Legislature(2003 - 2004)
03/27/2003 01:35 PM Senate L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 27, 2003
1:35 p.m.
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Bettye Davis
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 82
"An Act relating to the state alcoholic beverage tax for certain
wine and other beverages."
MOVED CSSB 82(L&C) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 9(FIN) am
"An Act relating to the registration of individuals who perform
home inspections; relating to regulation of contractors;
relating to registration fees for specialty contractors, home
inspectors, and associate home inspectors; relating to home
inspection requirements for residential loans purchased or
approved by the Alaska Housing Finance Corporation; relating to
civil actions by and against home inspectors and to civil
actions arising from residential unit inspections; repealing a
law that limits liability for damages based on a duty to inspect
a residential unit to damages caused by gross negligence or
intentional misconduct; and providing for an effective date."
MOVED SCS CSHB 9(L&C) OUT OF COMMITTEE
SENATE BILL NO. 151
"An Act relating to the regulation of natural gas pipelines
under the Pipeline Act."
HEARD AND HELD
HOUSE BILL NO. 146
"An Act repealing the termination date of certain provisions
that require the reporting of social security numbers and
automated data matching with financial institutions for child
support enforcement purposes; and providing for an effective
date."
HEARD AND HELD
HOUSE BILL NO. 124
"An Act relating to commercial motor vehicle drivers and their
employers and to railroad-highway grade crossings; and providing
for an effective date."
HEARD AND HELD
CS FOR HOUSE BILL NO. 64(JUD)
"An Act relating to court approval of the purchase of structured
settlements."
HEARD AND HELD
PREVIOUS ACTION
SB 82 - See Labor and Commerce minutes dated 3/13/03.
HB 9 - See Labor and Commerce minutes dated 3/18/03.
SB 151 - No previous action to record.
HB 146 - No previous action to record.
HB 124 - No previous action to record.
HB 64 - No previous action to record.
WITNESS REGISTER
Mr. Doug Letch
Staff to Senator Gary Stevens
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 82.
Mr. Chuck Harlamert
Chief of Operations
Tax Division
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Commented on SB 82.
Ms. Heather Nobrega
Staff to Representative Rokeberg
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on HB 9.
Mr. Terry Duszynski
PO Box 83149
Fairbanks AK 99708
POSITION STATEMENT: Opposed HB 9.
Mr. Dave Owens
Owens Inspection Service
PO Box 3589
Palmer AK 99645
POSITION STATEMENT: Supported HB 9.
Ms. Carol Perkins
Active Inspections
PO Box 871825
Wasilla AK 99687
POSITION STATEMENT: Opposed HB 9.
Ms. Mary Jackson
Staff to Senator Wagoner
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 151 for the sponsor.
Mr. Ben Schoffmann, Project Manager
Alaska Business Unit, Domestic Production
Marathon Oil Company
P.O. Box 196168
Anchorage AK 99519-6168
POSITION STATEMENT: Supported SB 151.
Mr. Anthony Scott
Division of Oil and Gas
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Supported SB 151.
Commissioner Jim Strandberg
Regulatory Commission of Alaska (RCA)
Department of Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported SB 151.
Mr. Todd Larkin
Staff to Representative Jim Holm
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on HB 124.
Representative Lesil McGuire
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 124.
Ms. Karen Hemmings
No address provided
POSITION STATEMENT: Supported HB 124.
Mr. Paul LaBolle
Staff to Representative Foster
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on HB 64 for the sponsor.
Mr. Albert Tamagni, Sr.
Structured Financial Settlements of Anchorage Alaska
Anchorage AK
POSITION STATEMENT: Supported HB 64.
Mr. Randy Dyer, Executive Vice President
National Structured Settlement Trade Association
No address provided
POSITION STATEMENT: Supported HB 64.
