Legislature(1997 - 1998)
03/11/1998 08:25 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 254(JUD)
"An Act relating to the exemption from levy,
execution, garnishment, attachment, or other remedy
for the collection of debt as applied to a permanent
fund dividend."
MIKE PAULEY, staff to Senator Leman, addressed this
legislation. His testimony was as follows:
"This bill would significantly enhance the ability of
Alaskan businesses and other private parties to collect
from debtors who are in a state of default in their
financial obligations. Existing state law provides that
45% of a person's annual Permanent Fund Dividend check is
exempt from collection to pay an outstanding debt. In
other words, even though a person may have a court
judgement stipulating that they owe a certain amount of
money, almost half of their dividend check is exempt from
collection at least when its a private party that seeking
to collect the debt. There are some exceptions to this
general rule. Child support obligations, defaulted student
loans and any debts to an agency of the state are not
covered by the 45% exemption. So on those cases; the state
can garnish 100% of a dividend check in order to satisfy
its financial obligation. But small businesses and other
private parties do not enjoy that ability to collect 100%
of the check."
"When businesses are not able to collect funds from those
in default, it increases the cost of doing business.
Ironically, those costs are passed on to honest consumers
in the form of higher costs for goods and services. So, in
a very real sense, the majority of Alaskan consumers are
paying for the financial irresponsibility of a small
minority."
"As originally introduced, SB 254 proposed to completely
eliminate the 45% exemption. However, and amendment
adopted in committee, restored the exemption but lowered it
from the current 45% to 30%. This means that the
percentage of a dividend available for garnishment by
private parties would increase from 55% to 70% as the bill
currently stands. State agencies would continue to collect
at a rate of 100%."
As currently structured, SB 254 significantly narrows the
gap between what private parties and the State are able to
collect."
That concluded Mr. Pauley's prepared statement.
Senator Donley agreed that while he felt the 100%
garnishment would work because people would not have the
incentive to actually file for their PFD, he did think the
higher percentage was appropriate here. He said he would
like to see it around 25% or less so people would still
have the incentive to file, but still benefit anyone who
went through the effort to get a court judgement.
Co-Chair Sharp's comment was that he wanted to keep the
incentive and leave enough to pay the taxes on the
dividend. There was further discussion by Co-Chair Sharp
and Senator Donley about the taxes and the efforts the
debtor makes in obtaining a judgement.
Co-Chair Sharp requested the sponsor's view of the
Judiciary version. Mr. Pauley qualified that he must be
careful in speaking his office's opinion. The Labor and
Commerce Committee, who he was here representing, voted to
restore, but lower, the exemption, which the original bill
eliminated. Therefore, he felt he could not comment.
Co-Chair Sharp noted the L&C version added a fee schedule
based on five-percent of the dividend rather that five-
percent of the amount collected. Mr. Pauley explained the
L&C change from imposing a $2 fee to a fee of five-percent
of the total value of the PFD. This was because the
existing $2 fee was not covering the division's expenses.
The Judiciary committee then voted to remove the five-
percent fee, which eliminated the actions of the L&C
Committee. He recalled the Permanent Fund Division
testified that they were opposed to the five-percent fee.
Co-Chair Sharp noted that the division had a representative
present at this meeting to answer questions. He
anticipated the committee would have a few questions.
Senator Torgerson was under the impression that court-
ordered restitution was already at 100%. He gave an
example: "If I did a small claims action, and took it
through the court process, and the case was found in favor
of my claim, I would now have a court order for re-payment
of that amount of money as long as it was under $5000.
What you're saying is that under current law, I could only
collect 55% of that even though it was under court order?"
Apparently, he said, he had a different explanation of what
court-ordered restitution means.
Mr. Pauley shared that to his understanding that language
did not apply to private debtors. He spoke of a car
dealership with a customer who defaulted on their car loan.
Even if the dealership had the court statement saying they
were entitled to that money, that didn't entitle them to
100% of the PFD.
Senator Donley interjected; pointing out that "restitution"
usually applied to criminal situations. Senator Torgerson
said he thought part of this legislation dealt with
criminal actions. Senator Donley explained how the court
usually assigns restitution to be paid by the criminal to
the victim of the crime.
Senator Torgerson asked what form the garnishment would
come to the PFD. Did the collection agency submit a copy
of the credit card statement showing the balance owed and
substantial documentation, or was a court order necessary,
he asked. Mr. Pauley told him there was a process that
must be followed. He deferred to NANCY JONES of the
division who had more knowledge of the mechanics.
Co-Chair Sharp called Ms. Jones to come to the committee to
testify. She started by answering Senator Torgerson's last
question. The court must certify all claims, she stated.
The division would not accept any private claims. The
garnishment request would come to PFD through a court order
that states this was a legal dept.
