Legislature(2003 - 2004)
04/06/2004 08:01 AM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 547-PFD: DELAY PAYMENT FOR ALLOWABLE ABSENCES Number 0147 CHAIR WEYHRAUCH announced that the first order of business would be HOUSE BILL NO. 547, "An Act relating to the dividends of individuals claiming allowable absences; and providing for an effective date." Number 0160 REPRESENTATIVE SEATON referred to a [two-page chart] listing allowable absences from the years 1999 to 2003 [included in the committee packet]. He noted some of the amounts of absences on the chart, for categories such as "accompanied," "enrolled college," "active duty," and "medical." In response to a question from Chair Weyhrauch, he confirmed that the chart was prepared by the [Permanent Fund Dividend] Division. Number 0245 REPRESENTATIVE SEATON moved to adopt HB 547 as a work draft. CHAIR WEYHRAUCH objected for discussion purposes. Number 0265 SHARON BARTON, Director, Central Office, Permanent Fund Dividend Division, Department of Revenue (DOR), offered a brief overview of the previously mentioned chart. She noted that the chart is an initial response to a request from the committee to see a breakdown in the numbers involved in the allowable absences. She reminded the committee that it had requested information regarding "behavior patterns beyond that," including how long people are staying out [of Alaska] and whether or not they are returning. She explained that the division has that information stored, but because of the age of its computers, it would be labor intensive to retrieve the information. Notwithstanding that, she said the division would carry out the committee's request "if it ends up being pivotal ... to decision-making here." Number 0388 REPRESENTATIVE SEATON offered his understanding that the request had been for the division to take the applications at "six years and ten years," and follow those applications to see if the allowable absences ended with a permanent fund granted without allowable absences or [if they were] terminated. MS. BARTON confirmed that was true, but clarified that is what would be "terribly labor intensive for us to dig out for you." She illustrated that it would mean taking staff away from important work in order to complete this request. REPRESENTATIVE SEATON asked if following a single year instead of two years would cut the work in half. MS. BARTON answered that it wouldn't matter. She specified that it's a matter of asking the computer to track each individual applicant through some 12 million records, using an inefficient system. Manual effort would be used to program each individual [search]. She clarified, "So, it doesn't really matter how far back we go; once we get into each individual record, [we] can go back as far as that record goes." Number 0505 REPRESENTATIVE HOLM noted [on the chart] that in 1999, only two people were listed under the category of "secondary education," and since then there have been close to 1,000. He asked what caused the change. MS. BARTON answered that she suspects that's an error in the data. Number 0569 CHAIR WEYHRAUCH closed public testimony on HB 547. REPRESENTATIVE SEATON asked Ms. Barton if the fiscal note is accurate, or if the division would be filing a more detailed one. MS. BARTON confirmed that more work needs to be done on the fiscal note because the one before the committee was done quickly for the last hearing. Number 0608 REPRESENTATIVE HOLM said it bothered him that approximately $7 million is being given away and Ms. Barton had said that the division has an inefficient computer system with which to work. MS. BARTON said she thinks the inefficiency is a result of different pieces of [the computer system] being built at various times and not working well together. She indicated that the division has submitted a request for funds to change the system to a more cohesive one. She offered details. REPRESENTATIVE HOLM asked how the processing of permanent fund dividend (PFD) checks is paid for. MS. BARTON replied that the division's operations are fully funded out of the PFD fund. In response to another question, she relayed that updating the division's computer system is now the department's number one priority, as well as her own. Number 0860 CHAIR WEYHRAUCH offered his understanding that "this assumes a $50,000 expenditure ... in 2005." He noted that the fiscal note does not clarify "what that would be going for." MS. BARTON confirmed that is the assumption and explained that it was the staff's quick estimate at the programming costs if the research was handled as a special project - a one-time event. She explained that the division is working on what the cost would be "if we weave it in to this upgrade we're doing right now." She added, "We believe we can hone it down from the $50,000." CHAIR WEYHRAUCH asked if one possible impact of passage of HB 527 would be a decline in the applications and payments, and if that would be reflected in the fiscal note. MS. BARTON surmised that there would be an indeterminate amount of people who, because of the bill, would be discouraged from filling out an application for a PFD because they know that they will not be coming back to Alaska. Out of the 625,000 applications received every year, she said, the division probably won't notice a change in workload. CHAIR WEYHRAUCH asked what kind of authorization the division would need to print on the checks the total amount of PFD checks that are mailed to out-of-state addresses. MS. BARTON responded that the division could do that as a matter of procedural policy; it does not need statutory authority to do so. The [lack of] room on the check would be a limiting factor, although the division could find room. Number 