Legislature(1997 - 1998)
02/16/1998 01:30 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 254 - LEVY ON PERMANENT FUND DIVIDEND
MR. MIKE PAULEY, Staff to Senator Loren Leman, came forward to
present SB 254. MR. PAULEY said this bill will enhance the ability
of Alaskan businesses to collect from debtors who are in default.
He said existing law exempts 45 per cent of a person's Permanent
Fund Dividend (PFD) from collection by private parties, except if
the debt is a child support payment, student loan or other debts
owed to the state. MR. PAULEY said the state is entitled to collect
100 per cent of a PFD in those cases. He explained that the cost of
business increases for small businesses unable to collect debts
owed them and these costs are passed on to honest consumers.
Essentially, the majority of Alaskan consumers are paying for the
financial irresponsibility of a small minority, according to MR.
PAULEY. He said the original bill eliminated the exemption
altogether, but it was amended to maintain a 30 per cent exemption,
making 70 per cent of a PFD available for collection by private
parties and 100 per cent available to the state.
MR. PAULEY said this bill also increases the fee for garnishing
checks to five per cent of the total value of the check, to be
taken from the defaulter's portion. Currently, the charge is two
dollars. The five per cent fee will apply both to private parties
and state agencies who are garnishing a PFD check. MR. PAULEY
concluded that this bill will help narrow the gap between what
private parties and state agencies can collect from debtors.
CHAIRMAN TAYLOR asked if the original purpose of the bill was to
change the exemption and MR. PAULEY replied that the original bill
completely eliminated the exemption, allowing 100 per cent of a
dividend to be garnished.
CHAIRMAN TAYLOR asked why citizens would be treated differently
than the state and SENATOR MILLER said they discussed that point
extensively in the labor and commerce committee and the concern
was, if 100 per cent was garnished, there would be no incentive to
file for a PFD at all. CHAIRMAN TAYLOR responded that the same
would be true on a debt to the state and SENATOR MILLER agreed but
added it might be required by a court order. He concluded that 70
per cent of something is better than 100 per cent of nothing.
SENATOR MILLER said the labor and commerce committee thought two
dollars was a ridiculously low fee and so increased it to five per
cent.
MS. DEBORAH VOGT, Deputy Commissioner of the Department of Revenue,
said garnished dividends are a big part of what is collected by
obligors and the department does not oppose the bill nor oppose the
change to a 30 per cent exemption. She said there are no program
implications if the exemption was eliminated but there is a concern
that people may not apply. She said debtors can be ordered to apply
but that has not yet occurred and the division is aware that some
people simply do not.
MS. VOGT questioned the public policy of the increase to a five per
cent fee, saying this would reduce the amount available to private
parties and state agencies attempting to collect debts. She said
the two dollar fee has resulted in program receipts to the
department of approximately $150,000 and this bill would generate
3.5 million dollars in program receipts. She explained the
Department of Revenue will be on one end of every transaction and
she thinks $3.5 million would be grossly disproportionate to the
actual administrative costs. She added this fee may have a
significant impact on creditors. She disputed the sponsor's
statement that said the state will continue to get 100 percent of
a garnished amount, saying they will only get 95 per cent and the
other five per cent will go to the general fund. She concluded this
bill will basically take money out of the hands of private
individuals and put it in the general fund.
SENATOR MILLER guessed that two dollars would not cover collection
costs. He said private collection agencies charge fees much greater
than five per cent.
CHAIRMAN TAYLOR explained his concern that many of these debts have
already been taken to private collection agencies and now another
five per cent will be lost to an additional collection fee.
CHAIRMAN TAYLOR agreed that two dollars is low but that there may
be public policy reasons to keep it that way. He estimated the
amount of work to the department for collection to be minimal.
DEBORAH VOGT agreed the task of garnishing a PFD is fairly
insignificant. She explained it is mostly done by computer and
involves a lot of phone calls and mailings.
SENATOR PARNELL asked what the cost of this function might be and
MS. VOGT believed the $150,000 they currently get from program
receipts covers the cost. She said that even with the increase they
would continue to request $150,000 in program receipts.
SENATOR PARNELL asked a question regarding the fiscal note and MS.
VOGT clarified that the fiscal note represents revenue from the
increase to five per cent and would not apply if the current two
dollar fee remained.
MS. VOGT mentioned that the IRS was not too happy with the two
dollar fee but acquiesced because it is a small amount. She thinks
charging a larger amount might push their willingness to accept the
state's collection of the fee.
MS. NANCI JONES, Director of the Permanent Fund Division, stated
that the way the bill reads currently each claim would be charged
the five per cent fee. She said many PFD's are garnished multiple
times. She mentioned that there was an informal discussion in the
previous committee regarding capping the garnishment fee at five
per cent but this is not reflected in the bill.
