SB 254 - LEVY ON PERMANENT FUND DIVIDEND CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 1:40 p.m. and announced SB 254 to be up for consideration. MR. MIKE PAULEY, Aide to Senator Leman, explained proposed changes to SB 254, version E, which he said were simply technical. Department of Law thought that existing language might have a potential conflict with the $1,400 liquid assets exemption in Title 9, Chapter 38. Once a Permanent Fund check is actually sent to someone and has been deposited into their checking account and commingled with other funds, it becomes hard to distinguish what is Permanent Fund Dividend money vs. what comes from your pay check, etc. Also, as a practical matter with the private sector such as banks and credit unions who do garnish Permanent Fund Dividend checks, 99.9 percent of the things are done prior to the person receiving the check. So it's kind of a redundant provision of the law. The final issue where there is some ambiguity is in the word, "after" - meaning a check could be garnished after payment is made to the individual. The word "after" is not defined and the issue has been raised that theoretically you could collect 16 years worth of dividend checks going back to 1982 which would amount to an enormous amount of money and there seems to be a general consensus that that wasn't the original intent. The second change on page 2, lines 3 - 5 was made because the Alaska Commission on Post Secondary Education, when they garnish a student loan check, is not technically speaking taking a legal action. They handle it simply as an administrative matter. There's no court order involved or anything like that. This change removes the words, "legal action" which removes the implication that only through legal action could you garnish a Permanent Fund check and that's not the intent of the bill. SENATOR KELLY asked how this works in reality if they don't have to have a legal action to garnish a check. He asked if anyone else, like a landlord or a finance company, had to go through some legal procedure. MR. PAULEY answered yes, and this change does not exclude those procedures. He referred the committee to page 1, line 7 that says, "may be taken through levy, execution, garnishment, attachment, or any other remedy for the collection of debt." Number 108 SENATOR MILLER asked why a person would bother to fill out the Permanent Dividend form, if he knew the whole thing was going to be garnished. MR. PAULEY responded he thought because it's an annual thing, the debtor doesn't necessarily know whether you're going to put in the request for garnishment any more than the person wanting to garnish knows for sure whether you are going to apply. Also, the majority of people who are interested in this legislation have told him they want it to be 100 percent. There is about a 20 percent minority who don't want it. The reason people want it at 100 percent is because that's what State agencies get to collect. SENATOR KELLY asked if any of those people had agreed to lower their interest rates because collecting is a risk of doing business and now they come to the State where the risk of collecting goes to zero if they get 100 percent of a dividend check. We are a free collection agency for these people. Number 172 MR. PAULEY said the issue of interest rates has not come up. SENATOR KELLY asked if there was any compensation to the Division for all their efforts. MS. NANCY JONES, Director Permanent Fund Division, responded that they charge an administrative fee of $2 to levy upon a dividend check. SENATOR KELLY asked if $2 was in statute or regulation. MS. JONES said AS43.23.071 gives them the authority to collect fees. The fee is in regulation. SENATOR MILLER asked why it was only $2. MS. JONES explained that another statute in Chapter 9 limits the amount any State agency can charge. The $2 fee is what has been charged for a long time. Normally they collect $150,000 - $185,000 per year. If a person has six creditors asking for a levy, that's $12 for her division - regardless of their priority. She explained that every attachment has to go through some legal proceedings in order for it to be declared a legal debt with a judgement issued against a person. Her concern is if they take out the legal action wording, a person might think that they don't have to go through any legal process to attach the dividend. It would cause confusion about what actually has to be done. SENATOR LEMAN noted that there are other places in law that describe what actions you have to take to collect on debts. MS. JONES agreed. SENATOR KELLY asked if she expected an increase in garnishments with passage of this law. MS. JONES answered no. Referring to the chart comparing 1996 and 1997 garnishments she explained they are not changing any priorities for being paid first; they are just removing the 