527, Version 23-LS1792\Q, Bannister,
4/5/04, [as a work draft].
CHAIR WEYHRAUCH objected for discussion purposes.
CHAIR WEYHRAUCH reviewed that at the last hearing on HB 527, a
representative of the New York attorney general's office had
testified. He also reminded the committee of the correspondence
in the committee packet from [Warren E. Buffet, Chairman],
Berkshire Hathaway. He stated that he is not certain that HB
527 does what he would like it to do. He said his inclination
is to "get into this with both feet," but thinks there isn't
time, nor is there the inclination by the committee to do that.
He said, "I just think that we have an obligation to equip our
state with the means to do those kind of things the public
sector is normally charged to do, without the public sector
paying for it when there's wrong-doing."
CHAIR WEYHRAUCH noted that there were concerns raised by other
members of the administration regarding some portions of the
bill, which he said have been addressed in Version Q.
Number 1715
VINCE USERA, Senior Securities Manager, Division of Banking,
Securities & Corporations, Department of Community & Economic
Development (DCED), described his involvement working with
[Legislative Legal and Research Services] to come up with
Version Q.
Number 1690
REPRESENTATIVE GRUENBERG stated that he also wanted to proceed
as Chair Weyhrauch did. He said, "There are lots of securities
problems in the state, but I think this is an area that has some
troubling aspects on a national scale, and I'd like to see our
state in the forefront of protecting our consumers. We're
basically a consumer state, in this area." He expressed his
appreciation of Mr. Usera's willingness to look at "the Takeover
Bid Disclosure Act." He stated for the record that he thinks
"we" probably all agree that the Alaska Takeover Bid Disclosure
Act is probably unconstitutional and needs to be repealed. He
mentioned working in the House Judiciary Standing Committee to
develop a new Act to add to the bill. He asked Mr. Usera, "Is
that not correct?"
MR. USERA answered, "That's correct."
REPRESENTATIVE GRUENBERG directed attention to page 3, [line 17-
19], which read in part as follows:
The amount of the restitution paid to the harmed
person may be two times the amount of loss caused to
the person by the violator.
REPRESENTATIVE GRUENBERG commented that's almost a kind of
punitive damage, except that it goes to the victim, not to the
state. He asked how "two times" became established.
CHAIR WEYHRAUCH said he added that language. He explained that
it's intended to deter wrongful conduct, to pay those who have
been harmed, and to give notice to those potential offenders
that "if they're going to do business here, ... they have to cut
square corners with the consumer and, if they don't, they have
to pay a penalty." He revealed that he had received
confirmation from the drafters of the bill that "this would pass
muster if it were challenged." He noted that this is similar to
"the wage and hour statutes."
REPRESENTATIVE GRUENBERG asked, "Was it a policy call for 'two
times', or was it more of a recognition of the maximum extent
constitutionally permissible?"
CHAIR WEYHRAUCH responded, "There's a tension there, because the
idea embodied in the statute is 'two times', but that's to the
maximum extent allowed by the constitution."
REPRESENTATIVE GRUENBERG asked Chair Weyhrauch how he would feel
about allowing the amount of a recovery to be determined by the
administrator to the maximum extent constitutionally
permissible, thus "leaving it to that person's discretion to
that extent."
CHAIR WEYHRAUCH responded that the problem with the
constitutional issue and punitive damages cases is that they're
subject to "what ... seems right to a judge." He said:
This is a tension between attracting business capital
in the state and wanting to do business here, and
having a certainty for businesses in order to do their
work here. By spelling out in statute, as opposed to
allowing an ambiguous judge-made sanction, you do
provide that ... level of certainty to businesses,
which I think they need, as opposed to a judge-made
fine.
Number 1395
REPRESENTATIVE GRUENBERG stated that "these ... administrative
actions" sometimes involve brokerage houses, and the amount to
an individual investor may be small. He noted that the number
of investors in [Alaska] in a given corporation may be small and
[so the bill would] hardly provide any deterrence at all. He
suggested that it might be constitutionally permissible and a
wise policy to allow discretion by the administrator to award
more damages.
