SB 23-APPROP:SUPP. PAYMENTS OF PRIOR YEARS' PFD  3:36:24 PM CHAIR SHOWER announced the consideration of SENATE BILL NO. 23 "An Act making special appropriations from the earnings reserve account for the payment of permanent fund dividends; and providing for an effective date." He recapped that the bill was introduced at the request of the governor; it was last heard on 3/7/19; and public testimony was heard and closed. He said written testimony will be accepted until 6:00 pm this evening. CHAIR SHOWER solicited a motion to adopt Amendment 1. 3:36:47 PM SENATOR COGHILL moved to adopt Amendment 1, work order 31- GS1014\A.7 dated 3/9/19. AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR SHOWER TO: SB 23 Page 1, line 13: Delete "$1,328" Insert "$1,388" 3:37:06 PM SENATOR KAWASAKI objected for discussion purposes. 3:37:23 PM At ease 3:37:49 PM CHAIR SHOWER reconvened the meeting. He asked Mr. Tangeman to speak to Amendment 1, which the Department of Revenue (DOR) requested. 3:38:10 PM BRUCE TANGEMAN, Commissioner Designee, Department of Revenue, Anchorage, explained that Amendment 1 is technical to correct a miscalculation on the amount of the 2018 dividend. The amount $1,328 is replaced with $1,388. SENATOR KAWASAKI noted that the legislature puts placeholders in the budget for the PFD because the exact amount of the dividend is unknown until the applicants have been certified. He asked what factors will cause this payment to change. COMMISSIONER DESIGNEE TANGEMAN explained that DOR estimated the number of applicants that will be eligible for the payment and they acknowledge that may change. However, the dollar amount of the payment will remain the same. 3:39:47 PM SENATOR KAWASAKI removed his objection. CHAIR SHOWER asked if there was any further discussion of Amendment 1. SENATOR REINBOLD asked how it happened that the number was miscalculated. COMMISSIONER DESIGNEE TANGEMAN replied it was nothing more than a simple miscalculation in the spreadsheet. SENATOR REINBOLD asked what the total unstructured draw would be, should the bill pass with the amendment. COMMISSIONER DESIGNEE TANGEMAN replied it would be between $4 million and $5 million, depending on the number of people who receive the dividend. CHAIR SHOWER found no further discussion. 3:40:45 PM At ease 3:41:33 PM CHAIR SHOWER reconvened the meeting and asked Mr. Tangeman if he had something to add. COMMISSIONER DESIGNEE TANGEMAN clarified that DOR estimated that about 530,000 people would qualify for the repayment. That number multiplied by $1,388 is in the $40 million range, not $4 million to $5 million. 3:42:04 PM CHAIR SHOWER found no further discussion or objection and Amendment 1 was adopted. 3:42:21 PM SENATOR KAWASAKI moved Amendment 2, [work order 31-GS1014\A.4 dated 3/8/19]. AMENDMENT 2 OFFERED IN THE SENATE BY SENATOR KAWASAKI TO: SB 23 Page 1, line 5, following "of": Insert "a supplemental permanent fund dividend of" Page 1, line 6: Delete "and who are eligible to receive a 2019 permanent fund dividend," Page 1, line 9, following "of": Insert "a supplemental permanent fund dividend of" Page 1, lines 10 - 11: Delete "and who are eligible to receive a 2020 permanent fund dividend," Page 1, line 13, following "of": Insert "a supplemental permanent fund dividend of" Page 1, line 14, through page 2, line 1: Delete "and who are eligible to receive a 2021 permanent fund dividend," Page 2, following line 18: Insert new subsections to read: "(h) An amount equal to $1,061 for each individual who was ineligible to receive a 2016 permanent fund dividend under AS 43.23.005(d) is appropriated from the earnings reserve account (AS 37.13.145) to the restorative justice account (AS 43.23.048). (i) An amount equal to $1,289 for each individual who was ineligible to receive a 2017 permanent fund dividend under AS 43.23.005(d) is appropriated from the earnings reserve account (AS 37.13.145) to the restorative justice account (AS 43.23.048). (j) An amount equal to $1,328 for each individual who was ineligible to receive a 2018 permanent fund dividend under AS 43.23.005(d) is appropriated from the earnings reserve account (AS 37.13.145) to the restorative justice account (AS 43.23.048)." Page 2, line 21: Delete "include certain payments" Insert "make certain payments to individuals who were eligible" Page 2, lines 22 - 23: Delete "to be made to eligible individuals with 2019, 2020, and 2021 permanent fund dividend payments" SENATOR COGHILL objected for discussion purposes. SENATOR KAWASAKI said he distributed a memo from Legislative Legal Services that discusses the legality and constitutionality of SB 23. He noted that the packets also contain a memo from the Civil Division of the Department of Law that discusses the reasons they view the bill constitutional. According to legislative legal, there are two solutions that would cure the suspected infirmity. One solution is to issue the supplemental payment to all individuals that received a dividend in 2016, 2017, or 2018. The alternative is to issue the supplemental payment to all individuals that receive the dividend in 2019, 2020, or 2021, regardless of their residency in 2019, 2020, or 2021. He noted that both SB 23 and SB 24 would need to be changed. He acknowledged that the two memos are in conflict and offered his view that as currently written, the bill won't pass constitutional muster. Should the bill become law, his worry is that just one person could object to the rational and jeopardize future PFD payouts. He asked to hear from the commissioner. 