HOUSE FINANCE COMMITTEE February 28, 1994 1:30 P.M. TAPE HFC 94 - 42, Side 1, #000 - end. TAPE HFC 94 - 42, Side 2, #000 - end. CALL TO ORDER Co-Chair Larson called the House Finance Committee meeting to order at 1:30 P.M. PRESENT Co-Chair Larson Representative Hoffman Co-Chair MacLean Representative Martin Vice-Chair Hanley Representative Navarre Representative Brown Representative Parnell Representative Grussendorf Representative Therriault Representative Foster ALSO PRESENT Representative Cynthia Toohey; Jan Hansen, Director, Division of Public Assistance, Department of Health and Social Services; Thomas C. Williams, Director, Permanent Fund Division, Department of Revenue; Crystal Smith, Alaska Municipal League, Juneau; David Kamrath, Staff, Representative Harley Olberg. SUMMARY HB 331 An Act relating to claims on permanent fund dividends for defaulted public assistance overpayment. HB 331 was reported out of Committee with a "do pass" recommendation and with two fiscal notes by the Department of Health and Social Services dated 2/22/94 and one zero fiscal note by the Department of Revenue dated 2/22/94. HB 397 An Act relating to the power to levy property taxes in second class cities. HB 397 was held in Committee for further consideration. HOUSE BILL 394 "An Act relating to limited partnerships; and providing 1 for an effective date." Co-Chair Larson informed the Committee that the sponsor of HB 394 requested that it be waived from this Committee. He asked members to consider the waiver. CONTRACT BETWEEN THE STATE OF ALASKA AND THE CAMBRIDGE ENERGY RESEARCH Co-Chair Larson provided the Committee with the contract agreement between the State of Alaska, Senate Finance Committee and the House Finance Committee and the Cambridge Energy Research Associates, Inc. for an amount of $15,750 dollars. [Attachment #1]. Representative Larson requested that the Committee review the contract for future consideration. SENATE BILL 206 "An Act relating to real property transfers." Co-Chair Larson provided the Committee with a copy of SB 206 and asked if the Committee objected to introducing the bill as a House Finance Committee bill. There being NO OBJECTIONS, it was so ordered. HOUSE BILL 331 "An Act relating to claims on permanent fund dividends for defaulted public assistance overpayment." REPRESENTATIVE CYNTHIA TOOHEY explained that HB 331 would give the Department of Health and Social Services, the administrative authority to garnish permanent fund dividends of individuals who have received public assistance overpayment and are delinquent in repaying that debt. She added that frequently persons receiving overpayment agree to repay the debt but fail to do so. If a person is still on public assistance the person's benefit can be reduced as a means of collection, but if a person is off assistance, collection becomes difficult. The Department currently has over $1 million in delinquent debt. Collection through the court system can be time consuming and costly. HB 331 would allow the Department to pursue collection in the same manner in which delinquent student loans are pursued. Representative Toohey added that the legislation is supported by the Department of Health and Social Services. JAN HANSEN, DIRECTOR, DIVISION OF PUBLIC ASSISTANCE, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, advised that the 2 amount of debt referenced in the proposed legislation originates from closed cases estimated to total $500 thousand dollars. Representative Brown questioned the number of persons who would receive an overpayment as a result of an agency mistake. Ms. Hansen replied that last year the number of errors within the Aide to Families with Dependant Children (AFDC) program was 204. These cases were due to client error although 106 resulted from agency error. She stressed that recuperation resulting from an agency error is mandated by federal regulations. Representative Parnell asked if there are other administrative agencies which allow a "Rite of Execution" from the court, following a judgement on the Permanent Fund Dividend allocation. THOMAS C. WILLIAMS, DIRECTOR, PERMANENT FUND DIVISION, DEPARTMENT OF REVENUE, responded that there are other agencies with that authority; the Alaska Commission on Post Secondary Education has an identical provision. In addition, Child Support Enforcement can service an administrative levy to collect. Representative Parnell asked which agencies supercede one another. Mr. Williams stated that the Alaska Statutes define a priority listing. Representative Hanley clarified the order of prioritization according to Alaska Statute 43.23.065 (b). 1. Child support. 2. Court ordered restitution. 3. Student loans. 4. Court ordered fines. 5. Debt owed to an individual agency. Representative Hanley understood that the proposed legislation would be placed in category #5; Mr. Williams agreed. Representative Brown asked the length of time the Department of Health and Social Services would need to determine if an overpayment had been made. Ms. Hansen explained it usually occurs quickly, although time limits are established which the Department cannot exceed. The limits have been established by federal mandates. Ms. Hansen pointed out that in order to turn an account over for garnishment, the Department is required to notify the person, giving them the opportunity to appeal and repay the overpayment back. The length of the process depends on the volume of claims being handled by the Department. 