Legislature(1997 - 1998)

04/23/1997 01:00 PM House JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                HOUSE JUDICIARY STANDING COMMITTEE                             
                          April 23, 1997                                       
                             1:00 p.m.                                         
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Joe Green, Chairman                                            
 Representative Con Bunde, Vice Chairman                                       
 Representative Brian Porter                                                   
 Representative Norman Rokeberg                                                
 Representative Jeannette James                                                
 Representative Eric Croft                                                     
 Representative Ethan Berkowitz                                                
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 SENATE BILL NO. 19 am                                                         
 "An Act relating to enforcement of federal laws relating to fish              
 and game; and repealing the power and duty of the commissioner of             
 fish and game to assist in the enforcement of federal laws relating           
 to fish and game."                                                            
                                                                               
      - MOVED HCS SB 19(RES) OUT OF COMMITTEE                                  
                                                                               
 HOUSE JOINT RESOLUTION NO. 25                                                 
 Proposing amendments to the Constitution of the State of Alaska to            
 guarantee the permanent fund dividend, to provide for                         
 inflation-proofing, and to require a vote of the people before                
 spending undistributed income from the earnings reserve of the                
 permanent fund; and relating to the permanent fund.                           
                                                                               
      - HEARD AND HELD; SCHEDULED EXECUTIVE SESSION                            
                                                                               
 HOUSE BILL NO. 199                                                            
 "An Act relating to the property, transactions, and obligations of            
 spouses; relating to the augmented estate; amending Rule 301,                 
 Alaska Rules of Evidence; and providing for an effective date."               
                                                                               
      - HEARD AND HELD                                                         
                                                                               
 * HOUSE BILL NO. 163                                                          
 "An Act relating to designating gamma-Hydroxybutyrate as a schedule           
 IVA controlled substance; and providing for an effective date."               
                                                                               
      - SCHEDULED BUT NOT HEARD                                                
                                                                               
 * HOUSE BILL NO. 234                                                          
 "An Act relating to assistance for abortions under the general                
 relief program; and relating to financial responsibility for the              
 costs of abortions."                                                          
                                                                               
      - SCHEDULED BUT NOT HEARD                                                
                                                                               
 * HOUSE BILL NO. 196                                                          
 "An Act relating to wills, intestacy, nonprobate transfers, and               
 trusts; and amending Rule 24, Alaska Rules of Civil Procedure."               
                                                                               
      - BILL CANCELLED                                                         
                                                                               
 (* First public hearing)                                                      
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  SB 19                                                                  
 SHORT TITLE: REPEAL FED ENFORCEMENT DUTIES/F&G COMSNR                         
 SPONSOR(S): SENATOR(S) SHARP, Taylor, Donley                                  
                                                                               
 JRN-DATE      JRN-PG                 ACTION                                   
 01/03/97        19    (S)   PREFILE RELEASED 1/3/97                           
 01/13/97        19    (S)   READ THE FIRST TIME - REFERRAL(S)                 
 01/13/97        19    (S)   RES, JUD                                          
 02/05/97              (S)   RES AT 3:30 PM BUTROVICH ROOM 205                 
 02/05/97              (S)   MINUTE(RES)                                       
 02/06/97       247    (S)   RES RPT  6DP 1NR                                  
 02/06/97       247    (S)   DP: HALFORD, TAYLOR, TORGERSON,                   
 02/06/97       247    (S)   LEMAN, GREEN, SHARP; NR: LINCOLN                  
 02/06/97       247    (S)   ZERO FISCAL NOTE (DPS)                            
 02/19/97              (S)   JUD AT 1:30 PM BELTZ ROOM 211                     
 02/19/97              (S)   MINUTE(JUD)                                       
 02/20/97       428    (S)   JUD RPT  3DP                                      
 02/20/97       428    (S)   DP:  TAYLOR, PARNELL, PEARCE                      
 02/20/97       428    (S)   PREVIOUS ZERO FN (DPS)                            
 02/21/97              (S)   RLS AT 10:45 AM FAHRENKAMP RM 203                 
 02/21/97              (S)   MINUTE(RLS)                                       
 02/24/97       469    (S)   RULES TO CALENDAR & 1NR    2/24/97                
 02/24/97       473    (S)   READ THE SECOND TIME                              
 02/24/97       473    (S)   AM NO  1     OFFERED BY SHARP                     
 02/24/97       473    (S)   AM NO  1     ADOPTED Y14 N5 A1                    
 02/24/97       474    (S)   ADVANCED TO THIRD READING                         
                             UNAN CONSENT                                      
 02/24/97       474    (S)   READ THE THIRD TIME  SB 19 AM                     
 02/24/97       474    (S)   COSPONSOR(S): DONLEY                              
 02/24/97       475    (S)   PASSED Y15 N4 A1                                  
 02/24/97       475    (S)   ADAMS  NOTICE OF RECONSIDERATION                  
 02/25/97       502    (S)   RECONSIDERATION NOT TAKEN UP                      
 02/25/97       502    (S)   TRANSMITTED TO (H)                                
 02/26/97       478    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/26/97       478    (H)   RESOURCES, JUDICIARY                              
 04/10/97              (H)   RES AT 1:00 PM CAPITOL 124                        
 04/10/97              (H)   MINUTE(RES)                                       
 04/17/97              (H)   MINUTE(RES)                                       
 04/18/97      1167    (H)   RES RPT HCS(RES) 2DP 4NR                          
 04/18/97      1168    (H)   DP: DYSON, OGAN                                   
 04/18/97      1168    (H)   NR: WILLIAMS, GREEN, MASEK, HUDSON                
 04/18/97      1168    (H)   SENATE ZERO FISCAL NOTE (DPS)2/6/97               
 04/21/97              (H)   JUD AT 1:45 PM CAPITOL 120                        
 04/21/97              (H)   MINUTE(JUD)                                       
 04/23/97              (H)   JUD AT 1:00 PM CAPITOL 120                        
                                                                               
 BILL:  HJR 25                                                                 
 SHORT TITLE: CONST. AM: PERM. FUND INCOME & DIVIDEND                          
 SPONSOR(S): REPRESENTATIVE(S) AUSTERMAN                                       
                                                                               
 JRN-DATE      JRN-PG                 ACTION                                   
 02/26/97       483    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/26/97       483    (H)   STATE AFFAIRS, JUDICIARY, FINANCE                 
 03/11/97              (H)   STA AT 8:00 AM CAPITOL 102                        
 03/11/97              (H)   MINUTE(STA)                                       
 03/13/97              (H)   STA AT 8:00 AM CAPITOL 102                        
 03/13/97              (H)   MINUTE(STA)                                       
 03/15/97              (H)   STA AT 11:00 AM CAPITOL 102                       
 03/15/97              (H)   MINUTE(STA)                                       
 03/17/97       688    (H)   STA RPT  CS(STA) 3DP 4NR                          
 03/17/97       689    (H)   DP: JAMES, HODGINS, DYSON                         
 03/17/97       689    (H)   NR: ELTON, BERKOWITZ, VEZEY, IVAN                 
 03/17/97       689    (H)   FISCAL NOTE (GOV)                                 
 03/17/97       689    (H)   ZERO FISCAL NOTE (REV)                            
 03/17/97       689    (H)   REFERRED TO JUDICIARY                             
 03/21/97       789    (H)   CORRECTED STA CS SUBMITTED                        
 04/21/97              (H)   JUD AT 1:45 PM CAPITOL 120                        
 04/21/97              (H)   MINUTE(JUD)                                       
 04/23/97              (H)   JUD AT 1:00 PM CAPITOL 120                        
                                                                               
 BILL:  HB 199                                                                 
 SHORT TITLE: COMMUNITY PROPERTY                                               
 SPONSOR(S): REPRESENTATIVE(S) RYAN, Therriault                                
                                                                               
 JRN-DATE      JRN-PG                 ACTION                                   
 03/18/97       736    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 03/18/97       737    (H)   L&C, JUDICIARY                                    
 04/18/97              (H)   L&C AT 3:15 PM CAPITOL 17                         
 04/18/97              (H)   MINUTE(L&C)                                       
 04/21/97      1211    (H)   L&C RPT  3DP 1NR                                  
 04/21/97      1211    (H)   DP: RYAN, HUDSON, COWDERY                         
 04/21/97      1211    (H)   NR: BRICE                                         
 04/21/97      1212    (H)   2 ZERO FISCAL NOTES (COURT, DCED)                 
 04/23/97              (H)   JUD AT 1:00 PM CAPITOL 120                        
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 JOSEPHINE HARDY, Legislative Secretary                                        
    to Senator Bert Sharp                                                      
 Alaska State Legislature                                                      
 Capitol Building, Room 516                                                    
 Juneau, Alaska  99801                                                         
 Telephone:  (907) 465-3004                                                    
 POSITION STATEMENT:  Presented sponsor statement for HCS SB
                      19(RES).                                                 
                                                                               
 DALE BONDURANT                                                                
 HC 1, Box 1197                                                                
 Soldotna, Alaska  99669                                                       
 Telephone:  (907) 262-0818                                                    
 POSITION STATEMENT:  Testified on HCS SB 19(RES).                             
                                                                               
 JOHN GLASS, Colonel, Director                                                 
 Division of Fish and Wildlife Protection                                      
 Department of Public Safety                                                   
 5700 East Tudor Road                                                          
 Anchorage, Alaska  99507-1225                                                 
 Telephone:  (907) 269-5509                                                    
 POSITION STATEMENT:  Provided department's position and answered              
                      questions regarding HCS SB 19(RES).                      
                                                                               
 CLIFF STONE, Legislative Assistant                                            
    to Representative Alan Austerman                                           
 Alaska State Legislature                                                      
 Capitol Building, Room 434                                                    
 Juneau, Alaska  99801                                                         
 Telephone:  (907) 465-2487                                                    
 POSITION STATEMENT:  Presented sponsor statement for HJR 25.                  
                                                                               
 REPRESENTATIVE JOE RYAN                                                       
 Alaska State Legislature                                                      
 Capitol Building, Room 420                                                    
 Juneau, Alaska  99801                                                         
 Telephone:  (907) 465-3875                                                    
 POSITION STATEMENT:  Sponsor of HB 199.                                       
                                                                               
 RICHARD S. THWAITES, JR., Attorney at Law                                     
 Law Offices of Richard S. Thwaites, Jr.                                       
 500 L Street, Suite 301                                                       
 Anchorage, Alaska  99501                                                      
 Telephone:  (907) 277-1595                                                    
 POSITION STATEMENT:  Testified in support of HB 199.                          
                                                                               
 JONATHAN BLATTMACHR, Partner                                                  
 Milbank, Tweed, Hadley and McCloy                                             
 One Chase Manhattan Plaza                                                     
 New York City, New York  10005                                                
 Telephone:  (212) 530-5066                                                    
 POSITION STATEMENT:  Testified in support of HB 199.                          
                                                                               
 RICHARD W. HOMPESCH II, Attorney at Law                                       
 Hompesch and Associates, PC                                                   
 Denali Financial Center                                                       
 119 North Cushman Street, Suite 400                                           
 Fairbanks, Alaska  99701                                                      
 Telephone:  (907) 452-1700                                                    
 POSITION STATEMENT:  Testified in support of HB 199.                          
                                                                               
 LINDA HULBERT, Insurance Agent                                                
 110 Cushman Street                                                            
 Fairbanks, Alaska  99701                                                      
 Telephone:  (907) 452-4400                                                    
 POSITION STATEMENT:  Testified in support of HB 199.                          
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 97-61, SIDE A                                                            
 Number 0001                                                                   
                                                                               
 CHAIRMAN JOE GREEN called the House Judiciary Standing Committee              
 meeting to order at 1:00 p.m.  Members present at the call to order           
 were Representatives Green, Bunde, Porter and Rokeberg.                       
 Representatives Croft, Berkowitz and James arrived at 1:05 p.m.,              
 1:06 p.m. and 1:15 p.m., respectively.                                        
                                                                               
 SB 19 am - REPEAL FED ENFORCEMENT DUTIES/F&G COMSNR                           
                                                                               
 CHAIRMAN GREEN announced the first item of business was Senate Bill           
 No. 19 am, "An Act relating to enforcement of federal laws relating           
 to fish and game; and repealing the power and duty of the                     
 commissioner of fish and game to assist in the enforcement of                 
 federal laws relating to fish and game."  A brief sponsor statement           
 had been presented on April 21, 1997.                                         
                                                                               
