HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE March 7, 2000 8:08 a.m. MEMBERS PRESENT Representative John Harris, Co-Chairman Representative Carl Morgan, Co-Chairman Representative Andrew Halcro Representative Fred Dyson Representative Reggie Joule Representative Albert Kookesh MEMBERS ABSENT Representative Lisa Murkowski COMMITTEE CALENDAR HOUSE BILL NO. 425 "An Act relating to misrepresentation and false claims made against the state or a municipality; and providing for an effective date." - MOVED CSHB 425(CRA) OUT OF COMMITTEE PREVIOUS ACTION BILL: HB 425 SHORT TITLE: FALSE CLAIMS AGAINST STATE OR MUNI. Jrn-Date Jrn-Page Action 2/28/00 2334 (H) READ THE FIRST TIME - REFERRALS 2/28/00 2335 (H) CRA, JUD, FIN 2/28/00 2335 (H) INDETERMINATE FISCAL NOTE (LAW) 2/28/00 2335 (H) ZERO FISCAL NOTE (ADM/ALL DEPTS) 2/28/00 2335 (H) GOVERNOR'S TRANSMITTAL LETTER 3/07/00 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER JIM BALDWIN, Assistant Attorney General Governmental Affairs Section Civil Division Department of Law PO Box 110300 Juneau, Alaska 99811-0300 POSITION STATEMENT: Reviewed HB 425. ACTION NARRATIVE TAPE 00-16, SIDE A Number 0001 CO-CHAIRMAN called the House Community and Regional Affairs Standing Committee meeting to order at 8:08 a.m. Members present at the call to order were Representatives Harris, Morgan, Halcro, Dyson, Joule and Kookesh. Representative Murkowski was not in attendance. HB 425-FALSE CLAIMS AGAINST STATE OR MUNI. CO-CHAIRMAN MORGAN announced that the first order of business would be HOUSE BILL NO. 425, "An Act relating to misrepresentation and false claims made against the state or a municipality; and providing for an effective date." Number 0082 JIM BALDWIN, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law, informed the committee that "our office" [the Department of Law] requested introduction of this legislation. This legislation would place in the state's law a false claims statute, which is intended to provide remedies to state and municipal governments against persons who would file false claims for property or money from the state treasury or the treasury of local municipalities. This statute is modeled after California's false claim statute, which is modeled after the federal false claim statute. He noted that nearly all jurisdictions have similar types of legislation as does Alaska. Alaska has something similar to it in existing law, which has been in effect since 1949. What Alaska has is basically skeletal in nature and does not carry the penalties that make this type of statute useful in collecting amounts that may have been falsely claimed against the state or municipal governments. MR. BALDWIN pointed out that the most effective element of the bill is that it would impose treble damages on a person who submits a false claim against the state or municipal government. The method of how to establish the claims against a person is clear. Furthermore, the bill provides incentives for a person who may inadvertently make a false claim and discover the mistake after the fact. If the person acts within a certain amount of time, the amount of recovery against them could be greatly reduced if the person cooperates with the proceedings against the person(s) who is really at fault. MR. BALDWIN informed the committee of how [the department] determined the need for this legislation and he noted that the bill packet should include a letter outlining this. The department was contacted by the City of San Francisco, which was engaged in major litigation with a major bank that had acted as a trustee for bond debt service payments that were made by the City of San Francisco and hundreds of other municipalities in California. It was alleged in this case that over the years when bond holders had failed to collect their bond payments, the bank had held on to those monies which were unclaimed funds. The bank had never filed a report with the state and thus had basically filed false reports as to the fact that the bank was not holding unclaimed funds due to the state. Therefore, the bank was sued by the State of California and various of its municipalities. That case resulted in an approximately $200 million settlement that the bank paid to the state and the municipalities. He said that in working with the attorneys that represented the city [San Francisco] and the state [California], it was determined that the threat of the treble damages under the false claim statute brought the bank to the table for a settlement. Mr. Baldwin expressed the need to have similar types of remedies available in Alaska. MR. BALDWIN informed the committee that [the department] has an ongoing case with the same bank. He