ACTION NARRATIVE
TAPE 03-16, SIDE A
SB 82-ALCOHOLIC BEVERAGE TAX FOR WINE & OTHERS
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:35 p.m. Present were Senators
Stevens, Davis and Chair Bunde. He announced SB 82 to be up for
consideration.
SENATOR STEVENS moved to adopt Amendment 1.
CHAIR BUNDE objected for discussion purposes.
MR. DOUG LETCH, staff to Senator Gary Stevens, explained he got
together with representatives from the small wineries and the
Department of Revenue to come up with new language that would
reduce the amount of revenue lost to the state. That amendment
is before members [Amendment 1]. It would delete the 3,000-
gallon per year exemption and replace it with 100 gallons per
month, which will insure that the state will receive tax revenue
on every gallon sold over 100 gallons each month. The second
part of the amendment would further protect the state by
insuring that two or more taxpayers who have a relationship in a
business would be taxed as a single taxpayer. That means a
company cannot get an exemption for each one of its brands of
wine.
CHAIR BUNDE asked what the new fiscal note would look like.
MR. LETCH said Amendment 1 needs to be adopted by the committee
before a new fiscal note could be prepared but he understood it
should severely reduce the amount of lost income to the state.
MR. CHUCK HARLEMERT, Department of Revenue, estimated the tax
impact on an ongoing basis would be between $18 and $20 thousand
dollars per year. In the first year, it would be twice that
amount, or about $37,000.
CHAIR BUNDE announced there were no further questions. He
removed his objection and Amendment 1 was adopted.
SENATOR STEVENS moved to pass CSSB 82(L&C) and the attached
fiscal note from committee with individual recommendations.
There were no objections and it was so ordered.
CSHB 9(FIN)am - HOME INSPECTORS/CONTRACTORS
CHAIR BUNDE announced CSHB 9(FIN)am to be up for consideration.
MS. HEATHER NOBREGA, staff to Representative Rokeberg, sponsor,
said she would answer questions, but there were none.
SENATOR DAVIS moved to adopt the Senate Labor and Commerce
committee substitute to CSHB 9(FIN)am, version U. There were no
objections and it was so ordered.
SENATOR STEVENS moved to pass SCS CSHB 9(L&C) from committee
with individual recommendations.
SENATORS SEEKINS and FRENCH arrived at 1:44 p.m.
CHAIR BUNDE announced that he had been notified that other
people wanted to testify.
MR. TERRY DUSZYNSKI, Fairbanks building inspector since 1978,
said when this bill was introduced, it was about providing
proper qualifications for home inspectors, insurance and
continuing education. However, this bill seems to have gotten
way out of control as far as what it's trying to accomplish. It
is tying to dictate how an inspection is to be done it but
doesn't provide everything that is necessary. On page 6, under
existing homes, the provisions do not specify what code they
refer to. Another concern is subsection (d) on page 6, which
specifies that the inspection is valid for 180 days after the
date the home inspector signs and dates the report. However, it
doesn't keep home inspectors from being sued after six months.
On page 10 the home inspector is held liable for two years on a
new construction, yet the builder has only a one-year warranty
on the house. He thought that was a little out of line.
Page 18 contains a list of components of a residence that the
inspector is liable for and includes built-in appliances, such
as dishwashers and built-in ranges. He thought it goes too far
in defining what inspectors are supposed to do.
He said the language on page 20 is of most concern as it says
that inspectors shall determine whether the construction
conforms to relevant provisions of the construction codes of the
municipality or of the state building code, as applicable, at
each of the following stages of construction. There is no state
building code for residential construction. The State of Alaska
has adopted uniform building codes, but only for four-plexes and
above. Now, home inspectors are going to be held liable for
something that there is no state law to follow. All of the
cities have different codes. Inspectors need to know what
standards they will be held to when doing an inspection.
