HB 190-PFD ALLOWABLE ABSENCE: MILITARY  9:19:39 AM CHAIR LYNN announced that the last order of business was HOUSE BILL NO. 190, "An Act relating to the allowable absence for active duty service members of the armed forces for purposes of permanent fund dividend eligibility." 9:20:11 AM The committee took an at-ease from 9:20 a.m. to 9:22 a.m. 9:23:24 AM REPRESENTATIVE ERIC FEIGE, Alaska State Legislature, presented HB 190 as sponsor. 9:23:46 AM The committee took a brief at-ease. 9:24:29 AM REPRESENTATIVE GRUENBERG removed his objection, which was left pending on 3/3/11, to the motion to adopt the proposed committee substitute (CS) for HB 190, Version 27-LS0564\D, Kirsch, 3/28/11, as a work draft. There being no further objection, Version D before the committee. 9:25:03 AM REPRESENTATIVE FEIGE said the main change incorporated into Version D is in language on page 2, lines 1-5. He said that language accounts for individuals who began receiving the permanent fund dividend (PFD) as dependents, left the state as dependents of active duty military members, and later joined the military. In the original bill version, the people in that category would have been eligible for the PFD, even though they had not really satisfied the intent of the bill, which is to cover those who are Alaska residents when inducted into the military. 9:26:54 AM REPRESENTATIVE GRUENBERG moved to adopt Amendment 1, labeled 27- LS0564\D.1, Kirsch, 4/4/11, which read as follows [original punctuation provided]: Page 2, following line 5: Insert a new bill section to read:  "* Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to read: PERMANENT FUND DIVIDEND APPLICATIONS. Notwithstanding permanent fund dividend application procedures or deadlines, an individual who qualifies for a dividend for 2009, 2010, or 2011 because of the amendment to AS 43.23.008(c) made in sec. 1 of this Act, may apply for the dividend by January 1, 2015. The Department of Revenue shall prepare a form for applications under this section." Renumber the following bill section accordingly. Page 2, following line 11: Insert a new bill section to read:  "* Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to read: RETROACTIVITY. Section 1 of this Act is retroactive to January 1, 2009." REPRESENTATIVE JOHANSEN objected. REPRESENTATIVE GRUENBERG spoke to Amendment 1. He offered his understanding that during the last hearing on HB 190, the committee heard two members of the military testify that they had not been able to obtain dividends for 2009 and 2010 because they were "caught in this gap." He asked how many people would be covered by Amendment 1. 9:28:13 AM MICHAEL PASCHALL, Staff, Representative Eric Feige, Alaska State Legislature, on behalf of Representative Feige, estimated that less than 100 people would be affected by Amendment 1. REPRESENTATIVE GRUENBERG asked the bill sponsor if [Amendment 1] would adequately address the issue. REPRESENTATIVE FEIGE answered yes. 9:29:13 AM REPRESENTATIVE JOHANSEN removed his objection. There being no further objection, Amendment 1 was adopted. 9:29:25 AM REPRESENTATIVE KELLER moved to adopt Amendment 2, labeled 27- LS0564\D.2, Kirsch, 4/11/11, which read as follows [original punctuation provided]: Page 2, following line 5: Insert a new bill section to read: "* Sec. 2. AS 43.23.008 is amended by adding a new subsection to read: "(e) If insufficient documentation is available to establish the nature of an absence, as required under (c)(1) and (2) of this section, the department may waive the requirement of those paragraphs." Renumber the following bill section accordingly. REPRESENTATIVE JOHANSEN objected for the purpose of discussion. 9:29:43 AM REPRESENTATIVE FEIGE said the language gives flexibility to the division to waive the requirements proving eligibility in the three years prior to induction into military service, in situations where information now required was not at one time collected by the division. 9:31:12 AM REPRESENTATIVE P. WILSON asked if, under Amendment 1, the division would have to pay dividends retroactively to someone who had collected a dividend for three years, 20 years ago, then went into the service and "is still there." REPRESENTATIVE FEIGE answered no. REPRESENTATIVE P. WILSON questioned when the PFD program began. REPRESENTATIVE FEIGE answered [1982]. REPRESENTATIVE GRUENBERG pointed to the adopted Amendment 1, which shows that there would be limited retroactivity to January 1, 2009. REPRESENTATIVE KELLER asked if the bill sponsor intends to allow the division to waive the requirements without proof that the criteria of Section 1(c)(1) and (2) are met. REPRESENTATIVE FEIGE responded that the intent is not to leave it wide open, but rather to give reasonable discretion to the division. In response to Representative Keller, he said he would have no objection to an amendment specifying that a waiver would be allowed if the division first determines that the requirements of Section 1(c)(1) and (2) had been met. 9:35:22 AM REPRESENTATIVE GRUENBERG said he thinks Representative Keller is right not to want to allow the division to offer waivers [without guidelines]. He suggested that if there is insufficient documentation to establish the nature of absence under c(1) and (2) of this section, then the Department of Revenue may want to adopt regulations allowing alternative proof. He said he would like time to draft the wording of an amendment to Amendment 2. 