Legislature(1995 - 1996)
02/01/1996 03:31 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE STATE AFFAIRS COMMITTEE
February 1, 1996
3:31 p.m.
MEMBERS PRESENT
Senator Bert Sharp, Chairman
Senator Randy Phillips, Vice-Chairman
Senator Loren Leman
Senator Jim Duncan
MEMBERS ABSENT
Senator Dave Donley
COMMITTEE CALENDAR
SENATE CONCURRENT RESOLUTION NO. 2
Relating to reimbursement of expenses for residents who travel to
the capital city to attend legislative sessions or to testify
before legislative committees.
SENATE BILL NO. 231
"An Act relating to title insurance; and providing for an effective
date."
SENATE BILL NO. 217
"An Act relating to eligibility for the longevity bonus; and
providing for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
SCR 2 - See State Affairs minutes dated 1/26/95.
SB 231 - No previous senate committee action.
SB 217 - No previous senate committee action.
WITNESS REGISTER
Jamie Parsons, Chairperson
Alaska Committee
9218 Emily Way, Juneau, AK 99801¶(907)789-9201
POSITION STATEMENT: testified on SCR 2
Senator Steve Rieger
State Capitol, Juneau, Alaska, 99801-1182¶(907)465-3879
POSITION STATEMENT: prime sponsor of SB 231
Roger Floerchinger, President
Yukon Title Company, Inc
3241 Riverview Dr., Fairbanks, AK 99709¶(907)456-3474
POSITION STATEMENT: opposed to SB 231
Joe Faulhaber, Broker
Realty, Inc.
105 Adak Ave., Fairbanks, AK 99701¶(907)452-5186
POSITION STATEMENT: opposed to SB 231
Bryan Merrell, Vice President & Chief Title Officer
First American Title Company of Alaska
Underwriter,
First American Title Insurance Company
510 W. Tudor Rd., Ste. 1, Anchorage, AK 99503¶(907)562-0510
POSITION STATEMENT: opposed to SB 231
Cliff Groh, Attorney
Alaska Land Title Association
2550 Denali St., Ste. 1700, Anchorage, AK 99503¶(907)272-6474
POSITION STATEMENT: opposed to SB 231
Jan Nauman
P.O. Box 210506, Auke Bay, AK 99821¶(907)790-4370
POSITION STATEMENT: testified on SB 231
Michael Price, Attorney
Alaska Land Title Association
2550 Denali, No. 1700, Anchorage, AK 99503¶(907)272-6474
POSITION STATEMENT: opposed to SB 231
Steve Jewett
First American Title Insurance Company of Alaska
510 W. Tudor, No. 101, Anchorage, AK 99503¶(907)562-4510
POSITION STATEMENT: testified on SB 231
Tim Hurley
Western Alaska Land Title Company
P.O. Box 864, Kodiak, AK 99615¶(907)486-4433
POSITION STATEMENT: opposed to SB 231
Mary Ann Rowe, President
Kachemak Bay Title
3691 Ben Walters Lane, #1, Homer, AK 99603¶(907)235-8196
POSITION STATEMENT: opposed to SB 231
Jeff Blake, President
Alaska Land Title Association
Pacific Rim Title Insurance Company
307 E. Northern Lights, Anchorage, AK 99503¶(907)274-2562
POSITION STATEMENT: testified on SB 231
Don Koch, Chief
Marketing Surveillance, Division of Insurance
Department of Commerce & Economic Development
P.O. Box 110805, Juneau, AK 99811-0805¶(907)465-2577
POSITION STATEMENT: testified on SB 231
Connie Sipe, Director
Division of Senior Services
Department of Administration
3601 C St., Ste. 380, Anchorage, AK 99503-5984¶(907)563-5654
POSITION STATEMENT: representing Governor-prime sponsor of SB 217
ACTION NARRATIVE
SCR 2 REIMBURSEMENT FOR TRAVEL TO CAPITAL CITY
TAPE 96-7, SIDE A
Number 001
CHAIRMAN SHARP called the Senate State Affairs Committee to order
at 3:31 p.m. and brought up SCR 2 as the first order of business
before the committee. The chairman called Senator Randy Phillips
to testify.