MR. DAVE OWENS, Owens Inspection Service, said he has not
supported the bill in the past, but he could if three amendments
were adopted. One would be to consolidate and create an Alaska
state residential building code and regulations for commercial
building inspectors. He said this bill does not address the
relationship between real estate agents and third-party
inspectors. Liability is the biggest problem that most
inspectors have. If this bill passes with this level of
liability, a good percentage of the inspectors on the Alaska
housing roster that perform new construction will go out of
business.
MS. CAROL PERKINS, Active Inspections, stated opposition to HB 9
and said the bill would open inspectors up to a lot of
"lawyering." She pointed out the building department has a
grievance process and the authority to adopt codes and make
amendments so that the codes are adjustable to a local
situation.
MS. NOBREGA said the first concern is addressed on page 6, (b).
She explained that the bill allows for a preinspection document,
which talks about the expectations and what the home inspector
will be doing, which can vary. This also applies to appliances.
A home inspector might not look at appliances according to the
preinspection document. She pointed out the 180-day validity of
the report means that its accuracy is valid only for that period
of time. She told members the provisions on page 10 for bringing
a claim, one-year for an existing home and two-years for a new
home, are from the statute of limitations of when a lawsuit can
be brought. On page 20, the state building code language was
inserted to cover the possible eventuality of getting one.
MS. NOBREGA said Mr. Owens' concerns about liability are
partially covered in a compromise. Because the bill repeals the
AHFC provision, section 41, other provisions were inserted to
limit inspectors' liability. One limits the length of the
report's validity, another limits the one and two year period,
and another limits who can sue them.
Repealing section 41 does not open inspectors up to frivolous
lawsuits. Now, a homeowner can only sue for gross negligence or
intentional misconduct. Section 41 will allow a homeowner to sue
for regular negligence and damage. The standard under that
provision is very, very high.
CHAIR BUNDE thanked her for her explanation and noted that a
motion was pending. He asked for the roll to be called. SENATORS
FRENCH, SEEKINS, STEVENS, DAVIS and BUNDE voted yea and SCS CSHB
9 (L&C) moved out of committee.
SB 151-REGULATION OF NATURAL GAS PIPELINES
CHAIR BUNDE announced SB 151 to be up for consideration.
MS. MARY JACKSON, staff to Senator Wagoner, sponsor, said SB 151
is a housekeeping measure. In 2000, the legislature amended the
Alaska Pipeline Act. One of the provisions of that legislation
allowed for two classes of pipeline service: firm and
interruptible. Those services applied to the North Slope gas
pipeline because it was the only pipeline at that time. Since
then, the Kenai Kachemak (KKPL) pipeline has come on line. The
KKPL was initially intended to run from the southern end of the
Kenai Peninsula back to Kenai as the oil reserves were in the
south. The KKPL wrote to the Regulatory Commission of Alaska
(RCA) requesting that it be allowed to offer both firm and
interruptible services. The RCA replied that the 2000
legislation governing classes of service to pipelines was only
specific to the North Slope. This bill deletes "North Slope" and
adds a section that defines a natural gas pipeline facility and
a natural gas pipeline carrier.
MS. JACKSON told members the bill should contain an immediate
effective date as the pipeline is under construction. She
pointed out the Department of Natural Resources submitted a zero
fiscal note, but included some concerns on page 2. [Senator
Wagoner] disagrees with the assertion that this could
potentially be used to impede pipeline access for non-
affiliated producers and could hinder natural gas exploration.
She told members that representatives of Marathon Oil were
present to speak to that. She noted the function of the RCA is
to insure fairness.
MR. BEN SCHOFFMANN, Marathon Oil, said he is the project manager
for the Kenai Kachemak Pipeline project known as KKPL. SB 151
would provide the RCA with a tool to offer two types of service
to pipelines, firm and interruptible, that it currently applies
to the North Slope gas line. FERC has used the same policy often
in the Lower 48 over the past two decades by FERC. This bill
would clarify that the RCA has the authority to grant other
pipelines the authority to grant those two classes of service,
otherwise known as contract carriage, to regulated gas pipelines
elsewhere in the state.