9:36:35 AM REPRESENTATIVE P. WILSON said one possible scenario is that a person may throw away documentation, thinking that he/she does not qualify, but the division feels that the person's absence was because of service in the military and waives the requirements of c(1) and (2). 9:37:11 AM REPRESENTATIVE JOHANSEN asked the bill sponsor if he is confident that the regulatory agency will create the appropriate regulations. REPRESENTATIVE FEIGE responded that he thinks it would be clearer if it was set out in statute. He said the requirements of (c)(1) and (2) do not address whether a person has received a PFD check. He suggested one way to determine a person's eligibility is whether or not that person received a PFD. 9:39:16 AM REPRESENTATIVE SEATON asked for clarification as to who would qualify under this waiver. REPRESENTATIVE FEIGE answered that it would apply to someone who is an Alaska resident at the time of induction into the military and serves in the military as a career. Regarding (c)(1) and (2), he reiterated, "Being able to prove where you were 20 years ago can be somewhat problematic, and the division does not have that information because it was not required on permanent fund applications at that time." REPRESENTATIVE SEATON expressed concern that there may be a loophole in which someone may be able to reestablish his/her residency without coming back to the state and remaining for a year when he/she had at some point in that process officially changed his/her residence. 9:42:36 AM MR. PASCHALL directed attention to language on page 1, lines 5- 8, which read as follows: (c) An otherwise eligible individual who has been eligible for the immediately preceding 10 dividends despite being absent from the state for more than 180 days in each of the related 10 qualifying years is only eligible for the current year dividend if the individual was absent 180 days or less during the qualifying year. MR. PASCHALL indicated that the intent of the bill is to address only those individuals who had "limited out on the 10 years." 9:43:35 AM REPRESENTATIVE KELLER moved to adopt Conceptual Amendment 1 to Amendment 2, as follows: On line 5 of Amendment 2: Delete "waive the" Insert "adopt regulations to establish methods of alternative compliance" REPRESENTATIVE KELLER said he thinks Conceptual Amendment 1 to Amendment 2 would tighten the language of Amendment 2 and put the public process "out on the table." REPRESENTATIVE KELLER, in response to the committee aide, restated Conceptual Amendment 1 to Amendment 2, as follows: On line 5 of Amendment 2: Delete "waive the" Insert "adopt regulations to establish alternative compliance determination" REPRESENTATIVE KELLER reiterated that this is a conceptual amendment. REPRESENTATIVE GRUENBERG asked Representative Keller to repeat the part of the proposed language of Conceptual Amendment 1 to Amendment 2, following "adopt regulations to establish". REPRESENTATIVE KELLER filled in: ..."alternative methods of determination". REPRESENTATIVE GRUENBERG asked, ..."alternative methods of"...? REPRESENTATIVE KELLER replied, ..."compliance". He explained that that means compliance with the requirements in (c)(1) and (2). 9:45:28 AM REPRESENTATIVE GRUENBERG suggested an alternative fix that would read: "adopt regulations to establish the requirement of those paragraphs." REPRESENTATIVE KELLER moved to amend Conceptual Amendment 1 to Amendment 2, so that Amendment 2, as amended, would read as follows: Page 2, following line 5: Insert a new bill section to read: "* Sec. 2. AS 43.23.008 is amended by adding a new subsection to read: "(e) If insufficient documentation is available to establish the nature of an absence, as required under (c)(1) and (2) of this section, the department may adopt regulations to establish the requirement of those paragraphs." Renumber the following bill section accordingly. [The motion to amend Conceptual Amendment 1 to Conceptual Amendment 2 was treated as adopted.] CHAIR LYNN asked if there was any objection to [Conceptual Amendment 1, as amended, to Conceptual Amendment 2]. There being none, it was so ordered. REPRESENTATIVE JOHANSEN removed his objection to the motion to adopt Amendment 2, [as amended]. There being no further objection, Amendment 2, as amended, was adopted. 9:46:36 AM REPRESENTATIVE SEATON noted that at the last bill hearing he had requested an opinion from Legislative Legal and Research Services regarding "the discrimination between ... a three-year residency requirement versus a one-year residency requirement." He explained that this relates to a case that determined it is illegal to discriminate based on longevity of residency. 9:47:21 AM MR. PASCHALL responded, "Their synopsis of that is ... [that] it could be [a legal problem]; ... there's no definitive answer." REPRESENTATIVE SEATON expressed concern that by including discriminating between one-year and three-year residencies, the proposed legislation would be trying to overturn a [1982] U.S. Supreme Court decision from Zobel v. Williams. He stated: With the data that we have that shows that residents that are gone for a long period of time - 10 years - return in very low numbers, that an extended duration does not give us a[n] adequate proxy for physical residency; it puts the permanent fund [corporation] itself at risk of being declared taxable by the [Internal Revenue Service] (IRS). And so, I think we are on very shaky ground as far as the risks that we are willing to take to say that people can take their career and 20 years out of the state and still receive their permanent fund dividend. That extension could be extremely costly to all the citizens of the state. 