 JOSEPHINE HARDY, Legislative Secretary to Senator Bert Sharp,                 
 presented the same sponsor statement given April 21.                          
                                                                               
 Number 0130                                                                   
                                                                               
 REPRESENTATIVE CON BUNDE asked whether Ms. Hardy was addressing the           
 committee substitute passed out of the House Resources Standing               
 Committee.                                                                    
                                                                               
 MS. HARDY said yes.  She advised members that back-up materials in            
 committee packets from the Department of Law and the Department of            
 Public Safety should be disregarded.  Those addressed concerns                
 about a previous version of the bill.                                         
                                                                               
 Number 0208                                                                   
                                                                               
 CHAIRMAN GREEN asked:  If this action is taken, does Senator Sharp            
 feel this will adversely affect reciprocity with the federal                  
 government relating to their looking after the state's interests in           
 other areas?                                                                  
                                                                               
 MS. HARDY said the state has usually helped past the three-mile               
 limit, for example; that would not change.  In other areas, taking            
 away this mandate will do no harm in working with the federal                 
 government.  It will simply give the commissioner discretion.                 
                                                                               
 Number 0295                                                                   
                                                                               
 CHAIRMAN GREEN said his concern was more than the three-mile limit.           
 The state scratches the federal government's back in certain areas,           
 which the federal government reciprocates elsewhere.  He asked                
 whether the sponsor had considered that this could irritate the               
 federal government into refusing to assist the state.                         
                                                                               
 Number 0340                                                                   
                                                                               
 MS. HARDY replied that eliminating this statute does not mean there           
 will be no assistance by the state.  That is only when state and              
 federal laws are in conflict.                                                 
                                                                               
 Number 0365                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked Representative Porter, "If a sworn                 
 officer in fish and game observes a federal violation of fish and             
 game laws, isn't he, by his oath of office, duty-bound to act on              
 that observation?"                                                            
                                                                               
 REPRESENTATIVE BRIAN PORTER replied that the officer would be                 
 empowered to do so.  However, policy can be set by the                        
 commissioner.  Noting that both the Department of Law and the                 
 Department of Public Safety had expressed problems with the bill,             
 he asked whether representatives from those departments were                  
 present.                                                                      
                                                                               
 CHAIRMAN GREEN advised members that Colonel Glass had not yet                 
 joined the teleconference.                                                    
                                                                               
 REPRESENTATIVE PORTER stated his understanding that the bill, by              
 deletion of this provision to return to common law, would allow a             
 state officer to enforce federal law if policy, time and                      
 circumstance required it.  Federal fish and game enforcement                  
 officers and state Division of Fish and Wildlife Enforcement                  
 officers get agreements throughout the state, informal and formal,            
 regarding mutual assistance; they often come to each other's aid in           
 the field.  Representative Porter assumed it was not the intent of            
 the sponsor to interfere with those kinds of safety issues.                   
                                                                               
                                                                               
 Number 0509                                                                   
                                                                               
 MS. HARDY explained that although both departments had problems               
 with a previous version of the bill, those concerns had been                  
 satisfied through HCS SB 19(RES).  Repealing the mandate simply               
 gives discretion to the commissioner in allowing the department to            
 enter into agreements, memoranda of understanding and enforcement             
 protocols.  It removes the "hammer" if the department does not feel           
 comfortable or appropriate in assisting.                                      
                                                                               
 Number 0555                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked whether this would preclude a state                
 enforcement officer from charging someone under a federal statute.            
 He noted that sometimes federal penalties are greater than the                
 state's, and it is possible to charge someone with violation of the           
 Lacey Act, which he understands to have no statute of limitations.            
                                                                               
 MS. HARDY said the answer would be no.                                        
                                                                               
 Number 0623                                                                   
                                                                               
 REPRESENTATIVE ERIC CROFT read from AS 16.05.050, which says, "The            
 commissioner has, but not by way of limitation, the following                 
 powers and duties".  He stated his understanding that they were               
 taking away the duty but not the power.                                       
                                                                               
 CHAIRMAN GREEN agreed.  He indicated that he questioned whether by            
 removing that duty, they were also removing the power; but he noted           
 that apparently the sponsor's representative was saying no.  He               
 then asked whether this removed power from the ADF&G and whether              
 if, in their normal, routine duties, ADF&G personnel find a                   
 violator, they can still act if they so wish.                                 
                                                                               
 REPRESENTATIVE PORTER pointed out that the Department of Fish and             
 Game (ADF&G) contains biologists, whereas the Division of Wildlife            
 Protection enforces fish and game laws and regulations.  He said              
 fish and game enforcement officers work for the federal government.           
 He acknowledged it is confusing.                                              
                                                                               
 REPRESENTATIVE BUNDE stated that he needed to have questions                  
 answered by Colonel Glass.                                                    
                                                                               
 Number 0760                                                                   
                                                                               
 REPRESENTATIVE ETHAN BERKOWITZ said he saw nothing in his packet              
 regarding what the Department of Law thinks of this.  In                      
 particular, he wanted to know the district attorneys' opinions.               
                                                                               
 MS. HARDY stated that the Department of Law's concerns have been              
 satisfied with the current version of the bill.                               
                                                                               
 REPRESENTATIVE BERKOWITZ said he was concerned about the Criminal             
 Division's response.  He asked whether they had addressed this.               
                                                                               
 MS. HARDY said no.                                                            
                                                                               
 CHAIRMAN GREEN asked whether Representative Berkowitz wished to               
 offer the amendment included in the packets.                                  
                                                                               
 REPRESENTATIVE BERKOWITZ said no; he was withdrawing it.                      
                                                                               
 Number 0826                                                                   
                                                                               
 DALE BONDURANT testified via teleconference from Kenai, saying he             
 was deeply involved in the subsistence priority issue.  He referred           
 to the McDowell case and said the Alaska Supreme Court had found              
 that the subsistence priority cannot be determined by where                   
 Alaskans reside.  They had stated that the common use clause                  
 imposes upon the state a duty to manage fish, wildlife and waters             
 for the benefit of all the people.  The minimum requirement of that           
 duty is a prohibition against special privileges.                             
                                                                               
 MR. BONDURANT said for the "Alaska fish and wildlife to continue to           
 manage and enforce these public resources, contradictive to this              
 ruling, is a violation of the supreme court findings and the                  
 constitution of the state."  He said one year ago, the Alaska                 
 Federation of Natives (AFN) took a written position that they would           
 no longer even discuss the subsistence issue with the state of                
 Alaska but would deal only with the federal authorities.                      
                                                                               
 MR. BONDURANT said continuing to support management enforced                  
 contrary to the state constitution violates Article VIII and,                 
 possibly more importantly, Article I, Section 1, which says in                
 part, "all persons are equal and entitled to equal rights,                    
 opportunities, and protection under the law; and that all persons             
 have corresponding obligations to the people and to the State."               
                                                                               
 MR. BONDURANT concluded that it is time to abide by the Alaska                
 Supreme Court and the state constitution and stick to enforcing               
 those requirements.                                                           
                                                                               
 Number 1030                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked Colonel Glass, now on teleconference, to           
 comment on the bill.                                                          
                                                                               
 JOHN GLASS, Colonel, Director, Division of Fish and Wildlife                  
 Protection, Department of Public Safety, verified that they were              
 addressing the committee substitute, then stated, "The bill, in its           
 entirety, as it presently stands, we have no objections to                    
 whatsoever.  It will not affect our abilities to continue doing the           
 work that we have been doing, and we'll be able to continue to do             
 so under the present wording of this bill."                                   
                                                                               
                                                                               
 REPRESENTATIVE CROFT asked what objection there was previously and            
 how that was cured.                                                           
                                                                               
 COLONEL GLASS responded, "The other amendments that were on this              
 bill originally is where our objections were.  We were afraid it              
 was going to impose upon us a situation where we would not be able            
 to continue working with the federal agencies as we do currently,             
 use of the Lacey Act, et cetera, enforcing some of the rules and              
 regulations that we handle."                                                  
                                                                               
 CHAIRMAN GREEN noted that an earlier version contained a                      
 prohibition, as opposed to not having a duty.                                 
                                                                               
 Number 1096                                                                   
                                                                               
 REPRESENTATIVE CROFT asked whether Colonel Glass's interpretation             
 was that elimination of subparagraph (1) left his division the                
 ability, but not the duty, to assist the U.S. Fish and Wildlife               
 Service.                                                                      
                                                                               
 COLONEL GLASS said as currently written, the bill affects only the            
 ADF&G.  The Division of Fish and Wildlife Protection obtains                  
 enforcement authority under Title 18, not through the commissioner            
 of the ADF&G under Title 16.                                                  
                                                                               
 REPRESENTATIVE CROFT asked whether an ADF&G representative would              
 testify.                                                                      
                                                                               
 CHAIRMAN GREEN indicated none was scheduled to appear.                        
                                                                               
 REPRESENTATIVE CROFT inquired whether Colonel Glass believed this             
 meant the ADF&G no longer would have the duty to act, but would               
 have the power.                                                               
                                                                               
 COLONEL GLASS estimated that up to 99 percent of the enforcement is           
 done by the Division of Fish and Wildlife Protection, rather than             
 by the ADF&G.  He commented, "And I asked Director Regelin to                 
 respond to that during our last hearing in the House Resources                
 Committee, and I never did hear exactly how much they do."                    
                                                                               
 Number 1170                                                                   
                                                                               
 REPRESENTATIVE BUNDE reported, based on his personal experience               
 fishing, that a fisheries biologist may come by who also checks               
 licenses and who could write a ticket if there was a violation.  He           
 asked whether that person would be precluded from bringing a charge           
 under the Lacey Act, for example.                                             
                                                                               
 COLONEL GLASS replied, "No, I don't believe they would, as long as            
 it is -- it would not be against what the federal mandate would be,           
 no."  Although he could not speak directly for the ADF&G, he had              
 never known them to bring charges under the Lacey Act.  He                    
 explained, "That has always been ours, because most of those are on           
 guided hunts, which we have the ability to police."                           
                                                                               
 Number 1224                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ stated, "Colonel, I don't want to put you            
 in an awkward spot, but it seems to me that this bill doesn't do              
 anything."                                                                    
                                                                               
 COLONEL GLASS responded, "Representative Berkowitz, it does not do            
 anything to us directly; no, it does not, sir.  It is directly                
 aimed at Fish and Game."                                                      
                                                                               
 REPRESENTATIVE BERKOWITZ said it seemed to be just another way of             
 telling the federal government that the state is unhappy with                 
 federal management of fish and game.                                          
                                                                               
 COLONEL GLASS replied, "In my opinion, that's exactly what it is,             
 sir."                                                                         
                                                                               
 Number 1260                                                                   
                                                                               
 REPRESENTATIVE PORTER made a motion to move the bill from committee           
 with individual recommendations.  There being no objection, HCS SB
 19(RES) moved from the House Judiciary Standing Committee.                    
                                                                               
 HJR 25 - CONST. AM: PERM. FUND INCOME & DIVIDEND                              
                                                                               
 Number 1273                                                                   
                                                                               
 CHAIRMAN GREEN announced the next item of business was House Joint            
 Resolution No. 25, proposing amendments to the Constitution of the            
 State of Alaska to guarantee the permanent fund dividend, to                  
 provide for inflation-proofing, and to require a vote of the people           
 before spending undistributed income from the earnings reserve of             
 the permanent fund; and relating to the permanent fund.  The                  
 committee had heard testimony from Representative Austerman,                  
 sponsor, on April 21, 1997.                                                   
                                                                               
 Number 1302                                                                   
                                                                               
 CLIFF STONE, Legislative Assistant to Representative Alan                     
 Austerman, read the sponsor statement into the record:                        
                                                                               
 "Within the Constitution of the State of Alaska, all income from              
 the Alaska permanent fund is deposited into the general fund and              
 available for appropriation.  The legislature, by statute, has                
 created an earnings reserve account, from which dividends and                 
 inflation-proofing are paid.  Funds then remaining in the earnings            
 reserve account are called undistributed income or leftover                   
 earnings.                                                                     
                                                                               