SENATOR PARNELL asked if the bill could accomplish the reduced
exemption without the fee increase by deleting sections two and
three of the committee substitute. MS. VOGT replied it would.
MR. STEVE PHILLIPS, owner of a Ketchikan credit bureau, offered his
support for this bill in the original form, with reservations about
the lack of incentive to file. He expressed concern that the
current bill does not clearly specify where the five per cent will
come from. He said with a 30 per cent exemption and the statement
that the five per cent would come out of the debtors' portion, they
in fact would only receive 25 per cent. He believes this needs to
be clarified. He referred to the sponsor statement, and said that
was where the inconsistency lies.
MS. VOGT responded by saying sections two and three state the five
per cent comes from the debtors' portion when less than 100 per
cent is garnished. If 100 per cent is claimed, the five per cent
comes out of the creditors' portion.
CHAIRMAN TAYLOR asked for clarification and MS. VOGT restated that
the administrative fee would be paid by the debtor when less than
the whole check is garnished, resulting in an actual exemption for
25 per cent of the amount of the PFD.
CHAIRMAN TAYLOR asked if the amount that goes to the debtor is
reduced and MS. VOGT said it is, and the amount conveyed to state
agencies will also decrease.
MR. PHILLIPS argued that the statute is flawed and may be
problematic if it was brought to court.
CHAIRMAN TAYLOR replied that it may be wiser to return to the two
dollar fee. CHAIRMAN TAYLOR asked where this fee would be deducted
from. MS. VOGT said it would come from the dividend applicants'
portion.
CHAIRMAN TAYLOR inquired what happens in cases where child support
or student loans claim 100 per cent of a dividend. MS. VOGT
replied they take the two dollars off the top. CHAIRMAN TAYLOR
asked if the number of people who have their entire dividend taken
is significant and MS. VOGT replied that the majority of
garnishments are for the full amount of the dividend.
CHAIRMAN TAYLOR could not understand why someone who owed a debt
would not apply for a dividend. DEBORAH VOGT agreed but said
people are often very emotional and do not file. Her agency tracked
those who applied for a dividend which would have been garnished
had it been paid. She said in most cases, the dividend was not
awarded to anyone due to an imperfect application, left incomplete
by the applicant.
CHAIRMAN TAYLOR stated the court could have signed the application
for them or forced them to do so. MS. VOGT responded it would still
be necessary to determine eligibility for the dividend. CHAIRMAN
TAYLOR said his point was that state agencies and the public should
be treated equally and it must be a small percentage of people who
refuse this found money to pay their debts. MS. VOGT said she was
not sure of the proportion but knows it does occur. MS. JONES added
that there are no statistics on people who do not apply and the
only way they can infer this number is by comparing population
figures with the number of people applying for the dividend.
STEVE PHILLIPS stated he would like to see the amount available for
garnishment raised to 75 per cent. He said three quarters is a good
number to work with. He mentioned this bill deals with less than
five per cent of the population who are debtors and the remaining
95 per cent are paying for them. He said this is an avenue to reach
that five per cent who owe without hurting the other 95 per cent.
MS. TAI SORENSON, from Johnson Nissan Jeep Eagle, testified via
teleconference from Anchorage. She said she would like to see
governmental agencies and private businesses with equal right to
collect 100 per cent of a dividend. She said her company has
recently started charging interest on defaulted promissory notes.
She repeated that these debtors hurt the honest consumer.
MR. KEN JACOBUS, an attorney, testified via teleconference from
Anchorage. He commented that many Alaskans make it difficult to
collect judgments against them by doing business in cash and hiding
assets. He said this bill is a good tool for the small,
unsophisticated claimant to collect a judgment. He believes the
bill should be returned to its original form, saying overall it
will generate more money than the current bill regardless if a few
people do not file for their dividends. He concluded the more money
available to collect debts, the better off Alaskans are.
SENATOR PARNELL declared a conflict of interest. He explained his
law firm does collections, attaches dividends and he may possibly
benefit form this legislation. He asked to be allowed to abstain
from voting on the bill and any amendments. CHAIRMAN TAYLOR
objected.
SENATOR MILLER said he felt strongly about the 70 per cent but
would be willing to return to the two dollar collection fee,
although he would be very upset if the agency came back in a few
years saying it is inadequate. He moved to strike sections two and
three from the bill and, without objection, it was so ordered.
CHAIRMAN TAYLOR mentioned he would also like to see 100 per cent
available for collection but understood the concerns presented. He
said maybe eventually citizens will be on equal footing with the
government in this regard.
SENATOR MILLER moved the bill out of committee as amended with
individual recommendations. Without objection, the bill moved from
committee.
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