SENATE BILL NO. 117 "An Act eliminating the longevity bonus program and making related conforming changes; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-chair Wilken explained that the elimination of the Alaska Longevity Bonus Program would save the State approximately $47,500,000. He stated that the committee substitute, CS SB 117, Version 23-GS1100\I would provide for the continuation of the program as a needs-based program for Alaskan seniors with a monthly income of 150 percent over the Alaska federal poverty level. Senator Bunde moved to adopt CS SB 117, Version 23-GS1100\I as the working document. Senator Taylor objected. He voiced the concern that while the original version of the bill would terminate the program, the committee substitute would "convert the program basically to a welfare program" based on specific standards. He announced that he opposes both of these options, "but if in fact the final result of the Committee or legislative action is: rather than destroying the program we end up with a program that still exists in part for the most needy Alaskans, then that is the preferred alternative." He opined that, "it is preferable to save a portion of the program rather than destroying the whole program." Senator Taylor withdrew his objection. Senator Hoffman objected. He stated that while the opportunity exists to make the longevity program a needs-based program; he asserted, "that the problem is that this bill goes too far." He stated; therefore, that while he supports the concept of providing the State "with some savings," he could not support the committee substitute. Senator Hoffman withdrew his objection. There being no further objection, Version "I" was adopted as the working document. JOE BALASH, Staff to Senator Therriault, presented testimony as follows. The Governor's proposal - the original version of SB 117 - eliminated the Longevity Bonus program in its entirety. In public testimony before the Senate State Affairs Committee - and its counterpart in the House - recipients of the Bonus made it clear that they depend on the monthly checks they receive to make ends meet. The Committee Substitute in front of you preserves the program, but applies a two-part means test in order to make sure those recipients that need the Bonus continue to receive it. The first test is on income The second test is on assets In order to make the revised program easier to administer, the CS adopts the same definitions for calculating income and assets as the current Adult Public Assistance program. That means there are items that are disregarded when the respective calculations are made. For income purposes, the PFD, 50% of earned income, the first $2000 of an ANCSA dividend, and any other needs-based state assistance received by the person are all excluded. For assets purposes, one home, one car, personal property (clothes, furniture, etc.), funds set aside for burial, non- cash ANCSA distributions, Native allotments, and reparations/settlements are all excluded. The reason for an asset test is that people have large assets available to them and are able to structure their finances so they have relatively lower monthly income. When we began looking into how to apply a means test, we first looked at the requirements for Adult Public Assistance. However, those income and asset levels appeared to be very modest…just over $1,000 in monthly income for a single person and just over $1500 for a couple. This CS sets each of those figures approximately $400 higher and also doubles the assets test threshold to $4000 per person and $6800 per couple. In order to qualify for the revised program, individuals and couples will need to go through an annual review to verify their eligibility. It is projected that roughly 4300 people will qualify under these conditions. So that we can cut down on the administrative expense of this review, eligibility for APA constitutes eligibility for the Longevity Bonus. That should eliminate the necessity to review approximately 2/3 of the recipients. That leaves the cohort of people who exceed the APA thresholds, but fall under the ALB thresholds (approximately 1600 people) who the departments will need to review. After the initial review, recipients will only need to check off on their monthly residency forms that they continue to meet the income/asset requirements. Now, when the program goes into effect later this year, there will be some implementation issues. Currently, when a check arrives in the mail for the month of May, it is based on residency two months prior (March). So, if the new edibility requirements go into effect on July 1, current recipients will continue to receive checks into July and August of this year due to their eligibility in May and June. Which brings me to a technical amendment to this draft that's necessary for implementation. On page 2, line 17, the language needs to read September 1 rather than July 1. Once we get to implementation, there will be some Longevity Bonus recipients who do not qualify under this set of tests. However, if at some point down the line that person's circumstances change and they do meet the thresholds, they will be able to resume their participation. Finally mister chairman, we get to the fiscal note and costs of the new program. Due to the two-month lag in payments, we will have two months worth of status quo payments - $4.1 million each month for a total of $8.2 million. For the balance of the fiscal year, monthly costs for the payments will be just under $1 million per month for a total of $9.5 million. With the additional administrative costs added in, the total costs of the ALB for FY 04 will be around $18 million. Based on the $44.8 million in both the House and Senate approved operating budgets, this amounts to an overall savings of nearly $27 million for FY 04. Due to the 2-month lag factor, there will be an additional savings of $4 million in FY 05 and then the program will resume its gradual erosion over time. That concludes my testimony Mr. Chairman. Senator Bunde asked for an explanation regarding the disparity between the Department of Administration fiscal note #1, dated March 5, 2003, which reflects a $47.5 million savings reduction as opposed to Mr. Balash's testimony referencing a savings of $44 million. Mr. Balash clarified that the $47 million fiscal note is based on the FY 03 cost of the Longevity Bonus program while the $44.8 million is the amount approved for the FY 04 operating budget by both the House of Representatives and the Senate. Senator Bunde asked for confirmation that, were this committee substitute approved, the cost of the program would be $11.3 million in FY 04. Mr. Balash responded that the $11.3 million would support "twelve months worth of the revised program's costs." Senator Bunde surmised that the twelve-month timeframe would commence in September 2003. Mr. Balash concurred. Senator Olson noted that many Native elders who reside in the Bush areas of the State have such things as snowmobiles and four- wheelers rather than a licensed automobile. Therefore, he questioned whether these items would be included in the determination of the asset list language that reads as follows. Sec. 5 AS 47.08.060(c) is amended to read: (c) In applying the formula to determine the applicant's share, the total gross income and the total assets of the family of the applicant may be taken into account, with the following exceptions: (1) the applicant's permanent place of abode; (2) one noncommercial vehicle; (3) tools, equipment, vehicles, and other assets required in a trade or business; (4) ordinary household and personal effects; (5) (5) $1,000 of liquid assets; (6) all nonliquid assets unless this exclusion would bring about an inequitable result; however, all income derived from this property shall be taken into consideration in determining the recipient's gross income; (7) inalienable shared in a Native corporation created under 43 U.S.C. 1601-1628 (Alaska Native Claims Settlement Act), for the period of their inalienability as specified in the Act; (8) Alaska longevity bonus payments under former AS 47.45 (9) any other assets specifically restricted for the use of the recipient by state or federal law. Mr. Balash clarified that were the mode of transportation not factored against someone qualifying for the adult public assistance program, then that same exemption would apply in this program. He stated that the adult public assistance program's definitions and regulations are being applied to this program for "simplicity sake" rather than creating a whole new set of exemptions. Senator Olson clarified that the adult public assistance guidelines would be used in this program. Mr. Balash confirmed. Co-chair Wilken informed the Committee that copies of the committee substitute have been distributed to Pioneer Homes, the Commission on Aging, and to the Legislative Information Offices. He stated that public testimony on the bill would commence this evening. Co-Chair Wilken ordered the bill HELD in Committee. AT EASE 9:36 AM / 9:38 AM