SENATE BILL NO. 154 "An Act relating to contributions from permanent fund dividends to the general fund." 9:30:10 AM SENATOR DAVID WILSON, SPONSOR, discussed the bill. He voiced that if enacted, Senate Bill 154 would allow Alaskans applying for a Permanent Fund Dividend (PFD) to donate all or a portion of their PFD directly to the state's General Fund (GF). He related that he had heard from many Alaskans who said they would not mind giving "their fair share" to the State of Alaska. This bill would create a process where Alaskans could donate their PFDs to the State General Fund using the Click.Pick.Give program. He indicated that the donations would be tax exempt and exempt from the annual fee and the 7 percent administrative fee. He furthered that a provision in the bill allowed for children in state custody to hold the donations in a trust until the child turns 18 years of age. GARY ZEPP, STAFF, SENATOR DAVID WILSON, discussed the Sectional Analysis for the bill: Section 1: Amends AS 43.23.62(a) by adding "to the general fund" and "the general fund" to allow a contribution from the electronic Alaska permanent fund dividend to the state general fund. Section 2: Amends AS 43.23.062(b) to add "the general fund" to the list of organizations, community foundations, or charitable organizations eligible to be added to the contributions list. Section 3: Amends AS 43.23.062(m) by adding "general fund or to the" to the list of organizations that do not have a coordination fee withheld. Mr. Zepp noted that the DOR fiscal note covered all the cost associated with the bill, which was why the donations were exempted from fees. 9:34:59 AM Co-Chair MacKinnon OPENED public testimony. ANGELA COX, VICE PRESIDENT OF EXTERNAL AFFAIRS, RASMUSSEN FOUNDATION, ANCHORAGE (via teleconference), testified in opposition to the bill. She explained that the foundation spearheaded and funded the implementation of the Click.Pick.Give program in 2007 in support of the state's nonprofit sector. The program had raised $20 million since its exemption. The foundation felt that the bill was not aligned with the "intent of the true spirit" of the program. She stressed that the program was never intended to fund state government. She believed the contributions should be subject to the administrative and application fees if the bill was enacted. Co-Chair Hoffman asked if Ms. Cox's position represented a formal action from the board. Ms. Cox replied that no formal action was taken but the members "weighed in" on the matter. 9:37:51 AM LAURIE WOLF, PRESIDENT, FORAKER GROUP, ANCHORAGE (via teleconference), testified in opposition to the bill. She conveyed that the group was grateful over the success of the program and the charitable spirit of Alaskans. She noted the group supported efforts to enhance the program to better serve nonprofits in pursuit of their mission. The group was concerned that the bill was inconsistent with the original intent of the PFD charitable contributions program and she pointed to the eligibility criteria. The state's GF was not a charitable purpose. She believed the contributions should be subject to the administrative fee if the bill was enacted. The fee exemption would unfavorably add to the burden of the charitable organizations who participated in the program and was a matter of fairness. She maintained that the bill posed a clear policy call to the legislature whether the program should remain true to its original intent. She offered to read the eligibility criteria of the program. 9:41:54 AM RANDY GRIFFIN, SELF, FAIRBANKS (via teleconference), testified in support of the legislation. He stated that he had given his dividend to the state for the last three years. He believed that there was a variety of ways to administer the program. He indicated that he had endorsed the PFD check and mailed it to DOR with a list of things he wanted done and requested a receipt. He encouraged people to donate to the state. 9:43:15 AM WILLIAM HARRINGTON, SELF, SPENARD (via teleconference), spoke in support of the bill. He reported that he had heard many people endorse taxation and wanted to contribute to government but doubted that many people ever had. He characterized the 7 percent administrative fee as "greedy" and "disgusting." 9:44:43 AM Co-Chair MacKinnon CLOSED public testimony. Senator von Imhof wondered whether federal taxes would be assessed on the PFD amount if it was donated to the GF. SARA RACE, DIRECTOR, PERMANENT FUND DIVIDEND DIVISION, DEPARTMENT OF REVENUE, stated that she was not a tax expert but surmised that the PFD amount would be taxed as income at the federal level. However, if donated the contribution could be an itemized deduction. Senator von Imhof suggested that it depended on an individual's tax status whether it was a tax deduction. Ms. Race believed that the statement was correct. Co-Chair MacKinnon thought that Ms. Race had communicated that the PFD was considered as income for federal taxes but could be a deduction if applicable to the individual. GLENN GUSTAFSON, ASSISTANT ATTORNEY GENERAL, ANCHORAGE (via teleconference), answered in the affirmative and confirmed the statement. He referenced the testifier from Fairbanks, who had to declare the PFD as income but take a deduction as a charitable contribution. 