Legislature(1997 - 1998)
03/07/1997 01:32 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE JUDICIARY COMMITTEE March 7, 1997 1:32 p.m. MEMBERS PRESENT Senator Robin Taylor, Chair Senator Drue Pearce, Vice-chair Senator Mike Miller Senator Sean Parnell Senator Johnny Ellis MEMBERS ABSENT None COMMITTEE CALENDAR SENATE BILL NO. 106 "An Act relating to the bond required of a notary public." PASSED SB 106 OUT OF COMMITTEE CS FOR HOUSE BILL NO. 101(L&C) "An Act relating to certain irrevocable transfers in trust, to the jurisdiction governing a trust, to challenges to trusts or property transfers in trust, to the validity of trust interests, and to transfers of certain trust interests; and providing for an effective date." PASSED CSHB 101(JUD) OUT OF COMMITTEE SENATE BILL NO. 3 "An Act authorizing prosecution and trial in the district court of municipal curfew violations." PASSED CSSB 3(JUD) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SB 106 - No previous Senate committee action. HB 101 - No previous Senate committee action. SB 3 - See Health, Education, and Social Service Committee minutes dated 2/21/97. WITNESS REGISTER Representative Al Vezey Alaska State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Sponsor of HB 101 Rich Hompesch 119 North Cushman, Suite 400 Fairbanks, AK 99701 POSITION STATEMENT: Supports HB 101 Doug Blattmacher Alaska Trust Company 840 K St. Anchorage, AK POSITION STATEMENT: Supports HB 101 Mr. Jeffrey Schoenblum Vanderbilt University Law School (615) 322-2668 Bob Manley Hughes, Thorsness, Powell, Huddleston and Bauman 324 E. Captain Cook Anchorage, AK 99501 POSITION STATEMENT: Supports HB 101. David Dobbs 9410 Dundee Circle Anchorage, AK 99515 POSITION STATEMENT: Supports HB 101 W. Finley Abbott Yukon Island Homer, AK 99603 POSITION STATEMENT: Supports HB 101. Allan Johnston 101 W. Benson, Suite 500 Anchorage, AK 99503 POSITION STATEMENT: Supports HB 101. Ms. Diane Borgeson P.O. Box 74046 Fairbanks, AK 99707 POSITION STATEMENT: Supports HB 101. Ms. Jo Kuchle P.O. Box 73784 Fairbanks, AK 99707 POSITION STATEMENT: Supports HB 101. Ms. Shelley Ebenal P.O. Box 74468 Fairbanks, AK 99701 POSITION STATEMENT: Supports HB 101. Mr. E.M. Cox 1410 So. Cushman fairbanks, AK 99701 POSITION STATEMENT: Supports HB 101. Johne Binkley 5325 Chena Small Tracts Fairbanks, AK 99703 POSITION STATEMENT: Supports HB 101. Linda Hurlbert 110 South Cushman Fairbanks, AK 99701 POSITION STATEMENT: Supports HB 101. Kevin Walsh 330 Barnette, Suite 101 Fairbanks, AK 99701 POSITION STATEMENT: Supports HB 101. ACTION NARRATIVE TAPE 97-17, SIDE A Number 000 CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 1:32 p.m. Present were Senators Pearce, Miller, and Chair Taylor. The first order of business before the committee was SB 106. SB 106 NOTARY PUBLIC BOND MR. DOUG WOOLIVER , Administrative Attorney for the Alaska Court System, explained SB 106 is a housekeeping measure aimed at shaving time off of the notary public application process. Under a statute enacted in 1961, notary public applicants need to post a $1,000 bond, which must be signed by the Superior Court clerk. The court clerk makes sure the bond form is filled out correctly and signed, but does not investigate or analyze it. The form is then sent to the Lieutenant Governor's Office, which has authority over license issuance for notaries. SB 106 deletes the provision that requires the court clerk to sign the bond since it is unnecessary and will shorten the application process by one to two weeks. SHANNON HASTY , Notary Administrator in the Lieutenant Governor's Office, clarified SB 106 will not shorten the application processing time because she commissions the notaries prior to sending the applications to the court system. Number 063 SENATOR MILLER moved SB 106 out of committee with individual recommendations. There being no objection, the motion carried. Number 084 HB 101 TRUSTS & PROPERTY TRANSFERS IN TRUST VICE-CHAIR PEARCE called the meeting back to order at 1:40 p.m. and announced HB 101 was next on the agenda. REPRESENTATIVE AL VEZEY , sponsor of HB 101, gave the following summary of the measure. HB 101 is the result of a desire to find out what needs to happen to help make Alaska, and particularly Anchorage, a financial service center for the world. Anchorage is advantageously located and has a communication network that makes it conducive to becoming an international financial services center. There is a market demand for a strong form of trust; one that is exempt from the Uniform Law Against Perpetuities. Currently, a trust of this nature is not available in the United States and persons worldwide must go to an overseas trust