 "Historically, this undistributed income has been deposited back              
 into the principal of the permanent fund by the legislature.  Last            
 year, the legislature deposited $1.8 billion of undistributed                 
 interest earnings back into the corpus of the permanent fund,                 
 leaving a balance of about $100 million in the earnings reserve               
 account.                                                                      
                                                                               
 "Under current law, the permanent fund dividend and inflation-                
 proofing could be eliminated by a simple majority vote of the                 
 legislature and subsequent approval by the Governor.                          
                                                                               
 "A constitutional amendment is the only way to guarantee the                  
 permanent fund dividend program continues and provide for                     
 inflation-proofing of the Alaska permanent fund itself and to                 
 require a vote of the people before any spending of the                       
 undistributed income can take place.                                          
                                                                               
 "With both the permanent fund dividend and inflation-proofing                 
 permanently protected by the constitution, Alaskans might feel more           
 comfortable about considering other uses for undistributed income             
 in the earnings reserve account."                                             
                                                                               
 MR. STONE stated the sponsor's intention is to create a dialogue to           
 inform Alaskans of the difference between the permanent fund                  
 dividend and the permanent fund itself.  He indicated when                    
 "permanent fund" is mentioned, people only think about the                    
 dividend.  With this resolution, the sponsor hopes that during this           
 interim and the next session, people can become educated statewide            
 about how the permanent fund is set up, what constitutionally must            
 be put back into the corpus, how it is inflation-proofed and how it           
 is that Alaskans have a permanent fund dividend.  Then people may             
 feel comfortable with the legislature's looking at that earnings              
 reserve account and making decisions for its use in state                     
 government other than depositing it back into the corpus of the               
 fund.                                                                         
                                                                               
 Number 1470                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ asked whether Mr. Stone was saying that              
 current constraints prohibit the best investment possible for the             
 fund.                                                                         
                                                                               
 MR. STONE replied that the permanent fund itself is being managed             
 by some of the best people available.                                         
                                                                               
 Number 1500                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ said that was not his question; in fact,             
 he was praising the management.  He suggested the impact of this              
 would be to "unleash them" somewhat, which would enhance the return           
 to the state from the permanent fund.                                         
                                                                               
 MR. STONE responded that he believed all the resolution attempts to           
 do is place in the constitution the dividend and inflation-                   
 proofing.  Currently, those are in statute.  Theoretically, someday           
 the legislature may decide to take the dividend and inflation-                
 proofing, wiping them out.  If those were in the constitution, they           
 would be safeguarded a little better.                                         
                                                                               
 CHAIRMAN GREEN said as the resolution is worded, it has no effect             
 on activity and investment restrictions now placed on it.  He                 
 stated, "And, I think, dealing with perhaps better rates of return            
 on some types of investment - some certain stocks are a little                
 higher-risk/higher rewards, if you're right - those restrictions              
 that have recently been changed would still be changed ... by the             
 majority."                                                                    
                                                                               
 MR. STONE said that was his understanding.                                    
                                                                               
 Number 1580                                                                   
                                                                               
 REPRESENTATIVE BUNDE said as long as he had been in the                       
 legislature, there had never been a move to spend the earnings of             
 the permanent fund.  Many people had been frightened of doing that,           
 even though he understands that as the permanent fund was initially           
 proposed, the earnings in excess of the dividend were to pay for              
 state services.  He asked whether Mr. Stone knew of any movement              
 afoot to spend the earnings.                                                  
                                                                               
 MR. STONE said no.                                                            
                                                                               
 REPRESENTATIVE BUNDE commented, "And so, this may be putting                  
 suspenders on the belt."                                                      
                                                                               
 MR. STONE replied that he believed Representative Austerman's                 
 thought was that future legislatures may be more free-wheeling and,           
 to make up for a fiscal gap, may be willing to restrict the                   
 dividend program itself, unless it is in the constitution.                    
                                                                               
 REPRESENTATIVE BUNDE suggested this is an attempt to bind future              
 legislatures.  Acknowledging the intent to guarantee continuation             
 of a dividend and to require inflation-proofing, he asked whether             
 a further intent is to disallow spending of the earnings.                     
                                                                               
 MR. STONE said no, the earnings reserve would still be at the                 
 discretion of the legislature.  The idea is that if Alaskans                  
 understand that their permanent fund dividend is constitutionally             
 protected, they might feel more at ease in allowing a future                  
 legislature to spend that earnings reserve account to set up an               
 endowment, for example.                                                       
                                                                               
 Number 1685                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked whether under HJR 25, excess earnings              
 could be spent without a vote of the people.                                  
                                                                               
 MR. STONE replied, "The original resolution did read that way, but            
 this new, revised resolution takes that restriction away.  After              
 meeting with the permanent fund folks and through the House State             
 Affairs, some consideration was made.  And so, a CS came forward to           
 not have that restriction in there."                                          
                                                                               
 REPRESENTATIVE BUNDE referred to subsection (b) of Section 3, which           
 says in part, "Income from the permanent fund shall be deposited              
 into a separate account".  He asked whether they were setting up a            
 "permanent fund within the permanent fund."                                   
                                                                               
 MR. STONE said no; the earnings reserve account is the separate               
 account to which they are referring.                                          
                                                                               
 Number 1760                                                                   
                                                                               
 REPRESENTATIVE JEANNETTE JAMES noted that she had worked                      
 extensively on this issue in the House State Affairs Standing                 
 Committee.  She said as far as a deposit into a separate account,             
 subsection (b) puts into the constitution what is already in                  
 statute.                                                                      
                                                                               
 REPRESENTATIVE JAMES said the one change they made was where it               
 indicates the reserve account can be spent for the permanent fund             
 dividend program and inflation-proofing, both as provided by law.             
 This does not preclude the legislature from changing the way the              
 dividend is calculated; it just protects its existence.  Depending            
 on future interest rates and the cost of inflation-proofing, there            
 could be insufficient money for both in the earnings reserve                  
 account.  There could not be something set up in the constitution             
 that the legislature would be unable to do.  Therefore, they were             
 not defining the dividend program or the inflation-proofing.                  
                                                                               
 REPRESENTATIVE JAMES continued, "The other part that was in this              
 bill - which was, then, also, that the rest of the leftover could             
 not be spent by the legislature without a vote of the public                  
 because of its being in the constitution - seemed to be unwieldy,             
 because that wouldn't even let us put it back in the fund.  It                
 wouldn't let us do anything without putting it out to the people              
 for a vote.  And then, of course, we would get a vote based on not            
 whether we could spend it or not, but whether we could spend it for           
 that, and that that would have to be part of that issue."                     
                                                                               
 REPRESENTATIVE JAMES said it is an educational tool as much as                
 anything else.  People don't want any of the permanent fund spent             
 because they believe it will affect their dividends.  Conversations           
 over this constitutional amendment will allow the legislature to              
 let people know exactly how this works.  She agreed that funds                
 remaining after dividends and inflation-proofing will have a higher           
 likelihood of being spent by the legislature without public outcry            
 than the way it currently is.  Representative James asked whether             
 she had correctly evaluated the intent.                                       
                                                                               
 MR. STONE said yes.                                                           
                                                                               
 REPRESENTATIVE JAMES noted that investment of money in the earnings           
 reserve differs from investment of money in the fund itself; the              
 former is invested for short-term, rather than long-term, gains.              
                                                                               
 Number 1902                                                                   
                                                                               
 CHAIRMAN GREEN said as he reads it, there would be inflation-                 
 proofing, determined by inflation rates.  Although the dividend               
 would have to be maintained, it could be any amount, even one                 
 dollar, as determined under current law.                                      
                                                                               
 MR. STONE concurred.  He said in talking with Jim Kelly of the                
 Alaska Permanent Fund Corporation, there had been very good returns           
 these last few years.  He stated, "And it's based on five-year                
 segments, to kind of allow for those roller-coaster rides."  In the           
 future, there may be a less "bullish" market and the dividend                 
 itself may actually decline.                                                  
                                                                               
 CHAIRMAN GREEN recalled that the original purpose for the permanent           
 fund was to take care of the cost of government during the lean               
 years of oil revenue.                                                         
                                                                               
 MR. STONE said that seems to have been lost.                                  
                                                                               
 CHAIRMAN GREEN asked for confirmation of that being the original              
 intent.                                                                       
                                                                               
 MR. STONE said he would have to look at that.  However, he had                
 heard that the original intent was to provide money to help support           
 government as oil money dries up.                                             
                                                                               
 REPRESENTATIVE PORTER said he remembered that precisely.  He noted            
 that he had further questions.                                                
                                                                               
 Number 1981                                                                   
                                                                               
 REPRESENTATIVE CROFT stated his understanding that HJR 25 has no              
 say about the rate of dividend, the particular investment strategy            
 or the calculation of what adequate inflation-proofing is.  It                
 requires inflation-proofing and continuation of the dividend                  
 program, as provided by law, as the legislature sees fit.                     
                                                                               
 MR. STONE said that is correct.  This in no way would change the              
 way the fund is managed.  It would simply protect,                            
 constitutionally, the dividend program and inflation-proofing.  It            
 was also intended to create the educational atmosphere mentioned by           
 Representative James.                                                         
                                                                               
 Number 2025                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked whether inflation-proofing would take              
 priority over the dividend.  He further asked whether anyone was              
 present from the Alaska Permanent Fund Corporation.                           
                                                                               
 MR. STONE replied that he believed the way it is set up currently,            
 the dividend program comes first.  He noted that it is spelled out            
 in statute.                                                                   
                                                                               
 CHAIRMAN GREEN said if there is a downturn significant enough so              
 they could essentially only cover inflation-proofing, since that is           
 specified, then dividends would have to go down.                              
                                                                               
 MR. STONE said that is correct.                                               
                                                                               
 CHAIRMAN GREEN stated, "So, they would take precedent."                       
                                                                               
 Number 2062                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ asked whether financial analysts had                 
 looked into this and, if so, what they had to say.                            
                                                                               
 MR. STONE said that was a good point.  He had been talking with Mr.           
 Kelly from the Alaska Permanent Fund Corporation.  Some Internal              
 Revenue Service (IRS) questions had been raised regarding how this            
 would affect the distribution and the permanent fund itself if this           
 is constitutionally protected, rather than statutorily protected.             
 He stated, "The IRS is not letting us know how they would rule on             
 such a case.  But they're very concerned over at the Permanent Fund           
 Corporation about ... such a ruling."                                         
                                                                               
 REPRESENTATIVE BERKOWITZ referred to correspondence from Ron                  
 Lorensen (included in packets) discussing the IRS questions.  He              
 asked whether those questions had been pursued further in relation            
 to this resolution.                                                           
                                                                               
 MR. STONE said not that he was aware of.  But even before this                
 resolution came to light, there were questions about the IRS tax              
 implications with the permanent fund itself, because it was never             
 intended to be just a dividend program.  The fund itself was                  
 supposed to be utilized in some way to help support government.               
 So, the IRS has been looking at this for some time.  He said Mr.              
 Kelly would be the person to address that question.                           
                                                                               
 Number 2141                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ commented that he was leery of rushing to            
 making a change if it would jeopardize the tax status of the                  
 permanent fund.  He suggested it would be prudent to have a firm              
 grip on the consequences.                                                     
                                                                               
 CHAIRMAN GREEN asked whether there was an estimate of when that               
 response may come.  He noted that dealing with the federal                    
 government can be a lengthy process.                                          
                                                                               
 MR. STONE replied, "Apparently they're not talking.  They're                  
 letting the state make that decision."                                        
                                                                               
 CHAIRMAN GREEN asked whether the concern with the IRS would be                
 greater if this was protected statutorily rather than                         
 constitutionally.                                                             
                                                                               
 MR. STONE said apparently it was vice versa.  He suggested that the           
 Alaska Permanent Fund Corporation and its counsel could provide a             
 better answer.                                                                
                                                                               
 REPRESENTATIVE PORTER requested consideration of an executive                 
 session and commented, "I can't think of anything that could have             
 a greater impact on the state than this question."                            
                                                                               
 Number 2207                                                                   
                                                                               
 CHAIRMAN GREEN noted that if they went into executive session,                
 their questions would require a response by someone from the Alaska           
 Permanent Fund Corporation.                                                   
                                                                               
