Legislature(1997 - 1998)
04/29/1998 03:22 PM House L&C
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* first hearing in first committee of referral
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CSSB 254(FIN) - LEVY ON PERMANENT FUND DIVIDEND Number 0039 CHAIRMAN ROKEBERG announced the committee's next order of business was CSSB 254(FIN), "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." Number 0041 MIKE PAULEY, Legislative Assistant to Senator Loren Leman, came forward to present CSSB 254(FIN). He stated SB 254 was a Senate Labor and Commerce Standing Committee bill; it would increase the ability of Alaskan businesses and other private parties to collect from debtors in a state of default on obligations. He indicated current state law exempted 45 percent of a person's annual permanent fund dividend (PFD) from collection by a private party seeking to collect on a debt. Mr. Pauley noted child support obligations, defaulted student loans and debts owed to a state agency were not covered this exemption. The state could collect 100 percent of a person's PFD, but small businesses and private parties were not afforded the same right. Mr. Pauley indicated the inability of businesses to collect funds from debtors increased the cost of doing business, resulting in higher prices for goods and services to honest consumers. He said that in a very real sense the majority of Alaskan consumers paid for the financial irresponsibility of a small minority. Mr. Pauley stated SB 254 lowered the exemption in current law from 45 percent to 20 percent, raising the percent of a PFD available for private garnishment from 55 to 80 percent. He noted state agencies would retain the ability to collect at 100 percent. As it was currently structured, SB 254 would significantly narrow the gap between what private parties and the state were able to collect. The sponsor statement read: Senate Bill 254 amends Title 43, Chapter 23 regarding the use of permanent fund dividends to satisfy debts. Existing law at AS 43.23.065 provides that 45 percent of a person's permanent fund dividend is exempt from garnishment, attachment, or any other remedy to collect on financial obligation when the debtor is in a state of default. Therefore, debtors in Alaska can under most circumstances shield 45 percent of their dividend check from persons or businesses seeking to collect. There currently are some exceptions to this general rule: the 45 percent exemption does not apply to child support obligations, court ordered fines, claims on defaulted Alaska student loans, or any debt owed to an agency of the state. Under these and a few other narrowly defined circumstances, the state requires that 100 percent of the dividend be made available to meet the debtor's obligation. The existing PFD garnishment provisions are inequitable and contradictory. The state can seize the entire amount of a dividend to satisfy its claims, but private parties such as small businesses, credit unions, landlords, or car dealers are limited in the amount they can garnish. The message sent, whether intentional or not, is that when contractual obligations are violated, agencies of the state have a greater right than private parties to settle their outstanding claims. As originally introduced, Senate Bill 254 completely eliminated the dividend exemption, allowing state agencies and private parties alike to collect 100 percent. However, an amendment approved by the [Senate] Labor & Commerce Committee restored the exemption but lowered it from 45 percent to 30 percent. The Senate Finance Committee further amended the bill by lowering the exemption from 30 percent to 20 percent. Thus, the amended bill allows private parties to collect 80 percent of a dividend check, while state agencies will continue to collect 100 percent. SB 254 narrows the gap between what state agencies and businesses are able to collect. When businesses are unable to recover monies lawfully owed them by persons in default, the losses are recovered by passing the costs on to honest, law-abiding consumers. The current 45 percent exemption for dividends is essentially a "hidden tax" on the majority of financially responsible consumers. Defaulters get to keep their dividend checks, while the majority of Alaskans end up providing an involuntary subsidy for their financial irresponsibility. (Last updated: March 12, 1998) Number 0061 REPRESENTATIVE COWDERY mentioned one reason a person might not pay a bill was because the person thought he or she did not owe it. He indirectly referred to a supporting letter in the bill packet from National Bank of Alaska (NBA) and asked what incentive people would have to even file for a dividend if they were not going to receive it. Representative Cowdery said it was his understanding that there was a percentage of money left and he asked Mr. Pauley to go into that. The April 29, 1998, letter in the bill packet from Paul Harris, Senior Vice-President, Consumer Lending, National Bank of Alaska, read: As a representative for National Bank of Alaska, I can't express enough the importance of receiving as much money as we can for unpaid