company. In Alaska, the statute against perpetuities establishes a very finite period of time. HB 101 exempts a trust from that statute. More and more in our society, the statute against perpetuity is being waived. Alaska recognizes that corporations can be established in perpetuity, as well as Native Corporations, and national and state park systems. REPRESENTATIVE VEZEY continued. A second component the trust market is looking for is strong protection of the trust corpus from invasion by creditors. HB 101 establishes that the trust, once set up, is managed according to all laws. Extreme care must be taken to ensure that no fraudulent transfers occur upon creation of the trust, and that no intent to defraud future creditors exists. A statute of repose was specifically defined for fraudulent transfers. He emphasized much of HB 101 is set up to preclude fraudulent transfers, but if one occurs, the corpus of the trust can be invaded. Distributions are considered ordinary income. In essence, HB 101 is an attempt to meet a market demand for financial services. RICK HOMPESCH , a Fairbanks attorney, testified in support of HB 101. This measure allows Alaskans to create trusts and protect their assets for the benefit of their families and will expand its trust industry by providing more work for financial advisors, accountants, attorneys and appraisers. One year ago, he traveled to the Cook Islands to investigate its trust business. In an island with a population of 10,000, about 150 jobs are attributable to the trust industry. Alaska has many advantages over the Cook Islands: it has political stability as part of the United States; and is located midway between three of the largest financial districts of the world - London, Tokyo, and New York. Trustees will want to travel to Alaska, enhancing the tourism market. He urged the committee to pass HB 101. Number 225 DOUGLAS BLATTMACHER informed committee members he has over 24 year of trust management experience and spent 10 years in the trust industry in Alaska. He believes HB 101 will bring significant business to the State of Alaska and create quality jobs. SENATOR PARNELL asked Mr. Blattmacher to address the proposed amendments submitted by the Attorney General's Office. MR. BLATTMACHER replied Mr. Hompesch was more prepared to respond to the legal and technical aspects of the amendments. BOB MANLEY , a member of Hughes, Thorsness, Powell, Huddleston, and Bauman Law Firm, state chairman of the American College of Trust and Estate Counsel, and a fellow of the American College of Tax Counsel, testified in support of HB 101 because it will bring a clean industry to Alaska. Delaware has modified its laws to become an attractive situs for corporations and limited partnerships. South Dakota modified its interest law provisions to attract central processing for credit cards nationwide. South Dakota also repealed its rule against perpetuities and developed a very significant business in the trust area dealing with generations skipping transfer trusts. HB 101 provides an opportunity for Alaska to make changes to establish, not only the partial repeal of the rule against perpetuities, but self-settlor trusts, whereby creditors of a settlor cannot make the trustee pay the money out even if the settlor is a beneficiary, provided there was no fraudulent conveyance initially and the statute of repose had not expired. These kinds of provisions are available in a large number of off-shore jurisdictions and have resulted in billions of dollars flowing out of the United States to foreign locations. Number 276 DAVID DOBBS , Vice-President and Trust Officer at National Bank of Alaska, stated his support of HB 101 because it can be properly managed by industries in Alaska. PROFESSOR JEFFREY SCHOENBLUM , Vanderbilt University Law School, stated he was asked by the Attorney General's Office to specifically comment on the rule against perpetuities provision in HB 101, and a proposed amendment to except real property from being placed in trusts. He stated his support of that amendment because the abolition of the rule against perpetuities creates a great risk that real property in Alaska will be tied up indefinitely, will be fractionalized as families expanded over generations, and because the history of similar actions in other countries has been very negative. He added the economic decline of the Ottoman Empire was specifically attributed to the absence of any rule. Many of the off-shore jurisdictions have not completely eliminated the rule against perpetuities but have set forth a specific time period for the rule, such as 80 or 100 years. He urged the committee to retain the rule with regard