1006 REPRESENTATIVE SEATON noted that there is a discrepancy between the number of checks mailed and the amount of money sent [out of state], and asked why. MS. BARTON answered that some of the people who would have applied for the allowable absence PFD check would have returned to Alaska and received the check at their home address. She confirmed that another reason could be that they are students and the check was mailed to their parents' Alaska address. Number 1061 REPRESENTATIVE COGHILL, regarding checks that are mailed out [of state], asked how the division is presently set up to discover fraudulent applications. MS. BARTON answered that the division has just reorganized its "fraud unit" and has reestablished working relationships with fraud enforcement people across the state, as well as with the federal government. She revealed that the division is probably most successful discovering fraud through tips from the public. She stated that the division gets hundreds of tips from the public and investigates each one. Additionally, the division performs focused audits. For example, all applications with an out-of-state postmark are audited, as well as those applications submitted by people who have refused jury duty because they claimed not to be residents of the state. Ms. Barton reported the findings of the fraud investigator for the past year. She noted that the office of the inspector general in Seattle, Washington, has agreed to take all of the division's identity theft cases, of which there are presently three. Number 1217 REPRESENTATIVE COGHILL said he is trying to decide: "Is this huge policy call worth the effort of those very, very few?" Number 1250 CHAIR WEYHRAUCH asked if the identity theft arose from electronically generated applications, or paper [applications]. MS. BARTON answered she doesn't have that information. Number 1330 CHAIR WEYHRAUCH turned attention to [Section 1, subsection (a)] of the bill, which read as follows: *Section 1. AS 43.23 is amended by adding a new section to read: Sec. 43.23.009. Dividends of individuals with allowable absences. (a) Notwithstanding other provisions regarding payment of dividends, the dividend of an individual who was absent from the state during the qualifying year as allowed in AS 43.23.008(a)(1)-(8) or (10)-(13) shall be paid to that individual on the first subsequent year that the individual is eligible for a dividend without claiming an allowable absence under AS 43.23.008(a)(1)-(8) or (10)-(13). A dividend that has not become payable under this subsection may not be paid under AS 43.23.005(h). CHAIR WEYHRAUCH - noting that currently, [paragraph (9)] of AS 43.23.008(a) pertains to members of the United States Congress - brought attention to a possible Amendment 1, to insert [existing paragraph (9) of statute] in Section 1, thus having the bill apply to paragraphs (1)-(13) of the current statute. Chair Weyhrauch explained that he thinks it would be unfair to treat members of the U.S. Congress differently. REPRESENTATIVE GRUENBERG stated opposition to Amendment 1. He indicated that he had been on a naval ship and he considers that part of the United States. He said he thinks an Alaskan congressman's turf in Washington, D.C., is part of the state of Alaska. REPRESENTATIVE SEATON noted that he has received 17 e-mails that have raised concerns about the bill, and 15 e-mails that were in favor of it. One of the e-mails in support expressed the point of view that everyone should be treated equally. Number 1448 CHAIR WEYHRAUCH stated he understands Representative Gruenberg's point, but thinks of this issue as a policy statement and thus looks at the definition of what would be considered part of the state a little more tightly. He said, "It looks fair, to me, to treat them like everybody else, including those who have to care for a dying family member or going to school or the military; once they come back, they'll receive a large payment of dividends that indicate their leave out of the state." REPRESENTATIVE GRUENBERG responded that [members of the U.S. Congress] represent the state; they don't just represent one person, as in the case of someone caring for a relative. He offered more examples. He said, "Frankly, I don't think any of us do as much for the state as our congressional delegation does, and I think it's just as symbolic to give them the dividend, even if you don't give it to anybody else." Number 1533 REPRESENTATIVE SEATON pointed out that, currently, the bill does not include congressional "staffers" for exemptions. REPRESENTATIVE GRUENBERG said the only people exempted in the bill are the three members of U.S. Congress, and "they're the people who push the button on the floor (indisc. - voice faded out)." Number 1579 REPRESENTATIVE COGHILL commented that given the longevity of Alaska's congressional delegation, its members may never get [the PFD]. REPRESENTATIVE HOLM remarked that "you could argue this on both sides." Number 1600 CHAIR WEYHRAUCH withdrew Amendment 1. REPRESENTATIVE SEATON emphasized that the proposed legislation is not so much concentrated on fraud as it is on offering an incentive for people to return from outside the state. He indicated that the system is the creation of the state and there is nothing inherently right or wrong about it; the state just needs to figure out how it wants to run the system. He indicated that most of the comments sent in opposition to the bill were [from those in] the military or college students. He said the comments from the military seemed to be a misinterpretation that the dividends would be cut off. Representative Seaton emphasized that's not the intent of the bill. Conversely, the bill just states that if a person who is out of