HB 273-PFD: DELAY PAYMENT FOR ALLOWABLE ABSENCES  8:57:01 AM CHAIR SEATON announced that the next order of business was HOUSE BILL NO. 273, "An Act relating to the dividends of individuals claiming allowable absences; and providing for an effective date." 8:57:06 AM LINDA SYLVESTER, Staff to Representative Bruce Weyhrauch, Alaska State Legislature, presented HB 273 on behalf of Representative Weyhrauch, sponsor. Ms. Sylvester said the Alaska permanent fund dividend (PFD) was initiated to provide Alaskans with a share of the state's resource wealth, primarily derived from oil. She explained that, through statute, some exemptions were allowed which made it possible for some Alaskans living out of the state to still receive a PFD. She said all that is necessary for individuals to do to receive approval for an allowable absence is to make a simple statement that they intend to return to the state. She said it is an honor system, and asked, "But does the system really work?" MS. SYLVESTER said the Permanent Fund Division recently issued an estimate that the average rate of return of individuals out of state on allowable absences was 30 percent. The division estimated that over a nine-year period, the sum of the dividends paid to those absent more than 180 days who never returned to the state was $86.1 million. MS. SYLVESTER noted that HB 273 has a "requirement for return." Knowing that a sizeable nest egg has accrued in their absence, both college students and military personnel may be encouraged to return to Alaska, which could increase the amount of money spent in the state. MS. SYLVESTER noted that a potential constitutional problem was raised by the Office of the Attorney General: If the Permanent Fund Division determines that an individual living out of state is eligible [to receive a PFD], that person may be considered by the courts to have a property interest in the dividend. She said the solution to that was to amend the eligibility statutes to make a person out of state on an allowable absence to be "conditionally eligible." The condition for eligibility would be completed once that person returned to Alaska, she explained. However, if an individual out of state on an allowable absence were to die, their estate would be paid. 9:01:46 AM MS. SYLVESTER acknowledged that Chair Seaton had introduced the idea for this bill last year. She indicated that one aspect of his bill that was "picture perfect" was that it didn't assume that people were committing fraud or misleading the Permanent Fund Division by stating that they will return to the state, it just asked them "to complete that thought and come back to the state in order for them to collect their share of Alaska's resources." 9:02:35 AM REPRESENTATIVE GATTO moved to adopt the committee substitute (CS) for HB 273, Version 24-LS0871\G, Cook, 5/3/05, as a work draft. There being no objection, Version G was before the committee. 9:03:47 AM REPRESENTATIVE LYNN said if a military person stationed in Alaska is serving in Iraq, for example, odds are that his/her spouse and children are in Alaska and the need for the money from the PFD is imminent because bills need to be paid. He asked Ms. Sylvester to address that concern of his. 9:04:36 AM MS. SYLVESTER said prior to 1982, Alaskan's did not receive a PFD. The dividend, she added, is not a guaranteed entitlement to the citizens of Alaska. She indicated that it will be a hardship for those living out of state [to have to wait for their PFD payments]. She reminded the committee that those who collect a PFD but don't return to the state are a detriment to other Alaskans who continue to live in the state. 9:05:38 AM CHAIR SEATON asked if it is known how many military personnel's spouses and children leave the state to accompany them while they are away on an allowable absence versus how many remain in the state. 9:06:29 AM MS. SYLVESTER deferred comment to a representative of the Permanent Fund Dividend Division. Notwithstanding that, she said, "16 percent actually do return to the State of Alaska." 9:07:00 AM REPRESENTATIVE LYNN said he understands that the PFD is not an entitlement; nonetheless, people do depend on it. He stated that many people in the military service receive such a low salary that their spouses must stay in Alaska and work. He restated his concern for the issue. 9:07:54 AM MS. SYLVESTER responded that this issue is a policy call. She added, "The permanent fund dividend, as I understand it, is not intended to support the United States Military; it's intended to return a portion of the resource wealth of Alaska to Alaskans." 9:08:28 AM REPRESENTATIVE LYNN stated, "I realize that [the] PFD is not meant to support the military, but it's the job of the military to support us." 9:08:53 AM SHARON BARTON, Director, Alaska Permanent Fund Division, Department of Revenue, regarding Chair Seaton's previously stated question, said data shows that 17 out of 72 active military personnel [left Alaska] leaving no dependents behind. 9:10:17 AM CHAIR SEATON observed, "The sample that you have is not talking about people deployed into hot zones, or anything else. This is all active duty military that have rotated through Alaska - they and their dependents. Is that correct?" 9:10:33 AM MS. BARTON answered in the affirmative. 