HB 503 - CONTRIBUTIONS FROM PFD'S TO NONPROFITS Number 1175 CO-CHAIR BUNDE announced that he would turn the gavel over to Co- Chair Toohey because HB 503 was his bill. CO-CHAIR BUNDE, Sponsor, said he would present the bill and also had an amendment for the committee's consideration. He stated there had been previous attempts to place a check off on the permanent funding dividend (PFD) application; however, it had always resulted in numerous other requests and became unworkable. Basically, HB 503 would allow an individual to make a contribution by check off to a nonprofit corporation if the nonprofit meets the threshold of 10,000 signatures. This bill would allow nonprofits, who have at least 10,000 signatures of Alaskan residents, to achieve status on the PFD application. Number 1273 TIFFANY SARGENT, Staff Intern to Representative Toohey, presented the following sponsor statement: "House Bill 503 would allow nonprofit organizations that can get 10,000 signatures of permanent fund dividend eligible individuals to be placed on a check off list at the end of the permanent fund dividend application. That would allow the applicant the opportunity to make a donation of $25, $50, $100, $500 or the total amount of the dividend to the nonprofit organization of their choice on the list. It also allows a nonprofit organization the opportunity to appear in random order on a yearly basis simply by providing proof of their existence to the Department of Revenue, as requested. Subsection (d) stipulates that a nonprofit organization convicted of a state or federal crime cannot appear on the contribution list, which may deter them from illegal operations." CO-CHAIR TOOHEY asked if an organization would remain on the check off list every year or were they required to get 10,000 signatures every year? MS. SARGENT said an organization can appear every year simply by providing proof of their existence. The Department of Revenue may contact an organization, such as the Red Cross, by telephone to ensure they are still in existence. CO-CHAIR BUNDE said an organization less well known than the Red Cross would have to maintain their nonprofit status, and if questioned by the department would be required to provide proof of their nonprofit status. In order to maintain that status, the organization cannot have committed any criminal acts. REPRESENTATIVE ROBINSON said she supported ideas that would get money to nonprofit corporations, but she had some procedural concerns. For example, who would determine if the 10,000 signatures were valid? She questioned if these individuals would have to be registered voters. MS. SARGENT replied that individuals have to be eligible permanent fund dividend applicants. That means a 4-year old child who is eligible for a permanent fund dividend could sign the petition. REPRESENTATIVE ROBINSON repeated her question of who would determine the validity of the 10,000 signatures. MS. SARGENT responded it would be the Department of Revenue's responsibility to ensure the 10,000 individuals meet the permanent fund dividend eligibility requirements. REPRESENTATIVE ROBINSON asked why the decision was made to go with each individual nonprofit instead of through larger nonprofit organizations, like United Way for example. CO-CHAIR BUNDE explained the problem in the past had been that 4800 nonprofit organizations requested a check off on the dividend application and it became too burdensome and costly. REPRESENTATIVE ROBINSON questioned what the result would be if all 4800 nonprofits got the 10,000 signatures. CO-CHAIR BUNDE responded that was unlikely. In fact the concern that had been voiced to him by some of the nonprofits is they wouldn't be able to get 10,000 signatures. He explained the threshold has to be set high enough so the program would be manageable. REPRESENTATIVE ROBINSON inquired about the nonprofits in rural communities that don't have a population of 10,000. In her opinion, this could be somewhat discriminatory to the smaller organizations and small communities. She stated that United Way funds almost all private nonprofits that qualify as nonprofit organizations. Number 1582 MS. SARGENT said that a number of groups had previously brought that to her attention. The thinking is that smaller organizations with similar interests could unite and form a larger group, thereby making it possible to reach the 10,000 signatures. CO-CHAIR BUNDE added that many of the agencies represented by the United Way work statewide. For example, if the Boy Scouts organization is on the list, their services are not limited to just urban areas; they are statewide. REPRESENTATIVE ROBINSON referred to a situation where a statewide organization had been convicted of a violation in one community and asked how it would be determined that no contributions were sent to the organization in that community. MS. SARGENT pointed out that subsection (d) clearly stated that an organization cannot appear on the contribution list if they are convicted of a crime. REPRESENTATIVE BRICE felt this would definitely have an impact on the resources of nonprofits, either in volunteer resources where individuals are volunteering to get the signatures or in money resources where smaller nonprofit organizations in rural communities would be contracting with an organization in Anchorage for example, to obtain the necessary 10,000 signatures for a predetermined cost per signature. CO-CHAIR BUNDE said he couldn't imagine an organization getting involved with the program if there wasn't going to be a net gain. He viewed the program from the perspective that the nonprofit organizations are not receiving money currently. Obviously, the ideal situation would be for people to write a check to their favorite nonprofit organization after receiving the permanent fund dividend. It is also a fact of human nature that it is easier to make a check mark on a dividend application than it is to remember to send a check. This legislation allows a potential source of income for nonprofits that does not exist previously. Number 1836 NANCI JONES, Director, Permanent Fund Dividend Division, Department of Revenue, testified in opposition to HB 503. She stated it does not associate the cost with the deed. The fiscal note submitted spells out the division's obligation to administer this program. In 1986-89, the Olympic check off was included on the dividend application, and was a very successful program because it was administered by the Department of Administration. On the other hand, HB 503 places the sole burden of the administration on the permanent fund dividend division. The division would have to 1) certify whether a nonprofit would be eligible for this program, which would include sending out a questionnaire and petition to the nonprofit, and then processing the questionnaire; 2) the division would need to determine if the nonprofit was eligible because a nonprofit registered in the state or incorporated as a nonprofit, is not necessarily eligible