Number 030
SENATOR RANDY PHILLIPS, prime sponsor of SCR 2, stated that the
resolution is basically a suggestion to the City & Borough of
Juneau to reimburse travel expense to Juneau for purposes of
testifying before committees and meeting with their legislators.
Senator Phillips related information contained in the Sponsor's
Statement.
Number 063
SENATOR LEMAN voiced three areas of concern:
1) would there be full or partial reimbursement for expenses;
2) would buying a block of airline seats be an option;
3) how would this affect the effort to keep air fares
reasonable?
Number 108
SENATOR RANDY PHILLIPS responded he envisions that the City &
Borough of Juneau, Legislative Affairs Agency, and the Legislative
Council will work out the details. Hopefully, they can get a block
of tickets or a special rate from the Airline, and give people an
airline ticket if they have a legitimate reason for coming to
Juneau to talk to their legislators. The point is access. CBJ is
already spending money on access: they've spent up to $200,000 on
Gavel to Gavel .
Number 145
JAMIE PARSONS, Chairperson of the Alaska Committee, stated the
mission of the Alaska Committee is to enhance Juneau as Alaska's
Capital City. Mr. Parsons stated for the record that the Alaska
Committee raises its' own funds for operational expenses. Several
things the committee supports are: two-way video-teleconferencing,
Gavel to Gavel television coverage of legislative meetings and
floor sessions and coordinating educational materials, technology
education, and transportation access through the new GPS (Global
Positioning System) navigational guidance. The Alaska Committee is
also working to secure additional competitive airline service to
Juneau and working with the existing carrier to accommodate
legislative needs and fares. We are also monitoring the Juneau
Access Study, which deals with surface access to northern Lynn
Canal. The City & Borough of Juneau is also working to improve
housing.
Number 255
MR. PARSONS stated in closing that the Alaska Committee will
continue to work on all issues relating to access, and that the
committee does seek the legislature's input and ideas.
CHAIRMAN SHARP stated that, there being no further discussion on
SCR 2, the committee would go on to the next item of business.
SB 231 TITLE INSURANCE
Number 275
CHAIRMAN SHARP brought up SB 231 as the next order of business
before the Senate State Affairs Committee and called Senator Rieger
to testify.
Number 280
SENATOR RIEGER, prime sponsor of SB 231, began by directing
committee members' attention to a letter (from Jan Nauman) in their
bill packets from an individual who had a narrow brush with having
to pay for three title insurance policies within the space of a few
weeks for some residential property. That letter is just the most
recent in a string of correspondence his office has received over
the years questioning the requirement for and the pricing of title
insurance. In the past, one could get a discount on rates paid for
title insurance policies when a piece of property was refinanced or
when two title policies were issued upon the same piece of
property. This changed several years ago, when the Division of
Insurance handed down a directive denying any ability to discount,
with the exception of a less than 20% discount. Senator Rieger
noted that the actual title insurance is just a small fraction of
the amount which the consumer pays in premium to the agent. Claims
paid are around 4-5% of the amount paid in premiums. However, the
Division of Insurance has been approving rates which cover a large
amount of additional work, such as title searches, which are
activities that the Federal Trade Commission (FTC) has found do not
involve insurance.
SENATOR RIEGER stated that SB 231 would address the issue in two
ways: first, to attempt to prescribe a lower fee for a refinance.
The second would be to repeal the Division of Insurance's rate-
fixing policy, so that relief to the customer could come through
market competition. Senator Rieger believes the latter approach
would be preferable. So he would not object if Section 1 was
removed, but thinks that approach should be out there for
discussion.