MR. USERA noted that the consumer protection statutes in Title
45 allow for treble damages. He continued as follows:
The way we've administered the statute in the past has
been to try to levy enough fines to convince the
wrongdoer to make the victim whole. If it is
egregious and we can double that amount, that would be
an excellent outcome. I don't have any experience
with levying two times the fine or things of that
nature, ... but I don't see any harm coming from this.
CHAIR WEYHRAUCH pointed out that the language reads that [the
restitution paid] "may" be two times - it's discretionary.
MR. USERA said [the double amount] would only be implemented in
the case of an egregious wrong, and then it may be in place of a
fine. He concluded, "This would give us the ability to make the
victim whole, and perhaps a little bit more than whole."
REPRESENTATIVE GRUENBERG asked how the department would feel "if
this were allowed to be treble damages, to be consistent with
the unfair trade factor?"
MR. USERA replied that he would like the ability to do that, but
he only sees that coming about in an unusual situation.
REPRESENTATIVE GRUENBERG said, "At least you'd have the
discretion."
REPRESENTATIVE GRUENBERG asked Chair Weyhrauch if he would
consider that a friendly amendment.
CHAIR WEYHRAUCH suggested that the House Judiciary Standing
Committee could decide to make that change when it hears the
bill.
Number 1145
TERRY ELDER, Alaska Representative for the Investment Company
Institute (ICI), told the committee that the ICI is the
professional organization whose members are the mutual fund
industry. Because many of the mutual funds have investment
advisors that are federally registered, [the ICI] is also
interested in issues that affect those advisors and their
representatives. He noted that the ICI is active both at the
federal level and at the state level, and has historically been
cooperative with Alaska's state regulations. Mr. Elder said the
ICI has always supported both state and federal regulations of
the security industry and works closely with all the states and
the North American Securities Administrators Association, for
example, regarding common language that is in the Uniform
Securities Act.
MR. ELDER turned attention to Section 1 [of Version Q]. He
explained that Section 1 would exempt the Securities Act from
[AS] 37.10.050, which deals with fees that are set by
regulation. He stated that the ICI's position would be to
encourage the committee to delete Section 1 before moving the
bill out of committee. He explained that when executive branch
agencies set fees by regulation and those fees have no
relationship to the cost of regulation, that becomes an issue
for the ICI. He continued as follows:
We think [that] to exempt the Securities Act almost
all by itself there, sort of jumps out at you. It's
one of fairness; you're singling out the securities
industry for exemption from that limitation, which the
ICI doesn't think is fair. The ICI already provides a
sea of revenue to the State of Alaska that exceeds the
total cost of the Division of Banking, Securities &
Corporations, and so we would argue from a fairness
standpoint that ... industries shouldn't be singled
out for exemption ....
MR. ELDER, on the subject of delegating legislative power to the
executive branch, said [the ICI] doesn't have any problem with
legislatures setting fees in statutes. The problem, he
explained, is allowing the executive branch to set fees by
regulation. He said AS 37.10.050 makes sense if the legislature
were to say, "Okay go ahead and do that by regulation and we
aren't going to get involved in that or worry about that, as
long as you're covering your costs." He said he doesn't think
anybody would disagree with that. For example, he said, "If you
spent $10 million in regulation and you wanted to bring in $50
million of revenue, that would be more of a legislative issue
than we think should be delegated to an agency through
regulation."
Number 0831
CHAIR WEYHRAUCH said [Section 1 of Version Q] was added to allow
the executive branch to collect fees, because of the volume of
work that it does through the securities area. He added,
"Certainly that's subject to any review and comment period by
the industry on that regulation." He remarked that the
legislature is always troubled when the executive branch
implements regulations that stray from what [the legislature
intends].
MR. ELDER noted that a lot of discussion when [AS 37.10.050] was
last amended was focused around resource agencies and not other
agencies such as the securities division. That's another reason
it would be "more appropriate to do it as a general look at that
issue and deal with all of them," he said, adding, "Our position
is that they should reflect costs, unless they're set by the
legislature."