3 Representative Brown asked if the proposed legislation would affect the Adult Public Assistance Program (APA). Ms. Hansen replied that the legislation was drafted with collection terms for the Food Stamp and AFDC programs. Currently, overpayment are not being collected on the APA program. In the future, if overpayment claims were to be established in that program, then it would be affected. Representative Martin questioned the fiscal costs to the Permanent Fund Division. Mr. Williams explained that processing costs would depend upon the number of levies received. Ms. Hansen pointed out there would be no extra charge to the Department of Health and Social Services. Currently, there is a staff person whose function it is to collect overpayment. Representative Hanley MOVED to report HB 331 out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTIONS, it was so ordered. HB 331 was reported out of Committee with a "do pass" recommendation and with two fiscal notes by the Department of Health and Social Services dated 2/22/94 and a zero fiscal note by the Department of Revenue dated 2/22/94. HOUSE BILL 397 "An Act relating to the power to levy property taxes in second class cities." DAVID KAMRATH, STAFF, REPRESENTATIVE OLBERG, provided the Committee with Amendment #1 [Attachment #2] which would limit second class cities to a two percent tax of the assessed value of the property to be taxed. Co-Chair MacLean asked why Amendment #1 would repeal Section could be raised through city council meetings as presently done in first class cities. Representative Navarre pointed out, under this authorization, raising taxes to the new level would create a disincentive for organizing a new borough. He added his concern regarding the individual city councils raising second class taxation to twenty mils. Mr. Kamrath responded to Representative Martin's inquiry regarding "personal and real property taxation" explaining that personal property could be taxed only by a decision of the local municipality. The proposed legislation would guarantee local government taxation decisions. 4 (Tape Change, HFC 94-42, Side 2). Representative Hanley pointed out that repealing Section #2 as proposed in Amendment #1, would delete local flexibility. Co-Chair Larson commented on the potential effect of taxation by local communities with oil and gas pipeline property within their bourndaries. Representative Brown understood that the oil and gas pipeline property tax was a separate statute from regular property taxation. Co-Chair Larson replied that all oil and gas facilities would be assessed by the same policy, however, organized municipalities may tax up to twenty (20) mils. Representative Brown pointed out that the proposed legislation would allow a second class city to further use state revenues from pipeline property tax. She advised that the fiscal note should be revised to indicate the impact on state revenue. Representative Martin recommended the continuance of levy of taxes "by referendum" which would allow citizens a voice in the taxation. Mr. Kamrath stated that first class cities and home rule districts have the potential of milage rate being raised to thirty (30) mils. He added that city and borough governments establish the rate. It is not directly decided by the local citizens through their election of those officials. Representative Martin pointed out that Anchorage has established a milage rate cap. Representative Martin MOVED to adopt Amendment #1. Representative Martin MOVED TO AMEND Amendment #1 by restoring [BY REFERENDUM] to the context of Section #1. Representative Hoffman OBJECTED to the amendment to Amendment #1. Representative Parnell asked if second class cities would have a prohibition of funds. Co-Chair Larson explained that citizens decide this issue from a voting power. Representative Hoffman stated that second class cities generally do not consider imposing a property tax because of the amount of paper work imposed to collect the extra funds. Committee members continued discussion regarding the levy of property taxes by first and second class cities. Representative Hanley pointed out that Amendment #1 would provide more authority in delegating taxation to the individual city councils. Co-Chair MacLean advised that the amended Amendment #1 might not allow the local government proper authority to provide required services and revenues. 