Number 365
ROGER FLOERCHINGER, President, Yukon Title Company, Inc., stated
that if SB 231 is adopted, it will have negative consequences for
anyone who owns, wants to purchase, or seeks to refinance a home.
SB 231 will prohibit title insurance companies from charging more
than $75 to issue a title insurance policy to the same person or
the person's lender within 15 years and removes existing
prohibition on title insurance companies discounting their
published rates. But title insurance companies cannot issue a
title policy for $75; that amount will not cover the title
companies' cost. If those kinds of policies cannot be sold, except
at a loss, title insurance agencies will be unwilling to issue
them. Mr. Floerchinger contends that refinancing of existing homes
will be the most affected, and refinancing may become unavailable.
Number 395
MR. FLOERCHINGER stated that the second portion of SB 231, which
modifies the rules regarding the rates title insurers are allowed
to charge, would simply make tariff rates the highest allowable
rate. Mr. Floerchinger thinks that in certain types of markets,
competition is not an effective market regulator. He stated that,
since there are a limited number of underwriters, it is important
that those underwriters retain adequate reserves to cover potential
losses. Over the last decade, the number of title insurance
companies issuing title insurance policies has dropped from seven
to two in Alaska. While there are several title insurance
agencies, the policies they offer are issued by just two insurance
underwriters. Mr. Floerchinger foresees the loss of independent
agencies from the market in Alaska, with all the consequences one
would expect from a monopoly. Because of this scenario, every
state strictly regulates the title insurance industry. He stated
that SB 231 would impose an arbitrary fixed limit on the price of
one product, while removing existing regulatory constraints in
other areas. Mr. Floerchinger asserted that the status quo works,
and stated that SB 231 is a bad idea and will have precisely the
opposite effect of that intended.
Number 408
SENATOR LEMAN stated he understands the concern about competition.
But he noted that in 1989 representatives of Alascom explained to
him why intrastate competition would be bad for Alaskans. He
didn't believe them at the time, and is glad there is competition.
He finds it hard to understand why we can't translate that same
thought into all businesses. Senator Leman asked Mr. Foerchinger
why, since such a small fraction of the business is for insurance
purposes, the service portion of the business shouldn't be
competitive.
Number 427
MR. FOERCHINGER responded that the margins of profit are already
marginal. The way the bill is written, it will not allow the
industry to increase those rates in instances where it's justified.
SB 231 only allows for decreases in the rates. Something like this
would put the small guys out of business. He doesn't think that
title insurance will become unavailable in Alaska, but he does
think that one will find an environment where insurance is only
provided by national companies, probably examined and underwritten
outside the state of Alaska. He does not think there will be
independent companies offering the services currently offered.
Number 450
SENATOR LEMAN asked if it would be possible to free up part of the
industry, allowing the market to establish its' own rate, with
perhaps the exception of the actual title insurance portion.
Number 456
SENATOR RIEGER thinks that would be a reasonable approach to the
issue: that there is an insurance component and a service
component. The reason for the filing of a rate and then having the
ability to go lower was that sometimes the closing process can be
a highly charged, emotional situation and he wanted to prevent
excessive rates. But he is open to discussion on that point.
Number 470
JOE KAULHABER, Principal Real Estate Broker, Realty, Inc., stated
though he is representing himself before the committee, he has a
resolution from the Greater Fairbanks Board of Realtors opposing SB
231.
SENATOR RANDY PHILLIPS noted that committee members have a copy of
that resolution in their bill packets.
MR. FAULHABER stated that he doesn't have any answers; the problem
is a complex one. But he is concerned that the bill as presented
would be very disruptive to the real estate industry. Formerly, he
had his own escrow division within his company. It was very
expensive and it didn't work very well, because it was mixing a
marketing function with an accounting function. When the title
companies in Fairbanks became sophisticated enough to take that
function over, that was actually the first year Mr. Faulhaber
experienced profitability in his own business. If this bill is
passed, he believes the title insurance companies would be hampered
to the point where services delivered to the unsophisticated
residential customer would diminish significantly.
