Legislature(2005 - 2006)CAPITOL 106
03/19/2005 09:30 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB152 | |
| HB186 | |
| SB87 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 114 | TELECONFERENCED | |
| *+ | HB 152 | TELECONFERENCED | |
| + | SB 87 | TELECONFERENCED | |
| *+ | HB 186 | TELECONFERENCED | |
| * | HB 23 | ||
HB 186-PERMANENT FUND: QUARTERLY PAYMENTS 9:39:16 AM CHAIR SEATON announced that the next order of business was HOUSE BILL NO. 186, "An Act relating to quarterly payments of a permanent fund dividend, and to a permanent fund dividend and eligibility for public assistance; and providing for an effective date." 9:39:40 AM REPRESENTATIVE RAMRAS, as sponsor of HB 186, introduced the bill. He explained: [The intent of the bill is to] try and broaden the dynamic nature of the permanent fund dividend [PFD] benefit that all Alaskans enjoy. The concern I have behind creating a quarterly payment program for the [PFD] is that in my own personal experience with people that I work with and people that I know, the sign-up period for the [PFD] ends March 31, and we all are paid by direct deposit or by check sometime generally in the month of October. There are a lot of retail inducements in the fall season, during the permanent fund season, that some of us can't withstand, and I have many friends by their own volition that will share with me that they're not good money managers and that, given the opportunity to use a $1,000 [PFD] check, they will find themselves with $19,000 in new term debt within a week of receiving their [PFD]. A quarterly payment program for the [PFD], which would pay out in October one quarter ... and another quarter in January, another quarter in April, and another quarter in July, would be available only for folks that opt for a direct deposit payment. There would be language that would discourage anybody who is receiving public assistance, because ... the dividend program offers one annual exemption which is in October. Anybody who is receiving public assistance would be ill advised to take this program because it might affect their public assistance the other three- quarters. ... Permanent fund folks have an objective of trying to get everybody on direct deposit so this dovetails nicely into their program. Our office has worked with the [PFD] board and the Department of Revenue in trying to tailor this program. We've had correspondence with them for some weeks, so even if we don't agree on all points, we have been working closely with the [PFD] board. 9:42:44 AM REPRESENTATIVE RAMRAS continued: The notion is that for some single wage earner households or some dual wage earner households ... it might be useful and affective for people to receive partial payments in January to cover home heating oil expenses; April - spring projects; July - summer vacations. That might create an opportunity for people to see their [PFD] other than ... an annual dividend and/or a mechanism for saving in the university credits. REPRESENTATIVE RAMRAS noted that the Anchorage Daily News carried an editorial stating that it was not in favor of this proposal, and that it wasn't the obligation of the PFD board to get involved in household budgeting. He responded, "I would question that because folks that I know that have participated in the university's education credit program have found that's been a very useful instrument in being able to set aside money for their kids' education." He said that his proposal is similar in that it would allow people to space out their dividend. 9:43:49 AM REPRESENTATIVE RAMRAS reminded committee members that if nothing is changed in the PFD program, there will be significant dividend growth in the future. He noted that the bill would require the permanent fund division to make $150,000 worth of changes to the computer system. The final fiscal note is $300,000, which he said would basically cost each Alaskan 50 cents. He stated: Because the permanent fund is legislated, it's a specific amount.... People that opted to participate in this program would not accrue interest in this program, meaning that the state would enjoy collecting quarterly dividend interest.... After the initial setup ... the program would be self-sustaining; it would actually generate a positive fiscal note. And so, you'll see when you review the attached fiscal notes that the revenue coming into the permanent fund increases in later years.... 9:46:49 AM REPRESENTATIVE GARDNER remarked that this was an intriguing idea, but she was puzzled by implementation. She asked for further clarification about the quarterly payments. REPRESENTATIVE RAMRAS said an individual would fill out the application in March and receive the first quarterly payment in October of this year, then additional payments in January, April, and July of the next year. The individual would have the option of changing back to single payments the next year. He mentioned that Michael J. Burns, the Executive Director of the Alaska Permanent Fund Corporation, is in favor of the program. 9:49:11 AM REPRESENTATIVE LYNN commented that the state would be basically holding three-quarters of the checks, so [the state] would be earning the interest. REPRESENTATIVE RAMRAS said that's correct. He noted that if an individual was to hold his/her PFD check for a year without cashing or depositing it, the state would earn interest on that check. He said the idea for the quarterly payments of the PFD came from the longevity bonus payments. 