CHAIR WEYHRAUCH told Mr. Elder that the bill would "pick up"
issues more related to the securities area when it is heard in
the House Judiciary Standing Committee, so "it may be even more
relative in the next committee."
Number 0652
MR. ELDER clarified:
The fees that we're talking about here that are paid
by the mutual fund for this are not paid by large Wall
Street companies. These are fees that are paid by the
shareholders; they're expenses of the fund and so
they're passed on directly to the individual
shareholders. And ... that's another concern that
everybody has; if you're concerned about the fees
charged within the mutual fund industry, then that
would show up as one of those fees.
Number 0592
REPRESENTATIVE GRUENBERG asked how much the fees are for [state
notice].
MR. ELDER offered his understanding that currently there is a
flat fee of $600 for [a] one-year notice and $1,100 for two
years, so right now it's a flat fee. And it's a notice filing,
not a registration, because in 1996, when the National
Securities Market Improvement Act was passed, Congress
established what it called "federal covered securities." He
explained that mutual fund shares are considered a federal
covered security. He explained what that means is that since
1996, states can't require registration of the securities and
can't regulate what's in the prospectus, for example, but they
retain enforcement authority, with respect to fraud. He added,
"And so, it's limited to fraud on the state level, and the
Securities Act reflects that now, because it was amended in 1999
and we also changed to a flat fee."
MR. ELDER, in response to a question from Representative
Gruenberg, explained the difference between a registration and a
notice filing as follows:
When you register, you can also be denied. [When] you
register, you have to meet a whole laundry list of
criteria that would be in the statute in terms of
whatever you're registering for, and usually those
things would be listed and disclosed to investors in
prospectuses and things like that. And they would
submit that to a state under a registration concept,
and the state would review that and say, "Yes, it
meets it" or "No, it doesn't," and either allow it or
disallow it.
In a notice filing, it is recognized that what
Congress did was essentially take the registration
authority away from the state. They are now federally
registered; they're registered with the SEC [U.S.
Securities and Exchange Commission]. And so, what the
state gets is in fact a notice filing ... for two
reasons: One is to sort of let the state know that
we're ... going to be selling this security in your
state, and two, it was a way for the state to continue
to receive fees. Because obviously, one of the big
issues in 1996, when the federal government made that
change, was, "If we take the registration authority
away from the states, won't that have a big fee impact
on them?" And they decided to make that revenue
neutral, to the extent they could; it wasn't totally
revenue neutral, but they tried to do that. And so,
one way to do that was to allow notices to the states
for federally covered securities. The state can't
say, "No, I don't want you to sell XYZ in Alaska," but
the state can say, "This is what we charge for this
notice."
REPRESENTATIVE GRUENBERG stated that he thinks that Section 1 is
an issue that the House State Affairs Standing Committee should
address.
Number 0268
REPRESENTATIVE HOLM asked how many companies "this" would
involve.
MR. ELDER answered he isn't certain. He explained that the ICI
represents 95 percent of the industry, and the industry
registers at the federal level and notices at the state level,
by fund. He surmised that approximately 8,000 funds are noticed
in Alaska. He clarified that in terms of "mother companies,"
there would be fewer than that, because, for example, a company
may have a number of funds and will notice each one of the funds
that they want to sell in Alaska. Each of the funds are
separate securities that have their own management.
Number 0161
REPRESENTATIVE HOLM stated that the intent [of the bill] is to
ensure that there's no skullduggery going on with the funds to
the detriment of the investors from Alaska. He added: "Which
leads me to my thought as to why we're having a notice of filing
other than for the purpose of oversight. It appears to me that
if we don't really have much oversight other than the fact we
know you're here."
MR. ELDER said that's correct. He noted that there are two
reasons for the notice filing, and one is simply to "make it
revenue neutral to the state." He said, "You can maintain your
fee income by having this notice filing and charging for the
notice. That's why one must be careful not to slip and use
"registration" instead of "notice," because it means two
different things. He concurred that there is much more
oversight involved with registration than with [notice].
Notwithstanding that, he said, "Where you do have authority,
however, in terms of ... oversight, is in enforcement issues
related to fraud." He reiterated that the ICI has never been
against that idea.