MR. FAULHABER informed the committee that the first thing a real
estate company does when marketing a property is to ask a title
company for an abstracted title. Prior to the current good
service, it used to take 90-120 days to get a preliminary
commitment for title insurance. It was not uncommon to have five
and six-month closings. This causes a lot of suffering. As
Senator Rieger noted, selling or buying a personal residence is a
very emotional experience. The biggest suffering is often
unnecessary because it's something that could have been handled,
but it comes in the form of a surprise.
MR. FAULHABER thinks that if rates are deregulated to allow
negotiation, commercial clients, who are more sophisticated, would
negotiate their rates down, while consumer rates for houses would
go up. Those rates probably wouldn't be negotiated. Once again,
the people who could least afford to pay the most would be paying
a larger pro rata share.
Number 505
BRYAN MERRELL, Vice President and Chief Title Officer, First
American Title Company of Alaska, Underwriter for First American
Title Insurance Company, stated that if SB 231 passes, it will
radically change the way the business of title insurance is
conducted in the state by deregulating rates. To his knowledge,
not a single state has enacted a similar statute. Currently, title
insurance agencies are required to treat all customers equally,
which puts all title insurance agents and underwriters on a level
playing field. Mr. Merrell thinks that the only customers who
would be able to negotiate rates under SB 231 would be the larger-
volume customers. He does not think it will be the average
homeowner who will benefit.
MR. MERRELL noted that other rates in real estate transactions are
negotiable, including the survey, the appraisal, the engineer's
report, well and septic inspections, lender's origination fees, and
the interest rate on the mortgage. While the costs of these
components are almost never successfully negotiated for the typical
homeowner's real estate transaction, they are always negotiated in
a large commercial transaction involving a real estate developer.
Mr. Merrell thinks the effect of SB 231 would be to allow
significant reductions in rates charged to large commercial
customers and real estate developers, while the rates charged to
the homeowner would likely increase to offset the loss of revenue
resulting from negotiating commercial rates. The maximum rate
created by SB 231 will not prevent this inevitable outcome. If
this bill is passed, the title insurance industry will remain a
regulated industry. The Division of Insurance will continue to
have the obligation to prevent the lack of regulation from creating
failure in the industry.
MR. MERRELL stated that the $75 fee to add an additional insured to
a policy would not give the type of insurance that lenders are
seeking when they come to the title companies for a refinance
policy. Adding the insured will not protect a party who is either
buying a new property or lending against the property after the
date of the policy. The current charge to add an insured to a
policy under the current rate schedule is $50, so SB 231 would
actually increase that cost.
MR. MERRELL stated that currently, competition among title
insurance companies is based upon services rendered. We would like
competition to continue upon those lines, and not on rates. We
would like to keep the playing field level with the current rate
schedule.
Number 555
CLIFF GROH, Alaska Land Title Association, stated he has been
associated with the title insurance industry for 30 years as an
attorney. Mr. Groh said that SB 231 will not solve the problems of
the title insurance industry. To solve Senator Rieger's problem of
refinancing houses, you should confer with the industry and the
Division of Insurance. There is a model Title Insurance Act. The
legislature should consider that possibility. SB 231 is
approaching the problem backwards. The reason the industry is
regulated is to ensure that there will be enough money to pay the
companies that are taking the risks, and enough money to pay the
underwriters. Mr. Groh suggested just dealing with the question of
refinancing. He does not believe that SB 231 is workable, because
the underwriters will not let the agents set the rates.
TAPE 96-7, SIDE B
Number 585
JAN NAUMAN stated she is present to inform the committee of the
consumer's side of the title insurance issue. She noted that the
letter to which Senator Rieger referred was from her. She stated
that her experience with the title insurance company was very
different from that portrayed by the previous testifiers. Ms.