5 Co-Chair Larson summarized the amended amendment which would propose a referendum to allow the city council the ability to levy taxes, increasing the amount from five (5) mils to twenty (20) mils. Representative Hoffman urged the Committee to oppose the amendment. Representative Martin felt that the amendment would take away local referendum powers of the second class cities. Co-Chair MacLean interjected her concern with the effect on education for the second class cities as most of them are REAA's. Representative Navarre OBJECTED to the MOTION to amend Amendment #1. A roll call vote was taken on the MOTION. IN FAVOR: Hanley, Martin, Parnell, Therriault. OPPOSED: Foster, Grussendorf, Hoffman, Navarre, Brown, MacLean, Larson. The MOTION FAILED (4-7). Representative Martin MOVED to RESCIND his MOTION to adopt Amendment #1. There being NO OBJECTION, it was so ordered. Representative Hoffman MOVED to adopt Amendment #1. Discussion followed regarding Amendment #1. Co-Chair MacLean felt that to incorporate as a second class city, a petition should be signed by the voters when the property tax proposal is placed on the ballot. She MOVED to delete Section #2 of Amendment #1. Mr. Kamrath explained that the Division of Legal Service's Director, Tamara Cooke, recommended including Section #2 of the amendment. CRYSTAL SMITH, ALASKA MUNICIPAL LEAGUE (AML), JUNEAU, stated that the Alaska Municipal League supports the intent of SS HB 397, which would remove the limitation on the power of second class cities to levy property taxes. She spoke to the amendment asking for more time to consider the changing circumstances which the amendment would initiate. She understood that the amendment would preclude any future adjustment to service the cap. Co-Chair MacLean clarified that the amendment would provide a petition for the new second class cities incorporation and it would be on the property tax ballot proposal. The legislation would allow second class cities to determine the appropriate property tax rate and remove arbitrary limits on their ability to generate revenue locally. Co-Chair Larson requested the bill be held in Committee in 6 order to provide time for the Alaska Municipal League to provide the Committee information regarding: 1. The ramifications of repealing the levy of property taxes by referendum; and 2. Restrictions for cities at the time of incorporation which would result in levies and types of taxes. Co-Chair MacLean MOVED to RESCIND the motion to delete Section #2 of Amendment #1 until AML has the opportunity to consider the above concerns. Representative Brown requested more detailed information on the loss of any revenue to the State as a result of the proposed legislation. Representative Parnell interjected his concern with the legality of the "policy call" to be made by Committee members on the referendum issue. SS HB 397 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:00 P.M. HOUSE FINANCE COMMITTEE February 28, 1994 1:30 P.M. TAPE HFC 94 - 42, Side 1, #000 - end. TAPE HFC 94 - 42, Side 2, #000 - end. CALL TO ORDER Co-Chair Larson called the House Finance Committee meeting to order at 1:30 P.M. PRESENT Co-Chair Larson Representative Hoffman Co-Chair MacLean Representative Martin Vice-Chair Hanley Representative Navarre Representative Brown Representative Parnell Representative Grussendorf Representative Therriault Representative Foster ALSO PRESENT Representative Cynthia Toohey; Jan Hansen, Director, 7 Division of Public Assistance, Department of Health and Social Services; Thomas C. Williams, Director, Permanent Fund Division, Department of Revenue; Crystal Smith, Alaska Municipal League, Juneau; David Kamrath, Staff, Representative Harley Olberg. SUMMARY HB 331 An Act relating to claims on permanent fund dividends for defaulted public assistance overpayment. HB 331 was reported out of Committee with a "do pass" recommendation and with two fiscal notes by the Department of Health and Social Services dated 2/22/94 and one zero fiscal note by the Department of Revenue dated 2/22/94. HB 397 An Act relating to the power to levy property taxes in second class cities. HB 397 was held in Committee for further consideration. HOUSE BILL 394 "An Act relating to limited partnerships; and providing for an effective date." Co-Chair Larson informed the Committee that the sponsor of HB 394 requested that it be waived from this Committee. He asked members to consider the waiver. CONTRACT BETWEEN THE STATE OF ALASKA AND THE CAMBRIDGE ENERGY RESEARCH Co-Chair Larson provided the Committee with the contract agreement between the State of Alaska, Senate Finance Committee and the House Finance Committee and the Cambridge Energy Research Associates, Inc. for an amount of $15,750 dollars. [Attachment #1]. Representative Larson requested that the Committee review the contract for future consideration. SENATE BILL 206 "An Act relating to real property transfers." Co-Chair Larson provided the Committee with a copy of SB 206 and asked if the Committee objected to introducing the bill as a House Finance Committee bill. There being NO OBJECTIONS, it was so ordered. 