9:10:40 AM CHAIR SEATON said the committee had previously heard some information showing that the PFDs that students on financial aide receive is considered income and is subtracted from that financial aide. He asked Ms. Barton if she has any information regarding that. MS. BARTON answered she does not. CHAIR SEATON indicated that students on financial aide would have a nest egg waiting for them when they came back to Alaska. 9:11:48 AM REPRESENTATIVE GARDNER pointed out that that would only apply to those students with financial aid; those without it would rely on getting that money to support them. 9:12:18 AM MS. BARTON said, as she interprets the bill, a person who was absent, for example, any time during 2004, would have their 2005 dividend held until the he/she had been in Alaska without an allowable absence for an entire qualifying year. 9:13:19 AM CHAIR SEATON clarified that a person can be absent for 180 days in a year and still qualify as a physical resident of Alaska. He said, "So, ... basically you have to be in the state for 185 days within the calendar year." 9:13:35 AM MS. BARTON confirmed that's correct. 9:13:41 AM REPRESENTATIVE GATTO proffered that an Alaskan student who leaves the state to go to school for four to six years, coming home only during vacations, would have to return to the state and stay for 185 days before receiving his/her held-back dividends. 9:14:05 AM MS. BARTON answered that's correct. 9:14:11 AM CHAIR SEATON said people complain about "brain drain" - when the best and brightest in the state stay out of the state because there is no real incentive for them to come back. He said the impetus of the bill is to get them to come back. He said the situation is the same in regard to the military. 9:15:27 AM MS. BARTON, in response to a question from Representative Gardner, explained that those [who are away on allowable absences] are not the same as someone who has severed residency and is returning. They simply need to return and be in the state for the time required. 9:16:02 AM REPRESENTATIVE LYNN asked if a person could come back to Alaska, pick up his/her five to six PFDs, for example, and turn around and leave the state again. 9:16:31 AM CHAIR SEATON said that person could, but only after he/she spends 185 days back in Alaska. He said a person comes back for that period of time most likely will get a job and form relationships, and is therefore likely to stay in the state. In response to a Representative Lynn, he said there is nothing in the bill that says once a person comes back and reestablishes residency "we nail your foot to the floor and you can never leave again." 9:18:44 AM REPRESENTATIVE GRUENBERG directed attention to [subsection (c)] of Version G, on page 4, lines 10-14, which read as follows: (c) If an individual who is conditionally eligible for a dividend that has not become payable under (a) of this section dies before conditional eligibility for the dividend is terminated under (b) of this section, the department shall pay the dividend to a personal representative of the estate or to a successor claiming personal property under AS 13.16.680. REPRESENTATIVE GRUENBERG noted that AS 13.16.680 read: Sec. 13.16.680. Collection of personal property by affidavit. (a) Thirty days after the death of a decedent, any person indebted to the decedent or having possession of tangible personal property or an instrument evidencing a debt, obligation, stock, or chose in action belonging to the decedent shall make payment of the indebtedness or deliver the tangible personal property or an instrument evidencing a debt, obligation, stock, or chose in action to a person claiming to be the successor of the decedent upon being presented an affidavit made by or on behalf of the successor stating that (1) the value of the entire estate, wherever located, less liens and encumbrances, does not exceed $15,000; (2) 30 days have elapsed since the death of the decedent; (3) no application or petition for the appointment of a personal representative is pending or has been granted in any jurisdiction; and (4) the claiming successor is entitled to payment or delivery of the property. (b) A transfer agent of any security shall change the registered ownership on the books of a corporation from the decedent to the successor or successors upon the presentation of an affidavit as provided in (a) of this section. REPRESENTATIVE GRUENBERG, regarding the amount of $15,000 shown in statute, said that that could easily be the total of 15- years' worth of PFDs. He said, "You could simply file an affidavit from somebody who hasn't been here for 14 years, say this guy was going to come back, and get fourteen grand and go back to Indiana. And there's no way anybody could refute your statement of the decedent's intent." 9:21:02 AM REPRESENTATIVE GRUENBERG moved to adopt Amendment 1, to eliminate: "or to a successor claiming personal property under AS 13.16.680." He said this issue has come up during another bill. He said he doesn't want this to become a big deal again. 9:21:41 AM CHAIR SEATON objected to Amendment 1. He explained that someone coming to claim a deceased person's money does not certify that the deceases person intended to return. That certification was already made when the deceased person was living and first filed out the application for an allowable absence. 