3:44:55 PM COMMISSIONER DESIGNEE TANGEMAN stated that the Alaska Department of Law believes the bill is constitutional. He acknowledged that Legislative Legal Services came to a different conclusion. He opined that Amendment 2 strays from the governor's intent and greatly over complicates the bill. The larger concerns include that DOR would be tasked with locating all the individuals that received the dividend in 2016 but no longer live in Alaska. "Are we going to then have to track these people down to every corner of the globe in order for them to get their dividend?" He pointed out that the PFD application asks the applicant to certify that on the date of application they are and intend to remain an Alaska resident indefinitely. He acknowledged that is intent language and explained that the bill uses the approach it does because the individual signs that they are still an Alaska resident. This is a less complicated approach that is more streamlined and easier to implement, he said. He added that DOR estimates that over a three-year span about 100,000 individuals that received a dividend no longer reside in Alaska, have died, or no longer qualify for some reason. Should the amendment be adopted, it would increase the cost of the back payments between $150 million and $160 million. He reiterated that implementation would be onerous for the department. 3:47:41 PM SENATOR KAWASAKI questioned why DOR wouldn't use the 2016 list of applicants, that includes their addresses, to process the repayment in 2019. COMMISSIONER DESIGNEE TANGEMAN replied it's not as easy as that because many of the 600,000 plus applicants may have changed bank accounts, moved within the state, moved out of Alaska, or died. It would be an onerous undertaking. 3:49:10 PM CHAIR SHOWER commented that the committee can argue about complications but there's not much choice if it's a constitutional issue. He asked Mr. Milks to provide the Department of Law's view of the bill. 3:49:45 PM WILLIAM MILKS, Assistant Attorney General, Civil Division, Department of Law, stated that at the committee's request, DOL submitted a memo articulating the critical facts that led the department to conclude that a court would determine SB 23 constitutional. He said he respects the opinion of Legislative Legal Services on this matter and understands that the analysis is based on general case law about general residency requirements. Nevertheless, it is the Department of Law's opinion that the legislature has the means to accomplish the limited objective of SB 23. That is to provide PFD back payments for a specific group of Alaska residents. He highlighted that the Permanent Fund Dividend Program is uniquely different than any other benefit program that states have enacted, that SB 23 is not a long-term change to the PFD program, and that the bill is addressed to specific facts. MR. MILKS explained that the rational basis review is the most common review of any legislature's enactments. The U.S. Supreme Court has said that for this analysis it looks at whether the legislature had any reasonably conceivable state of facts that could provide a rational basis for the classification. In this case the classification is between two groups of Alaska residents; those who qualified for a PFD in the past but did not receive the statutory payment and those who didn't qualify for that past payment. The Department of Law believes there is a rational basis to address that set of facts. Furthermore, the Alaska Supreme Court has talked about the concern that the PFD program is susceptible to individuals establishing minimal and temporary ties to Alaska to take advantage of the state's benefit program because the benefit is portable. That, too, leads DOL to the rational basis review when the legislature tries to impose safeguards. The legislature has the ability to address the issue, he said. 3:54:04 PM SENATOR KAWASAKI said he very recently received the Department of Law's memo, but it doesn't seem to address the issue of somebody who is a resident now versus somebody who had been entitled to the PFD but hadn't gotten it. MR. MILKS replied the memo addresses this bill that provides for two residency requirements. Somebody who is eligible to receive the dividend this year who received the reduced PFD payment in 2016 would be eligible to receive the back payment. The Department of Law believes that is a rational approach the legislature could take. It is not similar to legislation that's been challenged and reviewed by the U.S. Supreme Court for having an excessive residency requirement to receive a particular benefit such as welfare. SENATOR KAWASAKI asked if he believes this could be challenged by an Alaska resident who qualified and received the 2016 dividend but isn't eligible to apply in 2019. MR. MILKS replied an individual certainly could bring a legal challenge, but he believes it would be unsuccessful. 