He explained that firm service is a commitment between the
pipeline owner and its customers to provide a designated amount
of throughput on a set daily basis. The shipper agrees to pay
for that capacity whether or not it is utilized. It is a risk
decision the shipper makes to reserve capacity. The shipper pays
what is known as a reservation charge for that privilege.
Interruptible service is offered on an as available basis. The
pipeline would offer to transport volumes and the shipper would
only have to pay for services actually used. The parties have no
long-term commitment as to promised throughputs, deliveries or
payments for gas that is not rendered for delivery.
SB 151 is important to investors because when you put money on
the line, it's good to know that people are actually going to be
interested in using the pipeline capacity you're building.
Offering firm transportation is a way for pipeline investors to
make sure they will have customers and to understand what the
level of interest is and how serious that interest is. With firm
transportation, shippers are asked to commit in advance and make
payments for capacity whether it's used or not. It sets a
minimum standard for how large the pipeline must be. He stated.
"Without that, it's a wild guess...It helps them reduce their
risk and manage their expectations."
MR. SCHOFFMANN said SB 151 is important for shippers because
they want to be sure that they're going to be able to ship gas
on that line. Shippers generally have two types of gas sales
contracts and those are firm or interruptible. If a pipeline is
then placed between a gas supplier and their end customer, like
Enstar, Chugach Electric, industrial users and residents, but it
doesn't have the capability to offer the same type of service,
then it almost undermines the contractual relationship between a
supplier and a customer. The supplier needs the ability not only
to produce the gas with certainty, but also to ship that gas to
the customer with certainty. This helps the shipper align its
transportation services with its gas contracts. If it has firm
gas contracts, it more than likely will want firm transportation
services.
CHAIR BUNDE asked if this bill would only allow the smaller gas
pipeline the same flexibility that TAPS has currently.
MR. SCHOFFMANN replied that current law deals with natural gas
pipelines and the TAPS.
CHAIR BUNDE asked him to address DNR's concern that the fiscal
note might discourage gas development.
MR. SCHOFFMANN replied that the situation with the fiscal note
seems to imply that unaffiliated shippers would not be able to
have certainty with which to conduct their operations, but he
disputes that implication because the producers are given two
options, one of firm service and the other to wait and see what
the development is before they put money on the line. The RCA
will be involved in insuring that this is a non-discriminatory
process that is fairly transparent. This includes designating
expansions of the line.
SENATOR FRENCH asked if this legislation would be necessary if
the KKPL was proposed as a common carrier pipeline.
MR. SCHOFFMANN replied that the common carrier provisions are
already in AS 42.06. This is a clarification to the common
carrier provisions that allow two classes of service. Now,
practically speaking, all common carriers offer interruptible
service only, because if the pipelines get oversubscribed,
everybody gets curtailed.
SENATOR FRENCH said his sense is that this legislation would not
be necessary if it just involved common carriers, but that
wouldn't satisfy his business plans.
MR. SCHOFFMANN agreed and said SB 151 is necessary as a function
of the development of the gas transportation and deregulation
process that's happened over the past couple of decades.
Projects that define what has happened in the industry have not
come up during that time frame.
SENATOR SEEKINS asked if SB 151 will allow smaller independent
producers to find carriers to get their products to market that
might not exist under any other scenario unless they built their
own pipelines.
MR. SCHOFFMANN replied they believe SB 151 will be advantageous
to all potential customers, small producers included, because
they are not being asked to commit anything in advance over the
long-term. However, they will see a pipeline with published and
regulated tariffs and the fact that the pipeline is getting
built and is getting closer to some of their operations provides
a huge incentive to accelerate their plans or drill wells that
they wouldn't have if they were 33 miles further away from that
infrastructure.
SENATOR SEEKINS said that this addresses an overall concern he
has about how to encourage smaller independent businesses to get
into the energy production business in Alaska.