Nauman repeated to the committee her experience, as outlined in her
letter. All three transactions on the same piece of property
required three different title insurance policies. She was told
that, not only was she purchasing three consecutive title insurance
policies, but that each policy voided the prior policy.
MS. NAUMAN stated that the title insurance company wanted $970 for
what they freely admitted was two-minutes worth of work, at which
point she got rather excited. As a consumer, the most frightening
part to her is that the existing tariffs do not cause title
insurance to be administrated equitably. Her second problem is
with the fact that the reissuing of title insurance causes the
consumer to be damaged: if one purchases a house for a higher
price, then one has title insurance for the whole transaction; the
subsequent purchase of a loan or a rollover of a loan causes the
purchaser to be insured for a lesser amount. The third thing she
has a problem with is that the existing statutes allow collusion to
exist between title insurance companies and banks. When she was
asked for her third title insurance payment, the title insurance
company claimed to be an agent of the bank. Since both she and the
bank already had insurance, what was that third policy for? Ms.
Nauman stated that her experience was disappointing, and whatever
the changes made in statute, hopefully consumers won't be left
hanging out to dry like she was.
Number 508
MICHAEL PRICE, Attorney, Alaska Land Title Association, testifying
from Anchorage, stated he speaks in opposition to SB 231. He
informed the committee that there are only two national
underwriters in Alaska. There are approximately 20 Alaskan
companies, that he thinks will be impacted negatively by SB 231.
He related settlement costs of a recent refinancing in which he was
involved, in which title insurance composed only 10% of the
refinancing costs. Mr. Price stated that the base title insurance
rates have not changed since 1968.
Number 463
SENATOR RIEGER asked Mr. Price if the base rate to which he is
referring is a percentage of the mortgage.
MR. PRICE responded that it is a dollar-per-thousand figure.
SENATOR RIEGER thinks that the thousands of dollars of a typical
mortgage must have changed since 1968.
MR. PRICE responded that the value of property has changed, but not
the rate charged by the title insurance industry.
Number 455
STEVE JEWETT, First American Title Insurance Company of Alaska,
testifying from Anchorage, stated that every commitment his company
offers has a liability factor also. Sometimes lenders will
actually use offers for a report or a policy of some sort.
Number 445
TIM HURLEY, Western Alaska Land Title Company, testifying from
Kodiak, stated opposition for SB 231. He doesn't think the bill's
consequences have been researched, nor does he think it will
effectively address the needs of the industry users.
Number 430
MARY ANN ROWE, President, Kachemak Bay Title, testifying from
Homer, does not think SB 231 has been thoroughly analyzed. She
thinks the bill will have severe negative effects on the real
estate and mortgage industry. She thinks the current regulations
do work. Ms. Rowe stated that if the industry is deregulated,
underwriters will no longer be able to afford underwriting in
Alaska. She does not think the cost for title insurance is out of
line with the product the consumer receives, and that SB 231 would
be a lose-lose situation in all cases.
Number 395
JEFF BLAKE, Pacific Rim Title Insurance, President of Alaska Land
Title Association, testifying from Anchorage, repeated comments
made in a letter written to Cliff Groh, which he believes was
forwarded to the committee. Mr. Blake informed the committee that
New Mexico has enacted a law similar to what SB 231 intends, but
the rates do go up and down to try to keep agents in the state.
Mr. Blake also commented that two of his jobs disappeared when
underwriters left the state. He stated that on a refinancing, the
insurance that's issued at that point insures the lien of a
specific security instrument. If that instrument is reconveyed and
satisfied, it doesn't transfer over.
Number 363
DON KOCH, Chief of Market Surveillance, Division of Insurance,
Department of Commerce & Economic Development, stated they have
some concerns with the legislation. The first concern is with the
repealer section, which would repeal the rate standards for title
insurance. Those standards basically say that the rates shall not
be excessive, shall not be inadequate, and shall not be unfairly
discriminatory. It then provides for establishing a title rate as
a maximum. The trouble the division would have with that is that
there would be no way to tell what that maximum should be. There
would be no standard with which to establish a rate. If the public
was to see a rate there as a maximum, the natural assumption would
be that since the Division of Insurance has approved it, that is
the approved rate. But that rate may not meet any of the standards
we're talking about.
