Legislature(1993 - 1994)

04/02/1993 09:10 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                 SENATE STATE AFFAIRS COMMITTEE                                
                          April 2, 1993                                        
                            9:10 a.m.                                          
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Senator Loren Leman, Chairman                                                
  Senator Mike Miller, Vice Chairman                                           
  Senator Robin Taylor                                                         
  Senator Johnny Ellis                                                         
  Senator Jim Duncan                                                           
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  All Present                                                                  
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  SENATE BILL NO. 161                                                          
  "An  Act  relating  to  interest  rates and  calculation  of                 
  interest under certain judgments and  decrees and on refunds                 
  of  certain  taxes,  royalties, or  net  profit  shares; and                 
  providing for an effective date."                                            
                                                                               
  SJR 23                                                                       
  Proposing amendments  to the  Constitution of  the State  of                 
  Alaska  relating to the powers and duties of the legislative                 
  auditor.                                                                     
  SJR 23 (LEGISLATIVE AUDITOR'S POWERS) was scheduled, but not                 
  heard this date.                                                             
  PREVIOUS SENATE COMMITTEE ACTION                                             
                                                                               
  SB 161 - No previous action to record.                                       
                                                                               
  SJR 23 - See State Affairs minutes dated 3/17/93 and                         
           3/22/93.                                                            
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  Joseph Geldhof, Assistant Attorney General                                   
  Department of Law                                                            
  P.O. Box 110300                                                              
  Juneau, Alaska 99811-0300                                                    
  POSITION STATEMENT:  Commented on SB 161.                                    
                                                                               
  Will James, Assistant Attorney General                                       
  Department of Law                                                            
  P.O. Box 110300                                                              
  Juneau, Alaska 99811-0300                                                    
  POSITION STATEMENT:  Commented on SB 161.                                    
                                                                               
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  Chris Christenson, Staff Counsel                                             
  Judicial Branch                                                              
  303 K Street                                                                 
  Anchorage, Alaska 99501-2084                                                 
  POSITION STATEMENT:  Commented on SB 161.                                    
                                                                               
  Ellen Braden, Treasurer                                                      
  Municipality of Anchorage                                                    
  P.O. Box 196650                                                              
  Anchorage, Alaska 99517                                                      
  POSITION STATEMENT:  Commented on SB 161.                                    
                                                                               
  Larry Meyers, Director                                                       
  Income and Excise Audit Division                                             
  P.O. Box 110420                                                              
  Juneau, Alaska 99811-0420                                                    
  POSITION STATEMENT:  Commented on SB 161.                                    
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
  TAPE 93-24, SIDE A                                                           
  Number 001                                                                   
  CHAIRMAN  LEMAN called  the  Senate State  Affairs Committee                 
  meeting to order at 9:10 a.m.  and announced SB 161 INTEREST                 
  RATES: JUDGMENTS/TAXES/ROYALTIES to be up for consideration.                 
                                                                               
  JOE GELDHOF,  Assistant Attorney General, explained the bill                 
  briefly.                                                                     
                                                                               
  WILL  JAMES, Assistant  Attorney  General, was  available to                 
  answer questions on Sections 4, 5, and 7.                                    
                                                                               
  Number 112                                                                   
                                                                               
  SENATOR ELLIS moved to  adopt CSSB 161(STA).  There  were no                 
  objections and it was so ordered.                                            
                                                                               
  SENATOR  LEMAN  asked  regarding  page  4,  if  the  state's                 
  assessment is  wrong, would the person get a higher interest                 
  rate on the refund for it.  MR. JAMES said he wasn't sure of                 
  the answer to that.                                                          
                                                                               