MR. ANTHONY SCOTT, Division of Oil and Gas, DNR, said the
contract carriage provisions can reduce producer risk for a non-
producer affiliated pipeline, which is the general case outside
of Alaska. With a producer-affiliated pipeline, there is the
potential for concern that during the open season, the pipeline
could decide to either meet the needs of the producers, which he
understands is not the case with KKPL, or monopolize capacity
before an independent shipper has explored or discovered the
gas. This legislation will affect not only KKPL, but future
pipelines as well.
SENATOR FRENCH asked if this proposed pipeline is going to be
owned by an affiliated or non-affiliated pipeline company.
MR. SCHOFFMANN responded that KKPL is a joint venture between
Marathon and Unocal, who are also committed as shippers. They
are an affiliated company. The issues that were raised really do
fall under the purview of the RCA to make sure that a fair
process is in place. If Marathon and Unocal find gas in other
areas of the Kenai Peninsula where they have not yet explored,
they would be in the same position as anyone else who has yet to
make a commitment to the pipeline. The RCA has the authority to
look at the tariffs to make sure they are balanced.
SENATOR SEEKINS moved to adopt Amendment 1 to add an immediate
effective date. There were no objections and it was so ordered.
MR. STRANDBERG, RCA Commissioner, testified that this approach
would be a new one in the regulation of pipelines.
TAPE 03-16, SIDE B
MR. STRANDBERG said he didn't know how SB 151 would affect
preexisting firm transport contracts that can be negotiated
under new language and whether the RCA would have the ability to
require the parties to those contracts to renegotiate for a pro
rata share reduction that would be required under the common
carrier provision.
SENATOR SEEKINS questioned why this would be considered a new
approach if, in effect, SB 151 only removes "North Slope."
MR. STRANDBERG replied currently, the RCA is just regulating two
gas pipelines in the state. The North Slope pipeline hadn't been
constructed yet. The two gas lines are regulated under the
state's public utility statutes. He clarified, "We really have
no gas pipelines that are regulated under AS 42.06 right now."
SENATOR SEEKINS noted that it isn't a new approach in statute,
since the statute already exists for North Slope gas. It's just
that there isn't one in operation yet.
MR. STRANDBERG said he is correct.
CHAIR BUNDE asked Mr. Strandberg to submit a written response to
the concern expressed by DNR in its fiscal note, and said he
would distribute copies to the committee. He announced the
committee would hold SB 151 until further notice.
HB 146-CHILD SUPPORT/SOCIAL SECURITY NUMBERS
CHAIR BUNDE announced HB 146 to be up for consideration.
REPRESENTATIVE LESIL MCGUIRE, sponsor, said HB 146 stems from a
federal act that went into place in 1996 called the Personal
Responsibility and Work Opportunity Reconciliation Act of '96.
The act's goal is simply to reduce dependence on welfare
programs across the board. The federal act required numerous
additional requirements for child support enforcement programs
across the United States. One of those requirements was the
reporting of social security numbers and matching it to
automated data from financial institutions for the purpose of
child support enforcement.
REPRESENTATIVE MCGUIRE said while the welfare system was
designed to provide the basics of food and shelter to children,
sometimes a family was receiving welfare because a "deadbeat"
mom or dad did not participate financially in their child's
life. The Act recognized that new tools were needed to help
state agencies crack down on "deadbeat" moms and dads. She
cautioned if HB 146 is not enacted, the state would lose $75.6
million - $15.4 million for Alaska's Child Support Enforcement
Division (CSED) and $60.2 million for Alaska's temporary
assistance program.
She explained the legislature adopted the law that is before
them in 1997 and readopted it in 1998 with a sunset provision.
HB 146 repeals the sunset provision that would go into effect on
July 1 of this year. The state would continue on with the policy
that has been in place since 1997.