TAPE 04-55, SIDE A
Number 0001
REPRESENTATIVE HOLM directed attention to Section 6, and asked
Mr. Elder if [the amount of restitution that may be paid] was of
concern.
MR. ELDER responded that the only thing he is concerned about is
Section 1. Notwithstanding that, he added the following:
The only thing that you might want to think about with
the others is whether or not you want to differentiate
between fines and potential fines related to
intentional violations, versus unintentional
violations. But the ICI is not taking that position;
I'm just offering that as a friendly suggestion.
MR. ELDER, in response to a question from Representative
Gruenberg, revealed that he worked in the Division [of Banking,
Securities & Corporations] for eight years and was director for
the last four years, before his retirement.
Number 0102
REPRESENTATIVE GRUENBERG asked Mr. Elder if he, personally, had
any other suggestions for the committee to consider.
MR. ELDER, specifying that he was responding with his personal
opinions, noted that the State of Alaska has a long history of
using uniform language, and stated that he personally supports
that as useful because it's good for industry to know what to
expect from one state to another. He noted that there is a new
Uniform Securities Act of 2002, which was recently passed, and
both the North American Securities Administrative Association
and the ICI support it. He also suggested that it might be
appropriate to look at the Uniform [Securities] Act, or at the
statute in total, rather than doing something piece meal.
MR. ELDER noted that currently, there is a substantial
differentiation between intentional and unintentional
violations; for example, he said, he has seen violations that
are bad and violations that are technical, and so he thinks they
should be differentiated in the way they are fined.
Number 0455
CHAIR WEYHRAUCH asked Mr. Usera to address Section 1.
MR. USERA noted, "Section 1 of the bill allows us to charge what
we're charging now, plus any increases that may come along." He
said he has estimated that the fees that are charged now "would
add something in the range of .0000006 of a cent to the dollar
amount of a mutual fund." He clarified that if somebody owns 50
shares, he/she is not even going to see a penny added to their
fees. He admitted that this is one area where the state takes
in more than it spends. He said it's always been that way. He
noted that currently the amount taken in is approximately $10
million. Doing away with Section 1 probably would have the
effect of losing $10 million to the general fund, which he said
would be a "pretty strong hit." He said, "We're one of the
profit centers of state government and I personally don't see
anything wrong with making a profit."
MR. USERA remarked:
And it just seems to me to be an improvident act to
limit state government to what it spends - there's
just no rhyme or reason to it. We don't propose
raising fees beyond an exorbitant amount. I mean,
right now they're $600. We are proposing a fee
change, ... in regulation, basing it on the assets
under management: One fee for under $100 million,
another fee for up to $750 million, and another fee
for those who are $750 million and beyond. That seems
to be reasonable. And ... the cost would be passed on
to the individual owner. If all 50 states were to
charge that, you might add on fifty cents to a
customer's mutual fund. ... The mutual fund industry
has been discovered to have overcharged fees in the
range of $10, $12, $15 per person, and ... the fees
that we would charge would pale in comparison to what
they're gouging their customers for now.
REPRESENTATIVE GRUENBERG stated, "In view of what Mr. Usera has
said and hearing what Mr. Elder has said, I'm not convinced we
should delete Section (indisc. - voice trailed off)."
CHAIR WEYHRAUCH closed public testimony.
Number 0775
CHAIR WEYHRAUCH offered his understanding that Representative
Lynn had "moved CS for HB 527, Version Q." He asked, "Is there
objection to moving this with individual [recommendations] and
attached fiscal note?" He said, "Seeing none, so ordered."
[Although the committee treated the proposed CS as having moved
from committee, the motion that was actually pending was whether
to adopt Version Q as a work draft].
HB 331-RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES
CHAIR WEYHRAUCH announced that the last order of business would
be HOUSE BILL NO. 331, "An Act relating to federal requirements
for governmental plan and other qualifications for the teachers'
retirement system, the public employees' retirement system, and
the judicial retirement system; and providing for an effective
date."
