SB 254 - LEVY ON PERMANENT FUND DIVIDEND CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 1:35 p.m. and said there wasn't a quorum, but that he would take testimony on SB 254. MR. MIKE PAULEY, Staff to Senator Leman, said that SB 254 will enhance the ability of the State of Alaska and other private businesses to collect from other private parties that are in a state of default from their financial obligations. Existing state law provides that 45 percent of a person's Permanent Fund dividend check is exempt from collection for a judgement (from a private party). There are some exceptions (who can recover 100 percent) to this rule like child support obligations, defaulted student loans, and any debt owed to an agency of the State. This implies that the State has a greater right than private parties to recover a debt that is lawfully owed. When businesses are not able to collect funds from those in default, it increases the cost of doing business. These 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. SB 254 changes the 45 percent exemption for Permanent Fund Dividend checks to a "0 percent" exemption. While this levels the playing field in terms of the percentage that can be garnished, it still assigns a higher collections priority for certain obligations to the State, such as child support payments. MS. NANCI JONES, Director, Permanent Fund Dividend Division, provided the Committee with a summary of attachments since inception of the program. In 1982 there were 27 attachments and in 1997 there were 94,386 attachments. She noted that the IRS had a computer glitch this year and withdrew over $20,000 of its claims. This meant that the smaller claims were able to be paid, not the IRS. MR. JOHN LOW, Anchorage resident, supported SB 254, because of an unpleasant experience that happened to him in 1995 with a bad tenant who left him with a cleanup and remodeling bill of more than $8,000. He found the tenant eventually, but couldn't garnish her wages because of the generous exemption allowed by State law. His only hope is to seize her PFD check which he has done twice so far. He figures it will take more than 13 years to collect this debt, but it can be paid off in six and a half years, if the legislature eliminates the exemption on PFD checks. CHAIRMAN LEMAN said he also had a similar unpleasant experience and sympathized with him. MS. MARLENE SLAVIN, Charge Off Collector, National Bank of Alaska, said she can't express enough about how many unpaid judgements they have. Receiving only 45 percent of the PFD's is allowing them to pay interest due on the loans instead of reducing the principle balance. If they could receive 100 percent of the PFD, they could reduce the balance on a lot of the loans and possibly pay most of them off. She said they would not be taking anything away from people who are receiving the PFD, since this is free money the State is giving us. Local businesses should be treated the same way as State agencies. Number 230 MR. TROY FERGUSON, Branch Manager, Northland Credit Corporation, said he also represented the Alaska Consumer Finance Services Group. He supported SB 254, because he thought everyone should be on a level playing field as far as the PFD check goes. Everyone is required to pay their obligations and even if they can't get 100 percent of the PFD, he thought the 45 percent needed to be adjusted. Number 261 MR. VINCE USERA, Assistant Attorney General, suggested deleting language on line 9 stating "both before and after payment is made to the individual," because that language was originally inserted to protect the 45 percent the individual was allowed to claim as exempt. If 100 percent is available for collection, it makes no sense to have that language in there. It would also cause some confusion when compared with language in AS 938.03.0 (b) which provides for a liquid assets provision. Monies from the PFD are not part of the definition of liquid assets for which there is an exemption. This is terribly abstruse material, although not a grave legal problem. He questioned whether that language really served a useful purpose in present law, because there is no definition of "after." CHAIRMAN LEMAN agreed that it made sense to clarify the language and said he couldn't adopt amendments today, but would work on the bill and bring it up in another meeting. He adjourned the meeting at 1:56 p.m.