8 HOUSE BILL 331 "An Act relating to claims on permanent fund dividends for defaulted public assistance overpayment." REPRESENTATIVE CYNTHIA TOOHEY explained that HB 331 would give the Department of Health and Social Services, the administrative authority to garnish permanent fund dividends of individuals who have received public assistance overpayment and are delinquent in repaying that debt. She added that frequently persons receiving overpayment agree to repay the debt but fail to do so. If a person is still on public assistance the person's benefit can be reduced as a means of collection, but if a person is off assistance, collection becomes difficult. The Department currently has over $1 million in delinquent debt. Collection through the court system can be time consuming and costly. HB 331 would allow the Department to pursue collection in the same manner in which delinquent student loans are pursued. Representative Toohey added that the legislation is supported by the Department of Health and Social Services. JAN HANSEN, DIRECTOR, DIVISION OF PUBLIC ASSISTANCE, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, advised that the amount of debt referenced in the proposed legislation originates from closed cases estimated to total $500 thousand dollars. Representative Brown questioned the number of persons who would receive an overpayment as a result of an agency mistake. Ms. Hansen replied that last year the number of errors within the Aide to Families with Dependant Children (AFDC) program was 204. These cases were due to client error although 106 resulted from agency error. She stressed that recuperation resulting from an agency error is mandated by federal regulations. Representative Parnell asked if there are other administrative agencies which allow a "Rite of Execution" from the court, following a judgement on the Permanent Fund Dividend allocation. THOMAS C. WILLIAMS, DIRECTOR, PERMANENT FUND DIVISION, DEPARTMENT OF REVENUE, responded that there are other agencies with that authority; the Alaska Commission on Post Secondary Education has an identical provision. In addition, Child Support Enforcement can service an administrative levy to collect. Representative Parnell asked which agencies supercede one another. Mr. Williams 9 stated that the Alaska Statutes define a priority listing. Representative Hanley clarified the order of prioritization according to Alaska Statute 43.23.065 (b). 1. Child support. 2. Court ordered restitution. 3. Student loans. 4. Court ordered fines. 5. Debt owed to an individual agency. Representative Hanley understood that the proposed legislation would be placed in category #5; Mr. Williams agreed. Representative Brown asked the length of time the Department of Health and Social Services would need to determine if an overpayment had been made. Ms. Hansen explained it usually occurs quickly, although time limits are established which the Department cannot exceed. The limits have been established by federal mandates. Ms. Hansen pointed out that in order to turn an account over for garnishment, the Department is required to notify the person, giving them the opportunity to appeal and repay the overpayment back. The length of the process depends on the volume of claims being handled by the Department. Representative Brown asked if the proposed legislation would affect the Adult Public Assistance Program (APA). Ms. Hansen replied that the legislation was drafted with collection terms for the Food Stamp and AFDC programs. Currently, overpayment are not being collected on the APA program. In the future, if overpayment claims were to be established in that program, then it would be affected. Representative Martin questioned the fiscal costs to the Permanent Fund Division. Mr. Williams explained that processing costs would depend upon the number of levies received. Ms. Hansen pointed out there would be no extra charge to the Department of Health and Social Services. Currently, there is a staff person whose function it is to collect overpayment. Representative Hanley MOVED to report HB 331 out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTIONS, it was so ordered. HB 331 was reported out of Committee with a "do pass" recommendation and with two fiscal notes by the Department of Health and Social Services dated 2/22/94 and a zero fiscal note by the Department of Revenue dated 2/22/94. 10 HOUSE BILL 397 "An Act relating to the power to levy property taxes in second class cities." DAVID KAMRATH, STAFF, REPRESENTATIVE OLBERG, provided the Committee with Amendment #1 [Attachment #2] which would limit second class cities to a two percent tax of the assessed value of the property to be taxed. Co-Chair MacLean asked why Amendment #1 would repeal Section could be raised through city council meetings as presently done in first class cities. Representative Navarre pointed out, under this authorization, raising taxes to the new level would create a disincentive for organizing a new borough. He added his concern regarding the individual city councils raising second class taxation to twenty mils. Mr. Kamrath responded to Representative Martin's inquiry regarding "personal and real property taxation" explaining that personal property could be taxed only by a decision of the local municipality. The proposed legislation would guarantee local government taxation decisions. (Tape Change, HFC 94-42, Side 2). Representative Hanley pointed out that repealing Section #2 as proposed in Amendment #1, would delete local