Number 0840
REPRESENTATIVE GRUENBERG moved [to adopt the committee
substitute (CS) for HB 331, Version 23-GH1009\D, Craver, 4/1/04,
as a work draft]. There being no objection, Version D was
before the committee.
Number 0865
ANSELM STAACK, Chief Financial Officer, Division of Retirement &
Benefits, Department of Administration (DOA), told the committee
that the division takes care of the Public Employees Retirement
System (PERS), the Teachers Retirement System (TRS), the
Judicial Retirement System, the Supplemental Benefit System
(SBS), and Deferred Compensation. He offered a history of "how
we got here," and stated that PERS, TRS, the Judicial Retirement
System, and SBS are all qualified plans. He explained that
there are positive aspects to a plan remaining qualified, even
for a tax-exempt agency like the State of Alaska. It means that
members of the retirement system can "pay their contributions in
free tax." He said that's a tremendous benefit, which lowers
the cost of the system itself.
CHAIR WEYHRAUCH asked, "Is that the state deferred comp
program?"
MR. STAACK answered: "No, that is all of them. For instance,
any contributions you make to the public employees', teachers'
retirement system, judicial retirement system, and the
supplemental benefit system are all pre-tax, in terms of their
contribution." He said the SBS is what is called the defined
contribution plan, while the PERS, TRS, and the Judicial
Retirement System are what are called defined benefit plans. In
response to questions from Chair Weyhrauch, he clarified that
the basic difference between those types of plans is that in a
defined contribution plan, the employer puts in money and the
employee makes a match, and the employee directs his/her own
investments and walks off with whatever amount is there when
he/she terminates. The employer is not responsible for any
residual or for paying any money in the future. For the [PERS,
TRS, and the Judicial Retirement System], on the other hand, it
is required by law that the employee gets paid irrespective of
whether the system earns enough money to do it; it is the
responsibility of the state to make up the balance.
Number 1029
MR. STAACK, in response to a question from Representative Holm,
noted who falls under which systems: Under the PERS, there is
the State of Alaska, plus 154 other employers, including
municipalities and school districts; under the TRS, there are 62
school districts; under the Judicial Retirement System, there
are judges and certain members of the court system; and under
SBS, there is the State of Alaska employees and 14 other
political subdivisions that are no longer in social security.
In response to a follow-up question, he said the University of
Alaska has its own separate plan.
Number 1085
CHAIR WEYHRAUCH stated that he would like to have an overview of
the PRS and TRS. He noted that the legislature is "funding the
shortfalls as a separate line item in the state." He related
his understanding of an issue that was brought to his attention
regarding why there is a huge debt owed for PERS/TRS. He
explained that it is a result of some assumptions of projected
contributions during a "bear" market. Now that the market has
rebounded, he said, whoever is responsible for making those
assumptions that the legislature has to fund it has not met to
revisit what the legislature needs to do to fund the program;
therefore, the legislature is acting on improper data in
planning [the state's] financial future. Chair Weyhrauch said
it seems to him that the legislature may be in a position of
requiring that the PRS/TRS people who make the estimates meet
more often to provide better information to the legislature.
MR. STAACK responded that he could bring information to Chair
Weyhrauch and the committee that "we went through with the
PERS/TRS board," including an actuarial evaluation and the
projections that were done, and including all the earnings up
through January 2004 and any projections that were made for the
next 25 years that assumed what would happen with "a very rosy
scenario."
Number 1203
CHAIR WEYHRAUCH indicated that the committee members needed more
information.
MR. STAACK indicated a willingness to help the committee in that
regard.
REPRESENTATIVE GRUENBERG mentioned technical problems in the
field of family law with respect to the pension plans, and
offered an example.
Number 1286
REPRESENTATIVE SEATON asked Mr. Staack to provide scenarios
based on the 2004 mortality tables.
MR. STAACK replied that what will be used are the 1994 mortality
tables. He explained that those are the mortality tables that
are used for the PRS and TRS. He noted that there is a newer
mortality table called "RP2000," which will update the mortality
[table] that's used in the retirement systems.
[HB 331, Version D, was held over.]
ADJOURNMENT
Number 1337
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 10:00
a.m.
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