SENATE BILL NO. 393 "An Act relating to default on tuition, fees, and other charges of the University of Alaska and to claims on permanent fund dividends for tuition, fees, and other charges of the University of Alaska that are in default." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken informed the Committee that this bill, which is sponsored by the Senate Finance Committee, would authorize the University of Alaska to garnish an individual's Permanent Fund Dividend (PFD) for payment of defaulted tuition fees, and other fees owed to the University. He noted that Version 23-LS1945\A is before the Committee. PAT PITNEY, Director of Budget Development and Institutional Planning, University of Alaska, testified via teleconference from an offnet site and expressed that "the University is looking for every way to maximize its generated revenue." This bill would implement a means through which the University could collect on outstanding loans in a fashion similar to that utilized by the Alaska Student Loan Corporation (ASLC) that allows it "to garnish PFDs for past due or defaulted debt." Language in the bill would assure that due process would be observed. This is a "safe bill" which would allow the University to collect, in the first year, approximately $400,000. The amount collected would decrease over time as outstanding debt is reduced. There are approximately 1,700 individuals with outstanding University debt. Through coordinated efforts with the Department of Revenue's Permanent Fund Dividend Division, assurances have been established to insure that the University's PFD garnishment attachment would align with other Permanent Fund Dividend attachment policies. DARWIN PETERSON, Staff to Senator Gary Wilken, Co-chair of the Senate Finance Committee reiterated that the University debt collection process being proposed is similar to that utilized by the ASLC. He characterized the University's current collection process as being "aggressive" in that five separate collection notices are sent out over a six month period, with additional notices offering deferred payment plans in addition to utilizing collection agencies. However, regardless of these efforts, in excess of one million dollars in 180-day or longer debt remains outstanding. The University estimates that of that amount $800,000 is attributable to students who collect PFDs. In order to provide the maximum protection to citizens, the proposed methodology would specify that extensive notification, warning, and an appeals process must be implemented prior to garnishing an individual's PFD. Mr. Peterson estimated that half of the $800,000 original debt could be collected the first year were this program implemented, and that in subsequent years, $100,000 could be collected annually. The proposed legislation would provide the University "one additional avenue" through which to collect, rather than "write off", debt. SHARON BARTON, Director, Permanent Fund Dividend Division, Department of Revenue, stated that the legislation being proposed is "straight forward" and would not present any implementation obstacles. The Division would experience an initial one-time expense related to computer reprogramming to allow the University garnishment. Senator Bunde questioned how University tuition could be delinquent, as he understood that tuition is typically collected in advance. Ms. Pitney affirmed that the University's policy is that students pay up front; however, she allowed that the delinquency process is intensive in that when the financial committee reviews students who are past due in their payments a multitude of factors are at play such as students being delinquent due to anticipated financial aid that does not occur; students who "have an intent to pay" that does not transpire; and essentially the students "are looked at and accepted as a risk that follows through at some point." She opined that the one million dollar delinquency total, out of a $60 million dollar total, "relatively speaking is a small amount." Being able to collect $400,000 of the one million dollar total would be worth the endeavor. She noted that in addition to tuition delinquencies, other delinquent charges included in the total include such things as dorm room damages and parking fees. Senator Bunde encouraged the University to strengthen its tuition bad debt collection policy as holding students responsible for their obligation is part of the learning experience. He recalled that financial aid checks often identify both the student and the school in order to insure that the funds would be spent appropriately. Senator Bunde questioned the appropriateness of placing the garnishment of PFDs for University delinquencies ahead of garnishments for domestic violence delinquencies and Alaska Court matters, as denoted in the payment priority list denoted in Section 2 of the bill on page two, beginning on line nine. SFC 04 # 95, Side B 09:49 AM Ms. Pitney responded that the rationale for placing the University garnishment as number four of eight is that this would place the University's garnishment behind that of the Alaska Student Loan Corporation. This rationale was the impetus for its placement. Senator Bunde pointed out that there "would be potential costs to the State" were the University to maintain the number four position on the garnishment priority list, as such things as Court ordered fines would be secondary to the University's garnishments. Co-Chair Wilken characterized the University's placement on the priority list as being "somewhat objective." Ms. Pitney agreed. Co-Chair Green questioned why this legislation is necessary, as she understood that, in addition to an agency of the State being able to collect such things as child support debt from an individual through the PFD garnishment process, anyone could garnish anything for a proven debt through the legal process. Co-Chair Green also questioned whether the University's collection in this manner is appropriate or whether the University's fiscal note, dated April 23, 2004 is correct as it indicates that it would cost $400,000 to collect $400,000. Ms. Pitney responded that the fiscal note might not be correctly presented, as the intent of the University would be to add one staffing position to develop the collection program the first year. The associated expense, she continued would amount to $100,000 of the anticipated $400,000 revenue in FY 05. The $300,000 revenue balance, she stated, would be distributed to other University components. In subsequent years, the cost of managing the program would be minimal. Co-Chair Wilken understood therefore that the fiscal note depicts that, in FY 06, it would cost $30,000 to collect $350,000. Ms. Pitney concurred that that is the intent. Co-Chair Green opined that the fiscal note should be re-worked, as the intent is not properly reflected. Co-Chair Wilken stated that the fiscal note would be re-worked. Co-Chair Green restated her earlier argument that due to language in Section 2, subsection (b) on page two, beginning on line 26, the University is already qualified to garnish an individual's PFD as it is an agency of the State. Ms. Pitney clarified that the language does not apply to the University as it, like the Alaska Student Loan Corporation, is recognized as a separate entity rather than an agency of the State. Therefore, she clarified that the language in Section 2, subsection (b)(4) is required to allow the University, as a separate entity of the State, to collect outstanding debt via the PFD garnishment. (4) claims on defaulted tuition, fees, and other charges of the University of Alaska under AS 43.23.073; Ms. Barton could not speak regarding whether or not the language would be required; however, she noted that this legislation would provide the University the authority to garnish up to 100-percent of an individual's PFD rather than "80-percent which is standard for other garnishments not included under this exemption." Co-Chair Green understood therefore that absent this legislation, a maximum of 80-percent could be garnished. Ms. Barton affirmed. Senator B. Stevens understood therefore that the entities specified in Section 2, subsection (b) would be entitled to garnish 100- percent of a PFD, and that those not listed could collect up to a maximum of 80-percent. Senator B. Stevens voiced confusion to the comment that the University would not qualify as an agency of the State under the language on line 26 of Section 2, subsection (b). Co-Chair Wilken expressed that clarification would be forthcoming regarding whether or not the University could be recognized as an agency of the State. Senator B. Stevens asked for confirmation that the priority listing pertaining to garnishments would be conducted in the order reflected in Section 2, subsection (b). Ms. Barton stated that a clarification of the intent of the priority listings would be forthcoming. Co-Chair Wilken ordered the bill HELD in Committee in order to further address the fiscal note concern, the agency status concern, and the priority list ranking order concern.