9:48:44 AM Senator Micciche thought that if a person gave the entire dividend through the program, a person would have a greater deduction than if the check was sent and subsequently contributed to the state. Mr. Gustafson confused Senator Micciche's question with a deduction regarding the 7 percent administrative fee and how it impacted an individual's deduction. He concluded that there would be no net effect of contributing the PFD and additional taxes were not owed. Co-Chair MacKinnon asked if Mr. Gustafson was a tax attorney. Mr. Gustafson specified that he was an accountant, and not a tax attorney. Co-Chair MacKinnon thought it was important to ensure the information was accurate on the public's behalf. Senator Micciche clarified that if an individual denied the check as a contribution back to GF, then there was no income to report. He added that charitable contributions were worth a proportion of the contribution as a deduction. Co-Chair MacKinnon stated that currently, there was a process at the PFD Division by which residents could withdraw the application, so a check was not received. She noted that the way Mr. Griffin contributed was complex and noted the tax effect would impact individuals in different ways. She informed the committee that everyone else's dividend would proportionately increase by the total amount of everyone who chose to withdraw their application and forego a dividend. She noted that approximately 700,000 Alaskans applied for a dividend out of a population 735,000. She asked Ms. Race whether she was correct. 9:53:03 AM Ms. Race answered in the affirmative. She commented that once the dividend was paid out, it became taxable income. Co-Chair MacKinnon asked whether the PFD was reported as income on the form 1099 from the state. Ms. Race answered in the affirmative. She assumed that the testifier from Fairbanks received a 1099 and wanted a receipt for tax reporting. Senator von Imhof wondered what "accounting mechanism was triggered for the filer" by applying for the PFD and then checking the box to donate it to the GF. Ms. Race reiterated that in the scenario provided an individual that applied for the PFD would still receive a 1099. The 1099 would include a breakdown of distribution, which would include the donation to the GF. She added that an individual applicant could be subject to other garnishments, which would be paid before the donation to the state. 9:55:24 AM Co-Chair Hoffman thought that the problem with not applying for the dividend did not benefit the state, but rather benefitted the other recipients since it did not go back to the GF, but rather made each dividend larger. Senator Micciche thought it would be beneficial for individuals to be able to donate a dividend to the state without having a tax liability. He communicated that he was a donor to the Pick.Click.Give, and a board member to a "couple" of nonprofits that benefit from the program. He thought it appeared that there were concerns about competition regarding the bills proposed use of the program. He understood the concern among the Rasmussen Foundation and Foraker Group. He believed that the program was a good mechanism to employ for ideas like the one in SB 154. He hoped the committee and organizations could find a way for the appropriate use of the program without complicating the "good ideas" presented during the meeting. Senator Olson thought his constituents would find it peculiar that an individual would apply for a dividend and then surrender it to the state. He asked how many individuals had done so. Ms. Race relayed that only a handful of individuals had contacted the division. She indicated that when the request was made a staff member provided instructions that the person must endorse the check and send it to DOR with a directive to deposit it to the GF. 9:58:54 AM Co-Chair MacKinnon directed attention to the DOR fiscal note, FN2 (REV). Ms. Race addressed the fiscal impact note. She indicated that the bill was associated with costs in FY 19 and in ensuing years. She read from the analysis on page 2: Currently, funds collected through the coordination fee and the application fee are used for administrative costs. AS 43.23.062(e) states that "the department may not use money from the dividend fund for administrative costs incurred in implementing this section, even if it has been appropriated for costs of administering the dividend program." For that reason, financial costs will be associated with this bill because no fees will be collected to cover the administrative costs. Ms. Race stated that because all other organizations were philanthropic, and the proposed state program was not, the department would administer the program instead of the Alaska Community Foundation. The cost was for programming time, application processing, financial reporting, and general administration of the program. Senator Micciche asked if Ms. Race had an opinion on the matter. He thought that it would be beneficial to employ the same 7 percent administrative fee versus a fiscal note. Ms. Race replied that a 7 percent coordination fee would be one way to reduce ongoing costs for the bill. 10:01:36 AM Senator Wilson thought many people had different opinions as to what government was. He listed the many government services the state provided. He envisioned the program to work similarly to the Pick.Click.Give program with a one click option to contribute to the state. SB 154 was HEARD and HELD in committee for further consideration. Co-Chair MacKinnon asked for amendments to be turned in to her office by 5:00 p.m. on the following Thursday. She stated that her office would work with the department to modify the fiscal note.