flexibility. Co-Chair Larson commented on the potential effect of taxation by local communities with oil and gas pipeline property within their bourndaries. Representative Brown understood that the oil and gas pipeline property tax was a separate statute from regular property taxation. Co-Chair Larson replied that all oil and gas facilities would be assessed by the same policy, however, organized municipalities may tax up to twenty (20) mils. Representative Brown pointed out that the proposed legislation would allow a second class city to further use state revenues from pipeline property tax. She advised that the fiscal note should be revised to indicate the impact on state revenue. Representative Martin recommended the continuance of levy of taxes "by referendum" which would allow citizens a voice in the taxation. Mr. Kamrath stated that first class cities and home rule districts have the potential of milage rate being raised to thirty (30) mils. He added that city and 11 borough governments establish the rate. It is not directly decided by the local citizens through their election of those officials. Representative Martin pointed out that Anchorage has established a milage rate cap. Representative Martin MOVED to adopt Amendment #1. Representative Martin MOVED TO AMEND Amendment #1 by restoring [BY REFERENDUM] to the context of Section #1. Representative Hoffman OBJECTED to the amendment to Amendment #1. Representative Parnell asked if second class cities would have a prohibition of funds. Co-Chair Larson explained that citizens decide this issue from a voting power. Representative Hoffman stated that second class cities generally do not consider imposing a property tax because of the amount of paper work imposed to collect the extra funds. Committee members continued discussion regarding the levy of property taxes by first and second class cities. Representative Hanley pointed out that Amendment #1 would provide more authority in delegating taxation to the individual city councils. Co-Chair MacLean advised that the amended Amendment #1 might not allow the local government proper authority to provide required services and revenues. Co-Chair Larson summarized the amended amendment which would propose a referendum to allow the city council the ability to levy taxes, increasing the amount from five (5) mils to twenty (20) mils. Representative Hoffman urged the Committee to oppose the amendment. Representative Martin felt that the amendment would take away local referendum powers of the second class cities. Co-Chair MacLean interjected her concern with the effect on education for the second class cities as most of them are REAA's. Representative Navarre OBJECTED to the MOTION to amend Amendment #1. A roll call vote was taken on the MOTION. IN FAVOR: Hanley, Martin, Parnell, Therriault. OPPOSED: Foster, Grussendorf, Hoffman, Navarre, Brown, MacLean, Larson. The MOTION FAILED (4-7). Representative Martin MOVED to RESCIND his MOTION to adopt Amendment #1. There being NO OBJECTION, it was so ordered. Representative Hoffman MOVED to adopt Amendment #1. 12 Discussion followed regarding Amendment #1. Co-Chair MacLean felt that to incorporate as a second class city, a petition should be signed by the voters when the property tax proposal is placed on the ballot. She MOVED to delete Section #2 of Amendment #1. Mr. Kamrath explained that the Division of Legal Service's Director, Tamara Cooke, recommended including Section #2 of the amendment. CRYSTAL SMITH, ALASKA MUNICIPAL LEAGUE (AML), JUNEAU, stated that the Alaska Municipal League supports the intent of SS HB 397, which would remove the limitation on the power of second class cities to levy property taxes. She spoke to the amendment asking for more time to consider the changing circumstances which the amendment would initiate. She understood that the amendment would preclude any future adjustment to service the cap. Co-Chair MacLean clarified that the amendment would provide a petition for the new second class cities incorporation and it would be on the property tax ballot proposal. The legislation would allow second class cities to determine the appropriate property tax rate and remove arbitrary limits on their ability to generate revenue locally. Co-Chair Larson requested the bill be held in Committee in order to provide time for the Alaska Municipal League to provide the Committee information regarding: 1. The ramifications of repealing the levy of property taxes by referendum; and 2. Restrictions for cities at the time of incorporation which would result in levies and types of taxes. Co-Chair MacLean MOVED to RESCIND the motion to delete Section #2 of Amendment #1 until AML has the opportunity to consider the above concerns. Representative Brown requested more detailed information on the loss of any revenue to the State as a result of the proposed legislation. Representative Parnell interjected his concern with the legality of the "policy call" to be made by Committee members on the referendum issue. SS HB 397 was HELD in Committee for further consideration. ADJOURNMENT 13 The meeting adjourned at 3:00 P.M. 14