 REPRESENTATIVE CROFT indicated he had attempted to call Ron                   
 Lorensen and had left a message.  He had also called Eric                     
 Wohlforth, an attorney who is a trustee on the board; Mr. Wohlforth           
 had preferred that Representative Croft talk through counsel.                 
 Representative Croft agreed that an executive session would be best           
 when the appropriate people could be present.                                 
                                                                               
 Number 2323                                                                   
                                                                               
 CHAIRMAN GREEN announced the committee would hold HJR 25 over and             
 hear it in executive session, probably on Monday, April 28.                   
                                                                               
 HB 199 - COMMUNITY PROPERTY                                                   
                                                                               
 CHAIRMAN GREEN introduced the next item of business, House Bill No.           
 199, "An Act relating to the property, transactions, and                      
 obligations of spouses; relating to the augmented estate; amending            
 Rule 301, Alaska Rules of Evidence; and providing for an effective            
 date."                                                                        
                                                                               
 Number 2415                                                                   
                                                                               
                                                                               
 REPRESENTATIVE JOE RYAN, sponsor, explained, "There is an income              
 tax advantage if a person has assets with unrealized gains in                 
 community property.  This bill was designed, among other things, to           
 allow married Alaskans to obtain the income tax advantages                    
 available to residents of community property states and to produce            
 business in Alaska."  He specified that the bill does not mandate             
 community property in Alaska.                                                 
                                                                               
 TAPE 97-61, SIDE B                                                            
 Number 0006                                                                   
                                                                               
 REPRESENTATIVE RYAN noted that packets included a facsimile from              
 Robert L. Manley relating to federal statutes and the community               
 property step-up in basis for a surviving spouse's one-half share             
 of community property.  He read from the second page of that fax,             
 which says, "Both the decedent's and the surviving spouse's half              
 interests in community property receive a new basis, if at least              
 half of the community property was includible in the decedent's               
 gross estate."                                                                
                                                                               
 REPRESENTATIVE RYAN provided an example.  A person buys stock at              
 $10 per share; the basis for that would be the $10 at which it was            
 purchased.  The stock appreciates over the years as a large,                  
 unrealized gain.  If the person sells the stock, he or she would be           
 subject to a capital gains tax on the realized gain at the time of            
 sale.  However, if that person was prudent enough to leave it in an           
 estate and lived in a state that allows a community property option           
 or that had community property, the federal government says that              
 when one partner dies, the new basis is current market value, with            
 no tax liability on that half of the estate or on the surviving               
 spouse's half of the estate.  Representative Ryan commented, "So,             
 in effect, what you get is Uncle Sam takes a beating on the taxes             
 and you get the realized gain without a tax liability."                       
                                                                               
 REPRESENTATIVE RYAN explained that nine states currently have                 
 community property.  Wisconsin structured theirs so that although             
 everything is community property, the parties may opt out.                    
                                                                               
 CHAIRMAN GREEN asked whether that was for both parties.                       
                                                                               
 REPRESENTATIVE RYAN replied, "Yes.  Alaska, we plan on having                 
 individual property as the basis.  And you have to opt in, and you            
 can opt out at a later time.  It's very flexible.  This is just               
 like a Chinese menu:  one from Column A, one from Column B, so that           
 nobody's required to do anything.  You have to ask.  You have to              
 set up this good-faith agreement.  There's many conditions which              
 ... you are required to follow to set up this agreement.  And you             
 can place any or all of your assets, nominate them as community               
 property."                                                                    
                                                                               
 REPRESENTATIVE RYAN pointed out that gifts, inheritances and so               
 forth are excluded and remain individual property.  The bill only             
 applies to property for which both spouses decide to take                     
 advantage.                                                                    
                                                                               
 REPRESENTATIVE RYAN referred to the new trust law signed by the               
 Governor on October 1.  He said this allows people from the other             
 41 states that have no community property option, who put assets in           
 a trust in Alaska, to nominate the assets as community property.              
 They could take advantage of the step-up in basis and yet live in             
 another state.  He suggested that would bring a lot of investment             
 money to Alaska because it would have to be held here, administered           
 here and, he hopes, invested here or managed here for investment.             
                                                                               
 REPRESENTATIVE RYAN explained, "And that's the purpose basically              
 behind this bill, is to try to offer some advantages similar to               
 what some of the offshore things have, where they have zero tax               
 liabilities and so forth, so in America we can offer you a zero tax           
 liability that you can't get anywhere else unless you happen to               
 live in one of the other nine states that have a community property           
 law.  But those states, community property is mandatory; Wisconsin            
 allows you to opt out.  In Alaska, it's a choice.  If you want to             
 participate, you're allowed to.  If you don't want to participate,            
 no one forces you to do anything."                                            
                                                                               
 REPRESENTATIVE RYAN said he is promoting the bill because it                  
 appears to be a good opportunity to get needed capital for Alaska.            
 He added that there are many undeveloped resources in the state.              
                                                                               
 Number 0173                                                                   
                                                                               
 CHAIRMAN GREEN noted that his grandfather used to say if something            
 seems too good to be true, it probably is.  It seemed beyond                  
 comprehension that the IRS would allow putting stock under                    
 community property in Alaska, for example, and if one spouse                  
 preceded the other in death, both halves would be tax-free.  He               
 stated, "And the other thing that I'm concerned about is, if that             
 is held in another state that does have state taxes associated with           
 earnings, that they could bring that up here, in a taxless state,             
 that the state would even allow that."                                        
                                                                               
 Number 0221                                                                   
                                                                               
 REPRESENTATIVE RYAN again read from the second page of the fax from           
 Mr. Manley, indicating it was from Section 1014 of the Internal               
 Revenue Code:  "Both the decedent's and the surviving spouse's half           
 interests in community property receive a new basis, if at least              
 half of the community property was includible in the decedent's               
 gross estate."                                                                
                                                                               
 REPRESENTATIVE PORTER said in reading the information provided, he            
 understood it to mean that the survivor would reap the benefit of             
 the tax savings on the inherited half, but for the half retained as           
 a survivor, the basis remained what it originally was.                        
                                                                               
 REPRESENTATIVE RYAN replied, "Both halves, Representative Porter.             
 Both halves.  That's the thing that's so nice about this."  He                
 referred to item (6) on the final page of the fax and said this has           
 been in existence since December 31, 1947.  It is a federal statute           
 that applies to "the property that represents the surviving                   
 spouse's one-half share, et cetera, et cetera, under the community            
 property laws of any state or possession of the United States or a            
 foreign country."  He could imagine that IRS employees may not be             
 too pleased with this.                                                        
                                                                               
 Number 0316                                                                   
                                                                               
 CHAIRMAN GREEN asked:  If it has been that way since 1947, why has            
 it not been enacted in community property states?                             
                                                                               
 REPRESENTATIVE RYAN replied that indeed it has been the case in               
 community property states.  Referring to Chairman Green's earlier             
 question about how another state could allow this, he explained               
 that when a person sets up a trust, that person pays gift tax on              
 what is put into the corpus of the trust and it no longer belongs             
 to that person.  He stated, "The beneficial interest could be                 
 assigned in the indenture and/or with the body of the trust, and              
 the trustee can be instructed as to how those distributions would             
 like to be had but not necessarily, because these are                         
 discretionary.  The trustee has discretionary powers."                        
                                                                               
 REPRESENTATIVE RYAN continued, "But if you name the surviving                 
 spouse the sole beneficiary of the trust, the property is in there.           
 The first person dies, ... and both have a beneficial interest.               
 The step-up in basis takes place.  There's no tax liability.  And             
 then the distributions go to the surviving spouse."                           
                                                                               
 REPRESENTATIVE RYAN continued, "So, under those circumstances,                
 another state cannot come and say that you have messed with the               
 estate or you've taken property or anything else, because the                 
 property didn't belong in that estate.  The property belongs in the           
 trust, in Alaska, under our laws.  And the gift tax was paid when             
 it was settled up, and it no longer belongs to these people as                
 such; they just hold a beneficial interest."                                  
                                                                               
 CHAIRMAN GREEN asked whether some of the wording between the IRS              
 statutes in the fax was Mr. Manley's.                                         
                                                                               
 REPRESENTATIVE RYAN said he understood it was actual wording from             
 the federal law and the IRS code.  He noted that two people signed            
 up to testify were estate planning attorneys.                                 
                                                                               
 Number 0435                                                                   
                                                                               
 REPRESENTATIVE PORTER asked whether this provision is law in other            
 states.                                                                       
                                                                               
 REPRESENTATIVE RYAN said it is, in nine states, usually those                 
 states that "came under not the English common law but from the               
 Napoleonic code."                                                             
                                                                               
 REPRESENTATIVE PORTER asked whether those were not community                  
 property states but states with the community property option.                
                                                                               
 REPRESENTATIVE RYAN replied, "No, these are community property                
 states.  Wisconsin has a community property option, inasmuch as               
 you're required to accept community property, and then, if both               
 parties agree, they can opt out."                                             
                                                                               
 REPRESENTATIVE PORTER asked whether Alaska would be the only state            
 with this particular provision.                                               
                                                                               
 REPRESENTATIVE RYAN responded, "That allows you to opt in.  No                
 requirement to do it, but you can take advantage of it if you                 
 choose."                                                                      
                                                                               
 CHAIRMAN GREEN asked whether this would allow opting in and then              
 opting back out.                                                              
                                                                               
 REPRESENTATIVE RYAN replied that if both partners agree, they can             
 opt back out.                                                                 
                                                                               
 CHAIRMAN GREEN posed an example of people opting in and out, "with            
 varying sacks full" of money and suggested that would be extremely            
 complicated to administer.  He asked:  And we're sure that that's             
 okay with both the IRS and the states in which these people may               
 reside?                                                                       
                                                                               
 REPRESENTATIVE RYAN suggested the two estate planning attorneys               
 could answer that question.  He stated, "And one final thing:  In             
 case there is a divorce, the assets are split 50/50 because each              
 partner owns half of whatever is designated as community property."           
                                                                               
 CHAIRMAN GREEN asked:  If it were put in trust, would that mean               
 there were two trusts created?  Or could one partner opt out, take            
 his or her share, pay the tax and go?                                         
                                                                               
 REPRESENTATIVE RYAN replied, "Once you create this trust, you've              
 given it away.  It belongs to the trustee.  It no longer belongs to           
 you; it's not your property."                                                 
                                                                               
 CHAIRMAN GREEN asked whether if that was split, there would be two            
 trusts.                                                                       
                                                                               
 REPRESENTATIVE RYAN replied that a person named as beneficiary                
 would still have the beneficial interest.  He cited an example                
 where he gives someone $10,000, and says, "This is yours.  And you            
 manage it.  But ... if you make a profit on it, I want you to come            
 back and give me some of it from time to time, as you decide when             
 I should receive it."  He could not ask for that $10,000 back                 
 because it was a gift.                                                        
                                                                               
 CHAIRMAN GREEN responded, "Okay, but the questions we were driving            
 at now were if it's community property and both spouses are living            
 but they get a divorce.  They've agreed to put this thing in the              
 trust, but now they get a divorce, and you say it's split in the              
 middle."                                                                      
                                                                               
 REPRESENTATIVE RYAN suggested that the attorneys answer that.                 
                                                                               
 CHAIRMAN GREEN asked whether Dick Thwaites had heard those                    
 questions.                                                                    
                                                                               
 RICHARD S. THWAITES, JR., Attorney at Law, testified via                      
 teleconference from Anchorage, affirming that he had heard them.              
 However, he requested that Jonathan Blattmachr speak first, saying            
 he himself would address questions specific to Alaska.                        
                                                                               
 Number 0610                                                                   
                                                                               
 JONATHAN BLATTMACHR, Partner (Attorney at Law), Milbank, Tweed,               
 Hadley and McCloy, testified via teleconference.  He stated, "This            
 provision which, as Representative Ryan has pointed out, has been             
 in effect since the end of 1947, came about on account of certain             
 disparities which existed under the federal tax law between people            
 who resided in community property states like California and those            
 who resided in other states such as New York.  That's the reason we           
 have (indisc.) joint income tax return and why Congress allowed a             
 marital deduction for state tax purposes, which was originally                
 limited to one-half of the estate of the first spouse to die.  This           
 provision contained in Section 1014(b)(6) was supposed to just kind           
 of neutralize the playing field for people in community property              
 states."                                                                      
                                                                               