to be a 501(c)(3) according to the Internal Revenue Service; that is a separate registration mechanism; and 3) contrary to previous testimony, the petitions must be signed by adults, but the contributions could be made from a child's dividend. According to the Department of Commerce & Economic Development, there are 4,397 organized nonprofits in the state. In 1994, the Fair Business Practices Section of the Department of Law started a charitable contribution registry for nonprofits in the state of Alaska. Due to the lack of funding, they were unable to keep the registry current with addresses, registrations, etc. She pointed out that every time the division received a petition, at least 10,000 names would need to be data captured and a tape match run with the dividend file. MS. JONES pointed out that currently the options for the permanent fund dividend are all or nothing. For example, the entire dividend is deposited in the direct deposit program; the Advanced College Tuition, a university sponsored program is 50 percent or the balance remaining and; court ordered levies. Agencies like postsecondary education provide the division with a computer tape containing names and addresses of individuals which are matched against the permanent dividend computer file. House Bill 503 would require paper transactions versus tape transactions. The division believes the donor should incur the cost to donate to the charity, and the charity should absorb the cost of solicitation. Number 2017 CO-CHAIR BUNDE asked if the division's concern would be reduced if there was a way to either pay the division or for the nonprofit to present a certified list to the division. MS. JONES responded the division's cost would certainly be reduced if there wasn't a need to incur any computer time. She commented the division sells the list of permanent fund dividend applicants, so it is possible that a private company could do the tape match. CO-CHAIR BUNDE guessed that for about $1,000 a company could verify the list. He agreed with Ms. Jones' comment that the cost of the check off should be borne by the nonprofit benefitting from it. Co-Chair Bunde noted the fiscal note submitted by the division was quite generous because the division was anticipating a great number of participants. He asked Ms. Jones to estimate what the charges would be to a nonprofit for the check off if there were only 25 or 50 participants. MS. JONES directed the committee members' attention to the second page of the fiscal note and said there were certain costs the department would have to incur. CO-CHAIR BUNDE asked if it was the department's position that they would have to send forms to people and solicit participation, or that the forms would be sent upon request. MS. JONES said the assumption was the forms would be sent upon request. As far as the cost to the division she said the first thing would be to create the forms. Following that would be the collection process of a data entry program because there would be various options: what amount did the applicant check off, determine whether or not the individual was eligible to receive that much of their dividend and if not, edit decisions would have to be made. To establish the initial program the department would incur the same amount of cost regardless of the number of participants. She explained there is a request for an accounting clerk position to handle the petitions and deal with the nonprofits. A data entry clerk would be needed to enter the data. The other large cost is contractual services for printing, postage, etc. The number of nonprofit participants is uncertain, but currently one two-sided page in the dividend package is $8,900. The requirement contained in the bill for random order renumbering, would require reprogramming every year and would increase the cost. The only element that is cost allocated to the number of petitions received is the data entry clerk. The number of nonprofit participants would be a factor in the printing costs as well. Number 2254 REPRESENTATIVE ROBINSON asked how the division would determine if a nonprofit had been convicted of a state or federal crime. MS. JONES said aside from just asking a nonprofit on a registration form, there would need to be some type of secondary checking process. REPRESENTATIVE ROBINSON cited a hypothetical situation of the Southeast Council with a chapter in various communities. The Southeast Council obtains the required 10,000 signatures, but one of the chapters has been convicted of a crime. She asked how that situation would be handled by the division? MS. JONES said her interpretation of HB 503 is that each individual registered incorporated nonprofit has the right to petition. If they work under one chapter or one charter, then they are considered one chapter or one charter. Otherwise, it would be a one-to-one relationship. CO-CHAIR BUNDE said he would like to move the amendment addressing one of the concerns raised by the division, which states that if an applicant checks off more money than they are receiving, the application is thrown out. Also, he would like the committee to review the letters of support from organizations and bring the bill before the committee at a later date for further consideration. TAPE 96-26, SIDE B Number 001 REPRESENTATIVE ROKEBERG asked if Alaska had anything like a 501(c)(3) federal definition of nonprofit corporation in statute? MS. JONES said not that she was aware. According to the Department of Commerce & Economic Development it is a separate registration process in order to be recognized by the Internal Revenue Service as a nonprofit. REPRESENTATIVE ROKEBERG inquired if Alaska has a nonprofit corporation classification? MS. JONES responded yes. She explained that a corporation applies to the state to do business within the state's boundaries. The corporation papers, charter, organization by-laws, etc. are submitted to the Department of Commerce & Economic Development. The corporation is then registered as a corporation allowed to conduct business in the state of Alaska. Whether the corporation is for profit or nonprofit depends on their objective for creating the corporation. REPRESENTATIVE ROKEBERG asked if he was correct in saying there is no such thing as a nonprofit corporation, there's only corporations in Alaska. MS. JONES responded no, there are nonprofits recognized because of their objectives within the state. REPRESENTATIVE ROKEBERG verified it was based on the objective given in the incorporation papers. Number 066 CO-CHAIR BUNDE moved to adopt Amendment 1. Representative Brice objected for discussion purposes. REPRESENTATIVE BRICE asked Co-Chair Bunde to verify he wasn't referring to PFD applications being thrown out in his earlier statement. CO-CHAIR BUNDE confirmed that was the case. REPRESENTATIVE BRICE withdrew his objection. CO-CHAIR TOOHEY asked if there were further objections. Hearing none, Amendment 1 was adopted. She announced that HB 503 would be held in committee.