9:22:07 AM REPRESENTATIVE GRUENBERG said under the proposed legislation, not only would a person have to certify his/her intent, but he/she also would have to "come back here and actually be here." He said, "They may have had that intent in the past, but under this bill, they won't have completed step two of the process, which is the whole purpose of this bill ...." He said he hopes that Chair Seaton would reconsider his objection. 9:23:27 AM CHAIR SEATON stated for the record that, beginning in 2008, the limit for allowable absences will be 10 years. 9:23:47 AM REPRESENTATIVE GATTO pointed out that the deceased would have filed up to ten consecutive times before dying and, thus, the estate would be entitled to the money. 9:24:30 AM REPRESENTATIVE GRUENBERG mentioned a recent movie in which an evil person's goal in life was to collect for an estate. 9:25:15 AM CHAIR SEATON said, "This doesn't limit the estate, this eliminates a third party from coming in, and I remove my objection .... I'm glad you caught this; ... there's never been an intention to have a creditor, or some third party come in and claim personal property for somebody." 9:25:50 AM CHAIR SEATON asked if there was any further objection to Amendment 1. No objection was stated and Amendment 1 was adopted. 9:28:08 AM CHAIR SEATON closed public testimony. 9:28:28 AM REPRESENTATIVE GARDNER moved to adopt Conceptual Amendment 2, which she explained would have to be conceptual because it was not drafted to fit the lines of Version G. Conceptual Amendment 2 read as follows: Page 1, line 6, following "dividends": Insert "and except as provided in (d) of this section" Page 2, following line 5: Insert a new subsection to read: "(d) The dividend for a current year and for the three years immediately following the current year shall be paid to an individual each year under AS 43.23.055(2) if (1) without claiming an allowable absence under AS 43.23.008(a)(1) - (8) or (10) - (13), the individual was eligible for a dividend for the year immediately preceding the qualifying year for the current year; (2) the individual was absent from the state during the qualifying year for the current year as allowed in AS 43.23.008(a)(1) - (8) or (10) - (13); and (3) the individual is otherwise eligible for the dividend." REPRESENTATIVE GARDNER described [Conceptual Amendment 2] as a "compromise position." She said she considers her children, who are studying Outside, to be Alaska residents. She said she would like those people studying or serving in the military Outside to get a PFD, but for a limited time period. She said she figures the longer they are out of the state, the less likely they are to come back, and she noted that four years is the standard length of a college career. She stated, "So, even though this disturbs the purity of the original bill, I think it meets the needs of a lot of people who are gone temporarily and have every intention of returning. 9:30:17 AM CHAIR SEATON objected to [Conceptual Amendment 2]. 9:30:26 AM REPRESENTATIVE GRUENBERG said there are some problems with the bill that Conceptual Amendment 2 attempts to address. He said it seems the concern is about people coming back to the state. He said, "The longer you're away, the more there is a legal presumption that you do not intend to return. And at some point, that presumption could ripen into a conclusive presumption, giving rise to a claim by the state for reimbursement for any dividends paid after you left." He offered further details. 9:32:53 AM REPRESENTATIVE GARDNER said she thinks if there was a 4-year limitation, the cost of actually filing a lawsuit and collecting would not be warranted. She added, "I think the state would just sort of write that off if somebody collects for four years and doesn't come back." 9:33:14 AM REPRESENTATIVE GRUENBERG said that may be right. Conversely, he said he knows of attorneys who take "collection cases for the state on contingency." 9:33:32 AM CHAIR SEATON said the problem with [Conceptual Amendment 2] is it doesn't give incentive for four-year college students to return to Alaska. He said the entire purpose of bill is to stay away from the idea that "we have fraud." The bill, he clarified, has to do with residents of Alaska getting a share of the state's resources for "being an Alaska resident in Alaska." The allowable absences are made for "hardship" and "for determinations that we think are in the best interest of the people of Alaska." He offered further details. 9:35:51 AM REPRESENTATIVE GARDNER concurred with everything that Chair Seaton said. She said: It's a pure program. It's simple, it's clean, and that's great. As a private citizen I'd love to see it passed. As a legislator, I represent a lot of people who are concerned about their families: they're concerned about people who are out of state taking care of elderly relatives; they're concerned about their college kids; they're concerned about their sons and daughters serving outside of the state. And I think what my amendment does is make the bill palatable to people who would otherwise adamantly oppose it. And I see it as a compromise and a middle ground that will work for more people, even though - yes - it detracts from the purity of the original concept. 