 MR. BLATTMACHR continued, "On January 1, 1982, the estate tax                 
 marital deduction became unlimited.  And probably this provision,             
 1014(b)(6), should have been changed, because it does provide that            
 if a couple owns some community property, when the first person               
 dies, the inherent profit is forgiven not just on the one-half                
 which is includible in the estate of that spouse but even the                 
 survivor's one-half.  And it's such an advantage that Wisconsin, in           
 the mid-1980s, opted into a community property system.  The IRS               
 promptly thereafter conceded, in an official ruling, that it meant            
 that people in Wisconsin who owned community property would be                
 entitled to this double income-tax-free step-up in basis (indisc.).           
 It's possible that would be changed, but it is a law, and it                  
 applies in every state."                                                      
                                                                               
 MR. BLATTMACHR continued, "In addition, Alaska and New York and, in           
 fact, most of the other non-community property states, in order to            
 preserve this advantage for people who move there and who own                 
 community property from other states, have enacted a law known as             
 the `Uniform Disposition of Community Property in Death Act.'  So,            
 if someone comes to Alaska from the state of Washington, which is             
 a community property state, Alaska preserves the community property           
 nature of those assets in the event of death; so, if the husband              
 dies first, the family - the surviving spouse - gets this double              
 step-up in basis.  And so, whether the IRS likes it or not, that is           
 what the federal law is.  And the federal law almost always                   
 determines the state income tax consequences as well.  Of course,             
 if the couple lives in Alaska, it doesn't (indisc.) an income tax."           
                                                                               
 MR. BLATTMACHR continued, "So, it appears that it will work.  As              
 Representative Ryan said, it's an `opt-in' rather than an `opt-out'           
 system, which Wisconsin has.  In addition, it can be troublesome              
 for married couples in some circumstances to trade their assets.              
 But in this case, there's going to be an explicit agreement as to             
 what is or non-community property.  And, as a consequence, it's               
 probably easier record-keeping than exists right now."  He said a             
 judge in Alaska who does quite a bit of family law and divorce work           
 has advised Mr. Thwaites that she quite regularly deals with                  
 community property already, because so many people who move to                
 Alaska have brought community property with them.                             
                                                                               
 MR. BLATTMACHR specified that he is admitted to the bar in Alaska,            
 California and New York.                                                      
                                                                               
 CHAIRMAN GREEN asked about Mr. Blattmachr's testimony that "it                
 appears it will work."  He asked whether Mr. Blattmachr had                   
 received something substantive from the IRS in support of that.               
                                                                               
 MR. BLATTMACHR explained, "When Wisconsin did this, the IRS, within           
 a year or two, officially conceded that it did work to make                   
 property owned by Wisconsin couples community property for purposes           
 of this step-up-in-basis rule.  The law appears to be very clear              
 that ... if it is community property under the law of any state or            
 possession of the United States or a foreign country, it's entitled           
 to this treatment.  This would make it community property under the           
 law of the state of Alaska.  And it would appear, based on that,              
 that it should work.  But until you have a court rule on it, one              
 can never be sure of the effect of a law."                                    
                                                                               
 CHAIRMAN GREEN asked:  What might happen if we get these millions             
 of dollars up here and the court holds that it doesn't work?                  
                                                                               
 MR. BLATTMACHR replied, "Well, then, the people are back where they           
 were before."  He cautioned that there are real-world consequences            
 of converting assets into community property.  He explained, "If a            
 husband owns a million dollars' worth of assets and he converts               
 them into community property, he has now made a gift of one-half of           
 his property to his wife.  She will own it.  She can do with it as            
 she pleases, including bequeathing it, at her death, to whomever              
 she wishes."  Based on conversations with his clients, Mr.                    
 Blattmachr guessed that only people in long-term, stable first                
 marriages would take the risk of converting their assets to                   
 community property because of this real-world effect in their                 
 lifetimes, especially if there was a divorce.                                 
                                                                               
 Number 0901                                                                   
                                                                               
 CHAIRMAN GREEN said he had mentioned to the sponsor the possibility           
 that a judge would bequeath half to each party in a divorce.  He              
 asked whether each half would then remain in trust or whether one             
 party could opt out.  He expressed concern about an IRS ruling on             
 something so fluid.                                                           
                                                                               
 MR. BLATTMACHR replied that right now, that basically exists in the           
 other community property states.  For example, when California                
 couples marry, everything they acquire thereafter is community                
 property.  But often couples elect for more assets to come in,                
 including property brought to the marriage or inherited, or gifts             
 they receive, which under basic California law are not part of the            
 community property.  However, because of the income tax advantage,            
 the couple will opt in.  Sometimes they will opt out later.  Mr.              
 Blattmachr stated, "And again, this provision, Section 1014(b)(6),            
 is quite explicit:  Whatever is treated as community property under           
 local law gets this tax-free treatment."                                      
                                                                               
 MR. BLATTMACHR continued, "In fact, California has a rule known as            
 `quasi-community property.'  It basically says that if a couple               
 from a non-community property state like Alaska moves to                      
 California, at the death of them - the first of them - their                  
 property which is not community property is treated as quasi-                 
 community property, and it's treated as though it had been                    
 community property all along, when the first spouse died.  And the            
 IRS - and I know this (indisc.) an experience in administering                
 California estates - the IRS does permit the double step-up in                
 basis there.  So, it appears that the fact that the couple can                
 change it anytime they want doesn't change the nature of its                  
 actually being community property."                                           
                                                                               
 MR. BLATTMACHR continued, "I want to point out two important                  
 distinctions when something is community property.  (Indisc.) of              
 Alaska, and most other states which don't have community property,            
 like New York and Florida, when a couple divorces, the judge can              
 award any percentage of the property the judge wants to the husband           
 and any percentage the judge wants to the wife.  But with community           
 property, one-half is the wife's and one-half is the husband's, and           
 the judge has no power to change that."                                       
                                                                               
 MR. BLATTMACHR continued, "The second thing is what happens at                
 death.  Under the law of Alaska and most non-community property               
 states, a certain percentage of the estate of the first spouse to             
 die goes to the surviving spouse.  For example, in Alaska, as a               
 general rule, if a man dies with $900,000 in his estate, his wife             
 must get at least one-third.  Now, that right of the wife to get a            
 portion of his estate, with respect to the husband's half of the              
 community property, doesn't happen."  He said half of the assets              
 would be hers already, and the husband could do whatever he wants             
 to with respect to the other half.  For example, he could leave it            
 to children of a prior marriage or to charity.  The wife cannot               
 demand any portion of his half.  She gets her half, and that is it.           
                                                                               
 MR. BLATTMACHR continued, "So, there is a real change in what                 
 happens to the property during lifetimes.  And people should be               
 advised of that before they jump into a community property                    
 agreement.  And most Alaskans will be doing it by agreement.  They            
 will just continue to own it; there will not be a trust.  If they             
 have it in a trust, it will be owned one-half by the husband and              
 one-half by the wife, as community (indisc.), or legal title will             
 be held by the trustee.  And what happens in the event of a divorce           
 or a death will be determined by the terms of the trust."                     
                                                                               
 Number 1097                                                                   
                                                                               
 REPRESENTATIVE PORTER commented, "My wife, the accountant, has                
 always told me there's a thin line between tax avoidance and tax              
 evasion."  He asked what the ramifications would be if a couple               
 established community property and opted in, or established a                 
 trust, for property that had previously been the property of one              
 spouse, and then, for whatever reason, they opted back out.  He               
 further asked whether the original owner of the asset would have a            
 tax consequence for being gifted the portion that was transferred             
 to the other spouse and then back.                                            
                                                                               
 MR. BLATTMACHR explained, "The answer generally is no, because                
 transfers to a husband and wife are free of income tax and gift tax           
 consequences.  However, if your spouse is not a U.S. citizen - for            
 example, if an Alaskan is married to a Canadian citizen - there is            
 basically no marital deduction allowed.  So, if a husband is an               
 American who lives in Alaska and the wife is Canadian, and the                
 husband took a million dollars and made it community property, he             
 would be making a gift to her of $500,000 and would have to pay               
 gift tax.  So, there could be consequences in those circumstances."           
                                                                               
 MR. BLATTMACHR continued, "But if it's a married couple who are               
 both American citizens, there will be no income or gift tax                   
 consequences of either making the asset community property or                 
 changing it back to separate property.  And, again, I know that               
 because I've practiced for many years under California law, where             
 people do come in and out of community property."                             
                                                                               
 Number 1202                                                                   
                                                                               
 CHAIRMAN GREEN cited an example where two Americans have low-cost             
 stock and opt into a trust.  The stock appreciates significantly as           
 community property, then one spouse dies.  He asked, "The other one           
 gets it all and then opts out?"                                               
                                                                               
 MR. BLATTMACHR replied, "No, once the first spouse dies, the                  
 community nature of the property ends.  So, if you and your wife              
 owned the stock in community property and you die, she would own              
 her half and you would bequeath your half to whomever you wanted              
 to.  If you'd left it to her, she would simply own 100 percent.  If           
 you'd left it to a child, your wife would continue to own her one-            
 half, which she owned before your death, and your child would own             
 the other half.  And they would not own it in community property.             
 They would own it by what's known as `tenants in common.'"                    
                                                                               
 CHAIRMAN GREEN inquired about the appreciation value.                         
                                                                               
 MR. BLATTMACHR replied that both the half that the wife previously            
 owned and the half the child received upon the husband's death                
 would have all of this inherent income tax liability forgiven.                
                                                                               
 CHAIRMAN GREEN asked, "Even if we opt out?"                                   
                                                                               
 MR. BLATTMACHR replied, "If you opt out before death, no.  If you             
 opt out, it will not be community property.  And then only the                
 (indisc.) includible in your estate would get the step-up in basis.           
 It would have to remain community property through the death of the           
 first spouse to die for this to work."                                        
                                                                               
 CHAIRMAN GREEN asked, "Community property or in the trust?  Or                
 both?"                                                                        
                                                                               
 MR. BLATTMACHR responded, "If you're Alaskans, you're not going to            
 put it into a trust.  Alaskans presumably will do this merely by a            
 written agreement where they declare certain of their assets to be            
 community property.  And under the bill, that's known as a                    
 `community property agreement.'  The community property trust will            
 probably be used by people where only one of them is an Alaskan and           
 the other one is not, or where neither is an Alaskan but they want            
 their assets to be treated as community property under Alaska law."           
                                                                               
 CHAIRMAN GREEN said, "Now she lives a long time and we opt out."              
                                                                               
 MR. BLATTMACHR stated, "If you opt out, then you're not going to              
 get the benefit of the tax-free step-up in basis."  He cited an               
 example.                                                                      
                                                                               
 CHAIRMAN GREEN asked about couples who have not died but have opted           
 out.                                                                          
                                                                               
 MR. BLATTMACHR said then there would be no change in basis at all.            
 Nothing would happen to the basis until someone died.  The tax                
 benefit only occurs upon the death of the first spouse to die, and            
 only to the extent that the assets at that time constitute                    
 community property under the law of any state.                                
                                                                               
 Number 1395                                                                   
                                                                               
 REPRESENTATIVE CROFT cited an example where someone is married in             
 Washington, a community property state.  At the time of marriage,             
 the husband had stock that he got for nothing when he founded a               
 company now worth $20 billion.  Therefore, the stock's basis had              
 been zero but was now $20 billion.  He dies and his wife sells all            
 the stock for $20 billion.  Representative Croft asked:  She pays             
 what tax?                                                                     
                                                                               
 MR. BLATTMACHR replied, "Zero."                                               
                                                                               
 REPRESENTATIVE CROFT asked:  For the same situation in Alaska, if             
 the court divided the marital property 50/50 and she sold it all,             
 would she pay taxes on $10 billion?                                           
                                                                               
 MR. BLATTMACHR replied, "That is correct.  Again, I know this                 
 sounds like a very peculiar rule, and this area of the tax-free               
 step-up in basis is an area where I do a lot of practice.  There is           
 even an historic exception for people who live in non-community               
 property states, with property jointly owned with rights of                   
 survivorship, which was required by the couple before 1977.  And              
 like many areas of the tax law, these rules are there for historic            
 reasons.  And it's difficult to justify them today, but if they are           
 available and being made to be available to the citizens of a                 
 particular state, it just may be appropriate to give them an                  
 opportunity to (indisc.)."                                                    
                                                                               