the state qualifies for the dividend, he/she will get the dividends upon his/her return to the state. He pointed out that several [e-mails] from people in the military state support of that concept. Number 1729 REPRESENTATIVE HOLM noted that in Fairbanks, military people don't have to get a state license plate, but they receive a PFD. He stated that he finds it bizarre that "we would allow that to happen." He characterized the bill as "an interesting differential," and applauded Representative Seaton for taking it on; however, he stated that he is not convinced that it's the right program to have for Alaska. He said he thinks it [sends] a bad message that people somehow deserve a "welfare check" just for being citizens of Alaska." REPRESENTATIVE SEATON referred to a memorandum from Legislative Legal and Research Services [included in the committee packet], and said Legislative Legal and Research Services was asked to address the issues regarding due process and equal protection. He focused attention on the end of the first paragraph on the second page of the memorandum showing examples of cases in which a regulation permitting absences from Alaska - if the absence was no longer than the time physically present in the state - was upheld. He added, "But apparently that's no longer in effect." Number 1856 REPRESENTATIVE GRUENBERG offered his understanding that that referred to the 180-day provision - that a person cannot be out of the state for over half of the year - but added that he is not certain of that. MS. BARTON, regarding the length of time for an allowable absence not exceeding the time a person is a resident in the state, said she doesn't know if that was ever a regulation, but it is not one now. She continued as follows: I know in looking at these extended absences at the five-year point where we do review them more carefully, we certainly look at that as one factor. ... If they were only a resident of the state for 18 months and have been gone for five years, they need to have done many of the other due-diligent kinds of things to establish residency and their intent to return. Number 1926 REPRESENTATIVE HOLM said he would be interested in finding out what the results would be of getting a second fraud investigator. He noted that the provisions on the PFD are rather specific as to what the penalties are "if some things happen." He asked whether any of the checks sent to fraudulent applicants were recovered. MS. BARTON replied that the division goes after the money, though, in some cases, it doesn't press criminal charges if the money is paid back, but the person loses the next five dividends. She indicated that it is a little more difficult to retrieve money from those who are out-of-state. She added, "And, of course, to penalize them for five subsequent dividends doesn't mean a thing." Number 1991 REPRESENTATIVE GRUENBERG read the numbers, from 1999 to 2003, in the active duty category of the chart. He asked if the increase was also consistent prior to 1999. MS. BARTON answered that she doesn't know, but offered to research it. REPRESENTATIVE GRUENBERG stated his assumption that, with the exception of 2001 to 2002, the accompanied category has "pretty steadily increased, as well." He stated his assumption that "that reflects those folks who are accompanying military folks." MS. BARTON stated that category is mainly made up of military spouses and families, although it also includes spouses and families of students and of someone out of the state for medical treatment. In response to a follow-up question from Representative Gruenberg, she stated that she doesn't know how many active duty military people are in Alaska at any given time. Number 2068 REPRESENTATIVE SEATON referred to e-mails in the committee packet. He indicated that some of the e-mails expressed opposition to the fact that college students and others who's PFDs were being held would not be earning interest on those dividends. He shared that another e-mail was in support of the bill because many high school students choose to turn down free tuition [to Alaska's University system] in order to attend colleges out-of-state and so they should also wait for their PFD checks until they return; however, the students should receive a reasonable amount of interest on those checks. Representative Seaton explained that he just wanted it on the record that those comments had been received by e-mail. REPRESENTATIVE SEATON noted that some people had expressed that college students often don't receive a lot of income, and those people suggested a shorter time period, for example, a "four- year grace." Number 2154 CHAIR WEYHRAUCH removed his objection [to the previous motion to adopt HB 547 as a work draft]. REPRESENTATIVE LYNN objected. He stated that he thinks the intent of the bill is good, but doesn't think the military needs "this kind of hassle." He noted that [those in the military] go where they are ordered, and "they take Alaska with them when they go somewhere else." He commented that there are many students who are not born with a silver spoon in their mouths and can use every dollar they can get. He stated that although he knows it is not the intent of the sponsor, "we're inferring that the military and students tend to be cheats, more than the rest of the population." He said he thinks these kinds of things need to be investigated on a case-by-case basis. He concluded, "We need to protect the PFD - it's our obligation to do so - but I'm afraid that this bill throws the baby out with the bathwater, and I cannot support it." Number 2246 REPRESENTATIVE SEATON responded, "This is a system that the legislature designed to allow extraordinary absences," noting that the conditions that