to real property. PROFESSOR SCHOENBLUM said he also strongly supports the provision that excepts out spouses' elective share. It is crucial that HB 101 not result in the denial of protection for surviving spouses, and be used as a way to defeat spousal claims by placing property in trusts. Regarding the general utility of these sorts of provisions with regard to asset protection and bringing offshore funds to Alaska, he cautioned legislators about having high expectations because foreign jurisdictions have an entirely separate sovereignty; Alaska does not. Alaska is subject to the full faith and credit clause, and other governing principles about enforcement of judgments within the United States. The matter of whether persons who are seeking asset protection will find Alaska more appealing than offshore jurisdictions remains to be seen. Number 329 VICE-CHAIR PEARCE noted Alaska has something no other country has; at least 226 separate sovereignties at the moment. She asked Professor Schoenblum to stay on line in order to address specific amendments. SENATOR ELLIS advised he has visited the capital of the Ottoman Empire, and moved amendments 1-4. W. FINLEY ABBOT T , testified via teleconference from Anchorage, and asked whether HB 101 strengthens irrevocable trusts so that they are not as attachable. REPRESENTATIVE VEZEY responded HB 101 would only apply to a form of irrevocable trust and is designed to strengthen the trust and make it last for multiple generations. MR. ABBOTT noted his strong support of the measure and added he has seen, in the last two years, cases of children losing family homesteads that were set up in trusts. At present he is concerned if he puts land into a trust it will be more liable because the whole thing can be attached, rather than subdivided. MR. ALLAN JOHNSTON, manager of Wedbush Morgan Securities, stated investment firms, in general, are very supportive of the concept of the bill. Creating more high-end jobs in Alaska will benefit everyone. Although there will not be any direct investment business for several years to come, the essence of HB 101 will make Alaska business-friendly. SENATOR ELLIS asked Mr. Johnston to elaborate on his statement that there will be no significant economic impact from HB 101 for several years. MR. JOHNSTON said he does not believe there will be direct investment business to investment firms for awhile, but he does believe the bill will make Alaska look more business-friendly and may encourage people to buy second homes here. Number 381 DIANE BORGESON , a financial consultant in Fairbanks, testified she fully supports the bill, as modified. JO KUCHLE testified from Fairbanks in strong support of HB 101 as it will bring a lot of investment money into Alaska. Off-shore jurisdictions cannot offer the U.S. court system which provides surety as to what laws apply. HB 101 does not impact Alaska's natural resources, and only adds to the State in the form of investment trust work, financial planning, and visits from those investing here. If Alaska does not take this opportunity now, another state will. E.M. COX , a Fairbanks CPA, strongly urged the Legislature to vote for HB 101 as it will benefit individuals and Alaska's business community. If HB 101 does not pass, other states will take the lead. SHELLEY EBENAL , an attorney with Hompesch and Associates, Fairbanks, testified in support of HB 101 because of the economic advantages it will bring to Alaska. Number 421 VINCENT USERA , Assistant Attorney General, advised the Administration has not taken a position on the bill per se. He noted last year's bill contained three problematic areas: whether these trusts could be used to avoid the marital share in a probate situation; whether a person could avoid child support obligations by use of this trust; and whether it makes sense to waive the rule against perpetuities. The first two areas of concern were addressed by the drafters of HB 101, but technical flaws remain. The first two sections contain references back and forth between the sections that deal with the augmented estate of a spouse, to make certain the intent is transferred from one section to the other. The bill as drafted, only has one section in AS 34.30.110; the change there refers to the probate code (AS 13.12.205). The Department of Law (DOL) has proposed an amendment to add in cross references to ensure that those provisions apply equally in all situations. Regarding child support, MR. USERA explained HB 101 provides that distributions from the trust to a beneficiary could be attached by the Child Support Enforcement Agency (CSED). This adds nothing to present law and, in fact, could be construed