REPRESENTATIVE MCGUIRE described another part of the bill as
further clarification of existing policy. The word "resident" on
page 1, line 7, was removed so that any person applying for a
commercial fishing license shall provide their social security
number. She noted that would codify a policy that has been in
effect since 1997.
CHAIR BUNDE added that a few years ago deadbeats owed over
$100,000 in child support arrears and the people were all
fathers and most of them were fishermen. There being no further
questions, he held the bill.
HB 124-COMMERCIAL MOTOR VEHICLE DRIVERS/EMPLOYER
CHAIR BUNDE announced HB 124 to be up for consideration.
MR. TODD LARKIN, staff to Representative Jim Holm, said HB 124
is a housekeeping measure suggested by the Administration. It
would cost the state $20 to $40 million in highway funds if it
does not come into compliance with a federal code that says
commercial drivers need to stop at railroad crossings. Although
that's taught in CDL classes and is a federal requirement, it's
never been the law in Alaska. He found that Alaska is already
past its deadline for compliance, so the bill should be hurried
along. He noted that HB 124 has an immediate effective date.
MS. KAREN HEMMINGS stated support for HB 124 so that drivers can
be in compliance with their CDL licensing program.
MR. MATT LAVECK said he was available to answer questions.
There being no further comments, CHAIR BUNDE set the bill aside.
HB 64-PURCHASE OF STRUCTURED SETTLEMENTS
CHAIR BUNDE announced HB 64 to be up for consideration.
MR. PAUL LABOLLE, staff to Representative Foster, sponsor, said
this bill sets up oversight for transfers of structured
settlements, primarily for three reasons. He explained:
One is consumer protection. Factoring companies have
been purchasing structured settlements for as low as
20 cents on the dollar. A structured settlement by
definition is tax-free. Once they have lump-summed it
out, they now have to pay tax on their lump sum. So,
whatever the discount hits them for, taxes hit them
for it again.
The second reason is for the good of the state. A lot
of times a structured settlement is set up because it
is determined that the payee isn't equipped to deal
with a large lump sum and so they set him up so there
will be a continuous flow of cash. Once they lump sum
it out, they spend up all the money, they become a
burden on the state.
Also, for the good of the state, these structured
settlements are often set up as non-transferable
agreements, but since there is no oversight set up,
the right hand doesn't know what the left hand is
doing. So, they're happening illegally.
Third, there is a federal tax law currently on the
books [that] passed last year which imposes a 40
percent prohibitive tax on any transfer of structured
settlements unless it has been approved by a qualified
order, such as a state statute, state law or overview
of an administrative body.
CHAIR BUNDE asked if HB 64 would apply to the legislature and
GARVEE bonds. He noted the bill has a zero fiscal note and
questioned whether there would be a cost for the court reviews.
MR. LABOLLE said he didn't know the ins and outs of the court
system or why it submitted a zero fiscal note.
SENATOR FRENCH asked how many structured settlements get
arranged in Alaska each year.
MR. LABOLLE replied that he wasn't sure.
CHAIR BUNDE asked if he won the lottery and wanted an immediate
payout, whether the court would have to decide if he was
competent to do that.
MR. LABOLLE said that the lottery isn't technically a structured
settlement.
MR. AL TAMAGNI, SR., Structured Financial Associates of
Anchorage, Alaska, said the bill addresses who will pay the
costs, which is the purchaser of the annuity contract upon court
approval. He indicated that's why the bill has a zero fiscal
note.
MR. TAMAGNI explained that his business deals with cases of
personal injury or wrongful death and workers' compensation
where the people and the courts may have decided they would like
to get periodic payments in lieu of a cash settlement. He noted:
Annuities are purchased [indisc.] and provide some
people with a lifetime income, either on a monthly
basis or a lump sum basis or combinations with cost of
living escalators. As a result of that, under Section
104 A(2) of the code [indisc.], all these future
payments are exempt from gross income. And the
payments are to provide and to maintain the people's
style of living, provide medical expenses and also
dependent expenses in a lot of cases. That's kind of
what in general a structured settlement is.
