02/02/2005 03:15 PM House LABOR & COMMERCE

HB  90-STATE TREASURY WARRANTS                                                                                                
                                                                                                                                
CHAIR ANDERSON announced  that the final order  of business would                                                               
be HOUSE  BILL NO. 90,  "An Act  requiring warrants drawn  by the                                                               
Department  of Administration  against the  state treasury  to be                                                               
negotiable instruments."                                                                                                        
                                                                                                                                
3:40:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   MAX   GRUENBERG,   Alaska   State   Legislature,                                                               
explained  that  HB 90  simply  makes  state warrants  negotiable                                                               
instruments.    The state  pays  its  bills  with warrants.    He                                                               
informed  the committee  that the  question as  to whether  these                                                               
warrants  are legally  negotiable instruments  under the  Uniform                                                               
Commercial  Code (UCC)  arose.   The Alaska  Supreme Court  case,                                                               
Univentures [National  Bank of AK v.  Univentures 1231 (1/24/92),                                                           
824  P  2d 1377]  case,  to  hold  that warrants  are  negotiable                                                               
instruments.   In the aforementioned  case the banks were  put in                                                               
the position  in which the  state would say the  warrants weren't                                                               
negotiable  instruments, and  therefore the  banks would  be left                                                               
"holding  the bag."   Representative  Gruenberg specified  that a                                                               
warrant  is similar  to  a check  and the  state  still pays  its                                                               
employees with  warrants.   He informed  the committee  that this                                                               
legislation  was introduced  last  year, went  through the  House                                                               
State Affairs  Standing Committee and  passed the full  House and                                                               
proceeded  to  the  Senate Rules  Standing  Committee,  where  it                                                               
resided.  He  said that he wasn't aware of  any objection to this                                                               
legislation.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX inquired  as to  how the  state failed  to                                                               
honor its instruments.                                                                                                          
                                                                                                                                
REPRESENTATIVE  GRUENBERG  answered  that being  a  warrant,  the                                                               
state took  the position  that they  weren't instruments  and the                                                               
dishonor  provisions  of  the  UCC didn't  apply.    He  recalled                                                               
introducing  legislation on  this back  in  the mid  1980s.   The                                                               
state was so  opposed to this, that it took  the banks taking the                                                               
matter  to the  Alaska Supreme  Court  where it  upheld that  the                                                               
warrants were negotiable instruments.                                                                                           
                                                                                                                                
REPRESENTATIVE  LEDOUX  clarified that  she  was  asking why  the                                                               
state was not honoring its own warrants.                                                                                        
                                                                                                                                
REPRESENTATIVE GRUENBERG specified that  it would depend upon the                                                               
individual  warrant.   The state  may  have felt  the vendor  was                                                               
supplying defective  merchandise, for  instance, and  thus didn't                                                               
want to honor  the warrant.  He recalled that  in the Univentures                                                             
case  the state  was  a tenant  in an  office  building owned  by                                                               
Univentures.    There  was  a dispute  between  the  partners  of                                                               
Univentures and the state was  notified that it shouldn't pay the                                                               
monthly  rent  to  one  of the  partners  of  Univentures,  which                                                               
resulted  in the  state stopping  payment  on the  warrant.   The                                                               
state was  directed to hold  the rent  in abeyance until  a court                                                               
appointed  receiver  was  named.   Meanwhile,  National  Bank  of                                                               
Alaska had  paid out $28,143.47.   Representative Gruenberg noted                                                               
that  the  aforementioned wasn't  the  largest  warrant that  was                                                               
dishonored.                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  surmised that  the state  has followed                                                               
the court  ruling and this legislation  merely inserts conforming                                                               
language in statute.                                                                                                            
                                                                                                                                
REPRESENTATIVE GRUENBERG agreed.                                                                                                
                                                                                                                                
3:48:44 PM                                                                                                                    
                                                                                                                                
KIM  GARNERO,  Director,  Division   of  Finance,  Department  of                                                               
Administration, confirmed  that this legislation  simply codifies                                                               
in statute the earlier mentioned  1992 Alaska Supreme Court.  The                                                               
case  meant that  warrants should  be  treated as  checks in  the                                                               
banking   industry.     Since  that   decision,  the   state  has                                                               
administered   its  warrants   as  negotiable   instruments,  and                                                               
therefore  no  administrative  changes   are  necessary  if  this                                                               
legislation passes.                                                                                                             
                                                                                                                                
CHAIR  ANDERSON,  upon determining  there  were  no questions  or                                                               
witnesses, closed public testimony.                                                                                             
                                                                                                                                
3:50:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG moved to report  HB 90 out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.  There being no objection, it was so ordered.                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
3:50:48 PM.