55 percent exemption that the other writs and certified services are held against. She noted that the Division lost fees when the IRS made a mistake for one year and didn't attach dividend checks. SENATOR KELLY asked if the summary of voluntary and involuntary attachments shows that they have to attach more Permanent Fund Dividend checks every year. MS. JONES agreed. SENATOR KELLY noted that there were 18,000 claims in 1997 for other writs and certified services. He thought there would be more claims. MS. JONES said she thought that's because the other agencies are coming on line, like the Department of Health and Social Services and traffic fines. She agreed more and more people are in a debt status and they are getting more writs totally. SENATOR KELLY noted that there were 26,000 unpaid claims and asked why. MS. JONES explained if a person is not eligible for a dividend or they ran out of money from paying someone with a higher priority, they are an unpaid claim. SENATOR KELLY asked how many dividend checks were given out in 1997. MS. JONES answered 553,800. SENATOR KELLY said he was trying to figure out what percentage of dividend checks get attached. MS. JONES said somewhere between 17 or 18 percent. Number 345 SENATOR KELLY said he was concerned at 100 percent people would just stop filling out the form and it be counterproductive. Also, if the State is serving as a collection agency for private businesses, he thought there should be a larger collection fee. He asked if the fee came from the individual's portion. MS. JONES answered yes. SENATOR KELLY reiterated that he thought the collection fee should be more. Number 445 SENATOR KELLY asked if there was a statistic for the number of people who are Alaska residents who didn't fill out dividends every year. MS. JONES responded that there was no accurate measurement because they have no way of knowing if a person doesn't file. She said that Child Support has concerns about people not filing, but their collections are pretty high. She asked if he wanted to change the fee across the board because right now they charge every agency and the private individuals. SENATOR KELLY thought that maybe the fee should be a percentage of the check. SENATOR MACKIE said he was concerned that this change would hurt collections for the Division of Child Support. SENATOR KELLY said he had a conceptual amendment to change 100 percent to 70 percent which would leave a person enough incentive to fill out an application and then add a five percent garnishment fee. He did not want to overwhelm private people with a huge collection fee, but he didn't think it was unreasonable to raise the collection fee for people who would at best get 45 percent under existing law. SENATOR MACKIE said he thought they should charge the IRS five percent also. SENATOR KELLY agreed, but he didn't see the advantage in raising the fee for Child Support unless it would make the bookkeeping easier. Number 500 MS. JONES said that right now the fee is born by the applicant and asked if they want to take the fee out of the 30 percent going to the applicant or should it be taken out of the 70 percent that goes to the person filing the claim. SENATOR KELLY said the fee should come off the top and everything else is prorated. MR. VINCENT USERA, Assistant Attorney General, said the reason Child Support collections are going up is because more and more in the divorce process there is a contractual obligation to apply for the PFD. He thought more and more providers of services are going to put those into their contractual agreements in the future. Although the worry about people not applying is valid, more and more when someone takes out a loan, for instance, they are going to have to sign an agreement that they have to apply for the PFD whether or not they would get it. Number 535 SENATOR KELLY moved to adopt the CS to SB 254. There were no objections and it was so ordered. SENATOR MACKIE said he preferred to make it the same percentage across the board, but not reduce it for child support. SENATOR KELLY moved the conceptual amendment of 70 percent for the private debtors and a five percent garnishment fee on everything. CHAIRMAN LEMAN said he understood that to mean that five percent was the maximum that could be garnished no matter how many debtors there were. SENATOR KELLY said that was a great deal better than $2 per claim. SENATOR MACKIE asked if this applied to Child Support. SENATOR KELLY replied that any application that has a garnishment against it will take five percent of the top. CHAIRMAN LEMAN called an at-ease for five minutes. He then asked for a roll call vote. SENATORS MILLER, MACKIE and KELLY voted yes; CHAIRMAN LEMAN voted no and the motion carried. TAPE 98-4, SIDE B CHAIRMAN LEMAN said they would set CSSB 254am aside until the committee could see the final version.