CSHJR 14(RLS)-EXXON PLAINTIFFS; H.R. 2419, SEC. 12801    3:40:39 PM CHAIR HUGGINS announced CSHJR 14(RLS) to be up for consideration. SENATOR GREEN asked what the net affect the resolution would have. REPRESENTATIVE PAUL SEATON, sponsor of HJR 14, replied that this resolution came from the House Fisheries Committee. H.R. 2419 is a farm and energy bill that allows the over 30,000 plaintiffs in the Exxon lawsuit, if they get a judgment from the Supreme Court, to take this one-time amount and income average over a three-year period just like farmers can. It would also increase the cap for a deposit into a retirement account each year. He explained that U.S. Senators Murkowski and Stevens were able to have this provision included in H.R. 2419, which is now in conference committee. CHAIR HUGGINS asked what the present time line is for the Exxon Valdez settlement. REPRESENTATIVE SEATON replied the decision from the Supreme Court should happen some time in June. SENATOR GREEN asked again what the net effect this measure would have and if this income would have to be declared in the year of the claim. REPRESENTATIVE SEATON replied it would be totally dependent on the individual circumstances because the settlements are based on a claimant's participation in a fishery. It would allow fishermen to put a larger amount into their IRA or SEP account. Right now $25,000 is the maximum amount per year that can go into a SEP IRA and this would raise that to $100,000. The justification is that people didn't have this money over a long period of time when they could have invested it for their retirement. SENATOR GREEN asked if any other groups had been allowed this type of provision. REPRESENTATIVE SEATON answered that farmers can now income average over a three-year period because they have highly variable income. CHAIR HUGGINS asked if the Exxon claimants would be able to income average from 1994 through 2008. 3:47:19 PM REPRESENTATIVE SEATON answered he understood it that way. 3:47:53 PM SENATOR STEVENS said fishermen have variable incomes from year to year and asked if an average $75,000 award could be spread out over a three-year period - $25,000 per year. REPRESENTATIVE SEATON replied that's the way it works for farmers. This measure applies to the time of the original award in 1994 through the present; so that $75,000 would be spread out over more years. SENATOR STEVENS said that concept is justified because fishermen have been so mistreated through this whole thing. "It's taken years and years to be resolved." SENATOR WIELECHOWSKI asked, for instance, if someone gets $1 million, instead of paying the maximum tax rate of $370,000 this year at a 37.5 percent rate, they can spread it out over 13 years (back to 1994) and pay a much lower tax rate and also be able to put $4,000/year into a Roth IRA. REPRESENTATIVE SEATON answered that was his understanding. SENATOR STEDMAN asked Representative Seaton if he is a beneficiary of this potential settlement and if so, how much. REPRESENTATIVE SEATON answered that he had tenders that participated in the cleanup and lost income, but he didn't know how much that would be because tenders' distributions haven't been calculated yet. SENATOR WAGONER said the methodology is there, but the figure isn't. SENATOR STEDMAN asked if the beneficiaries have been defined yet. REPRESENTATIVE SEATON answered 33,000 class action folks are listed. CHAIR HUGGINS asked if former legislators might be candidates on the list. SENATOR WAGONER replied that he was one. REPRESENTATIVE SEATON added that former Speaker Sam Cotton was also on the list. CHAIR HUGGINS went back to page 1, lines 14 and 15, about the increase in deductions and asked if that was referring to Roth IRAs. REPRESENTATIVE SEATON replied yes. 3:54:12 PM PAUL SHADURA, representing himself from Soldotna, said he is one of the claimants and this has been going on a long time and he supported HJR 14. Our delegation has been working towards finalization and it's important to realize that this bill allows those claimants who are residents of the state to maintain some kind of retirement prospects here. Increasing the amount that could be put into an IRA would take the burden off the state as the claimants' age and require more assistance. The bill has a lot of good things that will help keep the incomes within the state. Otherwise, most of this money would go directly to the federal government. JERRY MCCUNE, Cordova District Fishermen United, said his organization has a large percentage of the claimants. He explained that this would not get fishermen out of paying taxes; because once the money is withdrawn from an IRA, taxes have to be paid. It just increases the amount (to $100,000) that fishermen can put into an IRA because for many years after the spill they couldn't fish and the price of fish was down because of the spill when they could. So they couldn't contribute to their retirements for all those years. The income averaging would drop their tax obligation from 35 percent to around 28 percent. 