loans that we have obtained a judgement on. At the present time we are only receiving 55% (garnishment) of Alaska's Permanent Fund Dividend, for the most part, this only allows us to pay the interest due on most of our loans instead of reducing the principal balance. If we were able to garnish 100% of the Permanent Fund Dividend, we would be able to reduce the balance on these loans substantially and possibly pay most of them off. With individuals that are receiving the permanent fund dividend, we would not be taking anything away from them since this is "free money" that the State of Alaska is giving us. Nobody is above the law and our local businesses should be treated the same as private citizens and benefit from this wonderful advantage of being able to attach the Permanent Fund Dividend for 100%. I would also like to stress that if you have a judgement against you, you should not have the right to a portion of the money distributed by the State of Alaska Permanent Fund Dividend. I understand that child support and state agencies can garnish up to 100% of the Permanent Fund Dividend and we should be given that same opportunity. We at National Bank of Alaska fully support this bill that you are trying to pass and any assistance that we can provide, please contact me at (phone number given). MR. PAULEY replied that was the "$5 million question" on SB 254 and had been addressed in every committee. He indicated the original bill version had allowed state agencies and private businesses to all collect at 100 percent. The Senate Labor and Commerce Standing Committee had lowered the amount to 70 percent for private businesses, the Senate Judiciary Standing Committee had discussed the issue but not changed the percentage, and the Senate Finance Standing Committee had raised it to 80 percent. Mr. Pauley stated most of the people supporting the bill said they would prefer it to be 100 percent. He indicated he was referring to the small businesses, credit unions, credit unions, car dealers. He did note that the preference for 100 percent was not unanimous, commenting that there were some people in the collection business who had dissented strongly. Mr. Pauley said, however, everyone had agreed it should be higher than the current 55 percent. He reiterated most people thought it should be at 100 percent, but the 80 percent currently in the bill was the compromise. Regarding the question of the incentive for someone to apply for his or her PFD, he noted they had heard from the child support agency there were some people who would not apply, if motivated by a grudge, just to keep someone else from receiving that money. He indicated he thought it was somewhat cynical to think all people were so motivated, and said for a lot of people it was a way to pay off their debt. He gave the example of someone owing $5,000, commenting it was far better to have that coming over a five-year period from the person's dividend checks than to have the person's car or paycheck taken. Mr. Pauley said he personally thought only a small minority of people would refrain from applying for their dividend check over a grudge, noting this was something that would be somewhat impossible to measure. REPRESENTATIVE COWDERY indicated he wondered if there was any way if it was set at 100 percent to legally require someone to apply for his or her PFD or give someone else power of attorney to make that application for them. MR. PAULEY noted it was an interesting question. He said they had learned some private parties were apparently making that requirement part of actual loan applications. In other words, if someone applied for a car loan, for example, the person agreed to apply for his or her PFD as one of the loan conditions. He said this was so that if the person was in default the lender would take the dividend to help make good on the person's obligation. Mr Pauley stated more and more companies seemed to be including that provision. REPRESENTATIVE RYAN said he thought there was a bill concerning child support that had been passed or was "floating around." He indicated the agencies were asking for that power. MR. PAULEY said he was not aware of that bill, noting Nanci Jones, director of the Permanent Fund Dividend Division, Department of Revenue, was present and perhaps could comment. REPRESENTATIVE HUDSON informed the committee that the PFD monies of everybody who did not apply for their dividends still went into the state's income stream because that money was automatically apportioned out to everyone else. He said he might receive an extra dollar and therefore had to declare a conflict of interest. CHAIRMAN ROKEBERG commented, "Didn't we have the Amerada Hess [Amerada Hess Corporation] decision on the judges or something like about that ...?" Number 0108 REPRESENTATIVE KUBINA made a motion to move CSSB 254(FIN) out of committee with individual recommendations. It was indicated the legislation would be moved with the attached zero fiscal note. There being no objections, CSSB 254(FIN) was moved out of the House Labor and Commerce Standing Committee.
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