9:36:36 AM REPRESENTATIVE LYNN, regarding [Chair Seaton's argument], said, "It reminds me of a saying I've seen in one of the places in Anchorage that says something like, 'Cheat the other fellow and pass the savings on to the state.'" 9:36:59 AM CHAIR SEATON pointed out that any money that is not going out [to someone not living in the state] would go back into "everybody's personal dividend pool." He explained, "None of that money comes back until people disqualify themselves." He offered his understanding that there are currently 13 allowable absences. He said, "The question is: 'Do we want to have all of these people come back to Alaska and establish their residency before they get the dividend?'" 9:38:49 AM REPRESENTATIVE GARDNER [moved to adopt] an amendment to [Conceptual] Amendment 2, to delete "the three years" and insert "one year" in the new subsection (d). REPRESENTATIVE GARDNER said that would give the college students a reason to come back and a little bit of a nest egg. She offered her understanding that those stationed in Iraq are not there longer than two years, "and so we're not interrupting the needs of their families during that time." REPRESENTATIVE GATTO expressed concerns about fraud. He said he likes Representative Gardner's amendment [to Conceptual Amendment 2]. 9:41:41 AM REPRESENTATIVE GARDNER, regarding someone who goes out of state on an allowable absence to care for an elderly ill relative, said, "After two years you figure the relative has moved on or recovered ...." 9:41:55 AM MS. SYLVESTER reiterated that there is a problem with the system as it stands currently. She said the concept of "requiring a return" is not new; years ago Alaska offered a forgiveness clause to students, but required students who left the state for school to return for a period of time. She said this is akin to saying, "I know what you're mouth is saying, but want to see what your feet are doing." She emphasized, "It's a huge, huge issue." 9:44:01 AM REPRESENTATIVE GARDNER called a question. CHAIR SEATON, in response to a request for clarification from Representative Gruenberg, reviewed the amendment to Conceptual Amendment 2. CHAIR SEATON asked if there was any objection to the amendment to Conceptual Amendment 2. There being none, it was so ordered. CHAIR SEATON restated his objection to [Conceptual Amendment 2, as amended]. A roll call vote was taken. Representatives Gardner, Gruenberg, Gatto, and Lynn voted in favor of Conceptual Amendment 2, as amended. Representative Seaton voted against it. Therefore, Conceptual Amendment 2, as amended, passed by a vote of 4-1. 9:45:52 AM REPRESENTATIVE LYNN moved Conceptual Amendment 3, which read as follows [original punctuation provided]: The provisions of this statute do not apply to any military service member who is assigned to duty in a location where combat pay is authorized, or to any military service member whose military dependents remain in Alaska while the service member serves outside Alaska, or to any military service member who is receiving care in a military hospital. 9:46:36 AM MS. SYLVESTER said the department of law should be consulted regarding any change to the bill that would single out any particular party. 9:46:50 AM CHRISTOPHER C. POAG, Assistant Attorney General, Commercial/Fair Business Section, Civil Division - Juneau, Department of Law (DOL), stated he has a concern about creating a series of exceptions to exceptions. He said the supreme court has routinely allowed the State of Alaska to treat residency for purposes of the PFD differently than for normal state resident purposes. The supreme court has also said that the purpose of the PFD program is to encourage people to maintain their Alaska residency and "reduce turnover." Allowable absences have been made "because we decided that those categories of persons are likely to return to Alaska and remain indefinitely. He stated that if exceptions are made, they have to be based on "the purpose." He said the purpose of the exception that is being proposed in Amendment 3 is that "those categories of persons are more likely to return and should be accepted and treated differently than the other categories that we're making come back to receive their PFD." He continued: We should not hang our hat on their need for the PFD, because the supreme court has not spoken to need, as far as eligibility. The supreme court has spoken to the purpose being to maintain Alaska residency and reduce turnover. So, if there are statistics or evidence that shows the category ... [Representative Lynn is] referring to has more ... likelihood of returning to Alaska because of their circumstances or because of the situation, it would probably survive the scrutiny. 9:49:05 AM CHAIR SEATON, in response to Representative Gruenberg, asked him to hold his questions. He then asked Representative Lynn to withdraw his amendment so the committee could hear the next bill, with the understanding that Representative Lynn could move to adopt Amendment 3 again when the committee next hears HB 273. 9:49:28 AM REPRESENTATIVE LYNN withdrew his motion to adopt Conceptual Amendment 3. CHAIR SEATON announced that HB 273 was heard and held. 9:49:54 AM