HB 369 - PROPERTY EXEMPTIONS CHAIRMAN ROKEBERG announced that the next item of business would be HOUSE BILL NO. 369, "An Act relating to property exemptions under the Alaska Exemptions Act; and providing for an effective date." Number 0508 JOHN MANLY, Staff to Representative John Harris, Alaska State Legislature, introduced HB 369 on behalf of the sponsor. He explained that HB 369 makes changes to Title 9, Chapter 38, commonly called the Alaska Exemptions Statute. The bill increases the dollar amounts of specified assets that are currently in the statute and provides some new protection to assets that currently are not covered. The current statute specifies what assets are protected from creditors when a person loses a lawsuit and has a judgment entered against him. It also applies in those cases of bankruptcy in which the person going bankrupt chooses to take the state rather than the federal exemptions. MR. MANLY said HB 369 will increase the homestead exemption to $250,000 per individual. It would also increase to $250,000 the exemption for the cash value of a life insurance policy or annuity contract which is owed to the individual seeking the exemption. It provides an unlimited exemption on the proceeds or a life insurance contract or annuity paid to a beneficiary. It also increases from six months to two years the time allowed to trace assets. MR. MANLY described the new provisions that HB 369 is proposing. One is to protect the reserves that are kept by condominium associations, such as dues that have been paid and are designated for upkeep of the property. The bill also protects deferred compensation plans, provides a very limited cash and liquid asset exemption of up to $8,075, and changes how some revocable trusts are treated. It also makes some changes to how indexing of the exemption would be figured over each year in relation to the Consumer Price Index (CPI). Number 0675 REPRESENTATIVE BRICE asked when the $5,400 number was established. MR. MANLY said he thinks it was in 1982, and that it has been updated two or three times since. CHAIRMAN ROKEBERG asked who brought this bill forward. MR. MANLY said some trust attorneys asked Representative Harris to introduce it. Number 0732 STEPHEN GREER, Attorney, said HB 369 originated about two years ago, following a fire that caused a devastating financial loss to a complex that has hundreds of units. Some tenants who were renting units sued the condominium association. Fortunately, the judgment was less than the amount of the association's insurance coverage. Had it not been less, all of the condominium association's reserves could have been depleted, and hundreds of people could have been dispossessed of their units because there would have been no money to pay utility bills and to pay for future maintenance and repairs. MR. GREER said an exemption signifies that there is a public policy decision behind an individual's right to keep a particular asset. For example, in the condominium case, there would be a public policy decision behind letting dues be used for the purposes for which they were intended. HB 369 also includes exemptions not presently contemplated by the current statute, such as deferred compensation plans for government employees, plans which are not now exempted despite the fact that they are comparable to a 401K plan in the private sector, which is exempt. Number 0893 CHRIS MILLER, Chief, Research Section, Division of Administrative Services, Department of Labor and Workforce Development (DOLWD), concurred with reservations expressed by Chairman Rokeberg. He recommended using the United States all-city CPI instead of the Anchorage CPI, as specified by HB 369. The United States all-city average is calculated monthly rather than just semi-annually, he noted; it includes more data points and is less volatile. Number 1090 REPRESENTATIVE BRICE asked if the DOLWD had any other concerns about HB 369. MR. MILLER said DOLWD has technical concerns regarding the inflation index. One is that there is no January CPI index for Anchorage, as is specified in the bill. Second, DOLWD recommends using the full inflation factor throughout the calculations and rounding it only at the end. Number 1169 REPRESENTATIVE MURKOWSKI asked Mr. Greer whether most of the exemptions in HB 369 mirror federal ones. MR. GREER said some do. The insurance exemption is more than what the federal government would allow. The homestead exemption matches the one in a bill now before the federal House of Representatives. REPRESENTATIVE MURKOWSKI asked how much of a life insurance exemption the federal government currently allows. MR. GREER said the federal government allows a life insurance cash value of $8,625, so Alaska's present statute is generally in line with federal bankruptcy exemptions. He went on to explain that there is nothing in Alaska's current law to protect life insurance beneficiaries from the policy owner's creditors. Most states offer that protection. Number 1352 REPRESENTATIVE MURKOWSKI expressed concern about the unlimited protection proposed for a condominium homeowners association. She wondered if a homeowners association might contrive to take advantage of that. MR. GREER said he doesn't think there is any potential for that happening. CHAIRMAN ROKEBERG asked Mr. Greer if he had talked with someone who represents the condominium community associations. MR. GREER said the associations wonder how they can collect dues from a member protected by the $8,075 cash exemption. CHAIRMAN ROKEBERG said that is a separate issue. [There was concurrence by committee members.] [CHAIRMAN ROKEBERG and Mr. Greer then discussed whether the exemptions included in HB 369 might affect alimony claims, child support, or divorce settlements.] MR. GREER said none of those would be affected because the exemptions protect the joint interest from a third-party creditor. CHAIRMAN ROKEBERG asked Representative Harris to work with DOLWD on the department's suggested technical changes, and to bring those recommendations to the next committee of purview, the House Judiciary Committee. Number 1654 REPRESENTATIVE HALCRO made a motion to move HB 369 out of committee with individual recommendations and the attached zero fiscal note. There being no objection, HB 369 was moved out of the House Labor and Commerce Standing Committee.