CS FOR SENATE BILL NO. 254(JUD) "An Act relating to the exemption from levy, execution, garnishment, attachment, or other remedy for the collection of debt as applied to a permanent fund dividend." MIKE PAULEY, staff to Senator Leman, addressed this legislation. His testimony was as follows: "This bill would significantly enhance the ability of Alaskan businesses and other private parties to collect from debtors who are in a state of default in their financial obligations. Existing state law provides that 45% of a person's annual Permanent Fund Dividend check is exempt from collection to pay an outstanding debt. In other words, even though a person may have a court judgement stipulating that they owe a certain amount of money, almost half of their dividend check is exempt from collection at least when its a private party that seeking to collect the debt. There are some exceptions to this general rule. Child support obligations, defaulted student loans and any debts to an agency of the state are not covered by the 45% exemption. So on those cases; the state can garnish 100% of a dividend check in order to satisfy its financial obligation. But small businesses and other private parties do not enjoy that ability to collect 100% of the check." "When businesses are not able to collect funds from those in default, it increases the cost of doing business. Ironically, those costs are passed on to honest consumers in the form of higher costs for goods and services. So, in a very real sense, the majority of Alaskan consumers are paying for the financial irresponsibility of a small minority." "As originally introduced, SB 254 proposed to completely eliminate the 45% exemption. However, and amendment adopted in committee, restored the exemption but lowered it from the current 45% to 30%. This means that the percentage of a dividend available for garnishment by private parties would increase from 55% to 70% as the bill currently stands. State agencies would continue to collect at a rate of 100%." As currently structured, SB 254 significantly narrows the gap between what private parties and the State are able to collect." That concluded Mr. Pauley's prepared statement. Senator Donley agreed that while he felt the 100% garnishment would work because people would not have the incentive to actually file for their PFD, he did think the higher percentage was appropriate here. He said he would like to see it around 25% or less so people would still have the incentive to file, but still benefit anyone who went through the effort to get a court judgement. Co-Chair Sharp's comment was that he wanted to keep the incentive and leave enough to pay the taxes on the dividend. There was further discussion by Co-Chair Sharp and Senator Donley about the taxes and the efforts the debtor makes in obtaining a judgement. Co-Chair Sharp requested the sponsor's view of the Judiciary version. Mr. Pauley qualified that he must be careful in speaking his office's opinion. The Labor and Commerce Committee, who he was here representing, voted to restore, but lower, the exemption, which the original bill eliminated. Therefore, he felt he could not comment. Co-Chair Sharp noted the L&C version added a fee schedule based on five-percent of the dividend rather that five- percent of the amount collected. Mr. Pauley explained the L&C change from imposing a $2 fee to a fee of five-percent of the total value of the PFD. This was because the existing $2 fee was not covering the division's expenses. The Judiciary committee then voted to remove the five- percent fee, which eliminated the actions of the L&C Committee. He recalled the Permanent Fund Division testified that they were opposed to the five-percent fee. Co-Chair Sharp noted that the division had a representative present at this meeting to answer questions. He anticipated the committee would have a few questions. Senator Torgerson was under the impression that court- ordered restitution was already at 100%. He gave an example: "If I did a small claims action, and took it through the court process, and the case was found in favor of my claim, I would now have a court order for re-payment of that amount of money as long as it was under $5000. What you're saying is that under current law, I could only collect 55% of that even though it was under court order?" Apparently, he said, he had a different explanation of what court-ordered restitution means. Mr. Pauley shared that to his understanding that language did not apply to private debtors. He spoke of a car dealership with a customer who defaulted on their car loan. Even if the dealership had the court statement saying they were entitled to that money, that didn't entitle them to 100% of the PFD. Senator Donley interjected; pointing out that "restitution" usually applied to criminal situations. Senator Torgerson said he thought part of this legislation dealt with criminal actions. Senator Donley explained how the court usually assigns restitution to be paid by the criminal to the victim of the crime. Senator Torgerson asked what form the garnishment would come to the PFD. Did the collection agency submit a copy of the credit card statement showing the balance owed and substantial documentation, or was a court order necessary, he asked. Mr. Pauley told him there was a process that must be followed. He deferred to NANCY JONES of the division who had more knowledge of the mechanics. Co-Chair Sharp called Ms. Jones to come to the committee to testify. She started by answering Senator Torgerson's last question. The court must certify all claims, she stated. The division would not accept any private claims. The garnishment request would come to PFD through a court order that states this was a legal dept. Co-Chair Sharp restated the earlier question