to place child support exclusively in favor of other creditors. DOL has submitted an amendment to delete that provision as it does not change the status quo and could be misinterpreted. The third amendment discussed by MR. USERA also pertains to child support payments. HB 101 voids the trust of a settlor who is in default by 30 days or more of making a child support payment. DOL recommends changing the provision from "a child of the settlor" to "a child," to encompass situations in which a settlor has incurred child support obligations for a stepchild or another relationship that has arisen. Number 454 VICE-CHAIR PEARCE asked which drafters Mr. Usera referred to. MR. USERA said he was referring to the person who originally drafted the bill, Jonathan Blattmacher from New York, as well as proponents of the bill here in Alaska. SENATOR MILLER noted Alaska has prioritized the attachment of child support payments from other revenue, permanent fund dividends being one, and asked why the DOL would support that policy elsewhere, but not in HB 101. MR. USERA replied DOL's concern is that by specifying that distributions from the trust are subject to child support obligations in statute, that language could be construed to exclude any other creditor from collecting. MR. USERA noted the fourth amendment, pertaining to the rule against perpetuities, makes a substantive change. The rule against perpetuities was intended to prohibit the generational tie-up of tangible or intangible property to prevent it from becoming subject to alienation. HB 101 waives the rule against perpetuities for every type of property. DOL recommends that real property be excepted from that waiver because it differs from intangible property. The value of intangible property, such as stocks, is of interest, not the stock certificate. In the case of real property, the value may increase, but the focus and interest remains in the land itself and the land size itself can never increase. At some point in time there could be so many beneficiaries of the trust that there can be no agreement among them, yet the trustee is obligated to perpetuate the trust and the land would not be subject to alienation. Alaska's rule against perpetuities provides that an interest must set within 90 years. DOL believes that is a long enough period of time to keep property in a trust. If the trust beneficiaries so desire, they could recreate another trust after 90 years. REPRESENTATIVE VEZEY believed the proposed amendments do nothing for the bill, particularly the amendment excepting land from the waiver of the rule against perpetuities, and although there may be things in the bill that are unnecessary, those things reaffirm the existence of other Alaska law, such as the status of child support payments. Number 527 JOHNE BINKLEY testified from Anchorage in support of HB 101. SENATOR ELLIS moved to adopt Amendment 1 as follows. Page 2, line 3: Following "transfer" Insert ", including a transfer in trust with a transfer restriction under AS 34.40.110(a)," Page 4, line 13: Following "provided in" Insert "AS 13.12.205(2) and" Page 6, line 4: Following "(b)" Insert "Except as provided in AS 13.12.205, if"[If] SENATOR MILLER objected for the purpose of discussion. MR. HOMPESCH stated the first three amendments, in his view, are inconsequential. In most planning situations, both spouses will waive the right to elect. In Alaska, as in other states, it is illegal to disinherit your spouse unless he or she agrees by way of a pre- or post-nuptial agreement. The augmented estate and the right to elect provisions provide that if that happens, the disinherited spouse may take approximately one-third of the estate. To protect the surviving spouse from being defrauded by way of an Alaska trust, the Administration urged the drafter to include provisions regarding the augmented estate, which is included in HB 101. As a practical matter, it is a non-issue for a very important tax reason. When gifts are made to one of these trusts, it is important that the gift be a completed gift under the federal-state tax rules. If a surviving spouse has the right to pull back one- third of the assets in this trust under the augmented estate provisions, the gift is not complete and the entire trust fails and is included in the deceased spouse's estate. Therefore, from a planning standpoint, when two spouses set up a trust, it is best to have both waive their rights to elect and those under the augmented estate provisions. He concluded, as a practical matter for attorneys in the field, the technical changes are a non-issue because they will be waived in every instance, otherwise there will be serious