9:53:15 AM REPRESENTATIVE ELKINS asked what would happen if the PFD check amounts went down. He asked, "Is there some point that if it goes down the quarterly dividend payment would not be available?" REPRESENTATIVE RAMRAS said he doesn't think so. He commented, "At a certain point it would be a wash as to whether the program was able to be self-sustaining, but it would be within pennies." He offered an example to demonstrate that the state will be earning interest on the quarterly payment system. 9:56:30 AM CHAIR SEATON noted that most lower income people don't have quarterly bills to pay. He asked why Representative Ramras didn't look into making the change to monthly payments rather than quarterly payments. He also asked if the permanent fund division had indicated that there would be any difference in the fees [for monthly payments]. REPRESENTATIVE RAMRAS replied, "The thought process [was] that if it was a monthly payment, then we might invite an ineffectiveness .... If it's $80 a month, I don't know whether that's especially helpful. I think that it would make it considerably more expensive for the permanent fund division." He commented that people's paychecks also don't correlate with bills either. He continued, "I think it would be a misnomer to think that this is designed for lower income families. I think that this is designed for middle income families." As an example, he described the possibility that a family would choose to receive one of the family's PFD checks quarterly for household budgeting. 9:59:13 AM REPRESENTATIVE GATTO asked if a garnished PFD check would have to be garnished four times a year, or if there is some way to do it all at once. REPRESENTATIVE RAMRAS deferred the question to the chief of permanent fund dividend operations. He commented: I don't want folks who are on public assistance who are very important contributing members of our society ... to discourage a program that is really tailored toward lower ... [to] upper middle income folks that are collecting these [checks] across the state. I think that the notion is to steer clear of sticky pickets ... and to allow people to participate in the [PFD] fund in a little bit more of a dynamic fashion. 10:01:05 AM REPRESENTATIVE GATTO remarked: I think the current [public assistance] system is that because the person of public assistance gets $1,000 [PFD check] all at one time, that for that month they don't qualify. And so we have this forgiveness built into the program that reimburses them for the amount they would lose. However, you're only entitled to that once a year. If they take quarterly payments then won't they get stung for payments two, three, and four, because they don't have a forgiveness that they're eligible for anymore? REPRESENTATIVE RAMRAS replied that this is correct, and therefore he reiterated that there would be language on the application that would discourage anybody who receives public assistance from participating in this program. He reiterated that this program is designed for middle-income people, not for people on public assistance or lower income people. 10:03:20 AM REPRESENTATIVE GARDNER noted Representative Ramras' estimation that the cost of setting up this program would be about $300,000, which he had stated would equal 50 cents per person in the state. However, she pointed out that if only 1 percent of the applicants participate, that cost to participants would be $50 per person. Additionally, she noted: And yet, if it's a $1,000 dividend, the dividend would earn something less than the unclaimed funds that are sitting there for these 6,000 people, [and] would earn something less than $20 apiece at [the] current interest rate, so basically the rest of the program and all the rest of the recipients would be bearing more than half of the cost for a very few people who might participate. REPRESENTATIVE RAMRAS replied that if this was a one-time program, this assessment would be correct. However, he said, in the years 2007-2011, "the change in revenue actually exceeds the operating expense; this program actually makes money through the general fund, and we actually over time would recoup the $300,000 in set up costs." 10:04:50 AM REPRESENTATIVE GARDNER asked how many applicants would have to participate for this to work. REPRESENTATIVE RAMRAS responded that he didn't know what the assumptions were in the completion of the fiscal note. He said that each participating individual's unpaid quarterly portions would generate for the state about $15 in interest in the general fund, while the cost of administering the program would cost about $3 per person. He remarked that representatives of the Alaska Permanent Fund Corporation have been asked by residents if the PFD checks could be left in the permanent fund and have the money invested like a mutual fund. He continued: The other benefit that may be derived here in the Bush and some of the more vulnerable members of our community is: oftentimes the permanent fund payout results in some degree of substance abuse and money that is spent less wisely. And it's not the state telling people what to do, but it is giving people, ... who may recognize that they don't spend money wisely when they get it in a lump sum, [the opportunity] to participate in a program that would stretch it out over time. 10:07:26 AM REPRESENTATIVE GRUENBERG asked, "When does the person receiving the money become legally entitled to it? ... If there are going to be quarterly payments, is the person legally entitled to that money at the time of the first payment, or not until he's received each quarterly payment?" REPRESENTATIVE RAMRAS responded that he thought it would be no different