3:58:19 PM CHAIR SHOWER asked what would happen to the payback if the bill passed and somebody filed a legal challenge. MR. MILKS responded that a legal challenge would probably be an effort to get an injunction to stop the back payment. CHAIR SHOWER commented that could put the supplemental payment in limbo for some time. MR. MILKS clarified that the judicial branch can review all laws the legislature passes. 3:59:19 PM SENATOR COGHILL asked for help understanding the criteria the court will use to analyze each of the legal opinions. MR. MILKS said the courts generally do not want to second-guess the elected branches of government, but the typical standard is whether there is a set of facts that could rationally support the legislature making the distinction. If a bill passed that made a distinction between residents based on age, race, gender, or sex, it would be reviewed under the highest standard of review, which is strict scrutiny. The court would be looking for compelling governmental reasons to accept the distinction on those criteria. Residency requirements are usually analyzed on a rational basis, but it could go to strict scrutiny, he said. A few years ago the Alaska Supreme Court talked about the right to travel when it upheld residency requirements for the PFD. The court contrasted cases that used strict scrutiny and said even the U.S. Supreme Court recognized that the legislature is given much greater leeway when a state is providing a highly portable benefit. The permanent fund dividend was specifically discussed. Zobel is the only case Alaska has about the PFD program and the U.S. Supreme Court applied rational basis standard review in that case, not strict scrutiny. MR. MILKS summarized that the Department of Law looked at SB 23 as a unique bill that deals with a unique program and they believe the courts will conclude that the legislative branch has the ability to address these unique set of facts. 4:05:23 PM SENATOR COGHILL said he asked because he wanted to hear the Department of Law talk about the tests. 4:06:50 PM SENATOR MICCICHE said he approaches this from both the practical and legal perspectives. Practically, he opposes Amendment 2 because the PFD was designed for Alaska residents and it provides a payment to people who are no longer residents. The original dividend program required longevity and commitment to stay in Alaska. The Zobel case did away with the longevity requirement for the dividend, but applicants must still check the box on their application indicating their intention to remain in Alaska. He said that from the legal perspective he believes Harris v. Hahn is a fair comparison on the rational basis. At issue in that case were the residency requirements for veterans to qualify for tuition benefits while attending public universities - they either enlisted in Texas or were a resident of Texas at the time of enlistment. Senator Micciche summarized, "The rational basis that found it constitutional was for its residency at enlistment requirement." He said he believes the residency at the time of payment of the dividend to be a fair comparison. "I can't think of a more rational basis for the consideration of the administration and I support their approach." he said. 4:08:50 PM SENATOR KAWASAKI asked what would happen to the PFD payout if somebody challenged the payout and the law was found unconstitutional. MR. MILKS said if the state lost a challenge at the trial court level, it would review the case with the attorney general and decide whether or not to file an appeal. SENATOR KAWASAKI clarified that he was asking what would happen to the PFD payout if all appeals are exhausted and the court agrees with the legislative legal memo and deems the entire law unconstitutional. MR. MILKS said the payout wouldn't be paid if the court ruled it unconstitutional. SENATOR KAWASAKI suggested a different approach to cure the infirmity in the proposed law would be to have people reapply for the 2016 additional payment. 4:12:00 PM COMMISSIONER DESIGNEE TANGEMAN explained that if people apply for the 2016 additional payment though the 2019 dividend it is a simple exercise to marry the two lists. SENATOR KAWASAKI said he didn't intend to push Amendments 2 or 3, but his concern is that if the PFD is a benefit owed to Alaskans, then the addition payments should be paid to all the people who received [the 2016, 2017, and 2018] dividends whether they're still in the state or not. He said people have left the state for a lot of reasons. There's been a down market economy and someone in a trade union, for example, could be working in Seattle because they couldn't find a job in the state. They would be denied the ability to have the back payment even though the governor and many legislators believe that person should have had the full PFD the whole time. He said that's why he introduced the amendments, but he'll review the legal memos further. 4:14:05 PM SENATOR KAWASAKI withdraw Amendment 2 and did not offer Amendment 3. 4:14:49 PM CHAIR SHOWER said the amended bill is before the committee for discussion. Finding none, he solicited a motion. 4:15:08 PM SENATOR COGHILL moved to report SB 23, work order 31-GS1014\A as amended, from committee with individual recommendations, attached fiscal note(s), and any technical changes necessary to conform Amendment 1. CHAIR SHOWER found no objection and CSSB 23(STA) was reported from the Senate State Affairs Standing Committee.