 Number 1515                                                                   
                                                                               
 REPRESENTATIVE CROFT stated his understanding that the theory on              
 this is:   "We don't have to figure out the public policy rationale           
 for this federal statute; we should just allow our citizens and any           
 other citizens to take advantage of it."                                      
                                                                               
 MR. BLATTMACHR said that is what he believes is being recommended             
 by the sponsor.  He noted that no one is forced to take advantage             
 of this.  He emphasized that it would result in significant changes           
 in ownership.  If a man put $20 billion from a company into a                 
 community property format, his wife would own half of it.                     
                                                                               
 MR. BLATTMACHR stated, "Of course, today an Alaskan couple could              
 sit down and decide that they wanted to own their assets under a              
 regime which would mirror precisely what it would be under                    
 community property; they would do that by agreement.  But because             
 it is not community property under Alaska law, even though the                
 agreement treats it that way, they would not get this potential               
 income tax benefit."                                                          
                                                                               
 MR. BLATTMACHR pointed out that the change in basis at death can              
 also be a reduction in value.  For example, if someone bought stock           
 at $150 but it was worth $90 when that person died, his or her                
 family would inherit a basis of $90 rather than $150.  He                     
 cautioned, "So, people are going to have to be careful as to what             
 they decide to treat as community property.  Any asset which has              
 gone down in value, or they think might decline in value,                     
 presumably would not be covered by the community property                     
 agreement.  It would only be those assets where they ... had                  
 appreciated or that they were confident that appreciation would               
 hold would they do it; at least, I think that would be the case."             
                                                                               
 REPRESENTATIVE CROFT stated, "And Jonathan, we had a discussion in            
 my office about the power to invade the separate property.  You               
 said at one point that the courts in California have no power to              
 change the 50/50 division.  That's not the way I remembered it from           
 ... the California bar.  But whatever the case there, here we have            
 a very limited ability to invade the separate property, usually the           
 premarital estate.  It's much more limited than the ability to                
 divide equitably marital property.  But there are situations where,           
 because it's so unjust, the small amount that's left in the marital           
 estate, for some reason, that a court takes premarital assets to              
 make that up.  I take it that this would define ... the portion               
 allocated into community property, in effect, as 50/50 separate               
 property for purposes of invasion for equitable reasons."                     
                                                                               
 MR. BLATTMACHR replied, "That is exactly correct.  So, again, you             
 are basically saying that whether there's a death or a divorce, or            
 a contrary agreement at a later time, this asset is owned by the              
 husband and wife 50/50.  And the husband gets half and the wife               
 gets half, and that's it."                                                    
                                                                               
 MR. BLATTMACHR said presumably a couple would receive counseling              
 about this, and he emphasized that couples need to know the                   
 consequences.  He stated, "Also under the bill, because this was              
 provided for in Wisconsin law, the (indisc.) can modify the rules             
 that are contained.  For example, if the couple says, `Well, you              
 know, we think that the Alaska courts do such a great job in                  
 allocating assets between a husband and wife that we don't want to            
 have it automatically split 50/50, so we'll provide in this                   
 agreement that even though we're saying it's community property, if           
 we get divorced, the court can allocate it in an equitable fashion,           
 as it sees fit.'"                                                             
                                                                               
 MR. BLATTMACHR continued, "Now, I can't tell you whether or not               
 that will eliminate the community property nature so the tax                  
 benefit will be lost.  The IRS has never ruled in a court and, as             
 far as I know, has never ruled on that.  But a couple could do                
 that; if they said, `We want the courts to be able to equitably               
 divide it,' they could.  But if they want to increase the                     
 probability of getting this income tax benefit which is available             
 to people in community property estates, presumably they will label           
 certain of their assets community property and ... have Alaska                
 community property law apply in its full force on that."                      
                                                                               
 Number 1820                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked:  Why the "opt-in" system, rather than             
 the "opt-out" system that Wisconsin has?                                      
                                                                               
 MR. BLATTMACHR said that was an important, interesting and                    
 insightful question.  He noted that he practices in both a                    
 community property state, California, and the non-community                   
 property states of New York and Alaska; he has also lived as a                
 married person in both situations.                                            
                                                                               
 Number 1856                                                                   
                                                                               
 MR. BLATTMACHR stated, "I think community property is a much more             
 rational system because it truly treats the marriage as a                     
 partnership, and everything that's acquired during the marriage,              
 other than inheritances and gifts during that time, belongs to the            
 partners, the husband and wife, 50/50.  And that, to me, makes very           
 good sense.  You have the same rule of ownership at divorce as you            
 do at death, whereas under Alaska law and New York law, the                   
 husband's and wife's interest in the property is different in                 
 divorce than it is in death.  And I find it difficult to justify              
 that.  In fact, a divorcing spouse may get more than one who has              
 been a loyal husband or wife for 50 years and his or her husband or           
 wife dies and they get less."                                                 
                                                                               
 MR. BLATTMACHR continued, "But the change to community property               
 from the system Alaska has always had is a very significant one.              
 And there were many members of the Wisconsin bar I knew who felt it           
 was unfair to say, (indisc.), a Wisconsin couple which has been               
 married for 45 years and said, `You thought your property was owned           
 this way?  Guess what:  We're changing it in the legislature, and             
 you have nothing to say about it unless both of you agree to opt              
 out of the system.'  So it seems like it will have less of an                 
 impact in the state to have an `opt-in' system.  But I certainly              
 think one could make a rational case, which the Wisconsin                     
 legislature did, is that in studying the matter, one could go to an           
 entire community property system and mandate it on (indisc.), even            
 though the two have been married for decades and decades."                    
                                                                               
 REPRESENTATIVE BUNDE asked:  If this is such a good deal, why make            
 it available only to those who are clever enough to figure it out             
 and perhaps hire a trust attorney to help them get there?  He also            
 asked why Mr. Blattmachr was willing to invest his time.                      
                                                                               
 MR. BLATTMACHR replied that he was doing it for several reasons.              
 First, he plans to take advantage of it himself because in due                
 course, he will move to Alaska.  He said it is a great deal and               
 that the tax-free step-up in basis is the most important tax                  
 savings mechanism in estate planning.                                         
                                                                               
 MR. BLATTMACHR said second, he has numerous clients in long-term              
 marriages who will benefit from this bill.  Some are wealthy                  
 Alaskans and some live elsewhere but have told him they will "run             
 to create trusts and transfer their assets to Alaska."                        
                                                                               
 MR. BLATTMACHR stated, "And that brings up the third reason.  I               
 would like to see Alaska's state of financial markets increase                
 significantly.  And I was one of the principal draftsmen of the               
 Alaska trust bill, and I'm the principal (indisc.) for this bill.             
 And I believe that those bills will result in the shifting of                 
 financial services business to Alaska.  And I think that that would           
 be great for the state."  He said he had no sponsor, no one was               
 paying him to do this, and he had paid his own way to Juneau the              
 previous week.  He concluded, "I just personally think it's a good            
 thing for everybody."                                                         
                                                                               
 REPRESENTATIVE BUNDE agreed that this not only would possibly be              
 good social policy, but it was also an economic development issue.            
                                                                               
 Number 2187                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ inquired about the law firm Mr. Blattmachr           
 is with.                                                                      
                                                                               
 MR. BLATTMACHR said Milbank, Tweed, Hanley and McCloy is a large              
 international law firm with 10 or 11 offices worldwide.  They                 
 represent many wealthy individuals and handled the estate of                  
 Jacqueline Kennedy Onassis, for example.  They also represent a               
 number of large corporations in the United States.                            
                                                                               
 REPRESENTATIVE BERKOWITZ asked who opposes this bill.                         
                                                                               
 MR. BLATTMACHR replied, "I don't believe there is anyone who                  
 opposes this bill.  In fact, as with the Alaska trust act, I think            
 the major concern that I had is that they will very quickly catch             
 our ball."  He suggested other states would opt for it.  For                  
 example, the California legislature may offer people from out of              
 their jurisdiction to create community property trusts within their           
 jurisdiction, because they will be interested in getting the                  
 business.  "And it may be that California, with such a high income            
 tax, will tend to frighten people away," he commented.  Mr.                   
 Blattmachr said he does not believe there is any down side.                   
 However, someone from his law school had suggested the consequence            
 will be that Congress will repeal Section 1014(b)(6), because that            
 will make this available to every American.                                   
                                                                               
 CHAIRMAN GREEN inquired about the history of the provision.                   
                                                                               
 MR. BLATTMACHR responded that there was a man named Mr. Seaman (ph)           
 who resided in California.  Under California law, half of Mr.                 
 Seaman's income, the moment he earned it, belonged to his wife                
 because it was community property.                                            
                                                                               
 TAPE 97-62, SIDE A                                                            
 Number 0006                                                                   
                                                                               
 MR. BLATTMACHR explained that Mr. Seaman reported half of his                 
 income on his income tax; his wife reported the other half.                   
 Because income tax rates are progressive, getting increasingly                
 higher as income increases, he and his wife paid less income tax              
 than they would have had he reported all his income on his own                
 return.                                                                       
                                                                               
 MR. BLATTMACHR stated, "The IRS said, `Well, it may be true that              
 under California law, your wife owned half the income, but this is            
 a federal tax system, and federal law is supreme, so you couldn't             
 split your income.'  That case went to the Supreme Court of the               
 United States, and the Supreme Court held that what Mr. Seaman had            
 done was perfectly proper and the federal tax law had to respect              
 the property rights as they existed under state law."                         
                                                                               
 MR. BLATTMACHR continued, "That also gave people a big advantage              
 when it came to death, because if Mr. Seaman had an estate of a               
 million dollars and he lived in New York, he would have to pay                
 estate tax on the whole million.  But living in California, and               
 because this million dollars would be community property, he'd only           
 have to report $500,000 on his return.  And his wife would have               
 already owned the other half, and there'd be no estate tax."                  
                                                                               
 MR. BLATTMACHR continued, "When the income tax rates leapt so high            
 during World War II, when, I think, the income tax got up to 91               
 percent and the estate tax up to 77 percent, almost all states in             
 the United States decided that they would become community property           
 states, to give their citizens the same tax break that people in              
 California and Texas and other community property jurisdictions               
 were enjoying."                                                               
                                                                               
 MR. BLATTMACHR continued, "Well, the IRS, in a fit of sanity, came            
 to the Congress and said, `Look, rather than make all these states            
 convert to community property' - and I believe that two states, in            
 fact, did, Pennsylvania and Kansas, and New York was going to -               
 they said, `why don't you adopt the concept of the joint income tax           
 return, which will have the effect of splitting the income 50/50              
 between the husband and wife and also allow a 50 percent estate tax           
 marital deduction for assets other than community property?'                  
 Congress did that, and that became effective on January 1, 1948."             
                                                                               
 MR. BLATTMACHR continued, "Then the community property lawyers came           
 back and they said, `Wait a minute.  We now have a disadvantage.              
 If Mr. Seaman dies as a resident of New York with his million                 
 dollars, because (indisc.) will be in his estate, there'll be 100             
 percent tax-free step-up in basis on the million.  But he'll only             
 pay tax on half because he can leave $500,000 to his wife free of             
 estate tax, whereas if Mr. Seaman died in California, only $500,000           
 is in his estate; so, there's only a $500,000 step-up in basis.'"             
                                                                               
 MR. BLATTMACHR continued, "`So, what we think you want to do is to            
 put people in community property states on par with the wealthy men           
 - people with property in their own names - in non-community                  
 property states.  We think you ought to allow both halves of the              
 community property [to be] stepped up for income tax purposes when            
 the first spouse dies.'  And Congress adopted that.  And that's why           
 that thing says, `for decedents dying after December 31, 1947.'"              
                                                                               
 MR. BLATTMACHR continued, "When the unlimited marital deduction               
 came down on January 1, 1982, probably somebody should have thought           
 through that this (indisc.) provision under 1014(b)(6) for                    
 community property probably should be eliminated.  But it wasn't.             
 And then Wisconsin lawyers got together and said, `Well, why don't            
 we convert to community property?  That way, the residents of our             
 state will get this benefit.'  And they did that around 1985."                
                                                                               