Co-Chair Sharp restated the earlier question concerning the
$2 fee and whether that was adequate to cover processing
costs. Ms. Jones told of the division's the collection
staff, which also does data processing. April 1 would be
the first time they would be accepting any claims. They
would accept claims from April 1 through the payment period
in October. Of a staff of four, one person worked 100% on
processing these claims. Other staff worked varying parts
of the process. Including data entry time and computer use
charges, the total cost of processing the claims was a
little more that $154,000. The $2 fee adequately reflected
the cost, summarized Ms. Jones. She spoke about the
allocation of those funds by the Legislature, which
required the charges be collected before the money could be
spent. Therefore, she said, if the division did not
receive the anticipated number of collections, they could
not spend the $154,000 operating appropriation. Because of
this, they had kept the projections conservative.
Co-Chair Sharp asked about the record of federal government
agencies, namely the Internal Revenue Service, as far as
paying the processing fee. He wanted to know if the
division had gotten any static from the IRS attempting to
have the fees waived. Ms. Jones recounted that prior to
her tenure with the division, there had been some battles
fought over this matter. The IRS did not allow any other
institutions to collect a processing fee before dispersing
funds. They had come to an agreement that said if at any
time the IRS could collect up to $21 million from the PFD
fund, they shouldn't quibble about the meager $2 fee. She
said the division was working together with the IRS
regional directors.
Senator Donley wanted to know if the $2 fee was currently
set in statutes. Ms. Jones responded, no. The statutes
just provided the authority for the division to charge a
fee. The amount was set in regulation.
Senator Phillips and Ms. Jones had further discussion about
the fee and whether it was adequate at covering the
processing costs.
Senator Torgerson asked to make it clear that if the
department's costs started to exceed that, which was
covered by the $2, that the fees would be increased. Ms.
Jones assured him that when the overhead exceeded the
collected amount the fees would be raises. She said it was
difficult to breakdown and to determine the exact cost to
process each claim. Senator Torgerson said he just wanted
reassurance that the division had the ability to raise the
fee if needed to cover the costs.
Co-Chair Sharp brought up the issue of the different
versions of the bill and asked the committee which they
would like to address.
Senator Donley suggested the simplest bill version to work
from would be the Judiciary version. Co-Chair Sharp
agreed.
Senator Donley considered changing the current 30% to 20 or
25%. Senator Adams responded by asking how low the
percentage retained could drop and still maintain the
incentive for the individual to file. He wondered if the
current 30% was determined to be that amount. Senator
Donley spoke to the logic of a desire to pay off one's dept
to be the incentive needed. He felt that if the court told
an individual they owed a debt, they ought to have the
moral fortitude to pay off that debt. By using the PFD,
they are getting the advantage of having the dividend pay
toward that debt. He acknowledged there should remain a
percentage to allow the incentive to file.
Senator Donley made a motion to change Page 1 Line 5 from
30% to 20%. Co-Chair Sharp objected for discussion
purposes. Senator Phillips wanted to know the sponsor's
opinion on the amendment.
Mr. Pauley spoke saying they had heard an enormous amount
of testimony on this issue as to what the right percentage
should be to still give an incentive to apply. He made an
observation, if there was a concern that garnishing 100%
would be a disincentive for people to apply, then the
argument should be made to take the state agencies current
100% and lower it to whatever percentage was set for
private party collection. The question was posed to the
Administration asking if they had data showing that
individuals were not applying because they knew that 100%
of their dividend would go toward their child support or
student loan obligation. The response was anecdotally,
they had heard of cases where this was the case, but it was
extremely difficult to quantify.
He continued, saying that the current stipulation allowing
for 55% of the dividend to be collected was determined at a
time when the dividend was a significantly lower amount.
He predicted that if next year's check was $1500, and
Senator Donley's amendment was adopted, Mr. Pauley's guess
would be the recipient would still receive $300. Speaking
for himself, he would still apply for the "free" $300.
That was a lot of money to him, and he felt it would be a
lot of money to most people.
Co-Chair Sharp removed his objection and Senator Adams
maintained the objection. Roll call was taken, with the
vote tally 4-2 (Senator Adams and Senator Phillips nay).
The motion passed.
Public testimony was heard from Ms. LaBolle. Her
organization supported the legislation and the change in
the percentage from the Judiciary version. She added their
desire to keep the amount of the processing fee to remain
set in regulation rather than statutes.
Senator Donley referred to language deleted in lines eight
through eleven and asked for an explanation. Mr. Pauley
spoke to the change in Workdraft F as a technical
correction suggested by the Department of Law. The change
gives a definition of "after" in relation to the amount of
the exemption taken.
Senator Donley moved the Senate Finance Committee
Substitute for SB 254 from committee with a new, zero
fiscal note and individual recommendations. There were no
objections and Co-Chair Sharp so ordered.
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