  SENATOR TAYLOR asked if the rate of prejudgment interest was                 
  calculated  after  the  judgement  was  made?   MR.  GELDHOF                 
  responded that you would probably wait until you find out if                 
  you  get   a  favorable   judgement  before   you  do   your                 
  calculations.  Under the proposed legislation, he explained,                 
  you could  ascertain what the  prejudgment rate would  be by                 
  looking  at  the week's  previous  Treasury Bill  sale which                 
  would  be  your prejudgment  interest rate.  When you  get a                 
                                                                               
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  judgement, you can then calculate the interest back to the T                 
  Bill sale.                                                                   
                                                                               
  SENATOR  TAYLOR  said there  is  a significant  enhancer for                 
  people  to  settle suits,  because  of the  decline interest                 
  rates and  fixed court  rate.   The state  is caught  in the                 
  process of making the determination of  whether they want to                 
  litigate further if the  odds are 75% we're going  to loose,                 
  or are  they wiser to  settle now and  pay the low  interest                 
  rate.                                                                        
                                                                               
  Number 285                                                                   
                                                                               
  SENATOR  LEMAN  suggested  that  the   Commissioner  of  the                 
  Department of  Revenue adjusting  the interest  rates on  an                 
  annual or semi annual basis.                                                 
                                                                               
  MR. GELDHOF said the original concept for the post judgement                 
  interest was derived from the  system the federal government                 
  currently uses which is based on  the price of Treasury Bill                 
  sales.                                                                       
                                                                               
  Number 334                                                                   
                                                                               
  CHRIS CHRISTENSEN, Staff Counsel to the Alaska Court System,                 
  said the Court  System is only  concerned with Section 1  of                 
  the  CS which they oppose.  There  is a technical problem on                 
  line 1 saying  that money  shall accrue in  a "civil  case."                 
  The current statute doesn't say "civil case."  It says "on a                 
  judgement or decree"  which they  have been interpreting  to                 
  allow  them  to award  post  judgement interest  on criminal                 
  judgements or criminal  fines and criminal restitution.   He                 
  did not think the state wanted to lose the ability to charge                 
  criminals interest on restitution.                                           
                                                                               
  MR.  CHRISTENSEN  said  they thought  this  bill  would also                 
  impose a substantial clerical impact  by requiring the rates                 
  to change every week at a time when funding is being cut.                    
                                                                               
  He said there  is also  a significant policy  change in  the                 
  bill from current  non-tort cases  where interest rates  are                 
  calculated from the date  of the breach of contract.   It is                 
  easy to know when the contract was breached, because it says                 
  so in  the complaint.   However, they  do not know  when the                 
  summons was  served, because  generally they  are not  told.                 
  Phone calls would  have to be  made to attorneys or  process                 
  servers  to  try to  figure out  the  correct date  which is                 
  normally not in the file.                                                    
                                                                               
  He  also   commented  that  the  interest  rate  has  to  be                 
  calculated twice now  instead of once.   However, frequently                 
  many  cases  have  multiple defendants  who  were  served in                 
                                                                               
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  different weeks.   There could  be 4 defendants  in a  case,                 
  each with a  different rate of interest  which means instead                 
  of  just doing one  calculation for the  entire case, you're                 
  doing 8  different calculations.  Then the  clerk would have                 
  to figure out  the date of  service and do the  calculation.                 
  He said they handle about 10,000 of these cases per year and                 
  if  you  calculate  15  minutes  times  10,000,  that  is  a                 
  substantial increase in the clerical work load.                              
                                                                               
  The  federal  courts  do  this  calculation only  with  post                 
  judgement  interest,  not  with  prejudgment  interest,  MR.                 
  CHRISTENSON said.                                                            
                                                                               
  Number 410                                                                   
                                                                               
  SENATOR LEMAN didn't agree that making the calculation would                 
  be particularly difficult.   He  asked if it  would help  to                 
  make the calculation  only semi  annually.  MR.  CHRISTENSON                 
  said that would  still be some  additional workload, but  it                 
  would be a lot easier.                                                       
                                                                               