 MR. BLATTMACHR continued, "But most of the states haven't done it             
 because they regard community property as too big a change to the             
 property rights which currently exist between their married                   
 couples.  Again, this bill will allow Alaskans, if they don't want            
 to take advantage of this or feel that community property is not              
 the right system for them - as it may not be for a couple in a                
 second or third marriage, with children from prior unions - they              
 won't have to do it.  But for those who think it's a good system,             
 they'll go ahead and do it."                                                  
                                                                               
 Number 0342                                                                   
                                                                               
 CHAIRMAN GREEN asked why a state like Texas would not have enacted            
 this and why it was coming so late in Alaska's statehood.                     
                                                                               
 MR. BLATTMACHR replied, "I don't think anybody ever thought about             
 it before.  It sounds terribly immodest of me, but when I discussed           
 this with a different professor last Sunday night, he said, `This             
 is absolutely ingenious.  Why hasn't anybody ever done it before?'            
 And I just can't tell you why."                                               
                                                                               
 Number 0384                                                                   
                                                                               
 REPRESENTATIVE JAMES referred to the relationship between the trust           
 program set up in Alaska, the community property exemption, and the           
 fact that people will come to Alaska.  She asked Mr. Blattmachr to            
 explain the advantage of going into the trust with community                  
 property.  She also mentioned the possibility of other states                 
 following Alaska's example and the advantage of setting up the                
 trust, relating to the law of perpetuity.                                     
                                                                               
 MR. BLATTMACHR replied, "Well, I apologize if I've kind of confused           
 things.  The Alaska trust act, which ... became effective on April            
 2, really has nothing to do with the community property bill or the           
 community property trust.  The Alaska community property act does             
 effectively eliminate the rule against perpetuities.  And there are           
 other states currently trying to play `catch-up ball.'  I                     
 understand that Texas is thinking about repealing its."                       
                                                                               
 MR. BLATTMACHR continued, "I got a call two weeks ago from the                
 Washington state bar association, asking (indisc.) the tax                    
 consequences of it, because there's a very peculiar federal tax               
 known as the `generation-skipping' tax, which sometimes can be                
 affected by the rule against perpetuities.  And I've written                  
 extensively about that, and they were calling me about that.  But             
 they are thinking of recommending, to their legislature, repeal of            
 the rule against perpetuities.  So, I think on that one, as well as           
 this community property bill, there may be `catch-up ball' by the             
 other states.  But one of my goals - and I hope the legislature               
 agrees with it - is to try and keep Alaska in the forefront, to               
 keep it an extremely desirable jurisdiction in which to do estate             
 planning and financial business."                                             
                                                                               
 Number 0565                                                                   
                                                                               
 REPRESENTATIVE CROFT said his concern, talking with the sponsor and           
 Mr. Blattmachr, was this 50/50 division.  He had talked to local              
 family lawyers about the ability to do this anyway, but without the           
 tax benefit.  A married couple could decide to divide an asset                
 50/50 and the court would generally enforce it.  Representative               
 Croft asked whether Mr. Blattmachr had the bill in front of him.              
                                                                               
 MR. BLATTMACHR said no.                                                       
                                                                               
 Number 0565                                                                   
                                                                               
 REPRESENTATIVE CROFT stated, "You had a number of disclaimers that            
 had to be on the community property agreement or be waived after              
 reasonable disclosures.  And I proposed to Representative Ryan that           
 we add a fourth.  You had three:  fair and reasonable disclosure of           
 the property of the other spouse; a written consent waiving that              
 disclosure; and that the spouse didn't have notice of the property            
 or financial obligations. ... All three are dealing with the                  
 assets.  It's sort of a prenuptial-type of disclosure, `Here's how            
 much I have.'"                                                                
                                                                               
 REPRESENTATIVE CROFT continued, "I'm concerned that we disclose, to           
 Alaskan couples in particular, some aspect of the legal jump that             
 they're making, from equitable distribution in a marital property             
 state to a basically 50/50 distribution in a community property               
 state, with some limited way to change that.  Do you have any                 
 objection to requiring that, before they enter into these community           
 property agreements, there be something about the legal jump                  
 they're making?"                                                              
                                                                               
                                                                               
 MR. BLATTMACHR said no, he did not.  He recommended making it as              
 clear as possible what would be required.  One possibility would be           
 requiring the community property agreement or trust agreement to              
 contain an explicit heading in bold letters, cautioning that the              
 parties should be aware that it could significantly change the                
 ownership of property between the couple, including entitlements of           
 property in the event of a divorce or death.                                  
                                                                               
 Number 0780                                                                   
                                                                               
 REPRESENTATIVE CROFT asked for confirmation that currently there is           
 no such requirement in the bill.                                              
                                                                               
 MR. BLATTMACHR said that is correct.  He explained that he derived            
 the bill from the Uniform Marital Property Act (UMPA), which was              
 adopted, with some slight modifications, by Wisconsin.  He believed           
 all the requirements cited by Representative Croft were contained             
 in the UMPA and the Wisconsin act.  Mr. Blattmachr said giving a              
 couple an extra warning that they were about to do something                  
 significant, with a real-world financial impact during their                  
 lifetimes, was certainly commendable.                                         
                                                                               
 Number 0840                                                                   
                                                                               
 REPRESENTATIVE PORTER asked whether any other states currently have           
 the ability of a nonresident to establish something like this to              
 avoid taxes.  He further asked, "And if not, why wouldn't IRS go              
 after us on that point?"                                                      
                                                                               
 MR. BLATTMACHR said that was a good question.  He stated, "Believe            
 it or not, I've had a number of California lawyers ask me for a way           
 in which they could offer California community property to non-               
 Californians.  And, in fact, from time to time, couples do move to            
 a community property jurisdiction such as Texas, which has no                 
 income tax and no additional state tax, to get that benefit."                 
                                                                               
 MR. BLATTMACHR continued, "I think that this will work, but I don't           
 think it's a matter so much of IRS attacking it.  I think it's that           
 the other states, once they realize the simplicity of doing this,             
 and the fact that it will bring business and assets to their state,           
 will jump on it like a duck on a bug.  I mean, there's just no down           
 side."                                                                        
                                                                               
 MR. BLATTMACHR said this will, in fact, be community property under           
 the state of Alaska.  And that seems to be all that 1014(b)(6)                
 requires for it to be effected.  He said he obviously could not               
 guarantee that people from outside of Alaska would get this tax               
 break.  However, for those in long-term, happy marriages who trust            
 each other anyway, there appears to be little harm in trying.  He             
 concluded, "And it does appear to be that, under both the code and            
 the treasury regulations interpreting it, that it will work."                 
                                                                               
                                                                               
 Number 0962                                                                   
                                                                               
 REPRESENTATIVE NORMAN ROKEBERG referred to the attached materials             
 and asked Mr. Blattmachr to clarify what appeared to be a partial             
 definition:  "If at least one-half of the whole community property            
 interest of such property is includible in determining the value of           
 the decedent's gross estate ...."  He expressed concern about what            
 "at least one-half" means.                                                    
                                                                               
 MR. BLATTMACHR replied that he understands there are some                     
 jurisdictions, such as in South America, where "the husband and               
 wife are equal but the husband's a little more equal."  For                   
 example, the husband might own 60, 70 or 80 percent, whereas the              
 wife might own less.                                                          
                                                                               
 MR. BLATTMACHR stated, "And Congress, I understand, when it enacted           
 this, said, `We don't want you guys going back to your estates and            
 giving the wife, for example, a 1-percent interest in the asset               
 (indisc.) community property.  And then, if that 1 percent is in              
 her estate, the other 99 percent would get this 100-percent-tax-              
 free step-up in basis.  So, it was a safeguard to do that."                   
                                                                               
 MR. BLATTMACHR continued, "The way it would work under Alaska law,            
 the husband and wife would each own 50 percent.  So, we would meet            
 that `at least 50 percent' standard.  It would be exactly 50                  
 percent."                                                                     
                                                                               
 REPRESENTATIVE ROKEBERG stated his belief that under provisions of            
 HB 199, which assets go into the trust could be designated.  He               
 asked whether that was correct and whether the purpose of that was            
 to be able to designate assets.                                               
                                                                               
 MR. BLATTMACHR said that was correct.  In the community property              
 agreement or community property trust, couples can pick and choose.           
                                                                               
 Number 1099                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked whether, under HB 199, a prenuptial             
 agreement could mandate an opt-in for community property, with the            
 further mandate that in the event of a divorce, an opt-out would              
 occur prior to the divorce.                                                   
                                                                               
 MR. BLATTMACHR said that was a two-part question.  First, HB 199              
 explicitly says that a couple can enter into a community property             
 agreement before marriage.  However, it will be effective if and              
 when they marry.  Second, Mr. Blattmachr did not believe a                    
 provision to opt in but mandate an opt-out in the event of a                  
 divorce would work.  Although as a matter of contract law, he                 
 supposed that could be done, it would not operate like community              
 property.  Therefore, he did not believe it would be treated as               
 community property for federal income tax purposes.                           
                                                                               
                                                                               
 Number 1190                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked whether there was a provision for               
 contracting certain classes of assets in the bill.                            
                                                                               
 MR. BLATTMACHR said yes, designations could be class-by-class.  For           
 example, stocks but not bonds could be community property, or                 
 residences but not nonresidential real estate, however the couple             
 wanted to designate their assets.                                             
                                                                               
 REPRESENTATIVE ROKEBERG stated, "I would be a lot more comfortable            
 if my scenario would be allowable here, and there seems to be some            
 question about that.  Maybe we should look at the law of prenuptial           
 agreements in the state of Alaska and codify it to go along with              
 this.  If I had more time, I might look at an amendment."                     
                                                                               
 MR. BLATTMACHR restated that although a couple could legally do               
 that under contract law, he was not sure it would be treated as               
 community property by the IRS.                                                
                                                                               
 Number 1272                                                                   
                                                                               
 CHAIRMAN GREEN, noting that Mr. Blattmachr had said "property,"               
 asked whether whatever became community property and subject to               
 this trust could be property outside of Alaska.                               
                                                                               
 MR. BLATTMACHR said that is true.  In fact, today if a California             
 couple uses their community funds to buy a piece of real estate in            
 New York, that is treated as community property under California              
 law.  He cited a personal experience.                                         
                                                                               
 CHAIRMAN GREEN asked, "What about the state with the real property            
 in it?  You're talking about an IRS agreement.  But what about, for           
 example, if it were in California or some state that has a                    
 significant property tax and other taxes?"                                    
                                                                               
 MR. BLATTMACHR said if someone owned a piece of property in                   
 Oklahoma, whether it was transferred to a trust, corporation or               
 partnership, the municipality would have the power to continue to             
 impose real estate taxes or an estate tax.  For example, the                  
 Commonwealth of Pennsylvania does not permit an unlimited marital             
 deduction.  However, if a Californian, Alaskan, or New Yorker owned           
 property there, Pennsylvania would impose its inheritance tax on              
 that.  The Supreme Court has ruled that a state may impose a                  
 (indisc.) tax on lands physically located within its borders, even            
 if the owner resides in a different state.                                    
                                                                               
 Number 1404                                                                   
                                                                               
 CHAIRMAN GREEN commented that all this addresses is the IRS.                  
                                                                               
 Number 1412                                                                   
                                                                               
 REPRESENTATIVE PORTER stated, "I'm given to understand that the IRS           
 has a large bucket of case law and regulation that they usually               
 look at as, `these kinds of things are shams or abusive                       
 avoidances,' and don't let you have it.  Aren't we getting kind of            
 close to that with the ability to select which assets we want to              
 put in and how long we want to keep them in?  And why wouldn't they           
 look at that as just an unnecessarily-too-good-a-deal-way to avoid            
 taxes?"                                                                       
                                                                               
 MR. BLATTMACHR replied that first is the real-world impact.  Each             
 spouse owns half of the community property.  To opt out assets                
 previously designated as community property requires both spouses'            
 consent.  For assets worth considerable money, he did not see that            
 as being easy.  In addition, from practicing in California, he knew           
 that couples often opt in additional property for exactly the                 
 reasons Alaskans might, the step-up in basis.  When a couple in a             
 long-term, happy marriage comes to see a lawyer, often that lawyer            
 will ask what assets they own that are not community property and             
 then explain that if they want this income tax benefit, they should           
 convert those into community property through an agreement.                   
                                                                               