MR. KOCH stated that the second concern with the repealer is the
unfair discrimination. There is also an unfair discrimination
section in our Unfair Trade Practices Act, which does not go away.
So that creates a dilemma, because the title rate would have those
standards removed, but they would still exist in the Unfair Trade
Practices Act, which would arguably still apply. Mr. Koch thinks
this issue needs to be addressed.
Number 337
MR. KOCH stated that the division's paramount concern as
regulators is the solvency of the insurers. There are currently
only two title insurers writing title insurance policies in the
state. There are ten title insurers admitted to do business in the
state. There have been a progression of companies "hopping out of
here". An additional concern of deregulation of rates is the
potential for the creation of a monopoly, or a monopoly in certain
areas. The division would have trouble dealing with that.
Number 315
MR. KOCH stated that there is a provision in the FTC Act that
basically says the search and examination portion of the title
insurance operation is not the business of insurance. What some
states have done is to deregulate the search and examination
portion of the rate. Currently in Alaska, the way the law is
structured, the entire rate is subject to filing. This has created
a dilemma for some time. The division has been trying to develop
a methodology with which to test existing standards. The division
has held numerous meetings with the industry, and we have had
hearings. The hearings resulted in the order in 1992 where we said
all the discounts are disapproved because the division had no way
to support anything we were being told. There is no support. As
long as those two rates come together in the way they currently do
under our statute, it will probably remain almost an impossibility
to develop a reasonable standard.
Number 304
MR. KOCH stated it is currently the belief of the division that the
title insurer portion of the rate, about 10-12%, is inadequate for
their needs. The 88-90% of the rate that goes to the title
insurance agent for title insurance pieces of the operation is
probably excessive. The reason for this belief is that the
examinations we've done to test the rebate statutes found that
there is a very heavy subsidy for non-title services, such as
escrow settlement and closing operations. The subsidies found in
the Anchorage bowl area ranged from 29-64%. That meant that the
escrow charges were not meeting the cost of delivering that
service. They are integrated services, you can't have one without
the other. He is merely pointing out that if you push down one
button, another one will pop up someplace, and he's not sure what
the ultimate cost will be. He doesn't raise issue with the
statement that the overall cost of operating a title agency is
marginal, but the allocations within the structure of those
agencies are probably priced in such a way that there is probably
too much coming in from the title side, and too little coming in
from the escrow side. Mr. Koch stated he is providing the
committee with an article he wrote a few years ago that was
published in the journal of insurance regulation. It is a primer
on title insurance for the regulator. It addresses some regulatory
concerns.
Number 270
CHAIRMAN SHARP stated that the committee would be gathering all the
information available.
Number 260
MR. KOCH stated that two possible options would be to preserve the
rate structure for the title insurance portion. The other would be
to develop a rate structure for the title insurer that considers
everything they need to remain in business, and apply a similar
methodology to the title insurance agent. The division will flesh
out those alternatives and give the committee more concrete
information.
Number 245
CHAIRMAN SHARP stated he would look forward to that information.
He noted that testimony has indicated that the market availability
for title insurance services has dwindled considerably in the past
ten years. He would not want to see a monopoly develop.
Number 238
SENATOR LEMAN asked Mr. Koch if the challenge is more with the
insurers, about there being a danger of a monopoly developing. Is
the division not able to disaggregate the costs sufficiently. Are
the services so intertwined with the insurance that they can't be
separated?