concerning the $2 fee and whether that was adequate to cover processing costs. Ms. Jones told of the division's the collection staff, which also does data processing. April 1 would be the first time they would be accepting any claims. They would accept claims from April 1 through the payment period in October. Of a staff of four, one person worked 100% on processing these claims. Other staff worked varying parts of the process. Including data entry time and computer use charges, the total cost of processing the claims was a little more that $154,000. The $2 fee adequately reflected the cost, summarized Ms. Jones. She spoke about the allocation of those funds by the Legislature, which required the charges be collected before the money could be spent. Therefore, she said, if the division did not receive the anticipated number of collections, they could not spend the $154,000 operating appropriation. Because of this, they had kept the projections conservative. Co-Chair Sharp asked about the record of federal government agencies, namely the Internal Revenue Service, as far as paying the processing fee. He wanted to know if the division had gotten any static from the IRS attempting to have the fees waived. Ms. Jones recounted that prior to her tenure with the division, there had been some battles fought over this matter. The IRS did not allow any other institutions to collect a processing fee before dispersing funds. They had come to an agreement that said if at any time the IRS could collect up to $21 million from the PFD fund, they shouldn't quibble about the meager $2 fee. She said the division was working together with the IRS regional directors. Senator Donley wanted to know if the $2 fee was currently set in statutes. Ms. Jones responded, no. The statutes just provided the authority for the division to charge a fee. The amount was set in regulation. Senator Phillips and Ms. Jones had further discussion about the fee and whether it was adequate at covering the processing costs. Senator Torgerson asked to make it clear that if the department's costs started to exceed that, which was covered by the $2, that the fees would be increased. Ms. Jones assured him that when the overhead exceeded the collected amount the fees would be raises. She said it was difficult to breakdown and to determine the exact cost to process each claim. Senator Torgerson said he just wanted reassurance that the division had the ability to raise the fee if needed to cover the costs. Co-Chair Sharp brought up the issue of the different versions of the bill and asked the committee which they would like to address. Senator Donley suggested the simplest bill version to work from would be the Judiciary version. Co-Chair Sharp agreed. Senator Donley considered changing the current 30% to 20 or 25%. Senator Adams responded by asking how low the percentage retained could drop and still maintain the incentive for the individual to file. He wondered if the current 30% was determined to be that amount. Senator Donley spoke to the logic of a desire to pay off one's dept to be the incentive needed. He felt that if the court told an individual they owed a debt, they ought to have the moral fortitude to pay off that debt. By using the PFD, they are getting the advantage of having the dividend pay toward that debt. He acknowledged there should remain a percentage to allow the incentive to file. Senator Donley made a motion to change Page 1 Line 5 from 30% to 20%. Co-Chair Sharp objected for discussion purposes. Senator Phillips wanted to know the sponsor's opinion on the amendment. Mr. Pauley spoke saying they had heard an enormous amount of testimony on this issue as to what the right percentage should be to still give an incentive to apply. He made an observation, if there was a concern that garnishing 100% would be a disincentive for people to apply, then the argument should be made to take the state agencies current 100% and lower it to whatever percentage was set for private party collection. The question was posed to the Administration asking if they had data showing that individuals were not applying because they knew that 100% of their dividend would go toward their child support or student loan obligation. The response was anecdotally, they had heard of cases where this was the case, but it was extremely difficult to quantify. He continued, saying that the current stipulation allowing for 55% of the dividend to be collected was determined at a time when the dividend was a significantly lower amount. He predicted that if next year's check was $1500, and Senator Donley's amendment was adopted, Mr. Pauley's guess would be the recipient would still receive $300. Speaking for himself, he would still apply for the "free" $300. That was a lot of money to him, and he felt it would be a lot of money to most people. Co-Chair Sharp removed his objection and Senator Adams maintained the objection. Roll call was taken, with the vote tally 4-2 (Senator Adams and Senator Phillips nay). The motion passed. Public testimony was heard from Ms. LaBolle. Her organization supported the legislation and the change in the percentage from the Judiciary version. She added their desire to keep the amount of the processing fee to remain set in regulation rather than statutes. Senator Donley referred to language deleted in lines eight through eleven and asked for an explanation. Mr. Pauley spoke to the change in Workdraft F as a technical correction suggested by the Department of Law. The change gives a definition of "after" in relation to the amount of the exemption taken. Senator Donley moved the Senate Finance Committee Substitute for SB 254 from committee with a new, zero fiscal note and individual recommendations. There were no objections and Co-Chair Sharp so ordered.