than a contract, where the recipient has agreed to the terms of the contractual agreement. CHAIR SEATON attempted to clarify Representative Gruenberg's question; he explained that there are tax consequences if the recipient takes the money in one year versus the next year. 10:09:11 AM REPRESENTATIVE GRUENBERG pointed out that his question was not about tax consequences. He asked who would receive the subsequent payments if a person died before the last three quarters of the payment were made. CHAIR SEATON requested that technical questions such as this be posed to the representatives from the permanent fund. 10:10:30 AM REPRESENTATIVE GARDNER commented: [Representative Ramras was] talking about the people who don't manage money who are lower income who might use it on drugs or whatever, or people who are on public assistance. ... When I first heard about this bill, I thought, "Well, that's really great for people who have a hard time managing money to get this in little bits." ... But it looks like the way this is worded and the way the bill is focused, it's not for those people. It's for people who still would have access to all their vices based on their own income if that's what they chose to do. So, ... it seems to me that the target population is not the people who would really benefit from having the amounts of money spread out over a long period of time. 10:11:24 AM REPRESENTATIVE RAMRAS responded that he thinks the people who would benefit from the program are those that "voluntarily choose to check the box and would enjoy receiving their ... dividend on a quarterly basis." He noted that those people may be in any income range. He gave examples of other people who might wish to participate in this program. 10:13:39 AM CHAIR SEATON remarked that he thinks Representative Gardner's question is well answered on a single page handout in the committee packet, which says, "Therefore an individual or family receiving public assistance should not apply for the quarterly dividend payment since the quarterly payments may make them ineligible for any public assistance for three-quarters of the year." 10:14:26 AM PAUL DICK, Chief, PFD Operations, Permanent Fund Dividend (PFD) Division, Department of Revenue, reiterated the function of HB 186. Mr. Dick said that the division would foresee administering the program such that if a person's wages were garnished, the division would not allow that person the quarterly option. If a person's wage was garnished part way through the year, the division would process the garnishment records in full and then the balance would go to the applicant. He noted that the division has built into the fiscal note some costs for such scenarios. 10:16:22 AM CHAIR SEATON asked what the tax consequences of this program would be, and when money is officially considered to be received. MR. DICK responded that the Internal Revenue Service (IRS) can't answer this question for certain until the bill is in final form, but, he noted, "all indications seem to point to where the bill would be taxable as a whole in that dividend year, and they look at it as a deferment of payment. So you have a right to the dividend in October and then you are voluntarily opting to receive that money in quarterly payments thereafter." 10:17:12 AM REPRESENTATIVE LYNN asked how many PFD garnishments there currently are statewide. MR. DICK replied that last year the division processed 73,000 garnishment records for a total of $30 million. 10:18:03 AM REPRESENTATIVE GARDNER pointed out that the fiscal note supposes a 5,000-person participation in the program. She asked how that number was reached. MR. DICK answered that it was estimated that roughly 1 percent would participate. REPRESENTATIVE GARDNER asked, "So, if only 500 people participated, it'd be a pretty expensive program...." MR. DICK replied that the fiscal note includes staffing costs to answer questions from the participants and from the public. He also noted that there are some "per transaction" fees on the direct deposits. 10:19:14 AM REPRESENTATIVE GRUENBERG asked if the IRS will take the position [that the PFD check is taxable as a whole in that dividend year, even when the check is received quarterly] even if the individual is on a cash rather than an accrual basis. MR. DICK answered that he "hadn't really explored that with them." He said, "I think we were looking at it as a cash basis orientation." REPRESENTATIVE GRUENBERG remarked, "That sounds like an aggressive position to me. If this bill passes, I hope that you will do that, because otherwise these people will be taxed on the money even though they haven't received it." MR. DICK replied that's correct. REPRESENTATIVE GRUENBERG continued, "As I understand the current situation, if you're eligible and then you go through the formality of making the application between January and March, at that point you are legally entitled to the money, although it may not be payable until October of that year. Am I not correct?" MR. DICK responded, "Assuming you're eligible, then payment comes in October." 10:20:51 AM REPRESENTATIVE GRUENBERG asked how the division would handle the remaining payments if a person died after the first payment was received. MR. DICK responded that he thinks the division would follow current procedure, in which the check is issued to the estate. 10:22:02 AM REPRESENTATIVE GRUENBERG asked if it would be up to the recipient to advise the division of a new address, or if the state would be liable if the check was lost due to an address change. MR. DICK pointed out that the quarterly payment would only be allowed for direct deposit checks. 