estate tax implications and the plan will fall apart. He said the three technical changes could better be addressed in a technical corrections bill, if absolutely necessary. TAPE 97-17, SIDE B Number 00 MR. SCHOENBLUM emphasized the concern is that an individual who wished to disinherit his/her spouse could transfer property to trust in Alaska and Alaska would become known as the haven for defeating rights of surviving spouses. Even surviving spouses in other states could be left in a difficult economic situation with everyone looking to Alaska where the assets were located. This is precisely what certain off-shore jurisdictions have offered to clients from Europe, not only with regard to spousal rights, but with regard to childrens' rights. The question is whether Alaska wishes to serve that purpose because there is a very strong demand for trusts, on the part of many persons who do not wish to provide for spouses. SENATOR PARNELL asked Mr. Hompesch whether the provision against disinheriting one's spouse is part of the Uniform Probate Code. MR. HOMPESCH answered it is, and he believed 12 to 16 states have adopted very similar provisions to legislation adopted in Alaska during the last session. PROFESSOR SCHOENBLUM agreed many states have similar provisions to protect the spouse, but emphasized the problem is the confusion between the various sections of the bill. The purpose of the proposed amendments is to clarify the confusion because HB 101 creates the possibility that any other provision regarding the elective share could be defeated through the creditor protection trusts because the spouse could be regarded as a creditor. Number 549 REPRESENTATIVE VEZEY clarified HB 101 expressly states that a trust set up in this manner is part of the augmented estate so if a state did not have a Uniform Probate Code, they would still have that hurdle to get over. SENATOR ELLIS asked how that would relate to people in foreign countries or other jurisdictions. MR. HOMPESCH answered the spouse in the outside jurisdiction still has rights under Alaska law. In addition, if someone were setting up one of these trusts to defraud his/her spouse, the spouse would have four years to sue the trust under the fraudulent conveyance provision. He repeated DOL's concerns are unfounded. MR. USERA stated the concern is not with the people married at the time the trust is created, but with those who create a trust and marry after the four year statute of limitation period. In such a case, the planning would have been done with no spouse to talk to about waiving the augmented estate. The confusion between the sections could lead to that result. SENATOR MILLER maintained his objection to the adoption of Amendment 1. The motion to adopt Amendment 1 failed 3 to 1 with Senators Miller, Pearce and Parnell voting nay, and Senator Ellis voting yea. SENATOR ELLIS moved to adopt Amendment 2 which reads as follows. Page 6, line 21: Following "under a" Insert "child" Page 6, line 21: Delete "for a child of the settlor" SENATOR MILLER objected. Number 514 In response to Senator Parnell, MR. HOMPESCH said that there are two parts to the amendment; both are of little consequence. The first amendment attempts to change the provision to include any child, not just the child adopted or born to the decedent. He questioned whether this point should occupy a significant amount of CSED's time and felt it should be addressed in the form of a technical corrections bill. VICE-CHAIR PEARCE did not understand Mr. Hompesch's point regarding a technical bill. MR. HOMPESCH said that he had never known a person who was obligated to pay child support for a child that was neither adopted nor born to that person. He pointed out the Administration has had the bill for six months yet he only learned of the proposed amendment yesterday. VICE-CHAIR PEARCE believed that if the change made sense, some attention should be given to it. She asked if there was further discussion. Hearing none, a hand vote was taken and Senators Pearce, Parnell, and Ellis voted "Yea" and Senator Miller voted "Nay." Therefore, Amendment 2 was adopted. SENATOR ELLIS moved to adopt Amendment 3 as follows. Page 6: Delete lines 25-29. SENATOR MILLER objected for clarification. MR. USERA explained Amendment 3 deletes the provision that allows child support to be taken from distributions of the trust. Mr. Usera said the provision is unnecessary because current law provides for such attachment and specifying it in HB 101 could be construed to exclude other creditors from collecting any payment. Under current law, other creditors could be excluded in the order in which the creditor takes precedent, but they