explained that Alaska and its municipal governments had over $23 billion in debt service placed with this bank over the course of 30-40 years. Based on what is known in regard to how much of that money the bank acceded to the state government as unclaimed funds, it appears that the bank has not returned what would be considered a reasonable amount of money based on the knowledge of bond holder activity/behavior. It appears as if this bank has paid Alaska much less than what has been established as the usual and customary rate. Mr. Baldwin pointed out that when HB 425 was first drafted, [the department] felt that it would be in litigation with the bank much sooner than it now appears. Therefore, the effective date in the original bill was established based on the premise that HB 425 would not have much effect on this litigation. However, it appears that this litigation is now being set back as mediation this winter became protracted. Now it appears that mediation will not occur until late this summer. Therefore, Mr. Baldwin requested that the committee consider moving the effective date up to July 1, 2000 and then HB 425 would become a factor in negotiations with the bank. He pointed out that the effective date change would require the specified date in the bill to be changed to July 1, 2001 on page 4, line 18, and page 5, line 16. Number 0657 REPRESENTATIVE DYSON moved that the committee adopt the following amendment: Page 4, line 18, Delete "January 1, 2001" Insert "July 1, 2000" Page 5, line 16 Delete "January 1, 2001" Insert "July 1, 2000" There being no objection, it was so ordered and the amendment was adopted. REPRESENTATIVE DYSON commented that HB 425 is barely in the purview of this committee. Unless there are some cities or communities that would adversely be affected, HB 425 should be waived from this committee or forwarded on to the next committee of referral, the House Judiciary Committee. REPRESENTATIVE JOULE inquired as to the definition of "person" on page 1, line 5. He noted agreement with Representative Dyson that this legislation is probably best dealt with in the House Judiciary Committee. MR. BALDWIN informed the committee that Title 1 has a definition of "person" which includes a corporation or a partnership. Number 0825 REPRESENTATIVE KOOKESH inquired as to the definition of a "municipality"; what statute would that be? MR. BALDWIN specified that a municipality would be a general law or home rule municipality. That definition can be found in Title 29. REPRESENTATIVE DYSON asked why [HB 425] would not allow any second class city or [disorganized area] under Title 29 to do this. MR. BALDWIN directed the committee to AS 37.10.090(a) which in part says, "A person is civilly liable to the state or a municipality". He explained that those specified entities would have the remedy available in HB 425. Further on in the bill, it provides that if there is an investigation and there is a determination that municipal property is involved, the state is required to provide the city with notice that it has property involved. He specified that it would [apply to] a general law or home rule municipality. In the case of a second class city that does not have a regular city attorney, the state would proceed on their behalf and amounts recovered attributable to them would be paid to that second class city. This is the process followed now. For a larger city such as Anchorage, Fairbanks or Juneau with a city attorney, the investigation could be tendered over to the city to take over. REPRESENTATIVE DYSON asked if this false claims [statute] would apply to other entities organized under state law besides municipalities. He asked if this would apply to a borough or a second class city. MR. BALDWIN stated that the false claims statute would only apply to municipalities at this point. He specified that this would apply to a borough or a second class city. REPRESENTATIVE DYSON surmised then that this false claims statute would apply to any civil government that is recognized in Title 29. MR. BALDWIN agreed and specified that it would apply to any municipal corporation recognized in Title 29, which would include a city and a borough. CO-CHAIRMAN MORGAN asked if there is anyone who would like to testify. There being no one, he closed the public testimony. Number 1077 REPRESENTATIVE DYSON moved to report HB 425 as amended out of committee with individual recommendations and the zero fiscal note. There being no objection, it was so ordered and CSHB 425(CRA) was reported from committee. ADJOURNMENT There being no further business before the committee, the House Community and Regional Affairs Standing Committee meeting was adjourned at 8:24 a.m.