3:56:59 PM SENATOR MCGUIRE said only certain kinds of settlements are taxable. Compensatory medical settlements are not taxable, for instance. She asked if they are trying to narrow down the punitive damages. REPRESENTATIVE SEATON answered yes and the settlement in the Supreme Court is for punitive damages. He was hoping this would encourage people to put more money into a retirement account because "if a settlement comes through, there's going to be a lot of money on the table quickly and people often make mistakes and don't invest wisely...." SENATOR MCGUIRE said the resolution is phrased confusingly; it's not referring to compensatory damages and really doesn't replace lost income. Punitive damages designed to deter, she explained, and the policy behind that is if someone is being compensated for a loss to make him whole, you wouldn't tax him; but punitive damages are taxed. She thought the language should be clearer. SENATOR GREEN agreed with her and pointed out that language on line 9 says "suffered economically." As a result of that, she assumed it was compensatory damages and not taxable. She asked if claimants would actually be able to recalculate their taxes over the last 14 years. REPRESENTATIVE SEATON replied that's what he understands H.R. 2419 says. MR. MCCUNE said his update on the bill's negotiations indicates that it's not 14 years now, but he thought it was $100,000 for the IRA and a five-year income averaging. CHAIR HUGGINS said this resolution is not binding; it's just showing support. He asked if people who were commercial fishermen when this happened were included in this resolution. REPRESENTATIVE SEATON replied that was his understanding. SENATOR WAGONER said some people elected not to be in the class action lawsuit and worked out their own settlements. MR. MCCUNE said at least one plaintiff lives in all of the states including HI. 4:03:42 PM CHAIR HUGGINS asked if these claimants had already been compensated in some shape or form from this occurrence. MR. MCCUNE replied that there was a quick settlement among fishermen and other affected people from Alyeska. Exxon paid for the hearing right off the bat because Prince William Sound had no season; the compensatory damages came out and haven't all been awarded yet because some of that money is held back. Plus mitigation happened. For any settlement, fishermen can pretty well figure half the money will go to attorneys and the other half to the IRS - except this lets them put it into an IRA. There were compensatory damages, but each claimant had to pay his share of mitigation whether they were fishing or working. CHAIR HUGGINS asked how much of an award a "lucky person" would have gotten up front. REPRESENTATIVE SEATON replied that he wouldn't classify any of the claimants as lucky. The compensatory numbers were based on a person's fishing history. He didn't know of anyone who received more than they would have fishing minus their expenses which had to be taken out. The compensatory damages were calculated on a person's direct loss. CHAIR HUGGINS asked how much money a good fisherman would receive. MR. MCCUNE replied that's hard to answer because it depends on where you fished. In Prince William Sound some of those guys probably received $20,000 to $70,000 minus the mitigation. REPRESENTATIVE SEATON replied a seine boat captain and permit owner would have received much more. 4:07:57 PM SENATOR WAGONER said every fishery is different. Payments were made to some fishermen early because they couldn't fish and those ranged from $20,000 to $100,000 based on an individual's previous five years of production. In addition, the Native corporations agreed to a settlement, but then gave up those monies to join the punitive damage lawsuit. It's very complex. SENATOR STEVENS moved to report CSHJR 14(RLS) from committee with individual recommendations and attached fiscal note(s). SENATOR WAGONER objected to state that he is a party to the lawsuit; then he removed his objection. There being no further objections CSHJR 14(RLS) moved from committee.