Number 226
MR. KOCH responded that there are some states that do not regulate
what the title agencies do. However, the one thing that must be
realized is that there is a greater diversity in how states deal
with title insurance than any other kind of insurance. The
monopoly that we are initially concerned with is the monopoly that
could occur in the title agent market. Another concern is that the
search and examination portion is considered by the FTC to be their
turf. Because of that, the title industry gets downright paranoid
when they hear "FTC". If the last two insurers in the state feel
like we're under the looking glass from the FTC, they might start
to think a little differently about whether they want to stay in a
state the size of Alaska. It is also significant to note that 88-
90% of title insurance premiums stay in Alaska. The division did
find that for the most part, none of the title insurance agencies
believed in the discounts. They were simply used to gain a
temporary niche in the market place.
Number 156
SENATOR RIEGER asked Mr. Koch if the division has a position or
inclination that the amount of discount currently allowed for
refinancing is excessively low.
MR. KOCH stated the division believes that the refinancing rate
should be subject to some kind of discount, but we haven't allowed
any, except for short-term discounts. We don't know where the
number should be. We have told title insurers and people who call
us that it is the division's intent that short-term discounts,
which are 20%, should also apply to refinancing. Some agencies
have not interpreted it that way, but we have tried to correct that
interpretation. So that 20% discount is available, though he is
not sure that is enough of a discount for a refinancing.
CHAIRMAN SHARP thanks Mr. Koch for his testimony and stated that SB
231 will be set aside for at least two to three weeks. The
committee will try to give ten days to two weeks notice on
rescheduling of the bill.
SB 217 INCOME LIMITS FOR LONGEVITY BONUS
SENATOR SHARP brought up SB 217 as the next order of business
before the Senate State Affairs Committee and called a
representative of the administration to give an overview of the
legislation. The chairman announced that no action will be taken
on the bill at this date.
Number 090
CONNIE SIPE, Director of the Division of Senior Services,
Department of Administration, representing the prime sponsor,
stated that SB 217 would change the longevity bonus statute to
eliminate Alaska Senior Citizens with high incomes. Ms. Sipe
related information contained in the sponsor's statement. One of
the things the administration decided while trying to make budget
reductions that affected seniors, was that we should try to make
reductions in a way that would impose the least hardship on
seniors. SB 217 is in addition to the phase-out program, it does
not replace the phase-out program. The income limitation is not
needs based. The bill will probably affect 1,500-2,000 people. If
a senior's income drops, that senior can become eligible again for
a longevity bonus. The second portion of SB 217 would address
bonus recipients who spend little of the year in Alaska.
TAPE 96-8, SIDE A
Number 001
MS. SIPE continued with the administration's overview of SB 217.
She stated that about half of the feedback the administration has
received regarding the legislation has been supportive. Many of
the people who have been in support of the legislation have
suggested lowering the income ceiling. Though there has been both
support and opposition, she believes SB 217 was the best proposal,
and that it could be simply administered. Administration on an
honor basis is the intention. The longevity bonus program has
always been administered on an honor basis, with only those people
who gave us indication to believe they were defrauding the program,
or those people who were reported for fraud being investigated.
This program is run with three clerks.
Number 038
CHAIRMAN SHARP asked if the program can really be processed by
three people.
MS. SIPE responded that the program processes, every single month,
a bonus sign-off from every single person. We have to physically
open the envelopes and enter the data into the computer. We will
create one more computer field, and we feel we can handle that. We
can send two extra sheets of paper in any one envelope for the same
amount of postage. She thinks the administration could handle it
with no additional resources if the legislation is kept as simple
as it is currently written. If more hardship exemptions are made
or more verifications are required, then it would get more
difficult.
Number 064
CHAIRMAN SHARP asked Ms. Sipe if dividends received from regional
(native) corporations are tax exempt from federal income taxes and
would not be included in gross income.
MS. SIPE responded that is a question she has asked the drafting
attorney, and she is waiting for a reply. Veteran's benefits and
disability benefits are not taxable, so they wouldn't be included
in gross income.
SENATOR LEMAN thinks native corporation dividends would not be
taxed.
SENATOR RANDY PHILLIPS asked Ms. Sipe if administration will be
based on faith.