would be able to share in attaching distributions. SENATOR MILLER said, "I can follow that reasoning, it's just that I don't want to see this come back and part of the argument that the Administration used last year was that we didn't protect child support payments. I don't want to see this argument coming back from the Administration as a reason to veto this bill because we didn't protect them." MR. USERA stated, `Our concerns about child support were addressed and this was a specific - there are two specific provisions in the bill to address the child support concerns. One was the 30 day in arrears provision which included the language "child of a settlor" that you just addressed. And the other provision is this making it very clear that distribution is subject to attachment, but it's not necessary.' SENATOR MILLER replied, "I understand that but all I'm saying is I don't want the Administration to come back and say that the bill did not protect child support, like we heard last year. I just don't want - because it's not in other places - I'm just a little - not as trustworthy of the Administration as you may be, Senator Ellis." SENATOR MILLER removed his objection to Amendment 3. Without further objection, Amendment 3 was adopted. Number 450 SENATOR ELLIS moved that Amendment 4 be adopted and reads as follows. Page 5, line 16: Following " created" Insert ", except that this provision does not apply to real property" VICE-CHAIR PEARCE objected and asked Mr. Hompesch to explain. MR. HOMPESCH advised that Amendment 4 is bad policy and is difficult to understand. Corporations may be made perpetual and real estate can be transferred to a corporation that is perpetual; a legal practice in every state. There is no restriction on alienation because the president of the corporation can sell the real estate. Mr. Hompesch did not understand why it would be bad for real estate to be conveyed to a perpetual trust for the benefit of the beneficiaries since the trustee, like the corporate president, has the power to sell the real estate. Mr. Hompesch informed the committee, as the trustee of a trust of 23 beneficiaries that own a house in Green Valley, AZ, he is in the process of selling the real estate and distributing the proceeds 23 ways. The concern regarding the splintering of the interest and the real estate is not an issue and is based on faulty reasoning. Mr. Hompesch believed such a policy would affect Alaskan residents negatively. If Amendment 4 was adopted, residents of states outside of Alaska will transfer their real estate to limited liability companies and then transfer their shares in the limited liability companies to their perpetual trust in Alaska. Many Alaskans will want to convey their real estate directly to a trust. Alaskans would have to first form a limited liability company or limited partnership to get around this rule. That would create additional attorneys' fees. He stated he is opposed to this amendment and does not want to be accused of creating a situation to benefit himself. He repeated this amendment is unnecessary. Number 422 MR. USERA countered that although a trustee can always sell the property, the trustee is obligated to do what is best for the trust, not necessarily the beneficiaries. A piece of property could be growing in value to the extent that the trustee would not be discharging his fiduciary obligations if he sold the property, because that would not be in the best interest of the trust. Although one could form a corporation or limited liability company and have that entity own the land, and the shares in that entity be held by the trust, the shares would be held by the trust, not the land itself. MR. SCHOENBLUM agreed with Mr. Usera and added the rule against perpetuities does not relate to all future interests, it only relates to contingent future interests. It is not a question of owning property in perpetuity, but a question of creating the kind of conditional interest that is essentially contingent. It might be possible for a settlor to restrict the powers of the trustee so the trustee would not be in the position to sell the property or divide it. REPRESENTATIVE VEZEY advised there are many ways to get around an exception for real property and urged the committee to vote against Amendment 4. VICE-CHAIR PEARCE maintained her objection. The motion to adopt Amendment 4 failed with Senator Ellis voting "yea," and Senators Pearce, Miller and Parnell voting "nay." KEVIN WALSH , a Fairbanks CPA, testified in support of HB 101 as it fixes some problems in the law with respect to the rule against perpetuities, and serves the public purpose. There are many instances in which