9:50:06 AM MR. PASCHALL noted that there was an attorney present to address Representative Seaton's concern. He indicated that Representative Seaton had asked for some statistics, which he related as follows: The number ... for 2-5 years of absence is 19; for 6- 10 is 15; for 11-19 is 30; and for 20-plus years is 16; and those were members in the armed forces that had a 10-year absence. MR. PASCHALL, in response to questions from Representative Johansen, confirmed that the legal opinion was received from Legislative Legal and Research Services in March [2011], and he apologized that the committee was not in possession of a copy. In response to a follow-up question, he said the next committee of referral is the House Finance Committee. 9:51:17 AM REPRESENTATIVE JOHANSEN said he would like to help out the people in the military, but not at the expense of challenging an Alaska Supreme Court case decision and putting the Permanent Fund Division at risk. 9:52:12 AM DAN BRANCH, Senior Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Juneau), Department of Law, said he thinks the committee already grasps that a classification is made in order to create an exception to a rule for a particular group of people. The government that does this creates a question regarding whether constitutional rights will be violated. He said one question related to this issue is whether the rights of people who won't benefit from this proposed Section would be violated. He mentioned the constitutional rights of people to travel and the privileges and immunities clause. MR. BRANCH said all those rights were discussed by the U.S. Supreme Court during the Zobel v. Williams case, which struck down the first bill related to the PFD. That bill, he said, awarded length of residency by increasing the amount of a dividend by the number of years a person was a resident prior to application. He said the situation at hand is similar to the issue in the Zobel v. Williams case, in that the proposed legislation would essentially award some people who have left the state for their prior residency in the state, which he said raises "a really big red flag." MR. BRANCH said the Department of Law does not like to give cause for anyone to challenge statute, because it has to then defend it; however, he said the proposed legislation does raise concern as to "whether this can withstand constitutionality." He said one way to consider the constitutionality of proposed legislation is to think about how hard it would be to defend; the proposed legislation would be very difficult to defend "because of the - Zobel connection." He said he has not seen the analysis by Legislative Legal and Research Services, but said Legislative Legal and Research Services is careful in terms of pronouncing legislation constitutional or unconstitutional. 9:56:11 AM REPRESENTATIVE JOHANSEN urged Mr. Branch to look at the legal opinion of Legislative Legal and Research Services and give feedback on it. 9:56:52 AM CHAIR LYNN remarked that significant issues had been raised, and spoke of returning to the issue in January 2012. 9:57:40 AM MR. BRANCH, in response to a request, stated, "There is a provision in the bill - Section 2 - that would ... allow the court to sever any [provision] in the bill that would be found unconstitutional and save what the balance of it would be." In response to Chair Lynn, he confirmed that a person from the department who is knowledgeable on this subject would be available to come before the committee in January. 9:58:31 AM REPRESENTATIVE GRUENBERG said the three-year/three dividend plan is an attempt to solve the dilemma of proving that a person in the military who has been absent from the state for a long time is indeed a resident of Alaska. The bill attempts to solve this issue by making the determination based on the length of residency before the military person left the state. He asked if that would more likely survive constitutional challenge if there were legislative finding addressing this unusual problem and solution. He then asked whether there would be any other constitutionally permissible way to establish bona fide residency. He surmised that it is not so much the three dividends that are of concern, but rather the establishing of ties to the state. REPRESENTATIVE FEIGE confirmed that is correct. 10:00:30 AM MR. BRANCH responded that although findings are always helpful, the court always looks at the language itself to determine whether there is a constitutional problem. He offered his understanding that the bill sponsor is trying to come up with a way to allow certain people to continue to receive a permanent fund on the understanding that they are continuing to be and wish to be considered residents of Alaska. REPRESENTATIVE GRUENBERG suggested there could be some way to have these people swear, under penalty of perjury, that they would come back to Alaska. MR. BRANCH said that already may be a part of the application process, but said he thinks some objective standards would be helpful. [HB 190 was held over.]