are placed on those extraordinary absences are for the legislature to decide. He continued as follows: It doesn't mean that anybody is cheating; it just means that we are designing a system that pays people to be outside. And if that is our intention, to pay people to be gone from the state, that is sometimes the outcome of what the system has crept to. And that is the entire purpose of the bill, to give people a reason to become and remain ... physical residents at the end of their extended allowable absence. ... And so there is no intent and there is no action saying that the people that are receiving extended absences that we allow are in any way cheats. So, I want that really clear. Fraud is something that is totally different than a system that we create that allows people to be paid to be gone from the state. REPRESENTATIVE LYNN said he understands, but stated that the gist of his previous remarks remains. Number 2314 REPRESENTATIVE GRUENBERG directed the committee's attention to page 3, lines 2-5, which read as follows: (c) Notwithstanding other provisions, a dividend that has not become payable to an individual under (a) of this section is not subject to levy, execution, garnishment, attachment, or any other remedy for the collection of debt until that dividend becomes payable or is paid to the individual. REPRESENTATIVE GRUENBERG said if he were a bankruptcy-planning attorney, he might want to use that language to protect somebody who doesn't have a lot of assets but has a fair amount tied up in dividends. TAPE 04-54, SIDE B Number 2343 REPRESENTATIVE GRUENBERG continued as follows: That can be utilized to sequester funds from creditors, in a (indisc.) planning situation, like I would be if I were a JAG [Judge Advocate General] lawyer advising military who have some debts and are about to be transferred from the state. It could sequester a fair amount of money from Alaska creditors. And I haven't really thought about how to deal with that. But if somebody could be gone for 5, 10, [or] 15 years, that could be $15,000, ultimately, that's sequestered from creditors. REPRESENTATIVE SEATON clarified that it wouldn't be somebody leaving the state, because he/she doesn't have any future credit for dividends; therefore, it would only be somebody who has left the state and has had allowable absences, and was not in Alaska for an extended period of time, but then declared bankruptcy or something else outside of the state. REPRESENTATIVE GRUENBERG concurred. Number 2292 REPRESENTATIVE COGHILL noted that what first appealed to him regarding the bill was "the draw to bring people back into Alaska to receive their benefit"; however, the more he thought about the practical "outplay" of the bill, the more problems he had with it. He said he appreciates Representative Lynn's comments. He stated that the check distribution would almost become "a banking of sorts," where money has to be held in account for people. He indicated that he is not certain whether he wants that [additional work] given to the [division]. He suggested that the intended consequences may be getting outweighed by the unintended consequences. He also mentioned that there might be an inherent unfairness. He noted that less than 5 percent of [Alaska's] overall population has been outside of the state with allowable absences. He estimated that about 1-2 percent may be military. He stated that he knows there is fraud, but said he doesn't know that it would be worth "having a big bureaucratic system and delayed recipients for all that." REPRESENTATIVE LYNN said Alaska has no problem attracting military to the state with or without "this program." REPRESENTATIVE SEATON offered his understanding that the division already had an accounting system for holding checks. MS. BARTON stated that the division currently has to account for 18-year-old filers [whose parents or guardians did not file for their PFDs] and for estates [where someone has died]. She said she doesn't think [HB 547] will create a huge accounting burden. She explained that the applications will be processed and pended, so in any given year, the division will know what the possible liability is and those funds will be retained in the fund until such time as they can be released. MS. BARTON, responding to previous remarks regarding possible interest on [the withheld dividend] monies, said the division would have to think through the process she just described differently if interest were a part of the equation. Number 2053 REPRESENTATIVE GRUENBERG offered his understanding that as the bill is currently written, the interest would remain with the fund. MS. BARTON said that's correct. In response to a follow-up question from Representative Gruenberg, she said she did not know how much that would be per year, but offered to research that. REPRESENTATIVE LYNN said, "It would seem to me that if we were ... paying interest on money being withheld, this interest would belong to the person that this money would eventually belong to when they return to the state, rather than to the state. You'd be getting interest on somebody else's money - a pretty good deal." Number 2018 CHAIR WEYHRAUCH said, "All right, there's a motion on HB 547 and an objection." [Although the motion pending was whether to adopt HB 547 as a work draft, the committee treated the following roll call vote as if it pertained to a motion to move the bill from committee.] A roll call vote was taken. Representatives Gruenberg, Holm, Seaton, and Weyhrauch voted in favor of HB 547. Representatives Coghill and Lynn voted against it. Therefore, HB 547 was reported out of the House State Affairs Standing Committee by a vote of 4-2.
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