land is held in perpetuity, i.e. for the state. It is possible to alienate property in other ways, i.e. one can provide for a conservation easement. The arguments being made are an attempt to kill a very good bill for political reasons. If some of the projected abuses occur, the legislature can amend the law. LINDA HULBERT , an insurance agent, testified from Fairbanks in support of HB 101. Many of her clients would like to establish trusts to pass their property to their children. Number 342 SENATOR ELLIS asked Representative Vezey to provide an estimate of the number of jobs HB 101 might bring to the Anchorage area. REPRESENTATIVE VEZEY did not have an estimate, but noted this market, on a global scale, is a multimillion dollar market per year and the management fees are substantial. SENATOR PARNELL moved CSHB 101(JUD) from committee with individual recommendations. There being no objection, the motion carried. SB 3 MINORS' CURFEW VIOLATION HEARD IN DISTRICT COURT SENATOR PEARCE , sponsor of the measure, said SB 3 establishes a uniform approach to handling curfew violations for those communities that wish to enact a curfew ordinance. Recently, the City of Juneau attempted to enact a youth curfew but found no avenue to prosecute offenders. SB 3 mandates that all juvenile curfew violations be handled in District Court, with a parent or legal guardian present during the proceedings. SB 3 will allow for more effective and expeditious handling of these offenses. SENATOR PEARCE added Juneau is fortunate to have Judge Froehlich who has taken it upon himself to spend a great deal of time on youth cases, particularly alcohol and drug offenses. Judge Froehlich estimates about 75 percent of the young people out after Juneau's proposed curfew time are the group who end up as the more serious alcohol, drug and tobacco offenders. He believes communities need all of the tools available to handle youth intervention as early as possible. SENATOR PEARCE explained SB 3 has a fiscal note from the Court System because it calls for court hearings for curfew violators. She noted the Municipality of Anchorage (MOA) has proposed an amendment to allow for a community work option if the offender cannot afford to pay a fine, or if the parents choose not to pay the fine. The amendment is permissive, because a recent court decision requires that a youth offender who is sentenced to a certain amount of community work has the right to a jury trial. She was unsure whether youth courts can be used in place of a jury trial. SENATOR ELLIS asked whether the fiscal note accounts for the amendment. SENATOR PEARCE said she would provide the committee with an updated fiscal note. SENATOR ELLIS asked Mr. Christensen to speak to the assumption in the fiscal note that no municipality will criminalize curfew violations. CHRIS CHRISTENSEN , Alaska Court System, stated last year the MOA adopted an ordinance making curfew violations a civil offense and issued 1500 citations. Those cases are currently being handled by a municipal hearing officer. Offenders have the right to appeal those cases to a court, but a $750 bond is required, and so far there has only been one appeal. Currently cities cannot criminalize curfew violations, because only the Division of Family and Youth Services (DFYS) can prosecute juveniles. SB 3 adds curfew infractions to the list of crimes for which minors can be prosecuted. SB 3 raises two issues: are curfews good public policy; and how will this policy affect the court system. He explained Alaska is one of only five states with a fully unified court system meaning the state courts do everything. Other states have city and county courts. Therefore when municipalities create a crime by ordinance, that crime is prosecuted in the state courts. Sometimes the Legislature has passed laws giving municipalities the right to take actions, and they have done so in a much more expansive way than the Legislature expected. He gave the example of the MOA's authority to enact traffic ordinances and its use of a photo-radar operation which resulted in an increase of 8,000 traffic tickets in one year. Those tickets cannot be paid by mail and require interaction with the court system. No one guessed the fiscal impact MOA's action would have. MR. CHRISTENSEN explained the fiscal note for SB 3 contains a conservative estimate of 3,000 curfew violations, since some of the violators will simultaneously receive an underage drinking ticket. Although SB 3 allows municipalities to treat curfew violations as misdemeanors as well as infractions, he prepared the fiscal note assuming municipalities will not charge curfew offenders with misdemeanors because they