MS. SIPE responded that is how the program is currently run. There
has been audit after audit, and very little fraud is found among
this population. Senior citizens tend to be really honest.
SENATOR RANDY PHILLIPS commented it was one thing to prove you're
65 and living in the state. It is another thing to prove income.
People are more secretive about income than age.
Number 109
MS. SIPE replied that people will not be asked to disclose their
income, but to declare themselves above or below a limit.
SENATOR RANDY PHILLIPS asked how she's going to prove something
like that.
MS. SIPE responded that one of the side benefits of the limit that
the governor set, was that it is felt that at that income level
there is less incentive to want to hedge.
SENATOR RANDY PHILLIPS commented it would be interesting to see how
many people hedge on PFD applications. He thinks it is about 10%.
MS. SIPE replied that her division has worked with the PFD Division
and done cross-runs, and they don't find that percentage in the
longevity bonus program.
SENATOR RANDY PHILLIPS thinks it will be harder to prove whether or
not someone's cheating on the income requirements than on presence-
in-the-state requirements. He has a hard time accepting the so-
called honor system, based on these income levels.
CHAIRMAN SHARP commented maybe that's because Senator Phillips is
so young. He asked Ms. Sipe about the second part of the bill
regarding required presence in the state.
MS. SIPE responded that if a person is out more than 90 days in a
row, they are out of the program. But the program currently does
not have a cumulative time requirement, like in the permanent fund
dividend program.
Number 170
CHAIRMAN SHARP asked for confirmation that the benefit will be tied
strictly to income, and not net worth.
MS. SIPE replied that is correct. She also mentioned that a side-
benefit of the income requirement in SB 217 would result in almost
a two-million dollar savings impact in the public assistance
budget. The hold-harmless state replacement of lost federal
supplemental social security income to the lowest income elders in
our state would no longer be necessary. The Social Security Act
allows states to set up programs that benefit seniors, disabled,
etcetera, as long as there is any kind of means or asset test.
That impact was not planned when we were working on this bill. We
were looking at what we could do to contribute to the budget
situation.
Number 188
CHAIRMAN SHARP asked if the administration explored the possibility
or received input on acceptability of an across-the-board
reduction.
MS. SIPE responded that was considered, but we felt that would take
$25 or $50 or whatever from some people who were among the neediest
of seniors.
CHAIRMAN SHARP stated he hears from many people who tell him they
would rather take equal cuts, than dividing and conquering on one
end or the other of the benefit.
Number 210
SENATOR RANDY PHILLIPS commented that in earlier testimony, Ms.
Sipe stated SB 217 was not meant to be a needs-based test. But now
you say something different.
MS. SIPE replied that what she was saying is that she has been
asked if people with less than $60,000 or $80,000 are considered
needy in Alaska. We do not. The governor's philosophical approach
was not to say that was a level of need. It is to find a
comfortable area where we feel that most people with that income
would not be harmed by the loss of the longevity bonus. You will
see from the fiscal note that that benefit to public assistance
came in later. It happens to be a side-benefit of this decision,
but it was not done in order to make the program needs based. In
fact, we are still waiting for written verification from the
federal agencies that even income limits as high as $60,000 and
$80,000 meet their tests. They have only told us that verbally.
Number 245
CHAIRMAN SHARP stated he wants to review other possible one-time
monies received by individuals or families that possibly should be
considered in the $60,000 or $80,000 income limit. He's still
waiting to hear back from IRS officials. The chairman announced
that SB 217 will be set aside.
SENATOR RANDY PHILLIPS asked the chairman if he is receiving a
longevity bonus.
CHAIRMAN SHARP responded he won't be 65 until 1998, so reduction
and termination of the longevity bonus is already in the cards for
him. He announced that SB 217 will be brought up again when more
information is received.
Number 265
CHAIRMAN SHARP adjourned the Senate State Affairs Committee meeting
at 5:21 p.m.
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