  Number 458                                                                   
                                                                               
  SENATOR TAYLOR  asked if  that annualized  calculation would                 
  apply  to  both pre  and post  judgement interest  rates and                 
  would  different  rates be  applied  to different  years for                 
  cases that went on for a long time?  SENATOR LEMAN  said the                 
  methodology that tracks  the market is the more accurate one                 
  and that whenever  the rate  is adjusted is  what should  be                 
  valid for that period of time.                                               
                                                                               
  SENATOR TAYLOR asked  what would be  the simplest way to  do                 
  the calculation?  MR. CHRISTENSON said  the best thing to do                 
  would be to  change the  rate as  infrequently as  possible,                 
  perhaps once a  year.  Also, if one rate would apply to both                 
  pre and post judgement, that would make things easier.                       
                                                                               
  Number 478                                                                   
                                                                               
  ELLEN BRADEN,  Treasurer of  the Municipality  of Anchorage,                 
  commented  on Sections  1 and 2  of the  CS.  She  wanted an                 
  exception made for the interest charged by a municipality on                 
  its delinquent revenue.  As it  is written the interest rate                 
  is charged only to debtors.                                                  
                                                                               
  On page 2, line 20 she suggested changing the word "paid" to                 
  "issued."                                                                    
                                                                               
  SENATOR  TAYLOR  asked  if  she  had  noted  an  increase in                 
  overpayment  by  taxpayers in  Anchorage  over the  last few                 
  years?  MS.  BRADEN said she  hadn't noticed an increase  in                 
  overpayment.   She explained  that overpayments  result from                 
                                                                               
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  two things - taxpayer error and a change by the assessor.                    
                                                                               
  Number 565                                                                   
                                                                               
  LARRY MEYERS,  Director, Income  and Excise  Audit Division,                 
  testified on Section 4 of the CS.                                            
                                                                               
  TAPE 93-24, SIDE B                                                           
  Number 580                                                                   
                                                                               
  He illustrated how  the state is losing money as  the law is                 
  written.   There would  be substantial savings  to the state                 
  with SB 161.                                                                 
                                                                               
  MR. MEYERS  said Section 4 of the bill also provides that if                 
  a taxpayer  pays his  taxes on  the basis  of an  assessment                 
  which was  erroneous, a  refund would  be paid  them at  the                 
  current rates.                                                               
                                                                               
  SENATOR LEMAN  said he  didn't see  why they  shouldn't deal                 
  with retainage along with interest rates.                                    
                                                                               
  Number 545                                                                   
                                                                               
  JEFF OTTESON,  Department of Transportation,  said they have                 
  two classes  of activity where  this interest rate  comes to                 
  bear -one is  on a right-of-way acquisition where  the price                 
  is  in  dispute and  they  end  up in  condemnation  and the                 
  state's  last  offer  is  deposited   in  the  court.    The                 
  difference between the last best offer and the judgement can                 
  be  making interest  which is currently  about 3  times what                 
  market rates are.  So there is no incentive to settle.  Then                 
  they can have very large construction  claims.  If the state                 
  loses  those  claims,  it will  be  paying  10.5 times  $7.5                 
  million  times the number of years  involved.  Their concern                 
  is that it can add up to a lot of money.                                     
                                                                               
  SENATOR LEMAN asked him to comment  on the interest rate for                 
  retainage.  MR.  OTTESON said they  had a lot of  experience                 
  with that and this bill should address that area as well "to                 
  keep things equal."                                                          
                                                                               
  Number 520                                                                   
                                                                               
  SENATOR LEMAN  asked about  including criminal  cases.   MR.                 
  GELDHOF said  there was  no problem  with that.   They  feel                 
  where restitution is made in a criminal matter that interest                 
  should accrue.                                                               
                                                                               
  SENATOR  LEMAN said  addditional work  would be done  on the                 
  language in SB 161 and bring it up at another time.  He then                 
  adjourned the meeting at 10:10 a.m.                                          
                                                                               
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