will be required to provide a public defender and the court system will have to provide a six person jury. Most infractions are on bail schedules, and most people pay them by mail or at the counter. Also problematic is that SB 3 allows municipalities to demand that curfew offenders make a court appearance, even if the curfew violation is treated as an infraction. He suggested, if it is not the committee's intent to treat curfew violations as misdemeanors and/or to force the offenders to make a court appearance, that SB 3 be amended to read the offenses should be treated as infractions and should be on the municipality's bail schedule. With respect to the court decision (Booth v. State) referred to by Senator Pearce, a 1995 appeal was based on a law authorizing judges to impose mandatory work service for felonies and misdemeanors, but not for infractions. The Booth decision requires if the sentence for a crime is mandatory, not optional, community service, the person has the right to a jury trial and a public defender. Number 153 SENATOR PEARCE clarified on page 1, line 18 of the amendment, community service is clearly provided as an option. SENATOR ELLIS asked Senator Pearce if it is her intent to require offenders to make a court appearance. SENATOR PEARCE believed it best to have the option to require a court appearance if those involved feel it will be useful for a particular child to go before a judge. It has had a positive impact in Juneau. Number 123 SENATOR ELLIS questioned whether a municipality would have to apply the same policy to all offenders, or whether offenders could be treated differently based on circumstances. MR. CHRISTENSEN replied a municipality could choose to, for example, put first offenders on a bail schedule, and have second offenders make a court appearance. He repeated the court system's fiscal note is based on the assumption that all municipalities will not require a court appearance, so it contains a conservative estimate. He added with infractions on the bail schedule, the court sees only about one-third of the offenders. SENATOR PEARCE stated her intent is to provide another tool for local governments, and she hopes they would not throw all cases into the court system, but instead would take advantage of this tool for second offenders. She said she is open to ideas as to how to best accomplish that goal. She felt the court system's fiscal note is not outrageous, especially if SB 3 keeps one minor out of jail for one year. SENATOR ELLIS noted his support of the amendment, but inquired whether it was requested by the Anchorage Assembly. SENATOR PEARCE responded it was not. Assemblyman Murdy expressed support of the bill but she introduced it in response to Juneau's situation. Assemblyman Murdy requested that community work be an option because in some instances parents refuse to pay the fine and there is no way to force the child to do anything as an alternative. Number 076 SENATOR ELLIS asked if it is safe to assume the Anchorage Assembly has no objection to the approach in SB 3. SENATOR PEARCE said no one has expressed objection. She added she has had no indication that the MOA will rush to criminalize curfew violations. SENATOR ELLIS questioned whether a parent will be compelled to be present during a court hearing under SB 3. MR. CHRISTENSEN said the language in the bill regarding the presence of parents is in existing law. It is current practice with minor traffic violations, among others, but does cause problems because cases often have to be held over because someone cannot attend. Number 046 SENATOR ELLIS asked for more detail on the practical application of that provision. MR. CHRISTENSEN offered to provide Senator Ellis with more information at a later date. TAPE 97-18, SIDE A Number 000 STEVEN GRUENSTEIN , representing Guardians for Family Rights, testified in favor of SB 3. Teenagers need limits, quick consequences, and early intervention, when they step out of line. SB 3 will prevent jail time in many cases. He supports the community service option and a system with teeth. SENATOR MILLER offered Amendment 1. There being no objection to the adoption of Amendment 1, it was so ordered. SENATOR PEARCE repeated her willingness to entertain suggestions for improvements or alternatives to SB 3, but stated her belief that early intervention is less costly than incarceration. SENATOR PARNELL moved SB 3 as amended from committee with individual recommendations. There being no objection, the motion carried. SENATOR PEARCE announced the Senate Judiciary Committee will meet at 1:30 p.m. on Monday, Wednesday and Friday of the following week, and adjourned the meeting at 3:20 p.m.