 MR. BLATTMACHR advised members that sometimes there are also estate           
 tax reasons to make community property into separate property, such           
 as avoiding the estate taxation of certain life insurance.  And               
 that is done every day.  "And I've never heard of the IRS even                
 suggesting that it could challenge it on the ground that somehow              
 the taxpayers are unfairly manipulating the ownership of their                
 property to get an unwarranted tax break," he concluded.                      
                                                                               
 Number 1531                                                                   
                                                                               
 CHAIRMAN GREEN indicated he had questions regarding the IRS.  He              
 announced it was not his intention to move HB 199 that day.                   
                                                                               
 MR. THWAITES testified via teleconference that from his practice in           
 Alaska as an estate planning attorney and doing probates, this bill           
 would favorably affect one or two clients a week.  Through probates           
 over the years, he had observed many times when Alaskans would have           
 benefited by the dual step-up in basis.  Mr. Thwaites believed                
 having that option would be a wonderful opportunity for most Alaska           
 residents.                                                                    
                                                                               
 Number 1585                                                                   
                                                                               
 CHAIRMAN GREEN agreed and indicated that the committee would not              
 unduly hold the bill.                                                         
                                                                               
 MR. THWAITES mentioned that he had done audits with the IRS                   
 relating to capital gains treatment of property, such as for an               
 "ARCO couple" who came up from Texas.  When that couple rolled over           
 capital gains from their Texas home to Alaska, the IRS had                    
 recognized the dual step-up in basis for the Alaska home, where               
 that uniform act had been used.                                               
                                                                               
 Number 1617                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked whether this bill would affect the              
 existing provisions of Alaska statute as they relate to tenancies             
 by the entirety and other "co-tenancy allowables" in Alaska.                  
                                                                               
 MR. THWAITES replied, "No, it would not.  It would add an                     
 additional category, which is the category of community property."            
                                                                               
 REPRESENTATIVE ROKEBERG said Alaska has no joint-tenancy-with-                
 right-of-survivorship statute, as some states do.  He asked whether           
 Mr. Thwaites believed this would be an additional benefit.  He                
 further asked whether those jurisdictions having joint tenancy with           
 right of survivorship enjoy the step-up in basis.                             
                                                                               
 MR. THWAITES replied that this would only affect husbands and                 
 wives.  It would be much the same as tenancy by the entirety, in              
 that it would only affect marital couples.  "And in those                     
 situations, they already have the joint ownership with right of               
 survivorship," he stated.  "So, it wouldn't change that, but it               
 would add the additional benefit of this double step-up in basis."            
                                                                               
 Number 1681                                                                   
                                                                               
 REPRESENTATIVE CROFT asked, "Why shouldn't we get rid of tenancy by           
 the entirety if we've got this?"                                              
                                                                               
 MR. THWAITES replied, "Because there are a lot of Alaskans who will           
 not opt for the community property status and will still want to              
 retain the joint tenancy with right of survivorship for, perhaps,             
 the bank account or some other piece of property, especially those            
 situations where there is a second or a third marriage and the                
 couple together wants to acquire recreational property or                     
 residential property under the tenancy by the entirety (indisc.)."            
                                                                               
 Number 1707                                                                   
                                                                               
 REPRESENTATIVE CROFT stated his understanding that for tenancy by             
 the entirety, there is an automatic right of survivorship, whereas            
 in community property "you can do it by regular will."  He said               
 they were distinct not just in tax consequence but in legal effect            
 as well.                                                                      
                                                                               
 MR. THWAITES concurred.                                                       
                                                                               
 RICHARD W. HOMPESCH II, Attorney at Law, Hompesch and Associates,             
 PC, testified via teleconference from Fairbanks, saying he had been           
 in practice for 13 years.  He stated, "I feel that the difference             
 in tax treatment between community property states and states like            
 Alaska is an injustice.  There's no reason that surviving spouses             
 in Alaska should pay more income taxes than surviving spouses in              
 community property states."  He stated his belief that HB 199 would           
 correct that situation.                                                       
                                                                               
 MR. HOMPESCH reported that he had seen up to half a dozen clients             
 in the past few weeks who were waiting on their estate planning to            
 see whether HB 199 passed, as they wanted to elect community                  
 property.  He urged passage of the bill and concluded by saying he            
 agreed with the testimony he had heard thus far.                              
                                                                               
 REPRESENTATIVE ROKEBERG asked Mr. Hompesch whether his specialty is           
 domestic relations or estate planning and taxation.                           
                                                                               
 MR. HOMPESCH said his practice is limited to estate planning,                 
 probate and taxes.  He does no domestic relations work.                       
                                                                               
 Number 1798                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG suggested that Mr. Hompesch's view of the             
 bill, then, was as an estate planning tool, not a domestic                    
 relations tool.                                                               
                                                                               
 MR. HOMPESCH replied that obviously it has impact in the event of             
 divorce.  He added that most of his clients who do estate planning,           
 believe it or not, do not get divorced.                                       
                                                                               
 Number 1817                                                                   
                                                                               
 LINDA HULBERT, Insurance Agent, testified via teleconference from             
 Fairbanks.  A 28-year resident there, she had been an agent for               
 eight years.  She had helped many people to do their planning, and            
 she believed many people without a lot of assets would benefit from           
 this bill.  Many worry about providing for their spouses after they           
 die.  Many have recreational property, for example, and there may             
 be difficult taxation issues on capital gains.                                
                                                                               
 MS. HULBERT stated her belief that it is important in many                    
 different situations, although not so much with real property, to             
 be able to use that double step-up in basis.  She believes it will            
 help a broad spectrum of Alaskans, not only those who are                     
 necessarily doing estate planning now, but also those who can                 
 realize the impact that this will make on their surviving spouses'            
 well-being.  She encouraged rapid passage of the bill.                        
                                                                               
 Number 1901                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG noted that although HB 199 had been heard             
 by the House Labor and Commerce Committee, he had been unable to be           
 there.  He had talked with a few members of the Alaska Bar                    
 Association (ABA) about it and had tried unsuccessfully to connect            
 with the family law section of the ABA.  He suggested it would be             
 remiss to act on this bill without input from the family law                  
 section and perhaps from additional people dealing with estate                
 planning.                                                                     
                                                                               
 REPRESENTATIVE ROKEBERG said he believed the bill had merit but               
 could have a significant impact on domestic relations law.  He                
 emphasized that most of the testimony that day related to estate              
 planning and commercial aspects of the bill, not the domestic                 
 relations aspect with regards to Alaska law.                                  
                                                                               
                                                                               
 Number 1953                                                                   
                                                                               
 REPRESENTATIVE CROFT said he would like to echo that; he said that            
 was part of the reason he had drafted his amendment (not yet                  
 offered).  He expressed willingness to conclude that the bill has             
 a good estate planning purpose and achieves it in the right way.              
 However, he did worry about its real-world impact, as Mr.                     
 Blattmachr had discussed.  Representative Croft indicated the                 
 desire for input from the family law section as well.                         
                                                                               
 CHAIRMAN GREEN stated, "One of the questions I would like to have             
 put on the record is that we had been led to believe that this                
 would actually be of great consequence to the state because there             
 would be people bringing large sums of money for the estate                   
 planning.  And could you tell us how that will benefit the state?"            
                                                                               
 MR. THWAITES replied, "I believe that the outside funds coming to             
 the state will have to come in through some sort of trust                     
 relationship.  So, you're probably looking at the banks, trust                
 companies and so forth (indisc.--background noise) there,                     
 additionally, the accountants, (indisc.) and attorneys that are               
 involved in doing that planning, because they're going to want                
 local contacts to do that."                                                   
                                                                               
 MR. THWAITES continued, "I did talk with, just as a matter of fact,           
 with one of the (indisc.) court judges regarding the divorce                  
 aspects, and I met with the family law section of the bar, as well,           
 and didn't receive any adverse inquiries there about what the bill            
 would do and what impact it would have.  They suspected, as the               
 superior court judge pointed out, it might be the first time in               
 their career as a family law lawyer that they might have not only             
 one but maybe even two people walking away from the relationship              
 and were happy with it."                                                      
                                                                               
 MR. THWAITES continued, "There is a lot to planning these community           
 property agreements, and the debtor and other relationships of the            
 real-world aspects are probably best left to those practicing in              
 the area of family law.  So, I suspect it will open up an area of             
 their practice they haven't experienced before."                              
                                                                               
 Number 2070                                                                   
                                                                               
 REPRESENTATIVE JAMES noted that the bill was brought to them and              
 "sort of sold on" an expansion of the trust bill passed previously.           
 However, they had discussed it in a totally different light, as a             
 benefit separate from the trust issue.  She asked for confirmation            
 that this would become an advantage for those people who might                
 otherwise be planning to put their money in a trust, as another way           
 they could avoid some tax.                                                    
                                                                               
 MR. THWAITES said coupled with the step-up in basis, it would be              
 highly attractive to many people with low-basis property coming to            
 the state of Alaska to establish these trusts.                                
                                                                               
 Number 2140                                                                   
                                                                               
 REPRESENTATIVE BUNDE asked whether the economic impact would relate           
 to people already in the state who would expand their businesses.             
 He further asked whether they were talking about people moving                
 their property to the state rather than actually moving to Alaska,            
 as well as whether there was a sufficient cadre of Alaskans who               
 would handle the anticipated business.                                        
                                                                               
 MR. THWAITES said he did not know.  He stated, "I do think we do              
 have the sufficient cadre now to do it.  I believe that if the                
 demand picks up, if it picks up as -- perhaps to meet that                    
 trillion-dollar industry that's out there, then definitely we don't           
 have, and you're going to end up with more people here.  Mr.                  
 Manley, the other day, indicated to me that an East Coast trust               
 department was looking at coming to the state and perhaps trying to           
 open up a business here as well, because of the articles in the               
 national journals that have appeared already ... for the trust                
 bill."                                                                        
                                                                               
 MR. THWAITES continued, "Likewise, I think that you will find the             
 experience of other jurisdictions is that those people who have the           
 assets aren't going to give the assets to somebody they aren't                
 going to come and visit.  And, principally, if you're looking at              
 one of Mr. Blattmachr's clients with $20 million, I suspect they're           
 not going to fly up here in coach; I suspect they're going to fly             
 up first-class and visit the institution that will be handling                
 their account."  He said he suspected that a fair amount of tourism           
 would result from it, if it takes off.                                        
                                                                               
 REPRESENTATIVE ROKEBERG asked Mr. Thwaites whether there is any               
 other method, under existing Alaska trust law, to accomplish                  
 similar benefits for existing residents.  He provided an example:             
 If one set up a irrevocable life estate, with proceeds going to the           
 surviving spouse and "for further disposition at the surviving                
 spouse's death," was there not a step-up in basis at that time?               
                                                                               
 MR. THWAITES replied, "Yes, Representative Rokeberg, there is.  It            
 would be the gamble of who's going to die first.  And estate                  
 planning would be a lot easier if you could get commitments from              
 the spouse as to which one predeceased the other."                            
                                                                               
 MR. THWAITES continued, "... to get the step-up in basis using the            
 device you're talking about, you need to make a commitment to                 
 allocate that asset either to one side or the other.  Likewise, if            
 one of the spouses had a terminal illness and you attempted to do             
 that, it would still require a year to pass before the service                
 would recognize it for the step-up in basis purposes.  And it's not           
 nearly as open and free as this bill would be."                               
                                                                               
 REPRESENTATIVE ROKEBERG responded, "I understand that.  But there             
 is a mechanism for existing residents to be able to estate-plan               
 potentially; is that your testimony?"                                         
                                                                               
 MR. THWAITES said it would be a 50-percent gamble.  He stated, "You           
 have to gamble that one spouse is going to predecease the other               
 spouse to make it work."                                                      
                                                                               
 (HB 199 was held over.)                                                       
                                                                               
 ADJOURNMENT                                                                   
                                                                               
 Number 2309                                                                   
                                                                               
 CHAIRMAN GREEN adjourned the House Judiciary Standing Committee               
 meeting at 3:20 p.m.                                                          
                                                                               

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