10:22:54 AM REPRESENTATIVE GRUENBERG, regarding garnished checks, asked about intervening creditors. MR. DICK answered, "We would pull those persons out of that direct deposit quarterly option stream, wherever they are in that stream. If there's a garnishment against the record, we would process the garnishment record in whole and take the balance [to send to the applicant]." 10:23:51 AM REPRESENTATIVE GRUENBERG said that normally a garnishment order is continued until satisfied or terminated. He asked if a garnishment order would stay through the whole four quarters. MR. DICK responded, "When we'd process the dividend, we would honor that garnishment in whole and it wouldn't continue on." He confirmed that the creditor wouldn't have to wait until the following quarters to receive the money. 10:25:02 AM CHAIR SEATON asked what kind of cost effects monthly PFD payments would have on the division. MR. DICK stated concern regarding a monthly payment. He said the division could do it, but it is already involved in different processes, which would have to be interrupted 12 times a year in order to go through a direct deposit distribution, including getting paperwork out to the applicants and involving an accounting reconciliation process. 10:26:10 AM CHAIR SEATON stated his understanding that once the information is in the system, the system automatically cuts a check, whether it happens monthly or quarterly. He commented that he would like to see an analysis of the proposed program. In comparing the proposed program to the longevity bonus, he remarked that people can count on monthly checks, whereas he isn't certain people "count on things quarterly." MR. DICK said he would do that analysis. 10:27:10 AM REPRESENTATIVE GATTO turned to the division's annual report and pointed out what he perceived to be a misprint. He then asked if the cost of the program is borne by the division or by the state. He offered his understanding that the interest gained by holding the money goes to the state. MR. DICK replied that the cost of the program is through appropriation to the PFD program in annual appropriation. The interest on the remaining quarterly payments would go to the general fund. 10:29:04 AM REPRESENTATIVE RAMRAS turned to page 29 of the division's annual report and pointed out that about 1 percent of the PFD applicants opt into the university savings program. He asked Mr. Dick what the division's perspective is on this program. MR. DICK replied that he thinks it's a positive program, and he hasn't heard any complaints about it. 10:30:00 AM MR. DICK, in response to a question from Representative Ramras, confirmed that the university savings program is an annual optional program. 10:30:33 AM CHAIR SEATON asked for further clarification regarding taxes on PFD income. MR. DICK reiterated that the full amount of the dividend is taxed for that year. CHAIR SEATON restated that he would like the permanent fund division to submit an analysis of monthly versus quarterly payments. 10:32:00 AM REPRESENTATIVE GARDNER remarked that a middle-income person would be better off getting the whole PFD check in October and using it to buy a 90-day, 120-day, and 180-day bond. REPRESENTATIVE RAMRAS responded: Wouldn't it be great to get your per diem ... for working down here [in Juneau], all on January 10, and then budget it out? Or for that matter to get your annual paycheck and to get it in one single payment? The idea is just to provide another option, insofar as we look at the [PFD]. It is a very one dimensional product right now, and I think that it would behoove all Alaskans to look at it as a more dynamic vehicle for us. And frankly, people as a whole, ... we're lazy. We don't demonstrate good savings habits. 10:34:11 AM CHAIR SEATON asked what the monthly income is for a household of four that would fall under the public assistance program. MR. DICK answered that he is not familiar with the public assistance program. CHAIR SEATON asked the sponsor to find that information out. 10:35:32 AM REPRESENTATIVE RAMRAS said he would be willing to have the committee hold the bill so that he could get those answers. REPRESENTATIVE LYNN asked if these issues could be dealt with in the next committee [of referral]. CHAIR SEATON replied that would be fine. 10:36:09 AM REPRESENTATIVE GATTO presented a scenario in which the PFD program was originally set up to be a quarterly paying system and then it was proposed that the checks be cut just once a year. Representative Gatto asked Representative Ramras, "Would you oppose it based on the fact that there are some people that might waste this money and buy things that would cause them to get in deeper debt? Or would you support that this one payment year sounds like a pretty good idea?" REPRESENTATIVE RAMRAS replied that the word "waste" is not the word he's interested in, but the word "hopeful" is. He again referred to the proposal as a household budgeting tool. He noted that 98 or 99 percent of Alaskans will continue to receive the annual checks. He stated, "It simply puts another option on the table that doesn't cost the state anything, and the participant simply foregoes the opportunity cost of having saved it into a CD, and has lost the interest...." 10:37:35 AM REPRESENTATIVE ELKINS moved to report HB 186 out of committee with individual recommendations and the accompanying fiscal notes. There being no objections, HB 186 was reported out of the House State Affairs Standing Committee.
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