MR. RANDY DYER, Executive Vice President, National Structured
Settlement Trade Association, supported Mr. Tamagni's comments
but clarified that the bill before the committee was not
intended to regulate a structured settlement; it was intended to
regulate the factoring of them. Factoring companies arose in the
mid-1990s for the purpose of buying streams of payments. He told
members:
There are companies that will buy mortgage payments,
lottery payments, etc., but some of them ventured into
buying structured settlements and we became very
concerned because the people who receive such
settlements are generally people who have catastrophic
physical injuries and when represented by counsel in a
claim decided the best way for them to take their
money was in periodic payments so they would be
assured of never outliving their funds. The factoring
companies entered the scene and started buying these
payments. We became concerned that a number of people
might lose the security of their payments to these
companies and end up falling back on the social safety
net.
He explained how it works:
Assume you're getting $2,000 a month tax-free. A factoring
company would approach you and say, 'Listen, we want to buy
payments, but we only want to buy $500 of your $2,000.' After
signing a 20-page contract, your $2,000 a month checks will be
transferred to the factoring company in your name. In the
contract you gave the factoring company the right to cash the
$2,000 check, which it does. It keeps the $500 and sends you
$1,500. He said this first transaction is probably the best deal
it is going to get, because the factoring company knows if
you're talking to it, you're talking to other factoring
companies. So this best deal is 75 percent of the present value
of the payments that you sell, which means you've suffered a
discount rate of 25 percent.
You used to receive your $2,000 on the first of the month, but
now the factoring company receives it on that date, cashes it,
takes $500 and sends the balance to you maybe on the second, the
fifth or the eighth of the month. Each month it delays the
payments, which puts economic pressure on you. You call and ask
where your payment is and they give you some excuse. The
pressure builds up until what you really need is to get paid
another $500 a month. The factoring company has to sell you that
payment, because the contract gives that factoring company the
right of first refusal, plus the factoring company controls your
check. Now that the factoring company essentially owns your
check, it's only going to give you half of what it's worth. If
there is a third deal, they might give you 25 percent of what
it's worth and so on.
You might realize the problem is that the factoring company owns
your check so you contact the annuity company and tell it not to
send the factoring company the check any more. Once the check
goes back to you, you'll find that you're in breach of another
portion of the 20-page contract and at that point the factoring
company will go into court in its state, not in Alaska, and get
an order against you that gives it the rights to all of the
payments until their judgment is satisfied.
MR. DYER said this bill is important because it will end that
practice. A federal bill was passed that will put the hammer on
these companies; it imposes a 40 percent excise tax on these
transactions that falls on the factoring companies unless they
can get a court order that allows them to do this. In some
cases, it will be important for some people to sell a portion of
their payments for good reasons and they shouldn't be denied the
right to do that. He stated, "We want to make sure that it is
done fairly."
MR. DYER said this bill provides important up-front disclosures.
For example, workers' compensation payments may not be sold and
this bill provides for disclosures to other interested parties.
A person who owed child support couldn't sell the child support
payments. This legislation has been enacted in 35 states and a
number of other states are considering it this year. It will
probably be enacted by all states in the next two years.
CHAIR BUNDE asked what a typical cash payment would be to
purchase that portion of the check.
MR. DYER replied assuming your payments were $500 for the next
10 years and your settlement had a value of $20,000, that first
deal might pay $15,000. The next deal wouldn't be so generous
and you wouldn't have any other place to go.
SENATOR SEEKINS asked where the statute provides that the
parties to this agreement pay to the court.
MR. DYER said he believed it was in the statute, but couldn't
find it.
CHAIR BUNDE asked Mr. Dyer to work with the bill's sponsor and
said the committee would bring it up again.
There being no further business to come before the committee,
CHAIR BUNDE adjourned the meeting at 2:50 p.m.
| Document Name | Date/Time | Subjects |
|---|